World Encyclopedia Of Entrepreneurship [2 ed.] 1839104139, 9781839104138, 1839104147, 9781839104145

Table of contents :
Front Matter
Copyright
Contents
List of contributors
Foreword
Foreword
Preface
1 Chinese immigrant entrepreneurs
2 Compensatory entrepreneurship
3 Coopetition as an entrepreneurial strategy: focus on the wine sector
4 Corporate entrepreneurship
5 Corporate entrepreneurship: new insights
6 Corporate venturing
7 Cross-disciplinary entrepreneurship education
8 Defining the entrepreneur
9 Digital entrepreneurship
10 Digital platforms
11 Disabled entrepreneurs
12 Early foreign market entries of new technology-based firms
13 Economics and entrepreneurship
14 Employee start-ups
15 Entrepreneurial exporters
16 Entrepreneurial hubris
17 Entrepreneurial learning
18 Entrepreneurial networks
19 Entrepreneurial sense-making, sense-breaking and sense-demanding
20 Entrepreneurs in the fashion industry
21 Entrepreneurs versus entrepreneurial
22 Entrepreneurship and blockchains
23 Entrepreneurship as a competence
24 Entrepreneurship in biotechnology
25 Entrepreneurship in the ethnic ownership economy
26 Entrepreneurship in the printing sector
27 Entrepreneurship policy
28 Environment for entrepreneurship
29 Ethics and entrepreneurship
30 Ethnic minority entrepreneurship
31 Evolution of entrepreneurship and its role in stewardship-based economics
32 Exit
33 Export support services for SME internationalization
34 Family business
35 Financial issues of entrepreneurship
36 George Eastman: pioneer of industrial R&D
37 Global entrepreneurship and transnationalism
38 Growth
39 Historical context of entrepreneurship
40 Howard Hughes
41 The Hudson’s Bay Company
42 Humane entrepreneurship
43 Incubators and support systems for business creation: the French model
44 Incubators: how they adapt to a changing world
45 Indigenous entrepreneurship as a function of cultural perceptions of opportunity
46 Innovation systems and entrepreneurship research
47 Innovative behavior
48 Intermediated internationalization theory
49 International entrepreneurship
50 Internationalization support ecosystems
51 Involuntary entrepreneurship
52 Islamic entrepreneurship
53 Learning business planning
54 Mature-age entrepreneurship
55 Mental health in entrepreneurship
56 Open innovation and entrepreneurship
57 Opportunities approach to international entrepreneurship
58 Organizational processes as foundations of dynamic capabilities
59 Pastoralism as a form of entrepreneurship among Negev Bedouin
60 Poverty and entrepreneurship in developed economies
61 Religion as an explanatory variable for entrepreneurship
62 Research methodology in entrepreneurship
63 Rural entrepreneurship
64 Schumpeter, creative destruction and entrepreneurship
65 Science parks
66 Small island entrepreneurship
67 Social entrepreneurship
68 Sports and entrepreneurship
69 Sustainable entrepreneurship
70 Teams
71 Transnational entrepreneurship
72 Trust and entrepreneurship
73 Uncertainty in innovation
74 University spin-offs
75 Venture capital
76 Walt Disney
Index

Citation preview

WORLD ENCYCLOPEDIA OF ENTREPRENEURSHIP

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Dedicated to Jake Theodore Dana

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World Encyclopedia of Entrepreneurship Second Edition

Edited by

Léo-Paul Dana Professor, Dalhousie University, Canada and Montpellier Business School, France

Cheltenham, UK • Northampton, MA, USA

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© Léo-Paul Dana 2021 All rights reserved. No part of this publication may be reproduced, stored in a retrieval system or transmitted in any form or by any means, electronic, mechanical or photocopying, recording, or otherwise without the prior permission of the publisher. Published by Edward Elgar Publishing Limited The Lypiatts 15 Lansdown Road Cheltenham Glos GL50 2JA UK Edward Elgar Publishing, Inc. William Pratt House 9 Dewey Court Northampton Massachusetts 01060 USA

A catalogue record for this book is available from the British Library Library of Congress Control Number: 2020950876 This book is available electronically in the Business subject collection http://dx.doi.org/10.4337/9781839104145

ISBN 978 1 83910 413 8 (cased) ISBN 978 1 83910 414 5 (eBook)

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Typeset by Servis Filmsetting Ltd, Stockport, Cheshire

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Contents xi xvii xix xxiii

List of contributors Foreword by A. Roy Thurik Foreword by Hans Landström Preface 1

Chinese immigrant entrepreneurs Tenghao Zhang, Pi-Shen Seet, Janice Redmond, Jalleh Sharafizad and Wee-Liang Tan

1

2

Compensatory entrepreneurship Benson Honig

22

3

Coopetition as an entrepreneurial strategy: focus on the wine sector James M. Crick and David Crick

26

4

Corporate entrepreneurship Donald F. Kuratko, Michael H. Morris and Jeffrey G. Covin

40

5

Corporate entrepreneurship: new insights Olga Belousova, Aard Groen and Norris Krueger

49

6

Corporate venturing Garima Jha and Robert D. Hisrich

57

7

Cross-disciplinary entrepreneurship education Dianne H.B. Welsh

69

8

Defining the entrepreneur Louis Jacques Filion

72

9

Digital entrepreneurship Kerstin Wagner and Oliver Som

84

10

Digital platforms Donato Cutolo and Jan Vang

93

11

Disabled entrepreneurs Wilson Ng

105

12

Early foreign market entries of new technology-based firms Regis Coeurderoy and Gordon Murray

112

13

Economics and entrepreneurship William J. Baumol

118

14

Employee start-ups Andreas Koch

127 v

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15

Entrepreneurial exporters Martin Hannibal and Tage Koed Madsen

130

16

Entrepreneurial hubris Vita Akstinaite and Eugene Sadler-Smith

139

17

Entrepreneurial learning Jennifer R. Carter, Claire Leitch and Valerie Stead

145

18

Entrepreneurial networks Howard E. Aldrich, Martin Ruef and Steven Lippmann

151

19

Entrepreneurial sense-making, sense-breaking and sense-demanding Gabi A. Kaffka and Norris Krueger

160

20

Entrepreneurs in the fashion industry Michelle Brandstrup

165

21

Entrepreneurs versus entrepreneurial Karen Williams-Middleton, Martin Lackéus and Mats Lundqvist

177

22

Entrepreneurship and blockchains Galia Kondova

184

23

Entrepreneurship as a competence Margherita Bacigalupo

186

24

Entrepreneurship in biotechnology Călin Gurău

190

25

Entrepreneurship in the ethnic ownership economy Ivan H. Light

195

26

Entrepreneurship in the printing sector Naomi J. Dana

205

27

Entrepreneurship policy David B. Audretsch

213

28

Environment for entrepreneurship Jean-Jacques Obrecht

224

29

Ethics and entrepreneurship Alan E. Singer

242

30

Ethnic minority entrepreneurship Léo-Paul Dana and Michael H. Morris

251

31

Evolution of entrepreneurship and its role in stewardship-based economics Raymond W.Y. Kao, Rowland R. Kao and Kenneth R. Kao

260

32

Exit Karl Wennberg

274

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Contents vii 33

Export support services for SME internationalization Nathalie Belhoste, Rachel Bocquet and Véronique Favre-Bonté

282

34

Family business Frederik J. Riar and Franz W. Kellermanns

289

35

Financial issues of entrepreneurship Jean-Michel Sahut and Eric Braune

295

36

George Eastman: pioneer of industrial R&D Léo-Paul Dana

305

37

Global entrepreneurship and transnationalism Ivan H. Light

310

38

Growth James Bort, Wei Yu and Johan Wiklund

323

39

Historical context of entrepreneurship Mark Casson

335

40

Howard Hughes Teresa E. Dana

351

41

The Hudson’s Bay Company Lynn Ferguson

358

42

Humane entrepreneurship Roberto Parente

367

43

Incubators and support systems for business creation: the French model Luc Duquenne

376

44

Incubators: how they adapt to a changing world Amandine Maus and Sylvie Sammut

392

45

Indigenous entrepreneurship as a function of cultural perceptions of opportunity Léo-Paul Dana and Robert Brent Anderson

46

Innovation systems and entrepreneurship research Jan Vang, Heidi Wiig and Léo-Paul Dana

411

47

Innovative behavior Yang Song

426

48

Intermediated internationalization theory Zoltan J. Acs and Siri Terjesen

430

49

International entrepreneurship Benjamin M. Oviatt, Vladislav R. Maksimov and Patricia P. McDougall

437

50

Internationalization support ecosystems Alexis Catanzaro and Karim Messeghem

443

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51

Involuntary entrepreneurship Teemu Kautonen, Simon Down, Friederike Welter, Kai Althoff, Jenni Palmroos, Susanne Kolb and Pekka Vainio

452

52

Islamic entrepreneurship Veland Ramadani

457

53

Learning business planning Paula Kyrö and M. Niemi

471

54

Mature-age entrepreneurship Paull C. Weber and Michael T. Schaper

473

55

Mental health in entrepreneurship Isabella Hatak

477

56

Open innovation and entrepreneurship Anja Leckel

483

57

Opportunities approach to international entrepreneurship Joe Schembri and Pavlos Dimitratos

492

58

Organizational processes as foundations of dynamic capabilities Shaker A. Zahra

511

59

Pastoralism as a form of entrepreneurship among Negev Bedouin A. Allan Degen

514

60

Poverty and entrepreneurship in developed economies Michael H. Morris

523

61

Religion as an explanatory variable for entrepreneurship Léo-Paul Dana

535

62

Research methodology in entrepreneurship Edward Groenland

553

63

Rural entrepreneurship Gerard McElwee and Andrew Atherton

563

64

Schumpeter, creative destruction and entrepreneurship Dieter Bögenhold

571

65

Science parks Paul Westhead

582

66

Small island entrepreneurship Godfrey Baldacchino

590

67

Social entrepreneurship Sarah C. Carraher, Shawn M. Carraher and Dianne H.B. Welsh

597

68

Sports and entrepreneurship Ben Hattink and Jennifer Wichers

599

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Contents

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69

Sustainable entrepreneurship Steffen Farny and Julia Binder

605

70

Teams Leon Schjoedt, Sascha Kraus and Cyrine Ben-Hafaïedh

612

71

Transnational entrepreneurship Israel Drori, Benson Honig and Mike Wright

619

72

Trust and entrepreneurship Friederike Welter

623

73

Uncertainty in innovation Raphael H Cohen

629

74

University spin-offs Liudvika Leišytė

637

75

Venture capital Jeffrey M. Pollack and Thomas H. Hawver

642

76

Walt Disney Léo-Paul Dana

645

Index

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Contributors Zoltan J. Acs, George Mason University, USA Vita Akstinaite, Murdoch University, Australia Howard E. Aldrich, University of North Carolina, USA Kai Althoff, formerly at University of Siegen, Germany Robert Brent Anderson, University of Regina, Canada Andrew Atherton, University of Lincoln, UK David B. Audretsch, Indiana University, USA Margherita Bacigalupo, European Commission, Joint Research Centre, Spain Godfrey Baldacchino, University of Malta, Malta William J. Baumol, New York University and Princeton University, USA (deceased) Nathalie Belhoste, Grenoble Ecole de Management, France Olga Belousova, University of Groningen, The Netherlands Cyrine Ben-Hafaïedh, IESEG School of Management, France Julia Binder, École Polytechnique Fédérale de Lausanne, Switzerland Rachel Bocquet, Université Savoie Mont Blanc, France Dieter Bögenhold, Alpen-Adria University Klagenfurt, Austria James Bort, Syracuse University, USA Michelle Brandstrup, Design School Kolding, Denmark Eric Braune, INSEEC-U SBE Lyon, France Sarah C. Carraher, University of South Alabama, USA Shawn M. Carraher, University of Texas at Dallas, USA Jennifer R. Carter, Lancaster University, UK Mark Casson, University of Reading, UK Alexis Catanzaro, Université Jean Monnet, France Regis Coeurderoy, ESCP, France Raphael H Cohen, University of Geneva, Switzerland Jeffrey G. Covin, Indiana University, USA xi

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David Crick, University of Ottawa, Canada James M. Crick, Loughborough University, UK Donato Cutolo, Università di Bologna, Italy Léo-Paul Dana, Dalhousie University, Canada and Montpellier Business School, France Naomi J. Dana, St. Andrew’s College, New Zealand Teresa E. Dana, University of Canterbury, New Zealand A. Allan Degen, Ben Gurion University of the Negev, Israel Pavlos Dimitratos, University of Glasgow, UK Simon Down, University of Birmingham, UK Israel Drori, VU, Amsterdam, The Netherlands Luc Duquenne, I2ER, France Steffen Farny, Leuphana University Lüneburg, Germany Véronique Favre-Bonté, Université Savoie Mont Blanc, France Lynn Ferguson, Canada Louis Jacques Filion, HEC Montréal, Canada Aard Groen, University of Groningen, The Netherlands Edward Groenland, Nyenrode Business University, The Netherlands Călin Gurău, Montpellier Business School, France Martin Hannibal, University of Southern Denmark, Denmark Isabella Hatak, University of St. Gallen, Switzerland Ben Hattink, Hanze University of Applied Sciences Groningen and University of Groningen, The Netherlands Thomas H. Hawver, Virginia Commonwealth University, USA Robert D. Hisrich, Kent State University, USA Benson Honig, McMaster University, Canada Garima Jha, Kent State University, USA Gabi A. Kaffka, Utrecht University, The Netherlands Kenneth R. Kao, Memorial University of Newfoundland, Canada Raymond W.Y. Kao, Ryerson University, Canada (deceased) Rowland R. Kao, University of Edinburgh, UK Teemu Kautonen, Aalto University, Finland and Universidad del Desarrollo, Chile

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Contributors xiii Franz W. Kellermanns, UNCC, USA and WHU, Germany Andreas Koch, Institute for Applied Economic Research, Germany Susanne Kolb, formerly at University of Siegen, Germany Galia Kondova, University of Applied Sciences and Arts, Switzerland Sascha Kraus, Free University of Bozen-Bolzano, Italy Norris Krueger, Entrepreneurship Northwest, USA Donald F. Kuratko, Indiana University, USA Paula Kyrö, Helsinki School of Economics, Finland Martin Lackéus, Chalmers University of Technology, Sweden Anja Leckel, RWTH Aachen University, Germany Liudvika Leišytė, TU Dortmund, Germany Claire Leitch, Lancaster University, UK Ivan H. Light, University of California, Los Angeles, USA Steven Lippmann, Miami University, USA Mats Lundqvist, Chalmers University of Technology, Sweden Tage Koed Madsen, University of Southern Denmark, Denmark Vladislav R. Maksimov, University of North Carolina at Greensboro, USA Amandine Maus, Aix-Marseille Université, France Patricia P. McDougall, Indiana University, USA Gerard McElwee, independent consultant, UK Karim Messeghem, Université de Montpellier, France Michael H. Morris, University of Notre Dame, USA Gordon Murray, University of Exeter, UK Wilson Ng, Regent’s University, UK M. Niemi, University of Tampere, Finland Jean-Jacques Obrecht, Université de Strasbourg, France Benjamin M. Oviatt, Georgia State University, USA Jenni Palmroos, University of Vaasa, Finland Roberto Parente, University of Salerno, Italy Jeffrey M. Pollack, North Carolina State University, USA Veland Ramadani, South East European University, North Macedonia

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Janice Redmond, Edith Cowan University, Australia Frederik J. Riar, Karlsruhe Institute of Technology, Germany Martin Ruef, Duke University, USA Eugene Sadler-Smith, University of Surrey, UK Jean-Michel Sahut, IDRAC Business School, France Sylvie Sammut, Université de Montpellier, France Michael T. Schaper, Curtin University, Australia Joe Schembri, University of Malta and TradeMalta, Malta Leon Schjoedt, Babson College, USA Pi-Shen Seet, Edith Cowan University, Australia Jalleh Sharafizad, Edith Cowan University, Australia Alan E. Singer, Appalachian State University, USA Oliver Som, MCI Innsbruck, Austria Yang Song, Ben Gurion University of the Negev, Israel and Economics School of Jilin University, Changchun, China Valerie Stead, Lancaster University, UK Wee-Liang Tan, SMU, Singapore Siri Terjesen, Florida Atlantic University, USA and Norwegian School of Economics, Norway Pekka Vainio, University of Vaasa, Finland Jan Vang, University of Southern Denmark, Denmark Kerstin Wagner, FHGR, Switzerland Paull C. Weber, Curtin University, Australia Dianne H.B. Welsh, University of North Carolina-Greensboro, USA Friederike Welter, Institut für Mittelstandsforschung (IfM) Bonn and University of Siegen, Germany Karl Wennberg, Linköping University, Sweden Paul Westhead, Durham University, UK and Nord University, Norway Jennifer Wichers, Judo Your Business and Hanze University of Applied Sciences Groningen, The Netherlands Heidi Wiig, BI – Norwegian Business School, Norway Johan Wiklund, Syracuse University, USA

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Contributors

xv

Karen Williams-Middleton, Chalmers University of Technology, Sweden Mike Wright, Imperial College Business School, UK (deceased) Wei Yu, NUS, Singapore Shaker A. Zahra, University of Minnesota, USA Tenghao Zhang, Edith Cowan University, Australia

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Foreword The arch-fathers of the social sciences saw entrepreneurship as an essential part of their views of how economic life functions – and then, amazingly, the entrepreneurship view disappeared for more than a century from scholarly texts. The world was simply too busy inventing large business to pay attention to entrepreneurship. There were notable exceptions including Knight (1921) and Schumpeter (1934); yet, it took the information and telecommunication technology (ICT) revolution and the fall of the Berlin Wall in the late 1980s to bring scholars and politicians alike to the realization that entrepreneurship not just matters, but is crucial. At the 1983 annual Babson meeting, Hoy and Carland differentiated between entrepreneurs and small-business owners; Carland et al. (1984) elaborated on this. Yet, throughout the 1980s and 1990s, the word ‘entrepreneurship’ was frequently interchanged with ‘small business’. The focus was on the role that small businesses played in a world dominated by their large counterparts. The more research was devoted to this role the more it was shown that small businesses did not just play a role complementing that of large businesses but that their role was fundamental, such as for innovation and employment. Wennekers and Thurik (1999) noted that the 1980s and 1990s saw a re-evaluation of the role of small firms and a renewed attention to entrepreneurship. Given that Schumpeterian (1934) innovators were relatively few, Dana wrote, ‘The flagships of entrepreneurship are small and medium enterprises’ (1999: 25). By the turn of the millennium, focus shifted from small businesses to start-ups and new ventures. Their potential to produce and nurture creativity, experimentation and learning was immense. However, what is a small new business without the persona causa – the entrepreneur? Again, the focus shifted from the business to the person. Then it appeared as though academia had invented the field of entrepreneurship. The field had long been there, but under different denominators. There is no better way to show the pervasiveness and the richness of the field of entrepreneurship as by this Encyclopedia. It shows two things simultaneously. Its pervasiveness: there is no subfield in the social sciences where the entrepreneurship view is absent. It is often central – without it there are gaps in scientific modeling and thinking – and dynamic – it is often both a cause and a consequence of other major phenomena. It is rich in that the entrepreneurship perspective contributes to theory development in subfields. At the beginning of the twenty-first century, entrepreneurship scholars used social sciences to explain the entrepreneurship view. More recently, social sciences use entrepreneurship to further develop their own subfields. I can think of no better illustration for both developments (the change from the business perspective to the person perspective and the change from the entrepreneur as the starting point to the subfields of the social sciences as the starting point) than this Encyclopedia. If ever the phrase ‘essential reading’ is applicable, it is concerning Léo-Paul Dana’s Encyclopedia. It is easy to predict that scores of young researchers will read this

xvii

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second edition practically cover to cover to find their way in the fascinating terrain of entrepreneurship research. Professor A. Roy Thurik Erasmus School of Economics in Rotterdam, The Netherlands and Montpellier Business School, France

REFERENCES Carland, J.W., F. Hoy, W.R. Boulton and J.A.C. Carland (1984), ‘Differentiating entrepreneurs from small business owners: a conceptualization’, Academy of Management Review, 9 (2), 354–9. Dana, L.-P. (1999), Entrepreneurship in Pacific Asia: Past, Present & Future, Singapore, London and Hong Kong: World Scientific. Knight, F.H. (1921), Risk, Uncertainty and Profit, Boston, MA and New York: Houghton Mifflin; Chicago, IL: University of Chicago Press. Schumpeter, J.A. (1934), The Theory of Economic Development: An Inquiry into Profits, Capital, Credit, Interest, and the Business Cycle, trans. R. Opie, Cambridge, MA: Harvard University Press. Wennekers, S. and R. Thurik (1999), ‘Linking entrepreneurship and economic growth’, Small Business Economics, 13, 27–55.

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Foreword Science is based on the assumption that knowledge is essentially cumulative, that is, new research is built on earlier knowledge (Kuhn, 1970). In all research fields, it is essential to obtain an up-to-date understanding of the accumulated knowledge, making it important to stop now and then to synthesize the knowledge within the field. This is particularly important in rapidly growing research fields, such as entrepreneurship. Over the past five decades, entrepreneurship as a scientific field has grown significantly – from a small emerging ‘venture’ in the 1970s to a global industry today, with thousands of scholars around the world who consider themselves entrepreneurship researchers and teachers (Landström, 2020). The field continues to grow. An extensive number of individuals are attracted by entrepreneurship: for example, Master’s students taking their degree in entrepreneurship, PhD students conducting their studies on different entrepreneurship issues and, not least, a large number of scholars from other fields who migrate into this field. Some characteristics can be identified in the growth of entrepreneurship as a scientific field that have important consequences for knowledge accumulation – in terms of an extensive diversity and changeability of the field. Entrepreneurship can be characterized as a diversified field of research and there are several reasons for this: ●

●

The eclectic nature of the field makes it possible to include a large number of societal phenomena and incorporate concepts and theories from many different fields in the social sciences. Over the years, the number of prefixes and suffixes in entrepreneurship has increased, for example, social entrepreneurship, sustainable entrepreneurship and entrepreneurship education. The fragmentation of the field has created almost autonomous groups of scholars – or ‘tribes’ – who focus their attention on different topics within entrepreneurship and research using different methodological and paradigmatic approaches (Gartner et al., 2006; Landström and Harirchi, 2018). In addition, we have witnessed a significant globalization of entrepreneurship research. Scholars from around the world make contributions to entrepreneurship research by establishing a strong presence in international journals and at different meeting places. We can identify an increased international isomorphism (Aldrich, 2000), where knowledge, research themes and methods become similar across regions. However, having said that, we can assume that entrepreneurship is characterized by a strong ‘contextual heterogeneity’ (Welter, 2011), where entrepreneurship research reflects the contextual differences in entrepreneurial activities in different regions and countries, but also differences in research traditions in various countries.

Entrepreneurship is also characterized as a changeable field of research (Landström et al., 2012) in which old topics fade quickly and new ones constantly emerge. The past xix

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decade has shown significant changes in society, such as new forms of communication (for example, Facebook), customization (for example, three-dimensional printing), online platforms (for example, crowdfunding) and new currencies (for example, Bitcoin and other cryptocurrencies), but also an increased interest in social and sustainable aspects of entrepreneurship – changes that will significantly influence entrepreneurial activities in society. Entrepreneurship scholars have not been slow in keeping up with these changes in society, which have also attracted the interest of scholars in other fields, for example, information systems, geography and finance. As a consequence, entrepreneurship as a scientific field is now characterized by an interesting balance between ‘continuation’ of already existing research themes and knowledge platforms and ‘novelty’ in identification of new research opportunities based on the changes in society. In this type of fast-growing, diversified and changeable field, there is always a risk that knowledge accumulation will be lost – new studies tend to rely more on the latest article than the accumulated knowledge within the field. However, I argue, in line with Wiklund (1998), that as in successful ventures in general, where favourable business opportunities tend to combine opportunity focus with resource orientation, it is not sufficient to identify new research opportunities unless they are securely rooted in previous knowledge. In this context, the second edition of the World Encyclopedia of Entrepreneurship is extremely important for the building of knowledge within the field that creates the basis for future research opportunities. The Encyclopedia illuminates the diversity of the field – it includes the large variety of topics and concepts that are central to the field as well as its international character, with contributions by scholars from around the world covering topics that attract scholars in different parts of the world. This second edition of the Encyclopedia mirrors the balance between the ‘continuation’ of existing, well-developed issues in entrepreneurship research and ‘novelty’ research issues in entrepreneurship. The changes in entrepreneurship that we have witnessed over the past decade become obvious – the number of chapters has increased from 55 in the first edition to 76 in the second – and in this respect the book elaborates on a large number of new aspects of entrepreneurship. I am honoured to provide this Foreword. In the second edition of the World Encyclopedia of Entrepreneurship, Léo-Paul Dana has managed to gather a large number of the leading entrepreneurship research scholars in the world and synthesized their knowledge in an impressive work. As the book ensures a stronger knowledge accumulation within the field, it is not only important for all scholars already working within the field, but especially for new entrants who are attracted by entrepreneurship. I sincerely hope that the Encyclopedia receives the attention it deserves and impacts on our thinking about entrepreneurship. Professor Hans Landström Sten K. Johnson Centre for Entrepreneurship Lund University, Sweden

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REFERENCES Aldrich, H.E. (2000), ‘Learning together: national differences in entrepreneurship research’, in D.L. Sexton and H. Landström (eds), The Blackwell Handbook of Entrepreneurship, Oxford: Blackwell Publishers, pp. 5–25. Gartner, W.B., P. Davidsson and S.A. Zahra (2006), ‘Are you talking to me? The nature of community in entrepreneurship scholars’, Entrepreneurship Theory and Practice, 30 (3), 321–31. Kuhn, T. (1970), The Structure of Scientific Revolutions, Chicago, IL: University of Chicago Press. Landström, H. (2020), ‘The evolution of entrepreneurship as a scholarly field’, Foundations and Trends in Entrepreneurship, 16 (2), 3–155. Landström, H. and G. Harirchi (2018), ‘The social structure of entrepreneurship as a scientific field’, Research Policy, 47 (3), 650–62. Landström, H., G. Harirchi and F. Åström (2012), ‘Entrepreneurship: exploring the knowledge base’, Research Policy, 41 (7), 1154–81. Welter, F. (2011), ‘Contextualizing entrepreneurship. Conceptual challenges and way forward’, Entrepreneurship Theory and Practice, 33 (1), 165–84. Wiklund, J. (1998), ‘Small firm growth and performance: entrepreneurship and beyond’, PhD thesis, Jönköping International Business School, Jönköping.

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Preface People develop preferences for different pastimes. When I was in grade school, I began reading encyclopedias for fun. I still do. Figure 0.1 shows an 1898 publication that I was recently reading – cover to cover.

Figure 0.1

Pears’ Shilling Cyclopædia; photographed by the author xxiii

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Not surprisingly, I was elated when Edward Elgar Publishing’s commissioning editor Francine O’Sullivan invited me to assemble the first World Encyclopedia of Entrepreneurship. I was delighted with the popularity of that volume and again thrilled when approached to compile a second edition with new topics that have recently gained importance in our changing world. Thank you Francine! Baumol (1968: 64) described the entrepreneur as ‘one of the most intriguing and one of the most elusive characters in the cast that constitutes the subject of economic analysis’. That was published the year that Babson College offered the first undergraduate entrepreneurship concentration. By 1970, just over a dozen schools in the United States offered courses in entrepreneurship; in 1975, the number was 104 (Katz, 2003). This volume is the second edition of a project launched in 2005, reflecting that entrepreneurship is no longer at the margins but, instead, is a legitimate field of research. What has not changed is that the entrepreneur is still intriguing and elusive. I would like to thank friends and colleagues for their input making this a richer volume than the first edition; this includes contributors and the many who reviewed entries and provided constructive suggestions. As Vernon Howard told us, ‘Always walk through life as if you have something new to learn and you will’. Now let your fingers walk through these pages and enjoy a wonderful learning experience. Léo-Paul Dana Halifax, Canada

REFERENCES Baumol, W.J. (1968), ‘Entrepreneurship in economic theory’, American Economic Review, 58 (2), 64–71. Katz, J.A. (2003), ‘The chronology and intellectual trajectory of American entrepreneurship education’, Journal of Business Venturing, 18 (2), 283–300.

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1.

Chinese immigrant entrepreneurs

Tenghao Zhang, Pi-Shen Seet, Janice Redmond, Jalleh Sharafizad and Wee-Liang Tan

Until the mid-twentieth century, Southeast Asia and North America were the predominant destinations for Chinese emigrants. Amid the Voyage to Nanyang exodus, the California Gold Rush and the Transcontinental Railroad construction, millions of Chinese migrants, overwhelmingly from Guangdong and Fujian provinces in southern China, ventured to Southeast Asia and North America for better opportunities (Godley, 2002). When these early Chinese immigrants first arrived in the host countries, they were in effect sojourners aiming to remit sums of money to their families in China (Dana, 2014: 259). They also intended to return to China in their old age to enjoy the fruits of their ‘arduous labours in exile’ (Willmott, 1966: 254). For example, Loewen (1971: 27) argues that the early Chinese people in Mississippi were not true immigrants, but were sojourners and planning to return to China when ‘their task was accomplished’. These Chinese immigrants were faced with different levels of hostility from local residents, who saw them as greedy individuals, exploiting their advantageous economic position (for example, Chinese in Thailand; Coughlin, 1960). Members of the Chinese community often were excluded from many formal occupations, which led them to focus on the trade and commerce sectors and act as intermediaries between customers and producers. For example, Willmott’s (1966) study found that 84 per cent of Chinese immigrants in Cambodia were engaged in the commercial sector, which is significantly higher than the Cambodian average of 6.5 per cent. Appleton (1960) found that in the Philippines, ethnic Chinese held 23 per cent of the total commercial investment and nearly 30 per cent of the total investment in retail and import–export trade, despite only making up 1 to 2 per cent of the national population. Loewen (1971) found that 97 per cent of the Chinese immigrants in Mississippi, USA, were operating grocery stores. These Chinese immigrants were distanced from the host country owing to their sojourner orientation and they experienced discrimination from within the host society. However, they managed to maintain and even raise their economic position in society owing to their entrepreneurial ventures. Consequently, they developed a strong sense of in-group solidarity or ethnic identity to distinguish themselves from the host country nationals (Aldrich and Waldinger, 1990). As a result, they were ‘essential outsiders’ within the host societies (Chirot and Reid, 1997; Nyíri, 2011). This distinct ‘essential outsiders’ status was invoked by Blalock (1967) and Bonacich (1973) in the development of the concept of the ‘middleman minority’, in which they used Chinese immigrants in Southeast Asia and North America as a common prototypical example of a middleman minority group. A number of subsequent middleman minority studies also cited the colonial and early post-colonial Chinese immigrant entrepreneurs as examples (for example, Aldrich and Waldinger, 1990; Cobas, 1987; Nyíri, 2007). 1

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Although the definitions are not identical in these studies, a middleman minority generally refers to a minority population which has taken on a specific economic sector, in particular trade and commerce, and plays the role of middleman, linking producers and customers (Bonacich, 1973). These minority groups often face discrimination and even persecution from the locals (Grosfeld et al., 2020), which can lead to an ambivalent attitude towards the host society and in-group solidarity (Aldrich and Waldinger, 1990). They usually do not hold an extreme subordinate status (O’Brien and Fugita, 1982) in the host society, despite discrimination. They begin as sojourners and many of them originally do not intend to, or have not decided to, settle down permanently in the host country and therefore seek occupations with a higher preference for liquidity (Aldrich and Waldinger, 1990; Cherry, 1990). The original term ‘middleman minority’ does not encompass only entrepreneurs but can also refer to an entire entrepreneurial-orientated ethnic group. However, more recent immigrant entrepreneurship studies have applied the term exclusively to immigrant entrepreneurs (Aldrich and Waldinger, 1990; Nyíri, 2011; Waldinger, 1986). The middleman minority theory is not without its critics. Some scholars have questioned its limitations in the modern immigration context. Aldrich and Waldinger (1990), for example, argue that the sojourner orientation did not contribute to the performance of the ventures and they proposed the term ‘pseudo-middleman minorities’ to distinguish contemporary ethnic groups that specialize in trade and commerce (in the 1990s context) from the classic middleman of earlier periods. Other scholars, nevertheless, continue to adopt the original term as they see the generalizability of the theory as well as its extension into more modern contexts (for example, Grosfeld et al., 2020; Masry-Herzalla and Razin, 2014). Half a century has passed since the inception of the middleman minority theory, and notable changes have taken place in the demographic structure of Chinese immigrants and their destinations. For example, unlike the earlier periods of Cantonese- and Fujianesedominated emigration, more recent Chinese emigrants hail from various parts of China, and there is considerable cultural heterogeneity between different sub-groups of Chinese immigrants (Guo and DeVoretz, 2006). The newer Chinese immigrants are also organized differently from their predecessors, whose organizations were mainly based on locality and kinship (Liu, 2014). As regards immigrant entrepreneurship, the distinct middleman role that Chinese immigrants used to play in Southeast Asia and North America during earlier periods has been less frequently discussed in studies of contemporary Chinese immigrant entrepreneurs (for example, Kim, 2001; Nyíri, 2011). Unlike the early Chinese emigrants, the destinations for contemporary Chinese emigrants are also diversified across all six continents (Li and Li, 2013). This raises the question, with the passage of time: is the term ‘middleman minorities’ still applicable or valid to describe modern-day Chinese immigrant entrepreneurs? This chapter is therefore concerned with the following two research questions: 1. 2.

Do contemporary Chinese immigrant entrepreneurs still play the middleman role in host countries? Are there any new features of contemporary Chinese immigrant entrepreneurs?

It would not be possible to explore all the host countries or regions in one study. This chapter therefore chooses to focus on the Asia-Pacific region as it has long been a popular

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destination for Chinese migrants owing to its geographical proximity and historical and cultural linkages with China. It is also a beneficial geographical area for conducting research on migrants owing to its cultural, ethnic, economic and political diversity (Castles and Miller, 2009). Therefore, such research with a focus on the Asia-Pacific region has the potential to be extrapolated to other host regions of the world. The delimitation of the research subject ‘contemporary Chinese immigrant entrepreneurs’ in this chapter is twofold. First, we primarily focus on the post-reform period (1978 to the present) first-generation immigrants from mainland China. Although there are other sizable Chinese diasporas in the Asia-Pacific, including those from Chinese populations in Hong Kong, Taiwan, Singapore and Malaysia, these groups exhibit very diverse cultural and social-economic profiles when compared with those from mainland China (Collins, 2002). Therefore, we treat these groups separately, with a focus on recent emigrants from mainland China. The reason for selecting 1978 as the starting point of the contemporary era is that this was the year when China started its economic reform and relaxed its strict controls on her people’s geographical mobility. In the three decades from 1949 to 1978, there were almost no emigrants from mainland China. Therefore, the contemporary Chinese immigrants and their predecessors represent two distinct groups. Second, this study adopts Brockhaus’s (1980: 510) well-established definition of an entrepreneur, who is ‘a major owner and manager of a business venture who is not employed elsewhere’. Hence, business owners, whether they are self-employed or employers, or joint venture partners, are all included. The primary methodology employed in this study is archival research, and we also present several examples and case studies that were observed from our own field research. The remainder of this chapter proceeds as follows. We begin with a section to summarize the demographic profile of contemporary Chinese immigrants in the Asia-Pacific region. Then, we classify these immigrants employing a typology of immigrant entrepreneurs we have developed. The subsequent two sections focus on entrepreneurs who fall into the middleman minorities category and those who do not and who fall into other new categories. Conclusions are drawn in the final section.

DEMOGRAPHIC PROFILE OF CONTEMPORARY CHINESE IMMIGRANTS IN THE ASIA-PACIFIC Since its economy began opening up in 1978, China gradually relaxed its control over its citizens’ internal and international movements, and a vast number of mainland Chinese migrants started to relocate to different parts of the world (Wong, 1998). The United Nations (2019) reported that, by 2019, 10.7 million international migrants were born in mainland China, making it the third largest migrant-sending country in the world. Moreover, in the first two decades of the twenty-first century, China contributed over 7.4 million immigrants to the world, significantly ahead of any other country. The pace of movement accelerated with almost 70 per cent of the total mainland Chinese emigrants relocating from China during the past two decades. Table 1.1 provides a summary of Chinese immigrants’ demographic profile in major destination countries in the Asia-Pacific region. Despite varying statistical methods and data available in different countries, we can

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More than 764 000 Chinese nationals and an estimated 1 million ethnic Chinese (2018). Most arrived since the 1980s Over 1 million Chinese nationals, about two-thirds were Korean-Chinese (2017). Most arrived since the two countries established formal diplomatic relations in 1992 Between 700 000 and 800 000 of newly arrived immigrants came from mainland China (2016). Most arrived since the two countries established formal diplomatic relations in 1990 More than 526 000 were born in mainland China (2018). Most arrived since the 1980s. Over 1.2 million residents of Chinese ancestry About 133 000 were born in mainland China (2018). Most have arrived since the 1980s. Over 231 000 residents of Chinese ancestry Some 250 000 Chinese nationals (2018). Most arrived since the 2000s

Japan

Note:

Chinese nationals refer to citizens of mainland China.

Cambodia

New Zealand

Australia

Singapore

South Korea

Description

Cited in Ang (2018)

Second largest group of foreign-born immigrants

Cambodia Interior Ministry, reported in DW News (2019)

Statistics New Zealand (2019)

Australian Bureau of Statistics (2018)

Song (2017)

Largest group of foreign residents (50.6%)

Largest ethnic group of nonEuropean descents and third largest group of foreign-born immigrants Largest Asian ethnic group and second largest group of foreign-born immigrants Largest group of foreign residents (over 60%)

Japanese Bureau of Statistics (2019)

Data source

Largest group of foreign residents (28.5%)

Demographic significance

Overview of Chinese immigrants in major destination countries of the Asia-Pacific region

Country

Table 1.1

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roughly estimate that, there are at least 4 million mainland China-born immigrants, of whom most arrived in their host countries after the 1978 Chinese economic reform, currently living in the Asia-Pacific region, accounting for over two-fifths of all China-born immigrants globally. This estimation does not include the millions of Southeast Asians of Chinese descent, nor the sizable number of Chinese migrants from Taiwan, Hong Kong and Macau. Nor does it consider the descendants of first-generation mainland China immigrants. Although the data shows that there is a heterogeneous group of Chinese who are migrants in the Asia-Pacific region but who were not born in mainland China, our chapter focuses on the most recent wave of Chinese migration since 1978.

A TYPOLOGY OF IMMIGRANT ENTREPRENEURS Since middleman minorities mainly refer to minority groups of those who are concentrated in trade and commerce sectors, it does not encompass all types of immigrant entrepreneurs. For instance, an immigrant high-technology firm owner, would not normally fall within the scope of middleman minorities. Therefore, in order to proceed with our study, we developed a typology of immigrant entrepreneurs, based on theory, to explain the development of the phenomenon in recent times. In Figure 1.1, two dimensions of the coordinate plane are taken from the two distinct characteristics developed from the middleman minority literature (Aldrich and Waldinger, 1990; Bonacich, 1973; Portes and Zhou, 1992; Waldinger, 1986), namely: 1.

Local–global dimension. Middleman minority immigrant entrepreneurs are normally clustered in the ethnic economy and prefer to do business locally, especially with their immigrant community. This means that they do not usually interact with the wider community and are not much involved in globalization opportunities; Innovator Neomiddleman minorities

Global innovators

Middleman minorities

Transnational traders

Trader Local

Figure 1.1

Global

A typology of immigrant entrepreneurs

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2.

Trader–innovator dimension. Middleman minority immigrant entrepreneurs are also mainly found in the trade and commerce sectors as trader-merchants. Following Kirzner (1973), they are in effect intermediaries and do not rely extensively on technology or business model innovation.

The x-axis in the typology model represents for the local–global dimension, while the y-axis denotes the trader–innovator dimension. Figure 1.1 shows four typologies of Chinese immigrant entrepreneurs: ●

●

●

●

Middleman minorities. The middleman minority perspective of Chinese immigrant entrepreneurs is represented by the first quadrant of a coordinate plane which sets a typical middleman minority entrepreneur operating in the trading and commerce sector within a localized ethnic enclave. However, there are other, more nuanced profiles of middleman minorities that are discussed subsequently in further detail. Neo-middleman minorities. These immigrant entrepreneurs are still confined within the ethnic economy but are more innovative in adopting new business models and new technology. For instance, this may be a developer of a smartphone-based food delivery application (app) created for Chinese restaurants in an overseas Chinatown locality. Transnational traders. These immigrant entrepreneurs regularly engage in cross-border trade activities and rely on them as their primary livelihood (Portes et al., 2002). They are transnational entrepreneurs but still confined to traditional business models with limited innovation. An example of this type of entrepreneur is a Chinese merchant who imports consumer goods from China and distributes them to local enterprises and stores. This category also includes immigrant entrepreneurs who conduct their transnational business with their main market in mainland China but have decided to migrate for non-entrepreneurial reasons (for example, better schooling and opportunities for children). They may also have homes in various host countries. Global innovators. These immigrant entrepreneurs differ from transnational entrepreneurs in that they are extensively engaged in innovation-orientated global businesses. For instance, this could be a Chinese immigrant who starts and grows a high-technology innovative venture that operates in different parts of the world.

CONTEMPORARY MIDDLEMAN MINORITIES: ARE THEY LIKE THEIR PREDECESSORS? It is important in the study of immigrant entrepreneurs to also consider their cultural background. Despite being significantly different from the Chinese migrant entrepreneurs to Southeast Asia and North America in earlier periods, who were portrayed as typically middleman minorities, contemporary Chinese immigrant entrepreneurs still share the same ethnic identity and similar cultural practices with their predecessors. Although currently they may be diverging along different paths, it is unlikely that the entire group will jump into a whole new world in just a few decades. Therefore, we reason that there is still a large segment of contemporary Chinese immigrant entrepreneurs who can fall into the middleman minority category. This is illustrated next.

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Being in the Middle: Middle-Class Traders There is a remarkable convergence between Chinese Confucianism and ancient Greek philosophy. When Confucius proposed the ethics of ‘Being in the middle’ (‘中庸之道’) in the fifth century BC, Aristotle echoed this with the philosophy of the golden mean a century later. In Chinese societies, being in the middle is a long-held tradition that translates to thinking and social interaction (Hwang, 2001; Shen, 2013). The Chinese believe that ‘the shot hits the bird that pokes its head out’,1 which means that they do not like to stand out against the majority, nor are they willing to sink to the bottom of the economic ladder as pariahs. They would prefer to maintain their petit-bourgeois status (Waldinger, 1986) and place themselves in the middle of social stratification. This type of middle mentality in Chinese culture resonates with the portrait of a typical middleman minority. According to Bonacich (1973), the middle position of middleman minorities takes two forms: first, they are mainly in middleman occupations, notably in trade and commerce sectors and, secondly, they occupy an intermediate position in host societies’ social strata. Chinese immigrants have had a long history of entrepreneurship (Ahlstrom et al., 2004; Mackie, 1992). As a minority ethnic group, Chinese immigrants are usually confronted with cultural and language barriers when they are seeking job opportunities in host countries’ labour markets. However, the relative disadvantages experienced by Chinese immigrants in the host society does not result in a high unemployment rate among them (Fullin and Reyneri, 2011). Instead, in order to circumvent employment or underemployment and to stick with their being-in-the-middle mentality, many of them turn to self-employment or start their own business as an alternative to wage labour (Beaujot et al., 1994), and this can result in a higher probability of entrepreneurial engagement. For example, Collins (2002) reports that China-born Australian entrepreneurs, whether male or female, have a significantly higher entrepreneurship rate than native-born Australians. In Mandalay, the second largest city of Myanmar, the Associated Press in 2018 reported that 60 per cent of Mandalay’s economy was created by Chinese entrepreneurs, with most of them arriving from southern China in recent decades. Middleman minorities not only have a high entrepreneurial engagement rate, but are also clustered in industries with high liquidity, and are normally absent from more fixed investments, such as industrial and agriculture sectors, or more upmarket industries, such as high-technology and professional sectors (Bonacich, 1973; Weber, 1993; Willmott, 1966). Chinese immigrant entrepreneurs are usually pushed rather than pulled into entrepreneurship as they are often excluded from their host countries’ labour market. Consequently, it is often difficult for them to move up the industrial value chain and to go beyond being in the middle. Therefore, they have largely remained in the trade and commerce industries. For example, Selvarajah et al. (2012) surveyed 132 first-generation Chinese entrepreneurs in Australia, among whom only 23 entrepreneurs were in professional sectors, while more than half (67) were in restaurant and retail sectors. Cain and Spoonley (2013) note that there is considerable occupation mobility towards self-employment and small business sectors among China-born immigrants in New Zealand. The large numbers of Chinese immigrant entrepreneurs in the trade and commerce industries may be explained more by their culture. In the Chinese culture, guanxi (interpersonal relationship) is the fundamental dynamic of social networks, and this is

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deeply rooted in Chinese social and cultural values (Farh et al., 1998; Park and Luo, 2001). Those typical middleman industries, such as catering and retail sectors, rely heavily on the entrepreneurs’ intra-group connections, which are Chinese immigrants’ strengths owing to the salient role of guanxi in their entrepreneurial activities (Luo, 2007). In contrast, industries such as manufacturing require entrepreneurs to have strong outgroup connections and local familiarity, which in turn are difficult to build quickly among newcomers in host countries and even more so among those who do not share many similarities of the host countries’ culture. For example, it is hard for an owner of a manufacturing plant with a minority background to only engage with his or her own ethnic community, because of the need for a whole production line engagement and coordination between multiple parties. Hence, Chinese immigrant entrepreneurs are more prone to be excluded from these industries. Cain and Spoonley (2013) conducted interviews in New Zealand with immigrant entrepreneurs from five countries, and they found that among the mainland China-born entrepreneurs they interviewed, all of them had at least one mainland Chinese supplier and some of them dealt exclusively with Chinese-speaking suppliers. Unsurprisingly, most of them were in service and retail sectors. One change in recent years is that while Chinese immigrant entrepreneurs were middlemen minorities largely because of their place in the value chain, currently the middlemen characteristic is more nuanced, with many of them also belonging to the middle class. While pre-mid-twentieth-century Chinese emigration waves were dominated by poorly educated and low-skilled labourers who had moved out from mainland China, contemporary Chinese immigrants come from relatively different class and economic backgrounds. Over the past four decades, and particularly since the 1990s, overseas students, professionals and business migration applicants make up the major part of Chinese immigration flow to other countries. Research has found that the more highly educated segments of the population in China are five times more likely to emigrate than the average Chinese person, while in Europe the corresponding comparison rate is only 1.3 (Xiang, 2016). Overseas Chinese students comprise a significant percentage of Chinese immigrants (Tharenou and Seet, 2014). China is currently the world’s largest source country of international students, with more than 5.85 million students from mainland China having studied overseas from 1978 to 2018 (Ministry of Education of China, 2019) and from 2013 onwards, about two-thirds of Chinese overseas students obtain employment and immigrant visas in host counties upon completion of their studies (Zhou and Liu, 2016). Most of these Chinese students come from middle- and upper-class families. Business migrations are another important source of Chinese immigrants. For instance, during the first two decades of the twenty-first century, four-fifths of business immigration to Australia originated from China (Colic-Peisker and Deng, 2019). After overseas Chinese students have completed their studies, or as a condition of their business migration visas, many will consider setting up entrepreneurial ventures in their host countries. Essential Outsiders: Embedded in the Enclave Middleman minorities are notable for keeping themselves apart from host societies. As Bonacich (1973) noticed, group solidarity is often the result of hostility and discrimination from the host society (Aldrich and Waldinger, 1990). Therefore, although middleman minorities may do well in gaining economic status, their integration into the host country

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often lags behind. Chirot and Reid (1997) describe the Chinese in Southeast Asia and the Jews in Central Europe as ‘essential outsiders’ to reflect the juxtaposition of their economic position and the host country’s exclusion against them. Bonacich (1973) argues that discrimination against middleman minorities is caused by their middleman positions where they generate disproportionate profits as a result of information asymmetry between producers and customers. This is exacerbated by the middleman minorities’ antagonism against the majority group (Bonacich, 1972), and their low social assimilation. With the advance of globalization and the information revolution, it is no longer as easy to take advantage of information asymmetry as a minority intermediary, especially in advanced economies. However, discrimination and hostility against immigrants from mainland China is still apparent in many Asia-Pacific countries (for example, Fitzgerald, 2007; Seol and Skrentny, 2009). Even in Singapore and Hong Kong, where the ethnic Chinese predominate the population, discrimination against newly arrived Chinese immigrants is also common (for example, Ang, 2018; Ng et al., 2015). Meanwhile, with the fast-growing number of new Chinese immigrants in many Southeast Asia countries, there is also rising controversy and anti-Chinese sentiment in this region (for example, Pheakdey, 2012). As a consequence of discrimination, middleman minorities develop strong community or ethnic solidarity over time in order to resist assimilation, and this is typically evident in a number of characteristics, such as residential self-segregation, preference of endogamy, persistence with their heritage, language and culture (Bonacich, 1973). For middlemen immigrant entrepreneurs, a distinctive characteristic is that they are inextricably intertwined with their ethnic enclave economy. We argue that the connotation of enclave economy is twofold. First, it refers to middleman entrepreneurs being geographically concentrated in ethnic enclaves. Second, it suggests that they are heavily reliant on ethnic networks in doing business and they target co-ethnic customers as their niche market. In the typology model (Figure 1.1), we use the term ‘local’ to indicate middleman immigrant entrepreneurs’ scope of business, in that they predominantly focus on their ethnic economy, take advantage of their ethnic networks in doing business and do not usually interact nor get involved with the wider community and transnational businesses. That is, they are embedded in the host society’s enclave economy (Kloosterman and Rath, 2001; Kloosterman et al., 1999). Among Chinese immigrants who are middleman entrepreneurs, their geographical preference is to be in a Chinatown of their host countries. This is a typical type of ethnic enclave (Zhou, 2010), where a compact homogenous Chinese settlement with a core of Chinese businesses (Chen, 2018) can be seen in many countries and cities where Chinese immigrants are clustered. As in the past, there still appears to be considerable numbers of newly arrived Chinese immigrants, especially merchants, hawkers and investors, found mainly in Chinatowns, who use it as an initial launch pad to safely set up and expand their ethnic-based business. For example, Hurstville is a suburb situated within Sydney’s metropolitan area with a significant number of Chinese immigrants and is considered to be Sydney’s contemporary Chinese ethnoburb (Wang et al., 2018). In 2016, 49.4 per cent of the residents in Hurstville were of Chinese descent while over 40 per cent were born in China, and this has increased by about 10 per cent over the past decade (Australian Bureau of Statistics, 2016). Hundreds of Chinese-related businesses, including Chinese restaurants, Chinese grocery stores, immigration and education consulting firms, and

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Chinese language schools are clustered around the centre blocks of Hurstville, among which many are run by newly arrived mainland Chinese immigrants. This example is contrary to some studies which claim new immigrants no longer linger in ethnic enclaves (for example, Chen, 2018). Ethnic networks, which generate a powerful bounded solidarity (Portes and Landolt, 2000) are central to Chinese middleman entrepreneurs. Guanxi is crucial in determining Chinese immigrant entrepreneurs’ industrial choices but, more importantly, within the ethnic community, guanxi is of paramount importance to the way Chinese entrepreneurs do business. For example, many Chinese immigrant entrepreneurs secure personal loans from private lenders via their ethnic networks in order to start a business, a mechanism similar to the concept of the credit slip as delineated in Coleman’s (1988) social capital theory. Private lending is prevalent among overseas Chinese entrepreneurs as it is often hard to obtain loans from banks in host countries. Another example is that among the over 1 million Chinese immigrants in Japan, people from the Chinese Fujian province comprised a significant portion and many Chinese restaurants and grocery stores in Japan are operated by Fujianese immigrants. However, most of them do not have Japanese citizenship and many are undocumented immigrants (for example, Liu-Farrer, 2010). Hence, it is extremely difficult for them to borrow money from Japanese banks or use other regular channels. However, Fujianese immigrants are arguably one of the most kinship-orientated groups among the Chinese sub-groups (Brandtstädter and Santos, 2008). There are various Fujian hometown- and clan-based associations across Japan, many of which can act as an intermediary for Fujianese immigrants to access private lending and, in some cases, Fujian triad gangs charge exorbitant rates for these private loans (United Nations, 2002). As regards clans, see the entry by David Leong, in Dana (2011). Middleman entrepreneurs also prefer to hire employees of the same ethnicity or origin to lower costs, as the host society’s labour market may be segmented by ethnicity and immigrant employers (Bonacich, 1972, 1973). Consistently, many Chinese immigrant entrepreneurs also have a very pronounced preference for hiring co-ethnic employees. For example, in Japan, over half of the Kenshuusei (研修生 in Japanese), that is, foreign labours who entered Japan via a skills trainee programme, are Chinese nationals. In spite of its ‘skills’ title, this was a loophole for Japanese employers to recruit low-skilled and low-paid foreign labour (for example, Bélanger et al., 2011). Thousands of Chinese Kenshuusei ended up in Chinese restaurants or firms and factories owned by Chinese entrepreneurs. These Chinese employers preferred to hire Chinese employees partially because they wanted to reduce business costs, but also because these employers themselves were not fully integrated into Japanese society, therefore, hiring a co-ethnic employee would decrease coordination costs in doing business (Den Butter et al., 2007). Similarly, in Australia, in most Chinese restaurants or grocery stores in Sydney, Melbourne or Brisbane, employees are usually Chinese nationals on working-holiday visas, Chinese students, or the business owner’s relatives; you are less likely to see a non-Chinese native Australian working in these businesses. In New Zealand, Cain and Spoonley’s (2013) study reports that, Chinese business owners prefer to hire co-ethnic bilingual speakers as an important strategy to overcome their own difficulties in English language proficiency.

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‘Falling Leaves Return to Their Roots’: A Sentiment-Based Sojourner Orientation The sojourner orientation is central to Bonacich’s (1973) middleman minorities theory. Some scholars even refer to her theory as the sojourner theory. The sojourner orientation has been subjected to criticism as some scholars suggest that in the contemporary context, immigrant entrepreneurs are less likely to be sojourners and sojourner orientation did not contribute to business performance (Aldrich and Waldinger, 1990; Waldinger, 1986). Bonacich (1973) has argued that the sojourner orientation does not necessarily mean an imminent return by the immigrant to his or her home country. Although many immigrants wish to return to their home country, they believe they may not do as well in their homeland owing to various factors, such as reverse culture shock, lack of social networks or other political and economic reasons (Ho et al., 2018). Accordingly, they may relinquish the dream of becoming a ‘glory returnee’,2 and instead settle down while deeply burying inside the desire to return home. Bonacich (1973: 593) illustrated this by using the example of Jews and argued that the Chinese immigrants desire to return may appear to be symbolic as can be seen in the way Jews pray for ‘Next Year in Jerusalem’ to keep their attachment to their ancestral land. Traditional Chinese culture advocates ‘Falling leaves return to their roots’(落葉 歸根) (Mah, 1999), which signifies no matter how successful a person is in a foreign land or anywhere other than their hometown, he or she is a sojourner anyhow, and ought to return to their homeland when they are old. Furthermore, ‘To die in a foreign land’ (客死他鄉) is a major taboo in traditional Chinese custom. For example, Tan Kah Kee, a prominent China-born entrepreneur, migrated to Singapore at the age of 16 during the Voyage to Nanyang exodus and established extensive businesses in Southeast Asia, but returned to the then deprived and turbulent China in his old age during the 1950s, partly because of his homesickness and the belief in return to roots. However, in more recent times, return to roots does not mean that Chinese immigrants must permanently return to China. Instead, it is now perceived as more of an attachment to their origin that will shape and strengthen a person’s sojourner mindset and make it more difficult for the individual to integrate into the host country. While the notion of a sojourner mindset originated from earlier Chinese immigrants, it has been passed on to the recent Chinese immigrants and is reflected in many aspects of their life and language. For example, despite having lived in Southeast Asia for centuries, many ethnic Chinese still call the region Nanyang, which literately means south of the ocean. Similarly, some Chinese immigrants in Japan still refer to the country as Dongyang, a century-old alias of Japan among Chinese communities which translates to east of the ocean. In Chinese, huaqiao refers to expatriates who are Chinese nationals, in contrast to huayi, which refers to people of Chinese descent but who are not Chinese citizens. However, many Chinese immigrants still call themselves huaqiao instead of huayi, despite having lived in the host country for decades and renounced their Chinese citizenship (Seet, 2007). In various Chinese business associations across different host countries, the leader of an association is usually colloquially referred to as qiaoling, which translates to the leader of huaqiao, or expatriates’ leader, irrespective of their nationality. This Sino-centric viewpoint and the attachment to the homeland is deep rooted, constantly sculpting the Chinese immigrants’ sojourner mindset and strengthening their ethnic identity, which

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makes them more likely sojourners than many other immigrant groups. For example, a Chinese gift shop owner in Australia when interviewed said: In some major cities in Australia where Chinese immigrants are clustered, there are many gift and souvenir shops named ‘XX huiguo gift (or souvenir) shop’ run by recent Chinese immigrants, and they usually have the shop’s Chinese name printed on an eye-catching plaque hung in front of the store. Huiguo (回國) in Chinese means ‘go back to home country’. For many people, it is difficult to apprehend [sic] that except Chinese international students and tourists, most Chinese residents here should already call Australia home, and they are the most regular customers of these shops. Meanwhile, some non-Chinese customers will also occasionally go to these shops. So, this raises the question in their minds, why would the owners give such a controversial and bizarre shop name? We have brought this question to a Chinese shop owner in Perth, Western Australia, and she answered us that most first-generation Chinese immigrants that she has met, whether Australian citizens or not, all used to calling ‘go to China’ as huiguo, and so does she. Furthermore, many Australian-born second-generation immigrants also use this phrase because they learnt it from their parents. Hence, she named her shop after this common verbal phrase so that many customers will have intimate feelings/associations with the name and derive business for her.

IDENTIFYING NEW TYPOLOGIES: WHO ARE THEY? The previous section discussed the traditional type of middleman entrepreneurs among contemporary Chinese immigrant entrepreneurs in the Asia-Pacific region. As illustrated in Figure 1.1, we argue that there are three major new types of Chinese immigrant entrepreneurs that have emerged in the contemporary era, with distinct features of business model, technology adoption, target market and business scope, when compared with traditional middleman immigrant entrepreneurs. In this section, we illustrate this phenomenon with examples and case studies. Neo-Middleman Minorities Following from Aldrich and Waldinger (1990) who employed the term ‘pseudomiddleman minorities’ to distinguish the new middleman traders from the earlier middleman traders, we propose the term ‘neo-middleman minorities’ to describe those immigrant entrepreneurs who are still confined within their ethnic economy, but are more innovative in adopting new business models and new technology. The following are two examples. Daigou shoppers Daigou, literally meaning buying on behalf of in Chinese, is a new type of e-commerce channel that has emerged in the past decade both in mainland China and many overseas Chinese communities (Xie, 2018). Daigou is a novel direct-to-consumer or daigou-toconsumer (D2C) business model and its core mechanism is to take advantage of resource asymmetry. Some products may be expensive and hard to find in China while being cheaper and easily accessed in another country, for example, cosmetic products in South Korea and nutraceuticals in Australia. Other products, though, may be scarce or expensive in other counties while cheaper and easier to find in China, for example, numerous madein-China consumer products.

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Daigou shoppers are professional shoppers, who can be individuals or even entrepreneurs that set up a daigou service company. They buy products on behalf of consumers both in the home and host countries. Most daigou shoppers conduct their business via Chinese online business platforms, such as alibaba.com or WeChat. Some even run their own websites, such as daigousales.com. In New Zealand, for example, there were reportedly an estimated 350 Chinese daigou entity stores in 2017 (McDougall, 2017). If a customer in China wants to buy New Zealand infant formula, which is scarce but popular in China, he or she can directly place an order with a daigou agency in Auckland, which is normally established by an immigrant Chinese entrepreneur. The agency’s manager dispatches employees to purchase the infant formula from pharmacies in the city and deliver the product back to China via a Chinese-operated express delivery company, which usually is at a much lower cost than a New Zealander-run courier company. Meanwhile, if a Chinese immigrant in Auckland wants to buy some made-in-China consumer products, some daigou agencies can also provide daigou services by contacting their suppliers in China provided the business is lucrative. Although daigou shoppers are engaged in cross-border business, their business is almost exclusively focused on Chinese customers and they deal largely with other Chinese-run firms in the supply chain. Therefore, the daigou business is still embedded in the enclave economy. Given the large numbers of mainland Chinese migrants in many Asia-Pacific economies, some of these entrepreneurial ventures have experienced significant growth. For example, in 2017, daigou retailer AuMake International was able to list on the Australian Stock Exchange (Reuters, 2017). Meanwhile, the emerging daigou industry is sometimes considered by the host country as well as the Chinese authority as a grey market (Zheng, 2017), with some even involved in illegal activities, such as circumventing tariffs (Xie, 2018). Daigou shoppers are perceived as opportunistic traders by some locals (Marano, 2018), hence, similar to traditional middleman entrepreneurs, they are also likely to be discriminated against or resented by the host society. EASI delivery Founded by Chinese-Australian entrepreneur and innovator Shen Jie in 2014 in Melbourne, EASI has quickly become a popular Asian food delivery app in Australia. As of 2018, it boasted 200 000 downloads and delivers food from over 20 000 partnered restaurants across all the Australian major cities. EASI is a smartphone-based app that operates similarly to Uber Eats (they were founded in the same year). The app is highly user-friendly and both the English and Chinese language systems of the app are professionally elaborated (as is a recently added Japanese version). While being a novel and highly innovative entrepreneurial venture, ESAI, similar to daigou shoppers, is still confined within the ethnic economy. Its partnered restaurants are mainly Asian restaurants and particularly Chinese restaurants, and its target market also predominantly caters to ethnically Chinese customers. Owing to most of the EASI couriers delivering food by bicycle, their delivery services are mainly limited to Chinatowns and their peripheral suburbs. EASI’s pronounced ethnic market preference can be seen in their distinctive delivery bicycles or couriers’ yellow vest uniforms; all of them have noticeable Chinese characters. An EASI delivery bicycle in Sydney’s Chinatown has Chinese characters on it which translate to ‘Sydney food delivery’. This

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form of ethnic economy orientation is extremely rare among other ethnic businesses in most host countries. Transnational Traders Transnational traders are entrepreneurs who still are confined in traditional business models, but unlike the traditional middleman entrepreneurs, their businesses extend over the enclave economy and reach out to the wider cross-border community. We demonstrate this with two cases. Chinese investors in Cambodia Since the 2000s, there has been an influx of a large number of Chinese businesspersons and foreign direct investment (FDI) into Cambodia (Nyíri, 2012; O’Neill, 2014), especially in the past few years when the two counties decided to strengthen cooperation under China’s Belt and Road Initiative (BRI). In 2018, there were reportedly some 250 000 Chinese nationals living in Cambodia (DW News, 2019), and many them were operating businesses. Sihanoukville, a Cambodian port city, attracted large numbers of Chinese immigrants as it was declared a tax-free economic zone under an agreement between China and Cambodia. Online gambling was legalized in the city and thousands of Chinese immigrants invested in the lucrative peripheral industries such as hotels, restaurants, tourism and tourism-related manufacturing (Guardian, 2018). Cambodia is designated a least developed country (LDC) by the United Nations as its domestic consumption remains at a low level and it lacks a complete supply chain to sustain many industries. Therefore, as transnational traders, these Chinese investors are heavily dependent on China as their major source of labour, consumer products and capital. They fly frequently between the two countries and, to them, Cambodia is more of a marketplace than a host country, although many of them have been living there for almost two decades. Another reason they are transnational traders rather than traditional or neo-middleman entrepreneurs is owing to their range of customers. Although many of their customers are Chinese visitors or tourists from China, they also have a considerable number of customers from other Asian and Western countries, as well as local Cambodians. Therefore, these businesses cannot be defined as an enclave economy (Citrinot, 2019). A Chinese business migrant family in Australia In the past few decades, many advanced economies, such as Australia, New Zealand and Singapore, have introduced various business and investment migration programmes to attract wealthy and entrepreneurial migrants. These business migration programmes, generally require applicants to have had a successful entrepreneurial record in their home country. The applicants also have to establish one or more businesses in the host country in order to meet the visa requirements (Hoang, 2015). Consequently, many of these business migrants are engaged in cross-border businesses as they have business connections in both home and host countries. A number of studies apply the concept of dual embeddedness to delineate these transnational Chinese entrepreneurs, and argue that they are dually embedded in their host and home countries, hence, they maintain strong business and social links with both countries (Colic-Peisker and Deng, 2019; Dimitratos et al., 2016; Ren and Liu, 2015).

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We interviewed a Chinese business migrant in Western Australia in 2019. The participant and his wife own a 20-employee import–export company in an eastern China city in the Yangtze Delta region. A few years ago, the couple applied for an Australian business innovation and investment visa (188A), which targets small to medium-sized enterprise (SME) owners. In order to meet the visa requirements and thereby obtain permanent resident (PR) status, they set up a small business, hired two employees and bought an apartment in Australia. However, since the couple were unfamiliar with the local environment and they had not established wide networks in such a short period of time, their Australian business underperformed, and struggled to reach the threshold required for their PR application. Therefore, they did not suspend their business in China because they were relying heavily on its profits. As a compromise, while sending their daughter to a local Australian school, the participant and his wife take turns to reside in Australia and China for six months at a time so that they can manage both businesses. Global Innovators Immigrant entrepreneurs who are global innovators are usually innovation orientated and draw on new technology and new business models to drive business growth as they take advantage of globalization to participate in cross-border business activities. Traditionally, Chinese immigrant entrepreneurs in the Asia-Pacific region have not been widely considered innovation driven, as high-technology Chinese immigrants overwhelmingly opt to operate from the United States in preference over other countries (for example, Hart and Acs, 2011; Saxenian, 2002). However, the landscape has changed rapidly in the past two decades. This is largely owing to China’s rapid economic development and its ambitious plans to transform itself from the world’s manufacturing hub to an intelligence-driven powerhouse, as envisioned in its ambitious ‘Made in China 2025’ plan. As a consequence, in recent years, there has emerged a burgeoning group of Chinese immigrant entrepreneurs who are global innovators in the region (Tharenou and Seet, 2014). We present the following two cases. Group case: Internet-based Chinese innovation going abroad In the early 2000s, the Internet model in China was mostly based on imitations from the United States. However, during the last decade, Internet-based innovation in China has not only caught up with many advanced economies but, in some cases, overtaken them. In areas like mobile payment, artificial intelligence, social media innovation, China is already recognized by some experts as a ‘global leader in technology’ (Waugh, 2018). This dramatic technology revolution not only spread domestically, but also spawned a growing number of Chinese entrepreneurs extending their business abroad, penetrating the global market as global innovators. For example, Panda Credit is a big-data-based financial services provider which predominantly focuses on the Southeast Asian and Indian market. Founded by a female overseas returnee entrepreneur Ye Wenjun in 2017, it soon reached 5 million users in less than three years. Similarly, TikTok, a video-sharing social-networking service launched by a young Chinese technician and entrepreneur Zhang Yiming in 2016, has become one of the most downloaded apps globally (Kumar and Prabha, 2019). In order to develop more customer-orientated business strategies, various offices and branches have been established by TikTok in Japan, Singapore, Australia and many other countries. Didi,

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an app-based ride-hailing company, founded in 2012, is currently administrated by chief executive officer (CEO) Liu Qing, a female overseas returnee and a Harvard graduate. Didi is considered a major global competitor of Uber, but it provides a wider range of services and a more customer-orientated business model (Liu and Kim, 2018). This helped Didi to successfully out-compete and eventually acquire Uber China in 2016. Since 2015, Didi has initiated its globalization strategy and it is now operating in several Asia-Pacific countries, such as Japan and Australia. Shi Zhengrong Shi Zhengrong, a Chinese-Australian entrepreneur and scientist, represents a typical Chinese immigrant global innovator. Shi obtained his doctorate in renewable energy engineering from the University of New South Wales in the early 1990s, and then worked as a researcher and set up a few high-technology businesses in Australia. Shi returned to China in the early 2000s after he acquired Australian citizenship, and later set up a solar power company – Suntech Power. Headquartered in China, Suntech also had businesses and representative offices in Australia and several other countries in the world. Suntech was the first Chinese private high-technology company to be listed on the New York Stock Exchange (Seet, 2010). Shi was also named China’s richest man in 2006 and the company was ranked among the top three in the world’s photovoltaics industry in 2013. Suntech filed for bankruptcy in 2013 owing to the company’s financial crisis. However, Shi’s innovation and entrepreneurship journey did not stop there. In 2019, it is reported that Shi returned to Australia, dubbed as the ‘Sun King’ and unveiled Australia’s largest lightweight solar set-up (Coote, 2019). One characteristic of the founders of these global businesses is that they are global talents that live, study and work in many countries (Ho et al., 2016). They capitalize on the developments of increasing global mobility, self-initiated expatriation and ‘boundaryless’ careers (Arthur and Rousseau, 1996; Cerdin and Selmer, 2014), especially in the context of international talent flow (Carr et al., 2005). For example, Ye Wenjun, studied in Dublin, Ireland and London, UK, before returning to China to work and establish Panda Credit in Beijing. She has been based in Southeast Asia since 2017 to focus on growing her market there. Similarly, Shi Zhengrong moved back to China after he had secured Australian citizenship to start Suntech Power. However, with the change in economic conditions, he has returned to Australia to pursue new opportunities.

CONCLUSION The middleman minority theory forms an important body of scholarship in immigrant entrepreneurship research. Originating in the context of colonial and early post-colonial societies, a typical middleman was profiled as an immigrant of ethnic minority background who occupies an intermediary occupation, most likely a small business owner in trade and commerce sectors. Despite being discriminated against by the locals, he or she does not hold an extreme subordinate economic status and is often better off than an average native. He or she retains strong ethnic and cultural identity and prefers to do business with his or her own immigrant community. Most importantly, he or she holds an ambivalent attitude towards the host country and acts as a sojourner struggling to decide

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whether to settle down permanently or to someday return to his or her home country (Blalock, 1967; Bonacich, 1973). Framed within the context of the contemporary era, we evaluated new (1978 to the present) immigrant entrepreneurs from mainland China in the Asia-Pacific region against the portrait of classic middleman minorities as their predecessors. Based on two dimensions of local–global and trader–innovator, we identified another three emerging types of Chinese immigrant entrepreneurs in addition to middleman minorities: neo-middleman minorities, transnational traders and global innovators. We conducted a review of the recent literature on contemporary Chinese immigrants by using archival research which was supplemented with cases drawn from secondary data and from our own field studies. We find that in general, the majority of Chinese immigrant entrepreneurs are still middleman minorities since they are mainly in trading, catering and retail industries, they are not fully integrated into the host country and they prefer to do business with their own Chinese community and hire Chinese employees. However, unlike their predecessors, newer Chinese immigrant middlemen entrepreneurs are more likely to be considered as middle class in host countries owing to their financial resources and educational levels. They are sojourner orientated, with many of them being more sentiment based towards China rather than anticipating an imminent or actual return to China. Meanwhile, we also find evidence for three new types of contemporary Chinese immigrant entrepreneurs. For each group, we illustrate with a group case and an individual case. From the cases, we notice that, while still in relatively small proportions, many of the Chinese immigrant entrepreneurs are gradually moving out of their enclave economies, moving up the value chain, and a few of them are becoming global innovators. Furthermore, we can see that female Chinese high-technology entrepreneurs are showing a noticeable presence in globalization and technology innovation, which are the major drivers that are propelling the transformation of contemporary Chinese immigrant entrepreneurs. We thus expect increasingly more immigrant entrepreneurs to break through the enclave economy and diverge into different entrepreneurial paths in the coming future. This study also faces some limitations that are likely to guide further research. First, there are some competing theories which may assist the understanding of our analysis. For example, the extension of the dual-embeddedness theory, namely, the mixed embeddedness theory was not used or discussed in detail but may have scope for better understanding the growing phenomenon of Chinese immigrant entrepreneurs who are global innovators (Ho et al., 2018). Second, this chapter focuses exclusively on the Asia-Pacific region, and we cannot generalize our findings to other contexts but this can be achieved through further research in other major host regions for mainland Chinese immigrant entrepreneurs (North America, Europe and certain parts of Africa).

NOTES 1. The sentence is a literal translation of the Chinese proverb ‘槍打出頭鳥’. 2. The term ‘glory returnee’ is derived from the Chinese idiom ‘榮歸故里’, which means when a person succeeds in a host place or country, then he or she returns homeland with glory and respect from people of the homeland.

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15 September 2020 at https://www.stats.govt.nz/information-releases/2018-census-totals-by-topic-nationalhighlights-updated. Tharenou, P. and P.S. Seet (2014), ‘China’s reverse brain drain: regaining and retaining talent’, International Studies of Management & Organization, 44 (2), 55–74. United Nations (2002), ‘Results of a pilot survey of forty selected organized criminal groups in sixteen countries’, September, Vienna. United Nations (2019), International Migration 2019, New York: United Nations. Waldinger, R. (1986), ‘Immigrant enterprise: a critique and reformulation’, Theory and Society, 15 (1–2), 249–85. Wang, S., T. Sigler, Y. Liu and J. Corcoran (2018), ‘Shifting dynamics of Chinese settlement in Australia: an urban geographic perspective’, Geographical Research, 56 (4), 447–64. Waugh, R. (2018), ‘How China is leading the world in tech innovation (and what the West can learn from it)’, Telegraph, 16 November, accessed 21 August 2020 at https://www.telegraph.co.uk/connect/better-business/ business-solutions/china-technology-innovation/. Weber, M. (1993), The Sociology of Religion, Boston, MA: Beacon Press. Willmott, W.E. (1966), ‘The Chinese in Southeast Asia’, Australian Outlook, 20 (3), 252–62. Wong, B.P. (1998), Ethnicity and Entrepreneurship: The New Chinese Immigrants in the San Francisco Bay Area, Boston, MA: Allyn and Bacon. Xiang, B. (2016), ‘Emigration trends and policies in China: movement of the wealthy and highly skilled’, in S. Guo and Y. Guo (eds), Spotlight on China, Rotterdam: Sense, pp. 245–67. Xie, Z. (2018), ‘Im/materializing cross-border mobility: a study of mainland China–Hong Kong daigou (cross-border shopping services on global consumer goods)’, International Journal of Communication, 12, 4052–65. Zheng, J. (2017), ‘Daidou can a complex story be told without words?’, Master’s dissertation, Northeastern University, Boston, MA, accessed 15 September 2020 at https://repository.library.northeastern.edu/files/neu: cj82qk93q/fulltext.pdf. Zhou, M. (2010), Chinatown: The Socioeconomic Potential of an Urban Enclave, Philadelphia, PA: Temple University Press. Zhou, M. and H. Liu (2016), ‘Homeland engagement and host-society integration: a comparative study of new Chinese immigrants in the United States and Singapore’, International Journal of Comparative Sociology, 57 (1–2), 30–52.

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Compensatory entrepreneurship Benson Honig

Entrepreneurship has become a nearly universal synonym for proactive development and initiative worldwide, it generates considerable interest, thousands of professors teaching tens of thousands of classes worldwide, and generates a wealth of research (Aldrich, 2012) of which this encyclopedia is emblematic. For example, all the chapters are fundamentally encouraging and supportive of continuing and expanding entrepreneurship promotion and all its associated activities. Social media and entertainment are saturated with success stories of unicorns, that is, anomalies that fail to reflect the actual entrepreneurial environment (Aldrich and Ruef, 2018). However, from a purely social science perspective, no intervention is without weaknesses, and there are unanticipated consequences of nearly every attempt to advance one group over another (Doane, 2013; Koopmans, 2003; Levy, 2010). The discussion of entrepreneurial failure seems to have been swept under the proverbial rug, as we enthusiastically march on to promote solutions to problems often only poorly understood, such as inequality, lack of mobility and weak economic development. The field’s enthusiasm is effusive, as the noted scholar Don Kuratko (2005: 578) enthusiastically reports: ‘The revolution has begun in an economic sense, and the entrepreneurial perspective is the dominant force!’ Perhaps the most ubiquitous factor promoting entrepreneurship is the education sector, where interventions occur throughout the world, from kindergarten through postgraduate training and on to faculty and research scholars. Yet, despite the enthusiasm for training and preparing individuals, entrepreneurship support is a poorly understood and weakly researched domain. A recent systematic review reported that: Despite considerable enthusiasm in the public policy sphere, our review clearly demonstrates that research in the field provides only limited and highly idiosyncratic findings designed to help general and technology-based entrepreneurs to effectively succeed. Studies rarely utilize control populations and are based on weak theoretical backgrounds. They fail to incorporate state of the art methods and are typically cross sectional or of a case study nature. (Ratinho et al., 2020)

The history of science has numerous dead ends, including fields as diverse as phrenology, eugenics, planetary epicycles and Lamarckism. What makes science evolve is both replication (poorly practiced in entrepreneurship research) and objective measurements and controls. Unfortunately, the field of entrepreneurship support is very weak regarding these important scientific foundational premises. Scholars of entrepreneurship, including the authors in this encyclopedia, have all to gain by the near universal link between entrepreneurship as an effective solution to solve public problems, including poverty, inequality, immigration integration and inefficient government services. However, as a field of study, there are severe limitations to what is in effect a phenomenological arena of study lacking a clear theoretical or definitional framework; what Sorenson and Stuart (2008) assert is a ‘field of dreams’. Unfortunately, only a very limited amount of research has examined entrepreneurship 22

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failure, particularly as it relates to social and governmental policy. Instead, we are inundated with Shark Tank and Dragon’s Den television entertainment, which is frequently replicated in a local context as communities and universities attach themselves to the importance of developing entrepreneurial incubators, local competitions and elevator pitch contests with prizes and media attention. This enthusiasm has diffused widely into the research literature as well (Clark, 2008; Davis et al., 2017; Maxwell and Lévesque, 2014; Pollack et al., 2012; Smith and Viceisza, 2018). However, despite a few exceptions (Olaison and Sørensen, 2014; Shepherd, 2004), the subject of entrepreneurial failure has been largely overlooked. Thus, while entrepreneurship is celebrated and revered worldwide, only limited study has occurred regarding what negative consequences can arise from promoting this sociopolitical agenda at the expense of others. Media celebrates the rare cases of unicorns, which are businesses that reflect extremely rare examples that are highly successful but very difficult to predict, observe or learn from (Aldrich and Ruef, 2018). The new gig economy is celebrated as future opportunity (Smith and Viceisza, 2018), although for most participants it leaves much to be desired (Petriglieri et al., 2019). It is as though we promote lotteries to address economic and socio-political problems by celebrating the very few winners, and encouraging others to purchase their own tickets.

COMPENSATORY ENTREPRENEURSHIP: A NEW PERSPECTIVE In two recent articles (Honig, 2017, 2018), I introduced a new term, ‘compensatory entrepreneurship’. I define compensatory entrepreneurship as ‘the political endorsement of entrepreneurial promotion activities, including training, incubation, and media dissemination, for the primary objective of maintaining political and/or economic control of one population over another’ (Honig, 2017: 457). As we observe growing global inequality (Piketty, 2017), compensatory entrepreneurship continues to gain a greater share of attention on the political stage. It is particularly vibrant where existing elites are unwilling to consider reorganizing access to positions of power through meritocracies or education, and favor instead the selling of dreams of success to the masses of disenfranchised. Given current demographics and economic inequalities, these somewhat cynical offerings are likely to prosper worldwide. Instead of offering valuable access to knowledge and highproductivity employment, leaders and governments will continue to find it expedient to offer entrepreneurship training in reply to those seeking entry into positions of authority and power. Examples abound. I observed a systematically run program in a South African township, poor shantytowns left over from the apartheid era. It is in these shantytowns (or adjacent to them) that scholars from the university engage in short 3- to 4-day training programs, ostensibly to promote the development of cooperatives and entrepreneurial activity in the shantytowns. Lacking basic infrastructure, such as water and electricity, groups of university faculty train hundreds of desperate young and unemployed persons on the nuances of opening a cooperative or an entrepreneurial venture. There is no real opportunity available, the participants are not prepared and have little or no capital or knowledge, and the most effective assistance I observed during these sessions was the

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provision of a free lunch each day, which was enthusiastically consumed. I was told that the mayor organized and paid for this program in order to support both the political promises made (jobs for everyone) and the political advantages of running a neoliberaloriented program – whether or not it provided any results. Other examples include my observations at entrepreneurship education in a number of African countries. Students are typically taught in very large classes, often over 100 students. They are taught about entrepreneurship, not how to do entrepreneurship, and are given examinations based on detailed minutia that evaluates their ability to memorize trivial information rather than engaging in entrepreneurial activities. When interviewed after they graduate, unemployed students frequently indicate that they are waiting for a government job, despite leveraging their time with various entrepreneurial business activities. Their reason is that culturally, a government job is high status and guaranteed employment, whereas entrepreneurial endeavors embody risk. As a consequence, few university graduates are willing to indicate that they hope to be entrepreneurs as this would amount to a social failure on their part. What is necessary to avoid the diffusion of compensatory entrepreneurship worldwide? Most importantly, we need to focus on careful and effective entrepreneurship education evaluation. We should be measuring the impact of our programs longitudinally, many years after they take place, to discern what works and what does not. This would require careful studies with control groups and effective monitoring of outcomes, such as startups, jobs created, firm growth and satisfaction of the entrepreneur. Unfortunately, many studies lack rigorous measures (Martin et al., 2013). Programs or research activities that incorporate the heterogeneity we now recognize as a normative component of entrepreneurship are rare (Honig and Martin, 2014; Zeng and Honig, 2016).

ENTREPRENEURSHIP, INEQUALITY AND THE SEARCH FOR HOPE The notion of compensatory entrepreneurship represents a serious legitimacy challenge to the field of entrepreneurship. If professionals and advocates use public resources to promote particular activities, we have a responsibility to ensure that money is well invested. Supporting an ‘entrepreneurship solves all problems’ bubble risks marginalizing the field when, eventually, policymakers and citizens realize we have not delivered on the promised goods. Rising inequality is likely to make access to effective entrepreneurship even more important, but success is determined as much by the institutional environment as by any support or training provided. Entrepreneurship educators should make a more systematic effort to examine issues related to failure, and introduce the subject of failure widely through our curriculum. Holding the carrot of unicorn status is both unreasonable and unprofessional. Scholars should begin the process of identifying how and when they are participating in valid programs with positive outcomes, versus programs that sell hope to desperate people but yield little more than a free lunch or two. As bottom-of-thepyramid social entrepreneurship continues to gain a greater foothold, we require a more accurate and honest assessment of our entrepreneurship promotion activities. The alternative is that we entrepreneurship scholars will be added to the dustbins of phrenologists, eugenicists and Lamarckists of earlier eras.

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REFERENCES Aldrich, H. and M. Ruef (2018), ‘Unicorns, gazelles, and other distractions on the way to understanding real entrepreneurship in the United States’, Academy of Management Perspectives, 32 (4), 458–72. Aldrich, H.E. (2012), ‘The emergence of entrepreneurship as an academic field: A personal essay on institutional entrepreneurship’, Research Policy, 41 (7), 1240–48. Clark, C. (2008), ‘The impact of entrepreneurs’ oral “pitch” presentation skills on business angels’ initial screening investment decisions’, Venture Capital, 10 (3), 257–79. Davis, B.C., K.M. Hmieleski, J.W. Webb and J.E. Coombs (2017), ‘Funders’ positive affective reactions to entrepreneurs’ crowdfunding pitches: the influence of perceived product creativity and entrepreneurial passion’, Journal of Business Venturing, 32 (1), 90–106. Doane, D. (2013), ‘Good intentions–bad outcomes? The broken promise of CSR reporting’, in A. Henriques and J. Richardson (eds), The Triple Bottom Line, London: Routledge, pp. 103–10. Honig, B. (2017), ‘Compensatory entrepreneurship: avoiding the pitfalls of global isomorphic entrepreneurship research and activities’, Iberoamerican Journal of Entrepreneurship and Small Business, 6 (3), 452–65. Honig, B. (2018), ‘Entrepreneurship as a political tool: the implications of compensatory entrepreneurship’, in C. Mathers and E. Ligouri (eds), Annals of Entrepreneurship Education and Pedagogy, 3rd edn, Cheltenham, UK and Northampton, MA: Edward Elgar, pp. 203–17. Honig, B. and B. Martin (2014), ‘Entrepreneurship education’, in A. Fayolle (ed.), Handbook of Research on Entrepreneurship, Cheltenham, UK and Northampton, MA: Edward Elgar, pp. 127–46. Koopmans, R. (2003), ‘Good intentions sometimes make bad policy: a comparison of Dutch and German integration policies’, in R. Cuperus, K.A. Duffek and J. Kandel (eds), The Challenge of Diversity: European Social Democracy Facing Migration, Integration, and Multiculturalism, Innsbruck: Studien Verlag, pp. 163–8. Kuratko, D.F. (2005), ‘The emergence of entrepreneurship education: development, trends, and challenges’, Entrepreneurship Theory and Practice, 29 (5), 577–98. Levy, S. (2010), Good Intentions, Bad Outcomes: Social Policy, Informality, and Economic Growth in Mexico, Washington, DC: Brookings Institution Press. Martin, B.C., J.J. McNally and M.J. Kay (2013), ‘Examining the formation of human capital in entrepreneurship: a meta-analysis of entrepreneurship education outcomes’, Journal of Business Venturing, 28 (2), 211–24. Maxwell, A.L. and M. Lévesque (2014), ‘Trustworthiness: a critical ingredient for entrepreneurs seeking investors’, Entrepreneurship Theory and Practice, 38 (5), 1057–80. Olaison, L. and B.M. Sørensen (2014), ‘The abject of entrepreneurship: failure, fiasco, fraud’, International Journal of Entrepreneurial Behavior & Research, 20 (2), 193–211. Petriglieri, G., S.J. Ashford and A. Wrzesniewski (2019), ‘Agony and ecstasy in the gig economy: cultivating holding environments for precarious and personalized work identities’, Administrative Science Quarterly, 64 (1), 124–70. Piketty, T. (2017), Capital in the Twenty-First Century, Cambridge, MA: Harvard University Press. Pollack, J.M., M.W. Rutherford and B.G. Nagy (2012), ‘Preparedness and cognitive legitimacy as antecedents of new venture funding in televised business pitches’, Entrepreneurship Theory and Practice, 36 (5), 915–39. Ratinho, T., A. Amezcua, B. Honig and Z. Zeng (2020), ‘Supporting entrepreneurs: a systematic review of literature and an agenda for research’, Technological Forecasting and Technical Change, 154 (C), doi:10.1016/j. techfore.2020.119956. Shepherd, D.A. (2004), ‘Educating entrepreneurship students about emotion and learning from failure’, Academy of Management Learning & Education, 3 (3), 274–87. Smith, B. and A. Viceisza (2018), ‘Bite me! ABC’s Shark Tank as a path to entrepreneurship’, Small Business Economics, 50 (3), 463–79. Sorenson, O. and T.E. Stuart (2008), ‘12 Entrepreneurship: a field of dreams?’, Academy of Management Annals, 2 (1), 517–43. Zeng, Z. and B. Honig (2016), ‘How should entrepreneurship be taught to students with diverse experience? A set of conceptual models of entrepreneurship education’, in J. Katz and A. Corbett (eds), Advances in Entrepreneurship, Firm Emergence and Growth, Bingley: Emerald, pp. 237–82.

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Coopetition as an entrepreneurial strategy: focus on the wine sector James M. Crick and David Crick

Coopetition is a fundamental entrepreneurial marketing strategy (Bouncken and Kraus, 2013; Bengtsson and Johansson, 2014; Granata et al., 2018; Crick, 2020a; Crick and Crick, 2020). It is the interplay between cooperation and competition, whereby competing firms share resources (for example, equipment and hardware) and capabilities (such as knowledge and experience) for mutually beneficial outcomes (Ritala and HurmelinnaLaukkanen, 2013; Bengtsson and Raza-Ullah, 2016; Hannah and Eisenhardt, 2018). Since coopetition strategies are intended to provide companies with new resources, capabilities and opportunities that would not exist under individualistic business models, it is not surprising that an existing body of research surrounds the link between coopetition and company performance (Ang, 2008; Ritala, 2012; Gnyawali and Charleton, 2018; Crick, 2019a). A common theme throughout the broader cross-disciplinary literature is that higher-levels of coopetition lead to increased company performance (Bengtsson and Kock, 2014; Shu et al., 2017; Hoffmann et al., 2018; Crick et al., 2020a). Coopetition has been examined in various empirical contexts; for example, automotive manufacturers (Akpinar and Vincze, 2016), high-technology firms (Gnyawali and Park, 2011), airline carriers (Czakon and Dana, 2013), tourism service providers (Czakon and Czernek, 2016), agricultural markets (Felzensztein and Deans, 2013), craft breweries (Mathias et al., 2018) and sporting organisations (Crick and Crick, 2016a). However, entrepreneurs owning wine-producing businesses within various countries have been active in implementing coopetition strategies. Specifically, various countries’ wine sectors host high degrees of cooperativeness and competitiveness – ideal forces (industry dynamics) for studying coopetition (see, for example, Telfer, 2001; Dana and Winstone, 2008; Dana et al., 2013; Crick, 2018a; Felzensztein et al., 2019; Granata et al., 2019). Consequently, the purpose of this chapter is to highlight the benefits and drawbacks of coopetition strategies by utilising published work from the global wine industry. This is important, so that scholarly and practical recommendations can follow regarding the effective implementation of coopetition strategies by owner-managers in competitive business environments. In addition, this investigation emphasises certain under-researched issues that academics can pursue to strengthen the existing body of knowledge.1 Importantly, this entry draws upon the wine industry as an empirical context used to explore coopetition, but conceptualisations to apply to other contextual settings. According to Jones and Rowley (2011), context is important in entrepreneurial marketing research, whereby, to advance theoretical knowledge, academics must study constructs or topics in relevant environments (such as industries or countries) that build upon or challenge earlier work. In this chapter, the global wine industry features as an empirical context that can enhance scholars’ current understanding of the facets, antecedents and consequences of the coopetition construct. To achieve the purpose of this chapter, the 26

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remaining sections are as follows. First, some key definitions and schools of thought pertaining to coopetition are examined. Second, the nature of the link between coopetition and company performance is conceptualised. Third, the extant literature examining coopetition in a wine-industry context is explored. Fourth, some future research directions are outlined. Fifth, the chapter is concluded, together with some practitioner implications.

KEY DEFINITIONS AND SCHOOLS OF THOUGHT The coopetition construct originated from the business-to-business marketing literature in the 1990s. During this time, there were two schools of thought pertaining to how companies collaborate with their competitors. On the one hand, Brandenburger and Nalebuff (1996) argued that coopetition is an organisation-wide mind-set pertaining to managers and functional-level employees believing that company performance is maximised through working with industry rivals for mutually beneficial outcomes. On the other hand, Bengtsson and Kock (1999) investigated coopetition as a set of firm-level behaviours surrounding managers and function-level members of staff collaborating with their competitors via resource and capability-sharing activities. Over time, the behavioural view of coopetition has been the more popular school of thought. That is, scholars who have strengthened the coopetition literature have typically leaned towards conceptualising, operationalising and empirically evaluating coopetition as a set of firm-level behaviours (see Luo et al., 2007; Rusko, 2011; Dana et al., 2013; Czakon and Czernek, 2016; Hannah and Eisenhardt, 2018; Crick et al., 2020a). Hereafter in this chapter, coopetition is examined as an entrepreneurial marketing strategy, in which the behavioural lens is considered. The organisation-wide mind-set view of the coopetition construct is accounted for as a potential future research direction. Under a behavioural view, Bengtsson and Kock (2000: 411) defined coopetition as ‘a dynamic and paradoxical relationship, which arises when two companies cooperate in some areas (such as strategic alliances), but simultaneously compete in other areas’. While this definition was a good start at formally conceptualising how coopetition might occur, it contained the major flaw of being restricted to simultaneous collaboration and competition between two organisations. That is, there might be circumstances where more than two rival firms share resources and capabilities, and not least in a business cluster (see Luo et al., 2007; Dana and Winstone, 2008; Ritala and Hurmelinna-Laukkanen, 2013; Bengtsson and Johansson, 2014; Crick, 2018a; Felzensztein et al., 2019). Therefore, in their later work, Bengtsson and Kock (2014: 180) re-defined coopetition as ‘a paradoxical relationship between two or more actors, regardless of whether they are in horizontal or vertical relationships, simultaneously involved in cooperative and competitive interactions’. The latter definition not only provided scope for coopetition strategies to apply to multiple rival organisations, but also, indicated that coopetition could exist in vertical or horizontal channels. In this chapter, horizontal coopetition strategies are the core focus, rather than vertical forms of coopetition, in terms of supply chain networks. There have been several special issues dedicated to the interplay between cooperation and competition (see Bengtsson and Kock, 2014; Hoffmann et al., 2018). For example, Bengtsson and Kock (2014) guest edited a special issue of Industrial Marketing

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Management which covered several issues surrounding the benefits and drawbacks of coopetition strategies. As mentioned previously, Bengtsson and Kock (2014) re-defined the coopetition construct to apply to multiple rival entities, as well as covering vertical and horizontal forms of these activities (building upon Bengtsson and Kock, 2000). Furthermore, this special issue covered some of the dark sides of coopetition strategies, such as the potential for inter-firm tensions (for example, conflict, power imbalances and opportunistic behaviours) when the coopetition paradox is unhinged (Park et al., 2014; Raza-Ullah et al., 2014; Tidstrom, 2014). More recently, the Strategic Management Journal published a special issue on coopetition (guest edited by Hoffmann et al. in 2018). These articles unpacked the complexities of the relationship between coopetition and company performance, including the advantages and disadvantages of collaborating with competitors (Arslan, 2018; Cui et al., 2018; Hannah and Eisenhardt, 2018; Mathias et al., 2018). In summary, although coopetition strategies are widely studied throughout the existing body of cross-disciplinary knowledge, there are research gaps that academics are continuing to investigate. The link between coopetition and company performance follows in the next section.

COOPETITION AND COMPANY PERFORMANCE Following an earlier point, the relationship between coopetition and company performance has been recognised in previous research (Ang, 2008; Bengtsson and Kock, 2014; Shu et  al., 2017; Hoffmann et al., 2018; Crick et al., 2020a). Upon closer inspection, this link has been evaluated in several capacities, that is, in linear, non-linear (inverted U-shaped) and moderating effects (see Luo et al., 2007; Ritala, 2012; Crick, 2019a). Regarding the linear association between coopetition and company performance, some scholars have suggested that by collaborating with competitors, firms can obtain new resources, capabilities and opportunities that would not exist under individualistic business models (where coopetition does not exist) (Bengtsson and Kock, 1999; Ritala, 2012; Bengtsson and Johansson, 2014; Bengtsson and Raza-Ullah, 2016; Hannah and Eisenhardt, 2018; Crick et al., 2020c). That is, these findings suggest that higher-levels of coopetition lead to improved company performance. While this may be true, an alternative point of view signifies that coopetition is not always a performance-driving entrepreneurial marketing strategy. Specifically, some academics have indicated that there is a diminishing-returns effect when firms share resources and capabilities with industry rivals (see Luo et al., 2007; Ang, 2008; Hoffmann et al., 2018; Crick, 2019b). For example, cooperation with competitors needs to be carefully considered and judiciously executed because an over-reliance on highly-intensive competitor alliances may be just as harmful as under-using such alliances. Excessive cooperation may lead to free-riding and opportunistic exploitation, a potential loss of proprietary, technological, and marketing capabilities, and a possible dulling of a firm’s incentives to stay customer-focused. (Luo et al., 2007: 81)

With ‘too little’ coopetition, organisations might struggle to survive within their markets, as they are unlikely to possess enough resources and capabilities needed to satisfy their customers’ wants and needs (Rusko, 2011; Bouncken and Kraus, 2013; Bengtsson and

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Raza-Ullah, 2016; Crick, 2018a; Gnyawali and Charleton, 2018). However, although cooperating with competitors may lead to improved company performance, these outcomes are unlikely to be unlimited. With ‘too much’ coopetition, businesses might experience certain negative consequences: for example, lost intellectual property, inter-firm tensions (such as conflict, power imbalances, and opportunistic behaviours) and diluted competitive advantages (Luo et al., 2007; Ang, 2008; Ritala and Hurmelinna-Laukkanen, 2013; Raza-Ullah et al., 2014; Tidstrom, 2014; Bouncken et al., 2018; Cui et al., 2018). Thus, firms have the difficult task of engaging in an optimal level of coopetition to avoid these harmful effects on their performance (see Crick, 2020a). An emerging body of knowledge pertains to the moderators that might affect the relationship between coopetition and company performance (Park et al., 2014; Bengtsson et al., 2016; Crick, 2019a). Hoffmann et al. (2018) argued that this link is highly likely to be affected by contingencies that might help or hinder the performance outcomes of these strategies. For instance, the competitive business environment has been evaluated as a moderator that can affect the coopetition–company performance relationship in different capacities (Ang, 2008; Ritala, 2012; Shu et al., 2017). One viewpoint is that the competitive business environment can create more opportunities for organisations to engage in performance-driving forms of coopetition, since they can be selective as to which rivals they share resources and capabilities with, in relation to complementary product-markets (Felzensztein and Deans, 2013; Felzensztein et al., 2018; Crick, 2019b). Another argument is that the competitive business environment can enhance the dark sides of collaborating with competitors owing to the risk to inter-firm tensions, lost intellectual property and diluted competitive advantages (Luo et al., 2007; Crick and Crick, 2020). In this current entry it is appreciated that the coopetition–company performance relationship is complex, with scope for linear, non-linear (inverted U-shaped) and moderating effects. Nonetheless, later sections of this chapter revisit the moderating role of the competitive business environment in greater depth. Coopetition in a wine-industry context is discussed in the next section.

COOPETITION IN THE WINE INDUSTRY Coopetition has been explored in a range of industry settings within numerous countries (Gnyawali and Park, 2011; Crick and Crick, 2016a; Czakon and Dana, 2013; Czakon and Czernek, 2016; Felzensztein and Deans, 2013; Akpinar and Vincze, 2016; Mathias et al., 2018; Kraus et al., 2019). When studying coopetition, it is important to select a sector (or sectors) that hosts a high degree of cooperativeness and competitiveness (Bengtsson and Johansson, 2014; Bengtsson and Raza-Ullah, 2016; Hannah and Eisenhardt, 2018). The reason for this is that coopetition is the interplay between cooperation and competition, and to fully understand the coopetition construct (as well as its antecedents and consequences), scholars must conduct research in an industry that is highly cooperative and highly competitive (Bengtsson and Kock, 2000; Rusko, 2011; Bouncken and Kraus, 2013; Felzensztein et al., 2014; Geldes et al., 2017; Granata et al., 2019). According to Crick (2018b), wine-producing countries across the world are suitable for studying coopetition, since these markets manage competitive rivalry alongside cooperative behaviours. Clusters have been studied in various industry contexts.2 Regarding cooperativeness,

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vineyards and wineries have been found to actively share equipment and experience with rivals within their own clusters (and between wine regions) for mutually beneficial outcomes (see Dana and Winstone, 2008; Dana et al., 2013; Granata et al., 2018; Felzensztein et al., 2019; Crick et al., 2020c). However, irrespective of the extent to which vineyards and wineries collaborate with their industry counterparts, the firms involved are still competitors. That is, the global wine industry is very competitive, in the extent to which organisations compete for the same domestic and international product-markets (Felzensztein et al., 2014; Crick, 2015; Crick et al., 2020a). Consequently, in any sector, but with the wine industry being a prime example, even in the most cooperative forms of coopetition, there will always be a degree of rivalry involved (Bengtsson and Kock, 1999; Luo et al., 2007; Ritala, 2012; Arslan, 2018; Bouncken et al., 2018; Crick, 2019a). The following ten studies provide some strong theoretical and practical contributions to the entrepreneurship (and entrepreneurial marketing) literature. Their connection is that they have explored coopetition strategies using empirical data from a wine industry context (in various countries). First, Telfer (2001) undertook a qualitative investigation of coopetition in the Niagara wine region of Canada. The findings revealed that coopetition can occur informally or formally, in which vineyards and wineries can establish contractual strategic alliances or cooperate in ways that are not legally binding, such as sharing resources and capabilities. Telfer (2001) suggested that coopetition might lead to regional growth, such as promoting wine tourism to local visitors and tourists from further afield. However, Telfer (2001) focused on formal types of coopetition (for example, strategic alliances), and how they benefit the companies involved. Second, Dana and Winstone (2008) examined coopetition strategies within the Waipara wine region in the South Island of New Zealand. They emphasised that coopetition is vital for enhancing the national-level and international-level reputation of relatively boutique wine regions. Dana and Winstone (2008) suggested that coopetition strategies allow vineyards and wineries to access new resources and capabilities to produce highquality wine, as well as ways to assist them to enter new and existing export markets. In turn, coopetition can help vineyards and wineries to increase their performance, especially their sales in international product-markets. Third, continuing with work conducted in the Waipara wine region, Dana et al. (2013) found that coopetition can evolve owing to a range of cluster-level and industry-level factors. For example, as the New Zealand wine industry expands its relationships with stakeholders (such as universities, regional institutions and marketing boards), individual vineyards and wineries might be motivated to collaborate with their competitors to capitalise on opportunities pertaining to the growth of the sector. Also, Dana et al. (2013) suggested that coopetition can help vineyards and wineries to improve their performance, but these outcomes are potentially influenced by the growth of the sector, suggesting that particular environmental-level conditions can positively impact the coopetition–company performance link. Recent work has addressed Dana et al.’s (2013) assertions by examining how the competitive business environment might moderate the coopetition–company performance relationship (see Park et al., 2014; Shu et al., 2017; Hoffmann et al., 2018; Crick and Crick, 2020). Fourth, Felzensztein et al. (2014) examined the dynamics of coopetition strategies in four wine-producing countries in the Southern Hemisphere, namely, Argentina, Australia,

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New Zealand and Chile. They found that coopetition is a beneficial entrepreneurial marketing strategy, in relation to the likely positive association with company performance in export markets. That is, if vineyards and wineries were to compete under an individualistic business model, their brand equity and export sales might be low since it is difficult for such entities to successfully perform in an international arena. Felzensztein et al. (2014) indicated that coopetition allows vineyards and wineries to pool resources and capabilities (such as cash, equipment, hardware, production facilities, knowledge and experience) to create value for customers in export markets, but also lowers their operating costs in these arenas. Felzensztein et al. (2014) highlighted that while coopetition strategies are best implemented when the organisations involved are prepared to be cooperative, there will always be a rivalry element to these activities, encouraging the businesses involved to exercise caution. Nonetheless, Felzensztein et al.’s (2014) study contributed to a growing body of knowledge surrounding the positive relationship that exists between coopetition and company performance (see also, Bengtsson and Kock, 2000; Rusko, 2011; Ritala, 2012; Bouncken and Kraus, 2013; Crick, 2018a). They also extended the relatively limited volume of research associated with coopetition strategies for internationalised firms (see also, Dana and Winstone, 2008; Granata et al., 2018; Felzensztein et al., 2019; Crick and Crick, 2020). This was an important issue, since implementation of coopetition strategies might take place differently in international product-markets compared with domestic arenas (Etemad et al., 2001; Luo, 2005; Luo and Tung, 2007). That is, international competitive business environments are affected by volatile dynamics, such as varied customers’ wants and needs, complex supply chains, new technologies and different national-level cultures3 (Dana, 2001; Acs et al., 2003; Wright and Dana, 2003; Young et al., 2003; Ratten et al., 2007; Dana and Wright, 2009; Dana et al., 2009; Etemad et al., 2010; Crick and Crick, 2014; Ratten and Dana, 2015; Saridakis et al., 2019; Dabic et al., 2020). Fifth, Granata et al. (2018) examined coopetition strategies in the Pic Saint Loup region of France. They found that coopetition is a prominent entrepreneurial marketing strategy adopted by micro-firms, in which these entities have formal arrangements when collaborating with industry rivals. However, to separate the potential paradoxical forces of cooperativeness and competitiveness, very small vineyards and wineries require assistance from an industry-level governing body. Hence, Granata et al. (2018) recommended that regional-level and national-level policies should be used to help organisations to manage coopetition strategies, as well as to distinguish between how these businesses cooperate vis-à-vis compete. Granata et al.’s (2018) study supplemented other (including recent) work related to the management of coopetition strategies to reduce the damage from poorly organising the paradoxical forces of cooperativeness and competitiveness (see Luo et al., 2007; Ang, 2008; Raza-Ullah et al., 2014; Tidstrom, 2014; Czakon and Czernek, 2016; Cui et al., 2018). Sixth, Crick (2018a) used multi-source qualitative data from vineyards and wineries in New Zealand to evaluate a conceptual framework pertaining to the facets, antecedents and consequences of coopetition. Crick (2018a) found that coopetition-orientated behaviours are driven by an organisation-wide coopetition-orientated mind-set and firms having access to their competitors’ resources and capabilities. Specifically, coopetition strategies cannot occur if the rival entities involved do not believe in the performance-enhancing value of collaborating with competing businesses. In addition, coopetition requires companies being able to borrow their rivals’ assets for mutually beneficial outcomes, such

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as higher levels of financial performance, regional growth and customer satisfaction. Crick’s (2018a) study is among the limited number of studies to develop a conceptual framework depicting the dimensions, drivers and outcomes of the coopetition construct (see Gnyawali and Park, 2011; Gnyawali and Charleton, 2018; Hoffmann et al., 2018). Seventh, Felzensztein et al. (2019) explored small firm internationalisation using qualitative data from wine producers in Argentina, Chile and New Zealand. The key findings revealed that firm size and firm age are not key drivers of an ability to export wine, but an existence of an independent industry-level governing body can enhance their internationalisation capabilities. This can be achieved through facilitating coopetition strategies and networks between vineyards and wineries within particular wine clusters, as well as between regions. Thus, although Felzensztein et al.’s (2019) study indirectly investigated coopetition strategies, it contributed to the scarce, but growing, work on the interplay between cooperation and competition in an international arena (for example, Luo, 2005; Luo and Tung, 2007; Dana and Winstone, 2008; Granata et al., 2018; Crick and Crick, 2020). Eighth, Crick et al. (2020a) utilised qualitative data from the New Zealand wine industry to examine the potential dark sides of coopetition strategies. They found that coopetition is a multi-level construct, in which a strategy-as-practice perspective helped to explain how managers engage in a different form of coopetition compared with functional-level employees. While managers might perceive that they manage the interplay between cooperation and competition in an effective manner (balancing the paradoxical forces of cooperativeness and competitiveness), functional-level employees might distort this natural balance by behaving in a rivalrous capacity. Crick et al.’s (2020a) study contributed to an emerging strand of knowledge concerning the multiple-levels of the coopetition construct and how they help or hinder company performance (see Raza-Ullah et al., 2014; Bengtsson and Raza-Ullah, 2016). Similarly, Crick et al. (2020a) extended the growing body of literature linked to the dark side of coopetition (see Tidstrom, 2014; Czakon and Czernek, 2016; Bouncken et al., 2018; Cui et al., 2018). Ninth, Crick (2020a) examined other aspects of the dark sides of coopetition strategies using survey data from the New Zealand wine industry. Although earlier work has found that coopetition positively affects various assessments of company performance, such as sales, profitability and customer satisfaction (Luo et al., 2007; Ritala, 2012; Bouncken and Kraus, 2013; Bengtsson and Kock, 2014; Hannah and Eisenhardt, 2018), limited research surrounds the potential for a non-linear (inverted U-shaped) relationship (Luo et al., 2007; Ang, 2008; Crick, 2019b). Crick (2020a) conceptualised and tested the relationship between coopetition and three measures of company performance, namely, customer satisfaction performance, market performance and financial performance. This was important because entrepreneurs measure their success vis-à-vis failure in various ways (Dana, 1995; Hills et al., 2008; Dana et al., 2014; O’Cass and Morrish, 2016; Crick, 2018c; Crick and Crick, 2018b; Crick et al., 2018). That is, some entrepreneurs are growth orientated and seek to turn high profits, whereas, other owner-managers are lifestyle orientated and compete to yield a particular work–life balance (Crick and Crick, 2016d; Crick et al., 2016; Crick, 2020c). Previous research has found that vineyard and winery owner-managers can be growth orientated or lifestyle orientated (see Crick and Crick, 2015). In all three instances, Crick (2020a) found non-linear (inverted U-shaped) effects, suggesting that too little and too much coopetition is harmful for company performance,

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whereby, vineyards and wineries must engage in an optimal-level of coopetition to maximise their performance and to mitigate the negative effects that collaborating with competing businesses might entail. While this might be difficult to implement in practice, Crick’s (2020a) study (extending those of Luo et al., 2007; Ang, 2008; Crick, 2019b) uncovered new evidence about what performance outcomes different coopetition strategies are most likely to positively and negatively affect. Tenth, Crick and Crick (2020) used a mixed methods research design to evaluate the nature of the relationship between coopetition and market performance. Using survey and follow-up interview data from New Zealand vineyards and wineries, they found that coopetition activities have a non-linear (inverted U-shaped) link with market performance. More interestingly, they hypothesised that competitive intensity is likely to positively moderate this association, as higher levels of industry rivals can facilitate more effective (performance-driving) forms of coopetition, so that businesses can be more selective in their choice of coopetition partners, relating to complementary productmarkets (Felzensztein and Deans, 2013; Felzensztein et al., 2018; Crick, 2019b). Yet, their results suggested that competitive intensity negatively moderates the non-linear (inverted U-shaped) relationship between coopetition activities and market performance (Luo et al., 2007; Park et al., 2014). Their follow-up qualitative evidence indicated that competitive rivalry can distort the delicate balance between the paradoxical forces of cooperativeness and competitiveness, and yield dark sides, such as inter-firm tensions, lost intellectual property and diluted competitive advantages (Ritala and HurmelinnaLaukkanen, 2013; Tidstrom, 2014; Bouncken et al., 2018). Thus, Crick and Crick (2020) found that there is a complex link between coopetition and company performance (building upon Luo et al., 2007; Ang, 2008; Shu et al., 2017; Hoffmann et al., 2018). In addition, they addressed implementation issues regarding the paradoxical forces of cooperativeness and competitiveness, namely, to avoid particular harmful effects on firms’ performance (extending Tidstrom, 2014; Czakon and Czernek, 2016; Bouncken et al., 2018; Cui et al., 2018; Granata et al., 2018; Gnyawali and Charleton, 2018). Suggested directions for future research follow in the next section.

DIRECTIONS FOR FUTURE RESEARCH While coopetition strategies have been widely studied throughout the broader entrepreneurial marketing literature (Bengtsson and Kock, 2000; Luo, 2005; Dana and Winstone, 2008; Rusko, 2011; Ritala, 2012; Bouncken and Kraus, 2013; Bengtsson et al., 2016; Mathias et al., 2018; Granata et al., 2019), there are some major gaps that offer directions for future research. First, most coopetition-based research has examined the dimensions and consequences of these strategies, with only a handful of studies focusing on the drivers of coopetition (see Bengtsson and Kock, 1999; Dana et al., 2013; Crick, 2018a; Granata et al., 2018; Felzensztein et al., 2019). Future research should investigate the factors that motivate entrepreneurs to collaborate with their competitors, as well as the resources and capabilities that facilitate these strategies. For instance, scholars could focus on the nature and shape of the relationship between a coopetition-orientated mind-set and coopetition-orientated behaviours (building upon Brandenburger and Nalebuff, 1996; Gnyawali and Park, 2011; Gnyawali and Charleton, 2018; Crick and Crick, 2019).

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Second, an emerging body of knowledge pertains to the complexities of the coopetition– company performance relationship, such as the potential for non-linear (inverted U-shaped) and moderating effects, together with simple linear associations (see Luo et al., 2007; Ang, 2008; Ritala and Hurmelinna-Laukkanen, 2013; Crick, 2019a; Crick et al., 2020a). Therefore, in future research, academics are encouraged to explore the underlying mechanisms of the relationship between coopetition and company performance, including the potential for dark-side practices. This could involve moderators that might explain the variance of the potential non-linear (inverted U-shaped) effect (extending Luo et al., 2007; Ang, 2008; Crick and Crick, 2020). Furthermore, future research could evaluate whether there are any mediating factors in the coopetition–company performance relationship (also responding to Hoffmann et al., 2018). As an illustration, it might be that while there is a direct link between collaborating with competitors and company performance (as per Bengtsson and Kock, 1999; Gnyawali and Park, 2011; Ritala, 2012; Bouncken and Kraus, 2013; Granata et al., 2018; Kraus et al., 2019), there are intermediating variables at play. For example, without effective management of inter-firm relationships, coopetition might yield tensions (such as conflict, power imbalances and opportunistic behaviours), which in turn, negatively impact company performance (extending Raza-Ullah et al., 2014; Tidstrom, 2014; Czakon and Czernek, 2016; Bouncken et al., 2018). These issues, together with other mediators, offer future research opportunities. Third, a large proportion of the extant literature has concentrated on coopetition in domestic settings, whereby firms collaborate with their competitors within the same country (Rusko, 2011; Bengtsson and Johansson, 2014; Bengtsson et al., 2016; Czakon and Czernek, 2016). In contrast, research pertaining to coopetition in an international arena remains relatively under-researched (see Dana and Winstone, 2008; Shu et al., 2017; Granata et al., 2018; Felzensztein et al., 2019; Crick and Crick, 2020). Should scholars pursue this strand of literature, they ought to focus on how coopetition is implemented differently by firms competing in domestic arenas vis-à-vis international product-markets. Similarly, future research should consider the antecedents and consequences of international-level coopetition, as they might differ in comparison to the strategies in domestic settings. Fourth, theory needs to underpin any conceptualisations of the dimensions, drivers and outcomes of coopetition strategies (Bengtsson and Kock, 2014; Bengtsson and Raza-Ullah, 2016; Hoffmann et al., 2018). Popular theoretical lenses for investigating coopetition include resource-based theory, the relational view and stakeholder theory, as they help to explain the cooperative and competitive aspects of these strategies (Akpinar and Vincze, 2016; Gnyawali and Charleton, 2018; Hannah and Eisenhardt, 2018; Crick, 2019a; Crick et al., 2020a). Utilisation of a variety of theoretical lenses offer opportunities in future research. Fifth, many coopetition studies have been conceptual or qualitative (see Bengtsson and Kock, 2000; Luo, 2005; Rusko, 2011; Bengtsson and Raza-Ullah, 2016; Crick and Crick, 2016a; Hoffmann et al., 2018; Crick et al., 2020a), for which very few quantitative investigations exist (see Luo et al., 2007; Ang, 2008; Bouncken and Kraus, 2013; Crick and Crick, 2019; Crick, 2020a). Some measures of coopetition have been flawed, such as being uni-dimensional and employing single-item proxies (as per Ritala, 2012; Bouncken et al., 2018; Cui et al., 2018). Thus, future research should establish stronger measures of the coopetition construct. A strong methodology is needed to advance these

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aspects of the broader entrepreneurial marketing literature, including suitable checks for credible research methods (Dana and Dana, 2005). Considering the appropriateness of the global wine industry for studying coopetition (Telfer, 2001; Dana et al., 2013; Crick, 2015; Felzensztein et al., 2019; Granata et al., 2019), these under-researched areas could be explored in this empirical context. Conclusions and practitioner implications follow in the next section.

CONCLUSIONS AND PRACTITIONER IMPLICATIONS Our objective was to highlight the benefits and drawbacks of coopetition strategies by utilising published work from the global wine industry. This purpose was achieved through reviewing earlier work pertaining to the facets, antecedents and consequences of the coopetition construct. Then, drawing upon several articles that have examined coopetition strategies in particular wine-producing countries, this entry uncovered widely studied and under-researched issues that yield the following conclusions and practitioner implications. Importantly, although the global wine industry is a suitable empirical context for studying coopetition, it is merely one sector that has been employed to advance scholarly knowledge. However, the conceptualisations and empirical assertions related to vineyards and wineries, in this chapter, are likely to be transferrable to other industries that manage the paradoxical forces of cooperativeness and competitiveness. First, we conclude that while coopetition strategies might yield higher levels of company performance, this link is more likely to be complex, in which it is probably nonlinear (inverted U-shaped). Therefore, entrepreneurs should be careful not to engage in too little or too much coopetition, as there can be harmful effects on their performance. Second, we also conclude that the coopetition–company performance association is likely to be affected by moderating factors, such as the competitive business environment. Consequently, entrepreneurs must appreciate the competitive dynamics within their markets, as these forces could help or hinder the performance outcomes of coopetition strategies. Third, we finally conclude that there are various under-researched areas pertaining to coopetition. These include the antecedents of these strategies, the complexities of the link with company performance (the underlying mechanisms), coopetition in an international arena, particular theoretical lenses that can be applied to the interplay between cooperation and competition, and the measurement of the coopetition construct. Together, these gaps within the existing body of knowledge provide an interesting set of future research directions that can benefit academics and practitioners.

NOTES 1. Since coopetition emerged from the business-to-business marketing literature (Brandenburger and Nalebuff, 1996; Bengtsson and Kock, 1999) and extended to other cross-disciplinary domains, positioning of this entry features at the marketing/entrepreneurship interface (also known as entrepreneurial marketing). Entrepreneurial marketing refers to the innovative, proactive and risk-taking behaviours that firms use to create value for their customers (Morris et al., 2002; Hills et al., 2008; Shi and Dana, 2013; Crick and Crick, 2016b; O’Cass and Morrish, 2016; Sadiku-Dushi et al., 2019; Crick, 2020b; Crick et al., 2020b). Coopetition has been related to the marketing/entrepreneurship interface in earlier work (see Crick and Crick, 2016a;

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Crick, 2018a), meaning that the entrepreneurial marketing perspective was an appropriate lens. Henceforth, key literature was retrieved primarily from marketing and entrepreneurship journals (but also alongside other management disciplines) to contribute to the entrepreneurial marketing literature. 2. Examples of how firms operate within their clusters have been explored in particular capacities that include ethnic enclaves (Chaudhry and Crick, 2004; Crick et al., 2016), wine regions (Felzensztein et al., 2018; Crick et al., 2020c) and the tourism sector (Crick, 2011). 3. Importantly, firms can internationalise in different capacities, such as exporting (including via intermediaries) vis-à-vis foreign subsidiaries (Katsikeas et al., 1997; Crick, 2007; Crick and Crick, 2018a; Chaudhry et al., 2019). Indeed, there are different support processes and mechanisms to assist internationalising firms (Crick, 1992; Spence and Crick, 2001; Crick and Crick, 2016c).

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Tse (2007), ‘Working with rivals: the impact of competitor alliances on financial performance’, Journal of Marketing Research, 44 (1), 73–83. Luo, Y. (2005), ‘Toward coopetition within a multinational enterprise: a perspective from foreign subsidiaries’, Journal of World Business, 40 (1), 71–90. Luo, Y. and Tung, R.L. (2007), ‘International expansion of emerging market enterprises: a springboard perspective’, Journal of International Business Studies, 38 (4), 481–98. Mathias, B.D., A. Huyghe, C.J. Frid and T.L. Galloway (2018), ‘An identity perspective on coopetition in the craft beer industry’, Strategic Management Journal, 39 (12), 3086–115. Morris, M.H., M. Schindehutte and R.W. LaForge (2002), ‘Entrepreneurial marketing: a construct for integrating emerging entrepreneurship and marketing perspectives’, Journal of Marketing Theory and Practice, 10 (4), 1–19. O’Cass, A. and S.C. Morrish (2016), ‘Anatomy of entrepreneurial marketing’, Journal of Strategic Marketing, 24 (1), 2–4. Park, B.J.R., M.K. Srivastava and D.R. Gnyawali (2014), ‘Walking the tightrope of coopetition: impact of competition and cooperation intensities and balance on firm innovation performance’, Industrial Marketing Management, 43 (2), 210–21. Ratten, V. and L.-P. Dana (2015), ‘Indigenous food entrepreneurship in Australia: Mark Olive “Australia’s Jamie Oliver” and “Indigiearth”’, International Journal of Entrepreneurship and Small Business, 26 (3), 265–79.

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Ratten, V., L.-P. Dana, M. Han and I. Welpe (2007), ‘Internationalisation of SMEs: European comparative studies’, International Journal of Entrepreneurship and Small Business, 4 (3), 361–79. Raza-Ullah, T., M. Bengtsson and S. Kock (2014), ‘The coopetition paradox and tension in coopetition at multiple-levels’, Industrial Marketing Management, 43 (2), 189–98. Ritala, P. (2012), ‘Coopetition strategy – when is it successful? Empirical evidence on innovation and market performance’, British Journal of Management, 23 (3), 307–24. Ritala, P. and P. Hurmelinna-Laukkanen (2013), ‘Incremental and radical innovation in coopetition: the role of absorptive capacity and appropriability’, Journal of Product Innovation Management, 30 (1), 154–69. Rusko, R. (2011), ‘Exploring the concept of coopetition: a typology for the strategic moves of the Finnish forest industry’, Industrial Marketing Management, 40 (2), 311–20. Sadiku-Dushi, N., L.-P. Dana and V. Ramadani (2019), ‘Entrepreneurial marketing dimensions and SMEs performance’, Journal of Business Research, 100 (1), 86–99. Saridakis, G., B. Idris, J.M. Hansen and L.-P. Dana (2019), ‘SMEs’ internationalisation: when does innovation matter?’, Journal of Business Research, 96 (1), 250–63. Shi, H.X. and L.-P. Dana (2013), ‘Market orientation and entrepreneurship in Chinese family business: a socialisation view’, International Journal of Entrepreneurship and Small Business, 20 (1), 1–16. Shu, C., J.L. Jin and K.Z. Zhou (2017), ‘A contingent view of partner coopetition in international joint ventures’, Journal of International Marketing, 25 (3), 42–60. Spence, M.M. and D. Crick (2001), ‘An investigation into UK firms’ use of trade missions’, Marketing Intelligence & Planning, 19 (7), 464–74. Telfer, D.J. (2001), ‘Strategic alliances along the Niagara wine route’, Tourism Management, 22 (1), 21–30. Tidstrom, A. (2014), ‘Managing tensions in coopetition’, Industrial Marketing Management, 43 (2), 261–71. Wright, R.W. and L.-P. Dana (2003), ‘Changing paradigms of international entrepreneurship strategy’, Journal of International Entrepreneurship, 1 (1), 135–52. Young, S., P. Dimitratos and L.-P. Dana (2003), ‘International entrepreneurship research: what scope for international business theories?’, Journal of International Entrepreneurship, 1 (1), 31–42.

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4.

Corporate entrepreneurship

Donald F. Kuratko, Michael H. Morris and Jeffrey G. Covin

Large firms, especially those in maturing industries, must continually restructure and reinvent themselves, learning to become more innovative, if they hope to sustain themselves for the future (Kuratko et al., 2019). As innovation has emerged as a key contributor to sustainable advantage, corporate entrepreneurship (CE) is being embraced by executives as a focal point for organizational success (Ireland et al., 2009). Firms that are more entrepreneurial (that is, more adaptable, flexible, aggressive and innovative) are better positioned to not only respond to a dynamic, threatening and complex external environment, but create change in that environment. They do not take the external environment as a given, instead defining themselves as agents of change, leading customers instead of following them, creating new markets and rewriting the rules of the competitive game. However, despite the espoused and observed positive effects of CE, theoretical and empirical knowledge about the domain of CE and the entrepreneurial behavior on which it is based are key areas warranting greater attention (Hornsby et al., 2002; Dess et al., 2003; Hornsby et al., 2009). A fundamental ambiguity exists in the literature concerning what it means to have CE as a corporate strategy (Meyer and Heppard, 2000). Further, much is unknown about how CE is enacted in organizational settings.

UNDERSTANDING THE CONCEPT OF CE The concept of CE has evolved over the past 45 years. Research in the 1970s focused on venture teams and how the concept of entrepreneurship could be applied inside existing organizations (Hill and Hlavacek, 1972; Peterson and Berger, 1972; Hanan, 1976). In the 1980s, researchers conceptualized CE as innovative behaviors involving organizational sanctions and resource commitments for the purpose of developing types of value-creating innovations, and as a process of organizational renewal (Alterowitz, 1988; Burgelman, 1983a, 1983b; Pinchott, 1985; Kanter, 1985; Schollhammer, 1982; Sathe, 1989; Sykes and Block, 1989). By the 1990s researchers had adjusted their focus to reenergizing and enhancing the firm’s ability to develop skills through which innovations could be created (Jennings and Young, 1990; Merrifield, 1993; Zahra, 1991; Birkinshaw, 1997; Borch et al., 1999; Barringer and Bluedorn, 1999). More comprehensive approaches also began to take shape during the 1990s, such as the distinction drawn by Guth and Ginsberg (1990) between new-venture creation within existing organizations and the transformation of ongoing organizations. Zahra (1991: 261) observed that CE can include ‘formal or informal activities aimed at creating new businesses in established companies through product and process innovations and market developments. These activities may take place at the corporate, division (business), functional or 40

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Corporate entrepreneurship 41 project levels, with the unifying objective of improving a company’s competitive position and financial performance’. A synthesis emerged by the end of the decade, approaching CE as ‘the process whereby an individual or a group of individuals, in association with an existing organization, create a new organization or instigate renewal or innovation within that organization’ (Sharma and Chrisman, 1999: 18). Based on these definitional perspectives, it becomes important to distinguish the various forms taken by CE within an organization. Four key concepts come into play: corporate venturing, strategic renewal, entrepreneurial orientation, and CE strategy. Corporate venturing is concerned with creation of a new venture, which occurs through two main activities. With internal corporate venturing, new businesses are created and owned by the corporation, and typically reside within the current corporate structure (Covin et al., 2015). External corporate venturing involves new businesses that are created outside the corporation and subsequently invested in or acquired by the corporation (Keil, 2004; Schildt et al., 2005; Markham et al., 2005). Miles and Covin (2002) reported that firms pursue corporate venturing in order to: (1) build an innovative capability as the basis for making the overall firm more entrepreneurial and accepting of change, (2) appropriate greater value from current organizational competencies or expand the firm’s scope of operations and knowledge into areas of possible strategic importance, and/or (3) generate quick financial returns. Strategic-entrepreneurship approaches refer to a broad array of significant entrepreneurial activities or innovations that are adopted in the firm’s pursuit of competitive advantage which usually do not result in new businesses for the corporation. Strategic entrepreneurship can take one of five forms: strategic renewal (adoption of a new strategy), sustained regeneration (introduction of a new product into an existing category), domain redefinition (reconfiguration of existing product or market categories), organizational rejuvenation (internally focused innovation for strategy improvement) and business model reconstruction (redesign of existing business model) (Covin and Miles, 1999; Hitt et al., 2001; Ireland et al., 2003; Ireland and Webb, 2007; Ketchen et al., 2007). Here, innovations are occurring with the firm’s strategy, product offerings, served markets, internal organization (that is, structure, processes and capabilities) or business model (Kuratko and Audretsch, 2009). There are two possible reference points that can be considered when a firm exhibits strategic entrepreneurship: (1) how much the firm is transforming itself relative to where it was before and (2) how much the firm is transforming itself relative to industry conventions or standards. The concept of a firm’s overall entrepreneurial orientation (EO) was initially proposed by Miller (1983) and further developed by Covin and Slevin (1989, 1991). The behavioral proclivities of firms are said to range from more conservative to more entrepreneurial, with the entrepreneurial end of the spectrum evidenced by innovativeness (introduction of new products, processes and business models), proactiveness (an action orientation that preempts competitors) and risk-taking (a willingness to contribute resources to projects with uncertain outcomes). Sustaining entrepreneurial behaviors is a necessary condition. Covin and Slevin (1991: 8) explain that ‘organizations with an entrepreneurial posture are those in which particular behavioral patterns are recurring’. A considerable volume of research has examined the performance implications of EO (for example, Lumpkin et al., 2009; Rauch et al., 2009). While there have been some disagreements regarding the underlying dimensionality of EO (for example, Lumpkin and Dess, 1996), as noted in

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two recent meta-analyses, the Miller/Covin and Slevin conceptualization is the dominant perspective of EO in the relevant literature (Rosenbusch et al., 2013). Morris et al. (2011) took the EO concept a step further by distinguishing the degree and frequency of entrepreneurial behavior in firms. The degree of entrepreneurial action refers to the extent to which the initiatives pursued by the firm are incrementally innovative, risky and proactive, or represent bold advances. The frequency of entrepreneurial actions refers to the number of initiatives pursued by an organization over a given period of time. It may vary from those companies that produce a steady stream of new products, services or processes, to other companies that rarely introduce something new. By considering both degree and frequency we can assess the entrepreneurial intensity of a company. Morris et al. (2011) have created a two-dimensional matrix (entrepreneurial grid) with the frequency (number of entrepreneurial events) on the vertical axis, and the degree (extent of innovativeness, risk and proactiveness) on the horizontal axis. The firm’s entrepreneurial intensity provides some measure of an organization’s entrepreneurial activity at any given time that could then form the basis for what constitutes a CE strategy. Specifically defined, a CE strategy is ‘a vision-directed, organization-wide reliance on entrepreneurial behavior that purposefully and continuously rejuvenates the organization and shapes the scope of its operations through the recognition and exploitation of entrepreneurial opportunity’ (Ireland et al., 2009: 21). From a strategic standpoint, CE requires considerable time and investment, and there must be continual reinforcement. By their nature, organizations impose constraints on entrepreneurial behavior. To be sustainable, the entrepreneurial spirit must be integrated into the mission, goals, strategies, structure, processes and values of the organization. Leadership must adopt an opportunity-driven mindset, where actions are never constrained by resources currently controlled (Morris et al., 2011).

AN ORGANIZATIONAL CLIMATE FOR CORPORATE ENTREPRENEURIAL ACTIVITY The internal work environment determines the perceived costs and benefits associated with taking personal risks and whether the ambiguity and stress that entrepreneurial behavior can create is acceptable. The challenge is to develop an ‘innovation friendly’ internal environment. Toward this end, a considerable amount of CE research has explored the antecedents of entrepreneurial behavior. Aspects of the firm’s structure, planning and control systems, human resource management practices, and culture have been investigated (Ireland et al., 2006a, 2006b; Hornsby et al., 2002; Hornsby et al., 2009; Morris and Jones, 1993). In a comprehensive study, Kuratko et al. (1990) stress the importance top management support, reward and resource availability, and organizational structures and boundaries. Hornsby et al. (2002) have introduced the corporate entrepreneurship assessment instrument (CEAI) as an instrument for analyzing employee perceptions of an organizational climate conducive to entrepreneurial activity. Their results supported five stable antecedents of entrepreneurial behavior: (1) management support (willingness of senior managers to facilitate and promote entrepreneurial behavior, champion innovative ideas and provide resources people require to behave entrepreneurially), (2) work discretion/

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Corporate entrepreneurship 43 autonomy (managerial commitment to tolerate failure, provide decision-making latitude and freedom from excessive oversight, and delegate authority and responsibility to middle- and lower-level managers), (3) rewards/reinforcement (developing and using systems that reinforce entrepreneurial behavior, highlight achievements and encourage pursuit of challenging work), (4) time availability (ensuring that individuals and groups have the time needed to pursue innovations and their jobs are structured in ways that support efforts to achieve short- and long-term organizational goals), and (5) organizational boundaries (precise explanations of outcomes expected from organizational work and development of mechanisms for evaluating, selecting and using innovations). For the full instrument see Kuratko et al. (2014).

IDENTIFYING MANAGERIAL RESPONSIBILITIES Managers at all organizational levels have critical strategic roles to fulfill as part of a CE strategy (Ireland et al., 2002). Senior-level managers are responsible for the articulation of an entrepreneurial strategic vision and the emergence of an organizational climate conducive to entrepreneurial activity. Burgelman (1984) contends they are responsible for retroactively rationalizing particular new businesses into the firm’s portfolio and its approach to strategy based on their evaluations of those businesses’ prospects as desirable, value-creating components of the firm. Further, they must structure the organization in ways that accommodate and reinforce the business ventures embraced. Separately, Ling et al. (2008) demonstrate that chief executive officers (CEOs) must shape top management teams around behavioral integration of entrepreneurship, encouragement of risk-taking propensity, decentralization of responsibilities and longer-term compensation. Covin and Slevin (2002) conclude that effective strategic leaders are those who (1) nourish an entrepreneurial capability, (2) protect innovations that threaten the current business model, (3) make opportunities make sense for the organization, (4) question the dominant logic, (5) revisit the deceptively simple questions and (6) link entrepreneurship and strategic management. Middle-level managers are the hub through which most organizational knowledge flows (Floyd and Wooldridge, 1992; King et al., 2001). To interact effectively with firstlevel managers, middle-level managers must possess the technical competence required to understand the firm’s core competencies. Simultaneously, in interacting with seniorlevel executives, they must understand the firm’s strategic intent and goals. Through these interactions, those operating in the middle of an organization’s structure influence and shape their firms’ entrepreneurial strategies. Kuratko et al. (2005) argue that middle-level managers’ work as change agents and promoters of innovation is facilitated by their position in the organization hierarchy. They contend these managers evaluate entrepreneurial initiatives emerging from lower organizational levels and endorse some of these to top management. They also endorse the top-level initiatives and sell their value-creating potential to the primary implementers – first-level managers. In addition, middle-level managers are molding the entrepreneurial opportunity into an opportunity that makes sense for the organization. They champion and guide the initiatives to assure that those originating at lower-organizational levels are not abandoned once their continued development requires higher-level support. They are instrumental in identifying

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and deploying necessary resources to convert entrepreneurial initiatives into a business reality as these initiatives evolve in scope, content and focus (McGrath and MacMillan, 1995). This includes redirecting resources away from existing operations and deploying them in entrepreneurial initiatives appearing to have greater strategic value for the firm (Burgelman, 1984). First-level managers have roles in initiating and experimenting with new ideas. They adjust these innovative concepts in response to anticipated and unplanned entrepreneurial challenges. In addition, they play a conforming role in adapting new initiatives to reflect operating policies, procedures and norms of the organization. Hornsby et al. (2009) found the relationship between perceived internal antecedents and corporate entrepreneurial actions (measured by the number of new ideas implemented) differed depending on managerial level. Specifically, the relationship between managerial support and entrepreneurial action was more positive for seniorand middle-level managers than it was for first-level managers, as was the relationship between work discretion and entrepreneurial action. While the few studies that have explored management levels have tended to emphasize the role of first-level managers in a bottom-up process of CE, the Hornsby et al. (2009) study provides support for the notion that senior managers have greater structural ability to take advantage of organizational conditions and thus implement more entrepreneurial ideas than do first-level managers. Finally, Brundin et al. (2008) provide evidence that employee willingness to act entrepreneurially increased when managers displayed confidence and satisfaction about an entrepreneurial project, and decreased when managers displayed frustration, worry or bewilderment.

IMPLEMENTING ENTREPRENEURSHIP IN THE CORPORATE SETTING Five major elements must be addressed if CE is to become a reality in organizations. These include: 1.

2.

Clearly delineating what the organization is looking for. Any discussion of CE must first clarify what employees are being asked to do. When it comes to innovation, we can distinguish types and trajectories. The basic types of innovation include product/ service innovation – changes to the products or services being sold – and process innovation – changes to the operational processes or ways of doing things. The basic trajectory for innovation may be discontinuous, dynamically continuous, continuous (incremental) or imitation. Another distinction examines how disruptive the innovation is in transforming business practice and rewriting the rules of an industry. Companies may have different expectations for types and trajectories of innovations being sought at different levels and within different divisions, functional areas or departments of the firm. Creating the culture. In addition to ensuring coordination across levels of management, for CE to run deep within organizations it must be embedded in the company culture (Hornsby et al., 2009). Important aspects of this include developing a language and integrating symbols of entrepreneurship, identification of entrepreneurial

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3.

4.

5.

role models, dissemination of company myths and stories tied to entrepreneurial actions, and establishment of customs that celebrate successes and failures by individuals and teams. It is a culture that reinforces values tied to opportunity alertness, challenging the status quo, proactiveness, tenacity, bootstrapping, calculated risktaking, guerrilla behavior, embracing change and tolerance of failure. Effective use of operating controls. Without proper operating control mechanisms, corporate entrepreneurial activity may ‘tend to generate an incoherent mass of interesting but unrelated opportunities that may have profit potential, but that don’t move [those] firms toward a desirable future’ (Getz and Tuttle, 2001: 277). Therefore, successful CE activity is contingent upon a firm’s ability to align innovative initiatives with control processes that balance formality and discretion (Morris et al., 2006). In a study of 177 firms operating in a wide variety of industries, Goodale et al. (2011) found the effects of management support, work discretion/autonomy, rewards/reinforcements, time availability and organizational boundaries on innovation performance was moderated by one or more control variables. These findings are consistent with control systems having simultaneous loose (slack, discretion or flexibility) and tight (systematic, exacting or accountable) properties. Proper employee training and preparation. Those within established companies are often ill-prepared to engage in entrepreneurial activity. Management must nurture and develop the entrepreneurial potential of employees. Arguably, the most critical element in this regard is the development of an entrepreneurial mindset (for example, McGrath and Macmillan, 2000; Ireland et al., 2003) in a manner that reflects the corporate context (for example, the employee is not acting independently, while the organization is assuming the risks, owns the innovation, and imposes constraints and limits on individual behavior). It is also important that training programs focus on development of particular entrepreneurial competencies, such as opportunity recognition and assessment, risk mitigation and resource leveraging. This training can be augmented by company mentoring programs, apprenticeships, internships, job shadowing and related initiatives where employees participate in or observe innovation projects as they unfold. Managing expectations and outcomes. Entrepreneurial initiatives within companies are messy, chaotic and unpredictable, and emerge in a non-linear manner. They demonstrate failure rates of approximately 50 percent (Castellion and Markham, 2013). These characteristics will also vary based on the types and trajectories of innovation. Therefore, it is important that organizations manage expectations surround CE activity and set realistic timetables and targets for success. It is about recognizing that innovation will typically disturb the status quo and failure will be more frequent, and hence creating a greater organizational tolerance, but also devoting more attention to how outcomes are approached. Management must consider the impact of unexpected outcomes on employees involved with a particular innovative project, subsequent entrepreneurial behaviors of other employees, selection and management of future projects, and how much the organization learns. Beyond the need to eliminate any negative stigma associated with product failure, particularly as it relates to career advancement of those involved with a project, it is important to honor failures and their rich contributions to improving the company.

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CONCLUSION: GAPS IN OUR UNDERSTANDING OF CE Four decades after the concept of CE was first introduced, many vexing questions concerning CE remain unanswered, and its potential within most organizations is not being realized. Corporate entrepreneurship is acknowledged as a core contributor to the ability of companies to compete effectively in the dynamic environments of the twenty-first century. It is a process that takes many forms, broadly categorized into corporate venturing and strategic renewal. Yet, these forms are not well understood, particularly the managerial approaches and organizational architectures that are most conducive to facilitating a given form of CE. We know that large, established companies, in the natural way they tend to evolve, develop numerous obstacles and sources of resistance to entrepreneurship. As a consequence, these companies may be able to periodically undertake innovations, but struggle to sustain entrepreneurial activity on an ongoing basis. To this end, an array of external and internal antecedents to entrepreneurial activity have been identified by scholars, and we have discussed some of the more important of these. However, we have only begun to understand the dynamics of how these antecedents operate, and how forces that work against entrepreneurial behavior can be overcome without compromising organizational viability. That is, sustainable entrepreneurship requires that firms learn to simultaneously exploit existing products, markets and business models while, at the same time, creating a future where many existing approaches become obsolete. Moreover, exploitation and exploration must be accomplished under conditions and rules that are constantly changing.

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Lumpkin, G.T., C. Cogliser and D. Schneider (2009), ‘Understanding and measuring autonomy: an entrepreneurial orientation perspective’, Entrepreneurship Theory & Practice, 33 (1), 47–69. Markham, S.K., S.T. Gentry, D. Hume, R. Ramachandran and A.I. Kingon (2005), ‘Strategies and tactics for external corporate venturing’, Research-Technology Management, 48 (2), 49–59. McGrath, R.G. and I.C. MacMillan (1995), ‘Discovery-driven planning’, Harvard Business Review, 73 (4), 4–12. McGrath, R.G. and I.C. MacMillan (2000), The Entrepreneurial Mindset, Boston, MA: Harvard Business Press. Merrifield, D.B. (1993), ‘Intrapreneurial corporate renewal’, Journal of Business Venturing, 8 (5), 383–9. Meyer, G.D. and K.A. Heppard (2000), Entrepreneurship as Strategy, Thousand Oaks, CA: Sage. Miles, M.P. and J.G. Covin (2002), ‘Exploring the practice of corporate venturing: some common forms and their organizational implications’, Entrepreneurship Theory and Practice, 26 (3), 21–40. Miller, D. (1983), ‘The correlates of entrepreneurship in three types of firms’, Management Science, 29 (7), 770–91. Morris, M.H. and F.F. Jones (1993), ‘Human resource management practices and corporate entrepreneurship: An empirical assessment from the USA’, International Journal of Human Resource Management, 4 (4), 873–96. Morris, M.H., D.F. Kuratko and J.G. Covin (2011), Corporate Entrepreneurship & Innovation, 3rd edn, Mason, OH: South-Western/Thomson. Morris, M.H., J. Allen, M. Schindehutte and R. Avila (2006), ‘Balanced management control systems as a mechanism for achieving corporate entrepreneurship’, Journal of Managerial Issues, 18 (4), 468–93. Peterson, R. and D. Berger (1972), ‘Entrepreneurship in organizations’, Administrative Science Quarterly, 16 (1), 97–106. Pinchott, G. (1985), Intrapreneurship, New York: Harper & Row. Rauch, A., J. Wiklund, G.T. Lumpkin and M. Frese (2009), ‘Entrepreneurial orientation and business performance’, Entrepreneurship Theory and Practice, 33, 761–87. Rosenbusch N., A. Rauch and A. Bausch (2013), ‘The mediating role of entrepreneurial orientation in the task environment–performance relationship’, Journal of Management, 39 (3), 633–59. Sathe, V. (1989), ‘Fostering entrepreneurship in large diversified firm’, Organizational Dynamics, 18 (1), 20–32. Schildt, H.A., M.V.J. Maula and T. Keil (2005), ‘Explorative and exploitative learning from external corporate ventures’, Entrepreneurship Theory and Practice, 29 (4), 493–515. Schollhammer, H. (1982), ‘Internal corporate entrepreneurship’, in C. Kent, D. Sexton and K. Vesper (eds), Encyclopedia of Entrepreneurship, Englewood Cliffs, NJ: Prentice-Hall. Sharma, P. and J.J. Chrisman (1999), ‘Toward a reconciliation of the definitional issues in the field of corporate entrepreneurship’, Entrepreneurship Theory & Practice, 23 (3), 11–28. Sykes, H.B. and Z. Block (1989), ‘Corporate venturing obstacles: sources and solutions’, Journal of Business Venturing, 4 (3), 159–67. Zahra, S.A. (1991), ‘Predictors and financial outcomes of corporate entrepreneurship: an exploratory study’, Journal of Business Venturing, 6 (4), 259–86.

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5.

Corporate entrepreneurship: new insights Olga Belousova, Aard Groen and Norris Krueger

Corporate entrepreneurship (CE) is commonly understood as a process that allows established companies to extend and reorient profiles of their activities, entering new markets and creating new businesses. One of the most seminal definitions of CE describes it as a process whereby an individual or a group of individuals, in association with an existing organization, create a new organization or instigate renewal or innovation within that organization (Sharma and Chrisman, 1999). The CE process is believed to possess the following specific properties. First, CE is based on new resource combinations and extension of the existing competencies (Birkinshaw, 1997; Burgelman, 1983a; Covin and Miles, 1999). Second, it often requires a departure from the existing practices and the ability of a firm to acquire innovative skills and capabilities (Birkinshaw, 1997; Burgelman, 1983a; Covin and Slevin, 1991; Floyd and Wooldridge, 1999; Hornsby et al., 2002). Finally, while Vesper (1984), Carrier (1996) and Birkinshaw (1997) draw our attention to the role of employee’s initiative, Pinchot (1985) further introduces the notion of responsibility, and Chung and Gibbons (1997) suggest that CE activity is a collective action. Hence, the main characteristics of the process of CE are the use of internal resources (slack, saved or generated), enlargement of the competencies base of the company into new business areas, acquisition of new knowledge and skills to enter these areas, and the initiative of employees (individually or in group) who take responsibility for the project. More than 30 years of research have proved that CE is important for firms’ vitality (Dess et al., 2003) and the benefits associated with CE can be significant: it may allow organic growth and constant learning (Biggadike, 1979), or stimulate continuous innovation (Dougherty and Hardy, 1996; Tidd et al., 2005) thus leading to portfolio/risk diversification (Birkinshaw and Hill, 2003). Eventually, it may improve organizational performance and/or enhance its strategic value (Bierwerth et al., 2015; Birkinshaw and Hill, 2003; Hornsby et al., 2002; Ireland et al., 2006). Moreover, the need to obtain and develop entrepreneurial skills in addition to the skills of maintaining the existing businesses was stressed in the numerous works on ambidextrous organizations (for example, O’Reilly III and Tushman, 2008; Tushman and O’Reilly III, 1996). These studies suggest that firms may not only want to, but need to, set up and stimulate CE initiatives. Hence, the understanding of CE as a valid and effective area of research has real and tangible benefits for scholarly pursuit, as this work will have significant impact on an important organizational strategy (Kuratko, 2010). However, important ambiguities exist regarding the meaning of the construct: what does it mean to have a CE strategy and to practice CE? We argue that to resolve them, it is necessary to determine the type and status of CE in the organization. The topic has been plagued by inconsistent definitions and operationalizations as it embraces a variety of overlapping concepts. Let us take a look. 49

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Innovative

Purposeful

Innovation

Corporate renewal Internal corporate venturing

Business model

Product/service Process

Figure 5.1

External corporate venturing

Reorganization

Types of CE

DIFFERENT TYPES OF CE Corporate entrepreneurship is a very broad concept including various processes and activities (see Figure 5.1). Hence, a first question in many discussions is, what exactly does belong within the definition of CE? Very broadly, CE can rely on two main mechanisms that determine its scope and the process of how it unfolds. The first mechanism comprises purposefully rejuvenating or redefining organizations, markets and industries to create or sustain a position of competitive superiority. This stream includes CE activities such as renewal of the company or its business model and external corporate venturing. The second is rejuvenating and redefining organizations based on innovation as the premier mechanism. It includes developing new product lines for the company, new production processes and new structurally separated lines of business through internal corporate venturing. More specifically, different types of CE activities can be described as follows. 1.

2.

Innovation is creating and introducing new products, production processes and organizational systems (Zahra and Covin, 1995), as well as services and administrative techniques, often with an emphasis on the development of technology (Antoncic and Hisrich, 2001). It is important to stress the radical nature of the innovation. Thus, if a company is active in plastics and develops a new type of polymer, this should not be considered as CE. Instead, to be considered entrepreneurial, this company could develop a new product out of this polymer, hence entering a new market (product rather than raw material) and developing new competencies in production, assembly and marketing. Corporate-venturing activities refer to the creation of new business activities (new product lines and new markets) within firms using new structures, resources and opportunities that fall outside the purview of a company’s base businesses (Verbeke et al., 2007). More precisely, corporate venturing (CV) deals with the creation of formally autonomous or semi-autonomous business units or incubators or corporate start-ups (Antoncic and Hisrich, 2001). The focus of venture strategy can take two

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3.

principal orientations: internal and external (Williams and Lee, 2009). Internally orientated CV is formed around existing organizational structures and resources. Externally orientated CV occurs where the focus for investment and return is outside the firm’s existing asset base. This includes modes such as mergers, acquisitions, joint ventures and alliances, corporate venture capital and disposals (Maula et al., 2009). Corporate renewal (CR) has many facets, including the redefinition of the business concept (for example, a print newspaper decides to enter the online space), reorganization (a company sells one part of its business to reinvest and reinforce another) and the introduction of system-wide changes for innovation (for example, creating a new venture development, NVD, department) (Zahra, 1993). Corporate entrepreneurship thus leads to a major, complex and urgent change of the organization (Stopford and Baden-Fuller, 1994; Volberda et al., 2001). Corporate renewal processes mainly focus on corporate change rather than individual behaviors aimed at developing new products, processes and businesses for the established firm. Furthermore, they mostly occur following the purposeful decisions of management. An exception to this is could be a change in a business model induced by an innovation developed within the company.

Hence, there are different ways to be an entrepreneurial organization, and there are different types of CE activities an organization could engage in. How to engage in them is another heavily debated aspect of CE.

FOCUSED VERSUS DISPERSED CE STATUS The status of the CE activity within the organization is also an issue resulting in much debate: should CE be enclosed in a specialized department or should entrepreneurial initiatives be allowed throughout the organization (Gibson and Birkinshaw, 2004; Heller, 1999)? Being an activity that goes beyond the mainstream business and traditional job descriptions, CE is often approached as informal or even illegal (consider, for example, bootlegging, skunk-working, bending the rules and ‘it is better to ask for forgiveness than permission’ principles) (Marvel et al., 2007; Pinchot, 1985). However, some believe that CE processes can be induced by higher management and aligned with formal procedures established within the organization (Birkinshaw, 2003; Schollhammer, 1982). Some scholars suggest that we embrace CE as a combination of both formal and informal activities (Zahra, 1991). The following distinction between dispersed and focused CE configurations may be relevant to this discussion. The focused approach works on the premise that entrepreneurship and management are fundamentally different processes that require different modes of organization to occur effectively. This is typified by an NVD, whose mandate is to identify and nurture new business opportunities for the firm, typically characterized by a semi-autonomous entity with little formal structure, integration across traditional functional areas, availability of patient money, and management support for risk-taking and creativity (Birkinshaw, 1997). The mandate of an NVD is fundamentally broader and more ambiguous than that of a research and development (R&D) group, where the set of tasks and responsibilities can be narrowly defined (Birkinshaw, 1997). The focused approach to CE also assumes a relative structural autonomy of the process. As a consequence of the structural

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detachment, higher visibility and specified mandates from the management, the process of new venture development in a focused setting may appear to be overly prescribed and structured, with a higher level of corporate control (Miles and Covin, 2002). Also, being structurally detached from the everyday life challenges and opportunities of the business may result in a strategic drift of the NVD department from the innovation needs of the parent company (Heller, 1999). The dispersed approach to CE rests on the premise that ‘every individual in the company has the capacity for both managerial and entrepreneurial behavior more or less simultaneously’ (Birkinshaw, 1997: 209, original emphasis). Dispersed CE therefore assumes a latent dual role for every employee, consisting of (1) the management of ongoing activities and (2) the identification and pursuit of new opportunities. The advantage of this approach over the focused approach is that a greater diversity of opportunities will be sensed because the entrepreneurial capability is dispersed throughout the organization, rather than restricted to an NVD (Belousova and Gailly, 2013; Williams and Lee, 2011). The major disadvantage of this approach is that managerial responsibilities typically drive out less clearly defined entrepreneurial responsibilities and have more immediate rewards. Hence, the dispersed approach is potentially more promising in relation to quantity and richness (diversity) of the ideas for new businesses, but it is also riskier than the focused setting. Unless it is well managed, the dispersed approach can inhibit entrepreneurship (Birkinshaw, 1997; Elfring, 2005).

COMPASS MODEL FOR UNDERSTANDING CE Based on the previous discussion, we argue that type (innovation, CV or CR) and status (focused or dispersed) of CE should be aligned with different strategies and arrangements of organizational systems that a company may employ to support the process and employees adequately. Consider Figure 5.2. The type and status of CE are at the core of the organizational vision for CE, and align with top-management beliefs and behaviors regarding entrepreneurship (firm level entrepreneurial posture), its organizational arrangements for CE, expected process models of how CE projects unfold over time, and employee motivations, behaviors and mindsets that trigger and fuel these CE projects. Top-management beliefs and behaviors regarding the supported form and configuration for entrepreneurship will be reflected in the firm level entrepreneurial posture, more commonly known as entrepreneurial orientation (EO) (Covin and Slevin, 1989; Lumpkin and Dess, 1996; Miller, 1983; Wales, 2016). Lumpkin and Dess (1996) argued that two firms may be equally entrepreneurial despite having different profiles for dimensions of their EO: while one firm will be stronger on the dimensions of innovativeness and proactiveness, another may employ a more risk-taking and competitively aggressive strategy. Wales et al. (2011) argued that, within an organization, EO may vary across different managerial levels and different departments or business units. This can also be explained by the different possibilities of these departments to engage in CE; organically through innovation or internal CV, or through acquisitions and joint ventures, and their different personnel arrangements and motivation systems put in place to stimulate their respective CE activities. Similar argument can be made for the organizational systems. A great deal of work

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Corporate entrepreneurship: new insights 53 1) Innovativeness 2) Risk-taking 3) Proactiveness 4) Competitive aggressiveness 5) Autonomy

2. Top management

1) Idea discovery 2) Idea development 3) Promoting, championing 4) Production and bringing to the market

Figure 5.2

3. Organizational mechanisms

1. Corporate entrepreneurship

1) Management support 2) Administrative systems 3) Resources 4) Rewards and reinforcements 5) Work discretion

4. Employees

Type, status

5. Process

Entrepreneurial mindset 1) Willingness, intentions 2) Cognition 3) Skills at individual and team levels

Compass model for CE

regarding factors stimulating CE has been undertaken by Hornsby and colleagues (Hornsby et al., 1993, 2002, 2008, 2013), who have identified a number of factors that stimulate employees to suggest and implement new business ideas for their organizations. However, it is easy to imagine that innovation, CV and CR activities require different managerial support, rewards, work design and scope of allocated resources. Furthermore, design of these organizational arrangements will also determine whether all employees of the organization are expected to be entrepreneurial, or only some of them. Since there is a reciprocal connection between cognition, environment and behavior of individual and teams of employees in CE (Blanka, 2019; Krueger, 2007; Shepherd and Krueger, 2002; Wakkee et al., 2010), whether initiative for CE is expected from a specialized core crew of an NVD department or from any employee throughout the organization would require different approaches to recruitment and development of employee human capital, such as employee competences (Hayton and Kelley, 2006). That is, the entrepreneurial potential of a firm, requires potential entrepreneurs (Krueger and Brazeal, 1994). The entrepreneurial mindset – willingness, cognition and skills (Hattenberg et al., in press) – of managers and employees is critical for successful CE outcomes (Belousova and Gailly, 2013; Belousova et al., in press; Shepherd and Krueger, 2002; Shepherd et al., 2010). Hence, the nature of the internal setup for CE will deeply influence employee intentions, mindset and behavior for CE (Mustafa et al., 2018), but employee mindset and behaviors will also influence the organization they are embedded in (Belousova and Gailly, 2012; Shepherd et al., 2010). Hence, the entrepreneurial mindset and entrepreneurial skills are essential for success. Finally, these different setups for CE will be reflected in the process of bringing an idea to the market: informal assembly of a project by employees dispersed throughout the

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organization (Belousova and Gailly, 2013) will differ greatly from a focused and formalized process of internal (Burgelman, 1983b; Miles and Covin, 2002) or external (Schildt et al., 2005) CV. Whether the employee activity is taking place within a specialized structure or in a normal organizational environment will also require various championing strategies and behaviors from the employees who decide to engage in CE (Day, 1994; Howell and Higgins, 1990; Markham and Griffin, 1998). Hence, although CE is (only) one of the scholarly communities within the broader field of entrepreneurship (Schildt et al., 2006), it still is diverse and requires further contextualization (Zahra, 2007) of both building theory and practice. We hope that with this compass model we can guide emerging scholars in their understanding of the knowledge body that has been built in the past three decades, and that we help promote relevant and constructive dialogue to advance the field of CE.

REFERENCES Antoncic, B. and R.D. Hisrich (2001), ‘Intrapreneurship: construct refinement and cross-cultural validation’, Journal of Business Venturing, 16, (5), 495–527. Belousova, O. and B. Gailly (2012), ‘Promoting corporate entrepreneurship within a large company: an indepth case study’, in F. Welter, D. Smallbone and A. Van Gils (eds), Entrepreneurial Processes in a Changing Economy: Frontiers in European Entrepreneurship Research, Cheltenham, UK and Northampton, MA, USA: Edward Elgar, pp. 159–76. Belousova, O. and B. Gailly (2013), ‘Corporate entrepreneurship in a dispersed setting: actors, behaviors, and process’, International Entrepreneurship and Management Journal, 9 (3), 1–17. Belousova, O., D.Y. Hattenberg and B. Gailly (in press), ‘Corporate entrepreneurship: from structures to mindset’, in V. Ramadani, R. Palalic and L.-P. Dana (eds), Organizational Mindset of Entrepreneurship, Cham: Springer. Bierwerth, M., C. Schwens, R. Isidor and R. Kabst (2015), ‘Corporate entrepreneurship and performance: a meta-analysis’, Small Business Economics, 45 (2), 255–78. Biggadike, E.R. (1979), ‘The risky business of diversification’, Harvard Business Review, 57 (3), 103–11. Birkinshaw, J. (1997), ‘Entrepreneurship in multinational corporations: the characteristics of subsidiary initiatives’, Strategic Management Journal, 18 (3), 207–29. Birkinshaw, J. (2003), ‘Paradox of corporate entrepreneurship’, Strategy and Business, 30 (Spring), 46–58. Birkinshaw, J. and S. Hill (2003), ‘Corporate venturing performance: an investigation into the applicability of venture capital models’, Academy of Management Proceedings, 2003 (1), B1–B6. Blanka, C. (2019), ‘An individual-level perspective on intrapreneurship: a review and ways forward’, Review of Managerial Science, 13 (5), 919–61. Burgelman, R.A. (1983a), ‘Corporate entrepreneurship and strategic management: insights from a process study’, Management Science, 29 (12), 1349–64. Burgelman, R.A. (1983b), ‘A process model of internal corporate venturing in the diversified major firm’, Administrative Science Quarterly, 28 (2), 223–44. Carrier, C. (1996), ‘Intrapreneurship in small businesses: an exploratory study’, Entrepreneurship Theory and Practice, 21 (1), 5–20. Chung, L.H. and P.T. Gibbons (1997), ‘Corporate entrepreneurship’, Group & Organization Management, 22 (1), 10–30. Covin, J.G. and M.P. Miles (1999), ‘Corporate entrepreneurship and the pursuit of competitive advantage’, Entrepreneurship Theory and Practice, 23 (3), 47–63. Covin, J.G. and D.P. Slevin (1989), ‘Strategic management of small firms in hostile and benign environments’, Strategic Management Journal, 10 (1), 75–87. Covin, J.G. and D.P. Slevin (1991), ‘A conceptual model of entrepreneurship as firm behavior’, Entrepreneurship Theory and Practice, 16 (1), 7–25. Day, D.L. (1994), ‘Raising radicals: different processes for championing innovative corporate ventures’, Organization Science, 5 (2), 148–72. Dess, G.G., R.D. Ireland, S.A. Zahra, S.W. Floyd, J.J. Janney and P.J. Lane (2003), ‘Emerging issues in corporate entrepreneurship’, Journal of Management, 29 (3), 351–78.

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Corporate entrepreneurship: new insights 55 Dougherty, D. and C. Hardy (1996), ‘Sustained product innovation in large, mature organizations: overcoming innovation-to-organization problems’, Academy of Management Journal, 39 (5), 1120–53. Elfring, T. (2005), ‘Dispersed and focused corporate entrepreneurship: ways to balance exploitation and exploration’, in T. Elfring (ed.), Corporate Entrepreneurship and Venturing, New York: Springer US, pp. 1–21. Floyd, S.W. and B. Wooldridge (1999), ‘Knowledge creation and social networks in corporate entrepreneurship: the renewal of organizational capability’, Entrepreneurship Theory and Practice, 23 (3), 123–43. Gibson, C.B. and J. Birkinshaw (2004), ‘The antecedents, consequences, and mediating role of organizational ambidexterity’, Academy of Management Journal, 47 (2), 209–26. Hattenberg, D.Y., O. Belousova and A.J. Groen (in press), ‘Defining the entrepreneurial mindset and discussing its distinctiveness in entrepreneurship research’, International Journal of Entrepreneurship and Small Business. Hayton, J.C. and D.J. Kelley (2006), ‘A competency-based framework for promoting corporate entrepreneurship’, Human Resource Management, 45 (3), 407–27. Heller, T. (1999), ‘Loosely coupled systems for corporate entrepreneurship: imagining and managing the innovation project/host organization interface’, Entrepreneurship Theory and Practice, 24 (2), 27–33. Hornsby, J.S., D.T. Holt and D.F. Kuratko (2008), ‘The dynamic nature of corporate entrepreneurship: assessing the CEAI’, Academy of Management Proceedings, 2008 (1), 1–6. Hornsby, J.S., D.F. Kuratko and S.A. Zahra (2002), ‘Middle managers’ perception of the internal environment for corporate entrepreneurship: assessing a measurement scale’, Journal of Business Venturing, 17 (3), 253–73. Hornsby, J.S., D.F. Kuratko, D.T. Holt and W.J. Wales (2013), ‘Assessing a measurement of organizational preparedness for corporate entrepreneurship’, Journal of Product Innovation Management, 30 (5), 937–55. Hornsby, J.S., D.W. Naffziger, D.F. Kuratko and R.V. Montagno (1993), ‘An interactive model of the corporate entrepreneurship process’, Entrepreneurship Theory and Practice, 17 (2), 29–37. Howell, J.M. and C.A. Higgins (1990), ‘Champions of change: identifying, understanding, and supporting champions of technological innovations’, Organizational Dynamics, 19 (1), 40–55. Ireland, R.D., D.F. Kuratko and M.H. Morris (2006), ‘A health audit for corporate entrepreneurship: innovation at all levels: part I’, Journal of Business Strategy, 27 (1), 10–17. Krueger, N.F. (2007), ‘What lies beneath? The experiential essence of entrepreneurial thinking’, Entrepreneurship Theory and Practice, 31 (1), 123–38. Krueger, N.F. and D.V. Brazeal (1994), ‘Entrepreneurial potential and potential entrepreneurs’, Entrepreneurship Theory and Practice, 18 (3), 91–104. Kuratko, D.F. (2010), ‘Corporate entrepreneurship: an introduction and research review’, in Z.J. Acs and D.B. Audretsch (eds), Handbook of Entrepreneurship Research: An Interdisciplinary Survey and Introduction, New York: Springer, pp. 129–63. Lumpkin, G.T. and G.G. Dess (1996), ‘Clarifying the entrepreneurial orientation construct and linking it to performance’, Academy of Management Review, 21 (1), 135–72. Markham, S.K. and A. Griffin (1998), ‘The breakfast of champions: Associations between champions and product development environments, practices, and performance’, Journal of Product Innovation Management, 15 (5), 436–54. Marvel, M.R., A. Griffin, J. Hebda and B. Vojak (2007), ‘Examining the technical corporate entrepreneurs’ motivation: voices from the field’, Entrepreneurship Theory and Practice, 31 (5), 753–68. Maula, M.V.J., E. Autio and G.C. Murray (2009), ‘Corporate venture capital and the balance of risks and rewards for portfolio companies’, Journal of Business Venturing, 24 (3), 274–86. Miles, M.P. and J.G. Covin (2002), ‘Exploring the practice of corporate venturing: some common forms and their organizational implications’, Entrepreneurship Theory and Practice, 26 (3), 21–40. Miller, D. (1983), ‘The correlates of entrepreneurship in three types of firms’, Management Science, 29, 770–91. Mustafa, M., F. Gavin and M. Hughes (2018), ‘Contextual determinants of employee entrepreneurial behavior in support of corporate entrepreneurship: a systematic review and research agenda’, Journal of Enterprising Culture, 26 (3), 285–326. O’Reilly III, C.A. and M.L. Tushman (2008), ‘Ambidexterity as a dynamic capability: resolving the innovator’s dilemma’, Research in Organizational Behavior, 28 (1), 185–206. Pinchot, G.H. (1985), Intrapreneuring: Why You Don’t Have to Leave the Corporation to Become an Entrepreneur, New York: Harper & Row. Schildt, H.A., M.V.J. Maula and T. Keil (2005), ‘Explorative and exploitative learning from external corporate ventures’, Entrepreneurship Theory and Practice, 29 (4), 493–515. Schildt, H.A., S.A. Zahra and A. Sillanpaa (2006), ‘Scholarly communities in entrepreneurship research: a co-citation analysis’, Entrepreneurship Theory and Practice, 30 (3), 399–415. Schollhammer, H. (1982), ‘Internal corporate entrepreneurship’, in C.A. Kent, D.L. Sexton and K.H. Vesper (eds), Encyclopedia of Entrepreneurship, Englewood Cliffs, NJ: Prentice Hall, pp. 209–23. Sharma, P. and J.J. Chrisman (1999), ‘Toward a reconciliation of the definitional issues in the field of corporate entrepreneurship’, Entrepreneurship Theory and Practice, 23 (3), 11–27.

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Shepherd, D.A. and N.F. Krueger (2002), ‘An intentions-based model of entrepreneurial teams’ social cognition’, Entrepreneurship Theory and Practice, 27 (2), 167–85. Shepherd, D.A., H. Patzelt and J.M. Haynie (2010), ‘Entrepreneurial spirals: deviation-amplifying loops of an entrepreneurial mindset and organizational culture’, Entrepreneurship Theory and Practice, 34 (1), 59–82. Stopford, J.M. and C.W.F. Baden-Fulle (1994), ‘Creating corporate entrepreneurship’, Strategic Management Journal, 15 (1), 521–36. Tidd, J., J. Bessant and K. Pavitt (2005), Managing Innovation: Integrating Technological, Market And Organizational Change, 3rd edn, Chichester: John Wiley & Sons. Tushman, M.L. and C.A. O’Reilly III (1996), ‘Ambidextrous organizations: managing evolutionary and revolutionary change’, California Management Review, 38 (4), 8–30. Verbeke, A., J.J. Chrisman and W. Yuan (2007), ‘A note on strategic renewal and corporate venturing in the subsidiaries of multinational enterprises’, Entrepreneurship Theory and Practice, 31 (4), 585–600. Vesper, K.H. (1984), ‘Three faces of corporate entrepreneurship: a pilot study’, in J.A. Hornaday, F.J. Tarpley, J.A. Timmons and K.H. Vesper (eds), Frontiers of Entrepreneurship Research, Wellesley, MA: Babson College, pp. 294–326. Volberda, H.W., C. Baden-Fuller and F.A.J. Van Den Bosch (2001), ‘Mastering strategic renewal: mobilising renewal journeys in multi-unit firms’, Long Range Planning, 34 (2), 159–78. Wakkee, I., T. Elfring and S. Monaghan (2010), ‘Creating entrepreneurial employees in traditional service sectors’, International Entrepreneurship and Management Journal, 6 (1), 1–21. Wales, W.J. (2016), ‘Entrepreneurial orientation: a review and synthesis of promising research directions’, International Small Business Journal, 34 (1), 3–15. Wales, W.J., E. Monsen and A. McKelvie (2011), ‘The organizational pervasiveness of entrepreneurial orientation’, Entrepreneurship Theory and Practice, 35 (5), 895–923. Williams, C. and S.H. Lee (2009), ‘Exploring the internal and external venturing of large R&D-intensive firms’, R&D Management, 39 (3), 231–46. Williams, C. and S.H. Lee (2011), ‘Political heterarchy and dispersed entrepreneurship in the MNC’, Journal of Management Studies, 48 (6), 1243–68. Zahra, S.A. (1991), ‘Predictors and financial outcomes of corporate entrepreneurship: an exploratory study’, Journal of Business Venturing, 6 (4), 259–85. Zahra, S.A. (1993), ‘A conceptual model of entrepreneurship as firm behavior: a critique and extension’, Entrepreneurship Theory and Practice, 17 (4), 5–21. Zahra, S.A. (2007), ‘Contextualizing theory building in entrepreneurship research’, Journal of Business Venturing, 22 (3), 443–52. Zahra, S.A. and J.G. Covin (1995), ‘Contextual influences on the corporate entrepreneurship-performance relationship: a longitudinal analysis’, Journal of Business Venturing, 10 (1), 43–58.

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6.

Corporate venturing

Garima Jha and Robert D. Hisrich

Starting and operating a new business even under a corporate umbrella includes considerable risks and effort to overcome the inertia of creating something new of value to the organization as well as to the market and the individuals. In creating and growing a new corporate venture the corporate entrepreneur assumes the responsibility and risks for its development and survival. The term ‘entrepreneurship’ means different things to different individuals. Here are several questions that are often asked: who is an entrepreneur? What is an entrepreneur? What is corporate entrepreneurship? What are corporate and social entrepreneurship? What is the entrepreneurial process? These frequently asked questions reflect the increased national and international interest in entrepreneurship by individuals, businesses, people, academics, students and government officials. The challenge facing organizations today is recognizing the creativity and innovative capability of their internal members and allowing these individuals to have the ability to utilize their potential. Corporate entrepreneurship, sometimes referred to as intrapreneurship, or corporate venturing or organizational entrepreneurship, is the process by which individuals in organizations pursue opportunities independent of the resources they currently control; this usually involves doing new things and departing from the customary to pursue opportunities. The spirit of entrepreneurship within an existing organization results in the creation of a new organization, or in the development of innovation within that organization. Corporate entrepreneurship requires engendering entrepreneurial behaviors within an established organization. This enables individuals to use creative processes for applying and inventing technologies as well as new ways of doing things. A broad definition of corporate entrepreneurship was proposed by Ginsberg and Guth (1990: 5–6) who stressed that corporate entrepreneurship encompasses two major phenomena: new venture creation within existing organizations and the transformation of organizations through strategic renewal. This renewal involves either formal or informal activities aimed at creating new businesses or processes in established companies at the corporate, division (business), functional or project level. The ultimate aim of the renewal is to improve the company’s competitive position and financial performance. Renewal is achieved through the redefinition of an organization’s mission by the creative redeployment of resources, leading to new combinations of products and technologies.

A FRAMEWORK FOR CORPORATE ENTREPRENEURSHIP Like many entrepreneurs who find it difficult to manage and expand the venture created, many managers find it difficult to allow employees to innovate and engage in venturing activities. In order to develop and grow the organization, managers need to be more 57

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Environment Competitive Technological Social Political

Organization conduct/form

Organization performance

Characteristics

Strategy

Effectiveness

Values/benefits

Structure

Efficiency

Behavior

Process

Stakeholder satisfaction

Core values/ beliefs

Innovation/venturing within established corporations

Figure 6.1

Strategic leaders

Corporate entrepreneurship

Strategic renewal of established corporations

Framework of corporate entrepreneurship

entrepreneurial by building and developing an organization that encourages corporate entrepreneurial behavior and rewards employees for taking creative risks. Ginsberg and Guth (1990) have discussed a model to fit corporate entrepreneurship into strategic management (Figure 6.1). They present the various factors influencing corporate entrepreneurship and how the process of corporate entrepreneurship affects the performance of the firm (Ginsberg and Guth, 1990: 7). Never before has there been such a need for corporate entrepreneurship as organizations face increased, almost hyper, competition from globalization and rapid technology. Since customers now have access to most product and service substitutes, a firm’s competition can be anywhere in the world. There is a pressing need for organizations to stay competitive by becoming more innovative and engaging in more corporateventuring activities. Leading international corporate entrepreneurship companies include 3M, Lucent Technologies, Nokia, Siemens, Nixdorf, DuPont and Apple Computers.

ASPECTS OF CORPORATE ENTREPRENEURSHIP While the specific aspects of corporate entrepreneurship vary from organization to organization, four common aspects are indicated in this formula: L 5 I 1 O 1 Cr 1 Ch

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where L 5 level of entrepreneurship, I 5 innovation, O 5 ownership, Cr 5 creativity and Ch 5 change. Each of these four aspects – innovation, ownership, creativity and change – are discussed in turn. Innovation While innovation is highly valued and a central aspect of most organizations, few organizations are satisfied with the return on their spending. According to a survey on corporate innovation by the Boston Consulting Group, which drew responses from about 3000 global executives, innovation is at or near the top of the company’s agenda, with 43 percent of the respondents considering it one of their three most important strategic priorities and 23 percent considering it their top priority. Despite its priority, satisfaction with the return on innovation spending continues to decrease. Ownership Ownership is also an important aspect of corporate entrepreneurship reflecting the overall organizational environment or culture. Ownership refers to owning and feeling responsible for your job and having the desire to perform the job in the most efficient and effective manner possible; indicated in individuals being keen to go to work. The overall characteristics of a good corporate entrepreneurial environment encourages ownership. First, since research and development is a key source for successful ideas, the firm needs to operate on the cutting edge of the industry’s technology. New ideas need to be encouraged and supported, and not always required to have a rapid return on investment and a high sales volume. Second, trial-and-error experimentation needs to be encouraged. Successful new products or services rarely just appear fully developed; instead they evolve, requiring time, effort, company support and money. It took time and some product failures before the first marketable computer appeared. A company wanting to establish a corporate entrepreneurial spirit has to establish an environment that allows mistakes and failures in developing new and innovative products or services. These failures need to be viewed as an indirect investment for creating the successful innovative products. Third, the organization needs to make sure there are no initial opportunity parameters inhibiting creativity in the new product development process employed. Frequently in an organization, territories are protected, frustrating attempts by potential corporate entrepreneurs to establish new ventures. In one Fortune 500 company, an attempt to establish a corporate entrepreneurial environment eventually failed when the potential corporate entrepreneurs were informed that a proposed new product and venture was not possible because it was in the domain of another division. Fourth, the resources of the firm need to be available and accessible, supporting the corporate entrepreneurship process. As one corporate entrepreneur stated, ‘if my company really wants me to take the time, effort and career risks to establish a new venture, then it needs to put resources on the line’ (Bhide, 1996). Often, insufficient funds are allocated not in creating something new but in solving problems that have an immediate effect on the bottom line. Some companies, for example, Xerox, 3M, Apple and Intel, have recognized this problem and established separate venture capital areas for funding new internal

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as well as external ventures. In addition to encouraging teamwork, a long-time horizon for evaluating the success of the overall program as well as the success of each individual venture needs to be established. This patient attitude is similar to the investment–return expectation of venture capitalists and others when they invest in an entrepreneurial effort. The fifth characteristic establishes a volunteer (not forced) process and an appropriate reward system. The corporate entrepreneur needs to be appropriately rewarded for all the energy, effort and risk taking expended in the creation of the new venture. Finally, and perhaps most importantly, the corporate entrepreneurial activity must be wholeheartedly supported and embraced by members of top management, by their physical presence and by their making sure that the personnel and financial resources are available. Sponsors and champions need to exist throughout the organization. Without top management support, a successful environment cannot be created. Creativity and Creative Problem-solving The third aspect of successful corporate entrepreneurship is creativity. Creativity – the ability to bring into being from your imagination something unique and original – is very important and yet often lacking in many organizations. Unfortunately, creativity tends to decline with age, education, lack of use and bureaucracy. Creativity generally declines in stages, beginning when a person starts school. It continues to deteriorate through the teens and to progressively decrease through ages 30, 40, and 50. Also, the latent creative potential of an employee can be stifled by perceptual, cultural, emotional and organizational factors. Creativity generally can be unlocked, and creative ideas and innovations generated by using creative problem-solving techniques. Change In order for corporate entrepreneurship to thrive in an organization, the final C of the formula, change, needs to be continuously allowed and encouraged. Organizational change should ideally be allowed and encouraged. Organizational change is often the result of an accumulation of smaller steps (changes) taken over time. Adam Smith (1759: 88–9), in The Theory of Moral Sentiments, referred to this as gradual greatness. People tend to be more accepting of change if they can see the steps and experience them slowly. New technologies, strategies, structures and/or rapid business expansion originate from smaller experimental steps and reflects the transference of knowledge and continual practice in the organization. The idea that change in an organization should occur incrementally and collectively rather than suddenly suggests that an entrepreneurial organization should be continually experimenting and modifying around the edges of its core business. Change, discovery and renewal are fundamental aspects of this type of organization. As this becomes more apparent, managers are encouraged to develop creative, individualistic approaches and unexpected solutions to problems. This leads to charismatic individual leadership and inventive, creative decision making. It might be necessary, in order to start this process, to let go some of the existing managers who neither possess the skills nor want to develop them. It is important for changes to occur and be implemented to first establish a sense of urgency and form a strong guiding coalition. Since an organization is focused on

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short-term results without establishing the need for change owing to the external environment and competitive landscape, the appropriate timeframe will not be established. Also, if a group is not established that has enough power and credibility, nothing will be implemented. The group needs to establish a vision and strategic plan and communicate this throughout the organization by every means possible. Following the identification and selection of a champion, limit the obstacles, establish the appropriate new system and reward all creative thinking. The next step is to ensure to the extent possible that the first initiatives are successful with visible performance improvements. This will make failures easier to handle when they occur, which they will. It is easier to be successful at smaller rather than larger changes. Eventually, the new changes need to be consolidated; producing still more changes and allowing the change approach and change attitude to be institutionalized in the organization.

SELECTING A CORPORATE ENTREPRENEUR AND A TEAM The single most important factor in the success of a corporate entrepreneurial activity is having a leader and a team with the ability and passion to transform ideas into reality. While selecting and retaining the right talent can be difficult, with the right incentives this can be accomplished. Jack Welch, former chief executive officer (CEO) of General Electric (GE), spent the final years of his tenure developing policies and practices that would enable GE to recruit, select and retain entrepreneurial individuals and develop the entrepreneurial potential needed among existing employees. Since usually no single individual possesses the wide variety of skills necessary to develop a corporate venture, the composition of the right team is needed. At Xerox New Enterprises, a division that commercializes novel technologies, the lead corporate entrepreneur of each new company is almost always recruited externally. The role of the corporate entrepreneur needs to be diverse. He or she must identify entrepreneurial opportunities and transform them into action. Corporate entrepreneurs need to constantly seek new venture opportunities. The corporate entrepreneur can monitor change and compete in a dynamic environment by using a corporate management checklist for evaluating the potential of creating a successful new corporate venture within the existing organization (see Table 6.1).

MODELS OF CORPORATE VENTURING Corporate venturing is one strategy for improving corporate performance. Internal corporate venturing occurs when the new process or new business is created within the company’s organizational domain. External corporate venturing involves strategic investments outside the company’s organizational domain. Joint corporate venturing is a form of external corporate venturing that involves a co-investment with another parent organization to create a new organization, with both parent organizations continuing to exist. There are five general business models of corporate venturing.

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1.

Assess the feasibility and viability of technological development and achieving the specified goals and objectives.

Evaluate the technological viability in relation to the following criteria:

Technological viability

1. Evaluate the potential of a viable and credible market opportunity. 2. Assess the market approach including strategies for managing: ● customers ● suppliers ● competitors ● other external factors. 3. Evaluate the ability to create a successful business, while at the same time protecting the parent organization.

Evaluate the market viability in relation to the following criteria:

Market viability

1. Has a business plan been developed? 2. Is the business idea or concept feasible? 3. Have financial statements and projections been prepared and discussed with the financial manager? 4. Are there adequate financial resources available? 5. Is the time required to reach positive cash flow realistic? 6. Are the required human resources with the necessary skills and abilities available? 7. Do the financial needs for the new venture match the capacity of the existing organization?

Evaluate the venture potential in relation to the following criteria:

Inadequate

Inadequate

No

Similar to competitors

Similar to competitors

Better than competitors

Better than competitors

Uncertain

Excellent

Excellent

Uncertain

Uncertain

Yes

Corporate checklist for evaluating the potential of creating a successful corporate entrepreneurial activity within the existing organization

Evaluation criteria

Table 6.1

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3.

2.

1.

Evaluate the adequacy of the organization’s budget in the context of the potential new venture. Evaluate the possibility of raising additional funds to carry out the project, as well as the potential sources of funding available for the new venture. Evaluate the adequacy of the facilities required in relation to the availability of space for the new venture.

Evaluate resources in relation to the following criteria:

Resources

1. Is there at least one member of the venture management team qualified to lead the team to undertake the necessary work? 2. Is there an appropriate management team to undertake the work that has to be done? 3. Is there an opportunity to bring in additional management either from the parent organization or outside directors? 4. Is there an appropriate group of professionals in the existing organization or outside advisors? 5. Does the venture management team have the ability and expertise to leverage scarce resources?

Evaluate the venture management potential in relation to the following criteria:

Venture management criteria

2. Compare the proposed development program with existing technologies (or with possible competing and future technologies). 3. Evaluate the organization’s existing technological achievements.

Inadequate

No

Similar to competitors

Better than competitors

Uncertain

Excellent

Uncertain

Yes

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(continued)

Evaluate the proposed commercialization schedule in relation to: a. R&D b. Proprietary protection c. Human resources d. Marketing e. Manufacturing f. Potential regulatory requirements. 2. Assess the organization’s ability to successfully compete in the market. 3. Assess the organization’s channels of distribution. 4. Assess the organization’s customer service philosophy. 5. Assess the organization’s capabilities in terms of: ● financial control ● management ● strategic planning 6. Assess the feasibility of the organization’s commercialization.

1.

Evaluate the commercialization in relation to the following criteria:

Commercialization

Table 6.1

Inadequate

Similar to competitors

Better than competitors

Excellent

Uncertain

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Model 1 Model 1, according to Andrew Campbell, highlights four different types of corporate entrepreneurial business ventures: (1) ecosystem venturing; (2) innovation venturing; (3) harvest venturing; and (4) private equity venturing (Campbell et al., 2003). Ecosystem venturing refers to promoting the vivacity of the business network (customers, suppliers, distributors and franchisees). Ecosystem venturing supports entrepreneurs in the specific business community through venture capital to improve the prospects of existing businesses (Park and Campbell, 2005: 10–32). Value is created through minority stakes in the invested firms. The second type of venturing, innovation venturing, is the implementation of venture capital methods into existing functions, such as research and development (R&D). This model is used to help stimulate activity by rewarding people based on the value created within an existing function. The third type of business model is harvest venturing. This model seeks to generate cash from excess corporate resources through licensing or the sale of assets. New businesses often are created to fully utilize the excess resources. Corporate private equity venturing, the fourth type, relates to company units that function as independent private equity groups to obtain financial returns. Model 2 This model identifies five types of linkages between corporate venturing and business strategy to explain how companies are venturing in ways to strategically benefit the existing company: (1) corporate venturing and business strategy are poorly linked or unrelated; (2) business strategy drives corporate venturing; (3) corporate venturing drives business strategy; (4) corporate venturing and business strategy are interdependent; and (5) corporate venturing as the business strategy (Covin and Miles, 2007). Corporate venturing can be internal corporate venturing whereby a new business is created within the domain of the existing company. A second type is external corporate venturing where the company is involved in creating a new business or growing a business outside the parent company’s domain. Joint corporate venturing is the third category and refers to an external corporate venturing established by the existing business and another parent organization. Model 3 Garud and Van de Ven’s (1992) model for internal corporate venturing is trial-and-error learning. This model is based on the observation that the internal corporate entrepreneurial process is filled with uncertainty and ambiguity. Uncertainty is defined as the incomplete information of the underlying relationship between means and ends. The assumption is that corporate entrepreneurs will continue with the plan when the associated outcomes are positive, and when the outcomes are negative they will stop or change their course of action. This model argues that when the level of ambiguity is high and excess resources are available, corporate entrepreneurs are more likely to persist with a course of action despite negative consequences.

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Innovative companies are less likely to penalize entrepreneurs in the early stages of the development process. It is more beneficial for the company to provide support through a trial-and-error process whereby the entrepreneur makes decisions based on what he or she believes will yield successful outcomes. Alternatively, ambiguity implies incomplete information about which outcomes to pursue. When ambiguity comes into play and excess resources are available, entrepreneurs are likely to continue with a course of action despite facing negative outcomes. Model 4 Since a company’s foundation is its current business activities, corporate venturing is the introduction of a business model that is new to the company (Buckland, 2003). In the company’s operating core, where profits are generated in existing business activities, there is a lower risk. In the business extension for growth, there is low to medium risk. Here, the company introduces new products or moves into new markets. Core ventures for renewal involve existing business activities, but the risk increases slightly from low to medium. As newness increases, so does the risk; therefore, the non-core venturing quadrant carries the most risk. Based on the strategic pair analysis, the business activity and the business model, businesses should maintain core-venturing capabilities as a defense against disruptive change. Instead of non-core ventures, it is important and practical for companies to focus on corporate venturing inside the existing business structure. Model 5 Robert A. Burgelman (1983) lays out a process model for internal corporate venturing in large diversified firms. In the process model for internal corporate venturing, there are three main elements: (1) definition and impetus; (2) strategic and structural context; and (3) managerial activities. As the core processes of internal corporate venturing, definition and impetus are the first step in the model process. The definition process includes the conceptualization and pre-venture stages of the development process. Moreover, the model involves expressing the technical and economic qualities of an internal corporate venturing project so that a project develops into an embryonic business organization. The linking processes are important in demonstrating that the newly developed concept is coupled to a market need. Product championing takes the linking process further and pushes it to the impetus process. Support within the organization is then obtained through the impetus process because market interest is created, and resources are mobilized. In the impetus process, a project transforms from a venture idea into its own business. Strategic forcing is the commercialization of the new product, which needs to be combined with efforts from strategic building. In this way, both a broader strategy and the implementation of the strategy are developed for the new business. The second element of the internal corporate venturing process encompasses strategic context and structural context. Strategic context determination is the political process whereby managers of the corporate entrepreneurial business persuade corporate managers to alter the existing concept of strategy to include the new venture. The goal is to gain support from upper corporate management by showing them how the

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corporate entrepreneurial activity fits into the current strategy and has strategic benefits. Delineation is also an important factor that helps outline the new arenas into which the business development will lead the existing company. Structural context refers to the internal selection environment whereby corporate managers exert control over the internal corporate venturing process. The third element of the internal corporate venturing process addresses the vital role middle-level management plays. The process is a bottom-up approach, and managers must foster support and secure resources for new venturing strategically. Management championing the new corporate entrepreneurial activity must be adept at linking the new business venture with the corporate strategy.

BENEFITS OF A CORPORATE ENTREPRENEURSHIP PROGRAM The benefits of establishing and implementing a corporate venturing program are discussed in relation to benefits to the company and benefits to the employees. The principal benefits of corporate venturing to the company are indicated below. One of the most important benefits is the increase in morale through the establishment of a new corporate culture. Employees will ‘own their jobs’ and want to make their positions operate in the best possible, most efficient ways. The new culture will make it fun for employees to come to work. Benefits of corporate venturing to the company: ● ● ● ● ● ● ● ●

establishing a new culture, better morale; reduction in employee turnover; motivated workforce; new business concepts; new ways of doing things; more flexible organizational structure; organizational learning; and positive impact on revenues and profits.

FUTURE PROSPECTS To close with more on the entrepreneurial–intrapreneurial balance, Govindarajan et  al. (2019) offer three business reasons why large corporations will become increasingly important to innovation in the future. First, large corporations have competitive advantages owing to brand recognition and staying power, whereas startups increasingly encounter rivals owing to shorter product-development cycles and an abundance of financing. That is, owning to their newness, startups do not enjoy the same entrenchment as large corporations and can more easily be disrupted. Second, large corporations are more openly embracing innovation and nimbleness to stay competitive. Finally, a great deal of innovation in recent years has involved innovative business models, which play to large corporations’ strengths better than innovative product technologies. Also, corporate

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entrepreneurship is the most important way to keep these corporations going in the long run.

REFERENCES Bhide, A. (1996), ‘The questions every entrepreneur must answer’, Harvard Business Review, 74 (6), 120–30. Buckland, W. (2003), ‘Defining what corporate venturing actually is and what firms should do about it’, Strategic Direction, 19 (9), 2–4. Burgelman, R.A. (193), ‘A process model of internal corporate venturing in the diversified major firm’, Administrative Quarterly, 28 (2), 223–44. Campbell, A., J. Bradshaw, A. Morrison and R. van Basten Batenburg (2003), ‘The future of corporate venturing’, MIT Sloan Management Review, 45 (1), 30–37. Covin, J.G. and M.P. Miles (2007), ‘Strategic use of corporate venturing’, Entrepreneurship: Theory and Practice, 31 (2), 183–207. Garud, R. and A.H. van de Ven (1992), ‘An empirical evaluation of the internal corporate venturing process’, Strategic Management Journal, 13 (Summer) special issue, 93–109. Ginsberg, A. and W. Guth (1990), ‘Guest editors’ introduction: corporate entrepreneurship’, Strategic Management Journal, 11 (Summer), 5–15. Govindarajan, V., B. Lev, A. Srivastava and L. Enache (2019), ‘The gap between large and small companies is growing. Why?’, Harvard Business Review, 16 August, accessed 11 October 2020 at https://hbr.org/2019/08/ the-gap-between-large-and-small-companies-is-growing-why. Park, R. and A. Campbell (2005), The Growth Gamble, London: Nicholas Brealey International. Smith, A. (1759), The Theory of Moral Sentiments, London: Printed for A. Millar, and A. Kincaid and J. Bell.

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7.

Cross-disciplinary entrepreneurship education Dianne H.B. Welsh

Since the dawn of the millennium, cross-disciplinary entrepreneurship education has taken hold in primarily US universities, colleges and even in two-year community colleges. It has evolved from being solely in business schools (Dana, 1992, 1993; Gorman et al., 1997). There are also a few examples of universities globally that have adopted this model. Crossdisciplinary entrepreneurship education, for the purposes of our study, refers to courses outside the discipline of entrepreneurship, almost solely located in business schools that have two or more learning objectives (goals) in entrepreneurship together with disciplinespecific learning objectives which are carried through in the assignments and exercises in the class and then measured (Welsh, 2014). Entrepreneurship is woven or blended in the subject and applied for better understanding and application to the discipline (Welsh, 2014). The role of faculty buy-in and participation cannot be over-emphasized when it comes to the success of cross-disciplinary programs (Schneider, 2015). Hynes (1996) developed an early model to integrate entrepreneurship education across campus, focusing on process based on the needs of different groups of students. Engineering has been the predominant discipline in which entrepreneurship has been integrated and achieved early on, but now entrepreneurship education has been integrated in all disciplines, from the arts to the sciences. Experiential education is a popular component of entrepreneurship curricula and is included as a vital component of cross-campus entrepreneurship programs. Internships often are included as either required or elective courses in entrepreneurship programs and may be in multiple departments across campus. Internships give students one-onone experience in entrepreneurial businesses, start-ups, and often include a modeling or shadowing component with an entrepreneur. Internships add experience to the résumé of students before graduating. Internships provide a reality check for students. Giacomin et al. (2016: 938), in a study comparing optimism and overconfidence in students from the US, Spain and India, concluded that ‘students may be unaware of the reality of being an entrepreneur, such as long hours, heavy work load, stress, financial risks, less job security, few benefits, greater vulnerability to market shifts and microeconomic downturns, challenges in balancing work and family, and . . . failure’. Despite cross-disciplinary entrepreneurship’s growing popularity and reach, there has been little measurement of its effectiveness, with the exception of Canziani and Welsh (2019). Many scholars see research on entrepreneurship education as a whole as still in its infancy stages (Brazeal and Herbert, 1999; Gorman et al., 1997; Graevenitz et al., 2010; Souitaris et al., 2007) and theory is sorely needed (Fayolle, 2013; Fiet, 2012). Evidence is mixed as to whether entrepreneurship education increases the motivation to engage in entrepreneurial activities. Some studies show a positive effect (for example, Fenton and Barry, 2014; Iglesias-Sánchez et al., 2016; Lee et al., 2005; Peterman and Kennedy, 2003; Souitaris et al., 2007; Zhang et al., 2013), while other researchers contend that the results are not conclusive and additional research is needed (Joensuu et al., 2015; Krueger and 69

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Brazeal, 1994; Matlay, 2006) and still others found results that are contradictory (Colette and Treanor, 2012; Farhangmehr and Goncalves, 2016; Fayolle, 2013). A recent study looked at the cognitive development of college students enrolled in entrepreneurship education classes (Tullar and Welsh, 2020, in press) and the impact, if any, on motivation, although scholars have long called for these studies (Krueger, 2007; Krueger and Day, 2010; Krueger et al., 2000).

REFERENCES Brazeal, D.V. and T.T. Herbert (1999), ‘The genesis of entrepreneurship’, Entrepreneurship Theory and Practice, 23 (3), 29–45. Canziani, B.F. and D.H.B. Welsh (2019), ‘How entrepreneurship influences other disciplines: an examination of learning goals’, International Journal of Management Education, in press, doi:10.1016/j.ijme.2019.01.003. Colette, H. and L. Treanor (2012), ‘Exploring entrepreneurship education within veterinary medicine: can it be taught?’, Journal of Small Business and Enterprise Development, 19 (3), 484–99. Dana, L.P. (1992), ‘Entrepreneurial education in Europe’, Journal of Education for Business, 68 (2), 74–8. Dana, L.P. (1993) ‘An international survey of entrepreneurship education’, Journal of Enterprising Culture, 1 (1), 67–92. Farhangmehr, M. and P. Goncalves (2016), ‘Predicting entrepreneurial motivation among university students’, Education + Training, 58 (7–8), 861–81. Fayolle, A. (2013), ‘Personal views on the future of entrepreneurship education’, Entrepreneurship & Regional Development. An International Journal, 25 (7–8), 692–701. Fenton, M. and A. Barry (2014), ‘Breathing space – graduate entrepreneurs’ perspectives of entrepreneurship education in higher education’, Education + Training, 56 (8–9), 733–44. Fiet, J.O. (2012), ‘The theoretical side of teaching entrepreneurship’, Journal of Business Venturing, 16 (1), 1–24. Giacomin, O., F. Janssen and R.S. Shinnar (2016), ‘Student entrepreneurial optimism and overconfidence across cultures’, International Small Business Journal, 34 (7), 925–47. Gorman, G., D. Hanlon and W. King (1997), ‘Some research perspectives on entrepreneurship education, enterprise education and education for small business management: a ten-year literature review’, International Small Business Journal, 15 (3), 56–77. Graevenitz, G.D., D. Harhoff and R. Weber (2010), ‘The effects of entrepreneurship education’, Journal of Economic Behavior and Organization, 76 (1), 90–112. Hynes, B. (1996), ‘Entrepreneurship education and training-introducing entrepreneurship into non-business disciplines’, Journal of European Industrial Training, 20 (8), 10–17. Iglesias-Sánchez, P.P., J.M. Carmen, P.V. Antonio and K. Husam (2016), ‘Impact of entrepreneurship programs on university students’, Education + Training, 58 (2), 209–28. Joensuu., S., E. Varamäki and A. Viljamaa (2015), ‘Beyond intentions – what makes a student start a firm?’, Education + Training, 57 (8–9), 853–73. Krueger, N.F. (2007), ‘What lies beneath? The experiential essence of entrepreneurial thinking’, Entrepreneurship Theory and Practice, 31 (1), 123–38. Krueger, N.F. and D.V. Brazeal (1994), ‘Entrepreneurial potential and potential entrepreneurs’, Entrepreneurship Theory and Practice, 18 (3) 91–104. Krueger, N.F. and M. Day (2010), ‘Looking forward, looking backward: from entrepreneurial cognition to neuroentrepreneurship’, in Z.J. Acs and D.B. Audretsch (eds), Handbook of Entrepreneurship Research, New York: Springer, pp. 321–57. Krueger N.F., M. Reilly and A.L. Carsrud (2000), ‘Competing models of entrepreneurial intentions’, Journal of Business Venturing, 15 (5/6), 411–532. Lee, S.M., D. Chang and S.B. Lim (2005), ‘Impact of entrepreneurship education: a comparative study of the U. S. and Korea’, International Entrepreneurship and Management Journal, 1 (1), 27–43. Matlay, H. (2006), ‘Researching entrepreneurship and education: Part 2: what is entrepreneurship education, and does it matter?’, Education + Training, 48 (8–9), 704–18. Peterman, N. and J. Kennedy (2003), ‘Enterprise education: influencing students’ perceptions of entrepreneurship’, Entrepreneurship Theory and Practice, 28 (2), 129–44. Schneider, M. (2015), ‘Kauffman campuses initiative: a study that explores the phenomenon of cross-campus entrepreneurship’, PhD dissertation, University of Pennsylvania, Philadelphia, PA. Souitaris, V., S. Zerbinati and A. Al-Laham (2007), ‘Do entrepreneurship programs raise entrepreneurial

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intention of science and engineering students? The effect of learning, inspiration and resources’, Journal of Business Venturing, 22 (4), 566–91. Tullar, W. and D.H.B. Welsh (2019), ‘Reality check: changes in business students’ psychological resources as they move toward graduation’, International Entrepreneurship and Small Business, in press. Welsh, D.H.B. (2014), Creative Cross-Disciplinary Entrepreneurship: A Practical Guide for a Campus-Wide Program, New York: Palgrave Macmillan. Zhang, Y., G. Duysters and M. Cloodt (2013), ‘The role of entrepreneurship education as a predictor of university students’ entrepreneurial intention’, International Entrepreneurship and Management Journal, 9 (1), 1–19.

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8.

Defining the entrepreneur

Louis Jacques Filion

INTRODUCTION This chapter reflects on the notion of defining the entrepreneur. After presenting some background information on the various meanings associated with the term ‘entrepreneur’, we introduce the three main pioneers who dealt with this subject: Cantillon, Say and Schumpeter. Fifteen of the most frequently mentioned elements from definitions found in the literature were retained, along with 12 of the activities that best characterize what entrepreneurs do. Six main components are proposed for inclusion in a definition of the entrepreneur: (1) innovation, (2) opportunity recognition, (3) risk management, (4) action, (5) use of resources and (6) added value. Some sample definitions are proposed, and the conclusion suggests that there are different levels of innovation and of entrepreneurial expression. What is an entrepreneur? What characterizes entrepreneurs and distinguishes them from other organizational and social actors? How can the entrepreneur be defined? These  are typical questions that most new entrepreneurship researchers ask, and to which a variety of answers can be found in the literature. As for why there is such a broad range of perspectives, the answer is far from simple. First, the range of entrepreneurial roles is increasing steadily, and now includes venture creators, technopreneurs, intrapreneurs, extrapreneurs, social entrepreneurs, the self-employed and many others. In this chapter, the term ‘entrepreneur’ is used to refer to all these entrepreneurial actors. Observation reveals that entrepreneurship is a complex phenomenon involving a set of activities with technical, human, managerial and entrepreneurial characteristics, the performance of which requires a diverse set of skills. Generally, entrepreneurial actors play additional roles (mainly managerial) when they carry their entrepreneurial activities, and this, too, must be taken into account. Clearly, the range of roles begs the question as to what constitutes the common core activities for all these actors and what sets the entrepreneurial aspect of their activities apart from the other aspects. Given the many different categories and types of entrepreneurs, it is reasonable to wonder whether there can possibly be elements that are common to them all. Why are  there so many definitions of the entrepreneur? In fact, there are several reasons, including the range of disciplines, research fields and paradigms through which actors and situations can be studied. The humanities differ from physics and the other ‘hard’ sciences, in that specialists can study and define phenomena from widely different standpoints. In our own graduate research courses in entrepreneurship, we discuss and define the entrepreneur using several different analysis grids, including that devised by Burrell and Morgan (1979), based on two vectors: subjectivist-objectivist and radical-regulation. The grid can be used to classify the humanities literature into four categories: 72

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Functionalist: objective view of reality and a regulatory view of society. Interpretativist: subjective view of reality and a regulatory view of society. Radical structuralist: objective view of reality and focus on radical change. Radical humanist: subjective view of reality and focus on radical change (Burrell and Morgan, 1979; Howorth et al., 2005).

Definitions of the entrepreneur will obviously differ according to the authors’ paradigms. Other entrepreneurship researchers have also proposed the Burrell and Morgan grid as a means of understanding the different standpoints for definitions of the term entrepreneur  (Howorth et al., 2005). There are many reasons for the broad range of perspectives, but  one in particular stands out, namely, the prism through which the author of the definition observes and understands reality. This is the first element that should be considered in any definition. Morgan (1997) also suggested nine metaphors for looking at organizational life. They also offer rich perspectives for examining entrepreneurship. Researchers have always been interested in defining the entrepreneur, but the literature on the subject was most abundant in the 1970s, 1980s and 1990s. This was the time when growing numbers of researchers from a host of different disciplines, including many emerging disciplines in the humanities and administrative sciences, began to take an interest in entrepreneurs: Kilby (1971); Wortman (1987); Low and MacMillan (1988); Bygrave (1989; 1993); Gartner (1990); Cunningham and Lischeron (1991); Reynold (1991); Bull and Willard (1993); Brazeal and Herbert (1999) and Sharma and Chrisman (1999). Even after the 1990s the subject remained a real concern for researchers: Davidsson et al. (2001); Busenitz et al. (2003); Sarasvathy (2004); Gartner et al. (2006); Grégoire et al. (2006); and Ireland and Webb (2007).

A BRIEF HISTORY OF THE ORIGIN AND MEANING OF THE TERM ‘ENTREPRENEUR’ The term ‘entrepreneur’ is a French word derived from the verb ‘entreprendre’, which means to do or to undertake. It can be divided into two parts, ‘entre’, meaning ‘between’, and ‘preneur’ meaning ‘taker’. Literally, then, an entre-preneur is a ‘between-taker’, or ‘go-between’. The term ‘entrepreneur’ first appeared in the literature in 1253, when it was used in different forms (for example, ‘empreneur’). It appears to have taken on its present, definitive spelling in 1433 (Rey, 1994: 700). We know it was used commonly in the 1500s and 1600s. For example, Champlain, speaking of his first voyage to explore the St Lawrence River in 1603, wrote that he had been invited to make the trip ‘to see the country and what entrepreneurs would do there’ (Champlain, 1632, in Giguère, 1973, vol. 2: 702, free translation from the French). Hélène Vérin (1982) wrote a doctoral thesis in literature in which she discusses the shades of meaning of the terms ‘entrepreneur’ and ‘enterprise’ through history. She notes that the ancestor of the term ‘enterprise’ – ‘emprise’ (from the Latin imprisia) – referred to something bold, firm and daring (Vérin, 1982: 31–3). She also examined variations in meaning over the centuries, and especially between the thirteenth and eighteenth

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centuries. The current meaning that also refers to an enterprise leader first appeared in the early nineteenth century (Rey, 1994: 700).

THREE PIONEERS IN THE FIELD OF ENTREPRENEURSHIP Three authors in particular were among the first to reflect extensively on what entrepreneurs do. The concept of entrepreneur can be understood more easily through the writings of these main pioneers. Richard Cantillon The first, Cantillon, was what we would now call a venture capitalist looking for investment opportunities with better than average yields. His perspective as an investor meant that the element of risk was a core aspect of how he viewed entrepreneurial projects and defined what he considered to be an entrepreneur (Cantillon, 1755). As Schumpeter pointed out: ‘Cantillon had a clear conception of the function of the entrepreneur . . . This, of course, is scholastic doctrine. But nobody before Cantillon had formulated it so fully. And it may be due to him that French economists . . . never lost sight of the entrepreneurial function and its central importance’ (1954: 222). Cantillon described the entrepreneur as a person who purchases a raw material at a known price in order to sell it at an unknown price (Cantillon, 1755). In Cantillon’s definition, an entrepreneur’s role lies between that of two or more other actors. He or she is an intermediary (or gobetween) who instigates a transformation. Jean-Baptiste Say After Cantillon, the author who had the greatest impact on the field of entrepreneurship as it is today was Jean-Baptiste Say, nearly a century later. Say was himself an entrepreneur, and came from an entrepreneurial family. He was also a prolific writer, and wrote from the standpoint of someone preparing others to become entrepreneurs and hoping to convince them of the importance of entrepreneurs in economic development. He identified the element of innovation as being most characteristic of the entrepreneur; in other words, he regarded entrepreneurs as being people who could do new things, people who could do more with less, and people who would obtain more by doing something in a new or different way (Say, 1815; 1996). Therefore, Say saw the entrepreneur as an economic actor whose activities generated an added value. In his monumental work on the history of economics, Schumpeter pointed out that Say was the first to draw a clear distinction between the role of the entrepreneur and the role of the capitalist (Schumpeter, 1954: 555). Joseph Alois Schumpeter Joseph Alois Schumpeter is the author to whom the association between entrepreneurs and innovation is most often attributed by experts. In fact, as Schumpeter himself pointed out, he simply took over the definition presented by Jean-Baptiste Say (Schumpeter, 1954). He went further, however, postulating that ‘the essence of entrepreneurship lies in

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the perception and exploitation of new opportunities’ (Schumpeter, 1928). When he went into politics in an Austrian-Hungarian empire that needed to become more dynamic, Schumpeter identified entrepreneurs as being the people most needed to revitalize the economy and the organizations. Writing one century after Say, his thinking appears to be more complex and more complete. He associated innovation by entrepreneurs with five elements: 1. 2. 3. 4. 5.

The introduction of a new good. The introduction of a new method of production. The opening of a new market. The conquest of a new source of supply of raw material. The carrying out of the new organization of any industry (Schumpeter, 1934: 66).

It is interesting to note that none of the combinations proposed by Schumpeter to define innovation included new venture creation as such. In his writings, Schumpeter often mentioned the concept of creative destruction to refer to the contribution of innovation by entrepreneurs (Schumpeter, 1954). It is to remember that he used the term entrepreneur to refer, to what we now call intrapreneurs as well, since the term was not coined during Schumpeter’s lifetime. Clearly, then, the standpoint from which an author approaches the concept of entrepreneurship influences the key elements he or she will use to define that concept. The humanities involve a certain amount of subjectivity, in that there is not necessarily a clear-cut answer to a question as is the case in the hard sciences. Definitions depend on the original standpoint – often the disciplinary field – that determines the prism through which human beings see and understand reality, and express their subjectivity. An interesting element to consider here is the database on which the three pioneers, Richard Cantillon, Jean-Baptiste Say and Joseph Alois Schumpeter, based their reflections on entrepreneurs, their characteristics and their roles. Today, many authors and publications ascribe a great deal of importance to the samples used, in order to classify the research as being reliable and valid, and therefore in compliance with scientific criteria. However, the three pioneers in the field of entrepreneurship were not researchers as we understand the term today. Their point of reference, far from being a ‘representative sample’, was in fact composed simply of people they knew who had played entrepreneurial roles. In the case of Say and Schumpeter, these were more socially oriented roles that they wished to develop.

THE MOST COMMON ELEMENTS USED IN DEFINITIONS OF THE ENTREPRENEUR There are many ways to define an entrepreneur. For most people, an entrepreneur is a person who owns and leads a business. However, specialists increasingly use a larger number of elements in their definitions of and references to entrepreneurs (Julien, 1998). Ultimately, virtually every author has a different definition of the term, depending on the specific entrepreneurs or entrepreneurial category studied. We have identified 15 elements (Table 8.1) mentioned most frequently in the definitions from the entrepreneurship

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Table 8.1

The elements mentioned most frequently in definitions of the term ‘entrepreneur’

Elements defining the entrepreneur 1.

Innovation

2.

Risk

3.

4.

Coordination of resources for production; organizing factor of production or of the management of resources Value creation

5. 6. 7. 8.

Projective and visionary thinking Focus on action Leadership Dynamo of the economic system

9.

Venture creation

10.

Opportunity recognition

11. 12. 13. 14. 15.

Creativity Anxiety Control Introduction of change Rebellion/delinquency

Authors Schumpeter (1947); Cochran (1968); Drucker (1985); Julien (1989; 1998) Cantillon (1755); Knight (1921); Palmer (1971); Reuters Ltd (1982); Rosenberg (1983) Ely and Hess (1893); Cole (1942; and in Aitken 1965); Belshaw (1955); Chandler (1962); Leibenstein (1968); Wilken (1979); Pearce (1981); Casson (1982) Say (1815; 1996); Bruyat and Julien (2001); Fayolle (2008) Longenecker and Schoen (1975); Filion (1991; 2004) Baty (1981) Hornaday and Aboud (1971) Weber (1947); Baumol (1968); Storey (1982); Moffat (1983) Collins et al. (1964); Smith (1967); Collins and Moore (1970); Brereton (1974); Komives (1974); Mancuso (1979); Schwartz (1982); Carland et al. (1984); Vesper (1990) Smith (1967); Meredith et al. (1982); Kirzner (1983); Stevenson and Gumpert (1985); Timmons (1989); Dana (1995); Shane and Venkataraman (2000); Bygrave and Zacharakis (2004); Timmons and Spinelli (2004) Zaleznik and Kets de Vries (1976); Pinchot (1985) Lynn (1969); Kets de Vries (1977; 1985) McClelland (1961) Mintzberg (1973); Shapero (1975) Hagen (1960)

literature that we believe are most relevant (Filion, 1987; 1988). Many authors include different elements in their definitions, or present different definitions during their careers. In such cases we have selected the concept the author in question appears to regard as being most important. We chose a selection of authors dealing with the subject over the centuries, and especially over recent decades because the use of the recent literature alone does not provide a true overview of the different perspectives from which the subject was examined in the shaping of what is in the process of becoming the field of study of entrepreneurship. Table 8.1 does not present the shades of meaning that authors included in their definitions of the entrepreneur. For instance, Dana (1995) found that people of unlike cultural origins relate to opportunity in different ways, and argued that entrepreneurship should therefore not be viewed simply as a function of opportunity recognition, but rather as a function of cultural perceptions of opportunity.

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TOWARDS A DEFINITION OF THE ENTREPRENEUR To define what entrepreneurs are, we can first look at what they do – that is, at their activity systems. We have observed entrepreneurs repeatedly, in the course of many research projects, and one aspect that stands out is their ability to act independently. Therefore, we  can say that one of the primary characteristics of an entrepreneur is the ability to conceive and implement an activity system. In other words, entrepreneurs are people who are able to translate thoughts into action; they are dreamers and thinkers who do. Our observations have also shown that entrepreneurs are people who engage in activities they themselves have designed. But not just any activity – these are activities that were  defined as a result of recognizing an entrepreneurial opportunity (Table 8.2). In many cases, the opportunity involved doing something differently and therefore adding value to what existed previously. Generally speaking, entrepreneurs initiate, implement and develop their projects trying to use a limited number of resources in order to generate surpluses and profits which can then be reinvested to achieve further development. Their motivation is to innovate or introduce something new while minimizing the risk. We will not comment in detail on every element of Table 8.2. What we will say, however,  is  that it is not possible to define the entrepreneur based solely on the Table 8.2

Activities and characteristics often attributed to entrepreneurs

Activities 1.

Learning

2.

Choosing a sector

3. 4. 5.

Identifying a niche Recognizing and developing an entrepreneurial opportunity Visualizing projectively

6.

Managing risk

7.

Designing (products, services, organizations) Committing to action

8.

9. 10.

Using resources Building relations systems

11.

Managing – sales; negotiations; people – and delegating Developing

12.

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Characteristics Experience of a sector; memorized information; use of feedback Interest; motivation; assessment of potential added value for the future Care; analytical capacities; precision; target Originality; differentiation; creativity; intuition; initiative; culture that values innovation Ability to dream realistically; conceptual skills; systemic thinking; anticipation; foresight; ability to set goals and objectives; visioning Thriftiness; security; conservatism; moderate risktaker; ability to tolerate uncertainty and ambiguity; independence Imagination; problem-solving skills Self-confidence related to clearly defined identity; long-term commitment; hard worker; energy; result orientation; decision-making; passion; locus-of-control; determination; perseverance; tenacity Resourcefulness; coordination; control Networking skills; flexibility; empathy; listening and communication skills; use of mentors; vision Versatility; adaptability; capacity to design tasks; ability to trust Leadership; seeks challenges

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Innovation

Risk

Use of resources

ACTION

Added value Figure 8.1

Main elements used to define the term ‘entrepreneur’

characteristics of people who play entrepreneurial roles. Characteristics can be used to refine and clarify certain aspects of a definition, but cannot be regarded as constituting its core. Table 8.2 presents the activities mentioned most frequently in the entrepreneurship literature, which we felt were most relevant in achieving a definition (left-hand column). However, it is important to establish the relative importance of each activity. It can be useful to consider activities when defining a research subject or structuring a research project. Activities are easily identifiable and can be delimited. Some can even be measured. Nevertheless, care is needed when observing the activities of entrepreneurs, because many are management activities that complement or add to entrepreneurial activities, rather than purely entrepreneurial activities as such. This is the case, for example, of the management activities listed under point 11 of Table 8.2. It is our contention that there are levels in entrepreneurial expression, meaning that the elements used to define the entrepreneur can be ranked in importance. A distinction must be drawn between ‘essential’ elements, that is, those that entrepreneurs perform when  doing what they do as entrepreneurs, and other elements that, although partly explaining the entrepreneur’s success, are more managerial in nature. For a definition of the entrepreneur, we therefore suggest focusing on the ‘essential’ entrepreneurial act, in the sense of that which constitutes the essence of the entrepreneur’s activity, that is, the act of recognizing and developing entrepreneurial opportunities. The definition should also include at least the six components set out in Figure 8.1. Therefore, a definition of entrepreneurs should include at least these six elements: an entrepreneur is an actor who innovates by recognizing opportunities; he or she makes moderately risky decisions that lead into actions requiring the efficient use of resources and contributing an added value.

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BOX 8.1 SOME SHORT DEFINITIONS OF THE ENTREPRENEUR An entrepreneur is an actor: ● ● ● ● ● ● ● ● ● ●

who learns continually in order to recognize opportunities with potential for innovation; who makes innovations that add value; who is able to recognize opportunities for development; who conceives and implements visions with elements of differentiation; who is able to conceive an organizational project or enterprise based on the recognition and development of a risky opportunity with potential for innovation; who takes moderate risks in order to innovate; who is innovative and able to take action by exploiting an opportunity to develop a product or service; who uses resources economically in order to design innovative products or services with a competitive edge based on differentiation; who is focused on the recognition of risky opportunities with a potential for innovation in order to fulfil a social or market need; who is imaginative and able to move away from the beaten track by carrying out innovative activities with added value.

In our view, however, there is no single, absolute definition of what an entrepreneur is  and does, just like there is no ‘one best way’ (Taylor, 1947). Everything depends on the standpoint or perspective of the person creating the definition, and the aspects and elements on which that person decides to focus in his or her research. Some definitions of entrepreneurs can be very short; examples would include: ‘Entrepreneurs are dreamers who do’ or ‘Entrepreneurs are doers who get results’. Box 8.1 suggests some simple definitions of the entrepreneur. All these definitions present at least one aspect of what an entrepreneur is and does. The next step is to devise a definition that reflects the six main elements and additional dimensions of the entrepreneur’s activity system. Box 8.2 lists some more complete suggested definitions of what an entrepreneur is and does. Entrepreneurship is the field that studies entrepreneurs, entrepreneurial actors and entrepreneurial environments.

CONCLUSION We share the opinion of Mark Casson, who wrote that ‘The most difficult part of studying entrepreneurship is to define who and what an entrepreneur is’ (Casson, 1982: 1). There are many dimensions that can be considered in a definition of what an entrepreneur  is,  based  on what entrepreneurs do. An important dimension to remember is that  there are different levels of entrepreneurial expression. Ultimately, each discipline could have its own definition of the entrepreneur. However, every definition must reflect the contingency elements on which it is based. Questions concerning the definition of the  entrepreneur will continue as long as researchers devise new disciplinary sets and metaphors to explore the different facets of human behaviour. Fully integrated, more

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SAMPLE DEFINITIONS

An entrepreneur is: ●

●

●

●

An imaginative actor who recognizes entrepreneurial opportunities, makes moderately risky decisions with a view to innovating, and takes action by using resources to implement a differentiated vision that contributes an added value. An intuitive, resourceful, tenacious actor who is able to recognize and develop risky opportunities with potential for innovation, and who adds value to what already exists by setting up activities that involve a scarce use of resources. A results-oriented designer of innovations who is able to develop risky opportunities, who learns to be creative and resourceful, takes action by making practical use of limited resources and a network of contacts, and who is able to structure organizational activities to form a client satisfaction system that contributes an added value. A results-oriented actor who maintains a high level of sensitivity in order to recognize and develop entrepreneurial opportunities. This actor makes moderately risky decisions and is discerning in the use of resources. As long as this actor continues to take action by designing and implementing value-added innovations, he or she will continue to play an entrepreneurial role that contributes development.

complete definitions of the entrepreneur will become possible once a science of action has been developed. Even then, it may well be that entrepreneurs will continue to be misunderstood not only by others, but by themselves as well.

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Carland, J.W., F. Hoy, W.R. Boulton and J.A.C. Carland (1984), ‘Differentiating entrepreneurs from small business owners: a conceptualization’, Academy of Management Review, 9 (2), 354–9. Casson, M. (1982), The Entrepreneur: An Economic Theory, Oxford: Martin Robertson. Champlain, S. (1632), in G.E. Giguère (ed.) (1973), Oeuvres complètes de Champlain (Complete Works of Champlain) 3 vols, Montreal: Éditions du jour. Chandler, A.D. Jr (1962), Strategy and structure: Chapters in the History of the American Industrial Enterprise, Cambridge, MA and London: MIT Press. Cochran, T.C. (1968), ‘Entrepreneurship’, in D.L. Sills (ed.), International Encyclopedia of the Social Sciences, London and New York: Macmillan and The Free Press, vol. 5, pp. 87–91. Cole, A.H. (1942), ‘Entrepreneurship as an area of research, the tasks of economic history’, Supplement to Journal of Economic History, 2, 118–26. Collins, O. and D.G. Moore (1970), The Organization Makers: A Behavioral Study of Independent Entrepreneurs, New York: Appleton-Century-Crofts (Meredith Corp.). Collins, O. and D.G. Moore with D.B. Unwalla (1964), ‘The enterprising man’, MSU Business Studies, Bureau of Business and Economic Research, Graduate School of Business Administration, Michigan State University, East Lansing, Michigan. Cunningham, J.B. and J. Lischeron (1991), ‘Defining entrepreneurship’, Journal of Small Business Management, 29 (1), 45–61. Dana, L.-P. (1995), ‘Entrepreneurship in a remote Sub-Arctic community: Nome, Alaska’, Entrepreneurship: Theory and Practice, 20 (1), 55–72. Reprinted in Norris Krueger (ed.) (2002), Entrepreneurship: Critical Perspectives on Business and Management, vol. 4, London: Routledge, pp. 255–75. Davidsson, P., M.B. Low and M. Wright (2001), ‘Editors’ introduction: Low and MacMillan ten years on – achievements and future directions for entrepreneurship research’, Entrepreneurship Theory and Practice, 25 (4), 5–16. Drucker, P.F. (1985), Innovation and Entrepreneurship: Practice and Principles, London: Heinemann. Ely, R. and R.H. Hess (1893), Outline of Economics, New York: Macmillan. Fayolle, A. (2008), Entrepreneurship and New Value Creation – The Dynamic of the Entrepreneurial Process, London: Cambridge University Press. Filion, L.J. (1987), ‘Entrepreneur and entrepreneurship: a survey of the essential literature on the subject’, unpublished working paper, GREPME, Université du Québec à Trois-Rivières. Filion, L.J. (1988), ‘The strategy of successful entrepreneurs in small business: vision, relationships and anticipatory learning’, doctoral thesis, Lancaster University (UMI 8919064) (About the definition of entrepreneur, see vol. 1, ch. 2, pp. 7–92). Filion, L.J. (1991), ‘Vision and relations: elements for an entrepreneurial metamodel’, International Small Business Journal, 9 (2), 26–40. Filion, L.J. (2004), ‘Operators and visionaries: differences in the entrepreneurial and managerial systems of two types of entrepreneurs’, International Journal of Entrepreneurship and Small Business, 1 (1/2), 35– 55. Gartner, W.B. (1990), ‘What are we talking about when we talk about entrepreneurship?’, Journal of Business Venturing, 5 (1), 15–28. Gartner, W.B., P. Davidsson and S.A. Zahra (2006), ‘Are you talking to me? The nature of community in entrepreneurship scholarship’, Entrepreneurship Theory and Practice, 30 (3), 321–31. Grégoire, D.A., M.X. Noël, R. Déry and J.P. Béchard (2006), ‘Is there conceptual convergence in entrepreneurship research? A co-citation analysis of the Frontiers of Entrepreneurship Research 1981–2004’, Entrepreneurship Theory and Practice, 30 (3), 333–74. Hagen, E. (1960), ‘The entrepreneurs as rebel against traditional society’, Human Organization, 19 (4), 185–7. Hornaday, J.A. and J. Aboud (1971), ‘Characteristics of successful entrepreneurs’, Personnel Psychology, 24 (2), 141–53. Howorth, C., S. Tempest and C. Coupland (2005), ‘Rethinking entrepreneurship methodology and definitions of the entrepreneur’, Journal of Small Business and Enterprise Development, 12 (1), 24–40. Ireland, R.D. and J.W. Webb (2007), ‘A cross-disciplinary exploration of entrepreneurship research’, Journal of Management, 33 (6), 891–927. Julien, P.A. (1989), ‘The entrepreneur and economic theory’, International Small Business Journal, 7 (3), 29–39. Julien, P.A. (ed.) (1998), The State of the Art in Small Business and Entrepreneurship, Aldershot and Brookfield, VT: Ashgate. Kets de Vries, M. (1977), ‘The entrepreneurial personality: a person at the cross-roads’, Journal of Management Studies, 14 (1), 34–47. Kets de Vries, M.F.R. (1985), ‘The dark side of entrepreneurship’, Harvard Business Review, Nov–Dec, 160–67. Kilby, P. (ed.) (1971), ‘Hunting the heffalump’, Entrepreneurship and Economic Development, New York: The Free Press.

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Kirzner, I. (1983), Perception, Opportunity and Profit: Studies in the Theory of Entrepreneurship, Chicago, IL: University of Chicago Press. First published 1979. Knight, F.H. (1921), Risk, Uncertainty and Profit, Boston, MA and New-York: Houghton Mifflin. Also Chicago, IL: University of Chicago Press. Komives, J.L. (1974), ‘What are entrepreneurs made of ?’, Chemtech, Dec., 716–21. Leibenstein, H. (1968), ‘Entrepreneurship and development’, American Economic Review, 58 (2), 72–83. Longenecker, J.G. and J.E. Schoen (1975), ‘The essence of entrepreneurship’, Journal of Small Business Management, 13 (3), 26–32. Low, M.B. and I.C. MacMillan (1988), ‘Entrepreneurship: past research and future challenges’, Journal of Management, 14: 139–61. Lynn, R. (1969), ‘Personality characteristics of a group of entrepreneurs’, Occupational Psychology, 43, 151–2. Mancuso, J.R. (1979), ‘Who is the entrepreneur?’, Business Graduate, 9 (2), 32–3. McClelland, D.C. (1961), The Achieving Society, Princeton, NJ: Van Nostrand. (See also the New Introduction to this book: New York: Irvington Publishers, 1976.) Meredith, G.G., R.E. Nelson and P.A. Neck (1982), The Practice of Entrepreneurship, Geneva: International Labour Organization. Mintzberg, H. (1973), The Nature of Managerial Work, New York: Harper and Row. Moffat, D.W. (1983), Economics Dictionary, 2nd edn, New York: Elsevier. Morgan, G. (1997), Images of Organization, Thousand Oaks, CA: Sage. Palmer, M. (1971), ‘The application of psychological testing to entrepreneurial potential’, California Management Review, 13 (3), 32–8. Pearce, D.W. (1981), The Macmillan Dictionary of Modern Economics, London: Macmillan Press. Pinchot, G. III (1985), Intrapreneuring, New York: Harper & Row. Reuters Ltd (1982), Reuter’s Glossary of Economic and Financial Terms, London: Heinemann. Rey, A. (ed.) (1994), Le Robert, Dictionnaire historique de la langue française, Paris: Dictionnaires Le Robert. Reynold, P. (1991), ‘Sociology and entrepreneurship: concepts and contributions’, Entrepreneurship Theory and Practice, 16 (2), 47–70. Rosenberg, J.M. (1983), Dictionary of Business and Management, 2nd edn, Chichester, UK and New York: Wiley. Sarasvathy, S.D. (2004), ‘The questions we ask and the questions we care about: reformulating some problems in entrepreneurship research’, Journal of Business Venturing, 19: 707–17. Say, J.B. (1815), Cathéchisme d’économie politique, Maison Mame (1972); also translation: (1816), Catechism of Political Economy: On Familiar Conversations on the Manner in Which Wealth Is Produced, Distributed and Consumed by Society, London: Sherwood. Say, J.B. (1996), Cours d’économie politique et autres essais, Paris: GF-Flammarion. Schumpeter, J.A. (1928), ‘Des Unternehmer’, in Ludwig Elster et al. (eds), Handworterbuch der Staatsvissenschaften, (4th edn, Jena); in H. Hartmann (1959), ‘Managers and entrepreneurs: a useful distinction’, Administrative Science Quarterly, 3 (3), 429–51. Schumpeter, J.A. (1934), The Theory of Economic Development, Cambridge, MA: Harvard University Press. First edition in German published in 1912. Schumpeter, J.A. (1947), ‘The creative response in economic history’, Journal of Economic History, 7 (Nov), 149–59. Schumpeter, J.A. (1954), History of Economic Analysis, ed. Elizabeth Boody Schumpeter, New York: Oxford University Press. Schwartz, R. (1982), ‘The entrepreneur: an artist masquerading as a businessman?’, International Management, Feb., 21–32. Shane, S. and S. Venkataraman (2000), ‘The promise of entrepreneurship as a field of research’, Academy of Management Review, 25 (1), 217–26. Shapero, A. (1975), ‘The displaced uncomfortable entrepreneur’, Psychology Today, 7 (11), 83–9. Sharma, P. and J.J. Chrisman (1999), ‘Toward a reconciliation of the definitional issues in the field of corporate entrepreneurship’, Entrepreneurship Theory and Practice, 23 (3), 11–27. Smith, N.R. (1967), The Entrepreneur and His Firm: The Relationship Between Type of Man and Type Of Company, East Lansing, MI: Bureau of Business Research, Michigan State University. Stevenson, H.H. and D.E. Gumpert (1985), ‘The heart of entrepreneurship’, Harvard Business Review, Mar.– Apr., 85–94. Storey, D. (1982), The New Firm, New York: Praeger. Taylor, F.W. (1947), Scientific Management. Comprising: Shop Management; The Principles of Scientific Management; Testimony Before the Special House Committee, New York and London: Harper & Brothers. Timmons, J.A. (1989), The Entrepreneurial Mind, Andover, MA: Brick House. Timmons, J.A. and S. Spinelli (2004), New Venture Creation, 6th edn, New York: Irwin/McGraw-Hill. Vérin, H. (1982), Entrepreneurs, entreprise: histoire d’une idée, Paris: Presses Universitaires de France.

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Vesper, K.H. (1990), New venture strategies, 2nd edn, Englewood Cliffs, NJ: Prentice Hall. Weber, M. (1947), The Theory of Social and Economic Organization, New York: Free Press. Wilken, P.H. (1979), Entrepreneurship: A Comparative and Historical Study, Norwood, NJ: Ablex Publications. Wortman, M. (1987), ‘Entrepreneurship: an integrating typology and evaluation of empirical research in the field’, Journal of Management, 13 (2), 259–79. Zaleznik, A. and M.F.R. Kets de Vries (1976), ‘What makes entrepreneurs entrepreneurial?’, Business and Society Review, 17, 18–23.

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9.

Digital entrepreneurship

Kerstin Wagner and Oliver Som

The long tradition of entrepreneurship research has mainly focused on ‘how, by whom and with what consequences opportunities to produce future goods and services are discovered, evaluated and exploited’ (Shane and Venkataraman, 2000: 218). In addition to the ongoing digital transformation of economies driven by the diffusion of digital technologies, a multitude of new entrepreneurial opportunities is emerging. Owing to new requirements for work in a digital economy, work values have evolved to constitute a greater appreciation of teamwork and connectedness. This entails new cognitive (for example, knowledge of digital technologies, and digital literacy) and behavioural capabilities of working in and with digital platforms (for example, co-creation, information seeking and sharing, tackling problems and seeing new opportunities, and managing virtual teams). Furthermore, accessibility to social capital (such as networks, business partners and mentors) and to formal and informal networks, the exploitation novel funding opportunities (for example, crowdfunding) and the unlocking of tacit knowledge (for example, online technical assistance, technical databases, and communities of users and experts) are gaining increasing relevance (Smith et al., 2017; Li et al., 2018). General management literature reveals findings on how digitalization affects the demand for new workplace skills (Sousa and Rocha, 2019) and competencies (Lobo and Whyte, 2017). However, little is known about how the characteristic context of digital transformation influences the nature of entrepreneurship. The field of research in digital entrepreneurship is still fuzzy and relatively unexplored. Nambisan (2017) has presented one of the most important and differentiated conceptual approaches to digital entrepreneurship to date. Based on two main implications of digital technologies, less bounded entrepreneurial processes and outcomes and fewer predefined loci of entrepreneurial agency, he advances a future research agenda on entrepreneurship that calls for the explicit theorizing of concepts related to digital technologies. However,  his argumentation remains on the descriptive level and thereby misses the opportunity to synthesize its findings into a typology of different phenotypes of digital entrepreneurship. We contribute to advance Nambisan’s conceptual considerations by presenting a taxonomy of how entrepreneurs take advantage and exploit digital technologies for value creation. This taxonomy aims to show how entrepreneurs partly to fully integrate or utilize digital technologies and thus, depending on the stage of technological integration, influence how other entrepreneurs use digital technologies. The goal pursued with the taxonomy is to better structure the empirical heterogeneity of entrepreneurship in the digital age, thereby providing a more systematic starting point for identifying future demands for progressing theory and empirical analysis in entrepreneurship research.

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THREE LEVELS OF BECOMING DIGITAL To develop the perspectives on digital entrepreneurship, it is necessary to distinguish between the three different dimensions of digital proposed by Savić (2019) and Unruh and Kiron (2017): (1) digitization, (2) digitalization, and (3) digital transformation. First, the digitization perspective describes the conversion of previously analogue information, processes and activities into their digital version. This first occurred with sectors such as publishing, music and finance, mostly because their products were just information to begin with. Hence, the information which historically had been captured in a physical analogue format was migrated to digital. However, digitization is not solely about the conversion of information. It also includes the conversion from manual business and manufacturing processes into digital mediated processes and workflows, such as using digitally programmed automation technologies. Examples include the use of e-commerce tools or computer-aided design and computer-aided manufacturing (CAD-CAM) linkages in production. The overall goal of digitization is to achieve higher effectiveness and efficiency of business activities owing to the use of digital technologies by converting previously analogue/physical documents and processes into their digital counterparts. Secondly, the level of digitalization shifts the focus from single information or single processes to the entire process of value creation and the business model. While in the case of digitization the underlying business model remains unaffected, digitalization means that value proposition no longer solely depends on the physical product characteristics. Digitalization of business processes offers a completely new type of customer value based on data and information processing provided by individually configurable software applications. The physical product thus remains as the carrier of the user interface to the software application(s). Several examples for these cyber-physical systems can be found in the field of the Internet of things (IoT), where physical products (for example, cameras and smart speakers) serve as an interface to access a larger virtual network. In consequence, the digitalization of products and value renders existing business models and industry incumbents obsolete. The proud legacy assets of former market giants can quickly turn into core rigidities (Leonhard-Barton, 1992). As societies and economies evolve, by people integrating new technologies into their lives, the third level of digital transformation describes the process of restructuring the economy on a large scale and reshaping the behaviour, habits, value orientation, beliefs and preferences of society. Examples of similar revolutionizing transformations in history are the steam engine, electricity, the telephone and the automobile. Every one of these technologies has altered the way in which people produce, consume and structure their lives, resulting in institutional and social change. Comparably to these historical breakthrough technologies, research assumes that digital technologies will continue transforming our societies holistically from communication to work, and perhaps even the human genome by entirely reconfiguring social behaviour and information processing. A major characteristic of the digital transformation is the importance of network effects by quickly assembling a high number of users or members to unfold the exponentially growing, real-time exchange of knowledge and data. These digital ecosystems drive the emergence and diffusion of new forms of value creation and social interaction. To achieve and profit from these digital ecosystems, firms aim for digital leadership, that is, to be involved in establishing the new standards and governance instead of being driven by it.

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These three dimensions differentiate between three different quality levels of ‘digital’. Hence, they provide a solid basis from which to discuss the empirical phenomenon of digital entrepreneurship on each of these levels in this chapter. Subsequently, these qualitative dimensions of digital serve as a basis for distilling conceptual stereotypes of digital entrepreneurship comprehending new types of activities, routines, beliefs, goals and interaction.

A TAXONOMY OF DIGITAL ENTREPRENEURSHIP Entrepreneurs starting a business frequently use digital technologies as an advantage for their internal and external operations, aiming to create better or even new ways of capturing value. The taxonomy presented in this chapter shows different ways and options by which digital technologies are likely to shape entrepreneurial activities for value creation. It incorporates considerations by Nambisan (2017), who distinguishes between three distinct types of digital elements created by entrepreneurs, and we extend this according to our understanding of digital entrepreneurship. Entrepreneurs Using Digital Technologies/Digital Support First, entrepreneurs can exploit digital technologies by making use of digital technologies that support or even leverage their core business activities (Beier and Wagner, 2016). Examples of the integration of specific technologies are project management software or e-commerce functionalities. Examples of external applications are, for instance, social media and crowdfunding platforms. These technologies enable entrepreneurs to increase the effectiveness and the efficiency of their core and supporting processes. The purposes for why digital technologies are used are different: ● ● ● ● ● ●

sourcing innovation and improving the ideation process through crowdsourcing platforms; obtaining access to finance via crowdfunding platforms; prototyping and testing new products via social media or crowdfunding platforms; reaching new markets via social media platforms; selling products directly via online shop; and building customer relationships via social media platforms.

While entrepreneurs can extend the boundaries by these activities beyond their traditional networks, peer groups, supporters and customers, the scope remains narrow. Digital technologies in this case are configured to support or improve existing core business processes instead of to transform them. Entrepreneurs Creating Single Digital Products and Service Second, growing number of independent entrepreneurs recognize a large variety of opportunities in different industries. They create and offer websites, applications (apps) or custom software in relation to digital products and services that can be either stand-alone software or hardware, or even be a part of a digital platform or a larger digital ecosystem. Most of

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these digital products and services run on smartphones or other personal information technology (IT) devices. Usually, they offer one or more specific functionalities and values to their end users, such as smartphone apps, databased services, three-dimensional (3D) animation, or computer games. Entrepreneurial agency and purpose of these products and services are mostly predefined, and the boundaries of entrepreneurial activities are static with a predefined product and outcome, and open depending on the data interfaces (application programmer interfaces, API) and open-source activities. Entrepreneurs Creating Digital Platforms Third, entrepreneurs create a technology, product or service that operates as a digital platform. A platform is an intermediary and facilitates transactions between different types of individuals and organizations that would otherwise have difficulty finding each other. The platform consists of an operating system, data, networks, infrastructure and a user base. Creators of digital platforms not only develop new digital technologies, they even more frequently compose an architecture and governance structure that ultimately influences the way their customers – often other entrepreneurs – make use of their platform (Beier and Wagner, 2017). Prominent examples are Uber, AirBnB, eBay, Amazon Marketplace, but also crowdfunding platforms (for example, Kickstarter) or any other platform that brings together demand and supply sides for a specific purpose (for example, Tinder). These two-sided or multi-sided platforms offer their services on a national, international or global level (Rochet and Tirole, 2003). Digital platforms have the potential to disrupt other traditional models since they are substituting existing services from the outside (for example, banking, transport, hotel and travel industries). Digital platforms take advantage of the scalability software engines may offer and the potential reachability to millions of potential users (Evans et al., 2006). Scalability goes hand in hand with the presence of direct and indirect network effects. Users attract more users, and even more users from one side attract more users from the other side of a platform and that dynamic triggers a self-reinforcing cycle of growth (Evans and Gawer, 2016). Entrepreneurs Building Digital Ecosystems Fourth, entrepreneurs build digital innovation platforms that not only match supply and demand sides but also enable innovation activity and new value creation on their platform. These platforms consist of technological building blocks. The building blocks are used as a foundation on top of which many entrepreneurs and innovators (loosely organized) can develop complementary products or services (Evans and Gawer, 2016). They open their infrastructure to third-party applications. Contributions can come from anywhere in the world, and together they form a digital ecosystem around the platform. A dynamic digital ecosystem is an interrelated network of organizations, people and/or entities that interact and collaborate for value co-creation. A prominent example is iPhone which may host hundreds of applications on their iOS operation system. Entrepreneurs or innovators develop these applications and use Apple technology for distribution purposes. Apple makes their technology available through their APIs. The same applies to Google’s Android platform. These digital ecosystems are reshaping the global landscape. Being a platform leader of an innovation ecosystem also

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entails being responsible for the governance of a whole ecosystem of partners and peer groups. Their actions strongly influence technology affordance of their users and customers, platform governance and architecture of participation on the platform, but also in the whole digital ecosystem (Gawer and Cusumano, 2014; Nambisan, 2017).

A TAXONOMY OF DIGITAL ENTREPRENEURSHIP BASED ON ENTREPRENEURIAL AGENCY AND BOUNDARIES Departing from the two major lines of reasoning on digital entrepreneurship outlined in the seminal contribution by Nambisan (2017), the four types of digital activities and phenotypes of digital entrepreneurship can be synthesized into the taxonomy visualization in Figure 9.1.

ENTREPRENEURIAL BOUNDARIES The dimension ‘Boundaries’ in Figure 9.1 refers to the reasoning that most traditional models in entrepreneurship research assume relatively stable and fixed boundaries of entrepreneurial outcomes. This includes a well-defined range of business opportunities Undefined

Cas cad eo fg o

ce an rn e v

Entrepreneurs in digital ecosystems

Agency/goals

Entrepreneurs in digital platforms

Entrepreneurs as developers of digital products & services Entrepreneurs using digital technologies

Defined Static/narrow Source:

Boundaries

Fluid/broad

Authors’ illustration.

Figure 9.1

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and fixed or discrete sets of possible product or service outcomes. With the increasing integration of digital technologies, however, these boundaries are continuously becoming more open and fluid because the scope, features and value of product or service offerings continue to evolve even after the idea has evolved and been implemented. New management approaches such as the ‘Lean Start Up’ method (Ries, 2011) or the focus on the development of new business models (instead of predefined business plans) has led to a more open approaches of creating a new product or service (Maurya, 2012). New core functionalities of a digital product are tested as a minimum viable product on the market and early feedback from users are integrated in the further product development. Most digital product designs remain somewhat incomplete and in a state of flux where both the scale and scope of the innovation can change (Lyytinen et al., 2016). Opportunity creation is emergent (social interactions between actors are included), thus making the ideation process iterative and changing. The way new digital platforms – both transaction and innovation platforms – and complete new digital ecosystems are created allows experimentation, modification and changing the focus of the product, service or technology (pivoting). Digital platform entrepreneurs can recombine elements and continuously assemble, extend and redistribute functionalities over time (Yoo et al., 2010; Zittrain, 2006).

ENTREPRENEURIAL AGENCY The second dimension in Figure 9.1, ‘Agency/goals’, addresses the variety of actors involved in the entrepreneurial process. Traditional entrepreneurship research has focused on the role of a predefined founder (or team) who drives the entrepreneurial idea to implementation in the market (Nambisan, 2017). With the use of digital technologies, entrepreneurial agency has become more open and more distributed, with a dynamic and unexpected collection of actors engaging in entrepreneurial initiatives. In contrast to the traditional supply chain, digital entrepreneurs acting within a digital ecosystem do not know in advance who or where the external entrepreneurs or innovators might be or come from. These external entrepreneurs or innovators seek and find the platform and, depending on the degree of openness and the architecture of participation, this will encourage complementary innovation within the digital ecosystem. Actors opt in and out based on their individual goals and motivations (Nambisan, 2017).

CASCADE OF GOVERNANCE Every platform ecosystem needs governance. Those entrepreneurs creating and running an innovation platform have to take responsibility and show leadership. They decide who has access to the platform, how the resource contribution and the benefits of the platform are distributed between the ecosystem members, and how conflicts between them can be resolved in instances of diverging goals and interests. They need to create policies while also ensuring participation, value creation and high-quality participation on the platform (Evans and Gawer, 2016). Being a platform leader of an innovation ecosystem influences the technology affordance, the platform governance and the architecture of participation

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on their platform and within the whole digital ecosystem. For instance, when Android adds new capabilities into its operating platform, it produces ‘ripple effects’ (Nambisan, 2017: 1034) which lead to the transformation and/or development of radically new opportunities of entrepreneurial activities. As a consequence, these dynamics are also likely to extend the boundaries of the associated opportunity and actor space in turn. Entrepreneurial-activities based digital technologies can leverage completely new ecosystems, paving the way for future entrepreneurial activities by setting the agenda in relation to basic mechanism, scope of possible functionalities or digital services for doing business (for example, PayPal). In contrast, traditional types of analogue entrepreneurship are based on a well-defined agenda and boundaries which, in most cases, are directly linked to the physical product (for example, product-related services such as maintenance) or variations of service delivery (for example, standardized versus customized).

FIVE THESES ABOUT FUTURE RESEARCH ON DIGITAL ENTREPRENEURSHIP There are many research topics and gaps for future research on digital entrepreneurship. The following highlights five aspects of a future research agenda where theoretical enrichment and methodological progress is required to advance the understanding of digital entrepreneurship. First, the development of technology trajectories predominantly builds on a technology perspective. This is in line with a discussion of the downsides of this narrow view exclusively on technology. The use and diffusion of digital technologies by entrepreneurs, however, stand in strong relationships to specific social-psychological dispositions of the entrepreneur. An entrepreneur with a high-risk propensity might be more likely to develop a digital platform financed via business angels and venture capital. In contrast, the shoe designer with a solid business case relies on the technology of an online shop and sells shoes directly online. Finally, the app developer always sees himself or herself as a problem solver and usually develops customized software solutions and consultancy services tailored to the specific needs of his or her customers. Second, personal characteristics are antecedents why entrepreneurs choose specific levels of digital activity. Future research should focus on the question of whether and how the diffusion of digital technologies across different types of digital entrepreneurship affects and shapes individual characteristics of entrepreneurs (commitment, determination and perseverance, risk-taking and risk-seeking, drive to achieve and grow, opportunity and goal orientation, and persistent problem solving). Third, digital technologies are likely to affect both the boundaries (scope) and the nature of agency of entrepreneurial activities. A question arising for further research would be how these changes in the nature of entrepreneurial activities correlate with reconfigurations of individual dispositions and mind-sets of entrepreneurs (Frederick et al., 2007). For instance, in settings where both boundaries and agency are fluid and undefined, calculated risk-taking is hardly possible owing to exponentially higher complexity. How do entrepreneurs deal with these ill-defined situations in terms of decision-making? Fourth, Nambisan (2017) argues that new forms of digital entrepreneurship constitute themselves by the categories of ‘boundaries’ and ‘agency/goals’, the building blocks of the

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taxonomy suggested in this chapter. However, the transition from static to fluid boundaries or predefined to undefined agencies and goals is not yet measurable. Hardly anything is known about how entrepreneurs move along these axes and how they manifest in their appearance. This calls for the development of novel measurement approaches to assess different levels of boundaries, agencies and governance. Fifth, and finally, some types of digital entrepreneurship extend the traditional scope and borders of activities and goals. A question that needs to be addressed for further research is whether these dynamics result in broader settings of entrepreneurial groups or communities (Oh and Reeves, 2014) and/or increased opportunities for minority entrepreneurship (Gupta et al., 2014).

REFERENCES Beier, M. and K. Wagner (2016), ‘Social media adoption: barriers to the strategic use of social media in SMEs’, Proceedings of the European Conference on Information Systems (ECIS), Istanbul, 15 June. Beier, M. and K. Wagner (2017), ‘What determines the growth expectations of early-stage entrepreneurs? Evidence from crowdfunding’, International Journal of Entrepreneurship and Small Business, 31 (1), 12–31. Evans, D.S., A. Hagiu and R. Schmalensee (2006), Invisible Engines: How Software Platforms Drive Innovation and Transform Industries, Cambridge, MA: MIT Press. Evans, P.C. and A. Gawer (2016), ‘The rise of the platform enterprise: a global survey’, The Center for Global Enterprise, New York. Frederick, H.F., D.F. Kuratko and R.M. Hodgetts (2007), Entrepreneurship: Theory, Process and Practice, South Melbourne: Nelson. Gawer, A. and M. Cusumano (2014), ‘Industry platforms and ecosystem innovation’, Journal of Product Innovation Management, 31 (3), 417–33. Gupta, V.K., A. Banu Goktan and G. Gunay (2014), ‘Gender differences in evaluation of new business opportunity: a stereotype threat perspective’, Journal of Business Venturing, 29 (2), 273–88, doi:10.1016/j. jbusvent.2013.02.002. Leonhard-Barton, D. (1992), ‘Core capabilities and core rigidities: a paradox in managing new product development’, Strategic Management Journal, 13 (S1), 111–25. Li, L., F. Su, W. Zhang and J.-Y. Mao. (2018), ‘Digital transformation by SME entrepreneurs: a capability perspective’, Information Systems Journal, 28 (6), 1129–57. Lobo, S. and J. Whyte (2017), ‘Aligning and Reconciling: building project capabilities for digital delivery’, Research Policy, 46 (1), 93–107. Lyytinen, K., Y. Yoo and R.J. Boland (2016), ‘Digital product innovation within four classes of innovation networks’, Information Systems Journal, 26 (1), 47–75, doi:10.1111/isj.12093. Maurya, A. (2012), Running Lean: Iterate from Plan A to a Plan That Works, Boston, MA: O’Reilly and Associates. Nambisan, S. (2017), ‘Digital entrepreneurship: toward a digital technology perspective of entrepreneurship’, Entrepreneurship Theory and Practice, 41 (6), 1029–55. Oh, E. and T.C. Reeves (2014), ‘Generational differences and the integration of technology in learning, instruction, and performance’, in J.M. Spector, M.D. Merrill, J. Elen, and M.J. Bishop (eds), Handbook of Research on Educational Communications and Technology, 4th edn, New York: Springer, pp. 819–28. Ries, E. (2011), The Lean Startup: How Today’s Entrepreneurs Use Continuous Innovation to Create Radically Successful Businesses, New York: Crown Business. Rochet, J.-C. and J. Tirole (2003), ‘Platform competition in two-sided markets’, Journal of the European Economic Association, 1 (4), 990–1029. Savić, D. (2019), ‘From digitization, through digitalization, to digital transformation’, Working Paper No. 43/2019, International Atomic Energy Agency, pp. 36–9. Shane, S. and S. Venkataraman (2000) ‘The promise of entrepreneurship as a field of research’, Academy of Management Review, 25 (1), 217–26. Smith, C., J. Brock Smith and E. Shaw (2017), ‘Embracing digital networks: entrepreneurs’ social capital online’, Journal of Business Venturing, 32 (1), 18–34. Sousa, M.J. and Á. Rocha (2019), ‘Skills for disruptive digital business’, Journal of Business Research, 94 (January), 257–63.

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Unruh, G. and D. Kiron (2017), ‘Digital transformation on purpose’, MIT Sloan Management Review, 6 November, accessed 21 September 2020 at https://sloanreview.mit.edu/article/digital-transformation-on-purpose/. Yoo, Y., O. Henfridsson and K. Lyytinen (2010), ‘The new organization logic of digital innovation: an agenda for information systems research’, Information System Research, 2 (4), 724–35, doi:10.1287/isre.1100.0322. Zittrain, J.L. (2006), ‘The generative Internet’, Harvard Law Review,119, 1974–2040, doi:10.1145/1435417.1435426.

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10. Digital platforms

Donato Cutolo and Jan Vang

Digital platforms have changed the conditions influencing entrepreneurship across the globe. Research has shown that context is critical in understanding how these platforms impact entrepreneurial endeavors. This chapter illustrates how context is critical in understanding and analyzing how digital platforms influence entrepreneurial opportunities. It suggests that digital platforms represent a new type of intersection between the global and the local, where global forces promote conditions of dependent entrepreneurship. In contrast, local forces shape entrepreneurs’ agency in relation to the global processes. We suggest that, to ensure fair competition and just working conditions for platform entrepreneurs and employees within the industry, there is a need for policies not being steered by techno-skeptical or techno-optimistic frameworks but by a balanced approach. Since Joseph Schumpeter at least, it has been recognized that entrepreneurs discover and create opportunities and build new independent firms (Alvarez and Barney, 2007; Audretsch, 2007). More recently, scholars such as Brynjolffson and McAfee (2016) have hailed entrepreneurship as a vital response to the increasing concerns about digitization’s impact on entrepreneurship and the future of work. The impact of digital platforms on entrepreneurship has emerged simultaneously with a recognition of the importance of context in generic entrepreneurship research. Researching context in relation to digital platforms provides a particular challenge to researchers owing to their simultaneous global and localized nature; the interplay between the global and the local is more complex than in most other industries given the high digital interconnectivity and limited footlessness for many types of transactions and activities. A request on, for example, Innocentive, the world’s leading problem-solving digital platform, can be promoted to potential problem-solvers across the globe at the same time. Digital platforms such as Amazon, eBay, Etsy, Apple, Instagram and YouTube make it easier than ever for entrepreneurs to build a business and generate income. To illustrate their strength, the revenue generated by applications (apps) on Google and Apple, together, is projected to reach $188.9 billion by 2020. Data show that more than a million US-based small and medium-sized businesses operate on Amazon marketplace, generating hundreds of thousands of jobs across the US (Amazon, 2019). According to Etsy, in 2008, its sellers had an economic impact of $5.37 billion, with more than 1.52 million jobs created in the US economy (Etsy and GfK, 2019). These numbers reflect a combination of entrepreneurship by choice (for example, pursuing super-normal rents) and entrepreneurship by force (for example, precarious working conditions). Those with opportunities to generate new platform ideas that are economically sustainable can generate superior rents, while those working as entrepreneurs on the platforms are often exposed to hard competition and meagre returns on their investments. Moreover, many of the contributors to the platforms are not even receiving any compensation. LinkedIn, for example, have a considerable number of voluntary contributors not receiving payment for their uploads. 93

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The economic centrality of platforms heralds a new reality for entrepreneurs. Launching a business on a digital platform is not just about access to commercial opportunities that would not otherwise be available, but embodies new and concrete forms of entrepreneurship. Extant literature has produced significant insights into how platforms’ technological dimensions operate to redefine entrepreneurial opportunities, processes and outcomes (Nambisa, 2017; Nambisan et al., 2019; Von Briel et al., 2018). Moreover, as many scholars argue, platforms represent a novel and different context for entrepreneurial activities (Eckhardt et al., 2018; McIntyre and Srinivasan, 2017). However, the context is also highly diverse across activities. Local commercial digital platforms in developing countries differ significantly from hobby gaming digital platforms originated in developed countries; thus, there is a need to unpack the importance of context. While recognizing the tremendous new business opportunities created by online platforms, scholars have identified several threats that directly stem from platforms (Cutolo and Kenney, 2020; Nambisan and Baron, 2019; Wang and Miller, 2020; Wen and Zhu, 2019), but these findings have not incorporated a theoretical perspective of context. Our objective is, therefore, to elucidate and discuss the features of platform entrepreneurship and the role of context. The chapter is organized as follows. The first section introduces the importance of the context in entrepreneurial research and discusses the peculiar nature of digital platforms as a new context for entrepreneurship. The following section focuses on the new actors involved, where actors are understood as embedded in a dual context, being the local and global. The third section looks into how this focus on digital platforms as a new context carries important policy implications. Finally, we emphasize areas for future research concerned with the role of context in digital platform research.

A NEW CONTEXT FOR ENTREPRENEURSHIP The Importance of the Context in Entrepreneurship Not long ago, financial capital and ownership were central tenants of entrepreneurship. In his day, Henry Ford gained an economy of scale through ownership and centralized control, but currently, even Ford has decentralized operations into a multi-polar structure; the factory where 100 000 employees produced 1200 cars a day, dropped to 3000 employees making 800 cars a day, and this brings us to a new paradigm (Wright and Dana, 2003 [2007]). Iron ore no longer enters a plant at one end, and automobiles drive out the other. At a time when the psychology of entrepreneurs was being investigated and ethnocentric generalizations were made from Western samples, going against the accepted view, Dana (1995 [2002], 1996) noted that the opportunity for entrepreneurship was influenced by context and it was wrong to assume that an opportunity for one person was necessarily an opportunity for another. These studies pioneered the concept that context had an impact on shaping entrepreneurship as Dana demonstrated that the perception of entrepreneurial opportunities is influenced by factors such as cultural capital that may discourage (Light and Dana, 2013) or facilitate the emergence of entrepreneurship (Dana et al., 2020).

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Similarly, digital platforms facilitate and simultaneously shape the emergence of novel entrepreneurial opportunities. When conceptualizing the emergence of entrepreneurial opportunity, it is important to consider the role of contextual elements or enablers, such as ‘single, distinct, external circumstances, which – by affecting supply, demand, costs, prices or payoff structures – can play an essential role in eliciting and/or enabling a variety of venture development attempts’ (Davidsson, 2015: 684). Although contextual elements operate at the environmental level and can be actor-independent, particular actors often influence or even have a central role as external enablers (Davidsson, 2015). By orchestrating entire ecosystems of value creation and exchange (Nambisan, 2017) and by providing resources for various stages of the entrepreneurial process (von Briel et al., 2018), digital platforms are not only external enablers but also open new spaces where entrepreneurs can create new firms.1 They, as a matter of fact, become a new context for entrepreneurial activity. Analyzing the context in which entrepreneurship takes place is of the utmost importance in the advancement of entrepreneurial research (Welter, 2011), since the character of entrepreneurship, as well as the actions and the outcomes of any entrepreneurial effort, depending on the rules, threats and opportunities deriving from the context (Autio et al., 2014). Although there is a tendency to treat contextual features as error variance (Bamberger, 2008) or control variables (Zahra et al., 2014), a deep understanding of entrepreneurial context serves multiple purposes from a theoretical standpoint. A deep understanding of context enables us to delineate the phenomena and the relationships under study (Bamberger, 2008) and the nature and sources of risks and uncertainty that may influence the behaviors of the entrepreneurs (Nambisan and Baron, 2019). In addition to market rules, which are a common factor regulating economic dynamics, new and established business must face multiple forces that arise from the context of their activities (Zahra et al., 2014). This covers, for instance, the presence of local venture capital, legal structures (e.g. non-complete agreements (Marx et al., 2015)). These and other factors set the boundaries for entrepreneurs’ actions and can facilitate, hinder or have contradictory impacts on entrepreneurial success. The critical role that context plays in explaining entrepreneurial actions and outcomes is gaining momentum in the literature but, thus far, limited attention has been devoted to how the context of digital platforms shape entrepreneurial opportunities, actions and outcomes (Nambisan, 2017). The dearth of research on how digital platforms influence the nature of entrepreneurship is even more problematic considering that practically a significant part of current entrepreneurship is predicated upon being in a platform ecosystem. For example, the sale of consumer goods has been transformed by Amazon. Amazon and other digital platforms are where consumers learn about and search for goods. The growing centrality of platforms is evidenced by the need for even the most powerful established brands to establish a presence on Amazon: Nike and Apple had resisted selling through Amazon in part out of fear of undercutting their existing vendors, but in 2018, they capitulated and began selling on Amazon.

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The Multifaceted Nature of the Context There is a broad consensus about manifold facets of context (Autio et al., 2014; Welter, 2011; Zahra et al., 2014). Context is both an enabling and constraining factor in understanding digital entrepreneurship. However, as documented by the entrepreneurship ecosystems literature, the context has to be enacted to be transformed from being a passive site to becoming a valuable resource. This transformation process depends on entrepreneurs and entrepreneurial activities; therefore there is a need to link actors and context better than has previously been achieved in the literature. That is, to fully appreciate the impact of the platform economy on entrepreneurship, it is crucial to explore how the context can be conceptualized and operationalized within the digital economy. Technological Dimension of Digital Platforms: Beyond Spatial and Social Context Entrepreneurship research recently has started to acknowledge the central role that the digital nature of platforms play in shaping the context for entrepreneurs (Nambisan, 2017; Nambisan et al., 2018, 2019; Sussan and Acs, 2017). The spatial dimension of the context refers to the geographical environment, the physical setting or location where entrepreneurial actions take place (Zahra and Wright, 2011). The relevance of spatial mechanisms in fostering and regulating entrepreneurial and innovation activities has a long research tradition in economic geography (Kenney, 1999). Spatial proximity fuels new-firm creation and growth as it enables the generation of positive externalities, such as access to knowledge and social capital, and economies of scale and scope (Delgado et al., 2010). For example, location represents an essential asset in the process of international expansion by new ventures, since clusters of new firms offer several tangible and intangible resources that can be leveraged to internationalize operations (Fernhaber et al., 2014). The reason is that the spatial dimension of the context ‘serves as a proxy for several important variables that determine the vigor of entrepreneurial activities’ (Zahra et al., 2014: 488). The integration of existing frameworks and theories from digital technology literature with existing concepts in entrepreneurship illustrates that, within the context of digital platforms, the spatial boundaries of entrepreneurial actions and outcomes have been drastically redefined (Nambisan, 2017; Nambisan et al., 2019). Online platforms are built upon a set of digital technology tools and systems, a digital infrastructure (Tilson et al., 2010) that allows entrepreneurs to access many of the benefits that originate from spatial proximity without requiring the creation of physical clusters. As a consequence, geographical location changes importance since digital platforms are specifically designed to connect previously unconnected and dispersed entities (Brunn et al., 2002; Henten and Windekilde, 2016). For example, crowdfunding platforms such as Kickstarter and Indiegogo enable entrepreneurial ventures to interact with potential customers and attract financial resources on a global scale. However, this does not imply that space is unimportant because, for example, crowdfunding is known to be discriminative against entrepreneurs from developing countries. That is, the digital nature of online platforms contributes to making the spatial boundaries of entrepreneurial processes and outcomes more fluid, with significant consequences also for the interaction among the actors involved (Nambisan, 2017). The

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spatial dimension of the context place entrepreneurs in a social network of actors that influences the likelihood of entrepreneurial emergence and success (Autio et al., 2014). The interactions and exchanges between groups of heterogeneous actors are a rich source of knowledge, resources and access to markets (and actors’ actions are influenced by the spatial context they are embedded in). Consequently, these spatially embedded yet spatially dynamic networks represent a vital factor for the creation, growth and success of new ventures. In this regard, the social and spatial dimension of the context is ultimately intertwined in exerting a substantial influence over individual agency and entrepreneurial outcomes (Zahra et al., 2014). Platforms such as Amazon, Alibaba, Etsy or eBay drastically reduced the costs of economic interactions with investors, partners, suppliers and customers distributed worldwide, supporting entrepreneurial growth and expansion. Initially, digital platforms deploy several technological tools to favor the interaction between the members of their networks. For instance, in platform markets, algorithmic and recommendation systems operate to reduce discovery and transaction costs, and reputation and review systems are essential features of many digital platforms because they function as mechanisms to foster trust (Jøsang et al., 2007; Luca and Zervas, 2016; Tadelis, 2016). As a direct consequence of the latter aspect, entrepreneurs can more easily (and at lower cost) benefit from market information about the value of their business proposition, and identify the most promising opportunities (Eckhardt et al., 2018). Also, digital platforms support and promote the development of digital spaces where entrepreneurs can easily communicate and interact with one another. These online communities generate fruitful exchanges that ultimately influence the emergence and the success of entrepreneurial opportunities. For example, Kuhn and Galloway (2015) offer insights on how digital communities of peer entrepreneurs become a useful source of support and strategic advice. The technological dimension of digital platforms goes beyond the influence of spatial and social context as it creates increasing opportunities for a more distributed entrepreneurial agency (Nambisan, 2017). Digital platforms allow a set of otherwise disconnected actors to participate in a shared creation of value, directly contributing with resources, feedback, social and human capital. Digital Platform Strategies: In Between Market and Institutional Context In shifting the focus on the context, great attention has been devoted to market factors that affect entrepreneurial actions, processes and outcomes. Market or industry life cycle has been shown to exert significant influence on the emergence of entrepreneurial activities, with entrepreneurial entry mostly concentrated in the early stage of an industry life cycle and entrepreneurial innovations encountered during later phases (Autio et al., 2014). Together with the industry life cycle, other market dynamics have been called into question; for instance, the level of competition in the market (Welter, 2011). Competitive and evolutionary dynamics in digital platform markets are unique in being intrinsically tied to the strategic decisions of the platform firms (Cennamo, 2019; Cusumano et al., 2019). In the early stage of their life cycle, owing to the fierce competition between platforms that typically follows the emergence of a new opportunity, platforms need to attract entrepreneurs in the attempt to gain market traction. As a

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consequence, several boundary resources are provided to support entrepreneurs in starting, managing and scaling their businesses, such as application programming interfaces, software development kits, payment, logistic systems and, even, mentoring initiatives, which dramatically ease market entry and growth (Ghazawneh and Henfridsson, 2013). Resources acquisition is a critical challenge for all new ventures, since nascent entrepreneurs typically require a variety of resources and competencies to overcome the liability of newness (Stinchcombe, 1965), in relation to which, inter-platform competitive dynamics open novel opportunities for entrepreneurs by lowering entry barriers. When a platform market matures owing to network effects and winner-take-most dynamics (Cennamo and Santalo, 2013; Gawer and Cusumano, 2014), the strategies of the platform firms change and, with them, the contextual dynamics that entrepreneurs face. For example, although positioning themselves as direct competitors to the entrepreneurs that populate their market may hinder the long-term equilibrium of a platform ecosystem, in the quest for profit maximization platform owners may seek to capture more value at the expense of the ecosystem’s actors. To illustrate, Zhu and Liu (2018) found Amazon entry patterns into market segments created by independent entrepreneurs in the Amazon marketplace are the result of pure competitive actions aimed solely at increasing the platform’s profit by appropriating the most successful space in its marketplace. That is, running a business on a platform entails the implicit acceptance of the rules and general value proposition set by the platform owner (Nambisan and Baron, 2013). Digital platforms’ strategy is a novel dimension of the context that lies in between markets and institution. This is because digital platforms act as private regulators of their markets, setting the rules for engagement and the terms of participation for all the actors involved. The institutional context refers to the role that formal and informal institutions play by setting the ‘rules of the game’ (Welter, 2011: 172). Regulation changes represents a decisive factor for the emergence and occurrence of new business opportunities (Autio et al., 2014; Shane, 2003). For instance, the Bayh–Dole Act of 1980 in the US has been a fundamental initiative to stimulate academic engagement with the commercialization of their research (Grimaldi et al., 2011). Regulation of digital market spaces is a priority for the platform to protect both customers and entrepreneurs from fraudulent and opportunistic behaviors (Evans, 2012). As a direct consequence, running a business on a platform entails the implicit acceptance of the rules and general value proposition set by the platform owner (Nambisan and Baron, 2013). That is, platforms are masters of life and death within the market since they own the digital spaces and they can change the terms of participation, raising fees or altering the earning structure, and their powers extend to excluding entrepreneurs from the market at any moment (Cutolo and Kenney, 2020).

NEW ACTORS: DESCRIBING PLATFORM ENTREPRENEURS Platform-based entrepreneurs may deviate from the stereotypical Silicon Valley highgrowth startups and often take a more mundane form (for example, entrepreneurs by force) (Barley et al., 2017). These enterprises have great variety: opening a knitwear shop on Etsy, or eBay, creating a YouTube channel, writing apps, creating a reselling business on Amazon and starting a business based on Google advertisement referrals are only a

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Platforms and their sizes

Platform

Number of entrepreneurs

Source and year

Apple iOS/App Store Amazon* eBay

20 million developers 2.5 million merchants 25 million sellers

Taobab YouTube

8 million merchants 31 million channels

Twitch

180 000 streamers generating revenues 2.1 million merchants 800 000 of businesses 25 million business profiles

TechCrunch, 2018 Marketplacepulse, 2019 https://www.oberlo.com/blog/ebaystatistics#:~:text=That%20makes%20 seven%20million%20US,eBay%20 sellers%20around%20the%20globe Alibaba, 2019 https://www.tubics.com/blog/ number-of-youtube-channels/ TechCrunch, 2018

Etsy Shopify Instagram

Etsy, 2019 Shopify, 2019 Instagram, 2019

few of the types of businesses that can be established on a digital platform (Haefliger et al., 2010; Kuhn and Galloway, 2015). This enormous population of entrepreneurs is largely unstudied as scholars have focused on the platforms. This omission is notable considering the sheer number of these entrepreneurs. See Table 10.1 for the number of entrepreneurs operating on the major platforms. The preponderance of existing research on entrepreneurship focuses on extraordinary firms that are described as gazelles and unicorns, instead of studying the far more common, ordinary entrepreneurs (Aldrich and Ruef, 2018). The dearth of research on entrepreneurs on digital platforms is even more problematic considering that participation in a platform’s ecosystem has become vital for businesses’ existence and growth (Kenney and Zysman, 2016; Parker et al., 2016). Digital platforms have been theorized around a normative axis concerned with whether digital platforms are inherently harmful for mundane entrepreneurs or entail new job opportunities. The literature has incorporated context in that a new digital platform economy has emerged but has not incorporated context as a spatial dimension. That is, it has not looked at how the local and national context impacts the mundane entrepreneurs’ opportunities. It is implicitly assumed that opportunities are equal, independent of the context. Entrepreneurs in Myanmar and Uganda are thereby subsumed to the same logic as are entrepreneurs located in Milan or Paris. Often overlooked in the literature are the people with conventional jobs within the platform economy, that is, non-entrepreneurs. What is still not researched, for example, is the working conditions of employees of the large platforms in general, and in particular in developing countries, or of those working for subcontractors to the large platforms. Anecdotal evidence suggests that they experience terrible working conditions and pronounced effects of their work. They undertake routine work under conditions of limited resources (especially time), limited autonomy and support, and limited knowledge of the

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impact of their activities on the users (for example, use-value). Moreover, the work they do is, under some circumstances, having a significantly negative impact on their mental well-being. This is most articulated among workers censoring uploads where they have to deal with, for example, child pornography. The Washington Times (2019) summarizes it this way (in the context of Filipino workers): [W]orkers in offices around Manila evaluate images, videos and posts from all over the world. The work places enormous burdens on them to understand foreign cultures and to moderate content in up to 10 languages that they don’t speak, while making several hundred decisions a day about what can remain online. In interviews with The Washington Post, 14 current and former moderators in Manila described a workplace where nightmares, paranoia and obsessive ruminations were common consequences of the job. Several described seeing colleagues suffer mental breakdowns at their desks. One of them said he attempted suicide as a result of the trauma.

This suggests that they face degrading working conditions. However, as research in conventional manufacturing has shown, companies facing the same conditions as suppliers have been able to offer significantly different working conditions to their employees. Locke, for example, studied similar suppliers to Nike from Mexico. He found that the suppliers varied dramatically in their job design. There is thus a need to be cautious about generalizing from one geographical context to the next.

POLICY AND CONTEXT Aligned with the contextual perspective is the need to develop new policy tools and instruments incorporating a nuanced understanding of how context operates and how the global and local unfolds differently in different contexts. Policy discourses have tended to be either techno-optimistic or techno-skeptical. The purpose of incorporating context is to indicate how context encapsulates both idiosyncratic (local) and universal (global) dynamics and that actors located in a different context will both experience the opportunities differently and have access to different resources. The starting point for policy development is, therefore, to place context at the core of the analysis and policy formulations. The universalizing dimensions of the platform are captured well by Cutolo and Kenney (2020), who suggest that entrepreneurs are best conceptualized as being embedded in a system that creates space mainly for dependent entrepreneurship. Their model thus suggests that policies need to be developed to address the dependency of entrepreneurs. The policies can entail legal as well as non-legal dimensions. The legal dimensions are typically related to conditions of competition to ensure that market positions are not exploited while the non-legal policies entail policies for creating niches where local experiments can be cultivated without being exposed to destructive selection mechanisms; that is, selection mechanisms based on the power and positions of the platform incumbents. Moreover, policies are needed to destabilize the industries where the platforms dominate. Public initiatives can support the development of new business models and promote collaboration with new smaller platforms guaranteeing that value is not disproportionally captured by large established platforms. Also, it is necessary to ensure that promising networks are brought together with the aim of co-developing activities that increase their bargaining power with the large

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platforms. This may include a commitment from governments concerning their purchasing policies. It may be naive to assume that public procurement can eradicate all issues related to poor working conditions among employees affiliated directly or indirectly with the platforms. However, public procurement should make it mandatory that working conditions are respected and enforced among their suppliers. This could create some changes in the industries. Finally, in the context of developing countries, experiences from, for example, China, show that building local platforms can be achieved successfully, but this requires policy measures suspending the traditional market dynamics (however, this is sensitive because it can also be abused and lead to political censoring, control, and so on). These ideas are indicative only and are put forward to illustrate the intersections in need of contextual analysis.

CONCLUSIONS The growing centrality of platforms for entrepreneurship is evidenced by the need for even the most powerful established brands to be present on Amazon: Nike and Apple had resisted selling through Amazon in part out of fear of undercutting their existing vendors, but in 2018 they capitulated and began selling on Amazon (Galloway, 2018; Kelley, 2018). We have discussed how digital platforms have become a new context in which entrepreneurship takes place and have become critical in influencing the process and outcomes of entrepreneurial actions. We have shown that the contextual perspective sheds new light on a significant research gap and provides an essential alternative to the dominant policy discourses. Inspired by the work of Cutolo and Kenney (2020) we suggest the dependency propensities of the current platform economy can be used as a platform for developing policies, but also that this perspective can benefit from incorporating insights concerning context. The chapter, however, does not assume quick-fix policies. Finally, we argued for paying more attention to the role of non-entrepreneurs, who often face poor working conditions in the platform economy. Platform entrepreneurship should satisfy customers, owners and employees, not just the two first two of these. Future research should elaborate on how the dependency perspective can better be incorporated with the contextual perspective and engage in empirical studies of how universalizing or globalizing mechanisms interact with local(izing) mechanisms in different places. There is a need to be open to understanding the motivational issues of many new platform contributors, such as YouTubers or lane builders to computer games, as this makes possible new insights concerning working conditions, network building and how different actors in different contexts deal with the dependency challenge.

NOTE 1. Joseph Schumpeter first theorized that new technologies or other market changes could open new economics spaces to be occupied by entrepreneurs who construct new business models capable of exploiting the opportunities.

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Employee non-compete agreements and brain drain’, Research Policy, 44 (2), 394–404, doi:10.1016/j.respol.2014.10.006. McIntyre, D.P. and A. Srinivasan (2017), ‘Networks, platforms, and strategy: emerging views and next steps: networks, platforms, and strategy’, Strategic Management Journal, 38 (1), 141–60, doi:10.1002/smj.2596. Nambisan, S. (2017), ‘Digital entrepreneurship: toward a digital technology perspective of entrepreneurship’, Entrepreneurship Theory and Practice, 41 (6), 1029–55, doi:10.1111/etap.12254. Nambisan, S. and R.A. Baron (2013), ‘Entrepreneurship in innovation ecosystems: entrepreneurs’ self-regulatory processes and their implications for new venture success’, Entrepreneurship Theory and Practice, 37 (5), 1071–97, doi:10.1111/j.1540-6520.2012.00519.x. Nambisan, S. and R.A. Baron (2019), ‘On the costs of digital entrepreneurship: role conflict, stress, and venture performance in digital platform-based ecosystems’, Journal of Business Research, in press, doi:10.1016/j. jbusres.2019.06.037. Nambisan, S., D. Siegel and M. Kenney (2018), ‘On open innovation, platforms, and entrepreneurship’, Strategic Entrepreneurship Journal, 12 (3), 354–68, doi:10.1002/sej.1300. Nambisan, S., M. Wright and M. Feldman (2019), ‘The digital transformation of innovation and entrepreneurship: progress, challenges and key themes’, Research Policy, 48 (8), art. 103773, doi:10.1016/j. respol.2019.03.018. Parker, G., M. Van Alstyne and S.P. Choudary (2016), Platform Revolution: How Networked Markets Are Transforming the Economy and How to Make Them Work for You, New York: W.W. Norton. Shane, S. (2003), A General Theory of Entrepreneurship: The Individual–Opportunity Nexus, Cheltenham, UK and Northampton, MA, USA: Edward Elgar. Stinchcombe, A.L. (1965), ‘Organizations and social structure’, in J. March (ed.), Handbook of Organizations, Chicago, IL: Rand McNally, pp. 142–93. Sussan, F. and Z.J. Acs (2017), ‘The digital entrepreneurial ecosystem’, Small Business Economics, 49 (1), 55–73, doi:10.1007/s11187-017-9867-5. Tadelis, S. (2016), ‘Reputation and feedback systems in online platform markets’, Annual Review of Economics, 8 (1), 321–40, doi:10.1146/annurev-economics-080315-015325. Tilson, D., K. Lyytinen and C. Sørensen (2010), ‘Research commentary – digital infrastructures: the missing IS research agenda’, Information Systems Research, 21 (4), 748–59, doi:10.1287/isre.1100.0318. Von Briel, F., P. Davidsson and J. Recker (2018), ‘Digital technologies as external enablers of new venture creation in the IT hardware sector’, Entrepreneurship Theory and Practice, 42 (1), 47–69, doi:10.1177/104225871773 2779. Wang, R.D. and C.D. Miller (2020), ‘Complementors’ engagement in an ecosystem: a study of publishers’ e-book offerings on Amazon Kindle’, Strategic Management Journal, 41 (1), 3–26, doi:org/10.1002/smj.3076. Welter, F. (2011), ‘Contextualizing entrepreneurship-conceptual challenges and ways forward‘, Entrepreneurship Theory and Practice, 35 (1), 165–84, doi:10.1111/j.1540-6520.2010.00427.x. Wen, W. and F. Zhu (2019), ‘Threat of platform-owner entry and complementor responses: evidence from the mobile app market’, Strategic Management Journal, 40 (9), 1336–67, doi:10.1002/smj.3031. Wright, R.W. and L. Dana (2003), ‘Changing paradigms of international entrepreneurship strategy’, Journal of International Entrepreneurship, 1 (1), 135–52, repr. 2007 in B.M. Oviatt and P. Phillips McDougall (eds), International Entrepreneurship, Cheltenham, UK and Northampton, MA, USA: Edward Elgar, pp. 131–48.

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Zahra, S.A. and M. Wright (2011), ‘Entrepreneurship’s next act’, Academy of Management Perspectives, 25 (4), 67–83, doi:10.5465/amp.2010.0149. Zahra, S.A., M. Wright and S.G. Abdelgawad (2014), ‘Contextualization and the advancement of entrepreneurship research’, International Small Business Journal: Researching Entrepreneurship, 32 (5), 479–500, doi:10.1177/0266242613519807. Zhu, F. and Q. Liu (2018), ‘Competing with complementors: an empirical look at Amazon.com’, Strategic Management Journal, 39 (10), 2618–42. doi:10.1002/smj.2932.

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11. Disabled entrepreneurs Wilson Ng

At a time when datasets typically reflected characteristics of able, white, male entrepreneurs, Dana (1995 [2002]) observed that the identification of opportunities for entrepreneurship was a function of context and he explained occupational clustering accordingly. That study showed that Alaska Natives had a strikingly different approach to entrepreneurship than did mainstream Americans. Along similar lines, there has been little research on how extreme challenges may have initiated or produced successful ventures. Extreme challenges include sociocultural and economic barriers arising from life-changing physical and mental disabilities1 (Miller and Le Breton-Miller, 2017). Apart from a few studies on entrepreneurs with paraplegia, sight loss and attention deficit hyperactive disorder (ADHD), there has been little research on severely disabled entrepreneurs who appear to have overcome their challenges in creating successful ventures. What may be learned from these entrepreneurs and their ventures? Moreover, researchers in and beyond entrepreneurship have voiced the need to explore the social and organizational impact of visible (physical) disabilities and invisible (mental health) conditions (see, for example, Santuzzi et al., 2014). This is because of the rising costs of workplace inefficiencies from employees who pick up impairments, commonly mental conditions such as depression. The negative effects of mental conditions are magnified in a typically high-pressure workplace culture that compels employees to keep their disabilities hidden from employers in order to avoid demotion, or worse (Jack, 2019). For the study of entrepreneurship, this social tendency to disregard people with disabilities has contributed to the paucity of knowledge about the millions of disabled people worldwide who create ventures, often out of necessity (Jones and Latreille, 2011; Block et al., 2015). Relatedly, we also know little about the possible contribution to enterprise of people with positive, entrepreneurial traits (Wiklund et al., 2017) and adaptive skills (Ng and Arndt, 2019) who are labelled, pejoratively, as ‘disabled’.2 There are several guiding perspectives on the phenomenon of venture creation among disabled entrepreneurs. A major perspective that is based on employment studies of disability is the social model of disability. This model adopts a social constructivist view of the nature of disabled enterprise. In this view, disability is a socially constructed phenomenon founded on ableist (able-bodied) perceptions of impaired people’s disabilities (Williams and Patterson, 2019). Deviating from normative behavior can then produce oppressive consequences, including emotional trauma from social exclusion, which the social model has made explicit in lived accounts of these experiences (French, 1998; French and Swain, 2006). A principal implication of the social model is that knowledge about disabled entrepreneurs is viewed in terms of their environmental, structural and social-attitudinal barriers (cf. French, 2001, 2003). As these barriers impede their ordinary activities, where possible they should be designed out of, or removed from, structures (cf. French and Swain, 1997). Knowledge about all disabled people is sourced primarily from their presentations of 105

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their own experiences (Oliver et al., 2012). First-hand narratives of typical barriers in the lives of impaired people have therefore underpinned the social model’s influence on disability research and practice (Williams and Mavin, 2012). The model, however, has been criticized for its non-disabled ontology that reflects ‘normative expectation[s] of western, white, middle-class, non-disabled, hetero-sexual male[s]’ (Williams and Mavin, 2012: 164). Relatedly, the challenge-based view (Miller and Le Breton-Miller, 2017) may also be criticized for assuming that its socially constructed ontology is a workable setting for the activities of disabled entrepreneurs. The challenge-based view suggests that disabled entrepreneurs may develop a propensity for envisaging adaptive requirements of their particular challenges. These challenges can be physical, social and/or cognitive. Challenged entrepreneurs draw on their challenges as resources in shaping adaptive requirements. These requirements, such as, for example, ‘the need to do things differently’ (Miller and Le Breton-Miller, 2017: 9, original emphasis), then motivate the development of outcomes that meet particular requirements, such as where creativity satisfies the need to do things differently. To date, few studies in any field have drawn on the social model of disability. However, recent studies in entrepreneurship have begun to explore the activities of disabled entrepreneurs in liberal sociocultural (western) environments with a socially constructed basis of ableism as a given social context in which the sampled entrepreneurs live and work. These entrepreneurs in the USA and the European Union are either visibly disabled, namely, visually or otherwise physically impaired (Ng, 2018, 2020; Ng and Arndt, 2019), or invisibly impaired with mental conditions such as ADHD (Wiklund et al., 2016, 2017, 2018; Lerner et al., 2019). In these western contexts, research has drawn on the adaptive mechanisms of the challenge-based model of entrepreneurship (Ng and Arndt, 2019; Ng, 2020) and the person-fit environment literature to explore how particular personality traits (Wiklund et al., 2017) and personal challenges (Ng and Arndt, 2019) of disabled entrepreneurs may relate to entrepreneurial intention and positive outcomes of entrepreneurial activities. A number of insights have been produced by this research. For example, the most striking finding of Ng and Arndt’s (2019) research on visually impaired (blind) entrepreneurs was that their venture creation process was not driven by a self-employment motive. Instead, the persistent way in which the sampled entrepreneurs sought opportunities out of the ordinary requirements of a sighted world exposed a determination to produce impactful ideas that attained clearly defined goals, consequent upon their blindness (Table 11.1). The debilitating nature of the entrepreneurs’ condition was drawn upon as a motivating resource for venture creation. Visual impairment then became a basis for generating new opportunities, and the desire of blind entrepreneurs for creating impactful ventures drove the identification of simple ideas that would connect mainly with large western businesses. Their entrepreneurial motivation seemed to originate from, and draw on, the suddenness of the disabilities that spurred the entrepreneurs to create ventures, for example, the paraplegia of one of the entrepreneurs (who was also blind) and the late-onset blindness of another entrepreneur. The latter’s declaration that she ‘never needed eyes to see’ then became a powerful mantra for engaging with disabled people who also possess often overlooked attributes, for example, to see in ways that sighted people cannot. By contrast, the paraplegic entrepreneur in Ng and Arndt (2019) pursued physical

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Source:

Paraplegic: Financially driven outlook Blind: Social-welfaredriven outlook Paraplegic and blind: Desire to interact with public audiences sympathetic to disability Paraplegic: Urge to reverse paralysis. Refusal to accept immobility and change of lifestyle following paraplegia Blind: Sense of liberation from constraints as employee Paraplegic: Personal sense of disability from paralysis. Urge to cure paralysis, but not sight loss Blind: Self-driven pressure to achieve social goals following sight loss

Drawn from Ng and Arndt (2019).

PHYSICAL AND EMOTIONAL Paraplegic: Loss of mobility from paraplegia and consequent trauma. Personal sense of ‘disability’ Blind: Sense of exhilaration and anxiety from life-changing sight loss

ECONOMIC Paraplegic entrepreneur: Limited career prospects Blind entrepreneur: Enforced change of career SOCIOCULTURAL Paraplegic and blind: New social perception of ‘disability’ following UK Equality Act (2010) COGNITIVE Paraplegic: Nagging sense of physical inadequacy following paraplegia Blind: Sudden sight loss enabled entrepreneurial development

Possible drivers of venture creation Paraplegic Commercial fund-raising events for research to cure paralysis from paraplegia Development of exoskeleton bodysuit to enable temporary (paralyzed) limb movement Stem cell research to reverse paraplegia Cross-disciplinary medical and psychology research of adaptive sensory capabilities of physically impaired people Paid motivational and problem-solving talks to business organizations Blind Business sponsorship to increase employment across industries of physically impaired workers with generic and special skills Social fund-raising for skills development among physically impaired people Research and dissemination of capabilities of visually impaired employees for organizations Scientific research on problem-solving capabilities of employees with different physical and mental impairments Public motivation and educational talks

New-venture opportunities (not related exclusively to any specific challenges)

Possible process of opportunity formation among disabled entrepreneurs

Personal challenges

Table 11.1

‘I never needed eyes to see’ (Blind): Ability to assess and accept high-risk activities despite sight loss (adventure lifestyle – paraplegic entrepreneur), and because of sight loss (new public candor, following her sight loss, to speak to an international audience on behalf of disabled people unfettered by social expectations of her limited capabilities as a sight-impaired individual – blind entrepreneur) Outcomes driven – more materialistic attitude (focused on financial goals because of passion to cure his paraplegia – paraplegic) Process driven – less materialistic attitude (focused on social welfare goals because of poor employment opportunities for disabled – blind) Passion for continuing venture creation. Adapted employment skills from longterm sight loss (paraplegic) High self-belief in own skills and capabilities (blind) Empathetic relationship with nondisabled audiences to leverage social perception of disability for profit (paraplegic) and social welfare (blind) Commercial exploitation of nondisability views of blindness by developing blind skills for the nondisabled (paraplegic) Ability to build distinctive public identity by leveraging social trends for equality and diversity (blind)

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adventures that defied his early sight loss, and his most ambitious ventures were motivated by the physical burden of paralyzed limbs. While his blindness was incurable, his paraplegia from an accident that resulted from his blindness was more likely to secure a treatment for recovery during his lifetime. Thus, following his paraplegia, this entrepreneur focused his energies on finding a cure for paralysis that he viewed as a temporary constraint on his adventure lifestyle. Notably, this entrepreneur found motivation for venture creation only when he experienced physical impairments that compelled a change of lifestyle. Yet there was a notable difference in the connection between their respective impairment(s) and entrepreneurial activity: Whereas the paraplegic entrepreneur did not accept the permanence of the paraplegia and sought to reverse it, the sight loss of the blind entrepreneur inspired them to pursue radically new activities. It seemed therefore to follow that were the paraplegic entrepreneur to successfully reverse his paraplegia, then his entrepreneurial passion would decline. For the blind entrepreneur however, her blindness liberated a new, passionate social calling on behalf of the world’s disabled. Here, potentially, it also seemed to follow that scholars and managers in and beyond entrepreneurship have more to learn from the foresight of the blind entrepreneur than the personal interests of the paraplegic entrepreneur, which focused merely on repairing their paraplegia. That foresight potentially links creative outcomes of opportunity formation, for example, in the identification of little-known networks and skills of disabled people (Miller and Le Breton-Miller, 2017: 9; Table 11.1, col. 4) that may be drawn on, by employing organizations, as capabilities. Findings from Ng (2018) and Ng and Arndt (2019) have a number of theoretical implications, principally for the challenge-based view. This view represents a major stride toward classifying different challenges, while bringing together several hitherto unconnected research streams. Chiefly, the respective conditions of the sampled entrepreneurs inspired expansive entrepreneurial endeavor that paid little attention to social norms of disabled people, such as their traditional employment in low-paid, menial work. Instead, this research on disabled entrepreneurs yielded insights on processes of opportunity formation based on the adapted skills of the two entrepreneurs in exploiting, as opposed to passively reacting to, their personal challenges (Table 11.1, cols 1 and 2). The subsequent, market-orientated ventures of the sampled entrepreneurs suggest that their activities can throw light on processes in which valuable goods and services are produced for targeted end-users, specifically for physically challenged people who entrepreneurship scholars know little about, but also for non-disabled entrepreneurs who typically face challenges. The suggestion here is how different drivers for a severely challenged form of entrepreneurship may produce different types of ventures with personal goals that satisfy the sponsoring entrepreneur (Table 11.1, cols 2 and 3). Accordingly, by understanding and enabling drivers of venture creation, it may prove possible for disabled and non-disabled entrepreneurs to develop suitable attributes for producing successful outcomes of forprofit and social ventures. As regards opportunity formation, the challenges faced by the entrepreneurs in Ng and Arndt (2019) proved to be a vital resource that they returned to for venture funding and networks, initially in launching their ventures and then in sustaining their public impact. This insight offers a fresh perspective of the social model that locates the source of disability in public perceptions. The suggestion here is that the popular, punitive weakness of disability in a non-disabled world became a lucrative source for the access to funding and networks that were critical for the disabled entrepreneurs’ venture success.

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The nascent studies of physically and mentally disabled entrepreneurs also have implications in practice in the ways that the entrepreneurs leveraged their physical and mental conditions to discover and/or exploit novel opportunities. For example, the necessity-based literature has contributed to understanding the empowerment of disabled people. This empowerment may be experienced where disabled people in impoverished settlements develop entrepreneurial skills as a means of addressing their multiple challenges. Community leaders then empower the entrepreneurs by portraying their skills as a special endeavor (Lorenzo et al., 2007). In contrast, a recent, large-scale study of entrepreneurs with ADHD has demonstrated a strong positive correlation between the clinical condition of ADHD and entrepreneurial intention and action. This finding suggests that entrepreneurs with ADHD are more likely to choose business venturing, rather than doing so out of necessity, and to self-select entrepreneurial activities (Lerner et al., 2019). Consequently, it may be possible to identify and develop suitable skills to capture high-potential opportunities for venture creation, regardless of the severity of any challenges (Miller and Le Breton-Miller, 2017). This is owing to physically impaired people having acquired, through daily experience, a close understanding of the nondisabled world in which they must live. The opposite is not the case, unless able-bodied people develop late-onset impairments. Hence the persistence of a socially constructed, bourgeois view of disability. In this view, since the socially constructed view reflects psychological and emotional beliefs (Williams and Mavin, 2012), it may be possible for most, if not all, disabled people to develop special attributes in venture creation and development.

FURTHER RESEARCH The pioneering studies on physically and mentally disabled entrepreneurs suggest opportunities for further research of venture creation and development in a number of areas in new-venture creation and development. For example, following Ng and Arndt (2019), further research may: (1) shed light on generic processes of skills adaptation and development; (2) illuminate possible origins and sources of entrepreneurial motivation; (3) help to empower disadvantaged people; (4) offer new areas of study in entrepreneurial education; and (5) provide examples of how effective strategies are created, without disabled entrepreneurship serving merely as an example of social diversity and tolerance. Disabled entrepreneurship may involve an identifiable, homogenous process of skills adaptation and development. Ng and Arndt (2019) and Wiklund et al.’s work (2017, 2018) have suggested how this process can shed light on possible ways in which game-changing ideas among disabled entrepreneurs may be systematically created (Ng and Arndt, 2019) and related with entrepreneurial success (Wiklund et al., 2017). To achieve this goal, process studies of disabled entrepreneurship may be conducted by exploring possible drivers and adapted skills of opportunity-driven behavior among disabled entrepreneurs. Those drivers and skills can then be drawn on in developing special attributes, perhaps most influentially in the empathetic relationship between disabled entrepreneurs and their non-disabled audiences that enabled the entrepreneurs to leverage their challenges for personal goals. Here, research may be conducted to compare the behavior of entrepreneurs with congenital impairments and those with late-onset impairments. This work could

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expose the important issue of the relationship between impairments and entrepreneurial endeavor, and ultimately of success. Learning of the ways that sudden sight loss may motivate a change in priorities resonates with a number of fields including entrepreneurship education. Here, knowledge of potentially different approaches to new-venture creation among disabled entrepreneurs may run deep among entrepreneurship students who are trained to develop and launch innovative ventures (Kuratko, 2005). Entrepreneurship scholars now know that entrepreneurship education can have a significant, measurable impact in creating more and better entrepreneurs (Martin et al., 2013). Accordingly, the innovativeness and motivation of disabled entrepreneurs in Ng and Arndt (2019) may form an important part, for example, of a psychology-driven framework of attributes that can predict future success in newventure creation (Kickul and Gundry, 2002). Processes in which blind entrepreneurs build entrepreneurial skills, such as in creative thinking and use of technology (Kuratko, 2005), as tools in a sighted world could therefore become core components of entrepreneurship education. A further important field of research in disabled enterprise is in the relationship between behavioral traits of invisible disabilities and entrepreneurial activities. In the current climate of growing business concern over the costs of invisible disabilities, research is needed in exploring how employees with normally invisible disabilities such as ADHD and Asperger’s Syndrome may in fact draw positively from their impairments for their own as well as for their employers’ benefit. For example, Wiklund et al. (2017) suggest that future research might examine how individuals with ADHD gather resources and organize teams when starting ventures. As venture founders with ADHD symptoms tend to move quickly to gather financial and human resources, this may prove to be advantageous in securing funding without delay for venture creation, and in capturing the attention of venture capitalists in a crowded field of new-venture proposals.

NOTES 1. We refer to disability and disabled entrepreneurs in this chapter purely as a shorthand. The accurate term for disability is impairment, either physical or mental. This is because most disabled people are not incapable of work, as the term ‘disability’ suggests. Disabled-impaired entrepreneurs may possess important advantages in new-venture creation based on personality traits and/or adaptive capabilities that are particularly suited for successful enterprise activities, as outlined in this chapter. 2. ‘Disability’ is an English word that is unique among most, if not all, languages in being pejorative. To call someone disabled can therefore be extremely insulting. It follows that ‘disability’ carries a wholly negative meaning.

REFERENCES Block, J., K. Kohn, D. Miller and K. Ullrich (2015), ‘Necessity entrepreneurship and competitive strategy’, Small Business Economics, 44 (1), 37–54. Dana, L.-P. (1995), ‘Entrepreneurship in a remote sub-Arctic community: Nome, Alaska’, Entrepreneurship Theory and Practice, 20 (1), 55–72, repr. 2002 in N. Krueger (ed.), Entrepreneurship: Critical Perspectives on Business and Management, vol. 4, London: Routledge, pp. 255–75. French, S. (1993), ‘Disability, impairment or something in between?’, in J. Swain, V. Finklestein and M. Oliver (eds) Disabling Barriers – Enabling Environments, London: Sage, pp. 17–25.

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French, S. (1998), ‘Surviving the institution: working as a visually disabled lecturer in higher education’, in D. Malina and S. Maslin-Prothero (eds), Surviving the Academy. Feminist Perspectives, London: Falmer, pp. 31–41. French, S. (2001), Disabled People and Employment. A Study of the Working Lives of Visually Impaired Physiotherapists, Aldershot: Ashgate. French, S. and J. Swain (1997), From a Different Viewpoint: The Lives and Experiences of Visually Impaired People, London: Jessica Kingsley and the Royal National Institute for the Blind. French, S. and J. Swain (2006), ‘Telling stories for a politics of hope’, Disability & Society, 21 (5), 383–96. Jack, A. (2019), ‘Survey data highlight need for health interventions’, Financial Times, 21 November, accessed 16 September 2020 at https://www.ft.com/content/5eea0cdc-d940-11e9-9c26-419d783e10e8. Jones, M. and P. Latreille (2011), ‘Disability and self-employment: evidence from the UK’, Applied Economics, 43 (27), 4161–78. Kickul, J. and L. Gundry (2002), ‘Prospecting for strategic advantage: the proactive entrepreneurial personality and small firm innovation’, Journal of Small Business Management, 40 (2), 85–97. Kuratko, D. (2005), ‘The emergence of entrepreneurship education: development, trends, and challenges’, Entrepreneurship Theory and Practice, 29 (5), 577–97. Lerner, D., I. Verheul and R. Thurik (2019), ‘Entrepreneurship and attention deficit/hyperactivity disorder: a large-scale study involving the clinical condition of ADHD’, Small Business Economics, 53 (2), 381–92. Lorenzo, T., L. Van Niekerk and P. Mdlokolo (2007), ‘Economic empowerment and black disabled entrepreneurs: negotiating partnerships in Cape Town, South Africa’, Disability and Rehabilitation, 29 (5), 429–36. Martin, B., J. McNally and M. Kay (2013), ‘Examining the formation of human capital in entrepreneurship: a meta-analysis of entrepreneurship education outcomes’, Journal of Business Venturing, 28 (2), 221–4. Miller, D. and I. Le Breton-Miller (2017), ‘Underdog entrepreneurs: a model of challenge-based entrepreneurship’, Entrepreneurship Theory and Practice, 41 (1), 7–17, accessed 11 October 2020 at https://journals.sagep ub.com/doi/10.1111/etap.12253. Ng, W. (2018), ‘Underdog’ entrepreneurs? Processes of opportunity creation among visually-impaired founders of new ventures’, paper presented at the British Academy of Management Annual Conference, Entrepreneurship Track, Bristol Business School, University of the West of England, Bristol, 6 September. Ng, W. (2020), ‘“I never needed eyes to see.” Lessons from visually-impaired founders of new ventures’, in S. Yousafzai, W. Ng, T. Coogan and S. Sheikh (eds), Exploring the Intersectionality between Disability and Entrepreneurship, Cheltenham, UK and Northampton, MA, USA: Edward Elgar, forthcoming. Ng, W. and F. Arndt (2019), ‘I never needed eyes to see: leveraging extreme challenges for successful venture creation’, Journal of Business Venturing Insights, 11 (June), 1–10, doi10.1016/j.jbvi.2019.e00125. Oliver, M., B. Sapey and P. Thomas (2012), Social Work with Disabled People. Practical Social Work Series, 4th edn, London: Palgrave Macmillan. Santuzzi, A., A. Waltz, L. Finkelstein and D. Rupp (2014), ‘Invisible disabilities. Unique challenges for employees and organizations’, Industrial and Organizational Psychology, 7 (2), 204–19. Wiklund, J., I. Hatak., H. Patzelt and D. Shepherd (2018), ‘Mental disorders in the entrepreneurship context: when being different can be an advantage’, Academy of Management Perspectives, 23 (2), 182–206. Wiklund, J., H. Patzelt and D. Dimov (2016), ‘Entrepreneurship and psychological disorders: how ADHD can be productively harnessed’, Journal of Business Venturing Insights, 6 (December), 14–20. Wiklund, J., W. Yu, R. Tucker and L. Marino (2017), ‘ADHD, impulsivity and entrepreneurship’, Journal of Business Venturing, 32 (6), 627–56. Williams, J. and S. Mavin (2012), ‘Disability as constructed difference: a literature review and research agenda for management and organization studies’, International Journal of Management Reviews, 14 (2), 159–79. Williams, J. and N. Patterson (2019), ‘New directions for entrepreneurship through a gender and disability lens’, International Journal of Entrepreneurial Behavior and Research, 25 (8), 1706–26.

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12. Early foreign market entries of new technology-based firms Regis Coeurderoy and Gordon Murray

Studies devoted to the international activities of high-technology start-ups have become of increasing importance for academic researchers (Bollinger et al., 1983; McDougall et al., 1994; Storey and Tether, 1998; Burgel and Murray, 2000; McDougall and Oviatt, 2000; Zahra et al., 2000; Cavusgil and Knight, 2015; Terjesen et al., 2016). For those firms internationalizing rapidly in their early years, or even at the time of their formation, that is, born global firms, key strategic issues regarding internationalization choices have necessarily to be addressed rapidly (Oviatt and McDougall, 1995; Madsen and Servais, 1997; Burgel et al., 2004; Verbeke and Ciravegna, 2018). These young firms face several forms of resource constraint; they commonly lack money (tangible assets) and experience (tacit assets). Accordingly, the act of internationalization, while a potentially valuable economic opportunity, may also increase the vulnerability of the young firm to additional competitive threats. To add a further challenge, such an internationalizing firm must also put aside or revise behavioral rules and heuristics learned from competing successfully in its domestic market. It now must identify and adapt to the different rules of the game that pertain in foreign markets (North, 1990). This adaptation to changing international environments raises a unique challenge to new ventures. As explained by Oviatt and McDougall (1994), the development of these firms cannot follow the sequential and linear, step-by-step process described by the stage theory derived from traditional industries (Johanson and Vahlne, 1977, 1990, 2009). International new ventures frequently do not wait for the accumulation of internal resources. They have limited market knowledge and time to go to market, and must operate in highly volatile environments which may well limit learning opportunities (Oviatt and McDougall, 1994).

KEY STRATEGIC CHALLENGES FOR INTERNATIONALIZING NEW TECHNOLOGY-BASED FIRMS In the specific case of new technology-based firms (NTBFs), key strategic issues regarding internationalization choices have often to be faced very early in the firm’s life cycle (Oviatt and McDougall, 1995; Madsen and Servais, 1997; Zahra et al., 2000; Knight and Cavusgil, 2004; Hashai, 2011; Jones et al., 2011). There are a range of competing arguments explaining why NTBFs seek to internationalize so quickly (Hennart, 2014; Zhou and Wu, 2014). It has been suggested that this phenomenon may be a result of insufficient, aggregate home demand for highly specialized, that is, niche products and services (Madsen and Servais, 1997); or conversely that overseas sales are the individual firm’s response to excessive domestic competition (Shrader, 2001). These arguments are in effect a description of defensive actions by firms pushed out or beyond home markets. 112

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A more optimistic interpretation is that internationalization is a proactive response to additional sale opportunities for a product or service enjoying a competitive advantage beyond domestic borders (Hymer, 1976). Regardless of the strategic logic of internationalization, in contrast to firms in traditional industries (Root, 1987), NTBFs frequently have to assume very quickly the complex risks of technology transfers when entering into unknown or quasi-unknown foreign countries. The impact of host-country features on the costs of international technology transfers has been studied in a long tradition in international business research (Stopford and Wells, 1972; Buckley and Casson, 1976; Rugman, 1981; Hennart, 1982; Dunning and Lundan, 2008) and has enabled the specific features of international transactions to be identified and modeled. Extant theory enables a distinction to be made between two kinds of hazards and their related costs. First, the transaction costs of contractual hazards relate to the specific features of the technology transferred (Henisz, 2000). Authors have identified several sources of hazards: opportunistic behavior as a result of asset specificity (Gatignon and Anderson, 1988; Oxley, 1997); appropriability or technological leakage (Davidson and McFetridge, 1985; Oxley, 1999); and free riding on brand name and reputation (Anderson and Coughlan, 1987; Delios and Beamish, 1999). The second hazard is institutional and derives from the specific features of the countries entered. Three main sources of institutional hazards are generally identified (Henisz, 2003): the regulatory framework (La Porta et al., 1999; Oxley, 1999); the political risk (Henisz, 2000); and the role of culture (Steensma et al., 2000; Hofstede, 2001). These hazards have both absolute and relative dimensions. In absolute terms, a new institutional environment can generate hazards when the public decision-makers of the host country fail to create the conditions for political and social stability suitable for the successful development of new business (Henisz, 2000; Shrader et al., 2000). In relative terms, a new institutional environment can still produce hazards for a firm if it has widely different practices from those operating in the exporting firm’s domestic environment. The greater the disparity between the institutional environments of the home market and the host- or target-country market, the greater the potential risks. In managerial studies of internationalization, this gap or disparity has commonly been conceived and analyzed in the more social or anthropological concepts of cultural distance (Kogut and Singh, 1988; Shane, 1994; Hofstede, 2001), psychic distance (Benito and Gripsrud, 1992; O’Grady and Lane, 1996), regulatory differences (Coeurderoy and Murray, 2014) or institutional distance (Kostova, 1999; Xu and Shenkar, 2002). These concepts are widely used in international business research and are considered to be important drivers of actions and performance. Host countries’ specificities represent a large part of the ‘liability of foreigness’ (Zaheer, 1995) that new ventures experience at the beginning of the internationalization process. Equibus paribus, every company will incur substantial additional transaction costs when setting up international operations. For example, on entering a new country market, the as yet inexperienced firm will likely discover that it is harder (1) to find good and reliable local sales agents – an increase in search costs; (2) to negotiate (or perhaps even recognize) favorable contractual arrangements – an increase in ex ante negotiation cost; or (3) to monitor effectively the concluded deal – an increase in ex post compliance and enforcement costs (Teece, 1986). Yet, these problems may be further exacerbated in the specific case of NTBFs embarking on the internationalization process.1 The transfer of novel technologies raises

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potential problems of appropriation (Autio et al., 2000; Zahra et al., 2000). The complexity and intangibility of this technological component of the product or service by its very ambiguity exacerbates the contractual hazard for NTBFs (Knight and Cavusgil, 2004). Since these contractual hazards are specific to the imitability of the technology being transferred, the start-up has little choice other than to accept, and attempt to mitigate, the increase risks of international trading.

CHOICES OF ENTRY AS RESPONSES BY NEW TECHNOLOGYBASED FIRMS Given that transaction costs are endemic to the process and cannot be completely removed, the firm’s flexibility is reduced to determining the level of costs that it can bear. By determining the location of the first foreign entry, the firm is in effect choosing the level of institutional hazards it is prepared or able to assume. Following a transaction-cost reasoning (Williamson, 1985; Martin and Salomon, 2003), we suggest the cost minimization principle as a rule for decision making. For the young firm, the market acceptance of their new technology-enabled products will be the first and biggest commercial challenge. Accordingly, it will strive to avoid any additional costs and uncertainties in the choice of internationalization path. Consequently, the role of the institutional environment in the choice criteria of the NTBFs is one important means by which the hazards and thus costs of new country markets are made manageable. This specific appraisal of institutional environments in the determination of the ordering of foreign market entry furthers our overall understanding of market entry behaviors. The specific role of institutional environments on location decisions thus needs to be differentiated from established internationalization arguments based on profit-seeking, entry-mode choices or stages of development arguments. The traditional profit maximization logic of internationalization supported by imperfect competition models (Hymer, 1976) treats the transaction as part of a set of credits and debits. A firm may be prepared to accept higher transaction costs in a new country if greater profits can be secured. Trade-offs between risks and rewards face all firms, but this type of approach implies that transaction costs are merely another set of operating costs to accommodate in the computation of overall costs. We suggest that the true import of transaction costs is overlooked. The main problem is not that the firm’s total costs are increased but that the possibility of firm failure is made materially higher by the circumstances that generate these new costs (Hennart, 1986). It is not just risk that has increased but also the overall uncertainty facing the young and still vulnerable firm. In the case of a rapidly growing and internationalizing NTBF, failure to develop a new market can have a considerably greater impact than economic losses alone. The reputation of the firm including its products or services, and the integrity and ownership of intellectual assets as its critical source of competitive advantage may well be prejudiced with severe ramifications for the firm’s future value. The technical and commercial credibility of NTBFs with little track record is extremely fragile. Hence, the survival of internationalizing NTBFs significantly depends upon their capability to develop absorptive capability (Coeurderoy et al., 2012). It could also be argued that impact of institutional hazards are better managed by NTBFs through their choice of entry mode rather than location. Here, the minimization

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of transaction costs is interpreted as a governance issue (Martin and Salomon, 2003). The importance of mode may be correct but this can only be appraised once the location choice is made (Teece, 1986). At this later stage, the level of institutional hazards is no longer a decision variable but is a given. The firm has now to craft the most efficient entry mode into the selected foreign market from the choices available (Williamson, 1985). Questions of location and governance can be treated independently of each other. In a conceptual paper on the impacts of knowledge transfer capacity on foreign entry modes, Martin and Salomon (2003: 369) explain that ‘while examining location factors is certainly relevant, particularly in studies with multiple host countries, such country effects do not change our predictions’. However, the inverse of this argument may also be employed and tested, that is, while examining entry modes is certainly relevant, particularly in studies with multiple entry modes, these governance effects do not change (location) predictions. Thus, the question becomes the direction of causation of the identified factors. Based upon recent theoretical advances in the institutional analysis of countries (North, 1990; La Porta et al., 1999; Henisz, 2000), Coeurderoy and Murray (2014) explore how differences of institutional environments across countries impact on the location choices of NTBFs embarking on the internationalization process. They confirm that institutional environment generating appropriability risks for start-ups will be entered later owing to excessive transaction costs in the early stage. By ordering choices in this way, management mainly seeks to reduce risks from regulatory sources, and the associated transaction and time costs (Anderson and Gatignon, 1986). In relation to country of origin, the research shows that German and UK start-ups, formed prior to 2000, and studied in the sample, may consequently harbor very different attitudes as to the risk characteristics of a third country based on distance with its culture, and polity and legal systems. We can therefore infer that the risks and uncertainties that are endemic to the young firm are reflected in the risk-reducing heuristics that their managers employ, as evidenced by different orderings of first market entries between German and UK NTBFs.

CONCLUSION We can aver that an understanding of the early foreign market entries by NTBFs is not exclusively an argument about firm-specific cultural or psychic-distance parameters (Oviatt and McDougall, 1994). Some important decision variables are exogenously determined, for example, the level of political risk in the target country (Leonidou and Samiee, 2012). Thus, opportunities to minimize the total costs of internationalization are complex and more heterogeneous than merely the search for cultural similarity. Transaction-cost reasoning is complementary rather than contradictory to the stage model, albeit based on different intellectual logic (Delios and Henisz, 2003). It is cost driven (on a minimization basis) and not knowledge driven.

NOTE 1. This is complement to Storey and Tether’s (1998) argument that NTBFs are a special case worthy of government assistance when considering the peculiar information asymmetry barriers to the formation.

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REFERENCES Anderson, E. and A. Coughlan (1987), ‘International market entry and expansion via independent or integrated channels of distribution’, Journal of Marketing, 51 (1), 71–82. Anderson, E. and H. Gatignon (1986), ‘Modes of foreign market entry: a transaction cost analysis and propositions’, Journal of International Business Studies, 17 (3), 1–26. Autio, E., H. Sapienza and J. Almeida (2000), ‘Effects of age at entry, knowledge intensity, and imitability on international growth’, Academy of Management Journal, 43 (5), 909–24. Benito, G.R. and G. Gripsrud (1992), ‘The expansion of foreign direct investments: discrete rational location choices or a cultural learning process?’, Journal of International Business Studies, 23 (3), 461–76. Bollinger, L., K. Hope and J.M. Utterback (1983). ‘A review of literature and hypotheses on new technologybased firms’, Research Policy, 12 (1), 1–14. Buckley, P.J. and M. Casson (2016), The Future of the Multinational Enterprise, London: Springer. Burgel, O. and G.C. Murray (2000), ‘The international market entry choices of start-up companies in hightechnology industries’, Journal of International Marketing, 8 (2), 33–62. Burgel, O., A. Fier, G. Licht and G.C. Murray (2004), The Internationalisation of Young High-Tech Firms: An Empirical Analysis in Germany and the United Kingdom, Heidelberg: Physica-Verlag. Cavusgil, S.T. and G. Knight (2015), ‘The born global firm: an entrepreneurial and capabilities perspective on early and rapid internationalization’, Journal of International Business Studies, 46 (1), 3–16. Coeurderoy, R. and G. Murray (2014), ‘Regulatory environments and the location decision: evidence from the early foreign market entries of new-technology-based firms’, in J. Cantwell (ed.), Location of International Business Activities, London: Palgrave Macmillan, pp. 226–60. Coeurderoy, R., M. Cowling, G. Licht and G. Murray (2012), ‘Young firm internationalization and survival: empirical tests on a panel of “adolescent” new technology-based firms in Germany and the UK’, International Small Business Journal, 30 (5), 472–92. Davidson, W.H. and D.G. McFetridge (1985), ‘Key characteristics in the choice of international technology transfer mode’, Journal of International Business Studies, 16 (2), 5–21. Delios, A. and P. Beamish (1999), ‘Ownership strategy of Japanese firms: transactional, institutional and experience influences’, Strategic Management Journal, 20 (10), 915–33. Delios, A. and W.J. Henisz (2003), ‘Political hazards, experience, and sequential entry strategies: the international expansion of Japanese firms, 1980–1998’, Strategic Management Journal, 24 (11), 1153–64. Dunning, J.H. and S.M. Lundan (2008), Multinational Enterprises and the Global Economy, Cheltenham, UK and Northampton, MA, USA: Edward Elgar. Gatignon, H. and E. Anderson (1988), ‘The multinational corporation’s degree of control over foreign subsidiaries: an empirical test of a transaction cost explanation’, Journal of Law, Economics and Organization, 4 (2), 305–36. Hashai, N. (2011), ‘Sequencing the expansion of geographic scope and foreign operations by “born global” firms’, Journal of International Business Studies, 42 (8), 995–1015. Henisz, W. (2000), ‘The institutional environment for multinational investment’, Journal of Law, Economics and Organization, 16 (2), 334–64. Henisz, W.J. (2003), ‘The power of the Buckley and Casson thesis: the ability to manage institutional idiosyncrasies’, Journal of International Business Studies, 34 (2), 173–84. Hennart, J.F. (1982), A Theory of Multinational Enterprise, Ann Arbor, MI: University of Michigan. Hennart, J.F. (2014), ‘The accidental internationalists: a theory of born globals’, Entrepreneurship Theory and Practice, 38 (1), 117–35. Hennart, J.-F. (1986), ‘What is internalization?’, Weltwirtschaftliches Archiv, 122, 791–804. Hofstede, G. (2001), Culture’s Consequences: Comparing Values, Behaviors, Institutions and Organizations across Nations, London: Sage. Hymer, S.H. (1976), International Operations of National Firms, Cambridge, MA: MIT Press. Johanson, J. and J. Vahlne (1977), ‘The internationalization process of the firm – a model of knowledge development and increasing market commitments’, Journal of International Business Studies, 8 (1), 23–32. Johanson, J. and J. Vahlne (1990), ‘The mechanism of internationalization’, International Marketing Review, 7 (4), 11–24. Johanson, J. and J.E. Vahlne (2009), ‘The Uppsala internationalization process model revisited: from liability of foreignness to liability of outsidership’, Journal of International Business Studies, 40 (9), 1411–31. Jones, M.V., N. Coviello and Y.K. Tang (2011), ‘International entrepreneurship research (1989–2009), a domain ontology and thematic analysis’, Journal of Business Venturing, 26 (6), 632–59. Knight, G. and S. Cavusgil (2004), ‘Innovation, organizational capabilities, and the born-global firms’, Journal of International Business Studies, 35 (2), 124–41. Kogut, B. and H. Singh (1988), ‘The effect of national culture on the choice of entry mode’, Journal of International Business Studies, 19 (3), 411–32.

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Kostova, T. (1999), ‘Transnational transfer of strategic organizational practices: a contextual perspective’, Academy of Management Review, 24 (2), 308–24. La Porta, R., F. Lopez-de-Silanes, A. Schleifer and R. Vishny (1999), ‘The quality of government’, Journal of Law, Economics, and Organization, 15 (1), 222–79. Leonidou, L.C. and S. Samiee (2012), ‘Born global or simply rapidly internationalizing? Review, critique, and future prospects’, in M. Gabrielsson and V.H. Kirpalan (eds), Handbook of Research on Born Globals, Cheltenham, UK and Northampton, MA, USA: Edward Elgar, pp. 16–35. Madsen, T. and P. Servais (1997), ‘The internationalization of born globals: an evolutionary process?’, International Business Review, 6 (6), 561–83. Martin, X. and R. Salomon (2003), ‘Knowledge transfer capacity and its implications for the theory of the multinational corporation’, Journal of International Business Studies, 34 (4), 356–73. McDougall, P. and B. Oviatt (2000), ‘International entrepreneurship: the intersection of two research paths’, Academy of Management Journal, 43 (5), 902–6. McDougall, P.P., S. Shane and B.M. Oviatt (1994), ‘Explaining the formation of international new ventures: the limits of theories from international business research’, Journal of Business Venturing, 9, 469–88. North, D. (1990), Institutions, Institutional Change and Economic Performance, Cambridge: Cambridge University Press. O’Grady, S. and H.W. Lane (1996), ‘The psychic distance paradox’, Journal of International Business Studies, 27 (2), 309–33. Oviatt, B. and P. McDougall (1994), ‘Toward a theory of international new ventures’, Journal of International Business Studies, 25 (1), 45–64. Oviatt, B. and P. McDougall (1995), ‘Global start-ups: entrepreneurs on a worldwide stage’, Academy of Management Executive, 9 (2), 30–44. Oxley, J. (1997), ‘Appropriability hazards and governance in strategic alliances: a transaction cost approach’, Journal of Law, Economics and Organization, 13 (2), 387–409. Oxley, J. (1999), ‘Institutional environment and the mechanisms of governance: the impact of intellectual property protection on the structure of inter-firm alliances’, Journal of Economic Behavior and Organization, 38 (3), 283–309. Root, F.R. (1987), Entry Strategies for International Markets, Lexington, MA: D.C. Heath. Rugman, A.M. (1981), Inside the Multinationals. The Economics of Internal Markets, New York: Columbia University Press. Shane, S. (1994), ‘The effect of national culture on the choice between licensing and direct foreign investment’, Strategic Management Journal, 15 (8), 627–42. Shrader, R. (2001), ‘Collaboration and performance in foreign markets: the case of young high-technology manufacturing firms’, Academy of Management Journal, 44 (1), 45–60. Shrader, R., B. Oviatt and P. McDougall (2000), ‘How new ventures exploit trade-offs among international risk factors: lessons from the accelerated internationalization of the 21st century’, Academy of Management Journal, 43 (6), 1227–47. Steensma, H.K., L. Marino, K.M. Weaver and P.H. Dickson (2000), ‘The influence of national culture on the formation of technology alliances by entrepreneurial firms’, Academy of Management Journal, 43 (5), 951–73. Stopford, J.M. and L.T. Wells Jr (1972), Managing the Multinational Enterprise: Organization of the Firm and Ownership of the Subsidiary, New York: Basic Books. Storey, D.J. and B.S. Tether (1998), ‘New technology-based firms in the European Union: an introduction’, Research Policy, 26 (9), 933–46. Teece, D. (1986), ‘Transaction cost economics and the multinational enterprise’, Journal of Economic Behavior and Organization, 7, 21–45. Terjesen, S., J. Hessels and D. Li (2016). ‘Comparative international entrepreneurship: a review and research agenda’, Journal of Management, 42 (1), 299–344. Williamson O.E. (1985), The Economic Institutions of Capitalism, New York: Free Press. Xu, D. and O. Shenkar (2002), ‘Institutional distance and the multinational enterprise’, Academy of Management Review, 27 (4), 608–18. Verbeke, A. and L. Ciravegna (2018), ‘International entrepreneurship research versus international business research: a false dichotomy?’, Journal of International Business Studies, 49 (4), 387–94. Zaheer, S. (1995), ‘Overcoming the liability of foreignness’, Academy of Management Journal, 38 (2), 341–63. Zahra, S., R. Ireland and M. Hitt (2000), ‘International expansion by new venture firms: international diversity, mode of market entry, technological learning, and performance’, Academy of Management Journal, 43 (5), 925–50. Zhou, L. and A. Wu (2014), ‘Earliness of internationalization and performance outcomes: exploring the moderating effects of venture age and international commitment’, Journal of World Business, 49 (1), 132–42.

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13. Economics and entrepreneurship William J. Baumol

Economists first began writing on the subject of entrepreneurship in the eighteenth century. The entrepreneur is most often defined to be an individual who founds and organizes a new business firm, though both narrower and broader interpretations have been employed, with significant implications (see below). The term is often ascribed to the Anglo-Irish writer, Richard Cantillon (1730), though any contemporary copy of his book, which was written in English, has survived only in French translation that he may or may not have carried out himself. The manuscript was lost in the fire set by a servant who first robbed and murdered the author. Before that, and for a considerable time after his death, the terms in usage in the English literature were ‘adventurer’ (as in merchant adventurer) or ‘undertaker’ (a direct translation of the French term or its German counterpart: unternehmer). The place of this topic in the economic literature is curious. There is widespread acknowledgement of its importance, notably for economic growth, accompanied by its virtual absence from the writings of most economists for more than half a century. Many textbooks write of four ‘factors of production’: labour, land, capital and entrepreneurship, and provide at least one chapter for each of the first three, while the fourth, often acknowledged as the leader of the activities of the others, is confined to a few brief remarks or even nothing beyond its initial listing. This has begun to change. There is now a rich empirical literature on topics such as the personal characteristics of the entrepreneurs, their activities, their financial needs, their psychological propensities and their earnings. However, they are still all but absent from formal theory, for reasons that will be discussed presently, along with a description of some recent theoretical excursions at the microeconomic level.

1

A BIT OF CLASSIFICATION

Before delving into the literature it is useful to point out several lines along which entrepreneurship can be studied. First, there is diversity in the connotation that is assigned to the term. From its beginnings in the work of Richard Cantillon, many of the writings referred  to anyone who organized and launched a firm as an entrepreneur. This individual’s task was to bring together the requisite quantities and qualities of land, labour and capital, to assign a role to each of them and ensure that it was carried out efficiently. This entrepreneur, then, was captain of the ship. But the firm organized in the process could well be just another one of the thousands that had been founded earlier, offering the same products as its predecessors and providing those outputs in the traditional way. Such a replicative entrepreneur clearly plays a significant role in the economy, as creator of many of the enterprises that underlie its activities. Entrepreneurship of this sort is important also as an attractive route for exit from poverty, because when unemployment 118

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Economics and entrepreneurship 119 is rife the only way to acquire an income may be as the founder of a tiny enterprise, for example, as no more than an itinerant peddler, with no employees. And the number of such firms in which the entrepreneur hires no one is impressive. ‘Census Bureau figures indicate that there are over 18 million nonemployer firms in the United States – roughly three times the number of employer firms’ (National Research Council, Committee on National Statistics, 2007: 78). But the data suggest that there is little correlation between the number of such replicative firms and the rate of growth of the economy. Indeed, it is plausible that a relatively stagnant economy will drive more people into this sort of occupation, and the data seem to support this hypothesis. Growth, rather, is to be expected from the other type of entrepreneur, the innovative entrepreneur, whose firms are characterized by the supply of new products, the employment of new production methods, the discovery and exploitation of promising new market opportunities and the creation of novel forms of organization. This is the type of entrepreneur upon whom J.-B Say (1819) focused his discussion and who was the central character in the writings of Joseph Schumpeter. There seems to be little evidence indicating their number, but it seems clear that this number is far smaller than that of the replicative entrepreneurs. Moreover, as will be discussed presently, there seems to be little statistical evidence indicating the magnitude of the contribution of the innovative entrepreneurs to the growth of their economy, though there is a good deal of historical evidence suggesting strongly that this contribution is substantial and may well be critical. Besides distinguishing between replicative and innovative entrepreneurs, the literature differentiates ‘innovation’ from invention. The former term is used to represent the entire process from the emergence of a novelty (invention) to its improvement to a state sufficient to make it marketable, its introduction into the producing firm and its entry into the marketplace. Though the inventor may or not be an entrepreneur, the innovation process generally requires entrepreneurial activity to bring the novelty out from the drawing boards and into the workings of the economy. The literature also proceeds in two directions in its position on the risk entailed in entrepreneurship. Both Cantillon and Frank Knight (1921) took the position that a primary role of the entrepreneur is that of risk-bearer or, even more extreme, of uncertainty, defined as subjection to prospects so unpredictable that they even preclude any evaluation in terms of probabilities. In contrast, Schumpeter (1911) held the position that the entrepreneurs, in their role as entrepreneurs, undertake no risk at all, because they work with other people’s money – that of the investing capitalists. It will be argued below that neither of these positions is quite right, and that while, in reality, entrepreneurs are subject to risks that are far from negligible, there is a great deal more to their activity than risk-bearing alone.

2

SOME EMPIRICAL INVESTIGATIONS OF THE ENTREPRENEUR

As noted, there is now a profusion of careful and illuminating empirical investigations of entrepreneurship, much of it contributed by sociologists and psychologists as well as economists. Here only the work of the last of these will be considered. The writings on several significant topics will be discussed.

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Specialization of Small Entrepreneurial Firms in the Innovation Process Albeit unsystematic, there is an abundance of suggestive evidence indicating that there is a division of labour between small and large enterprises, with the former responsible for a disproportionate share of the revolutionary breakthroughs, such as the electric light, the aeroplane, the internal combustion engine, while the giant corporations (which account for the bulk of private research and development expenditure) focus on  cumulative incremental improvements, such as are entailed in the evolution of the Wright brothers’ flying machine to the Boeing 777. Research and development (R&D) in the large business enterprise tends characteristically to be bureaucratically organized,  with management  deciding the R&D budget, staffing and even the projects  to which  the R&D division should be devoting its efforts. The inherent conservatism of the process naturally leads to the expectation that these firms will tend to specialize in the incremental improvements and tend to avoid the risks of the unknown that the revolutionary breakthrough entails. The latter, rather, is left most often to small or newly founded enterprises, guided by their enterprising creators. The US Small Business Administration has prepared a chart listing breakthrough innovations of the twentieth century for which small firms are responsible and its menu of inventions literally spans the range from A to Z, from the aeroplane to the zipper. This remarkable list includes a strikingly substantial share of the technical breakthroughs of the twentieth century. For example, it lists FM radio, the helicopter, the personal computer, and the pacemaker, among a host of others, many of enormous significance for our economy (US Small Business Administration, 1995). A more recent study, also sponsored by the US Small Business Administration (2003), provides systematic evidence with similar implications.1 Perhaps most notably, the study finds that ‘a small firm patent is more likely than a large firm patent to be among the top 1 percent of most frequently cited patents’. Among other conclusions, in the words of its authors, this study also reports that ‘Small firms represent one-third of the most prolific patenting companies that have 15 or more U.S. patents . . . Small patenting firms are roughly 13 times more innovative per employee than large patenting firms’ (ibid.: 2). This leads to the conjecture that most of the revolutionary new ideas of the past two centuries have been, and are likely to continue to be, provided more heavily by independent innovative entrepreneurs who operate small business enterprises. These small entrepreneurial firms appear to have come close to monopolizing the portion of R&D activity that is engaged in the search for revolutionary breakthroughs. Earnings It is clear that the most successful and most noted of entrepreneurs are rewarded handsomely. Indeed, this group includes the world’s wealthiest person. But, on average, the compensation of this activity is remarkably low. Freeman (1978) and Benz and Frey (2004) show that the average earnings of self-employed individuals are significantly lower than those of employees with similar qualifications, and the same is presumably true, in particular, of the self-employed innovative entrepreneurs. There are at least two studies that support this hypothesis for innovative entrepreneurs. Thomas Astebro (2003) reports on the basis of a sample of 1091 inventions that:

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Economics and entrepreneurship 121 The average IRR [internal rate of return] on a portfolio investment in these inventions is 11.4 percent. This is higher than the risk-free rate but lower than the long-run return on high-risk securities and the long-run return on early-stage venture capital funds . . . the distribution of return is skew; only between 7–9 percent reach the market. Of the 75 inventions that did, six received returns above 1400 percent, 60 percent obtained negative returns and the median was negative. (Astebro, 2003: 226)

Perhaps even more striking is the recent work of Nordhaus (2004), whose calculations show how little of the efficiency rent goes to the innovator: Using data from the U.S. non-farm business section, I estimate that innovators are able to capture about 2.2 percent of the total surplus from innovation. This number results from a low rate of initial appropriability (estimated to be around 7 percent) along with a high rate of depreciation of Schumpeterian profits (judged to be around 20 percent per year) . . . the rate of profit on the replacement cost of capital over the 1948–2001 period is estimated to be 0.19 percent per year. (Nordhaus, 2004: 34)

Attitudes toward Risk There are a number of studies investigating whether entrepreneurs tend to be more willing than the general population to undertake risks. Parker (2006) provides an admirable summary of the findings from which the following is excerpted: The available evidence certainly supports the notion that entrepreneurs are unrealistically optimistic. 68% of respondents to Cooper et al.’s (1988) survey of American entrepreneurs thought the odds of their business succeeding were better than for others in the same sector while only 5% thought that they were worse . . . Arabsheibani et al (2000) compare expectations of future prosperity with actual outcomes using British panel data, and find that while employees and self-employed Britons both held systematically over-optimistic expectations about future incomes, the self-employed are consistently and substantially the most over-optimistic. . . . optimism . . . is the enemy of the rational [input] buyer . . . optimistic entrepreneurs will drive out realistic entrepreneurs from product markets [by bidding input prices to excessive levels]. Realists would make positive profits in the absence of the over-optimists, but may be unable to do so when optimists are present because optimists produce excess output that reduces prices below the break even price in the industry. On the other hand, optimism can convey some advantages. [for example] Bernardo and Welch (2001) claim that over-optimistic entrepreneurs are less likely to imitate their peers and are more likely to explore their environment. This generates valuable informational benefits to the entrepreneurial group, enabling it to thrive in spite of the costs incurred by the particular group members who obtained the information. (See Parker, 2006: 3–7 for the full discussion.)

In short, there is an abundance of evidence that entrepreneurs, as a group are characterized by a markedly excessive view of their prospects. This may help to account for their willingness to enter an occupation whose earnings prospects are significantly lower than what they could have earned by accepting a position in an established firm. But it also helps to explain their relative propensity to undertake innovations that are radical breakthroughs. For that reason, society may be heavily indebted to this group. For they seem to be the contributors, on a disproportionate scale, of the effective adoption of those breakthrough inventions that arguably underlie the unprecedented growth rates of per capita gross domestic product (GDP) in the world’s most successful economies of recent centuries.

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Education and Innovative Entrepreneurship It is again convenient to return to Parker (2006) for a clear summary of the current state of the discussion of the education of entrepreneurs. As a group, are they highly educated or is the opposite true? It is commonly observed that some of the most successful entrepreneurs have relatively low levels of education. For example, Bill Gates and Michael Dell dropped out of  Harvard and the University of Texas respectively, while Richard Branson dropped out of school. Bhide (2000) claims that informal skills, especially the ability to satisfy customers’ fuzzy wants, is more important for promoting entrepreneurial success than human capital. Pursuing this theme, Orzach and Tauman (2005) suggest that gifted entrepreneurs may optimally acquire less education than wage and salary workers if this conveys a signal of strength about their own innate abilities in entrepreneurship. Thus if  ability in entrepreneurship matters more for business success than formal education does, financiers will reward the more able by offering them favourable credit contracts; other individuals will not find it in their interests to emulate the gifted individuals because with their lower entrepreneurial abilities they benefit more by taking more schooling. The prediction that entrepreneurs are on average more educated than employees also accords with recent evidence from several countries, including the USA (Flota and Mora, 2001; Lofstrom, 2002), Great Britain (Cowling et al., 2004; Henley, 2004), the Netherlands (Bosma et al., 2004) and Sweden (Davidsson and Honig, 2003). When using years of schooling as a measure of education, Garcia-Mainar and Montuenga-Gomez (2005) report a higher return to education in paid employment than in self-employment. This finding has not been observed in other countries, however. For example, Van der Sluis et al. (2004) apply instrumental variable (IV) methods to US National Longitudinal Survey of Youth (NLSY) data and estimate a higher rate of return to education for entrepreneurs (14 per cent) than for employees (10 per cent) (see Parker, 2006: 14–17). The data assembled in a recent study of a large sample of noted inventors and entrepreneurs, by Baumol et al. (2009), as compiled from a substantial set of published lists, indicate that inventors are better educated than entrepreneurs in terms of the share who earned a college degree. The differential holds in all three time periods into which the data were divided, before 1800, 1800–1899, and 1900–1985. But the results indicate that, in the USA at least, both inventors and entrepreneurs are better educated than the set of all adults. The difference is particularly striking for those with a college degree, and the difference widens over time. In 1950, only 7 per cent of the US adult population had graduated from college, compared with 67 per cent of US inventors born between 1900 and 1910 and 44 per cent of US entrepreneurs. According to our data, 100 per cent of US inventors and 75 per cent of US entrepreneurs born between 1951 and 1985 graduated from college, compared with 25 per cent of the corresponding US population. The educational attainment of inventors and entrepreneurs can also be compared with that of R&D personnel generally, using data from the National Science Foundation’s Science and Engineering Indicators (National Science Board, 2006), and the US Bureau of Labor Statistics (BLS). The NSF data describe individuals who report R&D as a major work activity. Of this group, 59 per cent hold a bachelor’s degree as their highest degree, with 28 per cent holding master’s degrees, 4 per cent holding professional degrees

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Economics and entrepreneurship 123 and 9 per cent holding doctorates. The results indicate that inventors are far more likely to have an advanced degree than the average person working in R&D, but that entrepreneurs have similar levels of education to R&D workers. Disappearance of the Entrepreneur from Modern Mainstream Economics Societies with a record of non-military invention that is respectable or even extraordinary have repeatedly failed to put those inventions to substantial use. This is strikingly true of ancient Rome, with its working steam engine created by Heron of Alexandria, of medieval China with its innovative printing press, great ships, its clocks, its umbrella and its spinning wheel, as well as the Soviet Union with the many contributions of its well-educated scientists and engineers. It is at least plausible that a significant part of the explanation was the absence of a cadre of innovative entrepreneurs who could improve their status in society by promotion of such useful products. And with the absence of such entrepreneurs the growth of these societies was severely handicapped. Given the acknowledged importance of the entrepreneur’s role, it might be expected that modern theoretical investigation would have produced an extensive  entrepreneurship analysis. Instead, the entrepreneurs virtually vanished from mainstream theory and, along with that, they were virtually banished from the textbooks. This is probably not the result of a distaste for the subject or scepticism about its significance, but a consequence of the absence of an obvious way to capture entrepreneurial activity in the way the literature has produced its analyses of land, labour and capital. There are at least two reasons for this. First, the most advanced and powerful microeconomic models predominately are designed to study timeless static equilibria. But, for the entrepreneur, the intertemporal transition process is the heart of the story. Schumpeter (1911) shows the entrepreneur as destroyer of equilibria by constant innovation, while Israel Kirzner (1979) tells how the alert entrepreneur seeks out the arbitrage opportunities presented by disequilibria, thereby moving the economy back toward equilibrium. Such a relentless attack upon both equilibria and disequilibria does not fit a stationary model from which firm creation and invention are excluded. The second reason for the entrepreneur’s disappearance from mainstream theory is the  indispensably essential attribute of an invention: it necessarily is something that was never available before. It follows that invention must be the ultimate heterogeneous product. This impedes the optimality analysis that underlies most microeconomic theory. An optimality calculation entails at least an implicit comparison among the available choices for the decision at issue, while the innovating entrepreneurs normally deal with no set of well-defined substitutes among which they may choose on the basis of their attributes that are quantifiable and comparable. In contrast, standard firm theory analyses well-defined choices of management among comparable options in fully operational enterprises where the entrepreneur has already completed his job and left to create other firms. Thus, neoclassical theory is justified in excluding the entrepreneurs, because it deals with subjects for which they are irrelevant. That does not mean that no theory of entrepreneurship is needed, or that such a theory is lacking, but it means that a theory of entrepreneurship must be sought elsewhere than in static mainstream microeconomics, and that is what Schumpeter succeeded in doing.

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Schumpeter’s Model and Beyond: Supply and Earnings of Entrepreneurial Activity The basic Schumpeterian model (1911) asserts that the successful innovative entrepreneur’s reward is profit that temporarily exceeds what is obtainable under a regime of perfect competition. This attracts rivals, who seek to share those profits by imitating the innovation, and thereby erode its super-competitive earnings. To prevent termination of these rewards, the entrepreneur can never desist from further innovation and cannot rest on his laurels. In this way, the Schumpeterian analysis shows how the entrepreneur is driven to work without let-up in promotion of economic growth. Thus, it clearly reveals the tight association between innovative entrepreneurship and growth. This work should also serve as the foundation for further theoretical analysis, and there are, indeed, some beginnings of efforts in that direction, a good deal of it the work of the present author (see, for example Baumol, 2002). The first of these deviations stems from the empirical work that finds the rewards of entrepreneurs as a group to fall short of the earnings of employees with similar education and experience. In standard economic terms this means that the average entrepreneur receives negative economic profits, that is, she loses out by earning less than she could by accepting employment in an established enterprise. This is in conflict with Schumpeter’s premise that the innovative entrepreneur earns positive monopoly profits soon after the initial introduction of an invention, profits that are gradually driven down to the competitive level, thus yielding a surplus over the entire life cycle of the product. But if entry into the innovation process is unrestricted, and if over-optimism leads entrepreneurs to embark on enterprises that are not really promising, then standard theory of entry into markets and its effects on prices easily enables us to understand why in reality the innovative entrepreneurs’ average economic profits are negative. But can we say more about the resulting prices and earnings, as imposed by market forces? The answer is that this can easily be done, using the standard model of the determination of discriminatory prices, that is, prices for identical products that differ from one customer to another, or even from one sale to another (Baumol, 2007). A moment’s thought indicates that this is exactly what happens in Schumpeter’s story but in which the prices differ not between customers but between time periods. That is, there is intertemporal price discrimination. Moreover, the formulas that determine the discriminatory prices in the two cases are identical. So, if we are informed about costs, supply and demand, we can determine exactly what those prices will be because the competition of rival entrepreneurs will drive those prices down to the sub-competitive level that is just sufficient to induce entry. For if prices were any higher than this, more entry would be induced and the expanded production would force those prices down, while the reverse would occur if prices were below those levels. Thus, the standard and  well-explored microanalysis of discriminatory prices enables us to determine to exactly what levels the prices and rewards of the entrepreneur’s products will be driven by competitive market forces, depending on the state of competition and the resulting demand elasticities in the different pertinent periods. So a micro-theoretic model of the entrepreneur can now be claimed to exist, on a par with the theories of land, labour and capital.

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Economics and entrepreneurship 125 Social Institutions and Allocation of Entrepreneurial Activity The rest of the story contains material on the supply and allocation of entrepreneurship among its available uses, and the key role here is played by evolving institutions. This part of the story is of critical importance for growth and the general welfare, because both of these depend on the activities upon which entrepreneurs choose to focus. For example, do they choose to promote a new source of energy or, instead, a new type of military equipment? In the economic growth literature, it has often been asserted that an expanded supply of entrepreneurs effectively stimulates growth, while shrinkage in the supply undermines it. But an explanation of the entrepreneurs’ appearance and disappearance is shrouded in mystery, with hints about cultural developments and vague psychological and sociological changes. The historical evidence suggests a more mundane explanation – that entrepreneurs are always present but, as institutions and the associated structure of rewards in the economy change, entrepreneurs switch their activities, moving where pay-offs become more attractive. In doing so, they move in and out of the activities usually  recognized as entrepreneurial, exchanging them for other activities that also require enterprising talent but are often distant from production of goods and services. The generals of ancient Rome, the Mandarins of the Tang, Sung, and Ming Chinese empires, the captains of late medieval private and mercenary armies, the rent-seeking contemporary lawyers, and the Mafia dons – all are clearly enterprising and often successful. And when institutions have changed so as to modify profoundly the relative payoffs offered by the different enterprising activities, the supply of entrepreneurs shifts accordingly. We may divide entrepreneurs into two categories, the productive and the unproductive, with the latter, in turn, divided into subgroups such as rent-seeking entrepreneurs and destructive entrepreneurs, including the organizers of private armies or criminal groups. Once there is a pertinent change in the institutions that govern the relative rewards, the entrepreneurs will shift their activities between productive and unproductive occupations, so the set of productive entrepreneurs will appear to expand or contract autonomously. For example, when institutional change prevents the formation of private armies, entrepreneurs are forced to look elsewhere to realize their financial ambitions. If, simultaneously, rules against confiscation of private property and for patent protection of inventions are adopted, entrepreneurial talent will shift into productive, innovative directions.

NOTE 1. Quoting the press release describing the study, ‘A total of 1,071 firms with 15 or more patents issued between 1996 and 2000 were examined. A total of 193,976 patents were analyzed. CHI [the firm that carried out the study] created a data-base of these firms and their patents. This list excluded foreign-owned firms, universities, government laboratories and nonprofit institutions’ (US Small Business Administration, 2003: 2). This report examines technical change through patenting and it defines small firms as ‘businesses with fewer than 500 employees’.

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REFERENCES Arabsheibani, G., D. De Meza, J. Maloney and B. Pearson (2000), ‘And a vision appeared unto them of a great profit: evidence of self-deception among the self-employed’, Economics Letters, 67, 35–41. Astebro, T. (2003), ‘The return to independent invention: evidence of unrealistic optimism, risk seeking or skewness loving’, Economic Journal, 113, 226–38. Baumol, W.J. (2002), The Free-Market Innovation Machine: Analyzing the Growth Miracle of Capitalism, Princeton, NJ: Princeton University Press. Baumol, W.J. (2007), ‘Entrepreneurship and innovation: the (micro) theory of price and profit’, paper presented at the American Economic Association annual conference 2008, available at: http://www.aeaweb.org/ annual_mtg_papers/2008/2008_345.pdf. Baumol, W.J., M. Schilling and E. Wolff (2009), ‘The superstar inventors and entrepreneurs: how were they educated?’, Journal of Economics and Management Strategy, 18 (3), 711–28. Benz, M. and B. Frey, (2004), ‘Being independent raises happiness at work’, Swedish Economic Policy Review, 11, 95–134. Bernardo, A.E. and I. Welch (2001), ‘On the evolution of overconfidence and entrepreneurs’, Journal of Economics & Management Strategy, 10, 301–30. Bhide, A.V. (2000), The Origin and Evolution of New Businesses, Oxford: Oxford University Press. Bosma, N., M. van Praag, R. Thurik and G. de Wit (2004), ‘The value of human and social capital investments for the business performance of startups’, Small Business Economics, 23, 227–36. Cantillon, R. (1730), Essai Sur la Nature de Commerce en Général, trans. H. Higgs, London: Macmillan, 1931 edn. Cooper, A.C., C.Y. Woo and W.C. Dunkelberg (1988), ‘Entrepreneurs perceived chances for success’, Journal of Business Venturing, 3, 97–108. Cowling, M., P. Mitchell and M. Taylor (2004), ‘Job creators’, Manchester School, 72, 601–17. Davidsson, P. and B. Honig (2003), ‘The role of social and human capital among nascent entrepreneurs’, Journal of Business Venturing, 18, 301–33. Flota, C. and M.T. Mora (2001), ‘The earnings of self-employed Mexican-Americans along the US–Mexico border’, Annals of Regional Science, 35, 483–99. Freeman, R. (1978), ‘Job satisfaction as an economic variable’, American Economic Review, 68, 135–41. Garcia-Mainar, I. and V.M. Montuenga-Gomez (2005), ‘Education returns of wage earners and self-employed workers: Portugal vs. Spain’, Economics of Education Review, 24, 161–70. Henley, A. (2004), ‘Self-employment status: the role of state dependence and initial circumstances’, Small Business Economics, 22, 67–82. Kirzner, I. (1979), Perception, Opportunity and Profit, Chicago, IL: University of Chicago Press. Knight, F. (1921), Risk, Uncertainty and Profit, Boston, MA and New York: Houghton Mifflin. Lofstrom, M. (2002), ‘Labour market assimilation and the self-employment decision of immigrant entrepreneurs’, Journal of Population Economics, 15, 83–114. National Research Council, Committee on National Statistics (2007), Understanding Business Dynamics: An Integrated Data System for America’s Future, Washington, DC: National Academies Press. National Science Board (2006), Science and Engineering Indicators 2006, 2 vols, Arlington, VA: National Science Foundation (volume 1, NSB 06-01; volume 2, NSB 06-01A). Nordhaus, W.D. (2004), ‘Schumpeterian profits in the American economy: theory and measurement’, National Bureau of Economics Research Working Paper No. 10433. Orzach, R. and Y. Tauman (2005), ‘Strategic dropouts’, Games & Economic Behaviour, 50, 79–88. Parker, S.C. (2006), ‘New agendas in the economics of entrepreneurship: optimism, education, wealth and entrepreneurship’, paper presented at the American Economic Association Special Session on Entrepreneurship, Boston, MA, 8 January. Say, J.-B. (1819), Traite d’économie politique, 4th edn, trans. C. Prinsep, Boston, MA: Wells and Lilly, 1821 edn. Schumpeter, J. (1911), The Theory of Economic Development, trans. R. Opie, Cambridge, MA: Harvard University Press, 1934 edn. US Small Business Administration (1995), The State of Small Business: A Report of the President, 1994, Washington, DC: US Government Printing Office. US Small Business Administration (2003), Small Serial Innovators: The Small Firm Contribution to Technical Change, CHI Research Inc. for SBA Office of Advocacy, 27 February, Contract no. SBAHQ-01-C-0149. Van der Sluis, J., M. van Praag and A. van Witteloostuijn (2004), ‘Comparing the returns to education for entrepreneurs and employees’, mimeo, University of Amsterdam.

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14. Employee start-ups Andreas Koch

Generally, an employee start-up is defined as a new firm founded by an individual which has been employed by another private firm within the same industry prior to the foundation. With respect to the terminology, there has been some fuzziness in the past years which mainly results from the usage of the term ‘spin-off’.1 In some contexts, this term is used synonymously to what we call an ‘employee start-up’ (for example, by Erikson and Kuhn, 2006; Klepper, 2001). However, this can be misleading and provoke misunderstandings, as the term ‘spin-off’ is also used in management, financial and jurisprudential research. In these contexts, the term does not refer to (independent) start-ups, but mostly to divestments (corporate venturing) as a strategy of existing firms, which remain under the control of the divesting firm (also called ‘corporate spin-offs’, for example Cusatis et al., 1994; Parhankangas, 1999; Schnee et al., 1998). Some authors also have used the term ‘spin-out’ (Agarwal et al., 2004; Koster, 2006; for an overview and discussions of terminology see, for example, Parhankangas and Arenius, 2003; Koster, 2006; Tübke et al., 2004). Due to this ambiguous use of the term ‘spin-off’, more authors have recently begun to use the term ‘employee start-ups’ (for example Franco, 2005; Klepper, 2001; Shah et al., 2006), which I would strongly endorse in order to avoid further misunderstanding. To get back to the subject, an employee start-up combines the transfer of an individual with the transfer of some kind of industry-specific knowledge, experience – or, in some cases, even existing products, services or technologies – from an existing firm to a new firm (see Figure 14.1). This implies that routines are embodied in the individual moving from dependent employment to self-employment which may have an impact on the structure and the dynamics of the start-ups. This transfer of routines, sometimes also described as ‘heritage’ or in so-called ‘parenting models’ (Agarwal et al., 2004; Dahl and Reichstein, 2006; Klepper, 2001; Portugal Ferreira et al., 2006) is a central element and motivation for research on employee start-ups, as it is of crucial interest how existing knowledge and  experience can be employed for further development of new competences and Incumbent firm Start-up Employee + Idea/Technology/ Product

Figure 14.1

Transfer

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innovations. In an evolutionary view, the existing structure (knowledge, products, firms, and so on) forms the base for what can be developed in the future. Research on employee start-ups can be a very promising field in order to further understand the mechanisms of evolutionary technological and economic change.

NOTE 1. The term ‘spin-offs’ originated in the USA in the 1940s when it was increasingly recognized that – particularly  in large-scale governmental research programmes (for example, space technology, defence industry) – there were a series of by-products that had the potential to be exploited for themselves (for example, Danilov, 1969; Olken, 1966). These by-products or unintended inventions were frequently exploited in new firms founded by former employees of the research programmes or bigger firms (famous examples for spin-offs are TEFLON®, a material first explored in space technology, or, on the firm side, the German SAP GmbH, founded by IBM employees, or several spin-offs from Fairchild Semiconductors, also referred to as ‘Fairchildren’ (Martin, 1984). Further examples can be found in Klepper (2001) or Hellmann (2004).

REFERENCES Agarwal, Rajshree, Raj Echambadi, April M. Franco and M.B. Sarkar (2004), ‘Knowledge transfer through congenital learning. Spin-out generation, development and survival’, Academy of Management Journal, 47 (4), 501–22. Cusatis, Patrick J., James A. Miles and J. Randall Woolridge (1994), ‘Some new evidence that corporate spinoffs create value’, Journal of Applied Corporate Finance, 7 (1), 100–107. Dahl, Michael S. and Toke Reichstein (2006), ‘Heritage and survival of spin-offs: quality of parents and parent-tenure of founders’, paper presented at the Academy of Management Annual Meeting, Atlanta, 12–16 August. Danilov, Victor J. (1969), ‘The spin-off-phenomenon’, Industrial Research, 11 (5), 54–8. Eriksson, Tor and Johan M. Kuhn (2006), ‘Firm spin-offs in Denmark 1981–2000 – patterns of entry and exit’, International Journal of Industrial Organization, 24, 1021–40. Franco, April M. (2005), ‘Employee entrepreneurship: recent research and future directions’, in Sharon A. Alvarez, Rajshree Agarwal and Olav Sorenson (eds), Handbook of Entrepreneurship, Vol. 1: Interdisciplinary Perspectives, International Handbook Series on Entrepreneurship, New York: Springer, pp. 81– 96. Hellmann, Thomas (2004), ‘When do employees become entrepreneurs?’, working paper 1770, Stanford Graduate School of Business. Klepper, Steven (2001), ‘Employee startups in high-tech industries’, Industrial and Corporate Change, 10 (3), 639–74. Koster, Sierdjan (2006), ‘Whose child? How existing firms foster new firm formation: individual start-ups, spinouts and spin-offs’, dissertation, Groningen University. Martin, Michael J.C. (1984), Managing Technological Innovation & Entrepreneurship, Reston, VA: Reston Publishing. Olken, Hyman (1966), ‘Spin-offs, a business pay-off’, California Management Review, 9 (2), 17–24. Parhankangas, Annaleena (1999), Disintegration of Technological Competencies: An Empirical Study of Divestments through Spin-off Arrangements, Acta Polytecnica Scandinavica. Mathematics, Computing and Management in Engineering Series 99, Espoo: Finnish Academy of Technology. Parhankangas, Annaleena and Pia Arenius (2003), ‘From a corporate venture to an independent company: a base for a taxonomy for corporate spin-off firms’, Research Policy, 32 (3), 463–81. Portugal Ferreira, Manuel, Ana T. Tavares, William Hesterly and Sungu Armagan (2006), ‘Network and firm antecedents of spin-offs: motherhooding spin-offs’, FEP working papers no. 201, February, University of Porto. Schnee, Edward J., Lee G. Knight and Ray A. Knight (1998), ‘Corporate spin-offs’, Journal of Accountancy, 185 (6), 47–54. Shah, Sonali K., Rajshree Agarwal and David B. Audretsch (2006), ‘The knowledge context & the

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Employee start-ups 129 entrepreneurial process: academic, user & employee entrepreneurship’, University of Illinois working paper no. 06-0118, University of Illinois, Urbana Champaign. Tübke, Alexander, Pablo Á. de Toledo Saavedra and José-Luis Galán Gonzalez (2004), ‘Towards a first spinoff typology and a new concept for corporate spin-off research’, International Journal of Technology Transfer and Commercialisation, 3 (3), 263–90.

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15. Entrepreneurial exporters

Martin Hannibal and Tage Koed Madsen

The literatures on entrepreneurship and international business used to be separate fields and their respective researchers had little, if any, contact (Dana et al., 1999a). Together with the increasing globalization of markets and societies, however, a joint field on international entrepreneurship started to grow during the 1990s (Dana et al., 1999b). Researchers looking at the internationalization of firms used to find that firms would typically grow internationally in a slow and incremental manner, mainly by exporting their products to neighbouring countries (Johanson and Vahlne, 1977), but they now find that an increasing number of new firms initiate international activities (at first often through exporting) very early on after inception. Similarly, entrepreneurship researchers found that an increasing number of entrepreneurs have an international outlook. Dating back to seminal articles by Oviatt and McDougall (1994), Knight and Cavusgil (1996) and Madsen and Servais (1997), scholars have tried to understand the phenomenon of these international new ventures/born globals (INVs/BGs). Many scholars have examined whether these firms have specific founder characteristics, for example, whether they have a global mindset through education or experience working in foreign cultures. For instance, Acedo and Jones (2007) linked the notion of human capital to the ability of founders to identify opportunities in foreign markets, and thereby improve the performance of INVs, while Sharma and Blomstermo (2003) demonstrate how acquiring access to embedded network resources may enhance INV value creation on foreign markets. Another stream of literature looks at how founders may be able to leverage the knowledge and resources from contacts in prior work settings to speed up internationalization (for example, Young et al., 2003). Other scholars have placed emphasis on changing market conditions and industry structure which are conducive to spurring internationalization. These areas of focus are demonstrated in an early review by Rialp et al. (2005) as well as in later reviews by Keupp and Gassmann (2009) and Cesinger et al. (2012). The study of early and rapidly internationalizing ventures is a subset of research in international entrepreneurship (IE) which has been defined as ‘a combination of innovative, proactive, and risk-seeking behavior that crosses national borders and is intended to create value in organizations’ (McDougall and Oviatt, 2000: 903). As demonstrated in thorough reviews of empirical findings (for example, Aspelund et al., 2007; Cesinger et al., 2012; Keupp and Gassmann, 2009; Rialp et al., 2005), it is emphasized that comparisons across studies are extremely difficult because definitions of the phenomenon of early and rapidly internationalizing firms are very different (see Madsen, 2013 for a thorough discussion). Most INVs initiate their international activities by exporting their products and services. Balabanis and Katsikea (2003) label the most successful among these INVs as entrepreneurial exporters, defined as firms that are characterized by higher innovativeness, proactiveness and risk-taking in comparison with similar start-ups. A large-scale study among more than 1000 Danish manufacturing firms reports the same finding, that 130

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the founders of INVs exhibit much higher market aggressiveness, risk-taking and innovativeness than other exporters and particularly locally orientated firms (Madsen and Rasmussen, 2005). This chapter discusses entrepreneurial exporters in more depth and provides a case study that illustrates their decision-making process and strategies.

THEORETICAL BACKGROUND During past decades researchers presented evidence of a variety of drivers to, and the associated timing of, internationalization (for example, Kuivalainen et al., 2012) and provided strong evidence of the importance of managers and entrepreneurs and their roles as catalysts for internationalization. Ciravegna et al. (2019) suggest a typology of exporters/international firms involving a distinction between entrepreneurial, serendipitous and strategic internationalization to describe three specific types of internationalization. Serendipitous exporters exhibit behaviour which is similar to the traditional stages models of international development (Johanson and Vahlne, 1977). Many are reactive and spread into international markets in an unstructured manner. Development in market conditions has made it more difficult to pursue this type of internationalization. Entrepreneurial and strategic typologies both respond more favourably to current market conditions; the former by having founders and managers with international attitudes, vision, aggressiveness, innovativeness and commitment to exploring and exploiting opportunities in foreign markets, often in neighbouring countries. The latter are characterized by strategic objectives and conscious planning of international activities which may unfold in more distant country markets. Balabanis and Katsikea (2003) find that an entrepreneurial stance does have a positive impact on the export performance of firms. Several arguments for this association may be emphasized, many of them pertaining to external market conditions. Some of these conditions have pushed exporters into a more entrepreneurial mode of operation, others have pulled entrepreneurs into international markets. One pull effect is the increased globalization of commerce and innovations in information and communication technologies, which has provided many opportunities as well as challenges to early internationalizing and exporting firms (Haar and Ortiz-Buonafina, 2002). In this context it has been indicated that entrepreneurship has become the key to (re-)vitalizing economic growth through job creation and so on. In addition, seminal researchers (McDougall and Oviatt, 2000) have argued that the complex nature of the globalizing markets has necessitated, and thus pushed, early internationalizing firms to adopt an entrepreneurial stance (Covin and Slevin, 1989) to survive in the often hostile, dynamic and diverse market context. The concept of an entrepreneurial position reflects management’s risk-taking with regard to strategic action and investment decisions (Mostafa et al., 2005). Accordingly, the concept is associated with the organization’s propensity and frequency to innovate to achieve technological leadership (Balabanis and Katsikea, 2003). This involves market-driving behaviour to differentiate the firm from export competitors by proactive and aggressive introduction of innovative products or services (Boso et al., 2012) while calculating the risk in relation to obstacles such as liabilities of foreignness and outsidership. The extent to which an organization adopts an entrepreneurial stance is affected by both internal and external factors. The market often influences a firm’s strategy and how

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it relates to competitors. The main external factor affecting the entrepreneurial position involves the level of hostility, dynamism and diversity of the market environment (Dess and Beard, 1984). In the literature, hostile environments are defined as markets with intense competition and precarious industry settings (Covin and Slevin, 1989). Dynamic market environments describe a fast and frequently changing context as a consequence of technological progresses, industrial developments and so on. The literature indicates that heterogenic market environment characterized by cultural and economic dissimilarity as well as physical distance of the export markets will influence the extent to which managers adopt an entrepreneurial stance. Research thus indicates that the more market environments are characterized by high levels of hostility, dynamism and heterogeneity the greater the extent to which managers of an internationalizing firm/exporter will adopt an entrepreneurial stance and act like an entrepreneurial exporter (Balabanis and Katsikea, 2003). The internal antecedents to the entrepreneurial stance of exporting firms include the attitude of the entrepreneur/founder as well as the firm’s immediate size, its organization structure and age. Entrepreneurial attitude may have the consequence that exporting becomes an entrepreneurial act defined as ‘the process by which individuals either on their own or inside organizations pursue export market opportunities without regard to the resources which they currently control or environmental disincentives which they face’ (Mostafa et al., 2005: 292). Literature posits the entrepreneur (manager) as the key actor for the development of firms, their trajectory and capabilities (Helfat et al., 2007). This research emphasizes that to understand firm dynamics, research needs to include the individuals driving it, what they do and how they do it (Felin and Foss, 2005; Hannibal, 2017; Sarasvathy, 2004). It is not only the resources and the partner constellations that matter. Continuing these thoughts (Andersson and Florén, 2011) finds that managers in small internationalizing firms hold capabilities distinguishing them from managers in other firms. This difference is supported by other authors providing strong indications that the behaviour of managers in small internationalizing firms are a great deal more proactive in relation to their international activities (Evers et al., 2012; Hannibal, 2017). Research indicates that as firms grow, they have a propensity to become less entrepreneurial. Larger organizations need more formal systems to coordinate, whereby new ideas need to go through more layers of administration to get approval. Accordingly, inherently larger organizations provide fewer incentives to managers to remain entrepreneurial. However, although large firms are less likely to provide the proactive, responsive and risk-taking atmosphere, it has been argued that larger organizations have more resources to pour into innovative activities, which is an important component in accumulating more skills and resources required for the entrepreneurial stance (Balabanis and Katsikea, 2003). They become strategic internationalizers (Ciravegna et al., 2019). Given this, literature suggests that size of firm is indeed related to the extent to which it will adopt an entrepreneurial posture but there is a lack of agreement as to the direction of this relationship. A firm’s history and age is another internal factor which provides the basis for development of routines and values which will act as guides for the current as well as future orientations (Helfat et al., 2007). Newer firms will not be constrained by well-established norms and path dependencies. This will provide more freedom to taking risk and making decisions. Accordingly, there is a consensus in the literature that ageing firms will exhibit a decreasing entrepreneurial stance as they continue down the proven

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strategic paths. As shown by Bell et al. (2001), however, an old firm may be acquired by an entrepreneurial owner and thus become a born-global firm through a revitalization of the business model. The firm’s organizational structure also impacts the entrepreneurial stance. The literature describes organizational structure through horizontal, vertical and spatial differentiation, and posits that informal and open communication coupled with participative decision-making has a positive impact on the firm’s entrepreneurial stance (Balabanis and Katsikea, 2003) that will be the base of entrepreneurial export activities. Entrepreneurial exporters may develop for many external and internal reasons. Their entrepreneurial activity may relate to different aspects of successful leadership and management: the creation of unique customer value, the identification of a viable business model, the decision-making related to basic market strategy, and the implementation of such a strategy. In any case, Balabanis and Katsikea (2003) conclude that being entrepreneurial is very important for exporters and international firms. They also write: ‘Thus, the adoption of an entrepreneurial posture is something that profit-maximising firms have to consider and pursue actively for their export operations regardless the conditions of their markets’ (Balabanis and Katsikea, 2003: 246). We end this chapter by presenting a case study of a very successful, entrepreneurial exporter as an illustration of how an entrepreneurial stance impacts on various aspects of decision-making and implementation of strategic decisions.

AN ILLUSTRATIVE CASE: UNIVERSAL ROBOTS Universal Robots (UR)1 became a world leader in the collaborative robot market in only a few years. This position was obtained entirely through exporting. The illustrative case is based on archival material as well as interviews with the pre-2015 top management of UR. Three founders of UR, Esben Østergaard, Kasper Støy and Kristian Kassow, met at the University of Southern Denmark (SDU) in Odense. Together, they researched specific requirements for robots in the food industry, and through the close interaction with the industry, they identified a unique business opportunity: potential demand for a small, flexible and inexpensive industrial robot. The robot industry was at that time dominated by large and inflexible robots that were too expensive for small and medium-sized enterprises. They founded UR in 2005. The Entrepreneurial Creation of Unique Customer Value The UR robot arm consists of six rotary joints, where each joint increases the degree of movement. It is a force-limited robot, that is, it has built-in force torque sensors and is programmed automatically to stop operation when it detects abnormal impact. This design makes it a collaborative robot (cobot) that can be installed and work side by side with humans without being fenced. It represents a radical innovation on the robotics market, developed in close interaction with initial customers. In many ways, the collaborative UR robot revolutionized the market of industrial robots, and currently UR has a global market share of more than 50 per cent in the very fast growing cobot segment of the robotics market. Esben Østergaard explains that the competitive advantage of UR rests on three pillars.

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First, the flexible and inexpensive robot arm that can be easily moved to solve different tasks in the production hall. The founders identified this as a strong opportunity compared with the large, expensive and inflexible robots being available at the time. Also, the UR robot can be installed without any fence around it, which was unheard of at the time it was created. As a consequence, the robot/cobot can be working right next to a human being. Second, it is effortless to program the robot, which can be undertaken by employees at the floor level. In contrast, existing robots could only be programmed by specialists. Universal Robots’s unique knowledge of how to integrate electronic, mechanical and software elements form the foundation for these two advantages, and their position as a market leader enables UR to purchase all modules at comparatively low costs. Third, the very detailed insight UR has into customer needs and wants so that an UR robot arm can deliver customer value for individual customers in many industries. It is very difficult to imitate UR’s knowledge of how the robot arm can be adapted to the needs of individual firms and production processes, how it can be programmed and thus converted into alternative processes by those who work in the production, and how it can easily be moved around in the production hall. In the early years of the firm’s life the entrepreneurial stance was clearly dominating. The Entrepreneurial Development of a Focused Business Model and Strategy When the development of the cobot arm was complete, the firm’s financial resources were exhausted. Despite all the entrepreneurial efforts, a ready-to-market product had not been developed fast enough. In 2008, the firm struggled to survive, and the Danish State Investment Fund (Vækstfonden) joined the company through an investment. According to Esben Østergaard, this capital injection saved UR from bankruptcy, but it also came with demands for a more strategic approach to developing the business further. As part of the investment agreement, the Danish State Investment Fund insisted on appointing a chief executive officer (CEO) with more business experience than the three founders. They chose Enrico Krog Iversen, who had previously been the CEO of a medium-sized firm in a completely different industry. He also became a co-investor in UR. Clas Nylandsted Andersen, a very experienced business leader, acted as the chairman of the board. A UR robot arm is assembled from almost 1000 components. In the early days of the company, the founders had the ambition to develop and manufacture critical components, such as, for example, the gears, in-house. Krog Iversen disagreed with this strategic direction. He argued that this would put limits on the scalability and growth-potential of UR. Instead, he proposed to outsource production of all components as well as marketing and distribution through partnerships with key suppliers and independent distributors. This strategy would imply that UR developed and assembled the collaborative robot arm and nothing else. All components were to be sourced from suppliers, and a network of independent system integrators/distributors would then take responsibility to contact individual customers and develop a total system for them, including the sourcing of end-effectors from other suppliers and the final installation of the system. Clas Nylandsted Andersen saw opportunities in both strategies, but Krog Iversen’s strategic direction was chosen. In a way, the strategic approach became more dominating, which was necessary owing to the very dynamic market conditions.

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The Implementation and Fine-Tuning of Exports and Internationalization When Krog Iversen became the CEO in 2008, no sales had been realized, but he immediately started canvassing to capture customer and partners. He remembers how he carried this out in a very entrepreneurial trial-and-error manner: ‘The first two years I always had a robot in the luggage room of my car so that I could make a demo wherever I was.’ He was canvassing and looking for business opportunities not only with end-customers but also with possible distributors. He would offer them one-year contracts and then rely on their sales efforts based on the assumption that the good distributors would achieve high sales and stay as distributors, whereas those that were not so good could be dropped. This entrepreneurial effectuation approach led to changing around 30 per cent of the distributors every year in the beginning. However, as Krog Iversen states, this entrepreneurial approach was necessary: ‘Being a new company like UR, it is not a question of being able to find the optimal portfolio of distributors right away. It is a question of loving those you can get rather than getting those that you love.’ Later, the identification of and collaboration with distributors became much more structured. In 2008, the first UR cobots were sold through distributors in Denmark and Germany and, by 2010, UR had expanded their business to all of Europe. Between 2011 and 2015, the company established four sales subsidiaries in New York, USA, Shanghai, China, Barcelona, Spain, and Singapore to oversee foreign operations, while also expanding their distributor network in South America and Oceania. UR started to win prices and became very visible at trade fairs. Universal Robots became the world market leader for collaborative robots, and statistics from 2015 put UR’s global market share at 71 per cent. The management’s assessment of the business strategy would prove to be successful, as UR’s annual turnover would increase manifold in the coming years from only a few million Danish krone (DKK) in 2008 to over 403 million DKK in 2015. Observing the success of UR, multiple competitors soon arrived, not least competitors from China. This put pressure on UR, as expressed by Clas Nylandsted Andersen: ‘We felt being under immense time pressure. Because of the expected competition, we had to develop a strategy so that we were able to enter the world market very quickly through distributors. Speed was essential, it was a question of being the first mover.’ The importance of detailed knowledge about how to create value for end-customers in different industries is a crucial part of UR’s competitive advantage. The strategic decision to use distributors in the downstream relationships required decisions about how to maintain and further develop this knowledge. Even after the strategic decision to limit UR to become a developer and assembler of robot arms, a close connection to distributors and end-customers remained very important. Therefore, UR still engages heavily in building downstream relationships. Østergaard says: ‘When the distributors installed the first robot arms, we joined them and visited the customers. In that way, I got a lot of insight into their way of thinking as well as the challenges. I think that those insights have made UR such great success.’ Later, UR established a competence centre with several application teams who regularly follow downstream activities in order to stay competitive in relation to delivering customer value in different industries.

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Acquisition by a US Multinational Company By 2015, UR was an established success, a worldwide leader in the extremely fast-growing market for collaborative robots. However, to scale up further, the firm needed additional financial and managerial resources as well as more efficient channels to customers around the world in an increasingly hostile market environment. Recently, several challenges have emerged to emphasize the importance of securing additional resources. First, one of the owners, the Danish Investment Foundation (Vækstfonden), which had invested in the firm in the early days, had clearly expressed a preference for an exit. Second, despite the position as market leader, the company’s competitors, especially in Asia, were either attempting to copy UR’s robotic arm or to develop competing products. China represents a vast market, but also a considerable challenge. The Made-In-China 2025 was being decided according to which China aims to be a leading country in manufacturing of collaborative robots. Therefore, the task of the owners and the top management team of UR was to find a multinational company that through acquisition could provide the necessary conditions for the company’s future growth. Several firms interested in acquiring UR approached them, and they decided to implement a structured process to evaluate interested buyers in order to decide how to secure the future success of UR best. In 2015 US multinational, Teradyne, acquired UR for US$285 million plus a further earn-out of US$65 million if specific financial targets were met in the following years. Teradyne was positioned as a leading supplier of automatic test equipment. The acquisition of UR was the first step in the continuation of a strategic decision from Teradyne to establish a new position in the growing segment of industrial automation and especially collaborative robots with UR as the headquarters.

CONCLUDING REMARKS Balabanis and Katsikea (2003) conclude that any internationalizing firm should adopt an entrepreneurial posture and thus become entrepreneurial exporters since this will increase the firm’s profitability. Dynamic, diverse and hostile markets foster more entrepreneurial exporters, as illustrated by the UR case. The entrepreneurial stance may encompass not only the market entry phase, but also permeate the product development phase and the decision-making concerning the firm’s business model. As demonstrated, UR shows clear signs of an entrepreneurial stance in acting both proactively, taking on risk and having high levels of innovativeness to fit the category of a true entrepreneurial exporter. It remains to be seen if the buyout and subsequent influence on the internal factors in UR, such as change of size, structure and the evident ageing of the organization, will impact UR to decrease the manager’s entrepreneurial stance to the extent that we will see a more strategic approach to UR’s internationalization. This relates to some fundamental questions: can a firm remain an entrepreneurial exporter? Is it necessary to remain an entrepreneurial exporter? The literature is not conclusive concerning these questions. Balabanis and Katsikea (2003) do not discuss the issue, and elsewhere it is indicated ‘that while entrepreneurial exporters outperform conservative exporters in turbulent environments, the reverse is true in benign environments’ (Boso et al., 2012: 668). So, future research should enlighten us and attempt to address questions,

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including the best timing of a shift in the approach to internationalization activities from entrepreneurial to more strategic, as mentioned by Ciravegna et al. (2019).

NOTE 1. For more information, please refer to a teaching case about Universal Robots prepared by Kristina Vaarst Andersen, Tage Koed Madsen and Erik Stavnsager Rasmussen in 2019 (available upon request).

REFERENCES Acedo, F.J. and M.V. Jones (2007), ‘Speed of internationalization and entrepreneurial cognition: insights and a comparison between international new ventures, exporters and domestic firms’, Journal of World Business, 42 (3), 236–52, doi:10.1016/j.jwb.2007.04.012. Andersson, S. and H. Florén (2011), ‘Differences in managerial behavior between small international and noninternational firms’, Journal of International Entrepreneurship, 9 (3), 233–58. Aspelund, A., T. Koed Madsen and Ø. Moen (2007), ‘A review of the foundation, international marketing strategies, and performance of international new ventures’, European Journal of Marketing, 41 (11–12), 1423–48. Balabanis, G.I. and E.S. Katsikea (2003), ‘Being an entrepreneurial exporter: does it pay?’, International Business Review, 12 (2), 233–52. Bell, J., R. McNaughton and S. Young (2001), ‘“Born-again global” firms: an extension to the “born global” phenomenon’, Journal of International Management, 7 (3), 173–89. Boso, N., J.W. Cadogan and V.M. Story (2012), ‘Complementary effect of entrepreneurial and market orientations on export new product success under differing levels of competitive intensity and financial capital’, International Business Review, 21 (4), 667–81. Cesinger, B., M. Fink, T.K. Madsen and S. Kraus (2012), ‘Rapidly internationalizing ventures: how definitions can bridge the gap across contexts’, Management Decision, 50 (10), 1816–42. Ciravegna, L., S. Kundu, O. Kuivalainen and L. Lopez (2019), ‘The timing of internationalization – drivers and outcomes’, Journal of Business Research, 105 (December), 322–32. Covin, J.G. and D.P. Slevin (1989), ‘Strategic management of small firms in hostile and benign environments’, Strategic Management Journal, 10 (1), 75–87. Dana, L.-P., H.E. Etemad and R.W. Wright (1999a), ‘The impact of globalization on SMEs’, Global Focus, 11 (4), 93–106. Dana, L.-P., H.E. Etemad and R.W. Wright (1999b), ‘Theoretical foundations of international entrepreneurship’, in R.W. Wright (ed.), International Entrepreneurship: Globalization of Emerging Businesses, Stanford, CT: JAI Press, pp. 3–22. Dess, G.G. and D.W. Beard (1984), ‘Dimensions of organizational task environments’, Administrative Science Quarterly, 29 (1), 52–73. Evers, N., S. Andersson and M. Hannibal (2012), ‘Stakeholders and marketing capabilities in international new ventures: evidence from Ireland, Sweden, and Denmark’, Journal of International Marketing, 20 (4), 46–71. Felin, T. and N.J. Foss (2005), ‘Strategic organization: a field in search of micro-foundations’, Strategic Organization, 3 (4), 441–55. Haar, J. and M. Ortiz-Buonafina (2002), ‘Entrepreneurial exporters: the Canadian experience’, International Trade Journal, 16 (1), 33–71. Hannibal, M. (2017), ‘Enacted identities in the university spin-off process – bridging an imaginative gap’, Journal of International Entrepreneurship’, 15 (3), 239–65. Helfat, C.E., S. Finkelstein, W. Mitchell, M.A. Peteraf, H. Singh, D. Teece, et al. (2007), Dynamic Capabilities: Understanding Strategic Change in Organizations, Oxford: Blackwell. Johanson, J. and J.E. Vahlne (1977), ‘The internationalization process of the firm – a model of knowledge development and increasing foreign market commitments’, Journal of International Business Studies, 8 (March), 23–32. Keupp, M.M. and O. Gassmann (2009), ‘The past and the future of international entrepreneurship: a review and suggestions for developing the field’, Journal of Management, 35 (3), 600–633. Knight, G. and S.T. Cavusgil (1996), ‘The born global firm: a challenge to traditional internationalization theory’, in T.K. Madsen and S.T. Cavusgil (eds), Advances in International Marketing, vol. 8, Greenwich, CT: JAI Press, pp. 11–26.

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Kuivalainen, O., S. Saarenketo and K. Puumalainen (2012), ‘Start-up patterns of internationalization: a framework and its application in the context of knowledge-intensive SMEs’, European Management Journal, 30 (4), 372–85, doi:10.1016/j.emj.2012.01.001. Madsen, T.K. (2013), ‘Early and rapidly internationalizing ventures: similarities and differences between classifications based on the original international new venture and born global literatures’, Journal of International Entrepreneurship, 11 (1), 65–79. Madsen, T.K. and Rasmussen E.S. (2005), ‘Iværksætternes betydning for internationalisering af en virksomhed’, in Danske iværksættere i den globale økonomi, Copenhagen: Børsens Forlag, pp. 17–30. Madsen, T.K. and P. Servais (1997), ‘The internationalization of born globals: an evolutionary process?’, International Business Review, 6 (6), 561–83, doi:10.1016/S0969-5931(97)00032-2. McDougall, P.P. and B.M. Oviatt (2000), ‘International entrepreneurship: the intersection of two research paths’, Academy of Management Journal, 43 (5), 902–6. Mostafa, R.H., C. Wheeler and M.V. Jones (2005), ‘Entrepreneurial orientation, commitment to the Internet and export performance in small and medium sized exporting firms’, Journal of international Entrepreneurship, 3 (4), 291–302. Oviatt, B.M. and P.P. McDougall (1994), ‘Toward a Theory of international new ventures’, Journal of International Business Studies, 25 (1), 45–64. Rialp, A., J. Rialp and G.A. Knight (2005), ‘The phenomenon of early internationalizing firms: what do we know after a decade (1993–2003) of scientific inquiry?’, International Business Review, 14 (2), 147–66. Sarasvathy, S.D. (2004), ‘Making It happen: beyond theories of the firm to theories of firm design’, Entrepreneurship, Theory and Practice, 28 (6), 519–32. Sharma, D.D. and A. Blomstermo (2003), ‘The internationalization process of born globals: a network view’, International Business Review, 12 (6), 739–53. Young, S., P. Dimitratos and L.-P. Dana (2003), ‘International entrepreneurship research: what scope for international business theories?’, Journal of International Entrepreneurship, 1 (1), 31–42.

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16. Entrepreneurial hubris

Vita Akstinaite and Eugene Sadler-Smith

INTRODUCTION Hubris is an extreme manifestation of confidence and ambition that is characterized by preoccupations with success, feelings of excessive pride and self-importance, arrogance, contempt for advice and criticism, and an imperviousness to learning. It belongs to the same nomological net as overconfidence and hyper core self-evaluation (Haynes et al., 2015) but is distinct from narcissism (Asad and Sadler-Smith, 2020). The origins of hubris research in business and management can be traced back to the foundational work in behavioural finance in the ‘hubris hypothesis’ of mergers and acquisitions (Roll, 1986) which explained the negative consequences of chief executive officer (CEO) overconfidence. Hubris research has branched out subsequently into areas that include strategic management (for example, Hiller and Hambrick, 2005), leadership (for example, Akstinaite et al., 2019) and entrepreneurship (for example, Hayward et al., 2010). Research suggests that hubris is far from uncommon in entrepreneurs (Haynes et al., 2015) and in this chapter we examine the characteristics, causes and consequences, both positive and negative, of entrepreneurial hubris.

CHARACTERISTICS OF ENTREPRENEURIAL HUBRIS Examples of entrepreneurial hubris abound in both the business-venturing and corporate entrepreneurship literatures. For example, in the corporate world, business leaders such as Steve Jobs of Apple, Larry Page of Google and Carly Fiorina at Hewlett Packard, embodied strong entrepreneurial orientations and gravitated towards bold, and sometimes extreme, strategic choices through their innovativeness, proactiveness and risktaking behaviours. However, the downside of their entrepreneurialism was that they inclined towards overconfidence, over-ambition, unpredictability and, even, recklessness (Chatterjee and Hambrick, 2007; Wales et al., 2013). Hubris is typically associated with destructive leadership and unintended negative consequences (Sadler-Smith, 2019). In the business-venturing arena in the UK, it is estimated that more than half of new businesses fail to survive for longer than five years. The picture is little different in the USA (Headd, 2003). For example, in Cooper et al.’s (1988) study of 3000 entrepreneurs in which respondents were asked to rate their chances of success, 81 per cent of business venturers saw their odds of success as seven out of 10 or better, and a third saw their odds of success of 10 out of 10. Hence there is ample empirical evidence to suggest that business venturers categorize opportunities overly positively to the extent that they display behaviours bordering on the euphoric at the start-up of a firm and show clear manifestations of a warped perception of risk (Vecchio, 2003). In entrepreneurship hubris manifests in particular as: (1) errors of judgement of the 139

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resources needed for success; (2) severe over-estimation of the entrepreneur’s own business venturing, leadership and managerial abilities; (3) hiring of employees with lower levels of requisite human capital for the venture; (4) underestimations of the need for social capital to support venture viability, survival and growth; (5) distortions of entrepreneur’s perception of reality thereby impeding proper assessment of the resources needed at critical stages in the business growth cycle (Haynes et al., 2015: 486). Based on the above, entrepreneurial hubris is defined as exaggerated self-confidence, ambition and pride, contempt for advice and criticism from others, and an imperviousness to learning, which is fuelled by prior business-venturing successes and results in flawed decision-making that invites unintended negative consequences in the form of venture failure.

CAUSES OF ENTREPRENEURIAL HUBRIS Entrepreneurs must take significant risks to be successful and therefore must have high levels of confidence in the decisions they take. Building on earlier work in strategic management research, Hayward et al. (2006) developed a ‘hubris theory of entrepreneurship’ which models both how overconfident entrepreneurs are more likely to initiate business ventures and how these ventures are more likely to fail. Hayward et al.’s theory seeks to answer the question of why entrepreneurs start their ventures in the first place when the objective chances of success are so discouraging (Haynes et al., 2015). Overconfident entrepreneurs often not only ignore base rates, but also choose to (1) overlook the failure rate of competitors who have sought similar opportunities in the past, and (2) underestimate the strength of competitors for focal opportunities (Hayward et al. 2006). They do so in the firm belief that with their abilities and talents, perhaps with assistance of a ‘lucky hunch’ (Shane and Venkataraman, 2000: 220), they will beat the odds. This overconfidence stems from three sources: (1) overconfidence in knowledge of the domain; (2) overconfidence in prediction of outcomes; and (3) overconfidence in their personal abilities (Hayward et al., 2006). A surfeit of confidence can lead business venturers to categorize business situations over-positively and as a result they are inclined to overestimate the probability of their judgement being right and their venturing decisions turning out well, but they consequently underestimate the chances of being wrong and things turning out badly (Hmieleski and Baron, 2008; Palich and Bagby, 1995). Moreover, hubristic entrepreneurs’ experiences and prior successes in previous ventures only makes them more likely to be confident of success in focal ventures irrespective of whether or not the focal venture relies on relevant experience and expertise gained in prior ventures. These hubristic entrepreneurs assume that their entrepreneurial abilities are domain general (Hayward et al., 2006) rather than, and contrary to theories of expertise, domain specific (Kahneman and Klein, 2009). As regards entrepreneurial abilities and outcomes, Townsend et al. (2010) distinguish between expectations of abilities versus expectations of outcomes. Their study of startups in the USA suggested that entrepreneurs’ beliefs in their abilities were a stronger driver of business-venturing behaviours than their beliefs about the outcome. This suggests that entrepreneurial hubris (for example, as elevated self-evaluation) can lead business venturers to trust their abilities first and assume that successful outcomes will follow.

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The cognitive biases that are associated with entrepreneurial hubris result in systematic errors of judgement and stem from illusions of control and the use of limited information (Hmieleski and Baron, 2008). Internationalization can also compound the hazards of entrepreneurial hubris. Moving into the international environment is often complex, ambiguous and uncertain, and may pose a significant risk of overreach for hubristic entrepreneurs. The move into international markets has been described as presenting a liminal transition (laying ‘betwixt and between’), and the ambiguous and transitory nature of this transitional zone has the potential to increase the odds for fatal missteps (for example, entering a high-cost market without sufficient resources) so that misjudgements threaten the survival of international new ventures (Prashantham and Floyd, 2019). Narcissism and gender may also play a role. When entrepreneurs have narcissistic tendencies (for example, need for control, desire for approval or propensity for action) and associated difficulties in regulating self-esteem, they may be predisposed to overconfident and overambitious (that is, hubristic) business-venturing decisions (Kets de Vries, 1996). Regarding gender, more males are inclined to become entrepreneurs than females, and men tend to be more confident in their ability to perform at high levels in the tasks of entrepreneurship (Hmieleski and Baron, 2008). In addition, research outside the entrepreneurial domain has studied the effects of hormones on the decision-making behaviours of traders and has found that higher levels of testosterone are associated with irrational exuberance and recklessness (Coates, 2012). Finally, context can also be an important factor that affects the ways in which hubris manifests in entrepreneurship. Hubris can manifest through different mechanisms in different entrepreneurial settings. For example, Haynes et al. (2015) propose that: (1) in young start-ups entrepreneurial hubris gives rise to underestimations of human and social capital necessary for venture success; (2) in family firms excessive pursuit of socioemotional wealth by a hubristic leader causes overestimation of available social and human capital necessary for success; and (3) in corporate ventures the discretion to engage in risky decision-making by hubristic executives brings about the misuse and erosion of social capital necessary for success.

CONSEQUENCES The Bright Side (Positive Consequences) of Entrepreneurial Hubris Hubris, as often is the case with extreme behavioural conditions, has a dark and a bright side. A small amount of hubris helps individuals to be bold, to strive for more and, ultimately, to dare to set up entrepreneurial ventures, even after experiencing failure. A high level of confidence is beneficial in persuading others to be enthusiastic about and join a business-venturing project, and confidence inspires, motivates and assures employees and other stakeholders (Busenitz and Barney, 1997). In addition, hubristic entrepreneurial leaders encourage creativity and entrepreneurship owing to their excessive risk-taking and confidence in their most radical ideas (Zeitoun et al., 2019). Steve Jobs is an example of a hubristic leader who was arrogant, and sometimes undermining, but who created a number of radically innovative products.

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To be part of such breakthroughs might be an intrinsically motivating experience for followers of hubristic leaders (Zeitoun et al., 2019). It is long established that efficacy beliefs influence how individuals ‘feel, think, motivate themselves and behave’ (Bandura, 1993: 118). Hubris has a direct link with self-efficacy, which is often extremely high in hubristic individuals (cf. hyper core self-evaluation, Hiller and Hambrick, 2005). Favourable efficacy beliefs have positive effects, and it is well known that individuals high in self-efficacy set challenging goals which they persistently strive towards even when the odds are stacked against them, moreover they recover quickly from failure, even under adverse conditions (Bandura, 1993). Entrepreneurs have to be able to, of necessity, work towards challenging goals, be comfortable with risk and persist against the odds, and be resolute in the face of failure. Entrepreneurial self-efficacy is the degree to which an entrepreneur perceives himself or herself as having the ability to successfully perform the various roles and tasks of entrepreneurship, including intentions to start a new business and the related tasks of marketing, innovation management and financial control (Hmieleski and Baron, 2008). High entrepreneurial self-efficacy is associated with a variety of positive effects, including business performance outcomes and work satisfaction (Baum and Locke, 2004; Bradley and Roberts, 2004). The ‘Dark Side’ (Negative Consequences) of Entrepreneurial Hubris As to the dark side of entrepreneurial hubris, Miller in his book The Icarus Paradox argued that the entrepreneurial personality may in some respects be Janus-like in that positive attributes (for example, energy, confidence, ambition, need for achievement and independence) can morph into negative attributes (for example, aggressiveness, ruthlessness, immodesty, irresponsibility and recklessness) (Miller, 1992). This general phenomenon has been labelled a strengths-into-weaknesses paradox (Sadler-Smith, 2019) and displays a classic inverted U-shaped pattern (DeNisi, 2015) with optimum levels of outcome related to the tipping point between too much or too little of a required attribute (cf. Yerkes Dodson law; Yerkes and Dodson, 1908). For example, Steve Jobs’s confidence, power, and authority in difficult situations was likely to be inspiring to his followers. However, the same traits made him difficult to deal with and work for. One reason for this is because hubristic confidence and risk-taking makes hubristic leaders ignore the needs of others (Akstinaite et al., 2019). For instance, Steve Jobs is notoriously known for publicly denouncing and yelling at his employees. Being led by such hubristic leaders is likely to be a stressful work experience for followers. Also, excessive confidence in their own abilities is a strong driving force and hence a significant hazard in business start-ups, which can cause individuals to proceed and persist with concomitant escalations of commitment in spite of the odds being stacked against them. This, in turn, might affect not only the leader, but also the business venture and people who work for it, leading to impaired decision-making and flawed leadership behaviours. For example, it might lead entrepreneurs to make miscalculated resourceallocation decisions that ultimately deplete the venture’s chances of success and increase the likelihood of venture failure (Hayward et al., 2006). In addition, unrealistic optimism fuelled by hubris could cause entrepreneurs to take extreme risks and have a narrow and single-minded focus on business (Nicholson, 1998). Owing to this, entrepreneurial leader

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hubris often causes a decrease in human and social capital for the venture, which, in turn, has a negative effect on the success of the newly established entrepreneurial venture.

CONCLUSIONS Analysing hubris in the entrepreneurial context is particularly interesting as business decisions and actions are being taken in a public space where the outcomes of these decisions, such as failed start-ups, can be observed and analysed by others. In most cases, an individual’s entrepreneurial actions stem from the behaviours that have proved to be useful in the past (that is, taking huge financial risks). As a consequence, as the entrepreneur relies on these behaviours to achieve prospective business successes, these behaviours become more reinforced over time. Future research should explore ways to identify early warning signals, such as linguistic makers, of entrepreneurial hubris and extend existing work on analysis and identification of hubris to the entrepreneurship domain (Akstinaite et al., 2019). Inevitably, the overuse of a particular strength can cause it to become a weakness. If overused, entrepreneurial ambitiousness and self-confidence can lead to self-absorption and unwillingness to accept mistakes made; a strong and independent personality can turn into an aloof and unapproachable character; traits of expressiveness and extraversion can lead to attention seeking. For this reason it is important to identify and understand the tipping point from which an entrepreneurial strengths, such as confidence and risk-taking, become hubristic weaknesses, such as overconfidence, recklessness and other dysfunctional behaviours. The competitive world of entrepreneurship in the twenty-first century seems to call for people who exhibit behavioural traits that can also be attributed to hubris. Perhaps, as has been suggested in previous research, a degree of hubris is inevitable and even necessary in order to become a successful and well-known entrepreneur. This, therefore, raises the question as to whether a particular amount of hubris is required for successful entrepreneurship and what is the tipping point after which it becomes damaging? It seems that the general rule of law applies to hubris in entrepreneurial context: some traits that lead people to become entrepreneurs, might become maladaptive when taken to extremes.

REFERENCES Akstinaite, V., G. Robinson and E. Sadler-Smith (2019), ‘Linguistic markers of CEO hubris’, Journal of Business Ethics, 22 May, 1–19. Asad, S. and E. Sadler-Smith (2020), ‘Differentiating leader hubris and narcissism on the basis of power’, Leadership, 16 (1), 39–61. Bandura, A. (1993), ‘Perceived self-efficacy in cognitive development and functioning’, Educational Psychologist, 28 (2), 117–48. Baum, J.R. and E.A. Locke (2004), ‘The relationship of entrepreneurial traits, skill, and motivation to subsequent venture growth’. Journal of Applied Psychology, 89 (4), 587–98. Bradley, D.E. and J.A. Roberts (2004), ‘Self-employment and job satisfaction: investigating the role of selfefficacy, depression, and seniority’, Journal of Small Business Management, 42 (1), 37–58. Busenitz, L.W. and J.B. Barney (1997), ‘Differences between entrepreneurs and managers in large organizations: Biases and heuristics in strategic decision-making’, Journal of Business Venturing, 12 (1), 9–30. Chatterjee, A. and D.C. Hambrick (2007), ‘It’s all about me: Narcissistic chief executive officers and their effects on company strategy and performance’, Administrative Science Quarterly, 52 (3), 351–86.

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Coates, J. (2012), The Hour between Dog and Wolf: How Risk Taking Transforms Us, Body and Mind, London: Penguin Random House. Cooper, A.C., C.Y. Woo and W.C. Dunkelberg (1988), ‘Entrepreneurs’ perceived chances for success’, Journal of Business Venturing, 3 (2), 97–108. DeNisi, A.S. (2015), ‘Some further thoughts on the entrepreneurial personality’, Entrepreneurship Theory and Practice, 39 (5), 997–1003. Haynes, K.T., M.A. Hitt and J.T. Campbell (2015), ‘The dark side of leadership: Towards a mid-range theory of hubris and greed in entrepreneurial contexts’, Journal of Management Studies, 52 (4), 479–505. Hayward, M.L., W.R. Forster, S.D. Sarasvathy and B.L. Fredrickson (2010), ‘Beyond hubris: how highly confident entrepreneurs rebound to venture again’, Journal of Business venturing, 25 (6), 569–78. Hayward, M.L., D.A. Shepherd and D. Griffin (2006), ‘A hubris theory of entrepreneurship’, Management Science, 52 (2), 160–72. Headd, B. (2003), ‘Redefining business success: Distinguishing between closure and failure’, Small Business Economics, 21 (1), 51–61. Hiller, N.J. and D.C. Hambrick (2005), ‘Conceptualizing executive hubris: the role of (hyper) core self-evaluations in strategic decision-making’, Strategic Management Journal, 26 (4), 297–319. Hmieleski, K.M. and R.A. Baron (2008), ‘When does entrepreneurial self-efficacy enhance versus reduce firm performance?’, Strategic Entrepreneurship Journal, 2 (1), 57–72. Kahneman, D. and G. Klein (2009), ‘Conditions for intuitive expertise: a failure to disagree’, American Psychologist, 64 (6), 515–26. Kets de Vries, M.F. (1996), ‘The anatomy of the entrepreneur: clinical observations’, Human Relations, 49 (7), 853–83. Miller, L.B. (1992), The Icarus Paradox: How Exceptional Companies Bring about Their Own Downfall, New York: HarperCollins. Nicholson, N. (1998), ‘Personality and entrepreneurial leadership: a study of the heads of the UK’s most successful independent companies’, European Management Journal, 16 (5), 529–39. Palich, L.E. and D.R. Bagby (1995), ‘Using cognitive theory to explain entrepreneurial risk-taking: challenging conventional wisdom’, Journal of Business Venturing, 10 (6), 425–38. Prashantham, S. and S.W. Floyd (2019), ‘Navigating liminality in new venture internationalization’, Journal of Business Venturing, 34 (3), 513–27. Roll, R. (1986), ‘The hubris hypothesis of corporate takeovers’, Journal of Business, 59 (2), 197–216. Sadler-Smith, E. (2019), Hubristic Leadership, Thousand Oaks, CA: Sage. Shane, S. and S. Venkataraman (2000), ‘The promise of entrepreneurship as a field of research’, Academy of Management Review, 25 (1), 217–26. Townsend, D.M., L.W. Busenitz and J.D. Arthurs (2010), ‘To start or not to start: outcome and ability expectations in the decision to start a new venture’, Journal of Business Venturing, 25 (2), 192–202. Vecchio, R.P. (2003), ‘Entrepreneurship and leadership: common trends and common threads’, Human Resource Management Review, 13 (2), 303–27. Wales, W.J., P.C. Patel and G.T. Lumpkin (2013), ‘In pursuit of greatness: CEO narcissism, entrepreneurial orientation, and firm performance variance’, Journal of Management Studies, 50 (6), 1041–69. Yerkes, R.M. and J.D. Dodson (1908), ‘The relation of strength of stimulus to rapidity of habit-formation’, Journal of Comparative Neurology and Psychology, 18 (5), 459–82, accessed 11 October 2020 at https:// onlinelibrary.wiley.com/doi/abs/10.1002/cne.920180503. Zeitoun, H., D. Nordberg and F. Homberg (2019), ‘The dark and bright sides of hubris: Conceptual implications for leadership and governance research’, Leadership, 15 (6), 647–72.

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17. Entrepreneurial learning

Jennifer R. Carter, Claire Leitch and Valerie Stead

Over the past decade, entrepreneurship has seen an increase in the scholarly interest of entrepreneurial learning (Jones et al., 2014; Soetanto, 2017; Wang and Chugh, 2014), transforming it from one of the most neglected areas (Harrison and Leitch, 2005) to an accepted and integral aspect of entrepreneurship (McKeown, 2015; Tseng, 2013). Entrepreneurial learning is characterised by definitional inconsistency (Soetanto, 2017) as its theorisation is drawn from a range of disciplinary backgrounds with different philosophical underpinnings. This has led to diverse and fragmented understandings (Wang and Chugh, 2014). Based on a consideration of the multiple definitions and understanding of entrepreneurial learning that have been advanced already, entrepreneurial learning is defined here as the creation, acquisition and/or development of the skills, knowledge and abilities necessary for entrepreneurial activity. Entrepreneurial activity refers to the exploitation of opportunities by entrepreneurial individuals or teams in the creation and development of business ventures. Entrepreneurial learning has been shown to have a positive effect on the success and achievement of entrepreneurs and their businesses (Keith et al., 2016; Rae and Carswell, 2001; Soetanto, 2017; Wing Yan Man, 2012). Owing to the chaotic and unpredictable context of entrepreneurship (Holcomb et al., 2009), entrepreneurs need to be flexible and adaptable (Lans et al., 2008). Businesses face external pressures – for example, uncertainty (Bergh et al., 2011), rapid change (Holcomb et al., 2009; van Gelderen et al., 2005), technological development, increased customer demands and growing competition (Keith et al., 2016) – as well as internal challenges – for example, liabilities of newness, smallness and inexperience (Dada and Fogg, 2016). Therefore, entrepreneurial learning is important in enabling entrepreneurs to handle and overcome the ambiguous and ever-evolving issues they face, and is imperative for business survival and growth. This chapter reviews understandings of entrepreneurial learning by considering how entrepreneurs learn and what entrepreneurs learn. By drawing together current understandings, this review argues for a holistic approach which more fully captures the nature of entrepreneurial learning. Integrating understandings allows reflection of the complexity, multiplicity and dynamic nature of entrepreneurial learning and entrepreneurial practice.

HOW ENTREPRENEURS LEARN Understandings of entrepreneurial learning tend to be underpinned by experiential learning theory (Zheng et al., 2017), which assumes that learning is a result of engaging in and reflecting on practice. Entrepreneurs are often characterised as action orientated (Agbim et al., 2013; Cope, 2005; Morris et al., 2012; Pittaway et al., 2015), that is, they are better suited to learning through experience in a way that is active and practice based (Cope, 2011; Corbett, 2005; Deakins and Freel, 1998; Jones et al., 2014; Pittaway et al., 145

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2015; Politis, 2005; Rae and Carswell, 2001; Wing Yan Man, 2012; Zhang and Hamilton, 2009). Furthermore, entrepreneurial learning is largely viewed as informal (Brett et al., 2012; Coetzer et al., 2017; Keith et al., 2016) and incidental, occurring through everyday practice (Cope and Watts, 2000). The experiential nature of entrepreneurial learning is broadly categorised in three ways: practice experiential, cognitive experiential and social experiential (Zheng et al., 2017). Practice-experiential approaches focus on how action and practice contribute to an entrepreneur’s learning. These are closely aligned with traditional experiential learning theories, such as Kolb (1984), where reflection is a core learning mechanism to make sense of experience (Löbler, 2006; Wing Yan Man, 2012) and to transform experience into knowledge (Politis, 2005). Examples include Cope’s (2005) and Deakins and Wyper’s (2010) research of critical incidents. Cope’s (2005) study observed how entrepreneurs learn through critical, non-routine and often unexpected events that force them to question their assumptions and reflect on their situation. Deakins and Wyper (2010) propose a four-stage cycle to show how reflective learning from critical events enables entrepreneurs to engage in deeper, higher-level learning: (1) trigger event, (2) reflection and assimilation, (3) review of entrepreneurial strategies and resources, and (4) implementation and observation. Through this learning, entrepreneurs are better able to adapt and develop on a strategic level. Cognitive-experiential approaches are an evolution of experiential learning theory and differ by focusing upon how experiences change an entrepreneur’s individual mental models. They consider the ways in which an entrepreneur cognitively processes an experience for the purpose of learning. One example of a cognitive-experiential approach is Minniti and Bygrave’s (2001) algorithm of action choice, which considers how knowledge and experience influence entrepreneurial choice, with successful actions being repeated and unsuccessful actions rejected. Another is Petkova’s (2009) error-based learning model, which places emphasis on the role of cognitive functions in the detection and correction of errors. Social-experiential approaches shift attention from the individual, highlighting that learning is a social and interactive process, involving multiple actors (Wing Yan Man, 2012). Learning in this way is a process of co-participation (Taylor and Thorpe, 2004), demonstrated through Zhang and Hamilton’s (2009) research of formalised peer networks. Their process model of learning in peer networks shows how entrepreneurs learn by sharing experiences and problems, and then engaging in reflection to question their understanding and behaviours. Another example of a social-experiential approach is St-Jean and Audet’s (2012) research on mentoring. Their research showed that a more bespoke and personalised approach, such as entrepreneurs working with mentors who have had similar experiences to them, leads to an enhanced learning experience, including the acquisition of business management skills. While most research fits within one of these categories, there are studies that span two or three experiential learning approaches. These studies integrate learning mechanisms from the different experiential approaches, indicating the value of a more holistic view of learning. The studies that span multiple categories also draw attention to how entrepreneurial learning is both formal (facilitated as part of an official and structured programme), and informal (learner directed, and occurring in everyday situations with little structure). An example of formal entrepreneurial learning that spans more than one experiential

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learning category is action learning. Research on action learning in the entrepreneurial learning context focuses on learning as a social and iterative process of action, reflection and dialogue (Ram and Trehan, 2010; Revans, 2011; Stead, 2014). Involving engagement both in practice and with others within a formally structured process, action learning can be characterised as both practice experiential and social experiential. This demonstrates a shift away from the individualised practice-experiential approaches, while still maintaining a focus on practical experience. An example of informal entrepreneurial learning that spans more than one experiential learning category is the concept of learning sequences (Bingham and Davis, 2012). Learning sequences draw attention to the order in which informal learning processes occur (Bingham and Davis, 2012). These processes are either direct, involving active engagement in first-hand experience, or indirect, which involve learning from the experiences of others. This research shows that indirect learning processes, such as observation, can be used as a precursor to direct learning experiences (Hoover et al., 2012), such as trial and error, experimentation or improvisation, in a sequence termed seeding (Bingham and Davis, 2012). Alternatively, direct learning experiences can be used in a sequence with other direct learning experiences, which is termed soloing (Bingham and Davis, 2012). Direct learning processes are related to cognitive-experiential and practice-experiential approaches with an emphasis on the individual and making sense of his or her own experiences. Indirect processes, are connected to social-experiential approaches as emphasis is on the role of other people and learning vicariously from the experiences of others. This highlights an integration between the three experiential learning categories of entrepreneurial learning. Viewing learning in this way, where multiple experiential approaches come together, shifts from a view of entrepreneurial learning as tied to discrete types that work in isolation to a more dynamic, complex understanding where different forms of learning combine. This perspective better reflects entrepreneurial practice and portrays a richer overall learning experience. By combining the different forms of learning, entrepreneurs can draw from a wider range of experiences, making them better prepared to meet the challenges they face in running and growing their businesses.

WHAT ENTREPRENEURS LEARN Entrepreneurial learning has a variety of outcomes that contribute to entrepreneurial competency, knowledge and success. The outcomes are typically divided into three categories: cognitive (Cope, 2005; Lefebvre et al., 2015; St-Jean et al., 2018), affective (Lefebvre et al., 2015; St-Jean et al., 2018) and relational (Cope, 2005). Cognitive outcomes are those which influence thinking and acting, such as gaining knowledge of business strategies (Lefebvre et al., 2015), clarifying business vision (St-Jean et al., 2018) and understanding internal business needs (Cope, 2005). Affective outcomes are those that have an impact on feelings, with examples such as reduced feelings of isolation (Lefebvre et al., 2015; St-Jean et al., 2018) and increased confidence (Lefebvre et al., 2015). Relational outcomes refer to those that have an effect on personal and professional relationships, for example, entrepreneurs developing competencies to manage internal and external relationships (Cope, 2005).

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An important outcome of entrepreneurial learning is shaping an entrepreneur’s identity and, thus, that of their business. The entrepreneurial identity literature draws attention to how entrepreneurs find it difficult to separate themselves from their businesses (Navis and Glynn, 2011). Identity is multi-level (Leitch and Harrison, 2016; Navis and Glynn, 2011), encompassing ‘the founder (individual level), the proposed new venture (organizational level), and the focal institutional sector (market level)’ (Navis and Glynn, 2011: 481). The venture can be thought of as an extension of the entrepreneur, showing he or she is interwoven in the entrepreneurial identity. For the entrepreneur, this close integration with his or her business is compounded by a great sense of responsibility and a high level of risk and pressure (Bell et al., 2018). Examining the outcomes of entrepreneurial learning also demonstrates the interwoven relationship between the entrepreneur and his or her business. Learning has an effect at multiple levels; (1) the entrepreneur personally; (2) the venture strategically; and (3) the venture operationally. Although entrepreneurial learning outcomes may typically have one level of direct impact, they can also indirectly have an impact simultaneously on other levels. For example, the cognitive outcomes of gaining knowledge of business strategies can have a direct impact at the strategic level. It will also affect the entrepreneur on the personal level by adding to their stocks of knowledge and potentially changing their thought processes and mental models. Viewing learning outcomes as intertwined between the personal and the organisational levels is important for understanding entrepreneurial learning, since it demonstrates its complexity, and highlights the interconnectivity between the entrepreneur and his or her venture. Significantly, learning contributes to identity development as it impacts the entrepreneur personally. In turn, identity influences how entrepreneurs engage in practice through their actions and behaviours, their decision-making and, consequently, their learning. This demonstrates how entrepreneurial learning is an iterative, continual and dynamic process.

CONCLUSION Reviewing the literature reveals the complexity and multiplicity of entrepreneurial learning. It illustrates that entrepreneurs learn in multiple connected learning processes that include a variety of types of learning. Thus, the processes by which entrepreneurs learn cannot be considered in isolation from one another, and understanding entrepreneurial learning more comprehensively requires an integrated approach. This review also shows that the outcomes of learning are complex as they are intertwined between the entrepreneur and their venture, with implications for both. In doing so, the review reinforces how identity and learning are interconnected in the entrepreneurial context. A holistic approach, examining how and what entrepreneurs learn, may therefore better capture the complex, continual and dynamic nature of entrepreneurial learning. This enables a shift in focus from static and individual understandings that are bound by particular categories, to more social, integrative and fluid approaches that reflect more clearly entrepreneurial context and practice. Not only is this significant for theoretical developments and generating a fuller picture of entrepreneurial learning, it is also valuable for practice. Specifically, it can inform and enhance entrepreneurial education and formal entrepreneurial learning programmes in both content and design. For example,

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educators could facilitate peer discussions in which challenging questions are asked that require the entrepreneurs to think and reflect. Alternatively, educators could arrange for guest speakers to share their experiences, and then facilitate individual reflection activities for the entrepreneurs to learn from both their own direct experiences and the experiences of the guest speaker. An important aspect in both of these examples is for the facilitator/educator to make explicit the forms of learning engaged in by participants, and so connect the different ways by which the entrepreneurs can learn. By making explicit the connections between different forms of learning, programmes can help entrepreneurs to gain insight into how they can learn from both their own experiences and the experiences of others. An increased awareness can provide entrepreneurs with new learning tools for their development and for overcoming problems they face in their everyday practice.

REFERENCES Agbim, K.C., Z.B. Owutuamor and G.O. Oriarewo (2013), ‘Entrepreneurship development and tacit knowledge: exploring the link between entrepreneurial learning and individual know-how’, Journal of Business Studies Quarterly, 5 (2), 112–29. Bell, R., P. Liu, H. Zhan, D. Bozward, J. Fan, H. Watts, et al. (2018), ‘Exploring entrepreneurial roles and identity in the United Kingdom and China’, International Journal of Entrepreneurship and Innovation, 20 (1), 39–49. Bergh, P., S. Thorgren and J. Wincent (2011), ‘Entrepreneurs learning together: the importance of building trust for learning and exploiting business opportunities’, International Entrepreneurship and Management Journal, 7 (1), 17–37. Bingham, C.B. and J.P. Davis (2012), ‘Learning sequences: their existence, effect, and evolution’, Academy of Management Journal, 55 (3), 611–41. Brett, V., M. Mullally, B. O’Gorman and N. Fuller-Love (2012), ‘The role of action research in the development of learning networks for entrepreneurs’, Action Learning: Research and Practice, 9 (2), 125–43. Coetzer, A., H. Kock and A. Wallo (2017), ‘Distinctive characteristics of small businesses as sites for informal learning’, Human Resource Development Review, 16 (2), 111–34. Cope, J. (2005), ‘Toward a dynamic learning perspective of entrepreneurship’, Entrepreneurship Theory and Practice, 29 (4), 373–97. Cope, J. (2011), ‘Entrepreneurial learning from failure: an interpretative phenomenological analysis’, Journal of Business Venturing, 26 (6), 604–23. Cope, J. and G. Watts (2000), ‘Learning by doing – an exploration of experience, critical incidents and reflection in entrepreneurial learning’, International Journal of Entrepreneurial Behaviour & Research, 6 (3), 104–24. Corbett, A.C. (2005), ‘Experiential learning within the process of opportunity identification and exploitation’, Entrepreneurship Theory and Practice, 29 (4), 473–91. Dada, O. and H. Fogg (2016), ‘Organizational learning, entrepreneurial orientation, and the role of university engagement in SMEs’, International Small Business Journal, 34 (1), 86–104. Deakins, D. and M. Freel (1998), ‘Entrepreneurial learning and the growth process in SMEs’, The Learning Organization, 5 (3), 144–55. Deakins, D. and J. Wyper (2010), ‘A longitudinal and dynamic approach to entrepreneurial learning’, New Zealand Journal of Employment Relations, 35 (1), 35–47. Harrison, R.T. and C.M. Leitch (2005), ‘Entrepreneurial learning: researching the interface between learning and the entrepreneurial context’, Entrepreneurship Theory and Practice, 29 (4), 351–71. Holcomb, T.R., R.D. Ireland, R.M. Holmes Jr and M.A. Hitt (2009), ‘Architecture of entrepreneurial learning: exploring the link among heuristics, knowledge, and action’, Entrepreneurship Theory and Practice, 33 (1), 167–92. Hoover, J.D., R.C. Giambatista and L.Y. Belkin (2012), ‘Eyes on, hands on: vicarious observational learning  as an enhancement of direct experience’, Academy of Management Learning & Education, 11 (4), 591–608. Jones, K., S.A. Sambrook, L. Pittaway, A. Henley and H. Norbury (2014), ‘Action learning: how learning transfers from entrepreneurs to small firms’, Action Learning: Research and Practice, 11 (2), 131–66. Keith, N., J.M. Unger, A. Rauch and M. Frese (2016), ‘Informal learning and entrepreneurial success: a longitudinal study of deliberate practice among small business owners: informal learning in entrepreneurs’, Applied Psychology, 65 (3), 515–40.

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Kolb, D.A. (1984), Experiential Learning: Experience as a Source of Learning and Development, Englewood Cliffs, NJ: Prentice-Hall. Lans, T., H. Biemans, J. Verstegen and M. Mulder (2008), ‘The influence of the work environment on entrepreneurial learning of small-business owners’, Management Learning, 39 (5), 597–613. Lefebvre, V., M. Radu Lefebvre and E. Simon (2015), ‘Formal entrepreneurial networks as communities of practice: a longitudinal case study’, Entrepreneurship & Regional Development, 27 (7–8), 500–525. Leitch, C.M. and R.T. Harrison (2016), ‘Identity, identity formation and identity work in entrepreneurship: conceptual developments and empirical applications’, Entrepreneurship & Regional Development, 28 (3–4), 177–90. Löbler, H. (2006), ‘Learning entrepreneurship from a constructivist perspective’, Technology Analysis & Strategic Management, 18 (1), 19–38. McKeown, I. (2015), ‘Entrepreneurial learning in small firm management teams’, in D. Rae and C. Wang (eds), Entrepreneurial Learning: New Perspectives in Research, Education and Practice, Abingdon and New York: Routledge, pp. 178–93. Minniti, M. and W.D. Bygrave (2001), ‘A dynamic model of entrepreneurial learning’, Entrepreneurship Theory and Practice, 25 (3), 5–17. Morris, M.H., D.F. Kuratko, M. Schindehutte and A.J. Spivack (2012), ‘Framing the entrepreneurial experience’, Entrepreneurship Theory and Practice, 36 (1), 11–40. Navis, C. and M.A. Glynn (2011), ‘Legitimate distinctiveness and the entrepreneurial identity: influence on investor judgments of new venture plausibility’, Academy of Management Review, 36 (3), 479–99. Petkova, A.P. (2009), ‘A theory of entrepreneurial learning from performance errors’, International Entrepreneurship and Management Journal, 5 (4), 345–67. Pittaway, L.A., J. Gazzard, A. Shore and T. Williamson (2015), ‘Student clubs: experiences in entrepreneurial learning’, Entrepreneurship & Regional Development, 27 (3–4), 127–53. Politis, D. (2005), ‘The process of entrepreneurial learning: a conceptual framework’, Entrepreneurship Theory and Practice, 29 (4), 399–424. Rae, D. and M. Carswell (2001), ‘Towards a conceptual understanding of entrepreneurial learning’, Journal of Small Business and Enterprise Development, 8 (2), 150–58. Ram, M. and K. Trehan (2010), ‘Critical action learning, policy learning and small firms: an inquiry’, Management Learning, 41 (4), 415–28. Revans, R.W. (2011), ‘Action learning: its origins and nature’, in M.J. Pedler (ed.), Action Learning in Practice, Farnham and Burlington, VT: Gower, pp. 5–13. Soetanto, D. (2017), ‘Networks and entrepreneurial learning: coping with difficulties’, International Journal of Entrepreneurial Behavior & Research, 23 (3), 547–65. St-Jean, E. and Audet, J. (2012), ‘The role of mentoring in the learning development of the novice entrepreneur’, International Entrepreneurship and Management Journal, 8 (1), 119–40. St-Jean, E., M. Radu-Lefebvre and C. Mathieu (2018), ‘Can less be more? Mentoring functions, learning goal orientation, and novice entrepreneurs’ self-efficacy’, International Journal of Entrepreneurial Behavior & Research, 24 (1), 2–21. Stead, V. (2014), ‘The gendered power relations of action learning: a critical analysis of women’s reflections on a leadership development programme’, Human Resource Development International, 17 (4), 416–37. Taylor, D.W. and R. Thorpe (2004), ‘Entrepreneurial learning: a process of coparticipation’, Journal of Small Business and Enterprise Development, 11 (2), 203–11. Tseng, C. (2013), ‘Connecting self-directed learning with entrepreneurial learning to entrepreneurial performance’, International Journal of Entrepreneurial Behavior & Research, 19 (4), 425–46. Van Gelderen, M., L. van der Sluis and P. Jansen (2005), ‘Learning opportunities and learning behaviours of small business starters: relations with goal achievement, skill development and satisfaction’, Small Business Economics, 25 (1) 97–108. Wang, C.L. and H. Chugh (2014), ‘Entrepreneurial learning: past research and future challenges: advancing entrepreneurial learning research’, International Journal of Management Reviews, 16 (1), 24–61. Wing Yan Man, T. (2012), ‘Developing a behaviour-centred model of entrepreneurial learning’, Journal of Small Business and Enterprise Development, 19 (3), 549–66. Zhang, J. and E. Hamilton (2009), ‘A process model of small business owner-managers’ learning in peer networks’, Education + Training, 51 (8–9), 607–23. Zheng, W., M. Xu, X. Chen and Y. Dong (2017), ‘Who is shaping entrepreneurial experience? A multiple case study of Chinese entrepreneurial learning’, Management Decision, 55 (7), 1394–409.

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18. Entrepreneurial networks

Howard E. Aldrich, Martin Ruef and Steven Lippmann

Social networks play a significant role in many facets of organizational emergence. Indeed, the larger network structure in which entrepreneurs are embedded constitutes a sizeable portion of their opportunity structure. Entrepreneurs’ personal networks – the set of persons to whom they are directly linked – affect their access to social, emotional and material support. It is commonly accepted that many efforts to initiate new startups are heavily reliant on networks and teams, rather than being based on true, solo entrepreneurs. For instance, more than half of American entrepreneurs share ownership with others in their business startups. Fully 95 percent of the individuals who are trying to start a business either have involved others to help in some significant capacity or intend to do so soon (Ruef, 2010). Network analysts distinguish between two complementary dimensions of someone’s social relations: (1) their diversity or heterogeneity, and (2) their affective or emotional strength. The usefulness of any relationship is context dependent. In the context of entrepreneurial networks, people need access to information and other resources. Thus, multiple diverse contacts are important, no matter what their strength. Regardless of their personal networking abilities, entrepreneurs who occupy impoverished social locations may find themselves cut off from valuable knowledge and critical resources. We first explain why diversity in social relations may convey advantages to entrepreneurs, and then consider the contribution of relational strength to entrepreneurial action.

THE IMPORTANCE OF DIVERSITY Diversity in network ties is crucial for entrepreneurs because diversity increases access to a wider circle of information about potential markets, new business locations, innovations, sources of capital, and potential investors. By diversity we mean ties to persons of differing social locations and characteristics, along a variety of dimensions: gender, age, occupation, industry, ethnicity and so on. Diversity depends on the range of sectors through which an entrepreneur moves. Ties can be bridges between sectors where an entrepreneur currently has no direct ties (Granovetter, 1973). Social ties that connect entrepreneurs to novel resources or information contribute to network diversity. Diversity also depends on the number of structural holes in an entrepreneur’s network. Structural holes exist when persons to whom entrepreneurs are linked are not themselves connected to one another (Burt, 1992). For example, an entrepreneur may have direct ties to a banker in the financial sector and an accountant in the professional services sector, neither of whom knows the other. A network made up of homogenous ties may be of limited value to an entrepreneur. In homogeneous networks, information known to one person is rapidly diffused to others and interpreted in similar ways. Two forces promote homogeneity in personal 151

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networks. First, people tend to associate with others who have similar social characteristics (McPherson et al., 2001), a process termed homophily. Second, people tend toward emotional and personal balance across their social relationships (Rawlings and Friedkin, 2017). For example, an entrepreneur’s strong friendship with someone increases the likelihood of that person becoming friendly with other persons strongly linked to the entrepreneur. Thus, if an entrepreneur has a lawyer as a close friend, and that lawyer has a bank loan officer as close friend, then the entrepreneur is also likely to become friendly with the loan officer. As ties to the same types of people accumulate, the marginal value of each successive tie drops. Ties to more than one person with similar characteristics or in similar social locations are redundant and thus of questionable value in providing additional information. An entrepreneur gains little additional information from talking to more than one person, if all of them are in nearly identical social locations or share many characteristics in common. For this reason, Burt (1992) argued when it comes to the flow of information, the strength of ties is less important than whether they are non-redundant with other ties. For example, using a sample of Chinese entrepreneurs, Burt (2019a, 2019b) found that those with relatively open networks achieved higher performance than those with relatively closed networks.

THE IMPORTANCE OF TIE STRENGTH The types of relationships that make up a person’s total set of relationships can be classified according to the strength of the relationship: strong, weak and indeterminate or fluctuating (dealing with complete strangers). A network’s level of diversity depends, in part, upon the mix of strong and weak ties. Models of entrepreneurship and business life cycles emphasize the context-dependent nature of the three types of relation. For entrepreneurs seeking to mobilize resources in the initial stages of business development, strong and weak ties may be more important than contacts with strangers. Later, when a newly founded organization has achieved some stability, arm’s-length transactions and contacts with strangers assume more importance. The most reliable relationships in a personal network are strong ties, which are usually of long duration. People rely on strong ties for advice, assistance and support in all areas of their lives, such as asking for help in dealing with an ethical dilemma at work or asking someone to watch their children at short notice. They are long-term, two-way relationships, not governed by short-term calculations of self-interest. Many contain an implicit principle of reciprocal obligations. Consequently, strong ties are typically more reliable than other ties and involve a strong degree of trust and emotional closeness (Granovetter, 1993). Individuals tend to make heavy investments in this type of relationship, requiring frequent direct contacts with the other person. However, a large-scale project using multiple datasets from a diverse set of nations suggested that indirect ties involving long path distances could still support strong relationships between people (Park et al., 2018). Owing to the effort involved in creating and sustaining a strong tie, scholars have estimated that most people only have a few strong ties in their personal networks, though there has been a great deal of debate about potential declines in core discussion networks (McPherson et al., 2006; Fischer, 2009). Researchers have found that the exact number of

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Entrepreneurial networks 153 strong ties reported is sensitive to how people are asked to think about their relationships (Bearman and Parigi, 2004). In research on entrepreneurial networks, investigators typically find that most business owners report three to 10 strong ties, for example, Aldrich et al. (1989). Results from studies inside organizations have produced similar figures (Hmieleski et al., 2015). Attempting to manage large numbers of ties may produce role strain, though gains from extensive ties with others may outweigh the costs. A business owner’s strong tie network usually consists of a majority of close business associates, a few friends and one or two family members (Elfring and Hulsink, 2007). For example, a sample of Swedish family businesses found that the children of entrepreneurs were the most prevalent form of familial relationship within these firms between 2002 and 2012 (Adjei et al., 2019), embedding the firm within strong tie relationships. Strong ties provide a sheltered sector within which entrepreneurs can avoid the opportunism and uncertainty otherwise possible in market-mediated transactions. In social situations where people expect to deal with each other over an extended period, strong ties yield three benefits: trust, predictability and voice. Trust tells founders whom they can count on in demanding situations, and it substantially enhances predictability in relations. Predictability refers to how the other party will behave if situations change. Finally, using voice in a relationship means the persons involved will make their complaints known and negotiate over them, instead of silently sneaking away. Taken together, these characteristics of strong ties allow entrepreneurs to think through ideas, express concerns and regrets, and plan with others over longer periods of time. Long-term relationships enhance these benefits, increasing the likelihood of further interaction. Increased frequency of contact, in turn, carries many benefits. Through frequent contacts, strong bonds develop, tacit knowledge is transferred and each party develops more informal control over the other (Llerena and Ozman, 2013). Strong ties with family members often do not translate into financial support from them. Nationally representative data as well as community studies show that, with the possible exception of spouses, only founders from a handful of ethnic minority groups can count on much financial support from family members (Ruef, 2010). Family members, as strong ties, provide emotional support for entrepreneurs, but often they are not able to supply capital. Indeed, too great a reliance on family members may put entrepreneurs at a disadvantage (Renzulli, 1998). A panel study in the Research Triangle Area of North Carolina found that the greater the proportion of kin members in an entrepreneur’s business discussion network, the lower the odds of that person starting a business (Renzulli et al., 2000). Institutional and organizational contexts may also affect the salience of family ties. In Turkey, larger families are more beneficial to female entrepreneurs, as they are in a better position to pass along financial and social capital (Cetindamar et al., 2012). In late imperial Russia (1869–1913), Hillmann and Aven (2011) found that strong ties were more beneficial for small firms in local markets, as they helped to foster positive reputations. However, for larger firms targeting national markets, a more diverse mix of weak ties led to better performance. In 2004, the Swedish government abolished inheritance and gift tax, making it easier to pass businesses on to the next generation, thus indirectly enhancing the strength of intergenerational ties (Adjei et al., 2019). Whereas strong ties are based on trust, weak ties are superficial or casual and normally involve little emotional investment. Weak-tie relationships are typically of shorter duration

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and involve lower frequency of contact. They are also less reliable and more uncertain than strong ties, and often fade into dormancy, although they can be revived when assistance is required. They can be thought of as arm’s-length relationships, involving persons whose handshake we seek but whose full support we cannot count on. Entrepreneurs’ sets of weak ties are less likely to be homogeneous than their sets of strong ties. Individuals have more weak ties than strong ties. Examples of weak ties include relationships with customers or clients who are known on a first-name basis but with whom interactions are still business-like. In contrast to strong ties, weak ties are more likely to be characterized by opportunism, uncertainty and exit. Opportunism is potentially present in typical market-like transactions that are driven by self-interest and involve little or no room for trust. Uncertainty in a tie stems from difficulty in predicting a partner’s actions. Exit is often the route taken by people faced with opportunism and uncertainty. Going elsewhere to complete a transaction involving a weak tie is easier than struggling in negotiations for a better deal (Hirschman, 1970). However, conditions of high transactionspecific investments inhibit exit. A third type of network relationship can better be described as contacts rather than ties. These types of network relations are created for pragmatic purposes with strangers or individuals with whom entrepreneurs have no prior relations. Contacts with strangers are typically fleeting in duration and require little or no emotional involvement. An example of a contact with a stranger would be buying a piece of equipment from a person who advertised in a trade publication. The Association between Diversity and Tie Strength In contrast to strong ties, people are less concerned with balance in their large circle of weak ties. The persons with whom we have weak ties, such as casual acquaintances, are less likely to know each other than are those with whom we have strong ties, such as close friends. Heterogeneity is both more likely and more tolerated among our weak ties. Contacts with casual acquaintances that are different from the entrepreneur can be links to diverse others, each of whom has a close circle of persons unknown to the entrepreneur. If these strangers have information or resources of value, then entrepreneurs can gain access to them indirectly through the diversity of their weak ties. They could also accomplish the same goal by diversifying their strong ties, but that requires very intense and often unsettling maneuvering (Burt, 1992). We would thus expect successful entrepreneurs to emerge from positions that are connected to diverse information sources, as well as from positions benefiting from a reliable set of strong ties. Indeed, Ruef (2002) found that network diversity – a mix of strong ties, weak ties and contacts – tended to promote innovation in a sample of entrepreneurs who had graduated from a US business school.

SOCIAL NETWORKS AND GENDER The historical under-representation of women in ownership is clearly linked to their exclusion from men’s business discussion networks (Carter, 1994). If women do not occupy key posts in banks, investment firms and other financially significant positions, then the odds of men encountering them in daily business relationships are reduced. In the Panel Study

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Entrepreneurial networks 155 of Entrepreneurial Dynamics II (PSED II) sample, women were only about 60 percent as likely as men to be entrepreneurs (Ruef, 2010). Founding rates for women-owned businesses in Western Europe are also substantially lower than the rates for those that are men owned. In 2012, about 29 percent of entrepreneurs in Europe were women, varying from a low of about 20 percent in Ireland to about 38 percent in Portugal. Men’s inclusion of mostly other men in their networks reflects the societal distribution of power and ownership positions, as well as the tendency of men to choose others like themselves (Kanter, 1977). For example, research in the 1980s and 1990s in the US, Canada, Italy, Northern Ireland, Japan, Sweden and Norway found that male business owners seldom had women in their strong tie circles (Aldrich et al., 1989; Aldrich and Sakano, 1998), with spouses constituting one notable exception (Ruef et al., 2003). Moreover, when women co-found businesses with their husbands, they have a lower likelihood of occupying a leadership position in the venture, as gendered roles and expectations spill over from family life into startup team dynamics (Yang and Aldrich, 2014). In the past, a lower labor force participation rate, combined with occupational sex segregation, kept women out of many high-paying jobs (Rosenfeld, 1992). As employment opportunities improved, women have founded businesses at a far higher rate than in earlier generations, raising the likelihood that men’s business discussion networks will change. Businesses that were majority owned by women grew from less than 5 percent in 1970 to almost 39 percent by 2012 (Danti, 2014). If firms owned equally by men and women are included, the percentage jumped to about 45 percent in 2012. The growth of voluntary associations dedicated to business networking among women has also substantially raised the visibility of women owners in the business community (Davis et al., 2006).

SOCIAL NETWORKS AND ETHNICITY Rates of entrepreneurship vary substantially across ethnic groups, as members of dissimilar demographic groups occupy vastly different structural positions, including their social network context (Aldrich and Waldinger, 1990; Ram et al., 2017). A group’s representation among entrepreneurs may be highly dependent upon the era in which they emigrate to a host society and on the reception they receive. For example, in the late nineteenthand early twentieth-century US, some socially marginal ethnic or religious groups, such as Japanese or Jewish immigrants, represented a far greater proportion of the entrepreneurial population than of the general population. These groups immigrated during eras when economic opportunities were expanding, but found their paths blocked in nearly all directions except for small-business ownership. Those barriers may also be reflected in the link between human capital and immigrant entrepreneurship. Asian immigrants to the US in the 1970s and 1980s experienced a positive relationship between education and self-employment, but that relationship became negative for Asian immigrants after 1990, when they faced fewer disadvantages in the mainstream labor market (Min and Kim, 2018). Ethnic solidarity and networking capacity have facilitated business ownership for many immigrant groups (Light, 2005). Groups have benefited from a strong internal market for finding business opportunities and raising capital. For example, in Zimmer and Aldrich’s (1987) study of businesses in three English cities, only about half of the owners relied

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upon formal channels for information about the site they eventually chose for their business. Regarding capital, Asians drew on family and friends to a far greater extent than whites in raising funds for their business. With multiple sources of capital available, Asians appeared less isolated in their social networks than whites. Given trends in globalization, immigrant social networks now develop transnationally, as well as locally. Transnational entrepreneurs are individuals who often travel abroad for their enterprises and believe that the success of those enterprises depends on regular ties with foreign countries (Drori et al., 2009). In their study of transnational entrepreneurs in Italy, Brzozowski et al. (2017) found that immigrants in Italy with stronger ties to co-ethnics were more likely to be entrepreneurs. In addition, those with stronger ties to their home country were more persistent in their efforts. In their comparative analysis of immigrant groups in the US, Zhou and Liu (2015) argued that rapid growth in Chinese immigration to the US promoted deeper localization among immigrants and created more opportunities for Chinese entrepreneurs compared with other Asian immigrant groups. In contrast to many immigrant groups, African Americans in the US have faced more systematic barriers to business ownership, including severe residential segregation (Romero and Valdez, 2016). African Americans are not themselves a traditional immigrant group, given the conditions under which they were brought to the US. However, the great northward migration of African Americans, starting at the end of World War I, created conditions at their destinations that resembled those of European and Asian groups. Even after African-American owners established a foothold in some economic niches, many thriving business networks were disrupted and ultimately broken up by foreign immigration and white hostility. For example, attacks by white mobs and law enforcement officials destroyed the black business districts of Wilmington, North Carolina in 1898 and Tulsa, Oklahoma in 1921. Since then, African-American owners have made some gains, but their self-employment levels are still below those for many groups that have immigrated to the US since the 1960s (Lofstrom and Bates, 2013).

COMMUNITY SOCIAL CAPITAL Most research on social capital considers the benefits that accrue to individual entrepreneurs by analyzing how individuals and teams benefit from the people with whom they have social ties. However, a growing body of research considers social capital at the community level. These studies focus on the overall level of social cohesion and integration in various social and geographic groups, and consider how connections between members affect social outcomes. Connections between members serve two purposes: bonding, or a strengthening of trust between people with similar social characteristics, and bridging, or creating relationships and trust between people from different groups (Ruef and Kwon, 2016). Social capital at the community level can lead to a variety of positive outcomes, including better health, lower crime, collective action and economic development (Kwon and Adler, 2014). One important source of this economic development is entrepreneurship. High levels of social capital, which are facilitated by social or generalized trust, help entrepreneurs in two ways (Kwon et al., 2013). The first is by facilitating the free flow of information and

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Entrepreneurial networks 157 resources among individuals without direct social ties. The second is through fostering reputation and legitimacy in new organizations (Aldrich and Fiol, 1994). Social capital can also reduce the level of risk, which makes financing easier for entrepreneurs. For example, Samila and Sorenson (2017) found that communities with higher levels of racial integration generated more novel ideas and inventions and, as a consequence, attracted more venture capital dollars. Community-level social capital is an important part of ‘entrepreneurial ecosystems’, the social, cultural, institutional and economic features of local environments that foster entrepreneurship (Pitelis, 2012). The presence of entrepreneurs, venture capitalists, mentors and a deep pool of talented labor characterizes entrepreneurial ecosystems. Dense social networks facilitate the flow of these people and resources to create regions vibrant with entrepreneurship (Lippmann and Aldrich, 2016). Several comparative case studies have revealed how networks play an important part in entrepreneurial outcomes at the regional level, including Saxenian’s (1994) study of innovation in Silicon Valley and the Route 128 corridor near Boston, and Spigel’s (2017) analysis of Waterloo, Ontario and Calgary, Alberta. Social networks affect organizational emergence by structuring the context in which entrepreneurs must act. Disadvantaged network circumstances limit entrepreneurial possibilities for many people. Entrepreneurs who occupy advantageous social locations have access to emerging opportunities and critical resources, whereas those in impoverished locations must rely far more on their personal networking abilities. Regardless of their structural positions, the use of brokers and other networking strategies enables some founders to increase their access to resources and opportunities. Initial access only allows entrepreneurs to begin the founding process, however. They must also obtain knowledge and find ways to turn it into a promising venture.

REFERENCES Adjei, E.K., R.H. Eriksson, U. Lindgren and E. Holm (2019), ‘Familial relationships and firm performance: the impact of entrepreneurial family relationships’, Entrepreneurship and Regional Development, 31 (5–6), 357–77. Aldrich, H.E., P.R. Reese and P. Dubini (1989), ‘Women on the verge of a breakthrough: networking among entrepreneurs in the United States and Italy’, Entrepreneurship & Regional Development, 1 (4), 339–56. Aldrich, H.E. and C.M. Fiol (1994), ‘Fools rush in? The institutional context of industry creation’, Academy of Management Review, 19 (4), 645–70. Aldrich, H.E. and T. Sakano (1998), ‘Unbroken ties: how the personal networks of japanese business owners compare to those in other nations’, in M. Fruin (ed.), Networks and Markets: Pacific Rim Investigations, New York: Oxford University Press, pp. 32–52. Aldrich, H.E. and R. Waldinger (1990), ‘Ethnicity and entrepreneurship’, Annual Review of Sociology, 16 (1), 111–35. Bearman, P. and P. Parigi (2004), ‘Cloning headless frogs and other important matters: conversation topics and network structure’, Social Forces, 83 (2), 535–57. Brzozowski, J., M. Cucculelli and A. Surdej (2017), ‘The determinants of transnational entrepreneurship and transnational ties’ dynamics among immigrant entrepreneurs in ICT sector in Italy’, International Migration, 55 (3), 105–25. Burt, R.S. (1992), Structural Holes: The Social Structure of Competition, Cambridge, MA: Harvard University Press. Burt, R.S. (2019a), ‘Network disadvantaged entrepreneurs: density, hierarchy, and success in China and the West.’ Entrepreneurship Theory and Practice, 43 (1), 19–50. Burt, R.S. (2019b), ‘The Networks and success of female entrepreneurs in China.’ Social Networks, 58 (July), 37–49.

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Carter, N.M. (1994), ‘Reducing barriers between genders: differences in new firm start-ups’, paper presented at the Annual Meeting of the Academy of Management Dallas, TX, 14–17 August. Cetindamar, D., V.K. Gupta, E.E. Karadeniz and N. Egrican (2012), ‘What the numbers tell: the impact of human, family and financial capital on women and men’s entry into entrepreneurship in Turkey’, Entrepreneurship & Regional Development, 24 (1–2), 29–51. Danti, A. (2014), Statistical Data on Women Entrepreneurs in Europe, Brussels: European Commission. Davis, A.E., L.A. Renzulli and H.E. Aldrich (2006), ‘Mixing or matching? The influence of voluntary associations on the occupational diversity and density of small business owners’ networks’, Work and Occupations, 33 (1), 42–72. Drori, I., B. Honig and M. Wright (2009), ‘Transnational entrepreneurship: an emergent field of study’, Entrepreneurship Theory and Practice, 33 (5), 1001–22. Elfring, T. and W. Hulsink (2007), ‘Networking by entrepreneurs: patterns of tie-formation in emerging organizations’, Organization Studies, 28 (12), 1849–72. Fischer, C.S. (2009), ‘The 2004 GSS finding of shrunken social networks: an artifact?’, American Sociological Review, 74 (4), 657–69. Granovetter, M. (1993), ‘The Nature of Economic Relationships’, in R. Swedberg (ed.), Explorations in Economic Sociology, New York: Russell Sage Foundation, pp. 3–41. Granovetter, M.S. (1973), ‘The strength of weak ties’, American Journal of Sociology, 78 (6), 1360–80. Hillmann, H. and B. L. Aven (2011), ‘Fragmented networks and entrepreneurship in late imperial Russia’, American Journal of Sociology, 117 (2), 484–538. Hirschman, A.O. (1970), Exit, Voice, and Loyalty: Responses to Decline in Firms, Organizations, and States, Cambridge, MA: Harvard University Press. Hmieleski, K.M., J.C. Carr and R.A. Baron (2015), ‘Integrating discovery and creation perspectives of entrepreneurial action: the relative roles of founding CEO human capital, social capital, and psychological capital in contexts of risk versus uncertainty’, Strategic Entrepreneurship Journal, 9 (4), 289–312. Kanter, R.M. (1977), Men and Women of the Corporation, New York: Basic Books. Kwon, S.-W. and P.S. Adler (2014), ‘Social capital: maturation of a field of research’, Academy of Management Review, 39 (4), 412–22. Kwon, S.-W., C. Heflin and M. Ruef (2013), ‘Community social capital and entrepreneurship’, American Sociological Review, 78 (6), 980–1008. Light, I. (2005), ‘The ethnic economy’, in N.J. Smelser and R. Swedberg (eds), Handbook of Economic Sociology, Princeton, NJ: Princeton University Press, pp. 650–77. Lippmann, S. and H.E. Aldrich (2016), ‘A rolling stone gathers momentum: generational units, collective memory, and entrepreneurship’, Academy of Management Review, 41 (4), 658–75. Llerena, P. and M. Ozman (2013), ‘Networks, irreversibility and knowledge creation.’ Journal of Evolutionary Economics, 23 (2), 431–53. Lofstrom, M. and T. Bates (2013), ‘African Americans’ pursuit of self-employment’, Small Business Economics, 40 (1), 73–86. McPherson, M., L. Smith-Lovin and M.E. Brashears (2006), ‘Social isolation in America: changes in core discussion networks over two decades’, American Sociological Review, 71 (3), 353–75. McPherson, M., L. Smith-Lovin and J.M. Cook (2001), ‘Birds of a feather: homophily in social networks’, Annual Review of Sociology 27 (1), 415–44. Min, P.G. and C. Kim (2018), ‘The changing effect of education on Asian immigrants’ self-employment’, Sociological Inquiry, 88 (3), 435–66. Park, P.S., J.E. Blumenstock and M.W. Macy (2018), ‘The strength of long-range ties in population-scale social networks’, Science, 362 (6421), 1410–13. Pitelis, C. (2012), ‘Clusters, entrepreneurial ecosystem co-creation, and appropriability: a conceptual framework’, Industrial and Corporate Change, 21 (6), 1359–88. Ram, M., T. Jones and M. Villares-Varela (2017), ‘Migrant entrepreneurship: reflections on research and practice’, International Small Business Journal, 35 (1), 3–18. Rawlings, C.M. and N.E. Friedkin (2017), ‘The structural balance theory of sentiment networks: elaboration and test’, American Journal of Sociology, 123 (2), 510–48. Renzulli, L.A. (1998), ‘Small business owners, their networks, and the process of resource acquisition’, PhD dissertation, Sociology Department, University of North Carolina at Chapel Hill, NC. Renzulli, L.A., H. Aldrich and J. Moody (2000), ‘Family matters: gender, networks, and entrepreneurial outcomes’, Social Forces, 79 (2), 523–46. Romero, M. and Z. Valdez (2016), ‘Introduction to the special issue: intersectionality and entrepreneurship’, Ethnic and Racial Studies, 39 (9), 1553–65. Rosenfeld, R.A. (1992), ‘Job mobility and career processes’, Annual Review of Sociology, 18 (1), 39–61. Ruef, M. (2002), ‘Strong ties, weak ties and islands: structural and cultural predictors of organizational innovation’, Industrial & Corporate Change, 11 (3), 427–49.

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Entrepreneurial networks 159 Ruef, M. (2010), The Entrepreneurial Group: Social Identities, Relations, and Collective Action, Princeton, NJ: Princeton University Press. Ruef, M. and S.-W. Kwon (2016), ‘Neighborhood associations and social capital’, Social Forces, 95 (1), 159–90. Ruef, M., H.E. Aldrich and N.M. Carter (2003), ‘The structure of founding teams: homophily, strong ties, and isolation among U.S. entrepreneurs’, American Sociological Review, 68 (2), 195–222. Samila, S. and O. Sorenson (2017), ‘Community and capital in entrepreneurship and economic growth’, American Sociological Review, 82 (4), 770–95. Saxenian, A. (1994), Regional Advantage: Culture and Competition in Silicon Valley and Route 128, Cambridge, MA: Harvard University Press. Spigel, B. (2017), ‘The relational organization of entrepreneurial ecosystems’, Entrepreneurship Theory and Practice, 41 (1), 49–72. Yang, T. and H.E. Aldrich (2014), ‘Who’s the boss? Explaining gender inequality in entrepreneurial teams’, American Sociological Review, 79 (2), 303–27. Zhou, M. and H. Liu (2015), ‘Transnational entrepreneurship and immigrant integration: new Chinese immigrants in Singapore and the United States’, in J.A. Vallejo (ed.), Immigration and Work, Bingley: Emerald Group, pp. 169–201. Zimmer, C. and H. Aldrich (1987), ‘Resource mobilization through ethnic networks’, Sociological Perspectives, 30 (4), 422–45.

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19. Entrepreneurial sense-making, sense-breaking and sense-demanding Gabi A. Kaffka and Norris Krueger

Cognitive differences at the individual level may determine how entrepreneurs execute entrepreneurial tasks (Forbes, 2005). Extant studies have focused mainly on the consequences of entrepreneurs possessing and leveraging particular cognitive abilities (Grégoire et al., 2011). Meanwhile, the mere performance of entrepreneurial action has an effect on an entrepreneur’s cognition, whether it be decision-making under uncertainty, pattern recognition or prototype building (Baron and Ensley, 2006; McMullen and Shepherd, 2006; McKelvie et al., 2011), drawing attention to the cause of entrepreneurial cognitive development. This cause versus consequence focus is described as an enduring conundrum within the entrepreneurial cognition literature (Grégoire et al., 2011). To address this conundrum researchers have called for more attention to be paid to dynamic processes related to entrepreneurial cognition (Mitchell et al., 2011), such as the role of third parties as these affect the development of entrepreneurial cognition (Ozgen and Baron, 2007).

SOCIALLY SITUATED COGNITION AND SENSE-MAKING Recognizant of the role of the social context in entrepreneurial cognition, Mitchell et al. (2011) conceptualized entrepreneurial cognition as socially situated. Socially situated cognition (SSC) sees cognition as action-orientated, embodied, situated and distributed. Socially situated cognition emphasizes the distributed nature of cognitive development, namely, other actors as sources of information and knowledge who can be leveraged in respect of that (Haynie et al., 2010; Dew et al., 2015). The enactive perspective in cognitive science states that cognition is grounded in the sense-making of actors (Thompson, 2007; Thompson and Stapleton, 2009). The distributed nature of cognitive development is characteristic of what Weick (1995) described as the sense-making perspective of human (inter)action. Sense-making organizes the flux of impressions and perceptions from sensory input. Sense-making assumes the existence of a socially constructed reality while recognizing individual interpretative processes (Maitlis and Christianson, 2014). Similarly to SSC, ‘[s]ensemaking is about the interplay of action and interpretation . . . When action is the central focus, interpretation . . . is the central phenomenon’ (Weick et al., 2005: 409). In the sense-making perspective, interpretation involves noticing, bracketing and labelling of specific sensory input (Weick, 1995). The sense-making perspective as well as SSC share a concern for the interactive nature of entrepreneurial cognition; for example, the enactment of reality and the embedding of concepts in dominant stories of the organization recognized by internal or external stakeholders. Both perspectives assume that cognition is not developed in isolation but through 160

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the interaction of the entrepreneurs with (market) actors, as illustrated, for example, by Ozgen and Baron (2007) and Lim et al. (2013).

THE ROLE OF SENSE-MAKING PROCESSES IN FEEDBACK LOOPS Third parties are important to entrepreneurial activities because they provide knowledge that is relevant to business opportunity development. To obtain this knowledge, entrepreneurs engage in feedback loops with relevant stakeholders, for example, investors, informal network or first customers (Santos and Eisenhardt, 2005; Ozgen and Baron, 2007; Zott and Huy, 2007; Cornelissen and Clarke, 2010; Clarke and Cornelissen, 2011). The sense-making perspective offers a valuable conceptualization of entrepreneurial cognitive development, particularly through the analysis of feedback loops that entrepreneurs engage in with third parties. Three elements help explain mechanisms by which feedback loops affect entrepreneurial sense-making and ultimately cognitive development: sense-giving, sense-demanding and sense-breaking. We address each element in turn. Sense-giving Sense-giving has been a broadly recognized and researched concept in organizational and entrepreneurship studies (Hill and Levenhagen, 1995; Weick, 2005; Cornelissen et  al., 2012). [It] consists of acts by which individuals attempt to alter and influence the way others think and act; . . . frame and disseminate visions and beliefs to others so as to increase their understanding and support; may include offering descriptions and explanations, providing signals, constructing credible and consistent narratives, and projecting images through stories, slogans, metaphors, and artifacts, (Vlaar et al., 2008: 240)

and meetings to explain key initiatives and hypothetical scenario presentations (Vlaar et al., 2008). Sense-giving is associated with communicating that representation of reality to others in order to gain their support (Hill and Levenhagen, 1995). The concept of sense-giving is associated with an individual’s reaction to broken-down logics in a social context and with ways of fixing those breakdowns. However, it does not offer explanations as to how that breaking down occurs initially. Sense-breaking Sense-breaking involves the creation of a meaning void that must be filled (Pratt, 2000). It is a process in which someone’s understanding is disrupted by contradictory evidence or values provided by others in the process of sense-making (Pratt, 2000; Vlaar et al., 2008). Sense-breaking, according to Vlaar et al. (2008: 241) is a process ‘used to question existing understandings of others’ and involves ‘the reframing of previously held conceptions and redirecting . . . attention and search for solutions’. Sense-breaking pertains to negative or critical feedback from other parties about the

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entrepreneurial idea. This feedback is geared towards change or improvement of that idea. In this way, sense-breaking facilitates the adding of new or different dots when ‘connecting the dots’ (Baron, 2004; Baron and Ensley, 2006) for the realization of a viable business opportunity. Sense-demanding Sense-demanding involves efforts by individuals to acquire and process information, in order to establish a manageable level of uncertainty (Vlaar et al., 2008). This is particularly relevant in the context of entrepreneurial action characterized by uncertainty about the outcomes of that particular action. To reduce uncertainty and improve the quality of information upon which they base their decisions, individuals seek as much relevant information as possible. Sense-demanding pertains to asking questions, performing inquiries and cross-checking their own perceptions and interpretations with other individuals, for example, participants of other organizations (Vlaar et al., 2008).

FEEDBACK LOOPS AS SOCIALLY SITUATED MECHANISMS Acts of sense-giving, sense-breaking and sense-demanding contribute to the process of sense-making. All three elements involve intersubjective, empirically distinctive phenomena that feedback loops consist of. It is well known that various stakeholders affect entrepreneurial cognitive development, such as investors, informal networks or first customers (Ozgen and Baron, 2007; Clarke and Cornelissen, 2014). All these parties are potential targets of sense-demanding or sources of sense-breaking and sense-giving. For example, the development of what is called entrepreneurial meta-cognition (Haynie et al., 2010) or deeper beliefs (Krueger, 2007) is shown to be positively affected by sense-breaking acts during opportunity development (Kaffka and Krueger, 2018; Kaffka et al., 2020). The importance of feedback engagement in entrepreneurial cognitive development is underlined by recent educational models for entrepreneurship education which emphasize the importance of learning by doing or experiential learning. Experiential learning typically entails engagement in feedback loops as that type of learning requires interaction with others; whether with team members, (potential) customers or other stakeholders. Nabi et al. (2017) found that programmes stimulating experiential learning appear to have a higher chance of leading to the realization of new ventures. Nabi et al.’s (2017) finding fits with the role we propose SSC mechanisms play in feedback loops – namely, stimulating the development entrepreneurial cognition – and ultimately in the inclination to realize a new venture. The concept of socially situated mechanisms facilitates the analysis of how feedback loops affect entrepreneurial cognitive development as part of experiential learning in entrepreneurship education. The three sense-making elements of sense-giving, sense-breaking and sense-demanding help us understand how and why feedback from third parties affects entrepreneurial cognition. They represent socially situated mechanisms that enable (room for novel) sensemaking processes when entrepreneurs engage in feedback activities, and thus ultimately shape entrepreneurial cognition. The concept of SSC mechanisms thus offers a tool for more fine-grained analysis of third-party involvement in entrepreneurial cognitive

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development. Practically, a better understanding of how feedback loops stimulate entrepreneurial cognitive development helps to increase the effectiveness of entrepreneurship education or training.

CONCLUSION The concept of socially situated cognition draws on the premise that third-party interaction shapes entrepreneurial cognition. We employ the sense-making perspective to present three distinct SSC mechanisms that affect entrepreneurial cognitive development in feedback loops. Finally, we propose that these mechanisms help explain how and why entrepreneurial cognitive development is affected by third-party involvement.

REFERENCES Baron, R.A. (2004), ‘The cognitive perspective: a valuable tool for answering entrepreneurship’s basic “why” questions’, Journal of Business Venturing, 19 (2), 221–39. Baron, R.A. and M.D. Ensley (2006), ‘Opportunity recognition as the detection of meaningful patterns: evidence from comparisons of novice and experienced entrepreneurs’, Management Science, 52 (9), 1331–44. Clarke, J. and J. Cornelissen (2011), ‘Language, communication, and socially situated cognition in entrepreneurship’, Academy of Management Review, 36 (4), 776–8. Clarke, J.S. and J.P. Cornelissen (2014), ‘How language shapes thought: new vistas for entrepreneurship research’, in J.R. Mitchell, R.K. Mitchell and B. Randolph-Seng (eds), Handbook of Entrepreneurial Cognition, Cheltenham, UK and Northampton, MA, USA: Edward Elgar, pp. 383–97. Cornelissen, J.P. and J.S. Clarke (2010), ‘Imagining and rationalizing opportunities: inductive reasoning and the creation and justification of new ventures’, Academy of Management Review, 35 (4), 539–57. Cornelissen, J.P., J.S. Clarke and A. Cienki (2012), ‘Sensegiving in entrepreneurial contexts: the use of metaphors in speech and gesture to gain and sustain support for novel business ventures’, International Small Business Journal, 30 (3), 213–41. Dew, N., D. Grichnik, K. Mayer-Haug, S. Read and J. Brinckmann (2015), ‘Situated entrepreneurial cognition’, International Journal of Management Reviews, 17 (2), 143–64. Forbes, D.P. (2005), ‘Are some entrepreneurs more overconfident than others?’, Journal of Business Venturing, 20 (5), 623–40. Grégoire, D.A., A.C. Corbett and J.S. McMullen (2011), ‘The cognitive perspective in entrepreneurship: an agenda for future research’, Journal of Management Studies, 48 (6), 1443–77. Haynie, J.M., D. Shepherd, E. Mosakowski and P.C. Earley (2010), ‘A situated metacognitive model of the entrepreneurial mindset’, Journal of Business Venturing, 25 (2), 217–29. Hill, R.C. and M. Levenhagen (1995), ‘Metaphors and mental models: sensemaking and sensegiving in innovative and entrepreneurial activities’, Journal of Management, 21 (6), 1057–74. Kaffka, G.A. and N. Krueger (2018), ‘The entrepreneurial “mindset”: entrepreneurial intentions from the entrepreneurial event to neuroentrepreneurship’, Foundational Research in Entrepreneurship Studies, Cham: Palgrave Macmillan, pp. 203–24. Kaffka, G.A., R. Singaram and J. Kraaijenbrink (2020), ‘New venture creation and the development of entrepreneurial cognition’, Academy of Management Proceedings, Briarcliff Manor, NY: Academy of Management. Krueger, N.F. Jr (2007), ‘What lies beneath? The experiential essence of entrepreneurial thinking’, Entrepreneurship Theory and Practice, 31 (1), 123–38. Lim, J.Y.-K., L.W. Busenitz and L. Chidambaram (2013), ‘New venture teams and the quality of business opportunities identified: faultlines between subgroups of founders and investors’, Entrepreneurship Theory and Practice, 37 (1), 47–67. Maitlis, S. and M. Christianson (2014), ‘Sensemaking in organizations: taking stock and moving forward’, Academy of Management Annals, 8 (1), 57–125. McKelvie, A., J.M. Haynie and V. Gustavsson (2011), ‘Unpacking the uncertainty construct: Implications for entrepreneurial action’, Journal of Business Venturing, 26 (3), 273–92.

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McMullen, J.S. and D.A. Shepherd (2006), ‘Entrepreneurial action and the role of uncertainty in the theory of the entrepreneur’, Academy of Management Review, 31 (1), 132–52. Mitchell, Ronald K., Brandon Randolph-Seng, and J. Robert Mitchell (2011), ‘Socially situated cognition: Imagining new opportunities for entrepreneurship research’, Academy of Management Review, 36 (4), 774–6. Nabi, G., F. Liñán, A. Fayolle, N. Krueger and A. Walmsley (2017), ‘The impact of entrepreneurship education in higher education: a systematic review and research agenda’, Academy of Management Learning & Education, 16 (2), 277–99. Ozgen, E. and R.A. Baron (2007), ‘Social sources of information in opportunity recognition: effects of mentors, industry networks, and professional forums’, Journal of Business Venturing, 22 (2), 174–92. Pratt, M.G. (2000), ‘The good, the bad, and the ambivalent: managing identification among Amway distributors’ Administrative Science Quarterly, 45 (3), 456–93. Santos, F.M. and K.M. Eisenhardt (2005), ‘Organizational boundaries and theories of organization’, Organization Science, 16 (5), 491–508. Thompson, E. (2007), Mind in Life: Biology, Phenomenology, and the Sciences of Mind, Cambridge, MA: Harvard University Press. Thompson, E. and M. Stapleton (2009), ‘Making sense of sense-making: reflections on enactive and extended mind theories’, Topoi, 28 (1), 23–30. Vlaar, P.W.L, P.C. van Fenema and V. Tiwari (2008), ‘Cocreating understanding and value in distributed work: how members of onsite and offshore vendor teams give, make, demand, and break sense’, MIS Quarterly, 32 (2), 227–55. Weick, K.E. (1995), Sensemaking in Organizations, Thousand Oaks, CA: Sage. Weick, K.E. and K.M. Sutcliffe and D. Obstfeld (2005), ‘Organizing and the process of sensemaking’, Organization Science, 16 (4), 409–21. Zott, C. and Q.N. Huy (2007), ‘How entrepreneurs use symbolic management to acquire resources’, Administrative Science Quarterly, 52 (1), 70–105.

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20. Entrepreneurs in the fashion industry Michelle Brandstrup

With a constantly changing industry, throughout history the role of the fashion entrepreneur has changed as well. The role of the fashion designer as we know it today was only introduced in the late nineteenth century. Before that, people in this position were known as dressmakers or tailors, and they would design the garments, construct the patterns, make prototypes and then sew the final garments together. Fashion at this time was mainly dictated by the aristocracy. Models were more standardized, but the choice of fabrics was of great importance, so the textiles were often the main priority in the design effort (Palmer, 2010). In the late nineteenth century, the dressmaker evolved to become a fashion designer, similar to an artist, who then took the position of dictating fashion, instead of it being dictated by the aristocracy. In the late twentieth century, greater importance was given to the consumer, and a fast response to consumer needs was economically very profitable. Also, in the twenty-first century, sustainability and social responsibility have been two important focus points, and consumers now have ethical demands, not known previously in the industry. For this reason, consumers currently have a greater voice with which to influence fashion. With a constantly changing world, you could argue that a successful fashion entrepreneur is one who can respond to the changing demands of the world, and understand the time he or she is part of.

CHARLES WORTH’S INTEGRATION OF TEXTILE SALES AND DRESSMAKING Charles Worth (1825–1895) has often been referred to as the ‘father of haute couture’ (Chantal, 2017; De Marly, 1990). Although he was not the first fashion designer, he has become the image of an industry change, in which the role of a dressmaker evolved from being a craftsperson who produced garments, to more of an artist with a creative imagination. Being a male, he also challenged the field of dressmaking which, at the time, was generally a female’s domain (De Marly, 1990). Charles Worth was born in Lincolnshire, England. In 1836, his father, William Worth, went bankrupt and left the family. Mrs Worth sent her 11-year-old son Charles to work at a printer’s shop (De Marly, 1990). Already Worth had a dream to become a couturier, but his mother did not think of that as an appropriate profession for a man. However, she agreed to send Worth to London, where at the age of 12 he would start working for the department store Swan & Edgar selling textiles. After his training, he moved to the exclusive silk mercers Lewis & Allenby, at the age of 19. At this time, London was at the forefront of menswear and tailoring, with Savile Row being the centre of this (Breward, 2010), but when it came to dressmaking and womenswear, Worth realized Paris was the place to be (De Marly, 1990). He moved to Paris at the age of 20, and eventually, with a good reference from Lewis & Allenby, he started working for silk mercers Gagelin, where 165

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he would stay for the next 11 years. Here they were using live girls to model shawls, mantles and cloaks in front of customers. Worth realized that the dresses the models were wearing took too much attention from the garments they were trying to sell, and therefore he started to produce more simple dresses for the models. Costumers then started to show interest in his elegant, simple and well-fitted designs. He therefore went to the owners, and eventually convinced them to open a dressmaking department he would manage (De Marly, 1990). Usually, at that time, a textile mercer would be one place, and the dressmaker another. It was innovative that both services could be offered at the same place. Together with Worth’s design and great fit, this concept became very successful. However Worth’s work at Gagelin was never recognized as much as he might have wished, even though Gagelin had won international prizes for his designs and the department was economically profitable. It is most likely that what made him start his own couture house was the lack of recognition for his work at Gagelin. In 1858 he and Otto Bobergh opened their own couture house, Worth et Bobergh (De Marly, 1990). For his creations, throughout his career, he took much inspiration from paintings in art museums. He was very concerned with women’s comfort and mobility. Since it was the time of the crinoline, he noticed how women had trouble sitting down, and accessing their children. He therefore introduced the flat fronted crinoline, which was flat in front, so women better could access things with their hands. During this period, women began to express a need for more practical clothes for walking and sports, and Worth provided that. He raised the hemline, which had been ground length for 30 years, and in 1868 he introduced a skirt without crinoline, so then the silhouette would be in line with the body’s natural shape (De Marly, 1990). What really made Worth stand out was his ability to attract important clients from the nobility across Europe (Coleman, 2010; De Marly, 1990). It was his wife Marie Worth’s suggestion that he should show his portfolio to Princess Pauline von Metternich, who ordered two gowns, one of which she wore for the Salle des Maréchaux state ball at the Palais des Tuilleries, which then got the attention of Empress Eugénie (Mendes and De La Haye, 2014). The empress became a regular client, and continued to be so throughout the Second Empire (Coleman, 2010). Getting his designs into the circles of the imperial court, Worth did not need to advertise much; he received publicity from the aristocracy and the social press (De Marly, 1990). Whereas most dressmakers would often go to their clients for orders and fittings, Worth’s customers would come to him. He thought of himself as an artist, and in 1892 he started to dress like one, and wore a velvet beret, which was very common for artists at that time. He saw the act of sewing labels in his designs as that of an artist signing his name on his artwork, although he was not the first couturier to do so (De Marly, 1990). Women knew that he would have the answers how to dress them well, better than they could alone. They did not just come to him to have a dress made, but also for a consultation. The role of today’s designer was beginning to develop. Worth’s son, Jean-Phillippe, described his father as: ‘a potentate, adored by his family and his employees, and his slightest word heeded by all women, from queens to commoners’ (De Marly, 1990: 187). With live models and his unique combination of selling material and having a dress made at the same address, he laid the foundations for how most fashion houses would be run for years to come, and to some extent still are today. Also, in 1868, he founded the

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federation Chambre Syndicale de la Confection et de la Couture Pour Dames et Fillettes with the purpose of protecting designs from being copied. The federation has evolved over time, and today promotes French fashion (Palmer, 2010). After Worth’s death in 1895, the couture house remained owned and operated by his family for three more generations (De Marly, 1990).

CHANEL AND DIVERSIFICATION BEYOND CLOTHES Born in Saumur, in the Loire Valley, it has been said about Gabrielle ‘Coco’ Chanel (1883–1971), that she was a great fashion designer, but also a great business woman (Bond, 1994). Money was not her primary motivation for choosing entrepreneurship as a career; rather her goal was to achieve economic independence (De La Haye and Tobin, 1994). When her father felt incapable of raising five children on his own after his wife’s death, he sent 12-year-old Coco and her sisters to an orphanage. In her early years she wanted to sing on stage, rather than to become a couturière. She got a job as a poseuse at the café La Rotonde where, despite her weak voice, her performance of the song ‘Qui qu’a vu Coco’, became a popular routine, and it is believed that this is how she acquired her nickname Coco (Madsen, 1990). Here, she met the wealthy textile heir, Etienne Balsam, who became her lover, and she eventually moved in with him. Later (circa 1908–09), she borrowed his apartment in Paris and set up her business as a milliner (De La Haye and Tobin, 1994). Their relationship came to an end when she met Arthur ‘Boy’ Capel, with whom she moved in, and from then on he financed her. Capel also financed her shop at 21 rue Cambon, which she opened in 1910. Her business became a success, and in 1913 she achieved financial independence. There was another dressmaker in the house at 21 rue Cambon, and therefore at first she was not allowed to sell clothing. In 1913 she opened a shop in a popular holiday seaside town, Deauville (De La Haye and Tobin, 1994). In contrast to many businesses that were challenged during World War I, Chanel managed to understand and accommodate women’s changing needs for clothing. With her jersey suits and original designs, she combined practical wear with elegance, and during the 1920s she made an important contribution to the garçonne look, which was a reaction to a time of corsets and crinolines. She was very concerned with comfort and ease of movement in clothing, in the material as well as the shape (De La Haye and Tobin, 1994). At the end of World War I, Chanel observed how American soldiers would buy French perfumes as gifts. While at the same time being sad to have missed the business, it also inspired her; in 1921, Chanel innovated by diversification as she launched a perfume with her name, Chanel No. 5 (Mazzeo, 2010). Coco Chanel was not the first couturière to launch a perfume, but was the first to have her own name on the bottle (Canadeo, 1992). Other than the important sales it gave Chanel, the perfume also resulted in an iconic status, making the name Chanel famous around the world (Mazzeo, 2010). In close collaboration with Chanel herself, Chanel No. 5 was developed by the perfumer, Ernest Beaux. The use of natural flavours such as jasmine and rose, among others, together with the newly discovered synthetic molecules, aldehydes, which had an effect of intensifying and lifting the flavour, is part of what make the scent of Chanel No. 5 special.

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She wanted the perfume to represent the style of the house of Chanel in a scent, and the name was inspired by her lucky number (Mazzeo, 2010). Although originally sold only from her shop in Paris, with the word spreading mouth to mouth, the perfume quickly became a success. She saw the potential for greater success, and in 1924 sold the licence rights of Chanel No. 5 to Pierre and Paul Wertheimer, owners of the fragrance company Bourjois (Mazzeo, 2010). That firm would then be in charge of manufacturing, distribution and promotion, and Chanel would receive 10 percent of the profits, while the production and marketing would be off her mind. However she was later unsatisfied with their management of the perfume, and claimed that her name was the reason for its success. For many years she fought for getting back the rights, and at one point she even tried to damage its reputation. Fearing that, and a lawsuit, which might also could draw attention to Chanel’s affair with a Nazi lover and affect sales, Bourjois agreed to renegotiate the contract. Over time, perfume sales contributed greatly to Chanel’s wealth (Mazzeo, 2010). Sales numbers reveal it was a product which managed to keep its popularity and adapt from time to time. For example, during the Depression Chanel No. 5 was sold in tiny bottles, so that these were affordable. Despite the possibility of losing its exclusive status, it was sold through the army during World War II, and it became a symbol of a surviving luxury (Mazzeo, 2010). Making good profits, while at the same time keeping a product’s exclusivity, is a difficult, well-known balance for luxury fashion brands, and Chanel No. 5, has through its lifetime faced those issues. When Andy Warhol made his silk screen prints, in the 1980s, of mass culture icons, it was a comment that Chanel No. 5 had become too common. However, Warhol also helped Chanel No. 5 achieve its iconic status (Mazzeo, 2010). In the 1950s Marilyn Monroe’s response, when asked what she would wear to bed, was ‘Nothing but a few drops of Chanel No. 5’ (Mazzeo, 2010: 190), which made its popularity continue. In the 1970s marketing designer, Jean Helleu, wanted to renew its association with glamour and Hollywood movies. His advertisements also took the bottle’s iconic silhouette as a focus point, to reinforce Chanel No. 5’s iconic status (Mazzeo, 2010). Although facing challenging, as well as successful, times through its long life span of almost 100 years, the popularity of Chanel No. 5 still continues, and has played a huge part in making the name of Chanel world famous.

CHRISTIAN DIOR INTRODUCING THE ‘NEW LOOK’ IN 1947 Christian Dior (1905–1957), captivated the world of fashion in 1947 with his first collection for Christian Dior Limited. Harper’s Bazaar editor-in-chief, Carmel Snow, described it as the ‘New Look’, and the style of the 1947 collection rapidly became known by that name. With help from others, Dior managed to use his successful beginning to build a successful company, and he played an important part in rebuilding Paris’s reputation as a centre of fashion after World War II (Pocha, 2008). Dior was born in 1905 in Granville, Normandy (Genty, 1994). He grew up in a wealthy family, and shared his mother’s interest in flowers and gardens. As a child he was described as a dreamer, lively and affectionate, with a great imagination (Pocha, 2008). He showed an early interest in art, and he wanted to enrol at the Académie des beaux arts in Paris. However this was not what his parents had in mind for their son, and to please them he

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enrolled at the faculty of political science. Coming to Paris, in a time of cubism and surrealism, only sparked his interest in art and, in 1927, with his parents’ approval, he opened a gallery with Jacques Bonjean, although his mother did not allow him to use the Dior name, so the gallery was called Galerie Jacques Bonjean (Pocha, 2008). In 1931 his father went bankrupt, and this resulted in financial hard times for Dior in the years to come. A poor, unhealthy life in Paris might have caused his tuberculosis in 1934, and he took a year to recover. However he returned to Paris with new energy, where he worked as a fashion illustrator for a period and then, in 1938, he began working for Robert Piquet, as a modéliste (Pocha, 2008). Later Dior was offered a job by the couturier, Lucien Lelong. It was here he met Pierre Balmain, who eventually inspired Dior to start his own brand (Pocha, 2008; Pujalet-Plaà, 2010). It has been suggested that Dior’s motivation for starting on his own was to gain creative freedom (Pocha, 2008). In 1946, the entrepreneur, Marcel Boussac, invested 6 million francs in Dior to set up his couture house. Dior’s father, however, was not pleased as, having lost the family business in 1931, he preferred his son to have a stable job (Pocha, 2008). Dior’s first collection, in 1947, referred to as the ‘New Look’, became a huge success. It introduced a feminine style, with a voluminous use of fabric. Emphasizing the curves of the female body, it had references to clothes dating from before wartime. Not only was Carmel Snow impressed with the collection, but it received broad publicity throughout the world of fashion, and it has been suggested that this 1947 collection regained Paris its position as an international fashion centre (Somerville et al., 2017). Dior himself said: ‘The New Look was a success only because it reflected the mood of the time – a mood that sought refuge from the mechanical and impersonal in a return to tradition and enduring values’ (Somerville et al., 2017: 8). Little more than a week after the show, the financial goals for the whole year had been achieved (Somerville et al., 2017), and the company grew rapidly after that. In 1947 its turnover was 1.2 million francs, the equivalent of US$800 000 now. It reached a turnover of 3.6 million francs in 1948 and 12.7 million francs in 1949 (Pocha, 2008). Owing to his popularity in the USA, Dior entered the American market and opened a store in New York in 1948, selling ready-to-wear clothes (Pocha, 2008). He expanded later to other countries, such as England, Australia, Mexico and Chile. From 1949 several licensing agreements were made over a number of years for hosiery manufacture, perfume, ties, furs and so on, which grew the Dior name as well as making profits. In 1955 the company employed 1000 people, and was responsible for 50 percent of France’s exports of couture (Pujalet-Plaà, 2010).

RALPH LAUREN GOES BEYOND MERCHANDISE AND SELLS A LIFESTYLE Ralph Lauren (1939–) is known as the fashion designer selling a lifestyle, not just clothing and fashion. His brand grew from designing men’s ties, into menswear, womenswear, children’s wear, perfume, cosmetics and home decor, among others (Canadeo, 1992). Ralph was born in the Bronx, New York, into a Jewish family of Russian immigrants and the family often struggled financially in his childhood. He spent much of his

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childhood playing sports, which most likely had an influence later on his design DNA, although it was not always his dream to become a fashion designer. When he graduated from DeWitt Clinton High School in 1957, he wrote: ‘Millionaire’ as his ambition for the future in the yearbook (Canadeo, 1992; Weatherly, 2009). After high school he enrolled at the City College of New York to study business, but the pressure of also working part-time to pay for the tuition made him leave after just two years. In 1964 he got a job at the Boston tie company, A. Rivetz & Company. He had observed the trend of wide ties in Europe, and was eager to design new ties for the company. At this time not much effort was put into the design of ties since most manufacturers would choose from a limited selection of already designed fabrics from fabric houses. However, he convinced Rivetz to design a few, but they were not a success, and Ralph realized it was time for him to move on (Canadeo, 1992). In 1967 Ralph met Ned Brower, president of the tie company, Beau Brummel. Brower was thrilled with Ralph’s ideas, and made Ralph head of a new division to design, manufacture and sell his ties. The ties became successful, but Brower did not always agree on Ralph’s way of handling the business, and Ralph later left Brummel and took the trademark Polo Fashions with him. Later, together with the men’s suit maker, Norman Hilton, he expanded into menswear. His first menswear collection for Polo Fashions was in 1969, and in 1970 he won the Coty award for best menswear designer. His first womenswear collection was introduced in 1971, and was very much inspired by his approach to designing menswear. Ralph believed that women wanted to wear tailored menswear, which was fitted to the female body (Canadeo, 1992). Ralph gave much importance to how he would sell his clothes, and how he kept its exclusive status. He claimed he was selling an entire image, and therefore convinced Bloomingdale’s to display his products together, like a shop within the shop. ‘I’m promoting a level of taste, a total feeling’ (Canadeo, 1992: 20) he said to the Daily News Record. In his advertisements he presented a way of life (McDowell, 2003), which often had an upper-class feel to it. He compared his advertisements with movies people could relate to, and made people dream. He would often use a backdrop of American landscapes or the English countryside (Lauren, 2007). He understood the importance of brand identification, the importance of what surrounds the product, as much as the product itself. Photographer Bruce Weber helped him achieve this (Gross, 2010). With the fast growing success, and the struggle to meet demand, Ralph realized he needed somebody to take care of the business side of the company, and formed a partnership with Peter Strom in 1984, selling him 10 percent of the business. As did several other designers at the time, Ralph realized the profitable advantages of licensing agreements. Soon the name Ralph Lauren could be found on perfume, children’s wear and, in 1983, home interior design. Ralph was one of the first major fashion designers to enter the branch of home decor (Canadeo, 1992) and it supported his vision of offering a whole lifestyle to his customers.

BENETTON CHALLENGED FASHION ADVERTISING Luciano Benetton (1935–) and his sister Giuliana Benetton, established Benetton together in 1965. They started selling sweaters, and owing to its success, later the two other siblings, Gilberto Benetton and Carlo Benetton, joined (Ganesan, 2002). Benetton innovated a

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dyeing technique, where instead of dyeing the raw fabric, garments would be dyed after being made. By delaying the dyeing process until later in the production, Benetton was able to better match consumer demand and save on resources (Sugden, 2012). In 1982 Luciano hired photographer Oliviero Toscani, and together they developed a new strategy for advertising. Instead of displaying a fictional world, which fashion advertising had been known for until then, they wanted to picture a reality (Favero, 2006). In the first advertisements, Toscani focused on promoting the Benetton story of its diverse colours. Children with different skin colours, wearing a wide selection of Benetton colours, were gathered on a white background to intensify the colours and the text said: ‘All the colours of the world’ (Sugden, 2012). Later this slogan was replaced with: ‘United Colors of Benetton’, which became part of the logo in 1989 (Favero, 2006). Several advertisements would from then on concentrate on race and equality issues, and from 1989 Benetton products were often left out of the image (Sugden, 2012). An advertisement of a black women, breastfeeding a white baby was criticized for referencing a time when black women were breastfeeding white women’s babies (Ganesan, 2002). Toscani and Luciano wanted to stimulate thinking with their images, encourage discussions about social problems, and communicate values of peace and equality. Owing to the controversial topics they adopted, they would receive various responses. Some advertisements were banned, and some media refused to publish them, but the more they were banned, the more free publicity they got (Ganesan, 2002). Topics including religion, politics, environmental disasters and the AIDS crisis were visualized in the advertisements, without any text, just with the logo of Benetton (Ganesan, 2002). Despite all the attention these advertisements gave to Benetton, retailers accused Benetton of confusing customers about what they were actually selling, and it affected sales negatively in the 1990s (Favero, 2006). However, at the same time Benetton was also challenged by competition from The Gap and ZARA (Favero, 2006). It has been suggested that Toscani crossed the line in 2000, with a campaign of images of prisoners sentenced to death (Ganesan, 2002). Surveys made after this campaign suggested that previously loyal customers had left. In 2001 Benetton could count 7000 stores in 140 countries (Ganesan, 2002). Toscani left Benetton in 2002 (Favero, 2006).

H&M AND ZARA; AFFORDABLE FASHION AND FAST RESPONSE TO CONSUMER NEEDS Through the twentieth century, industrialized systems in the fashion industry have evolved and optimized for faster production and distribution, which has enabled fashion brands to react faster to consumer needs (Mo, 2015). The growth of fast-fashion retailer brands, such as Benetton, The Gap, H&M and ZARA, has made it possible for consumers to access fashionable garments at affordable prices. Making fashionable clothing accessible at low prices, and encouraging a rapid change of trends, has resulted in large profits for these companies. Erling Persson opened the store Hennes, in Sweden in 1947, and when he merged with Mauritz Widfross, in 1968, they became Hennes and Mauritz. They soon expanded into Denmark, Norway, and then England in 1976 (Pahl and Mohring, 2008). Their aim was to offer the consumer quality, in the latest international fashion, at the best price possible (Pahl and Mohring, 2008).

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In 1975, clothing manufacturer, Armancio Ortega Gaona, opened his first store, ZARA, to sell his clothes, because a customer had let him down. Soon ZARA expanded into Portugal, and later the rest of Europe. In 2007 they could count 1361 stores in 68 countries. Similar to H&M, its aim was to offer quality products in the latest fashion at an affordable price (Lopez and Fan, 2009). ZARA is currently part of the fashion group, Inditex (Escalona Orcao and Pérez, 2014). Although the two companies have similar goals, they are differentiated by how they are run. H&M outsources its production, which give it the ability to push prices down, and also gives it a more flexible economy. ZARA owns many of its production facilities, which gives it more control, flexibility in production and a faster response. To react rapidly to changes in demand, ZARA is in constant contact with its stores (Escalona Orcao and Pérez, 2014). It takes ZARA only 15 days, from the design of a new product until its arrival in the store (Pahl and Mohring, 2008). ‘You need to have 5 fingers touching the factory, and five touching the consumer’, Armancio said about ZARA’s strategy, thus taking control over the value chain (Lopez and Fan, 2009: 11). Both companies own most of their stores. They also make large investments in information technology (IT), to connect all parts of the value chain. To create a strong brand-image, H&M also invests largely in advertising, and have been collaborating with high-profile designers such as Karl Lagerfeld and Stella McCartney. ZARA spends very little on advertising, using mostly its stores and shop windows to promote itself (Pahl and Mohring, 2008).

TOWARDS THE FUTURE The fashion industry currently is the second most harmful industry to the environment (Khandual and Pradhan, 2019), mainly because of its high use of energy, chemicals, water and other natural resources. Also, production is very human labour intensive and there have been several cases of abuse and bad working conditions for workers (Jestratijevic and Rudd, 2018). With consumers increasing awareness of the issues, great attention has been paid to sustainability and social responsibility in the industry, and several companies are redefining their business models (Khandual and Pradhan, 2019). A number of major fashion brands, including fast-fashion brands, have taken several sustainable initiatives. Among these brands are Inditex Group, which has reduced its use of chemicals, creating collections made only from certified organic cotton. Similar moves, of using natural organic materials and recycling, have been made by H&M (Arrigo, 2015), which also aims ‘to use its size and influence to bring about better conditions for people and to minimize environmental impact throughout the value chain’ (Arrigo, 2015: 17). However, fast-fashion brands have been criticized for mainly concentrating on sustainable subjects, such as fibre types, recycling and supply-chain management (Fletcher, 2014), while frequently offering new collections at low prices, which still encourage a high consumption. As a response to fast-fashion, there has been a rise of slow-fashion brands in the industry (Khandual and Pradhan, 2019). The term slow-fashion refers to the speed in the way we consume (Fletcher, 2010). The term can also refer to brands, which generally have a sustainable approach in their business. Slow-fashion brands tend to encourage a slower pace in the change of trends, better longevity and better quality of products (Jestratijevic

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and Rudd, 2018). An example of this is the Danish clothing brand, Jan Machenhauer, where materials are selected for becoming more beautiful with wear. Avoiding trends, garments are created in aesthetics designed to last, and developed at a slower pace, in opposition to the general seasonal approach common in the industry (www.janmachenhauer.com, accessed 15 January 2020). Another Danish clothing brand, ee12, aims also to design in a durable aesthetic and quality, and here clothes are made to order. Sample garments are exhibited in their showroom, and manufacturing of garments only begins when the order has been placed and pre-paid (www.ee12.dk, accessed 15 January 2020). The Swedish clothing brand Atacac has developed a price model inspired by that which airline companies use for flight tickets. Before the garment is made, it starts at the lowest price, and thereafter goes higher and higher. This approach reduces overproduction and stock-keeping (www.atacac.com, accessed 15 January 2020). With the demand from the consumer for ethically produced products, and a suffering environment, a sustainable innovative mindset is crucial for current fashion entrepreneurs, and most probably will be in the future.

WOMEN’S FASHION; BORROWING FROM THE BOYS Looking through the history of womenswear fashion entrepreneurs, each of them had their unique way of approaching the female body. Charles Worth wanted to give women more comfort and mobility (De Marly, 1990). Similarly, the aims of Chanel, who boosted the garçonne look, were a linear style, and she took inspiration from the straight shape of menswear (De La Haye and Tobin, 1994). Dior however, wanted to emphasize the curvy lines of the female body, with his ‘New Look’, in 1947 (Cawthorne, 1996). Ralph Lauren, who had started as a menswear designer, believed women wanted to wear tailored menswear, adjusted to the female body, and this often became his approach when designing womenswear (Canadeo, 1992). The fashion historian, Anne Hollander, also addresses how womenswear has been borrowing elements from menswear through time. She argues that in the late twentieth century, womenswear had fully adopted the menswear spectrum, although altered to fit the female body (Hollander, 1994). During World War I, women would often wear masculinized uniforms, which began to affect their daily wear as well. Women entering the work force, and beginning to play sports, which used to be a male domain, also made the female wardrobe adapt elements from the more practical male wardrobe (Hollander, 1994). The idea of women in menswear has for centuries also occasionally had sexual connotations. In the fourteenth century, men’s clothing began to be more tight-fitted and, for example, trousers, where the two legs are separated, were considered vulgar on women, until they were also adopted in the female wardrobe (Hollander, 1994). With the rise of different feminist movements of today, as for example the #metoo movement, comes also a question of how women of today should dress. Feminist movements and events, such as Slutwalk in Toronto 2011, encouraged women to wear what they want to wear, even if its sexually provocative (Darmon, 2014). Since 2010, published research about sexual objectification has widely increased, while the topic has also been discussed in the media (Lennon and Johnson, 2014). When the trend forecaster, Lidewij Edelkoort, presented the trends for spring/summer 2019, she said: ‘Now we have to rediscover what

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the status quo of the women is, how we define ourselves in the future as well as how we will dress in the future’ (Hendriksz, 2017). As a professional fashion designer myself, I gave my contribution to this question with my MA graduation collection in 2019. Inspired by the Japanese design tradition, which made me experiment with alternative ways to integrate body and sexuality, I gave my contribution and ideas on how women can dress in more body-covering and loose-fit clothing while still expressing their sexuality and appearing attractive. Instead of drawing attention to the actual body, I worked in a shape language with references to the female body and incorporated elements such as movement, transparency and layer-on-layer techniques, both in print and in shape, in order to arouse curiosity in the viewer about the body that is hidden underneath the clothes. Figure 20.1 shows a selection of garments developed for this collection.

Figure 20.1

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Design: Michelle Brandstrup, from her MA graduation collection ‘The Female Shape?’, Design School Kolding; photograph by Jonas Raaby

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CONCLUSION In the introduction it was suggested that a successful fashion entrepreneur is someone who can respond to the changing demands of the world, and understand the time he or she is part of. To sum up the fashion entrepreneurs included in this chapter, Charles Worth integrated textile sales and dressmaking, and played an important part evolving the dressmaker to an artistic position. Chanel responded to women’s needs during World War I, and expanded her fashion company into the branch of fragrance. After World War II, Dior understood what women had been longing for, and with his ‘New Look’ he presented something which offered a new hope for the future. Ralph Lauren managed to go beyond a brand of merchandise, and offered a lifestyle to his costumers, which he visualized in promotion and advertisements. Benetton challenged fashion advertising, and built a strong recognizable trademark and image. H&M and ZARA know how to respond quickly to new trends and keep prices affordable. Slow-fashion brands such as Jan Machenhauer, ee12 and Atacac know how to respond to the ethical demands of today’s consumer. With a changing world, time and industry, these are examples of entrepreneurs and companies, from different times in history, who understood the time they were part of, had innovative ideas as to how they could respond to needs and demands, and saw opportunities for growth.

REFERENCES Arrigo, E. (2015), ‘Corporate sustainability in fashion and luxury companies’, Symphonya. Emerging Issues in Management, (4), 9–23. Bond, D. (1994), Great Business Stories: Coco Chanel and Chanel, Watford: Exley. Breward, C. (2010), ‘Savile Row’, in V. Steele (ed.), The Berg Companion to Fashion, New York: Berg, pp. 617–18. Canadeo, A. (1992), Ralph Lauren: Master of Fashion, Ada, OK: Garrett Educational. Cawthorne, N. (1996), The New Look: The Dior Revolution, London: Hamlyn. Chantal, T.-T. (2017), The House of Worth 1858–1954, London: Thames & Hudson. Coleman, E.A. (2010), ‘Worth, Charles Frederick’, in V. Steele (ed.), The Berg Companion to Fashion, New York: Berg, pp. 737–40. Darmon, K. (2014), ‘Framing SlutWalk London: how does the privilege of feminist activism in social media travel into the mass media?’, Feminist Media Studies, London: Routledge. De Marly, D. (1990) Worth: Father of Haute Couture, New York: Holmes & Meier. De La Haye, A. and S. Tobin (1994), Chanel: The Couturière at Work, London: Victoria and Albert Museum, Escalona O., A. Isabel and D. Ramos Pérez (2014), ‘Global production chains in the fast fashion sector, transports and logistics: the case of the Spanish retailer Inditex’, Investigaciones Geográficas, Bulletin No. 85, Instituto de Geografía, UNAM, Mexico City: pp. 113–27. Favero, G. (2006), ‘Benetton: identifying an image, imagining an identity’, Working Paper No. 06/WP/2006, Department of Economics, Ca’ Foscari University of Venice, Venice. Fletcher, K. (2010), ‘Slow fashion: an invitation for systems change’ Fashion Practice, 2 (2), pp. 259–66, doi:10 .2752/175693810X12774625387594. Fletcher, K. (2014), ‘Design for sustainability in fashion and textiles’, in S. Black, A. de la Haye, R. Root, A. Rocamora and H. Thomas (eds), Handbook of Fashion Studies, London and New York: Bloomsbury Academic, pp. 562–79. Ganesan, S. (2002), ‘Benetton group: unconventional advertising’, Global CEO, November, 53–9. Genty, M. (1994), ‘The House of Christian Dior: couture and elegance’, in M. Potter (ed.), Christian Dior: The Magic of Fashion, Sydney: Powerhouse, pp. 13–25. Gross, M. (2010), ‘Lauren, Ralph’, in V. Steele (ed.), The Berg Companion to Fashion, New York: Berg, pp. 219–23. Hendriksz, V. (2017), ‘Lidewij Edelkoort: “Goddesses will be the female archetypes in fashion”’, accessed 20

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January 2020 at https://fashionunited.com/news/fashion/lidewij-edelkoort-goddesses-will-be-the-female-arch etypes-in-fashion/2017120818695. Hollander, A. (1994), Sex and Suits: The Evolution of Modern Dress, New York: Alfred A. Knopf. Jestratijevic, I. and N.A Rudd (2018), ‘Six forms of sustainable fashion’, Latest Trends in Textile & Fashion Designing, 2 (4), doi:10.32474/LTTFD.2018.02.000145. Khandual, A. and S. Pradhan (2019), ‘Fashion brands and consumers approach towards sustainable fashion’, in S. Muthu (ed.) Fast Fashion, Fashion Brands and Sustainable Consumption, Singapore: Springer, pp. 37–54. Lauren, R. (2007), Ralph Lauren, New York: Rizzoli International. Lennon, S.J. and K.K.P. Johnson (2015), ‘The role of dress in sexual objectification’, Bibliographical Guides, London: Bloomsbury Academic, doi:10.5040/9781474280655-BIBART15001. Lopez, C. and Y. Fan (2009), ‘Internationalization of the Spanish fashion brand Zara’, Journal of Fashion Marketing and Management: An International Journal, 13 (2), 279–96, doi:10.1108/13612020910957770. Madsen, A. (1990), Coco Chanel: A Biography, London: Bloomsbury. Mazzeo, T.J. (2010), The Secret of Chanel No. 5: The Intimate History of the World’s Most Famous Perfume, New York: HarperCollins. McDowell, C. (2003), Ralph Lauren: The Man, the Vision, the Style, New York: Rizzoli International. Mendes, V.D. and A. De La Haye (2014), The House of Worth: Portrait of an Archive, London: V&A Publishing. Mo, Z. (2015), ‘Internationalization process of fast fashion retailers: evidence of H&M and Zara’, International Journal of Business and Management, 10 (3), 217–36. Pahl, N. and W. Mohring (2008), Successful Business Models in the Fashion Retail Industry. Strategic Audit of H&M Compared to ZARA, Norderstedt, Germany: GRIN Verlag GmbH. Palmer, A. (2010), ‘Haute couture’, in V. Steele (ed.), The Berg Companion to Fashion, New York: Berg, pp. 392–96. Pocha, M.F. (2008), Christian Dior: The Biography, Woodstock and New York: Overlook Press. Pujalet-Plaà, E. (2010), ‘Dior, Christian’, in V. Steele (ed.), The Berg Companion to Fashion, New York: Berg, pp. 219–23. Somerville, K., L. Kamitsis and D. Whitfield (2017), The House of Dior: Seventy Years of House Couture, Melbourne: National Gallery of Victoria. Sugden, K. (2012), ‘Benetton backlash: does controversy sell sweaters?’, Advertising & Society Review, 13 (1), accessed 12 October 2020 at https://www.muse.jhu.edu/article/477903. Weatherly, M. (2009), Business Leaders: Ralph Lauren, Greensboro, NC: Morgan Reynolds.

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21. Entrepreneurs versus entrepreneurial

Karen Williams-Middleton, Martin Lackéus and Mats Lundqvist

Not long ago, entrepreneurship was considered something exotic only achieved by a precious few. Currently, entrepreneurship is basically everywhere, leaving people to figure out what entrepreneurship implies in their contexts. Many feel alienated by stereotyped definitions that do not match their lived experience, as ‘entrepreneur’ and ‘entrepreneurship’ struggle to be separated from their narrow origins. Popular press and economic theory have made both terms inseparable from the creation of new economically successful firms. From desired outcome it follows that entrepreneurs and entrepreneurship are thus exclusively about having an identity and displaying behaviors that help reach this goal. Stereotyping then occurs in three ways: (1) through stipulating a certain outcome (successful firm) in a certain (economic) context; (2) by specifying certain behaviors, such as staying in control and appropriating, to achieve this outcome; and (3) by imposing an identity and mindset suitable for being this firm-creating and firm-controlling entrepreneur. If entrepreneurship and entrepreneur is all about creating economically successful new business, what about the entrepreneurial? A Google search of ‘entrepreneurial’ gives the impression that this adjective is mainly about existing in a way that results in the creation of a successful firm. However, along with this interpretation, there are also broader understandings, indicating a wider conceptualization including being innovative, creative, resourceful and adaptable, and embedded in different contexts other than in new firms. However, the broadening of entrepreneurship has also been met with critique that entrepreneurship then risks being diluted into meaning almost anything for anyone. Therefore, as society evolves into appreciating entrepreneurship well beyond creating new companies, so also does our need for a more appropriate language. This chapter aims to pave the way for a more emancipated understanding of entrepreneurial by analyzing current understandings from an interpretivist perspective, breaking away from narrow and stereotyped conceptions of entrepreneurship.

THE STEREOTYPICAL MYTH OF THE ENTREPRENEUR The self-made man, a myth which purveys in the American culture, was made popular in particular by the work of Horatio Alger Jr. Research on the personality and characteristics of the entrepreneur followed but was soon termed the search for the heffalump, with arguments for and against a type pervading different streams of literature in the field of entrepreneurship. The stereotypical heroic entrepreneur is portrayed as white, male, middle-aged and often western, and the language and narrative associated with the role of entrepreneur is masculine. Using the stereotypical heroic entrepreneur has made the, 177

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‘under the radar until successful’ figure recognizable and intriguing through television programs, such as Shark Tank and Dragons Den, but also potentially off-putting and even hated. Significant literature has illustrated the disconnection many nascent entrepreneurs feel relative to these stereotypes when in a process of becoming. Despite research developments and evidence to the contrary, the myth of the heroic entrepreneur prevails, and reifies various gendered and ethnocentric biases, probably because it helps to personify an otherwise complex concept of entrepreneurship. The most comprehensive attempts to broaden entrepreneurship have taken place in the field of entrepreneurship education. Allan Gibb argued for educational innovation emphasizing a broader approach termed ‘enterprise education’. Enterprise education was claimed to have been liberated from a limiting business context, deemed to be the main problem behind numerous failed attempts to mainstream entrepreneurship in education (Gibb, 2002). Entrepreneurial individuals creating value in all walks of life have inspired many other key contributions, primarily in Europe and Australia. Many US-based contributions instead maintain a narrower business-orientated focus on venture creation as the key defining characteristic of entrepreneurship in education. One argument put forward is that this focus must remain in order for the field not to be diluted into progressive education in general. Another attempt to broaden entrepreneurship stems from policy. The European Commission presented a framework for entrepreneurial competencies in 2016. It was claimed to build ‘upon a broad definition of entrepreneurship that hinges on the creation of cultural, social or economic value’, and its purpose was to achieve a better bridging between education and work life (Bacigalupo et al., 2016: 6). This recent European development can be traced to streams of more societally orientated entrepreneurship. For instance, social entrepreneurs target real social problems using and adapting traditional business venturing tools, while community and civic entrepreneurs engage in networking to rejuvenate the local or regional economy. A mainland-European public entrepreneur engages in societally useful cultural or ecological activities, placing minor or no interest in economic motives. Except for the more Anglo-American social entrepreneur, these societally orientated sub-streams of entrepreneurship actually do not have a venture focus. Interpretivism has been offered as a perspective that potentially can avoid a dominant understanding of entrepreneurship where an outcome – a new economic venture – reinforces stereotyping. Interpretivism accepts that there is some objective reality out there. However, the only way we can gain knowledge about this reality (epistemology) is through experience or imagination. As a consequence, ‘the source of entrepreneurship has to be in individuals rather than in abstract markets’ and can stem from ‘intentionality rather than causality, of “becoming” rather than “being,” and relationships and interactions rather than social entities’ (Packard, 2017: 535–6). The main intention proposed for being entrepreneurial, then, is the pursuit of new value, which can be achieved in ways other than only through new firms. However, arguably, being entrepreneurial can include more than pursuing new value.

A CONTEXT FOR BECOMING ENTREPRENEURIAL Becoming entrepreneurial, as in any practice, requires skill development and personalized adaptation. Entrepreneurship education has aimed to build connection to practice

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Entrepreneurs versus entrepreneurial 179 through, for example, bringing entrepreneurs into the classroom. However, this does not transfer skill; instead it relates the stories of the entrepreneurial journey, often rationality constructed through hindsight. Artisans and other skilled workers learn through apprenticeship, where the master trains the student in the skill of the discipline, while at the same time the student can design his or her own specific style. This type of situated, socialized learning is recognized in family-based entrepreneurship, where each generation learns from the previous generation, but has not necessarily been translated into the educational domain. For more than 20 years, a small group of researchers and educational practitioners at Chalmers University of Technology has been developing and delivering a distinct action-based pedagogy where innovation and entrepreneurship is experienced hands on by students. This context for becoming entrepreneurial is named a venture creation program (VCP), defined as education where the process of creating a real-life venture, with the intention to incorporate it if successful, is the core learning vessel. The VCP set-up requires an integrated incubator that works in synergy with the program, but with a business prioritization and mandate. This deliberate high-tension approach implies that educational and commercial goals are made to coexist, despite substantial potential for conflict of interest. Entrepreneurship is learned in-vivo, as potential entrepreneurs and potential innovations are recruited, examined, matched, supported and developed. The context has launched more than 80 technology-based startups stemming from early-stage invention disclosures. Seventy-five percent of these startups are still operational. However, while fast-growing technology startups are easy to measure and appreciate in numbers and economic contribution, they are a mere by-product of the school. At the end of the process, students have received training in being entrepreneurial, including taking ownership through shares in the newly formed business, if viable and if it is the ambition of the student. Instead of the ventures, the emphasized output is entrepreneurial individuals prepared for sustainable business development. These individuals are uniquely trained to act entrepreneurially, regardless of organizational format. Thus, the most important contributions are instead the following: (1) over 800 students developing an entrepreneurial mindset that stays with them for their entire career trajectory; and (2) the increase in humanity’s understanding of how these identity-shaping processes can be orchestrated through action-based education. Universities in Sweden, Norway, the US, Japan and Thailand have visited Chalmers to study and subsequently emulate this educational design, translating key principles to their own environments. A global network of like-minded scholars from 20 universities has been established around these activities. More importantly, the Chalmers researchers have distilled an innovative pedagogical approach for how to enable individuals to become entrepreneurial. A value creation pedagogy approach has been adopted by educators from primary through to tertiary education, enabling institutions to take action. Students learn through applying their knowledge in attempts to create value for external stakeholders, a process which develops becoming entrepreneurial, while applicable to a broad spectrum of subject areas. Requiring students to start a new venture is no longer the only way to successfully establish entrepreneurial competencies. However, the deep learning that comes from a venture-creation approach is recognized as developing entrepreneurial competence leading to sustainable and scalable value creation.

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AN ORGANIZING FRAMEWORK FOR BECOMING ENTREPRENEURIAL In order to better explain what becoming entrepreneurial can imply, and how education can enable this, a simple organizing framework with four cornerstones is presented. The four cornerstones of the framework are (1) agency, (2) novelty, (3) value for others and (4) learning; see Figure 21.1. Agency is triggered through emotional ownership as students act together with their peers and invention provider in an emerging new venture team. The task – to develop an early-stage technology venture in which they might become co-founders and owners – is deeply personal and emotional. This staged situation elicits strong agency in the commitment and dedication necessary to persevere through the deeply emotional roller-coaster of an entrepreneurial journey. Novelty is introduced through research-based intellectual assets, typically taken from university and corporate research settings. This contributes with a high level of potential novelty to the world, making the students’ search for and claiming of novelty, key components of the experience. The entrepreneurial process requires students to create direct and indirect value for others. Value could be created for their team partners, for people at the incubator, for potential customers, for potential financiers, for advisors and for many other key stakeholders. Education facilitates learning; that is, experiential learning through iterative stages of creating a new venture situated in an authentic community of practice. The process is embedded in socially situated, high-stakes based contexts that increase emotional exposure, reflection and personalized learning. Each step taken generates powerful feedback, requiring students to constantly learn in order for the invention to survive and develop. Answering the complex question of how education enables individuals to become entrepreneurial, requires a clear understanding of what it means to be entrepreneurial. • Envisioning and exploring something new or different • Claiming and defending newness to/for others • Organizing and pioneering for the new ‘thing’ to be created

NOVELTY

LEARNING • Analyzing and planning for value creation as a way to learn cognitively • Experimenting with value creation to learn experientially and emotionally • Revising and persisting after reflection on if, how, and why value was created

VALUE FOR OTHERS • Discussing and communicating value with others • Creating value for and with others • Feeling empathy with others, their needs and their feedback

AGENCY

• Dedication about an issue, on a personal level • Courage to own an issue despite uncertainty and risk • Action-taking again and again

Figure 21.1 Organizing framework for what it means to become entrepreneurial

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Entrepreneurs versus entrepreneurial 181 The adjective entrepreneurial is broadly applied in entrepreneurship literature, and what is intended by this descriptive term spans venture creation, value creation, opportunity recognition and so on (see, for example, Lundqvist et al., 2019). Becoming entrepreneurial puts personal development in focus. Thus, the framework takes an individual-based perspective. However, this is not in terms of a stereotyped role of a heroic entrepreneur. Instead, emphasis is on four concepts that each represent one key entry point that a person can take in his or her attempts to be and become entrepreneurial. Being entrepreneurial then is defined here as taking emotional action (agency) to create something new (novelty), imagined to be of significant value for others (value for others) and developed through learning by trial and error (learning); see Figure 21.1. Becoming entrepreneurial requires utilizing all four concepts, though not necessarily simultaneously. At any time, each concept can be addressed independently or in combination with one or more of the other concepts. Across the entrepreneurial journey, however, all four concepts are critical. If only one of the concepts is omitted, then the individual will not become entrepreneurial. Agency The agency concept illustrates the need for students to relate any entrepreneurial experience specifically to their own unique personal situation and motives. Students are required to ask themselves deeply personal ‘why’ questions around their own purpose and ability to be and become entrepreneurial. They are expected to articulate their deeply rooted personal reasoning and their own dominant logic for being entrepreneurial. They are also required to describe how they legitimize their entrepreneurial action towards external stakeholders, representing a crucial expansion of the traditional teacher–student relationship axis. Leveraging emotional exposure is another agency-related aspect of a VCP. Emotional events such as teamwork, external stakeholder interaction and uncertainty management have been shown to make people more entrepreneurial in powerful ways. These emotionally charged events can also generate significant pressure and stress. Agency also relates to emotional ownership of an idea or other type of intellectual asset. Strong personal agency can be developed around others’ nascent ideas and intellectual contributions, applying a surrogacy approach, and ideas can be continually shaped and re-shaped by all key stakeholders involved, building a team-based agency. The ‘why’ question, the emotional events and the surrogacy mechanism all illustrate crucial and more generic agency-related facets of being and becoming entrepreneurial. Knowing why you want to be entrepreneurial is a key aspect of becoming entrepreneurial. Learning to self-manage the emotional rollercoaster of an entrepreneurial journey is another crucial aspect of becoming entrepreneurial. Finally, awareness and ability in building team agency around an initial idea is a third necessary aspect. Novelty A VCP promotes the responsible utilization and commercialization of universitybased research ideas, stemming from intellectual property of its professors, employees, researchers and students. The context can also act as a catalyst for industrial and private individual innovation, illustrating the increasing importance of institutional connection

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and collaboration with external stakeholders in transforming value to society. Handovers through the entrepreneurial ecosystem are designed to provide the most effective and efficient pathway for transfer of ideas to the public/private arena, where their value (societal, commercial, and so on) can be realized. Through VCPs, not only are innovations with established novelty transferred and developed, but potential innovations can be accelerated through students taking on a surrogacy role and being trained to iteratively evaluate the feasibility of the ideas to hand. Students taking on a surrogacy role helps universities and incubators to increase the amount of technologies bridging the Valley of Death. Value for Others Education utilizing venture creation as the learning vessel naturally involves additional stakeholders. These actors provide feedback on what is perceived as valuable and thus directly or indirectly evaluate the entrepreneurial competence of the students. Utilizing the expertise of a community of others can give students access to particular expertise. For example, users or potential customers provide effective feedback and assessment of value, whereas regulatory agencies or intellectual property professionals are sought for assessment of novelty. Naturally, educators are utilized to assess learning, in particular relative to institutional requirements, but other stakeholders in the experiential environment, such as peers and incubation coaches and practitioners, also play important roles in assessing learning, as students become entrepreneurial. Learning Many understandings of nascent entrepreneurship rest upon the notion that entrepreneurial intent predicts becoming entrepreneurial. With this understanding, education focuses on raising intention through learning about entrepreneurship in a classroom or short-term exercises. Venture creation programs emphasize becoming entrepreneurial through interacting with value creation processes and developing role expectations in a team-based environment, rather than developing increased intentionality. Embeddedness allows the student to become aware of, react to or even create the many contextual contingencies that shape their own entrepreneurial-ness. The student translates specific opportunity assessment into more personal decisions addressing the merit and challenges ‘for me’. This translation of generic to personalized learning is critical, as it links the knowledge gained to the level of individual, which is paramount if the individual is to take entrepreneurial action. This process of becoming entrepreneurial unfolds iteratively as the individual takes action within an environment prepared to observe and feed back from multiple perspectives, upon which the student can reflect and adapt towards his or her self-image of being entrepreneurial. Iteration, repeatedly going back to similar contexts or known principles but with new eyes, has been argued as important when dealing with uncertainty. In the process of creating value for other humans, multiple (iterative) attempts are often necessary to connect with those perceiving the value of what is generated. The length of time spent becomes an important variable. It is unrealistic to expect transformative treatment effects upon one interaction. Education through venture creation generates multiple stimulators of learning, and learning outcomes emerge from real experiences encountered in the context

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Entrepreneurs versus entrepreneurial 183 of the entrepreneurial process pursued. This can cause questions in determining which activities should take precedence, which, while challenging, is critical to becoming entrepreneurial, as it requires individuals to develop personalized decision-making criteria for operating in uncertainty.

CONCLUSION Classrooms are not particularly designed to embody inconsistency and uncertainty. Education which uses the context of venture creation to create these conditions can provide learning through embeddedness in entrepreneurial experience. This, in turn, facilitates transformation of ideas into value (for self and others), developed through interactions with stakeholders, in both a sustainable and responsible manner. Offering understandings and tools for becoming entrepreneurial emancipates beyond a narrow view of entrepreneurship. A framework which focuses on value creation and is societal (social, ecological and economic value creation in all kind of contexts) is broadly applicable while at the same time distilling key cornerstones that anchor personalized development for becoming entrepreneurial. However, it is important to recognize that this type of learning is not exclusive to students starting a new venture. Students often comment on how they are continuously confronted with experiences counter to their assumptions or expectations of what it means to be entrepreneurial. To enable students becoming entrepreneurial, educators need to provide students with guiding principles they can apply outside the classroom, when seeking and evaluating opportunity and making decisions under conditions of uncertainty.

REFERENCES Bacigalupo, M., P. Kampylis, E. McCallum and Y. Punie (2016), ‘Promoting the entrepreneurship competence of young adults in Europe: towards a self-assessment tool’, Proceedings of ICERI2016 Conference, 14th–16th November 2016, Seville: IATED, doi:10.21125/iceri.2016.1150. Gibb, A.A. (2002), ‘In pursuit of a new “enterprise” and “entrepreneurship” paradigm for learning: creative destruction, new values, new ways of doing things and new combinations of knowledge’, International Journal of Management Reviews, 4 (3), 233–69. Lundqvist, M., M. Lackéus and K. Williams Middleton (2019), ‘Emancipating the “Who am I?” question in entrepreneurship’, paper presented at the ECSB Entrepreneurship Education (3E) Conference, Gothenburg, 9–10 May. Packard, M.D. (2017), ‘Where did interpretivism go in the theory of entrepreneurship?’, Journal of Business Venturing, 32 (5), 536–49.

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22. Entrepreneurship and blockchains Galia Kondova

ENTREPRENEURSHIP AND THE PLATFORM BUSINESS MODEL Entrepreneurship is an economic driver around the world. It is usually associated with the business of small and medium enterprises (SMEs). These SMEs are companies founded originally to meet needs on a local market. They typically exhibit a linear growth path (Aulet, 2013). Aulet (2013) identifies a riskier and more ambitious form of entrepreneurship in the face of innovation-driven enterprise (IDE). Innovation-driven enterprise companies aim to operate regionally or even globally (Aulet, 2013). They typically focus on creating wealth instead of on local growth and keeping control of their business. Successful IDEs usually follow a platform business model that is conducive to the establishment of digital platforms and ecosystems. The platform business model is based on the concept of linking two parties with each other in order to enable the exchange of goods and services of all kinds (Parker et al., 2016). The power of platforms is associated with the phenomenon of network effects. While traditional businesses grow linear by simple addition, platform models connect one user with numerous other users, thus achieving scalability effects and facilitating a geometrical business growth (Cusumano et al., 2019). Metcalfe (2013) provided an analogy of the positive platform network effects with the telephone network. The telephone platform network exhibits quadratic growth rather than linear growth.

BLOCKCHAINS AND THE PLATFORM BUSINESS MODEL The peer-to-peer decentralized nature of blockchain seems to provide the perfect infrastructure for the implementation of the platform business model. Blockchain is a decentralized and distributed network. The network is operated by a multitude of servers, referred to as nodes. Since this network is decentralized, a special consensus mechanism is required to ensure the authenticity, as well as the integrity, of the data (He et al., 2016). The practical application of blockchain was introduced by a self-published paper of an author called Satoshi Nakamoto in October 2008 (Nakamoto, 2008). Nakamoto (2008) published a protocol for a purely peer-to-peer electronic cash system called Bitcoin. According to the paper, the idea of Bitcoin was to create ‘an electronic payment system based on cryptographic proof instead of trust, allowing any two willing parties to transact directly with each other without the need for a trusted third party’ (Nakamoto, 2008: 1). The analogy to the telephone network is obvious in the case of blockchain as well. This time, however, the network effects are much more difficult to be estimated. These are expected to be enormous though. 184

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Major advantages and disadvantages of blockchain

Major advantages of blockchain

Major disadvantages of blockchain

Data integrity Enhanced security Transparency Decentralization Peer-to-peer transactions

Lack of standardization Challenges with scaling and interoperability High energy consumption The risk of money laundering and cybercrime Uncertainties about data privacy protection

Some scholars even argue that blockchain could pave the way to entirely new business models based on virtual organizations such as decentralized autonomous organizations (DAOs) and automatic business transactions facilitated by devices in the Internet of things (IoTs) (Beck et al., 2016; Kondova and Barba, 2019). Some of the major advantages and disadvantages of blockchain technology are outlined in Table 22.1 based on the findings of Zbinden and Kondova (2019) and Kondova and Erbguth (2020). Moreover, McKinsey (2018) assessed the strategic business value of blockchain in a detailed report. The report comes up with the following three conclusions, namely, that ‘blockchain does not need to be a disintermediator to generate value’, ‘in the short term, blockchain’s strategic value is mainly in cost reduction’ and ‘feasibility at scale is likely to be three to five years away’ (McKinsey, 2018: 5). Thus, it is the near future to show whether the platform infrastructure provided by blockchain would enable sustainable platform business models with positive network effects and unprecedented business growth.

REFERENCES Aulet, B. (2013), Disciplined Entrepreneurship: 24 Steps to a Successful Startup, Hoboken, NJ: Wiley. Beck, R., J. Stenum Czepluch, N. Lollike and S. Malone (2016), ‘Blockchain – the gateway to trust-free cryptographic transactions’, Proceedings of the Twenty-Fourth European Conference on Information Systems (ECIS), Berlin: Springer. Cusumano, M.A., A. Gawer and D.B. Yoffie (2019), The Business of Platforms: Strategy in the Age of Digital Competition, Innovation, and Power, New York: HarperCollins. He, D., K. Habermeier, R. Leckow and C. Verdugo (2016), ‘Virtual currencies and beyond: initial considerations’, IMF Staff Discussion Notes, 16 (3), 1. Kondova, G. and R. Barba (2019), ‘Governance of decentralized autonomous organizations’, Journal of Modern Accounting and Auditing, 15 (8), 406–11. Kondova, G. and J. Erbguth (2020), ‘Self-sovereign identity on public blockchains and the GDPR’, Proceedings of ACM SAC Conference, Brno, Czech Republic, March 30–April 3, 2020 (SAC’20), doi:10.1145/3341105.3374066. McKinsey (2018), ‘The strategic business value of the blockchain market’, report, accessed 20 May 2020 at https://www.mckinsey.com/business-functions/digital-mckinsey/our-insights/blockchain-beyond-the-hypewhat-is-the-strategic-business-value. Metcalfe, B. (2013), ‘Metcalfe’s law after 40 years of ethernet’, Computer, 46 (12), 26–31. Nakamoto, S. (2008), ‘Bitcoin: a peer-to-peer electronic cash system’, accessed 20 May 2020 at https://bitcoin. org/bitcoin.pdf. Parker, G., M. Van Alstyne and S.P. Choudary (2016), Platform Revolution: How Networked Markets Are Transforming the Economy and How to Make Them Work for You, New York: W.W. Norton. Zbinden, F. and G. Kondova (2019), ‘Economic development in Mexico and the role of blockchain’, Advances in Economics and Business, 7 (1), 55–64.

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23. Entrepreneurship as a competence Margherita Bacigalupo

‘Entrepreneurship is when you act upon opportunities and ideas and transform them into value for others. The value that is generated can be commercial, cultural or social’ (Vestergaard et al., 2012: 11). This definition of entrepreneurship as capacity to act has been taken up by the European Commission in its effort to define entrepreneurship as a broad competence that can be learnt through formal education, as well as through non-formal and informal learning pathways (Bacigalupo et al., 2016). The definition adopted by the European Commission implies that entrepreneurship is both a solo and a collective competence, which requires a cluster of capabilities that are useful in life and can be transferred from one domain to another, and that all citizens should be afforded the possibility to develop. Entrepreneurship as a competence, thus, is not limited to new venture creation but, more broadly, entails the capacity to act entrepreneurially at work and in society, to create any type of value. What entrepreneurship competence is composed of, however, depends very much on the perspective adopted (Komarkova et al., 2015). A focus on effective performance within an occupation and professional development, led Cheetham and Chivers (1996, 1998) to identify four interrelated clusters of competences, namely: (1) cognitive competences, referring to the possession of the appropriate work-related knowledge and the ability to put it to effective use at work; (2) functional competences, referring to a standardised description of the tasks that a job holder should be able to perform and demonstrate through the achievement of observable outcomes; (3) personal and ethical competencies, referring to the characteristics of the learners leading to effective performance (psychological traits, observable behaviours and personal drives), combined with the possession of an appropriate set of values and the capacity to use them in decision-making in work-related situations; and (4) meta-competencies, that is, higher-order abilities, which include being able to learn, adapt, anticipate and create, but also communication, self-development, creativity, analysis, problem-solving, mental agility and reflection. A focus on the characteristics demonstrated by successful entrepreneurs, however, led Mitchelmore and Rowley (2010, 2013) to differentiate among: (1) conceptual and relationship competencies, including interpersonal skills, oral communication skills, relationship-building, networking, integrity, self-confidence, motivating self, political competence, being active, desire to succeed and perseverance; (2) business and management competencies, including budgeting skills, business operational skills, developing management systems, formulating and implementing strategies for exploiting opportunities, business plan preparation and writing, development of operational systems, planning business activities and managing finance; (3) entrepreneurial competencies, that is, idea generation, innovation skills, visioning, envisioning opportunities, product innovation, creativity, willingness to take risks, scan environments for opportunities and risk-taking; (4) human relations competencies, including employee development, managing employee 186

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performance, human relations management skills, employee relations, hiring skills, leadership skills, motivating others, management style and management skills. When the focus is placed on competence, a set of knowledge, skills and attitudes that can be taught and learnt, again the taxonomy is different. The taxonomy developed by the Danish Foundation for Entrepreneurship (Rasmussen et al., 2015), for instance, identifies four competence areas: (1) action, defined as the competences to launch initiatives and develop them by working with others through collaboration, networking and partnerships. It comprises the capacity to analyse and manage finances, resources and risks, communicate purposefully and organise, and set goals for and lead activities. (2) Creativity, understood as the capacity to spot and generate opportunities for creating value and the capacity to generate ideas for the purpose, through divergent and abductive thinking, by combining knowledge from different fields in novel ways. Creativity entails the capacity to create and revise your personal conceptions, and to experiment and improvise to solve problems and challenges. (3) Outward orientation is conceived as the capacity to observe, analyse and construct a social, cultural and economic context as an arena for valuecreating activities and actions. Outward orientation places a strong emphasis on building an understanding of the world at local and at global levels, including a critical outlook at global opportunities and challenges. (4) Personal attitude, deals with students’ personal and inter-subjective resourcefulness in the face of tasks, challenges, difficulties and setbacks. It entails the ability to initiate acts of change, work persistently, accept and learn from others’ and your own mistakes and to make ethical assessments and reflections. It is a belief in having the capacity to transform the world through action and value creation, thereby realising dreams and plans, while learning by doing it. Although the three conceptualisations have elements in common, they show how researchers from different fields (professional development and productivity, economic growth and innovation, or education and training), holding different learners in mind (the job holder, the entrepreneur or the student), emphasise different facets of entrepreneurship as a competence. These differences have deep implications for how entrepreneurship is taught (Dana, 1987). Lackeus (2015) has analysed such implications focusing on the different emphasis on theory over practice, on the pedagogical approaches chosen as well as the main focus of entrepreneurial education. Whereas Cheetham and Chivers’s (1996, 1998) understanding of entrepreneurship as a professional skill leads to a focus on teaching for entrepreneurship, Mitchelmore and Rowley’s framework calls for teaching about entrepreneurship, the Danish conceptualisation pivots on teaching through entrepreneurship. When defining entrepreneurship as a key competence for lifelong learning, however, the perspective has to be broad and comprehensive, flexible and multipurpose to encompass personal development and venture creation. A broad definition of entrepreneurship puts equal emphasis on transversal skills and attitudes, such as perseverance or sense of initiative, and on those capacities traditionally associated with business, such as financial literacy or market analysis. With this aim, the European Commission has embarked on the development of the Entrepreneurship Competence Framework, known as the EntreComp (Bacigalupo et al., 2016), which has validated through iterative cycles of consensus-building activities with a broad variety of stakeholders. The EntreComp unfolds the definition of entrepreneurship into three areas, ideas and opportunities, resources, and into action. Each area contains five

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competences, which together make up the 15 competences that individuals (or teams) use to action opportunities and ideas. Beneath each of the 15 competences are a number of different threads that describe what the particular competence means in practical terms. Further, the EntreComp puts forward a progression model that unfolds each thread into eight levels of proficiency, stating 442 learning outcomes. Learning progresses along a number of dimensions, such as: progressive autonomy of the learner, increasing complexity of the value-creation setting and uncertainty linked to the process, growing degree of novelty in the idea to be developed, and progression from directed learning to self-regulated learning. Learning outcome statements are not specific enough to be used as a rubric; nevertheless they can inspire entrepreneurial learning interventions within and outside the world of formal education, considering the development of a learner over time, the different starting points of learners in any given time or the setting up of an entrepreneurship education journey. EntreComp creates a shared understanding of the knowledge, skills and attitudes that makes being entrepreneurial as a habit of mind, and can be applied to any situation: from school curriculum, to value creation in the workplace, from community initiatives to scaling up a business. These skills can not only be applied in any context, but can also be acquired across a variety of learning settings, not just in business schools but also in civil society, within existing organisations, in compulsory education or in youth initiatives. Broadening the notion of entrepreneurship as a competence for lifelong learning (European Parliament and the Council, 2006), offers an inclusive definition of what it takes to become entrepreneurial. Such a comprehensive definition, not only fits different learning needs but, most importantly, it creates a common language across stages of education, bridges formal, non-formal and informal learning settings, and connects the world of education and the world of work.

REFERENCES Bacigalupo, M., P. Kampylis, Y. Punie and G. Van den Brande (2016), EntreComp: The Entrepreneurship Competence Framework, Luxembourg: Publication Office of the European Union. Cheetham, G. and G. Chivers (1996), ‘Towards a holistic model of professional competence’, Journal of European Industrial Training, 20 (5), 20–30. Cheetham, G. and G. Chivers (1998), ‘The reflective (and competent) practitioner: a model of professional competence which seeks to harmonise the reflective practitioner and competence-based approaches’, Journal of European Industrial Training, 22 (7), 267–76. Dana, L.P. (1987), ‘Towards a skills model for entrepreneurs’, Journal of Small Business & Entrepreneurship, 5 (1), 27–31. European Parliament and the Council (2006), ‘Recommendation of the European Parliament and of the Council of 18 December 2006 on key competences for lifelong learning’, Official Journal of the European Union, L394/310. Komarkova, I., D. Gagliardi, J. Conrads and A. Collado (2015), Entrepreneurship Competence: An Overview of Existing Concepts, Policies and Initiatives. Final Report, Luxembourg: Publications Office of the European Union. Lackeus, M. (2015), ‘Entrepreneurship in education. What, why, when, how’, Entrepreneurship360 Background Paper, accessed 16 September 2019 at http://www.oecd.org/cfe/leed/BGP_Entrepreneurship-in-Education. pdf. Mitchelmore, S. and J. Rowley (2010), ‘Entrepreneurial competencies: a literature review and development agenda’, International Journal of Entrepreneurial Behavior & Research, 16 (2), 92–111.

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Mitchelmore, S. and J. Rowley (2013), ‘Entrepreneurial competencies of women entrepreneurs pursuing business growth’, Journal of Small Business and Enterprise Development, 20 (1), 125–42. Rasmussen, A., K. Moberg and C. Resbech (2015) A Taxonomy of Entrepreneurship Education: Perspectives on Goals, Teaching and Evaluation, Odense: Danish Foundation for Entrepreneurship. Vestergaard, L., K. Moberg and C. Jørgensen (2012), Impact of Entrepreneurship Education in Denmark – 2011, Odense: Danish Foundation for Entrepreneurship – Young Enterprise.

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24. Entrepreneurship in biotechnology Călin Gurău

INTRODUCTION Biotechnology represents the industrial use of biological organisms and processes to manufacture medical, agricultural and consumer products (Oakey et al. 1990). Biotechnology applications include, among others, bulk and specialty chemicals, healthcare, food and drink products, waste or pollution treatment, and agriculture (Sager 2001). Based on these descriptions, we can characterize biotechnology entrepreneurship as the motivation, skills and actions required to successfully identify and exploit market opportunities regarding the use, manufacturing and consumption of products and services derived from the use of biological organisms and processes. To understand the specificities of entrepreneurship in biotechnology, we discuss in the following sections, the various paths of biotechnology entrepreneurship, the opportunities and challenges of biotechnology entrepreneurship, and finally, the relationship between entrepreneurship and intrapreneurship in this specific sector.

PATHS TO ENTREPRENEURSHIP Biopharmaceutical enterprises represent classical examples of knowledge-based organizations (Cohen and Munshi 2017) that integrate multiple professional cultures. In most cases a successful biotechnology venture is the result of the collaboration between scientists and business experts (Mehta 2004), who use their complementary competencies to develop an organization based on a dynamic entrepreneurial culture (Arantes-Oliveira 2007). Usually, the scientists involved in bio-entrepreneurship have a strong academic background, since the science behind biotechnology products and processes requires expert knowledge, acquired through learning, experimentation and research. Often, as a result of their research activities, these scientists identify a promising idea or process that has a good potential to be developed and commercialized as a product or service. In this moment, the scientist often considers the advantages and the challenges to start an entrepreneurial venture, alone, or together with some colleagues or members of his or her research team (Gurău et al. 2012). However, although the scientist has the necessary knowledge to understand and develop the biological processes that represent the basis of an attracted commercial offer, he or she may have difficulty in understanding the structure of the market, the complexity of the value-added chain required to develop the future product or service, and accessing the financial, material and human resources required to develop and manage a functional enterprise. These skills and knowledge are usually brought to the biotechnology venture by one or more business experts, who complement the scientific knowledge of the researcher(s) with market and management experience and vision. Ideally, this start-up 190

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team will then pass through several successive phases, which according to Mehta (2004), include: (1) opportunity recognition; (2) ensuring the intellectual property rights for the innovative idea, discovery or process which represents the scientific basis for developing a final product or service which represents the main market offer of the biotechnology venture; (3) funding and building the team and the company; (4) developing and using the technology for product research and development; (5) survive by obtaining additional funding, selling assets (for example, intellectual property licensing) or spinning-out applications; and (6) achieving the final product or service and launching it on the market.

SECTORIAL OPPORTUNITIES AND CHALLENGES Among other necessary skills, a biotechnology entrepreneur should also be a good risk manager (Shimasaki 2014), as the challenges that need to be overcome during the phases of company and/or product or service development are multiple, difficult and often unpredictable. However, as biotechnology products and processes can be developed and commercialized to answer different needs in different economic sectors, it is important to discuss the opportunities and challenges of developing and managing a biotechnology venture in various activity sectors. The best-known area of biotechnology applications is healthcare. Healthcare biotechnology ventures attempt to develop therapeutic drugs or procedures which target human or animal diseases. Healthcare biotechnology products include biopharmaceuticals and diagnostic kits. Biopharmaceuticals are drugs and drug therapies produced through the use and transformation of living cells that treat, control and cure conditions such as AIDS, heart disease and various forms of cancer. Diagnostic products enable earlier and more effective identification of many illnesses and conditions. The dedicated healthcare biotechnology ventures start from selected active molecules to develop therapeutic drugs. However, given the direct interaction of the drug with the human or animal organism, the research and development (R&D) process for these products is long, complex, risky, unpredictable and resource-demanding, including three main phases: (1) discovery, (2) development and testing, and (3) manufacturing and commercialization (Evans and Varayia 2003). Research and development projects (across all therapeutic areas) take 14 years on average to come to market (Paul et al. 2010), with median costs estimated at $350 million, and with 95 percent of the experimental medicines failing to demonstrate effectiveness and safety (Herper 2013). It is a turbulent, highly competitive environment, in which the first company launching an effective product often becomes a successful market leader. Most biotechnology ventures deploy their activities on the first two stages of the product development process (Saviotti 1998), using the well-developed infrastructure for product commercialization, controlled and managed by specialized traditional organizations (pharmacies, retail stores, hospitals and national health agencies). Even the first two phases often prove to be too complex and resource-demanding for independent biotechnology firms, that are ultimately forced to focus on a specific value-added activity – representing the area of their main expertise, and develop collaborations or alliances with other biotechnology or pharmaceutical organizations. There are also biopharmaceutical products for which the R&D process is simpler

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and less expensive: such as diagnostic kits or vaccines. However, the need for supporting services, reagents and laboratory instruments has fueled the development of many specialized providers of laboratory equipment, reagents or services for dedicated biopharmaceutical companies. Another set of biotechnology products and activities is related to agriculture and food processing. Some of these are used for a very long time, being incorporated in traditional genetic selection (for example, the gradual amelioration of animal species through selective breeding) or food production methods (for example, the fermentation of cheese or the production of wine). Others are based on the new knowledge and techniques of genetic engineering and involve the modification of living organisms to promote specific traits, such as resistance to drought or to pests, or longer shelf-life for genetically modified fruits and vegetables. The new genetic techniques usually are applied on a large scale by multinational corporations, such as Monsanto, which have the necessary resources and infrastructure to conduct expensive R&D projects, and then to successfully launch and commercialize on the market the resulting products. Often, the discoveries made by small biotechnology ventures are either bought or incorporated through inter-organizational alliances into the value-added processes controlled by large corporations; but in a few cases, small biotechnology firms can maintain their independence by becoming leaders in a specific market niche. Modern agriculture and food biotechnology are highly controversial activities that create consumer resistance and prompt government actions, such as moratoriums on the research and production of genetically modified organisms (for example, the moratorium on genetically modified products, imposed by the European Union, and effective between June 1999 and August 2003). Finally, a third economic area using biotechnology products and procedures is the bioremediation and rehabilitation of polluted sites. The size of service providers varies in this market, but biotechnology small and medium-sized enterprises (SMEs) have a good chance to thrive by developing proprietary technology and specializing in specific types of sites or events (for example, the bioremediation or rehabilitation of mining areas, and land, river or marine pollution).

ENTREPRENEURSHIP VERSUS INTRAPRENEURSHIP Considering the multitude of organizational actors that are active in the sectors applying biotechnology processes, it is important to consider the relationship between entrepreneurial and intrapreneurial activities. Entrepreneurship represents the initiative of an independent entrepreneur or entrepreneurial team which develops a new venture based on an innovative idea and a perceived market opportunity. ‘[I]ntrapreneurship refers to a system that allows an employee to act like an entrepreneur within a company or other organization. Intrapreneurs are self-motivated, proactive, and action-oriented people who take the initiative to pursue an innovative product or service’ (Kenton 2019). Considering the high risk and resource requirements of many biotechnology activities, the value-added chain of activities is often highly fragmented, the dedicated biotechnology SMEs focusing mainly on the innovative research activities or applying a niche leader strategy, while large companies attempt to acquire or develop alliances with these highly

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dynamic firms. This situation is easily recognizable in the pharmaceutical sector, in which a handful of large multinational corporations control the market, although they need the help of small innovative biotechnology firms to boost the number of identified creative ideas and, ultimately, of final therapeutic products effectively launched on the market. ‘In recent years declining productivity has become a concern for pharmaceutical companies. R&D returns declined to 2 percent in 2018, down from 10 percent in 2010, with figures showing a steady decline’ (Pategou 2019). To address this problem, large pharmaceutical companies have two options: to acquire and integrate innovative biotechnology firms in their corporate structure, or to develop partnerships with biotechnology SMEs. Both strategies offer advantages and disadvantages. The structural integration of the innovative unit into the hierarchical system of a large corporation may significantly alter the traditional work practices of the biotechnology, imposing more rigid routines and controls which can significantly reduce the motivation, creativity and productivity of innovative researchers (Schweitzer 2005). The other strategic option is to develop strategic alliances and partnerships between large corporations and innovative biotechnology firms, based on their natural complementarity of resources and skills. This approach matches the specific research capabilities of the biotechnology firm – characterized by a high level of creativity and innovation which is particularly effective for the discovery of a therapeutic product, with the high level of resources and management expertise of the large organization – which can successfully manage the development and commercialization part of an innovative project. However, small firms should be careful in engaging in this type of collaboration, as the disparity between the resources and power of the two organizations can induce forms of indirect control that can affect the independence and the innovativeness of the biotechnology firm. An interesting proof that high-technology innovativeness requires a specific work environment is the situation in which a researcher from a team of researchers, initially employed by a large pharmaceutical or biotechnology corporation, leaves the firm to create a spin-off organization with a smaller and less formal hierarchical structure, in order to pursue the development of highly innovative projects.

CONCLUDING REMARKS Given the specificity of biotechnology activities, organizations and market, biotechnology entrepreneurship requires a series of essential capabilities that go beyond the capacity of a person to identify and exploit a market opportunity. These capabilities include: scientific knowledge and research expertise, identification and access to resources, risk management, market positioning, and, last but not least, the need to implement alliances and partnerships with other organizations while maintaining as much as possible the organizational independence and innovativeness of the firm.

REFERENCES Arantes-Oliveira, N. (2007), ‘A case study on obstacles to the growth of biotechnology’, Technological Forecasting & Social Change, 74, 61–74.

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Cohen, S.K. and N.V. Munshi (2017), ‘Innovation search dynamics in new domains: an exploratory study of academic founders’ search for funding in the biotechnology industry’, Technological Forecasting & Social Change, 120 (July), 130–43. Evans, A.G. and N.P. Varayia (2003), ‘Anne Evans: assessment of a biotechnology market opportunity’, Entrepreneurship: Theory and Practice, 28 (1), 87–106. Gurău, C., L.-P. Dana and F. Lasch, (2012), ‘Academic entrepreneurship in UK biotechnology firms: alternative models and the associated performance’, Journal of Enterprising Communities, 6 (2), 154–68. Herper, M. (2013), ‘The cost of creating a new drug now $5 billion, pushing Big Pharma to change’, Forbes, 11 August, accessed 23 April 2019 at https://www.forbes.com/sites/matthewherper/2013/08/11/how-thestagger ing-cost-of-inventing-new-drugs-is-shaping-the-future-of-medicine. Kenton, W. (2019), ‘What is intrapreneurship?’, Investopedia, 20 September, accessed 23 November 2019 at https://www.investopedia.com/terms/i/intrapreneurship.asp. Mehta, S. (2004), ‘Paths to entrepreneurship in the life sciences’, Bioentrepreneur, 26 October, doi:10.1038/ bioent831. Oakey, R., W. Faulkner, S. Cooper and V. Walsh (1990), New Firms in the Biotechnology Industry, London: Pinter. Pategou, J. (2019), ‘The marriage of big pharma and biotech’, Drug Discovery & Development, 19 March, accessed 23 April 2019 at https://www.drugdiscoverytrends.com/the-marriage-of-big-pharma-and-biotech/. Paul, S.M., D.S. Mytelka, C.T. Dunwiddie, C.C. Persinger, B.H. Munos, S.R. Lindborg and A.L. Schacht (2010), ‘How to improve R&D productivity: The pharmaceutical industry’s grand challenge’, Nature Reviews Drug Discovery, 9 (3), 203–14. Sager, B. (2001), ‘Scenarios on the future of biotechnology’, Technological Forecasting & Social Change, 68 (2), 109–29. Saviotti, P.P. (1998), ‘Industrial structure and the dynamics of knowledge generation in biotechnology’, in J. Senker (ed.), Biotechnology and Competitive Advantage, Cheltenham, UK and Lyme, NH, USA: Edward Elgar, pp. 19–43. Schweitzer, L. (2005), ‘Organizational integration of acquired biotechnology companies into pharmaceutical companies: the need for a hybrid approach’, Academy of Management Journal, 48 (6), 1051–74. Shimasaki, C. (2014), ‘What is biotechnology entrepreneurship?’, in C. Shimasaki (ed.), Biotechnology Entrepreneurship Starting, Managing, and Leading Biotech Companies, Boston, MA: Elsevier, pp. 45–56.

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25. Entrepreneurship in the ethnic ownership economy Ivan H. Light

The ethnic ownership economy encompasses self-employed people, their unpaid family workers, and their co-ethnic employees. The ethnic ownership economy has three sectors: formal, informal and illegal. Access to these sectors importantly depends upon prior access to four capital resources: financial capital, social capital, human capital and cultural capital. In turn, young people obtain access to these economic resources through the class system and/or through the ethnic/religious groups to which they belong. The resources obtained influence the extent to which young people enter the formal, informal or informal sector of their group’s ethnic ownership economy. Middleman minorities are well endowed in these resources so their self-employment rates are recurrently high. Although descended from middleman minority theory, which Max Weber (1981: ch. 16C) initiated, the ethnic economy literature now more broadly addresses the economic independence of immigrants and ethnic minorities in general, not just of middleman minorities. This expansion releases the ethnic economy from narrow focus upon historical trading minorities, and opens a discussion of the entire range of immigrant and ethnic minority self-help and self-defense through business ownership. Business ownership represents a ubiquitous self-defense of immigrants and ethnic minorities, but especially of any who confront disadvantage in labor markets. Business ownership permits immigrants and ethnic minorities to reduce their employment disadvantage, renegotiating their participation in the general labor market from a position of greater strength. Unable to find work in the general labor market, or unwilling to accept the work that the general labor market offers, or just reluctant to mix with foreigners, immigrants and ethnic minorities have the option of self-employment in the ethnic economy of their group  or  of working for a co-ethnic. Although ethnic and immigrant groups differ in how well and how much they avail themselves of independent business, none ever lacks an ethnic economy. Light and Karageorgis (1994: 648) defined an ethnic economy as, ‘the ethnic selfemployed and employers, their unpaid family workers, and their co-ethnic employees’. Somewhat later, this definition of ethnic economy became the ethnic ownership economy, now only a co-equal component of an ethnic economy, not the whole of it. As currently understood, an ethnic economy consists of two sectors: the ethnic-controlled economy and  the ethnic ownership economy (Light, 2005; Light and Gold, 2000).1 An ethnic ownership economy is still defined by business ownership. As before, an ethnic  ownership economy still includes the self-employed, their unpaid family workers and co-ethnic employees. In contrast, an ethnic-controlled economy requires ethnic control, not ownership, and addresses employees who collectively influence hiring and wages in their workplaces. Such employees may control a business without actually owning it. This chapter is not about the ethnic-controlled economy. Rather, it explores how members of ethnic minorities become entrepreneurs in the ethnic ownership economy of their group. Ethnic ownership economies have three sectors: formal, informal and illegal 195

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Table 25.1

Ethnic ownership economy and sectors Ethnic ownership economy

Sector

Formal

Informal

Illegal

1 2 3 Examples 1 Owners of dry-cleaning retail store, their unpaid family workers, and their co-ethnic employees 2 Owners of unlicensed garment factory, their unpaid family workers, and their co-ethnic employees 3 Owners of illegal lottery, their unpaid family workers, and their co-ethnic employees Source:

Light (2005: 652).

(Table  25.1).  The formal sector consists of ethnic or immigrant-owned firms that pay taxes and are enumerated by public authorities. If co-ethnics own these firms, then both the owners and their co-ethnic employees work in the formal sector of the ethnic ownership economy. The ethnic ownership economy’s informal sector contains ethnic minority or immigrant-owned firms that, producing legal commodities, produce them without paying taxes and/or obtaining requisite licenses. The size of the ethnic economy’s informal sector is hard to measure so research studies often ignore it. If the existence of informal sectors is not recognized, awareness will be restricted to the formal sector, resulting in underestimation of the extent of ethnic minority or immigrant self-employment. The illegal sector of an ethnic ownership economy consists of co-ethnic-owned firms that produce illegal goods and services such as narcotic drugs, prostitution and gambling. The illegal sector does not include predatory crimes that yield victims rather than customers. The illegal sector is usually relegated to criminologists as if the pariah sector existed in shameful isolation. This treatment obscures the organic relationship of the illegal sector to the other two sectors of the ethnic ownership economy. The result is underestimation of immigrant and ethnic minority employment and economic influence, and mystification of the movements of personnel and capital between and among the sectors (Nee et al., 1994). Whether employees or owners, all co-ethnics working in any ethnic ownership sector belong to the ethnic economy of their group. The size of ethnic economies varies historically and among ethno-cultural groups (Fairlie and Meyer, 1996; Li, 2001). Sometimes most co-ethnics find employment in the ethnic ownership economy; sometimes, few do. Sometimes ethnic minorities and immigrants congregate most heavily in the formal sector, sometimes in the informal and sometimes in the illegal. Mapping the absolute and relative size and distribution of ethnic ownership sectors is of great importance to understanding the economic prospects of immigrants and ethnic minorities as well as to making intelligent policy choices. As matters stand, however, only the ethnic ownership economies of the formal sector can be estimated from official data sources. Ethnic ownership economies in the informal sector and the illegal sector are inaccessible from official sources, and must be estimated from social science research (Fairlie, 1999). Accordingly, just improving and debating the adequacy of size estimates is a continuing methodological concern of research in this area.

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As one result, researchers have developed quantitative methods that permit them to estimate the size of ethnic ownership economies from public data sources. These methodologies permit analysts to estimate the size and sectoral distribution of ethnic ownership economies of a multiplicity of ethno-racial groups in multiple locations whereas previous methodology relied upon case studies of one group in a single location. Estimates indicate that ethnic ownership economies are surprisingly large. Light and Gold (2000: 34) found that just the formal sector’s ethnic ownership economies contained 11 per cent of the labor force of all foreign born persons in 1990. They estimated that 10 per cent of the average American ethnic group’s workers found employment in the informal sector of the ethnic ownership economy; using somewhat different definitions. Of course, constituent groups had higher and lower ethnic ownership economies than the statistical average. Among Hispanics, the percentage was 9.9 per cent; among African Americans, 5.6 per cent; Asians, 19.2 per cent and Koreans more than 50 per cent. Specific groups fall above and below this average, which also varies from city to city and country to country. In the most comprehensive and serious effort to measure informal sector self-employment using a case study, Tienda and Raijman (2000) found that 38 per cent of Mexican immigrant households in Chicago worked in the informal economy. Adding the informal and formal sectors, Light and Gold (2000: 52) estimated that about 20 per cent of the average ethno-racial group works in ethnic ownership economies.

SINGLE AND DOUBLE DISADVANTAGE Immigrant and ethnic minority workers often turn to self-employment because of disadvantage in the labor force. Unable to find a job, they start their own business. Disadvantage increases self-employment in the informal and illegal as well as in the formal sector of the ethnic ownership economy. Racial, ethnic and religious discrimination are major causes of disadvantage, but lack of language skill and unaccredited human capital are also important. Disadvantage is not a simple or unitary concept. Current thinking distinguishes labor market disadvantage from resource disadvantage. Labor market disadvantage occurs when workers cannot obtain wage or salary employment that reaches the prevailing market return on their productivity (Light and Rosenstein, 1995: 153–5). The most extreme labor market disadvantage is long-term unemployment, which one expects to last forever. In such a case, all earnings prospects depend on selfemployment. Groups experience resource disadvantage when, as a result of some current or past historical experience, such as slavery or peonage, members enter the labor market with fewer resources than others. Resources include all attributes that improve the productivity of employees, notably human capital, but also social capital, cultural capital and  financial capital (Jenssen, 2001; Morris, 2001). Even if resource-disadvantaged employees earn the expected wage, fully equivalent to what equivalently disadvantaged non-co-ethnics earn, their wages will be low because resource-disadvantaged workers exhibit low productivity. Less productive workers receive lower pay than more productive workers. In this case, they experience only one disadvantage, resource disadvantage. They are singly disadvantaged. However, when labor force disadvantage and resource disadvantage combine, those subjected to discrimination in the labor market are low-productivity employees as

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well. Because subject to discrimination and being less productive, the doubly disadvantaged typically lack the human, cultural, social and financial capital that support self-employment in the formal sector. As a result, their multiple disadvantages impel the doubly disadvantaged into the ethnic economy’s informal or illegal sectors. These sectors do not require the same abundance or type of resources, as does the formal sector. On the other hand, when immigrants or ethnic minorities have strong resources of human, social, cultural and financial capital, and when they suffer only discrimination in the labor  force,  the disadvantaged have resources that empower their self-employment in the formal sector. Subjected to disadvantage in the labor force, they turn easily to selfemployment in the formal sector, thus tending to mitigate or even overcome their earnings disadvantage in the labor market. This resource constraint version of disadvantage theory explains puzzling anomalies that arise from the highly unequal rates of self-employment among immigrants and ethnic minorities. The basic conundrum has been to explain unequal rates and unequal sectoral distribution of self-employment among disadvantaged groups. Why do some preponderate in the formal sector whereas others preponderate in the informal or illegal sectors? Resource constraint theory proposes that doubly disadvantaged groups usually have the expected motive to undertake self-employment in the formal sector, but they lack  appropriate capital resources. They want to start their own business, but they do not know how, and would lack the other resources even if they did know how. As a result, the self-employment of the doubly disadvantaged develops in the informal sector or in the illegal sector rather than in the formal sector. The formal sector requires the most resources of the kind the doubly disadvantaged least command. Conversely, welleducated and affluent groups have the capital resources to undertake self-employment in the formal sector when they face disadvantage in the labor market. By treating the formal, the informal, and the illegal sectors as organic parts of the same ethnic ownership economy, the ethnic economy literature exposes movements of personnel and money among the sectors. These movements signal changes in the social location of ethnic groups. When successful in the informal sector, immigrant and ethnic minority firms and their owners may migrate into the formal sector. In these cases, business owners who were initially doubly disadvantaged, and who went to work in the  informal sector, overcome their initial disadvantage. By working in the informal sector, the doubly disadvantaged acquired new capital resources that fueled their transition from informal to formal sector business ownership and from social marginality to respectability. The same progression can take initially disadvantaged immigrants and ethnic minorities out of illegal business into the legal sectors. The transition of American Chinatowns from sordid vice districts in the nineteenth century to tourist attractions in the twentieth century reflects this kind of transition. So does the Cinderella story of racketeer capital invested in Las Vegas thanks to which a generation of Jewish and Italian American gangsters became respectable business owners. Of course, if the frequency of life history transitions from informal sector to formal sector or from illegal sector to formal sector were much higher than it is, the frequent transitions would wipe out any association between ethno-racial origins and the preponderant sector of entrepreneurship. Starting in the informal sector or in the illegal sector would not reduce anyone’s likelihood of winding up in the formal sector. Conversely, entrepreneurs who started in the formal sector, like Donald Trump, would frequently

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wind up as lunch-stand operators. In fact, these inter-sectoral transitions are infrequent. The advantaged hang on to their advantages, and the disadvantaged hang onto their disadvantages. Among the disadvantaged, those doubly disadvantaged preponderantly occupy the informal and illegal sector while those only labor market disadvantaged occupy the formal sector. This association shows that double disadvantage is only infrequently overcome by entrepreneurial success. That said, when disadvantage is overcome, and graduation to the formal sector is achieved on a wholesale basis, then an ethnic group has improved its social position.

FOUR CAPITAL RESOURCES The ethnic economy literature has clarified and classified the resources people actually use to start and operate business firms as well as the social sources of these resources (Morris, 2001). Current thinking identifies four resources that emanate from two locations in the social order. The four resources are all different forms of capital, which is defined narrowly as any resource hoard that facilitates entrepreneurship (Johannisson, 2000; Sequeira and Rasheed, 2004). Obviously, financial capital accomplishes this goal, and, in the past, financial capital was regarded as the key resource. Currently, researchers add three other forms of capital to this list while retaining financial capital. The other three are human capital, social capital and cultural capital. Human capital refers to skills acquired in classrooms and on the job. Since the acquisition of these skills requires that their owner invest time and money in learning them, the ownership of hard skills represents an investment in personal productivity. Students invest in the expectation of long-run gain. For example, a four-year college degree now costs more than $100 000, but the college graduate has skills that render him or her more productive and, therefore, able to command a higher salary. Since the self-employed as a group have more years of education than do wage and salary workers as a group, human capital appears empirically to contribute to self-employment. Social capital means access to formal and informal social networks that facilitate and support entrepreneurship (Rušinović, 2006: ch. 4). Weak and strong social ties to others constitute these networks. The strength or weakness of a social tie depends upon its intensity and duration. Networks are a scarce resource that requires effort to build and maintain. Participants must invest time, energy and money in building and maintaining  their social network. That done, their social network yields vocationally relevant information and help. Strong social ties yield help; weak social ties yield information so both strong and weak ties are desirable components of entrepreneurial networks. Help means loans of money and equipment, referrals, preferential buying, selling, and servicing, memberships and the like. Information includes technical assistance, timely advice, market tips, gossip, news, email and so forth. Entrepreneurs’ networks work best when social relationships are reciprocal. Reciprocal relationships are those in which the firm expectation exists that a favor done will be reciprocated. Reciprocal relationships require trust. For example, if Joe has a computer and Ann has a truck, Joe can borrow Ann’s truck today because Ann believes that when she needs a computer later, Joe will  return her favor. Ann exhibits a trust-based expectation of reciprocity that, when present, enables both Joe and Ann to avoid having to buy or rent infrequently used

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capital  equipment. Lacking comparable reciprocity, Joe’s and Ann’s competitors must rent computers and trucks, and the rental cost will increase the price of their commodity. Similarly, social capital can be embodied or hidden in other forms of capital. Cultural capital is the fourth form of entrepreneurial capital (Light, 2004). Cultural capital refers to aptitudes, interests, beliefs, habits, lifestyles and customs that facilitate entrepreneurship. Much cultural capital is inherited or passed down in the course of primary socialization to adulthood; some is acquired. Max Weber’s (1958) celebrated theory of the Protestant work ethic exemplifies and illustrates cultural capital. As is very well known, Weber taught that the Protestant Reformation of the sixteenth century encouraged traditional European peasants to save their money and work harder than their parents had been accustomed to doing. Early modern Protestants valued hard work, punctuality, thrift and temperance a lot more than Catholics. These traits still support entrepreneurship, and all such vocationally relevant character traits (as well as social institutions such as the family) are still cultural in origin whether they emanate from Protestantism or from some other ethno-religious tradition. For reasons like this, cultural capital supports the entrepreneurship of those who have the most and the right kind.

SOURCES OF ENTREPRENEURIAL CAPITAL Where do entrepreneurs acquire capital resources? The ethnic economy literature does not investigate individual differences in personality as a source of motives or capabilities. This is a valid inquiry, but the ethnic economy literature does not undertake this line of  inquiry.  The ethnic economy literature is agnostic about individual differences, and cannot, in most cases, explain why of two members of the same ethno-religious or ethnocultural group, one becomes an entrepreneur and the other does not. This incapacity arises from the structure of explanation that the ethnic economy literature deploys. Capabilities are traced to group memberships. Individuals who are members of the same group are presumed to have the same capabilities. If, having the same capabilities, they diverge in their behavior, then something other than shared capabilities must explain the divergence. Fully assimilated members of a society’s dominant ethnic group are just as ethnic as immigrants. To be ethnic is just to have a culture. But, the ethnic economy cannot offer an ethnic reason why some Germans in Germany become entrepreneurs and others do not, or why some Malays in Malaysia become entrepreneurs and others do not. Class must be the source of that internal explanation. However, when comparing Germans and Malays in Portugal, the ethnic economy approach may find ethno-cultural differences that would explain why one group has a higher self-employment rate than another. Eschewing explanation of individual difference, the ethnic economy literature proceeds  like an actuary, predicting rates of self-employment among groups with different amounts and different kinds of capital resources. To this end, the ethnic economy literature distinguishes ethnic resources and class resources depending upon a resource’s provenance. Class resources derive from an entrepreneur’s placement within the class structure of society. Resources possessed thanks to one’s class placement are one’s class resources. Generally speaking, the class system of society bestows more entrepreneurial capital upon rich people than upon poor people so the rich are expected to exhibit higher rates of formal sector self-employment. Rich people inherit wealth and influential social

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networks. They can afford expensive educations. They are likely to have entrepreneur parents or relatives, who teach them the entrepreneurial way of thinking and acting. In sum, rich people have superior access to financial capital, human capital, social capital and cultural capital that supports their entrepreneurship. For example, Donald Trump’s father was a construction entrepreneur who took his adolescent son to job sites and introduced him to real estate promoters. Donald Trump later attended Wharton School of Finance. As a young man, Donald Trump inherited $5 million that staked his initial ventures in real estate development. In contrast, back in east Los Angeles, Antonio Lopez had only five years of schooling in Guadalajara, started work at 11, knew only working-class people like his parents, and inherited only a guitar from his father. Is it any wonder that Trump became the real estate mega-tycoon and Lopez the owner of a taco stand, rather than the reverse? However, the contribution of the class system to entrepreneurial resources, while still true, is old knowledge. There is no need to belabor this well understood point. The ethnic economy literature builds on this received wisdom, but adds new. The ethnic economy literature has contributed awareness that a second major source of entrepreneurial resources exists. This source is the ethno-cultural and the ethno-religious group structure of societies. Quite independent of the class system, ethno-cultural and ethno-religious groups may confer financial capital, human capital, social capital and cultural capital upon members who are not rich. For example, poor people can borrow financial capital from kin and friends if they have a large extended family that consists of people who normatively endorse lending money to family members. The Amish, the Chinese and the Hindustanis have both extended families and the belief that one should lend money to extended kin. Therefore, poor entrepreneurs who are Amish, Chinese or Hindustani have superior chances to borrow start-up capital thanks to their ethno-cultural provenance. In contrast, white Americans have a hyper-nuclear family system that strips away the extended kin who might otherwise be available to lend them start-up money. Moreover, white Americans generally believe that it is inadvisable to lend money to kin. ‘Don’t mix family and business’ is their cultural belief. Again, Asians, Latin Americans and Africans utilize rotating savings and credit associations to support saving and lending. These informal institutions make capital available to people on the strength of their social standing in a large community. Even poor communities utilize these informal financial institutions. However, white Americans have no such informal institutions in their cultural repertoire. White Americans have neither rotating savings and credit associations nor extended kin from whom to borrow. If banks refuse loans, and they are not rich, then white Americans have no alternative source of loan capital, as do Amish, Chinese and Hindustanis. Comparable cases can be made for the contribution of the ethno-religious and ethnocultural structure of society to the availability of social capital, cultural capital and, even, human capital. Ethnic groups that value human capital a lot will invest heavily in it even when the expected money rewards are low. They thus endow their young adults with productive skills than enable their entrepreneurship. The economic development of South Korea in the late twentieth century benefited immensely from the vast respect of the Korean people for education, and their willingness to acquire it even when the expected return was lower than the cost. Conversely, of course, the Amish reject education beyond the eighth grade so Amish youth fail to acquire the schoolroom’s human

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capital even when the market economy generously rewards human capital. In both these cases, group-level attitudes toward education affect human capital acquisition net of that capital’s expected money return. These attitudes are cultural in origin. In this manner, ethnic cultures and class cultures become alternative sources from which entrepreneurs may derive vocationally relevant human capital. Everyone participates simultaneously in a class culture and an ethnic culture. Fully assimilated members of the ethnic majority also have an ethnic culture in which they participate and from which they derive such capital resources as their group membership affords them. Country clubs, luxury resorts, and college fraternities are sources of class-derived social capital, but Methodists, vegetarians, housewives and farmers also have social capital. The social networks of humble persons will not include as many powerful or rich people as do the social networks of the rich and wellborn. As a result, the humble people cannot obtain equivalent help and information from their social networks as do the rich and wellborn from theirs. However, for all that, the humble people still have access to social networks through which help and information may flow in abundance. If so, well-connected people of modest class origins can still have access to social capital that supports a modest entrepreneurship. Antonio Lopez drew on his social network of Guadalajara paisanos to obtain help and information that enabled him to open a taco stand in Los Angeles. The example illustrates the availability of entrepreneurial social capital to many more people than only those who are rich and wellborn (Halpern, 2005: 48). Social capital is the telephone connection that permits people to communicate; but cultural capital is what they say once connected. Since adults who understand business rise to the top of the class system, the cultural capital of the rich and wellborn accurately refracts the values, attitudes, practices and habits that enabled entrepreneurship in the older generation. Just being born into this class conveys its entrepreneurship-supporting cultural capital. That birthright advantage increases the likelihood that the children of the rich and wellborn will become important formal sector entrepreneurs. But this conclusion cannot be the whole truth. If entrepreneurship were just for the rich, why do some non-rich people own taco stands and dry cleaning establishments? Evidently, the rich and wellborn do not monopolize what Nobel Prize winner Edmund S. Phelps (2007) called, ‘entrepreneurial culture’. Stigmatized middleman minorities also transmit an entrepreneurship-supporting cultural capital, handing it along to their young people. This cultural capital enables middleman minorities (such as Armenians in the Levant, Jews in Europe, the overseas Chinese) to generate more entrepreneurs than do other ethno-religious or ethno-cultural groups. Sometimes ethnic or religious groups acquire the cultural capital that supports entrepreneurship. The Quakers of England accomplished this acquisition in the eighteenth century, and the Gurage of Ethiopia in the twentieth (Nida, 2006). Ethnic cultures may contain or replicate the entrepreneurshipsupporting cultural capital of the rich and wellborn. When they do, people of modest class background have access to some or all the cultural capital of entrepreneurship even though they are neither rich nor wellborn.

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CONCLUSION Ethnic minorities and immigrant groups often face disadvantage in the labor market. Ethnic ownership economies are a basic and ubiquitous source of economic self-defense in this situation. All ethnic and immigrant minorities control and transmit social capital, financial capital, human capital and cultural capital that supports the entrepreneurship of their youth. Some have more than others, but all have some. Therefore, young people of modest class background and outsider ethnic status may acquire the basic resources of entrepreneurship thanks to their ethnic or religious affiliation in addition to whatever their class background provided, if anything. Just looking at classic middleman minorities, we see that rich Jews, Armenians and Chinese derive resources of entrepreneurship from their class background as well as from their ethnic background. Because they are rich, they have class resources; because they are Jewish, Armenian or Chinese, they have ethnic resources of entrepreneurship in abundance. However, poor Jews, Armenians or Chinese still acquire cultural capital of entrepreneurship from their ethnic culture. Even without supporting class resources, this cultural capital increases the likelihood that poor Jews, poor Armenians or poor Chinese will become self-employed. When they do, they strengthen the ethnic ownership economy of their group and therewith that group’s ability to defend itself against disadvantage in the labor force. It is no wonder then that middleman minorities like these demonstrate high rates of self-employment in the formal sector. Conversely, if we consider ethnic groups that are not middleman minorities, which encompasses most of humanity, their children acquire entrepreneurship that supports entrepreneurship in the formal sector principally when born into the rich class. Children of the working class do not obtain entrepreneurship-supporting capitals from either their class culture or from their ethnic culture; hence, their access to formal sector self-employment is less likely. They may achieve access only into informal sector self-employment for this reason because the informal sector requires lesser resources of entrants. On the other hand, wayward youth, with no chance for legitimate business ownership, may have access to a cultural capital that supports entrepreneurship in the illegal sector of their group’s ethnic ownership economy. They have the wisdom of the street, not the wisdom of the business school. For this reason, the working-class youth are better endowed with the requisite capital for self-employment in the illegal sector than are MBAs. This conclusion need not mean that some steal and others earn an honest living. Playing The Godfather, Marlon Brando remarked that one could steal more with a briefcase than with a machine gun. Prisons are the entrepreneurship academies of the lower working class. When the working-class youth succeed in illegal enterprise, they or their descendants can relocate the business into the formal sector, which upgrades their own status but also the average status of the members of their ethnic group.

NOTE 1. One must differentiate an ethnic ownership economy from an ethnic enclave economy. The terms are not synonyms although they are often carelessly treated as if they were. An ethnic enclave economy is an ethnic ownership economy that is geographically clustered around a high-density residential core. Ethnic enclave economies are a special case of an ethnic ownership economy.

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REFERENCES Fairlie, Robert W. (1999), ‘Drugs and legitimate self-employment’, Department of Economics University of California, Santa Cruz. Fairlie, Robert W. and Bruce D. Meyer (1996), ‘Ethnic and racial self-employment differences and possible explanations’, The Journal of Human Resources, 31: 757–93. Halpern, David (2005), Social Capital, Cambridge: Polity Press. Jenssen, Jenifer I. (2001), ‘Social networks, resources, and entrepreneurship’, The International Journal of Entrepreneurship and Innovation, 2: 103–9. Johannisson, Bengt (2000), ‘Networking and entrepreneurial growth’, in Donald L. Sexton and Hans Landström (eds), The Blackwell Handbook of Entrepreneurship, Oxford: Blackwell, pp. 368–86. Li, Peter S. (2001), ‘Immigrants’ propensity to self-employment: evidence from Canada’, International Migration Review, 35: 1106–28. Light, Ivan (2004), ‘Cultural capital’, in Maryanne Cline Horwitz (ed.), New Dictionary of the History of Ideas, New York: Scribner’s. Light, Ivan (2005), ‘Ethnic economies’, in Neil Smelser and Richard Swedberg (eds), Handbook of Economic Sociology, 2nd edn, New York: Russell Sage Foundation, ch. 26. Light, Ivan and Steven Gold (2000), Ethnic Economies, San Diego, CA: Academic Press. Light, Ivan and Stavros Karageorgis (1994), ‘The ethnic economy’, in Neil Smelser and Richard Swedberg (eds), Handbook of Economic Sociology, New York: Russell Sage Foundation, ch. 26. Light, Ivan and Carolyn Rosenstein (1995), Race, Ethnicity, and Entrepreneurship in Urban America, Hawthorne, NY: Aldine de Gruyter. Morris, Michael (2001), ‘The critical role of resources’, Journal of Developmental Entrepreneurship, 6: 5–7. Nee, Victor, Jimy Sanders and Scott Sernau (1994), ‘Job transitions in an immigrant metropolis: ethnic boundaries and the mixed economy’, American Sociological Review, 59: 849–72. Nida, Worku (2006), ‘Entrepreneurship as a social movement: how the Gurage became successful entrepreneurs and what it says about identity in Ethiopia’, PhD dissertation, University of California, Los Angeles. Phelps, Edmund S. (2007), ‘Entrepreneurial culture’, Wall Street Journal, 12 February, A15. Rušinović, Katja (2006), Dynamic Entrepreneurship: First and Second-Generation Immigrant in Dutch Cities, Amsterdam: Amsterdam University Press. Sequeira, Jenifer M. and Abdul A. Rasheed (2004), ‘The role of social and human capital in the start-up and growth of immigrant businesses’, in Curt H. Stiles and Craig S. Galbraith (eds), Ethnic Entrepreneurship: Structure and Process, Amsterdam: Elsevier, pp. 77–94. Tienda, Marta and Rebeca Raijman (2000), ‘Immigrants’ income packaging and invisible labor force activity’, Social Science Quarterly, 81: 291–310. Weber, Max (1958), The Protestant Ethic and the Spirit of Capitalism, Upper Saddle River, NJ: Prentice-Hall. First published 1906. Weber, Max (1981), The General Economic History, New Brunswick, NJ: Transactions. First published 1927.

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26. Entrepreneurship in the printing sector Naomi J. Dana

Invented in China (Carter 1925), printing is the method of producing an impression of something (from type, for instance) onto a suitable material, such as paper. This has been among the most important innovations in the progress of humankind, as it accelerated the spread of information and knowledge. During the late fourteenth century, the first European woodblock printing methods were carried out. This was made by carving the complete page onto a block of wood and printing from it. The method was document-specific, as letters could not be reused elsewhere; furthermore, it was labour-intensive and time-consuming. Therefore, it was generally limited to reproducing pictures rather than text. Although Chinese Alchemist Bi Sheng had experimented with movable type as early as 1041 (Gunaratne 2001), it was four centuries later that German goldsmith Johann Gutenberg became the first person to print a book from movable type. This innovation created unprecedented efficiency since movable type (see Figure 26.1) involves letters made

Figure 26.1

Movable type; photograph by Léo-Paul Dana 205

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of metal (originally copper and tin), that can be rearranged for printing different books. Also, Gutenberg adapted the wine press for printing. The first book printed with movable type and a wooden printing press is the Vulgate bible – commonly known as ‘the 42-line Bible’ – the most valuable volume ever printed. Printing enabled mass production of books. Gutenberg later became blind and his innovation was most appreciated after his death. A teacher, entrepreneur and printer, in the late fifteenth century, Italian Aldus Manutius founded his printing enterprise in Italy. He adopted narrow font styles since these enabled him to fit more words on a page, and this saved money on both ink and paper. Among his innovations was the introduction of the italic type style. The success of his books prompted other printers to imitate him; this resulted in the acceptance of both the italic and roman styles as standard throughout Europe. See also Davies (1995). In 1717, Boston-born James Franklin returned home from England with a press and letters to set up a printing office in Boston, Massachusetts (Franklin 1916). In 1724, his brother Benjamin Franklin – who considered himself an Englishman most of his life – travelled from Philadelphia to England and, employed in printing shops there, acquired skills that he would soon introduce to America. In 1726, he returned home thanks to money lent to him by Thomas Denham, for whom he worked before being employed by Samuel Keimer who was given a contract to print currency with America’s only copper press. This involved skills that nobody in America held, other than Benjamin Franklin. In 1729, Benjamin and his business partner Hugh Meredith purchased the Pennsylvania Gazette from Samuel; this newspaper was unique in that it was published twice weekly, and contained not only news, but also essays contributed by readers; many of the essays were written by Benjamin under pen-names. Applying the principle that oil and water do not mix, in 1796, the invention of a new printing process – lithography – by Prague-born German Alois Senefelder, was an important innovation. In 1798, another development, by Nicolas Louis Robert, was the invention of a mechanical method of manufacturing paper. In 1800, Lord Stanhope of England designed a cast-iron version of Gutenberg’s wooden press. Figure 26.2 features a metal press – an Albion table model hand-lever type manufactured in 1863, by Hopkinson & Cope. In 1810, Koenig’s powered press increased speed of printing from 300 to 1100 pages per hour. In 1856, the rotary press was invented by American William Bullock, which made it possible to print 48 000 pages per hour.

THE NEW WORLD Known as the father of the platen press, in 1851, New Yorker George Phineas Gordon received a patent for an invention that was one of the first American contributions to printing technology; he produced the first practical platen press, using a heavy pressure plate. In 1881, Cleveland entrepreneurs Harrison T. Chandler and William H. Price established the firm Chandler & Price and purchased Gordon’s patent and produced the Chandler & Price Gordon platen press. Figure 26.3 features their pilot platen press. Printing and publishing became widespread. Entrepreneur William Southam began delivering newspapers when he was 12 years old, and at 33 bought a newspaper venture with a partner. In 1871 he incorporated Southam Limited, a firm that eventually grew

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Figure 26.2

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Albion; photograph by Léo-Paul Dana

to publish periodicals as well as 17 daily newspapers and 56 community newspapers. Figure 26.4 features the Southam building, in Montreal. Typesetting continued by hand until 1886, when America’s Ottmar Mergenthaler revolutionised this process with a hot metal typesetting system that could cast a complete line of metal type, instead of individual characters as had been the case with monotype typesetting. Although his invention was trademarked as the Linotype, the Intertype Company produced a rival machine (Figure 26.5) in the UK, with identical principles.

GERMAN TECHNOLOGY Among the most successful platen presses was the Heidelberg press, manufactured in Germany. Figure 26.6 features a Heidelberg platen from the 1920s. During the inter-war years, Germany remained a leader in printing technology. Among platen press models,

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Figure 26.3

Platen press; photograph by Léo-Paul Dana

the Windmill was first produced in 1924 and almost 200 000 were produced by the time production ended in 1985. As a result of World War II reparation agreements, the Allies received printing technology from the Germans. Figure 26.7 is a post-war Printomatic stop cylinder press, manufactured in the UK from a 1934 German design.

POST-WAR INNOVATIONS In 1952, German Dr Rudolph Hell invented the Klischograph (see Figure 26.8). This revolutionised the printing of photographs in newspapers by photo-electronically scanning the original picture by means of an electrical current that controlled a stylus that engraved a half-tone illustration, using a technique that represents an image by dots of different sizes with different spacing.

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Figure 26.4

The Southam Printing Company, Montreal; photograph by Léo-Paul Dana

Figure 26.5

Post-war typecasting machine; photograph by Léo-Paul Dana

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Figure 26.6

Heidelberg platen; photograph by Léo-Paul Dana

Figure 26.7

Printomatic; photograph by Léo-Paul Dana

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Figure 26.8

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Klischograph; photograph by Léo-Paul Dana

In 1961, the Heidelberg K model cylinder press (Figure 26.9) was introduced. The innovation replaced a platen by a plate cylinder that allowed significant increases in quality and speed. By 1973, 25 000 of these were being used across 130 countries. Production continued until 1986. In 1969, United Technologies Corporation was awarded a patent for laser printing, an electrostatic digital printing process. This technique allows computer printers to quickly reproduce letters, figures and images with high accuracy. In 1974, David E. H. Jones laid out the concept of three-dimensional (3D) printing. In 1983, American Chuck Hull, inventor of stereolithography, made a 3D printer, launching what Berman (2012) called a new industrial revolution. Early in the new millennium, Cornell University began to develop machines that could print food. Since then, scientists have been designing prosthetic limbs and body parts to be built by means of 3D printing (Ten Kate et al. 2017).

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Figure 26.9

Heidelberg K model offset press; photograph by Léo-Paul Dana

REFERENCES Berman, B. (2012), ‘3-D printing: the new industrial revolution’, Business Horizons, 55 (2), 155–62. Carter, T.F. (1925), The Invention of Printing in China and Its Spread Westward, New York: Columbia University Press. Davies, M. (1995), Aldus Manutius, Printer and Publisher of Renaissance Venice, London: British Library. Franklin, B. (1916), Franklin’s Biography, New York: Henry Holt. Gunaratne, S.A (2001), ‘Paper, printing and the printing press: a horizontally integrative macrohistory analysis’, Gazette, 63 (6), 459–79. Ten Kate, J., G. Smit and P. Breedveld (2017), ‘3D-printed upper limb prostheses: a review’, Disability and Rehabilitation: Assistive Technology, 12 (3), 300–314, doi:10.1080/17483107.2016.1253117.

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27. Entrepreneurship policy David B. Audretsch

1

INTRODUCTION

A generation of management and economics scholars such as Chandler (1977; 1990) concluded that there was little room for entrepreneurship in the context of starting a new firm, to generate efficiency and ultimately business and managerial success. Schumpeter (1942: 132) similarly concluded that, due to scale economies in the production of new economic knowledge, large corporations would not only have the innovative advantage over small and new enterprises, but that ultimately the economic landscape would consist only of giant corporations: ‘Innovation itself is being reduced to routine. Technological progress is increasingly becoming the business of teams of trained specialists who turn out what is required and make it work in predictable ways.’ Accordingly, a generation of scholars suggested that public policy should focus exclusively on the large corporation. For example, Galbraith (1979: 93–4) argued that entrepreneurship was disappearing in the contemporary economy, where the great entrepreneurs of the Industrial Revolution were replaced by the hierarchical large corporation: ‘The great entrepreneur must, in fact, be compared in life with the male Alpis mellifera. He accomplishes his act of conception at the price of his own extinction.’ Thus, according to Galbraith (1979: 61), the entrepreneur ‘is a diminishing figure in the planning system. Apart from access to capital, his principal qualifications were imagination, capacity for decision and courage in risking money, including, not infrequently, his own. None of these qualifications is especially important for organizing intelligence or effective in competing with it.’ By contrast, it was argued that public policy needed to focus on the large corporation. According to Schumpeter (1942: 106): ‘What we have got to accept is that (the largescale establishment or unit of control) has come to be the most powerful engine of . . . progress and in particular of the long-run expansion of output not only in spite of, but to a considerable extent through, this strategy which looks so restrictive.’ Galbraith (1958 [1976]: 86–7) echoed this view: There is no more pleasant fiction than that technical change is the product of the matchless ingenuity of the small man forced by competition to employ his wits to better his neighbor. Unhappily, it is a fiction. Technical development has long since become the preserve of the scientist and engineer. Most of the cheap and simple inventions have, to put in bluntly and unpersuasively, been made.

However, as entrepreneurship has become recognized as an engine of economic growth, employment creation and competitiveness in global markets (Audretsch et al. 2006), public policy has shifted its priorty to promote entrepreneurship. For example, Romano Prodi (2002: 1), who at the time served as President of the European Commission, proclaimed that the promotion of entrepreneurship was a central cornerstone of European 213

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economic growth policy: ‘Our lacunae in the field of entrepreneurship needs to be taken seriously because there is mounting evidence that the key to economic growth and productivity improvements lies in the entrepreneurial capacity of an economy.’ With the 2000 Lisbon Proclamation, the European Council made a commitment to becoming not just the leader in knowledge but also the entrepreneurship leader in the world in order to ensure prosperity and a high standard of living throughout the continent. Europe was not alone in focusing on entrepreneurship as a key factor generating economic growth. From the other side of the Atlantic, Mowery (2005: 1) observes: During the 1990s, the era of the ‘New Economy,’ numerous observers (including some who less than 10 years earlier had written off the U.S. economy as doomed to economic decline in the face of competition from such economic powerhouses as Japan) hailed the resurgent economy in the United States as an illustration of the power of high-technology entrepreneurship. The new firms that a decade earlier had been criticized by such authorities as the MIT Commission on Industrial Productivity (Dertouzos et al., 1989) for their failure to sustain competition against  large non-U.S. firms were seen as important sources of economic dynamism and employment growth. Indeed, the transformation in U.S. economic performance between the 1980s and 1990s is only slightly less remarkable than the failure of most experts in academia, government, and industry, to predict it.

The purpose of this chapter is to explain the emergence of entrepreneurship, not as a business strategy, but rather as a bona fide strategy and priority of public policy. The following section explains the emergence of a mandate for entrepreneurship policy. The economic rationale providing an intellectual and theoretical basis for public policy intervention to promote entrepreneurship is explained in the third section. The fourth section explains what exactly constitutes entrepreneurship policy, the instruments used to implement entrepreneurship policy, and the locus of entrepreneurship policy. Finally, conclusions and a summary are provided. In particular, just as entrepreneurship has become a bona fide area for the management of business, it has also emerged as a bona fide strategy for public policy.

2

THE MANDATE FOR ENTREPRENEURSHIP POLICY

Between the 1950s and 1980s public policy to promote economic growth, employment and international competitiveness focused largely on promoting the factor of physical capital, which placed large corporations in manufacturing industries at the focal point of policy. This policy approach, which Audretsch and Thurik (2001) and Audretsch (2007a; 2007b) term the managed economy, reflected the insights generated by the Nobel Prizewinning Solow model, which linked economic growth and productivity explicitly to the factor of physical capital. Globalization has shifted the comparative advantage of Organisation for Economic Co-operation and Development (OECD) countries away from physical capital towards knowledge capital. The endogenous growth theory (Romer, 1986) provided an intellectual   framework which correspondingly shifted the focus of public policy towards instruments which would promote investments in knowledge, such as research and development (R&D), patents, human capital and universities.

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Even as the comparative advantage in (physical) capital in OECD countries was beginning to fade, scholars and policy-makers began to recognize the primacy of a very different factor of production – knowledge capital, which is based not just on technological and scientific knowledge, but also in a broader sense of ideas, creativity, originality and novelty. The recognition by Romer (1986) and Lucas (1993), among others, that knowledge was not only endogenous, but that it also spilled over for commercialization  by  firms  and individuals other than the firm or university actually creating that knowledge in the first place, shifted the policy debate and focus away from instruments inducing investments in physical capital, towards instruments generating knowledge and ideas, such as university research, education and training, R&D and patents. Thus, even as the OECD countries began losing the comparative advantage in physical capital, they seemed to be at least as well poised to thrive with a knowledgebased economy. In particularly, the Nordic countries, but also Northern Europe more generally, ranked among the world’s leaders in terms of the most common measures of knowledge. Thus, the inability of countries which were knowledge leaders, such as Sweden, to prosper in the global economy was so striking that it was referred to as the Swedish Paradox. However, it was not just Sweden that exhibited surprising low growth rates and rising unemployment, while at the same time having high rates of investment in research, human capital and culture. The European Union adapted the label to describe what it termed the European Paradox. While the prescriptions of investments in knowledge generated economic models of scholars, the experience of Sweden, and much of Europe, was suggesting that the links between knowledge and growth are, in fact, more nuanced and complicated. The conditions inherent in knowledge – high uncertainty, asymmetries and transactions  cost – can result in decision-making hierarchies in companies reaching the decision not to pursue and try to commercialize new ideas that individual economic agents, or  groups or teams of economic agents think are potentially valuable and should be pursued. The characteristics of knowledge distinguishing it from information, a high degree of uncertainty combined with non-trivial asymmetries, combined with a broad spectrum of institutions, rules and regulations impose what Audretsch and Keilbach (2007), Audretsch et al. (2006) and Braunerhjelm et al. (2010) term the knowledge filter. The knowledge filter is the gap between knowledge that has a potential commercial value and knowledge that is actually commercialized. The greater is the knowledge filter, the more pronounced is the gap between new knowledge and commercialized knowledge. It is the knowledge filter that impedes investments in knowledge from spilling over for commercialization that leads to the so-called Swedish Paradox and European Paradox. Europe was not alone in having investments in knowledge choked off from generating economic growth by the knowledge filter. Confronted with what is termed the knowledge filter impeding the spillover of knowledge from the firm or organization where it was originally generated, for commercialization by third-party firms, public policy instruments to promote investment in knowledge, such as human capital, R&D, and university research may not adequately generate economic growth. One interpretation of the European Paradox, where such investments in new knowledge have certainly been substantial and sustained, but vigorous growth and reduction of unemployment have remained elusive, is that the presence of such an imposing knowledge filter chokes off the commercialization of those new

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knowledge investments, resulting in diminished innovative activity and, ultimately, stagnant growth. By choking off the spillover and commercialization of knowledge and new ideas, the knowledge filter at the same time presents opportunities for individuals, or teams of individuals, that might place a high valuation on the potential of that knowledge, to become entrepreneurs. If someone is not able to pursue and implement their vision within the context of an incumbent firm or organization, in order to appropriate the value of her knowledge and ideas, they would need to start a new firm, that is, become an entrepreneur. The start-up of a new firm reflects knowledge spillover entrepreneurship because the ideas serving as the basis for the start-up were obtained, typically for little or no cost, from  a different, incumbent firm or organization. Thus, knowledge spillover entrepreneurship serves as a conduit for the spillover new ideas generated by an incumbent organization but left uncommercialized. The knowledge spillover theory of entrepreneurship (Braunerhjelm et al., 2010; Audretsch, 1995; Audretsch and Keilbach, 2007; Audretsch et al., 2006), suggests that contexts which are rich in knowledge will tend to generate more entrepreneurial opportunities. By contrast, those contexts that have less knowledge will generate fewer entrepreneurial opportunities. A consequence of globalization, which has shifted the comparative advantage of developed countries from physical capital to knowledge capital, is that entrepreneurial opportunities become more pervasive (Audretsch, 2007a). From the end of the Second World War into the 1980s, public policy to promote economic growth, employment and competitiveness focused extensively on an approach to foster investments in physical capital and nurturing institutions that facilitated the most effective development and utilization of the labor force deployed to work with that capital. Small business was seen as generally being peripheral to even detracting from the efficient organization of capital in large corporations. As globalization shifted the comparative advantage in the OECD countries towards knowledge, ideas and creativity, the policy emphasis accordingly shifted towards promoting investments in knowledge, such as research and development, universities, human  capital and education. Little emphasis was placed on small and medium-sized enterprises, since research and development, along with patenting and investments in human capital were generally perceived to lie in the domain of large corporations. However, along with the recognition that entrepreneurship provides a crucial role by providing a conduit for knowledge spillovers, has come the emergence of a new policy approach – entrepreneurship policy. The focus of entrepreneurship policy is to encourage  and promote not just investments in knowledge, but also their commercialization through the start-up of a new firm. Thus, the focus is on policies that enable people, particularly in knowledge-based and creative industries, to start new business and to facilitate the growth of such new ventures. Recent literature has identified the emergence of a new public policy approach (Audretsch, 2007a; 2007b), with a focus on generating entrepreneurship capital, or the capacity of an economy to generate entrepreneurial activity. Investments in knowledge and ideas may not automatically spill over for commercialization, which would trigger innovation and growth. Rather, as is explained above, the knowledge filter impedes the spillover and commercialization of knowledge. By commercializing ideas and knowledge

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that might otherwise not have been commercialized, the start-up of a new firm serves as an important conduit for the spillover of knowledge. Thus, in an effort to appropriate the returns in terms of economic growth, employment, and international competitiveness  from costly investments in knowledge, such as public research, education, and universities, a mandate for public policy and institutions to shift away from the managed economy towards an entrepreneurial society has emerged in the OECD countries (Audretsch, 2007a; 2007b).

3

THE ECONOMIC RATIONALE UNDERLYING POLICY INTERVENTION FOR ENTREPRENEURSHIP

Besides a mandate for entrepreneurship policy, there is also an economic rationale for public policy intervention to create an entrepreneurial economy. Linking entrepreneurship to economic growth is not an automatic justification for public policy intervention. In fact, Bresnahan and Gambardella (2004: 5) argue that the emergence of the most prominent contemporary region, Silicon Valley, that has set the standard for an entrepreneurial economy rich in entrepreneurship capital, did not result from public policy intervention: ‘Our overall research design took seriously the proposition government policy leading and directing cluster formation might be an important part of the cluster formation story . . . we ultimately reject that proposition.’ Rather, for an economic rationale to justify public policy intervention, a reason must exist why the good or service in question, in this case entrepreneurship, will not be adequately provided by the private market. The economic rationale for public policy intervention to support entrepreneurship is based on market failure. There are four types of market failure – network externalities, knowledge externalities, failure externalities and demonstration externalities – providing an economic rationale for policy intervention. Entrepreneurial activity will tend to be suppressed as a result of these four types of market failure (Audretsch and Keilbach, 2007). Network Externalities When the value of an individual’s or firm’s capabilities and knowledge is conditional upon complementary firms and individuals, network externalities exist. Such network externalities frequently have a strong spatial component. In this case geographic proximity will facilitate accessing these complementary inputs. Thus, the value of an entrepreneurial firm and individual will be greater in the (local) presence of other entrepreneurial firms and individuals. The value of any individual’s or firm’s capabilities is therefore conditional upon the existence of partners in a network. Regions with an entrepreneurial cluster will tend to be more attractive to firms and knowledge workers. By contrast, regions with a paucity of entrepreneurship and knowledge will be less attractive to firms and workers. Thus, this source of market failure involves the geographic context which provides the (potential) platform for interactions and networks. Contexts, or regions, that do not enjoy a rich density of entrepreneurial networks will be burdened with more significant barriers to entrepreneurship, because the expected value of any recognized opportunity

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will be correspondingly lower in the absence of such networks, resulting in a lower propensity for economic agents to make the decision to become an entrepreneur. Knowledge Externalities The high propensity for knowledge to be associated with externalities is the second source of market failure. As Arrow (1962) suggested and Audretsch and Feldman (1996) show, knowledge generates externalities and can spill over for commercialization and innovation by third-party firms and individuals. However, as Audretsch and Feldman (1996) suggest, close geographic proximity to knowledge sources will facilitate the spillover of knowledge. Audretsch and Feldman (1996) and Audretsch et al. (2006) provide compelling empirical evidence that knowledge spillover entrepreneurship has a strong propensity to spatially cluster within close geographic proximity to knowledge sources. Similarly, Gilbert et al. (2008) provide empirical evidence that those entrepreneurial start-ups locating within a geographic cluster exhibit a superior performance vis-à-vis their counterparts that do not locate within a geographic cluster. Thus, location can influence the access of entrepreneurial start-ups to external knowledge spillovers. Public policy can compensate for the lack of an entrepreneurial cluster in a particular region by trying to facilitate an environment that is favorable to the formation of entrepreneurial clusters. Failure Externalities The third source of market failure emanates from the positive economic value created by entrepreneurial firms that fail. Entrepreneurial firms have a significantly greater propensity to failure within a few years subsequent to start-up (Caves, 1998). The failure rate for start-ups is even greater for knowledge-based and high-technology entrepreneurship. The higher failure rate of entrepreneurship in general and knowledge-based and high-technology entrepreneurship in particular is attributable to a greater degree of uncertainty. Entrepreneurial failure may generate significant positive value for other, third-party firms and entrepreneurs that can use these ideas. Valuation of a potential new enterprise by private financiers does not include failure externalities. A private investor can only appropriate her investment if the entrepreneurial  venture succeeds. The external value created by a failed firm for use by other third-party firms is not considered or valued by private investors. In the event of entrepreneurial  failure, the private investor will not appropriate anything from the original investment, regardless of how great the externalities are. However, from the perspective of public policy, which firm actually succeeds and subsequently generates growth and employment for the region is of less concern than that it is generated at all. After all, the public policy goal is typically growth for the overall region but not necessarily for any particular enterprise. Demonstration Externalities The fourth source of market failure is the demonstration effect associated with entrepreneurial activity. The demonstration effect refers to the learning undertaken by (potential)

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entrepreneurs and firms about the viability of entrepreneurship from observing incidents of entrepreneurial activity. The decision to commercialize ideas and enter into entrepreneurship can be influenced by observing the outcomes and consequences when others enter into entrepreneurship. The demonstration effect may be especially valuable for a region burdened with an impoverished amount of entrepreneurship capital. As a result of the market failures inherent in the externalities involved in knowledge spillover entrepreneurship – which stem from networks, knowledge, failure and demonstration – a gap is created in the valuation of potential entrepreneurial activities between private parties and the local public policy-makers. Thus, the constraints for obtaining early stage finance for entrepreneurial start-ups and nascent entrepreneurs tend to be even greater outside of a successful entrepreneurial cluster than within an entrepreneurial cluster. The four sources of market failure associated with entrepreneurship contribute to significant barriers to entrepreneurship at least in some contexts. The economic rationale for entrepreneurship policy is to mitigate these four sources of market failure. The role that entrepreneurship plays in permeating the knowledge filter and serving as a conduit of knowledge spillovers, combined with the strong propensity for those knowledge spillovers to be geographically bounded and remain localized, suggests a key role for public policy to promote entrepreneurship. By compensating for market failure, public policy can create a virtuous entrepreneurial circle, where entrepreneurs become networked and linked to each other, and provide strong role models of knowledge spillover entrepreneurship for other individuals to emulate.

4

INSTRUMENTS OF ENTREPRENEURSHIP POLICY

With both a mandate and rationale for undertaking entrepreneurship policy, two important issues remain. The first revolves around what exactly constitutes entrepreneurship policy and a bona fide entrepreneurship policy instrument. The second involves the mechanisms and policy channels for implementing entrepreneurship policy. A broad spectrum of diverse policy approaches to promote entrepreneurship exist across countries and context. Still an important feature distinguishing entrepreneurship policy from more traditional approaches towards business characteristic of the managed economy (Audretsch and Thurik, 2001) is a shift away from the focus on the traditional triad of policy instruments essentially constraining the freedom of firms to contract – regulation, competition policy or antitrust in the USA and public ownership of business. Instead, as a result of globalization, a new policy approach has emerged with a focus  on  enabling the creation and commercialization of knowledge. Along with  this shift  in policy approach has emerged a distinction between entrepreneurship policy from  the traditional small business policies. This distinction involves reconsidering  the  role  of small and new firms. In the managed economy public policy generally took the stance of trying to preserve small businesses that were widely perceived to be burdened with an inherent cost disadvantage due to operating at a suboptimal scale of output. Thus, small business policy was essentially preservationist in the managed economy. For example, in light of the fact that small firms constituted an ever-decreasing share

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of the US economy during the first half of the twentieth century, Congress passed the Small Business Act of 1953, which established the US Small Business Administration (SBA), with an explicit mandate to ‘aid, counsel, assist and protect . . . the interests of small business concerns’. The agency was directed to help small businesses obtain government contracts and loans, along with management and technical assistance. The Act tried to protect small firms from exposure to a hostile economic environment, to at least mitigate the continued disappearance of small business and to preserve the role of small business in the US economy. By contrast, entrepreneurship public policy views new ventures as serving as a conduit for knowledge spillovers and thus serving as an engine of growth, employment generation and competitiveness in global markets. The focus of entrepreneurship is on the promotion of facilitating entrepreneurs to start new firms and on new and small firms involved in the commercialization of knowledge, or knowledge-based entrepreneurship. Small business policy typically refers to policies implemented by governmental agencies charged with the mandate to promote small business. The actual definition of a small business varies considerably across countries, ranging from enterprises with fewer than 500 employees in the USA and Canada, to fewer than 250 employees in the European Union, to 50 employees in many developing countries. Small business policy typically takes the existing enterprises within the appropriate size  class as exogenous, or given, and then develops instruments to promote the continued  viability of those enterprises. Thus, small business policy is almost exclusively targeted on the existing stock of enterprises and virtually all of the instruments included in the policy portfolio are designed to promote the viability of these small businesses. By contrast, entrepreneurship policy has a much broader focus. The definition, introduced by Stevenson and Lundström (2005: 19) for OECD countries, is ‘Entrepreneurship policy consists of measures taken to stimulate more entrepreneurial behaviour in a region or country . . . We define entrepreneurship policy as those measures intended to directly influence the level of entrepreneurial vitality in a country or a region.’ There are at least two important ways that distinguish entrepreneurship policy from small business policy (Stevenson and Lundström, 2005). The first is the breadth of policy orientation and instruments. While small business policy focuses on the existing stock of small firms, entrepreneurship policy is more encompassing because it includes potential entrepreneurs. Entrepreneurship policy also has greater sensitivity to contextual conditions and framework that shape the decision-making process of entrepreneurs and potential entrepreneurs. While small business policy is primarily concerned with one organizational level, the enterprise, entrepreneurship policy encompasses multiple levels of organization and analysis. These range from the individual to the enterprise level and focus on clusters or networks. The various perspectives might involve an industry or sectoral dimension, or a spatial dimension, such as a district, city, region or even an entire country. Just as each of these levels is an important target for policy, the interactions and linkages across these disparate levels are also important. In this sense, entrepreneurship policy tends to be more holistic than small business policy. The second way of distinguishing entrepreneurship policy from traditional small business policy is that virtually every country has a governmental agency charged with promoting the viability of the small business sector. These ministries and agencies have by

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now developed a large arsenal of policy instruments to promote small business. However, no agencies exist to promote entrepreneurship. Part of the challenge of implementing entrepreneurship policy is this lack of agency-level institution. Rather, aspects relevant to entrepreneurship policy can be found across a broad spectrum of ministries, ranging from education to trade and immigration. Thus, while small businesses have agencies and ministries to protect their issues, no analogous agency exists for entrepreneurs. Not only is entrepreneurship policy implemented by different ministries or agencies than those implementing either the traditional policy instruments constraining the freedom of firms to contract or those implementing traditional small business policy, but it involves a very different and distinct set of policy instruments. Stevenson and Lundström (2005) meticulously classified the broad and diverse range of instruments which are being used around the globe to promote entrepreneurship. Examples of the emerging entrepreneurship policy abound. Still, the point to be emphasized here is not so much the efficacy of the policy, but rather the clearly stated goal – to promote the spillover of knowledge from universities for commercialization that will foster innovation and ultimately economic growth. Not only are the instruments of entrepreneurship policy decidedly distinct from those traditionally used towards business and small business in particular, but the locus of such enabling policies is also different. The instruments constraining the freedom of firms to contract – antitrust, regulation and public ownership – were generally controlled and administered at the national level. By contrast, the instruments of entrepreneurship policy are generally applied at decentralized levels: state, city and local government. As Stevenson and Lundström (2005) point out, entrepreneurship policy uses a wide variety of instruments ranging from changing regulation to taxes, immigration, education, as well as more direct instruments such as the provision of finance or training. If entrepreneurship policy can be viewed as the purposeful attempt to create an entrepreneurial society, entire institutions that were the cornerstone of the managed economy are being challenged and reconfigured in favor of the entrepreneurial society.

5

CONCLUSIONS

This chapter has explained and documented that entrepreneurship is not just central as a topic for the management of private business but also for public policy. As knowledge has become important and the era of the managed economy has receded, shifting to an entrepreneurial society has become a priority for public policy. Entrepreneurship policy is less about creating and promoting any particular type of individual, firm or industry but  rather more about creating a society where entrepreneurship serves as the driving force for growth, employment creation and competitiveness in global markets. An important qualification, however, is that by itself, public policy will never succeed  or  guarantee the creation of an entrepreneurial society. As Gordon Moore, who is ‘widely regarded as one of Silicon Valley’s founding fathers’ (Bresnahan and Gambardella, 2004: 7) and Kevin Davis warn, the policy rush to generate an entrepreneurial society is fraught with dangers and ambiguities: ‘The potential disaster lies in the fact that these static, descriptive efforts culminate in policy recommendations and

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analytical tomes that resemble recipes or magic potions such as combine liberal amounts of technology, entrepreneurs, capital, and sunshine; add one university; stir vigorously’ (Moore and Davis, 2004: 9). Entrepreneurship policy has emerged as a bona fide priority and strategy for public policy because it can provide a missing link to economic growth. Investments in new knowledge, such as R&D, universities and human capital may be necessary but not sufficient for generating economic growth. Rather, mechanisms may also be needed to generate the highest return possible to society, in terms of growth, jobs and international competitiveness, from the investments made to create that knowledge in the first place. Entrepreneurship can make a crucial contribution to economic growth by facilitating the spillover and commercialization of ideas and knowledge that otherwise might never have been transformed into innovative activity. Public policy has accordingly begun to place a priority on not just investments in knowledge, but also in creating entrepreneurship capital, to try to ensure that those costly investments in new knowledge actually result in what society desires – growth and jobs in a globalized economy.

REFERENCES Arrow, K. (1962), ‘Economic welfare and the allocation of resources for invention’, in Richard R. Nelson (ed.), The Rate and Direction of Inventive Activity, Princeton, NJ: Princeton University Press, pp. 609–26. Audretsch, David (1995), Innovation and Industry Evolution, Cambridge, MA: MIT Press. Audretsch, David and M.P. Feldman (1996), ‘R&D spillovers and the geography of innovation and production’, American Economic Review, 86, 630–40. Audretsch, David and R. Thurik (2001), ‘What’s new about the new economy? Sources of growth in the managed and entrepreneurial economies’, Industrial and Corporate Change, 19, 795–821. Audretsch, David B. (2007a), The Entrepreneurial Society, New York: Oxford University Press. Audretsch, David B. (2007b,) ‘Entrepreneurship capital and economic growth’, Oxford Review of Economic Policy, 23, 63–78. Audretsch, David B. and Max Keilbach (2007), ‘The theory of knowledge spillover entrepreneurship’, Journal of Management Studies, 44 (7), 1242–54. Audretsch, David B., Max Keilbach and Erik Lehmann (2006), Entrepreneurship and Economic Growth, New York: Oxford University Press. Braunerhjelm, P., Z.J. Acs, D.B. Audretsch and B. Carlsson (2010), ‘The missing link: knowledge diffusion and  entrepreneurship in endogenous growth’, Small Business Economics: An Entrepreneurship Journal, 34 (2), February, 105–25. Bresnahan, T. and A. Gambardella (2004), Building High-Tech Clusters: Silicon Valley and Beyond, Cambridge: Cambridge University Press. Caves, R. (1998), ‘Industrial organization and new findings on the turnover and mobility of firms’, Journal of Economic Literature, 36, 1947–82. Chandler, A. (1977), The Visible Hand: The Managerial Revolution in American Business, Cambridge: Belknap Press. Chandler, A. (1990), Scale and Scope: The Dynamics of Industrial Capitalism, Cambridge: Harvard University Press. Dertouzos, M., R. Lester and R. Solow (1989), Made in America: Regaining the Productive Edge, Cambridge: MIT Press. Galbraith, John Kenneth (1958), The Affluent Society, 3rd edn 1976, Boston, MA: Houghton Mifflin. Galbraith, John Kenneth (1979), The New Industrial State, Boston, MA: Houghton Mifflin. (First published 1967.) Gilbert, Brett A., Patricia P. McDougall and David B. Audretsch (2008), ‘Clusters, knowledge spillovers and new venture performance: an empirical examination’, Journal of Business Venturing, 23 (4), 405–22. Lucas, Robert (1993), ‘Making a miracle’, Econometrica, 61, 251–72. Moore, Gordon and S.E. Davis (2004), ‘Learning the Silicon Valley way’, in Building High-Tech Clusters. Silicon Valley and Beyond, Cambridge: Cambridge University Press, pp. 7–39.

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Mowery, D. (2005), ‘The Bayh-Dole Act and high-technology entrepreneurship in U.S. universities: chicken, egg, or something else?’, paper presented at the Eller Centre Conference on ‘Entrepreneurship Education and Technology Transfer’, University of Arizona, 21–22 January. Prodi, Romano (2002), ‘For a new European entrepreneurship’, public speech, Instituto de Empresa, Madrid. Romer, P. (1986), ‘Increasing returns and long-run growth’, Journal of Political Economy, 94, 1002–37. Schumpeter, Joseph A. (1942), Capitalism, Socialism and Democracy, New York: Harper. Stevenson, L. and A. Lundström (2005), Entrepreneurship Policy. Theory and Practice, International Studies in Entrepreneurship Series, vol. 9, New York: Springer.

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28. Environment for entrepreneurship Jean-Jacques Obrecht

In mainstream thinking on entrepreneurship, the entrepreneur is the central figure. He is seen to be involved in a process of searching for new opportunities and creating new organizations. As a driving force of competition, he takes risks and strives for profits. His behaviour lies on pursuing self-interest and his environment is confined to markets. In a sociological perspective of entrepreneurship as a whole, this way of understanding entrepreneurship belongs to ‘the supply-side perspective which focuses on the availability of suitable individuals to occupy entrepreneurial roles’, whereas the demand-side would focus on ‘the number and nature of the entrepreneurial roles that need to be filled’ (Thornton, 1999). Since differences in entrepreneurial role patterns are linked to differences in entrepreneurial environments, the latter perspective requires enhanced attention as to the context in which entrepreneurship occurs.

1

PRELIMINARIES ON CONTEXTUALIZATION

In a world where, despite the globalization of markets, diversity as regards people and institutions combines with inequality as regards economic development levels, the examination of what contextualization means in the field of research on entrepreneurship is all the more necessary, unless we assimilate the entrepreneur to a ‘rational fool’ which is equivalent, according to Amartya Sen, to the state of a ‘social moron’ (Sen, 1977). Indeed, the understanding of the entrepreneurial environment requires appropriate analytical tools. These are to be looked for outside prevailing literature on entrepreneurship which, as recalled above, draws up a single role model grounded on Western utilitarianism and which, therefore, might not be endowed with worldwide applicability. The case of entrepreneurship as a remedy against poverty in particular is one of the biggest challenges of our times but development policies which would promote such entrepreneurialism regardless of the context are liable to produce ‘islets of wealth in an ocean of misery’. The consideration of contextual factors influencing entrepreneurial action has without doubt been given a large space in the last 40 years. The influence of culture on local business climate and thereby on business creation was one of the topics which researchers in small business economics examined throughout (Johannisson, 1984). Much work has been based on Gert Hofstede’s celebrated model which emphasizes the importance of cultural values such as individualism and collectivism, the former giving individuals the necessary freedom for entrepreneurial action as opposed to the latter. But this dichotomized view has been blended by many findings pointing to the fact that these cultural characteristics may coexist in the same country (Morris et al., 1993); moreover, other findings refer to entrepreneurial activities as being influenced by both (Tiessen, 1997). The notion of a ‘symbiotic relationship between entrepreneurship and culture’ 224

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(Morrison, 2000), while emphasizing the fact that entrepreneurs’ behaviour is deep rooted in local cultures and traditions, refers also to the influence the entrepreneur may have on the evolution of local usual practices because the entrepreneurial process is not entirely confined within cultural norms. Through the concept of ‘innovative milieu’, the focus was put on the influence of technology on local development (Maillat and Kebir, 1999). The notion of ‘entrepreneurial milieu’ widened the space of influence to the whole range of factors depending on the location of the entrepreneur and his business, positive collective attitudes towards entrepreneurship being seen as the most significant (Gasse, 2003). The part of local institutions in the development of an ‘entrepreneurial culture’ has been given due consideration too; in the French literature on this topic, the word ‘territory’ soon came into use to point out a regional area as a socially organized structure hosting the promotion of the small business sector (Marchesnay and Fourcade, 1996). While recognizing the importance of contextual factors, entrepreneurship provided a relevant and exciting setting to explore the issue of networks, along the lines of social networks analysis developed in sociology. In the 1980s, Howard Aldrich and Catherine Zimmer took a critical position on traditional approaches. They focused on ‘entrepreneurship as embedded in a social context, channelled and facilitated or constrained and inhibited by people’s positions in social networks’ (Aldrich and Zimmer, 1986). In current literature on entrepreneurship and small business, the network metaphor was used by a number of researchers following the pioneering work of Bengt Johannisson to develop comprehensive models of how the entrepreneur operates the environment through his personal network. ‘The personal network of the entrepreneur not only is an instrument by which he acquires environmental resources but also an instrument by which he performs his organizing mission’ (Johannisson, 1987). More recently, while noticing that the conceptualization of ‘embeddedness’ and its operationalization remain underdeveloped, he outlined an enlarged network framework, focusing on small firms where ‘the point of departure is individual exchange relationships as personal ties concerning economic and social concerns’. He distinguishes three layers of embeddedness. ‘First-order embeddedness concerns the localized business networks created by combining these dyadic relations. Second-order embeddedness is achieved when considering also the memberships of business persons in economic and social local institutions while third-order embeddedness concerns the special cases where these institutions bridge gaps between firms’ (Johannisson, 2002). In newer research on small business creation, the quality of the ‘local relational environment’, as a bearing of social capital, has been put forward as a crucial success factor of start-ups (Plociniczak, 2002). From a perspective of ‘true’ contextualization, apparently singular forms of entrepreneurship have been explored. In-depth understanding of indigenous entrepreneurship is shown to require a careful analysis of the entrepreneurial environment because the characterization of entrepreneurial action and goal attainment and the nature of goals are contingent also on the social and cultural context and on people’s history (Peredo et al., 2004). Ethnic entrepreneurship which concerns immigrant individuals striving for a better life through small business creation, is also approached in terms of ‘social embeddedness of the entrepreneurial venture’ (Levy-Tadjine and Paturel, 2006) or in terms of ‘discrimination’ and ‘marginalization’ that are obviously connected with social structures (Ramangalahy et al., 2002). On the subject of indigenous entrepreneurship,

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‘community-based enterprise’ is a good case as this form of entrepreneurship often emerges in regional areas or localities threatened by poverty. It is defined as ‘a community acting corporately as both entrepreneur and enterprise in pursuit of the common good’ (Peredo, 2003; 2006). In contexts where the recovery of a region is at stake, local development agencies or the people of a local parish and so on may take initiatives like searching for new opportunities or implementing networks that facilitate access to information and provide every kind of support to small businesses operating in that region. Obviously these ‘collective practices of opportunities identification’ which substitute for the firm’s defaulting occur in particular contexts (Tremblay and Carrier, 2006). Because of the common interests at issue, they might be considered as a form of ‘community entrepreneurship’. It is also admitted that contextual fragilities lie at the root of social entrepreneurship: not surprisingly, the increasing volume of literature on social entrepreneurs, that is, individuals who are offering their time and energy to address any social or economic problem of a group or community, expresses by itself the increasing number of fragile contexts. Last but not least, one may find in the prolific literature on female entrepreneurship arguments which link the entrepreneurial significance of gender to the cultural and social context, including the case of indigenous or ethnic women’s entrepreneurship. These studies which have in common that they stress the significance of the entrepreneurial environment, give clear indication of the complexity of the entrepreneurial roles worldwide which are not reducible to a single model. Based on his work in international entrepreneurship, Dana suggests that the causal variable behind enterprise is not an opportunity, but rather one’s cultural perception of opportunity (Dana, 1995). Many findings show that the same statement could be applied to risk perception. Above all, evidence has been provided that ‘serving local community needs’ as the main goal of business strategies or ‘seeing communal values and the notion of the common good as essential elements in venture creation’ makes alternative forms of entrepreneurship, in many settings, the culturally appropriate response to the problems it is meant to address, that is, most of the times problems related to poverty (Curry, 2005; Peredo, 2003). These are only very few of a number of findings which show the variety of the entrepreneurial roles as they crop up in different contexts. The entrepreneurial environment consequently emerges as a possible field of research of its own. The next section, supported by a selective survey of literature, brings together the constituents of a possible conceptual framework for a comprehensive understanding. By way of a short-cut view, some of the constituents may be in the following proposition: embedding structures generate social capital as an indispensable resource for action; owing to local social capital, the entrepreneurial environment is moulded by a set of proximity dynamics.

2

EMBEDDING STRUCTURES AND SOCIAL CAPITAL

The most relevant theoretical advances likely to support the elaboration of a conceptual framework come from the critical positions some outstanding sociologists have taken towards the methodological individualism of neoclassical economic theory. Whereas the concept of ‘embeddedness’ was forged by Karl Polanyi and used from a historical

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perspective as an argument against the ‘market ideologists’ (Polanyi, 1944), it made Mark Granovetter the most quoted scholar in respect of the idea that economic action is embedded in actual social relations rather in abstract markets. In Granovetter’s words, ‘actors do not behave or decide as atoms outside a social context, nor do they adhere slavishly to a script written for them by the particular intersection of social categories that they happen to occupy. Their attempts to purposive action are instead embedded in concrete, ongoing systems of social relations’ (Granovetter, 1985). Throughout a vast literature, the embeddedness perspective has proven to be the unavoidable starting point of any endeavour to work out a contextualized approach of entrepreneurship. Embedding via Embeddedness Granovetter’s specific contribution lies in the concept of ‘structural embeddedness’ which refers to ‘the structure of the overall network of relations’. As a higher level of embeddedness it includes the lower level of ‘relational embeddedness’. Whereas the former refers to the network structure of relationships between numbers of actors, the latter describes the dyadic relations between individuals with reference to the quality level of such personal links (Granovetter, 1990). The characterization of the entrepreneurial  environment therefore has to address the social network structures that are embedding the entrepreneur’s action. In the abundant literature that Granovetter’s conceptualization has given birth to, many other kinds of embeddedness have been added over time. Among the most familiar types are those identified by Sharon Zukin and Paul DiMaggio. Besides structural embeddedness, three other types approximating well-established, other conceptualizations are distinguished: cognitive, cultural and political (Zukin and Dimaggio, 1990). Indeed, ‘cognitive embeddedness’ refers to ‘the ways in which the structured regularities of mental processes limit the exercise of economic reasoning’. This notion points at the actors’ limited ability to make use of the sort of rationality required by neoclassical economics and meets the well-known bounded rationality approach of Herbert Simon. ‘Cultural embeddedness’ refers to ‘the role of shared collective understandings in shaping economic strategies and goals’ and conveys a sociological perspective that goes back to Max Weber. By ‘political embeddedness’ is meant ‘the manner in which economic institutions and decisions are shaped by a struggle for power that involves economic actors and non market institutions’. This has been discussed by numerous scholars, among others by Amitai Etzioni who, in particular, argues for the need to balance freedom with morality, and community with autonomy. In view of the rehabilitation of ‘embeddedness paradigm’s’ original meaning and a clear articulation of its essentially social dimension with other spatiality related dimensions, German geographer Martin Hess proposed an interesting view on the fundamental categories of embeddedness (Hess, 2004). ‘Societal embeddedness’ considers ‘the societal i.e. cultural, political etc. background or genetic code, influencing and shaping the action of individuals and collective actors within their respective societies and outside it’. It also ‘reflects the business systems idea of an institutional and regulatory framework that affects and in part determinates an actor’s behaviour’. As a distinct concept, ‘network embeddedness’ refers to ‘the network of actors a person or organization is involved in’. It may be described as a relational aspect, the relationships of an individual or a firm

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with other actors, and as a structural aspect including both business agents and nonbusiness agents, for example, government and non-government agents. Spatiality is not a precondition for network embeddedness which is the result of a dynamic embedding and disembedding process within or across spatial configurations. ‘Territorial embeddedness’ considers ‘the extent to which an actor is anchored in particular territories or places. Economic actors become embedded in the sense that they absorb, and in some cases become constrained by, the economic activities and social dynamics that already exist in those places.’ From this reconceptualization of embeddedness one may also extrapolate a hierarchical vision of embedding structures. Territorial structures embody the spatially bounded receptacle of located activities. Network structures are organized relationships which get settled within the territorial structures and beyond. Societal structures, on account of their fluidity, permeate through every other structure. This pattern of embedding structures could show up as a useful first approximation of the entrepreneurial environment. Network Ties: Strong versus Weak Within the inferences one may draw from the distinction between high and low density networks, Mark Granovetter initiated a stimulating proposition concerning ‘the strength of weak ties’ (Granovetter, 1973). He argued that in social structures where networks with strong ties are prevalent, ‘cliques’ are liable to take form. Without weak ties between the high density networks, these structures are exposed to overall fragmentation. ‘Social systems lacking in weak ties will be fragmented and incoherent. New ideas will spread slowly, scientific endeavours will be handicapped, and subgroups separated by race, ethnicity, geography or other characteristics will have difficulty reaching a modus vivendi.’ The function of weak ties is thus to set a ‘bridge’ between more or less knitted networks. The ‘cohesive power of weak ties’ idea has been explored in Granovetter’s work in conjunction with some crucial issues such as poverty. The heavy concentration of social energy in strong ties, he says, has the impact of fragmenting  communities of the poor into encapsulated networks with poor connections between these units; individuals so encapsulated may then lose some of the advantages associated with the outreach of weak ties. This may be one more reason why poverty is self-perpetuating. (Granovetter, 1983)

The last statement together with the main argument might have some interest in connection with the viability of entrepreneurship as a means to overcome poverty in underdeveloped countries. As an established paradigm in network research, Granovetter’s weak ties hypothesis has been widely drawn on within the entrepreneurship literature and linked to network structures. Taking the entrepreneur’s point of view, it was necessary to get a better understanding about the strong versus weak ties’ respective utility and about their mechanisms of utilization in networking. Despite non-convergent empirical findings, the argument is now that the effectiveness of networks depends upon the presence of both strong and weak ties since they are equally likely to provide various resources, depending on the form of the ties and on the context.

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Network Structure of Social Capital In that abundant literature, the lasting work of Ronald Burt has become an inevitable reference. His structural approach leading to the concept of ‘structural holes’ (Burt, 1982;  1992) and his recent contributions on the ‘network structure of social capital’ (Burt,  2000; 2001), provide a valuable theoretical coherent background to our search for a  conceptual framework of the entrepreneurial environment. The ‘holes in social structure’ resulting from ‘weaker connections between groups’ ‘create a competitive advantage for an individual whose relationships span the holes’. This is due to the fact that ‘structural holes separate nonredundant sources of information’, that is, on either side of a structural hole different flows of information are circulating. ‘Structural holes are thus an opportunity to broker the flow of information between people, and control the projects that bring together people from opposite sides of the hole.’ The information and control benefits obtained by an individual across structural holes are the constituents of social capital. Now, there are other authoritative approaches of social capital as those pioneered by Pierre Bourdieu (1980; 1986), James Coleman (1988; 1990), Robert Putnam (1993; 2000) and Nan Lin (1999; 2001). In Lin’s views, social capital as a resource is prominent: it can be defined as ‘resources embedded in a social structure which are accessed and/or mobilized in purposive actions’. These resources may be existing or be latent. Bourdieu also defines social capital as ‘the aggregate of the actual or potential resources that are linked to a possession of a durable network of more or less institutionalized relationships of mutual acquaintance and recognition’. According to the French sociologist’s ideological position however, these ‘assets in networks’ together with the other forms of capital serve mainly as a leverage that individuals who are supposed to be only motivated by pursuing self interest, manipulate in order to gain dominating positions. Coleman sets a link between social capital as a collective asset and purposive individual actions. It is ‘some aspect of a social structure . . . facilitating certain actions of individuals who are within the structure. Social capital is productive, making possible the achievements of certain ends’. In Coleman’s views as well as in Lin’s, however, social capital needs to be activated to be effective. Over and above this, he emphasizes the case of closed networks with strong internal connections: they create normative sanctioning mechanisms and, consequently, higher levels of trust, that is, possible sanctions make it less risky for individuals in the network to trust one another. Along the same lines, Putnam maintains the focus on action leveraged by social structure. Social capital, he says, ‘refers to features of social organisation, such as trust, norms and networks that can improve the efficiency of society by facilitating coordinated action’. Social capital gets its utmost significance as ‘bridging capital’ which refers to the value assigned to social networks between socially heterogeneous groups whereas ‘bonding capital’ refers to that of homogeneous groups of people; the latter may turn in forms of networks harmful to society. Thus, according to Coleman and Putnam, social capital as a distinct resource stands out as a possible leverage for collective action. Owing to the contributions of these scholars, Ronald Burt presented an integrative view of social capital as a set of structural holes and network closure. The latter takes up Coleman’s argument: networks with closure or dense networks are favourable for direct access to information and have, in particular, the trust advantage. Taking the two

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network mechanisms into account, Burt suggests that ‘while brokerage across structural holes is the source of added value, closure can be critical to realizing the value buried in the structural holes’. While gaining popularity is a rather ‘elusive concept’ (Fukuyama, 2000), social capital has also been identified by the World Bank as a crucial issue for overcoming poverty worldwide. In one of many reports, it is argued that ‘social cohesion is critical for societies to prosper economically and for development to be sustainable’ and that public policy should therefore promote ‘cross-cutting ties among social groups’ (Narayan, 1999). Within the perspective set by Robert Putnam, experts of the World Bank resumed the ‘bonding’ and ‘bridging’ concepts and added the notion of ‘linking’. Bridging capital refers to ties that cut across different communities, groups or individuals, whereas linking capital refers to vertical connections that span differences in power and/or status. They also insist on the fact that bonding capital which refers to horizontal tight knit ties may be exclusionary and may stand in the way of cooperation and trust at the societal level.

3

LOCALNESS AND PROXIMITY DYNAMICS

The ‘effectiveness’ and ‘responsiveness’ of social capital, to use Robert Putnam’s words, come to the fore in local environments. Social capital is a latent resource for action. To be effective, it has to be activated so that some density within social relationships is needed: proximity contributes to the development of strong ties by favouring face-to-face relations between actors. But, drawing on the preceding conceptualizations, one may assume that the strength of localness is not only determined by the density of interactions within the frontiers of a local environment. Since in the literature on entrepreneurship localness happens to be seen as a possible source of competitive advantage in the global economy and, moreover, in the literature on economic development as a requisite for sustainability, it makes sense to elaborate upon localness as a relevant and significant dimension of the entrepreneurial environment. On that score, the theoretical corpus related to the ‘economics of proximity’ appears to be a rich vein where useful concepts could be dug out. At the crossroads of spatial and industrial economics, this new field of research has been growing since the beginning of the 1990s, first in France and later internationally. For scholars of economic geography and regional science the matter was to get a better understanding of the role of space in the coordination of economic activities. Coordination therefore is analysed by considering ‘situated agents’, meaning agents as they are located in a geographical space but also how they are embedded in a local system of relations conditioning their economic activities. As yet, proximity economics has enriched the traditional analysis of clusters by providing different proximity typologies and suggesting different measurement tools. In newer work on industrial districts, technology districts, local productive systems and so on, the role of proximity as a matter of competitive advantage has been discussed by some researchers. In a quite different domain, other scholars have tried to find new solutions for environmental issues where antagonistic interests often prevail, with the help of proximity analysis. The interesting point in proximity economics is to suggest that localness is not just a question of spatial distance and that proximity is a multidimensional concept bringing

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new inputs into the discussion of local development issues. As pointed out by the French sociologist Michel Grossetti, ‘economic activities are not necessarily always and equally dependant on social networks’ (2006). The process of embedding occurs through personal relations and, since these are mainly local, goes his argument, this process explains by itself the whole range of proximity effects. Anyway, in view of a contextualized approach of entrepreneurship, one could expect from proximity economics some support to enter localness into the entrepreneurial environment on a new footing. Proximity Typologies The rudimental distinction between ‘geographic proximity’ and ‘organized proximity’ (Torre and Zuindeau, 2009) may be the first entry. The geographical distance between individuals or organizations is, of course, the most appropriate and tractable indicator to catch on the concept of geographic proximity. But other indicators may be relevant too, such as access times depending on the state of infrastructures. Geographical proximity finally proceeds from ‘the opinion the agents may have on the nature of the geographic distance’ which separates them. Organized proximity deals with relationships and refers to ‘the capacity of an organisation to make its members interact’. Any organization is in a position to facilitate interactions between its members and, a priori, makes them easier than those with outsiders. On the one hand, there is the adherence logic at work: individuals come close because they are interacting and because their interactions are facilitated by explicit or tacit behavioural rules or routines they follow. On the other hand, members of an organization may share a similar system of representations or beliefs and knowledge as well. The functioning of this social tie is mainly tacit and answers a similarity logic. The point is that such organized proximity is not necessarily correlated with geographic proximity and that it may evolve its own, given time. A more detailed typology has been provided by Ron Boschma in analysing the role of proximity in the process of interactive learning and innovation. His main argument is that ‘the importance of geographical proximity cannot be assessed in isolation, but should always be examined in relation to other dimensions of proximity that may provide  alternative solutions to the problem of coordination’ (Boschma, 2005). For that purpose he suggests a rather comprehensive typology distinguishing five proximity dimensions: cognitive, organizational, social, institutional and geographical proximities. ‘Cognitive proximity’ means that agents who share the same knowledge base and expertise may learn from each other. The question at stake is not only the access to information in terms of rapidity and efficiency but also, and above all, the extension of cognitive possibilities. The focus is on the cognitive capabilities of individuals and organizations and their development, rather than on the intrinsic nature of knowledge such as tacit and codified knowledge. However, for several scholars, cognitive proximity has a more extensive meaning such as to refer to the relationship of people that belong to a community of practice and therefore communicate efficiently (Torre and Rallet, 2005). ‘Organizational proximity’ matters because it facilitates the exchange of knowledge. It refers to the fact that learning by interaction depends on the capacity to coordinate through organizational arrangements, the flows of knowledge coming from a variety of actors within and between organizations. Organizational proximity finally is contingent

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on the level of autonomy and the degree of control that can be exerted in those organizational arrangements. ‘Social proximity’, following Granovetter’s initial concept of embeddedness, refers to  the interpersonal links between individuals in so far as they are socially embedded and thereby involving trust based on friendship, kinship and experience. Social proximity  does not exclude situations where individuals are sharing values, such as ethnic or religious values but those characteristics of cultural proximity are more significant at the macro level of society. In Boschma’s typology, those values are part of institutional proximity ‘Institutional proximity’ indeed resumes an earlier distinction made by André Torre and Jean-Pierre Gilly and refers to the fact that individuals and organizations, first, share the same space of representations and beliefs, as already mentioned above, and, second, face the same incentives and constraints due to their institutional environment made of laws, formal and informal rules, cultural habits, language, and so on (Torre and Gilly, 2000), that is, the ‘invisible institutions’ (North, 1990). It meets also the concept of ‘institutional thickness’ which puts emphasis on the role of strong combinations of regional cultures and institutions as positive factors underlying local development (Amin  and Thrift, 1993). ‘Geographical proximity’, as a consequence of being superseded by alternative proximities, refers only to the spatial distance between agents so that its analytical relevance depends upon its coupling with the other forms of proximity. According to Ron Boschma, ‘geographical proximity per se is neither a necessary nor a sufficient condition for learning to take place’ but it may ‘facilitate inter-organisational learning’. The effects of proximity, however, are not univocal. ‘Not only too little’, asserts Boschma, ‘but also too much proximity may be detrimental to interactive learning and innovation.’ Too little cognitive proximity, for instance, decreases the capacity of an agent to identify, interpret and exploit the knowledge possessed by another agent, whereas  too  much proximity of this kind may result in ‘cognitive lock-in’. Too little organizational proximity goes along with a lack of control increasing the risk of opportunism; too much entails the risk of being locked in a specific exchange relation leading to a lack of flexibility. But there are mechanisms which may enhance control, solving the problem of too little proximity, while they prevent locking-in through greater autonomy, solving the problem of too much proximity. The differentiated pattern of proximities also has been given attention by a group of French economists whose purpose was to explain the success versus the decline of clusters (Vicente et al., 2007). Assuming that interactions between agents are always sequential, the concept of mimetic behaviours or interactions which has been the subject of a growing literature in economics, helps to ‘understand how firms converge more or less rapidly in their decision to locate close to each other (geographical proximity) and how this convergence process gives rise to other forms of proximity’. The main point is that ‘according to the mimetic process of co-location, the nature of socio-economic proximities can be very different and has a strong influence on the stability and the performance of clusters’. In everyday situations, of course, the different aspects of proximity are linked together in a dynamic process like that of ‘localized learning’ (Malmberg and Maskell, 2006). The concept of ‘interactive learning as a localized process’ outlines how

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local conditions and spatial proximity between actors enable the formation of distinctive cognitive repertoires and influence the generation and selection of skills, processes and products within a field of knowledge or activity. Localized learning helps explain why there is regional economic specialization, why similar and related firms tend to co-locate to form clusters, why both these phenomena reproduce over time.

The relevance of the different types of proximity has been discussed and there is still much more empirical investigating to do. This is especially important given that increasing globalization puts the significance of geographical proximity into question. So the issue is to find out which kind of proximity or which arrangement of different proximities can make up for the diminishing leverage of geographical proximity. This leads to the questioning of what may be called the ‘strength of localness’. Strength of Localness Whenever it comes to local aspects of the entrepreneurial environment, the characterization of localness has to take into consideration the variety of ways proximity permeates this environment: one may postulate that the strength of localness a priori is related to proximity’s variety and is contingent on an appropriate set of proximities. Arguments can easily be found in the extensive literature on small businesses’ internationalization and sustainable local development, to take only a few but relevant topics that form a striking part of the globalization debate. In the literature on small businesses’ internationalization, the well-documented vulnerability of small and medium-sized enterprises (SMEs), as regards their position in the global economy, makes a good case for the local network structures as a substitute resource (for example, Julien, 1994). It is argued that fragility which accompanies small size can be offset by a supportive environment provided by networks as ‘organized systems of relationships’ (Szarka, 1990). Evidence has shown that, instead of ‘going it alone’, SMEs may go abroad by joining local business networks, especially in many countries where local governmental agencies and/or local development bodies themselves play an increasing role in resilient environments. By helping to establish contacts, promoting know-how transfers, setting up reputation mechanisms that prevent opportunistic behaviour, and providing inputs like education or technology transfer services to network firms, these local organizations develop strong ties with the small firms’ local network. The ‘glocal’ market strategy which has been defined as ‘combining global business operations with small firm local cooperation’ (Johannisson, 1994) became a loop-hole for small business owner-managers’ survival and a favourite research field for academe. The local network argument also got much support from the ‘resource-based view of the firm’ (Wernerfelt, 1984) which was successfully taken over in the literature on strategic management in different ways (for example, Barney, 1991; Hamel and Prahalad, 1990; Brouthers et al., 2008). As regards the internationalization issue, the sustainability of a competitive advantage on international markets was said to require resources endowed with the quality of being unique assets. Resources of that kind may precisely come from local network structures. This has been highlighted by researchers interested in the case of ‘international-at-founding’ which refers to the situation of a business organization that, from inception, seeks to derive ‘significant competitive advantage from the use of resources and the sale of outputs in multiple countries’ (Oviatt and McDougall, 1994).

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Technology-based ‘born globals’ have particular stakes in local networking. Far from substituting international for local networks, technology-intensive firms which have achieved high levels of internationalization in fact also exhibit above-average levels of local networking with respect to research collaboration and intra-industry links. Internationalization therefore appears to be grounded or embedded in successful local networking and research and technology collaboration (Keeble et al., 1998). In the more common case of ‘international-by-stage’, SMEs are pursuing internationalization only after a steady development on domestic markets and then internationalizing their activities through a series of progressive stages (Cavusgil, 1984; Johanson and Vahlne, 1977). The market-oriented niche strategies which usually are within the reach of SMEs may then be strengthened by resource-based strategies engaging the local network structures in which they are embedded. The ‘glocalized’ process of SMEs’ internationalization is still stirring up much attention from many researchers involved in the ‘small business cause’. Some of them recommend that SMEs’ strategies abroad be strongly supported by an ‘increasing territorialization  of export strategies’ based on ‘nearness proximity’ (Torres, 2002). This means a stronger articulation between small business strategies and local development choices made by the local administrative bodies: ‘glocalisation displays a dialectical relation between International Management of Enterprises, especially small sized business, and International Management of Territories’. From the perspective of the knowledgedriven global economy, others would insist in particular upon the ‘localized learning’ argument (Malmberg and Maskell, 2006). The ‘challenge is to uphold a viable environment for localized learning .  .  . Successful globalization means strengthening rather than weakening the conditions for localized learning’. This requires ‘the development of distinct and valuable localized capabilities that promote and guide learning processes into particular trajectories’. These capabilities originate within the local social and institutional set-up. Localized learning supported by localized capabilities thereby sets localness at the foreground in a domain where, a priori, there are no boundaries: knowledge is supposed to be volatile. All together these views, it seems, consider local structures and processes as critical contributors to localness’ strength on their own. It should be noticed however that such an account of spatial relationships hardly conceals an ‘overterritorialized concept of embeddedness’ in the words of Martin Hess, which we have previously referred to. His revisiting of the seminal work of Karl Polanyi and Mark Granovetter, led him to critically engage with views, like those expressed in ‘most work in economic geography .  .  . proposing local networks and localized social relationships as the spatial logic of embeddedness’ (Hess, 2004). The SMEs’ glocal case indeed seems to exclude ‘societal embeddedness’ as a possible contributor to the strength of localness. In the terminology of social capital theory, bridging capital apparently is a non-important matter. Now the success potential of local business networks is by some means or other correlated not only with the entrepreneurial culture inside a territory, but also with the acceptance level of entrepreneurship by society as a whole. The latter is shaped by common history and common aspirations, for instance, as regards the contribution of entrepreneurship to common wealth in a market economy. The current discussions on the social responsibility of entrepreneurs and on the ethical dimension of entrepreneurship are good examples of this issue. As such sorts of concerns are kept outside local business strategies and local social relationships, this situation of ‘network

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closure’ – due to defaulting extra-local linkages of a crucial kind – would limit the strength of localness to the detriment of the small business sector in the global economy. In the face of globalization, the strength of a local network structure finally may depend over time on the societal values of the whole set of actors playing their respective roles in a territorial network that would be involved in the process of internationalization. In the debate on sustainable local development, localness is, of course, considered the true base for overall sustainable development. Sustainability in the practices of local development appeared to be a concern before the famous Brundtland Report, Our Common Future, of 1987 (United Nations World Commission on Environment and Development, 1987). This was due to a greater sensitivity to non-market issues of economic development together with a greater awareness of the fact that they can best be dealt with at the local level. New ways of thinking about economic development, new values, new expectations and new norms are spreading now. On that score the analysis of the entrepreneurial environment should give greatest attention to sustainable local development as a possible leverage of evolving societal values. In a theoretical perspective, any emphasis on the importance of localness leads to views that are opposite to macroeconomic theory which for a long time has disdained localness as a ‘no-man’s land’. Stressing localness means that it is the specific local characteristics that give the impetus or set the brakes on development. Most of the theoretical work on sustainable local development assumes that the development a territory may bring depends on the way it shapes its functioning and organizing, that is, its institutional settings. Such a view could easily be theorized by integrating the previous conceptualizations of social capital and proximity into a comprehensive framework such as the one elaborated by French economist Valérie Angeon and others (Angeon and Callois, 2005; Angeon et al., 2006). They endeavour to show how articulation between social capital and proximity dynamics is fundamental to a proper understanding of the social determinants of territorial sustainable development dynamics. In short, ‘social capital, to be activated in an efficient way, needs a supportive environment through specific dynamic relationships. It rests on some density of ties, which supposes that the actors are embedded, in a certain way, in proximity relations’. The territorial social capital which is involved in this process is an endogenous set of mental representations, values related to trust and norms that are linked to certain forms of proximity like ‘organized proximity’ and ‘institutional proximity’. Although it can best be activated in a territorial context, extra-local linkages are supposed to prevent lock-in situations. The latter condition obviously addresses the ‘bridging capital’ argument or, to put it in another way, the ‘not too much, not too little proximity’ reasoning. The strength of localness seems to be grounded on a mix of ‘societal embeddedness’ and ‘territorial embeddedness’. In older theoretical work on community development such as that elaborated by Ken Wilkinson, the focus had been put in particular on the interaction process of individuals, groups and organizations. The community is seen as a dynamic interaction field: it emerges from the normal flow of interactions among actors in a locality. The interests that actors have determine in part the course of the community’s social process. The shared interest in the welfare of their locality differentiates the community field from other local interaction: ‘locality orientation is the hallmark of community action’ (Wilkinson, 1991). In that ‘community interaction field theory’ which is supposed to apply especially to rural communities, focus is then put on the fact that the organization of the community’s

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action, that is, linking and coordinating local resources for the benefit of the community, does not occur spontaneously. Community capacity building and community  leadership  are therefore critical questions. Any community development programme, for instance by promoting entrepreneurship through educational programmes, has to give careful attention to these constraints (Korsching and Allen, 2004). This emphasis on the organizational aspects of community development obviously brings it near to the newer approach of sustainable local development, as mentioned before. Localness, however, is also a controversial subject that different ideologies related to  economic development issues have seized upon for a long time. It is worthwhile to remind ourselves of the main points of these ideologies on account of the various ways localness may be perceived and used. In the past there have been many pleadings, in particular within the cooperative movement, in favour of a social economy that meets the needs and aspirations of people and a society that enables the human being to strengthen its individual and collective identity to counteract the pervasive process of what we call today globalization. The enterprises that make up this sector – cooperatives, mutual societies, associations as well as informal organizations – have proven their efficiency throughout history in Europe, Africa, India and Latin America. They are still considered ‘the best means for sustainable local development’ (Draperi, 2005). Localness via these collective forms of locality-based enterprises comes forth as bred in the nature of things regarding the functioning of social economy. Localness more recently has been ascribed to critical qualities through the ‘glocal vision’  of economic development. Whereas at a first stage the debate on sustainable development put the focus on the global level, the think tanks on ‘glocalization’ now recommend a greater balance between local and global dimensions in the evolution of world’s affairs (CERFE, 2003). To put it more precisely, the goal is both to establish a link between the benefits of the global dimension – in terms of technology, information and economics – and local realities, while, at the same time, establishing a bottom-up system for the governance of globalization, based on a greater equality in the distribution of the planet’s resources and on an authentic social and cultural rebirth of disadvantaged populations.

Local realities are recognized on the account of the importance of cultural diversity and on the vigorous entrepreneurial spirit of local actors. Localness in that vision is conceived of as a means to give the best chances of success to the Western development pattern. As a radical criticism of the neoliberal model of globalization, a ‘post-development’ approach has gained ground since the last decade, where ‘localism’ has been given the force of a general unquestionable principle. It strongly emphasizes the ‘necessity to revive the local land’ in view of ‘getting out of development and economy and fighting against globalisation. What is at stake is to avoid the “glocal” argument being used as an alibi for pursuing the wasting of the social tissue’ (Latouche, 2004). This implies ‘building down our mindset in the realm of economics’ and to rethink the issue in terms of ‘sustainable decrease’. In this perspective, localness is valued for itself as a necessary and sufficient condition of sustainability at the societal level and for everyday living. From a policy perspective, the significance of localness and the various ways it is claimed in economic development issues is best documented in numerous reports on ‘community development’ which have been released since the 1970s. In these documents,

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community is usually understood in geographical terms but it may also refer to common cultural heritage, language, language and beliefs or shared interests. In short, a threefold challenge local grassroots practices have to face should be noted: it involves capacity building, organizing collective action, and good governance. The capacity-building challenge has to do with the variety of tangible and intangible resources that have to be mobilized within a territory and which altogether determine its potential for change. It also includes all that is brought to bear on a process to make it successful, such as commitment, motivation and leadership. Capacity building thus depends on dynamic processes involving individual and collective actors pursuing a common goal. The organization of collective action relies either on a contractual process through which partners commit themselves to consulting, coordination and cooperation and/or on a participatory planning process which creates a long-term framework for decisionmaking and action. The organizational effectiveness of collective action also depends on maintaining momentum in such key areas like leadership and partnership. The governance challenge addresses the question of how possible diverging interests may be harmonized with a view to realizing a common project. Divergences could bear  on  the individual interests within the private sector or be entailed by the differences  between market economy and social economy. The challenge concerning the latter issue is all the more significant as ‘social entrepreneurship’ is considered by an increasing number of leading personalities such as Muhammad Yunus, the advocate of micro-finance and Nobel Prize winner, as a robust basis for sustainable development. Institutions empowered to grant participatory processes of decision and action and to secure transparency that everyone may benefit from are generally seen as the best way to tide over the difficulties rooted in the everyday situations of contradictory interests. Again localness, by the mere fact of proximity dynamics, is supposed to ensure the best context for coming through with each of the challenges local development practices have to meet. But the defenders of local sustainable development should also care about the strength of localness which not only depends on the ‘institutional thickness’ of a community, but also on institutional bridging: the latter may provide external resources of any kind and information on alternative ways of organizing or participating which might have been experienced elsewhere. As an overall statement, one may say that localness of social capital makes every possible environment unique since there are no grounds for proximity dynamics to evolve the same way or in the same direction. The local environment’s uniqueness is enhanced by the variety of possible ‘externalities’ influencing its strength. By way of comparison, localness appears as a prism, with several parallel sides refracting and splitting each one of the colours coming from its environment. The analysis of the entrepreneurial environment has to cope with this prismatic appearance of social capital and has to render an account of the whole spectrum of resources and values it conveys.

4

CONCLUDING REMARKS

There stands out a clear parallel between development theory and entrepreneurship theory. While for a long time the tendency to conceive of development as being essentially

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a homogenous mechanical process prevailed, the contingent nature of development and a possible range of development alternatives are increasingly being acknowledged. The English version of the social regulation theory as elaborated by Paul Hirst and Jonathan Zeitlin is one of the new approaches that places much more emphasis on human agency and recognizes the contingency of development. Within this theoretical framework, the global economy is analysed ‘in terms of a series of modes of development based on combination of the currently ascendant regime of accumulation and a variety of modes of social regulation’ (Hirst and Zeitlin, 1991). The regime of accumulation determines the overall possibilities for the global economy in terms of production and consumption levels whereas a mode of social regulation is ‘a complex of institutions and norms which secure, at least for a certain period, the adjustment of individual agents and social groups to the overarching principle of the accumulation regime’. As emphasized in the French approach to the theory of social regulation, rules are liable to a continuous renewing through a process of negotiation that grounds social relationship (Reynaud, 1997); rules resulting from social interactions allow for communication, exchange, collaboration, contract and, even, conflict mechanisms. The theoretical approach of entrepreneurship is evolving in a similar manner, although with some appreciable delay. Most of the literature on entrepreneurship keeps up with entrepreneurialism, that is, the ethnocentric Western approach which sticks to searching for the ‘essence of entrepreneurship’. The recognition of alternative forms of entrepreneurship, however, makes its way through specialized research on topics such as indigenous entrepreneurship, community-based entrepreneurship and so on, as recalled above. The conception of entrepreneurship as a ‘rhizome’ should show the way forward. Based on this metaphor, Chris Steyaert suggests. to keep entrepreneurship as what it is: a fertile middle space, a little chaotic and unfocused arena, a heterotopic space for varied thinking, a space that can connect to many forms of theoretical thinking and where many thinkers can connect to, a true inter-discipline. In this spirit, this would require us, secondly, to alter our way of thinking of science into a so-called rhizomatic one. (Steyaert, 2005)

The demand-side approach of entrepreneurship without doubt takes up this spirit. It highlights the distinct yet intertwining features of the entrepreneurial environments whose understanding needs connections with other fields of theoretical thinking, as we have indicated. Also it makes clear that there is no single role set to be played by entrepreneurs in the global economy. Entrepreneurship as leverage for wealth in developed countries and entrepreneurship as a remedy against poverty in developing countries do not occur on the same stage: researchers have to give the utmost attention to the differences regarding social capital as they originate from the societal, network and territorial embedding structures because the relevance of a unique entrepreneurial role pattern is at stake. In addition, on account of the uniqueness of local environments resulting from the proximity dynamics, researchers should contemplate a widely differentiated role pattern as a new reasonable working hypothesis for studying entrepreneurs and their environment. Logically, and considering especially the sustainable local development issue, this leads to a questioning of the entrepreneurial capabilities that are needed in such a unique environment: societal capabilities would not be the least important when compared with personal and organizational capabilities (Obrecht, 2004). Finally, there are, of course,

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methodological questions to be settled about the most appropriate ways for studying the entrepreneurial environment and/or meeting the capability approach: not surprisingly there is increasing evidence about the resourcefulness of qualitative research as has been clearly indicated by a number of experts (for example, Dana and Dana, 2005).

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29. Ethics and entrepreneurship Alan E. Singer

1

INTRODUCTION

According to Sen (1997), the economic way of thinking downplays the role of ethics. Since  most theories of entrepreneurship have adopted that ‘way’, a contribution from ethics might be of substance. There is considerable consensus amongst contemporary philosophers that the economic way is a story or a narrative that mainly tells, in this context, how an entrepreneurial society based on trade is ethically superior to a totalitarian hierarchy, or a society at war, or overrun by crime (compare Baumol, Chapter 13, this volume). The ethics story plainly overlaps with this, but it mainly tells how a caring and just society that upholds rights and humane ideals is even better. Simply put, the former is somewhat dismal while the latter is idealistic. There is also a (meta)-story in which ethics is ultimately captured or eventually revealed by economic theory. This tells us for example that (i) illegal entrepreneurship is often unethical, although in some cases it can have an economic coordinating or liberating function, but also that (ii) ethics is already built into the activities of productive entrepreneurs. In addition, many of the latter individuals believe that they are already ‘acting ethically’ (doing good) simply by being entrepreneurial: crafting a synthesis, mobilizing resources and innovatively engaging stakeholders (for example, Brenkert, 2002; Christensen, 2008). Entrepreneurs are thus seen as role models demonstrating self-help, often providing an exit from poverty for themselves and their families or communities, in a world of undistributed riches. They are not ethically required to do any more. To the extent that society as a whole might be ‘heavily indebted’ to entrepreneurs collectively (compare Chapter 13, this volume), this viewpoint seems justified.

2

DUALISM

In accordance with the notion of creative-destruction, it is extremely common for any given entrepreneurial act to be perceived and narrated in diametrically opposing ways. Descriptions of entrepreneurial activity as productive versus destructive are a matter of  strong contention. For example, many appreciate that entrepreneurs (in general) serve  society and add to the common good because, or to the extent that, they create jobs, satisfy demand, create and share knowledge, facilitate cultural renewal, restore the environment, design ecologies, pay taxes, lobby to update outmoded laws, stabilize governments, act as role models, keep the dream alive, demonstrate mastery, encourage value-expression, engage in philanthropy, and so on. Others, or the same persons at different times, conclude precisely the opposite. Entrepreneurs damage society and detract from the common good, because they (correspondingly and variously) create sweatshops, decrease local affordability, conceal 242

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Ethics and entrepreneurship 243 or  monopolize knowledge, destroy ancient cultures, damage the environment, destroy ecologies, avoid and evade tax, lobby at other’s expense, support corrupt or oppressive regimes, frustrate others with unrealistic goals, create slaves, colonise the mind, cynically service an image, and so on. There is an extensive multidisciplinary literature that elaborates these two contrasting stories, thereby richly informing the ethics–entrepreneurship relationship. It can be helpful to organize this material within a framework of dualism. Such a ‘dualism’ is  comprised of several bi-polar components, such as shareholder versus stakeholder models of management (or variants of capitalism), exploitative versus compensatory responses to market failures, right versus left political leanings, ethics now versus later (that is, timing), to mention a few. These ‘components’ each then inform a collection of topical themes within entrepreneurship and ethics, such as poverty, environment, property rights, corruption, relations between businesses, governments and non-government organizations (NGOs), and so on. There are also several spanning themes in the dualism framework, each of which inform both ‘poles’ of the bi-polar components. These include intentionality, character, imagination and societal macro-trends. The remainder of this chapter briefly discusses a selection of the components and themes.

3

COMPONENTS

The set of human values can be (roughly) partitioned, with one sub-set (that is, one side of the dualism) associated with efficiency, craftsmanship and free exchange; the other ‘side’ with justice, care, avoidance of harm and protection of rights. Productive for-profit entrepreneurship plainly expresses the former sub-set, while social and eco-preneurship, by definition, give priority to the latter (for example, care, stewardship, restoration). On the same side as the efficiency-related ‘values’ one finds the economic principle of utility maximization (exchange) and normative ethical egoism. On the other side, one finds utilitarianism (which resembles the multi-stakeholder model of strategic management) and deontological ethics. The title ‘Kantian entrepreneur’ plainly belongs to the authentically caring social or humanistic eco-entrepreneur, but not to the entrepreneurial designer of a corporate empire that is ‘oligarchic, elitist non-democratic and exclusive’ (Neilsen, 2002: 233). Some other complex moral and political theories span the dualism (see below). Contractarianism, for example, has agreements amongst free self-interested individuals at its core, which places it on the ‘exchange and efficiency’ side of the dualism; but there is also an emphasis on justice and the avoidance of some types of harm. 3.1

Stakeholders

A dialectical tension between a stakeholder model and shareholder model of enterprise has been widely recognized in the general literatures of strategy (for example, De Wit and Meyer, 2005) and in business ethics. Freeman (1999: 234) described the term ‘stakeholder’ as an ‘obvious literary device, meant to call into question the (typical) emphasis on stockholders’. The answer to that question then seems to depend on time and place. For example, Jawahar and McLaughlin (2001) noted that most start-up entrepreneurs are concerned only with stockholders, creditors and customers; but this often changes later

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on, as other stakeholders are engaged. This dovetails with ‘rags to riches’ stories that begin with an exit from poverty and end with Carnegie-style altruistic philanthropy. This shareholder versus stakeholder component of the dualism plays out somewhat differently under the several regional variants of capitalism. Investor-capitalism (Anglo-US) and crony-capitalism (almost everywhere) invite a lot of Freeman-type ‘questioning’; although as Hendry (2001) noted, in these regions, the issue seems broadly settled in favour of shareholders. In continental Europe and Japan (and in US managerial capitalism up to about 1980) a somewhat different balance has perhaps been struck. 3.2

Market Failures

Entrepreneurial strategies for profit involve the deliberate exploitation (taking advantage) of several known limitations (imperfections, failures) of market-based systems. These limitations forge a gap between capitalist enterprise and overall conditions of human well-being. In this context, Sheperd and Levesque (2002: 152) commented that the entrepreneurial-process ‘can be used to exploit stakeholders, for the personal gain of the entrepreneur’. Accordingly, Prakash Sethi (2003) prescribed that institutions should ‘hold companies accountable’ for a more equitable distribution of above-normal profits that were obtained by the ‘exploitation of market power’. Heath (2006: 551) then claimed that ‘the exploitation of one or another form of market imperfection’ is what ‘upsets people’ and ‘gives profit-seeking a bad name’. Ethics in general emphasizes doing the right thing in the first place, rather than being held accountable for what is wrong. Accordingly, it tells how entrepreneurs might (i) voluntarily refrain from exploitation by exercising self-restraint or self-regulation, or (ii) proactively compensate for and mitigate the effects of others’ exploitative behaviour (for example, Singer, 2007a, 2007b). In practice, this type of ethical-strategy requires partnerships with suitably reformed institutions (see below) as well as a clear explanation to stakeholders.

4

TOPICAL THEMES

The topical themes associated with ethical entrepreneurship include poverty, property and corruption. Each can be informed by the above bi-polar components, but also by the various spanning-themes within the dualism framework (compare section 5 in this chapter). 4.1

Poverty

While entrepreneurship sometimes functions as an exit route from poverty, the larger ethical issue concerns the prospects for the alleviation of global poverty through capitalist enterprise. A mainstream view sees that for-profit enterprises create wealth, but they do not have an interest in re-distribution, other than through the capital markets to other business enterprises. Prahalad and Hammond (2002) have narrated the story of a benevolent global capitalism-as-usual, in which bottom-of-pyramid (poverty) markets are duly financed with micro credit and ‘served’ with consumer goods; where women are honoured and where

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Ethics and entrepreneurship 245 high-technology infrastructures spread rapidly through less developed countries (LDCs) due to the deliberate strategies of for-profit enterprise. According to its critics, this story leaves out the many people in poverty who cannot self-sustain or, more pertinently, are effectively prevented by others from doing so. Bhensadia and Dana (2004), for example, saw ‘a real danger’ that the rural poor (in India) would be ‘left out’. More generally it is apparent that entrepreneurs can destroy value for the local poor. This is exemplified by food exports from regions in famine. Accordingly, there are many (for example, Freeman, 1998) who believe that for-profit enterprise alone is not a complete solution to poverty. It is also necessary to have changes in peoples’ attitude, agenda, mindset or political philosophy. This implies that entrepreneurs themselves ought to have dual or mixed motives, including the direct and deliberate reduction of poverty. This alternative ‘story’ of deliberate targeted assistance aligns closely with almost all ancient theological texts that tell of ways of routinely and quietly helping the unproductive poor, while remaining productive oneself. 4.2

Property

Baumol (Chapter 13, this volume) notes that entrepreneurial talent can be shifted away from war and crime by having ‘rules against confiscation of private property and for patent protection’. The idea is that intellectual property laws help would-be warriors, criminals and the once-poor, to capture revenue, appropriate profit and secure a return on investment, through legitimate non-violent enterprise. A more distinctively ethical account begins at the other end. It is first asked (rhetorically  and idealistically) how social and environmental values can be ‘taken care of through the institutions of property and consumption’ (Freeman and Venkataraman, 2003: 3) commenting on (Derry, 2002). Then, with a good definition of property as ‘the relationship between people with respect to things’ (Munzer, 1990) it becomes obvious that the contemporary capitalist laws on property are placing power-relations (that is, market power and political capital) far ahead of ‘relations’ of care, social justice and humane ideals. Strong intellectual property rights (IPR) regimes in particular (patents and digital copyrights) are often seen as highly unjust and uncaring (for example, Collier, 2000). They arguably also create an inefficient tragedy of the anti-commons (Heller and Eisenberg, 1998). There is a serious concern that patents make poverty worse to the extent that they are discriminatory, favour corporate interests over citizen–user-consumers and directly reduce specific freedoms and capabilities. Indeed, patent protection of pharmaceuticals has been a distal cause of millions of deaths. Patents also treat human-designed lifeforms as legal property, thereby violating several widely held ethical principles, including some pertaining to slavery. Accordingly, ethical entrepreneurs would be cautious about the implementation of  their  property rights in general, but especially their own dependence upon IPR. Authentic eco-preneurs, social-entrepreneurs and craft-based innovators have already subordinated profit (that is, the accumulation of property rights by shareholders) to more idealistic motives. They might attempt to overcome the tradeoffs involved in IPRdependency by adopting IPR-free strategies, such as hypercompetitive cannibalization, or revenue-capturing from auxiliary market offerings.

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4.3

Codes and Corruption

In the international context, entrepreneurs frequently encounter implicit requests for facilitating-payments and bribes (for example, Transparency International, 2009). Laws, guidelines and codes of ethics that proscribe this (and other aspects of entrepreneurial conduct) are often viewed with cynicism and frustration. There is a widespread sense that they are impractical and that in any case, the language of ‘ethics’ is deployed only by power elites (for example, in codes of conduct) who are themselves profoundly corrupt. Put differently, ‘ethics is for the weak’, as Nietzsche explained. Accordingly, in cases where codes are in place ‘knowing when to break the rules appropriately may be a sign of real respect and understanding of them’ (Molyneaux, 2003: 142). This is the type of knowledge that can help the entrepreneur in practice and that can sometimes be provided by moral theory. The Principle of Double Effect, for example, implies that a facilitating payment for an otherwise normal deal (like unloading fruit from a dock) might be excusable, provided that (i) the deal depends on it, (ii) there is no expectation of subsequent violations of human rights or pollution danger, and (iii) the entrepreneur is providing routine and continuing support for other institutions and NGOs that battle against corruption (Roy and Singer, 2006). 4.4

Partnerships

Many for-profit entrepreneurs routinely lobby for policies that are expected to benefit the enterprise even though they might detract from the common good (for example, Smith, 1776; Brooke-Hamilton and Hock, 1997; Oberman, 2004). Some go further by promulgating a self-serving ideology, thereby shifting the attitudes of citizens and electorates towards favouring such activities and neglecting humane ideals. Ethical entrepreneurs, in contrast, would (and do) attempt to shift public attitudes in the opposite direction. They look for good-faith institutional partners in this mission. They do not just comply or wait for ‘a pertinent change in the institutions’ (Baumol, Chapter 13, this volume) but they choose instead to be proactive in this ethical-political arena.

5

SPANNING THEMES

Various spanning themes further inform both ‘poles’ of various components of the ethics–entrepreneurship dualism framework. Some examples are: intention, character, imagination, trends and synthesis, as follow. 5.1

Intention

The efficiency motives and the justice motives of an ethical entrepreneur are both subject to the classical constraints associated with free will. The problem of free will versus determinism (or deliberate versus emergent strategy) is theological and secular, social and  economic. Many theological texts contain warnings to the effect, ‘make your plans, they will fail’, and most for-profit entrepreneurs do just that. In the Western secular tradition, Kant emphasized only the quality of intentions. To be ethical, these must involve

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Ethics and entrepreneurship 247 genuine goodwill. Whether or not a project succeeds is then of less moral significance. In practical enterprise, however, this Kantian emphasis is typically reversed. Only good outcomes count in the public mind and in the bank. The individual entrepreneur then becomes a celebrity or an (accidental) hero, despite (or perhaps because of) the substantial amount of luck (and malfeasance) that might have been be involved. 5.2

Character and Wisdom

Virtue ethics is sometimes regarded as the most important ethical theory of business and management (for example, Solomon, 1992). It spans the dualism because excellent craftsmanship and efficiency, as well as an attitude of caring and a practical commitment to humane ideals, are all marks of good character. By implication, any ethical entrepreneur would nurture and display all of these traits. Virtue ethics also consider (along with philosophical pragmatism and practical wisdom) that the choice of the right course of entrepreneurial action ‘cannot be reduced to the application of a universal rule or principle’ (Dunham et al., 2008: 10). Doubt is thus cast upon the value of seeking ‘a few good moral principles’ or codes to guide the entrepreneur (compare Soule, 2002). The virtuous or wise or ethical entrepreneur is variously seen (for example, Dunham et al., 2008; Singer and Doktor, 2008; Zeleny, 2005) to be one who (i) has a detailed understanding of all the relevant circumstances, (ii) selects and explicates good purposes, (iii) remains mindful of the personal and enterprise lifecycles, and (iv) prioritizes activities accordingly. (Pragmatists might then be quick to point out that such habits are also the proper mark of a good strategist.) 5.3

Synthesis and Imagination

Synthesis per se is a rather obvious dualism-spanning theme (for example DeWit and Meyer, 2005). Many definitions of entrepreneurship refer to a ‘synthesis’ of economic opportunity, or to an economic imagination (for example, Earl, 1983; Sarasvathy, 2002). Competitive advantage can then be described with reference to a synthesis of various strategy components, such as shareholder and stakeholder, compliance and choice, and so on. At the same time, philosophers (for example, Werhane, 1999) have prescribed the exercise of moral imagination or ethical imagination in business and social life; that is, the crafting of a more inclusive plan or narrative: one that exposes and overcomes false choices between ‘poles’ like efficiency and justice (for example, Kuttner, 1984). It is perhaps worth mentioning at this point that the ‘dualism’ framework is itself a candidate for a new synthesis. The relationship between entrepreneurship and ethics has also been described as a correspondence (that is, of similar ideas, not opposites). The correspondence thesis (for example, Logsdon and Wood, 2002; Singer, 1994) claims that many of the categories of meaning deployed in the discourse of strategy and enterprise are also ethical categories (for example, strategic responsiveness to local market tastes is also a form of caring, or ethics). The dualism framework, in contrast, re-cast categories as opposites. Thus we have a ‘dualism of (dualism versus correspondence)’ that can be further expanded recursively, whereupon it becomes evocative of Bateson’s theory of ecology, or ecological understanding (compare Singer, 2002). This, in turn, constitutes the deepstructure of ‘living enterprise’ and eco-preneurship (for example, Hawken, 1993).

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5.4

Moral Progress

Ever since the idea of dialectics was first articulated (by Plato, 428–348 bc) it has been associated with progress, but especially in the sciences of life and mind. Accordingly, this brief account concludes with a consideration of trends. One can quickly find reports that associate reductions in poverty (in various locations) with periods of enterprising economic activity. This is often taken to mean that enterprise alleviates poverty in general. However, one can also find reports to the contrary, implying that something different or extra is needed. Similar levels of ambiguity surround the related issue of the empirical  link between corporate social performance and financial performance (compare Margolis and Walsh, 2003). Looking forward, yet another significant ambiguity appears. Pessimists perceive a moral regression in society as a whole, while optimists envision gradual moral progress. Few of the latter attribute this progress to the spread of for-profit enterprise (as distinct from social and eco-entrepreneurship, or alternative political arrangements). On this point, Godlovitch (1999: 219) has pointed out that for-profit enterprise culminates in an infinity of material goods and information; but this is not a human condition that we can seriously recognize as ideal. Accordingly, he wrote, we only make moral progress to the extent that something else (ethical enterprise perhaps?) is chosen as our ‘most important progressive venture’ (ibid.).

6

CLASSIFICATION

It is impossible to identify any fully representative set of contributions to ‘entrepreneurship and ethics’. However, the organizing framework outlined in this chapter (common themes, bi-polar components, spanning themes) enables the classification of relevant contributions according to the following types: 1. 2. 3. 4. 5.

7

Capturing: ethical entrepreneurial behaviours are explained purely in terms of rational utility maximization, as in game theory. Separating: concepts from within one side of the dualism are linked together. For example, efficiency is used to justify and explain the for-profit goals of an enterprise. Spanning: one or more ‘spanning themes’ are explored. For example, the character and wisdom of entrepreneurs is considered, in relation to their social and economic concerns. Synthesising: synergies or complementarities are discussed, involving both poles of selected bi-polar component(s). For example, win–win strategies are described. Re-casting: a claim is made that some component of the framework has superior explanatory power. For example, market failures explain more than value conflicts.

CONCLUSION

The dualism framework and classification might facilitate further inquiry into ethics and entrepreneurship. The many sceptics who continue to believe that such inquiry is

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Ethics and entrepreneurship 249 not needed, or that the role of ethics should be ‘downplayed’ in business practice, might be  impressed by a turn-of-the-century survey (mentioned in Kapustkina et al., 2008) in which it was found that only 8 per cent of secondary school students (in a region of Russia, in 1999) regarded ‘honest labour’ to be a suitable way to gain economic wealth. Fifty-nine per cent responded that ‘more suitable ways’ included organized crime, while 81 per cent mentioned power.

REFERENCES Bhensadia, R.R. and L.P. Dana (2004), ‘Globalisation and rural poverty’, International Journal of Entrepreneurship & Innovative Management, 4 (5), special issue on entrepreneurship and poverty. Brenkert, G. (2002), ‘Entrepreneurial ethics and the good society’, Business Ethics Quarterly, Ruffin Series no. 3 on Ethics and Entrepreneurship, 5–44. Brooke-Hamilton, J. and D. Hock (1997), ‘Ethical standards for business lobbying: some practical suggestions’, Business Ethics Quarterly, 7 (3), 117–30. Christensen, S.L. (2008), ‘Ethical entrepreneurs: a study of perceptions’, International Journal of Entrepreneurship and Small Business, 6 (1), special issue on entrepreneurship and moral progress. Collier, J. (2000), ‘Globalisation and ethical global business’, Business Ethics: A European Review, April, 71–6. De Wit, B. and R. Meyer (2005), Strategy Synthesis: Resolving Strategy Paradoxes to Create Competitive Advantage, London: Thompson Learning. Derry, R. (2002), ‘Seeking a balance: a critical perspective on entrepreneurship and the good society’, Business Ethics Quarterly, Ruffin Series no. 3 on Ethics and Entrepreneurship, 197–208. Dunham, L., J. McVea and R.E. Freeman (2008), ‘Entrepreneurial wisdom: integrating the ethical and strategic dimensions’, International Journal of Entrepreneurship and Small Business, 5 (5), 8–19. Earl, P. (1983), The Economic Imagination, Brighton: Wheatsheaf. Freeman, R.E. (1998), ‘Poverty and the politics of capitalism’, Business Ethics Quarterly, 1, special issue, 31–5. Freeman, R.E. (1999), ‘Divergent stakeholder theory’, Academy of Management Review, 24 (2), 233–6. Freeman, R.E. and S. Venkataraman (2002), ‘Introduction’, Business Ethics Quarterly, Ruffin Series no. 3 on Ethics and Entrepreneurship, 1–3. Godlovitch, S. (1999), ‘Varieties of progress’, in P.H. Werhane and A.E. Singer (eds), Business Ethics in Theory & Practice, Dordrecht: Kluwer. Hawken, P. (1993), The Ecology of Commerce, London: Weidenfeld and Nicolson. Heath, J. (2006), ‘Business ethics without stakeholders’, Business Ethics Quarterly, 16 (4), 533–57. Heller, M.A. and R.S. Eisenberg (1998), ‘Can patents deter innovation? The anti-commons in biomedical research’, Science, 280, 698–701. Hendry, J. (2001), ‘Missing the target: normative stakeholder theory and the corporate governance debate’, Business Ethics Quarterly, 11 (1), 159–76. Jawahar, I.M. and G.L. McLaughlin (2001), ‘Towards a descriptive stakeholder theory: an organisational life cycle approach’, Academy of Management Review, 26 (3), 397–414. Kapustkina, E., M. Sinyutin and Y. Veselov (2008), ‘Entrepreneurial trust in the St Petersburg region of Russia’, International Journal of Entrepreneurship, 5 (5), 94–102. Kuttner, R. (1984), The Economic Illusion: False Choices Between Prosperity & Social Justice, Boston: Houghton Mifflin. Logsdon, J. and D. Wood (2002), ‘Business citizenship: from domestic to global level of analysis’, Business Ethics Quarterly, 12 (2), 155–87. Margolis, J. and P. Walsh (2003), ‘Misery loves companies: rethinking social initiatives by business’, Administrative Science Quarterly, 48 (2), 268–306. Molyneaux, D. (2003), ‘Saints and CEOs: an historical experience of altruism, self-interest and compromise’, Business Ethics: A European Review, 12 (2), 133–43. Munzer, S.R. (1990), A Theory of Property, Cambridge: Cambridge University Press. Neilsen, R.P. (2002), ‘Business citizenship and United States “Investor Capitalism”: a critical analysis’, Business Ethics Quarterly, Ruffin Series no. 3 on Ethics and Entrepreneurship, 231–40. Oberman, W. (2004), ‘A framework for the ethical analysis of corporate political activity’, Business & Society Review, 109 (2), 245–62. Prahalad, C.K. and A. Hammond (2002), ‘Serving the World’s poor, profitably’, Harvard Business Review, September, 48–57.

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Prakash Sethi, S. (2003), ‘Globalisation and the good corporation. A need for pro-active co-existence’, Journal of Business Ethics, 43 (1), 21–31. Roy (Achinto) and A.E. Singer (2006), ‘Reducing corruption in international business: behavioural managerial and political approaches’, Journal of Economic & Social Policy, 10 (2), 3–24. Sarasvathy, D.S. (2002), ‘Entrepreneurship as economics with imagination’, Business Ethics Quarterly, Ruffin Series no. 3 on Ethics and Entrepreneurship, 95–112. Sen, A. (1997), ‘Economics, business principles and moral sentiments’, Business Ethics Quarterly, 7 (3), 5–15. Sheperd, D. and M. Levesque (2002), ‘Stakeholder value equilibration, disequilibrium and the entrepreneurial process’, Business Ethics Quarterly, Ruffin Series no. 3 on Ethics and Entrepreneurship, 151–6. Singer, A.E. (1994), ‘Strategy as moral philosophy’, Strategic Management Journal, 15, 191–213. Singer, A.E. (2002), ‘Global business and the dialectic: towards an ecological understanding’, Human Systems Management, 21 (4), 249–65. Singer, A.E. (ed.) (2007a), Business Ethics & Strategy, vols 1 and 2, Aldershot: Ashgate. Singer, A.E. (2007b), ‘Global strategy and ethics: managing human systems and advancing humane ideals’, Business Ethics Quarterly, 17 (2), 341–64. Singer, A.E. and R. Doktor (2008), ‘Entrepreneurship as wisdom’, International Journal of Entrepreneurship and Small Business, 6 (1), 20–27. Smith, A. (1776), An Inquiry into the Nature and Causes of the Wealth of Nations, London: W. Strahan and T. Cadell. Solomon, R.C. (1992), Ethics and Excellence: Cooperation and Integrity in Business, Oxford: Oxford University Press. Soule, E. (2002), ‘Management moral strategies: in search of a few good principles’, Academy of Management Review, 27 (1), 114–24. Transparency International (2009), Business Principles for Countering Bribery, available at http://www.transparency.org, accessed October 2010. Werhane, P.H. (1999), Moral Imagination and Managerial Decision Making, New York: Oxford University Press. Zeleny, M. (2005), Human Systems Management: Integrating Knowledge Management and Systems, Hackensack, NJ and Singapore: World Scientific.

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30. Ethnic minority entrepreneurship Léo-Paul Dana and Michael H. Morris

Entrepreneurship and immigration represent two of the most significant global trends in these early years of the twenty-first century. Both are occurring at historically unprecedented levels throughout the world. Dana (2007b) made it clear that these are not unrelated trends. Research over the past 40 years has demonstrated that immigrants often create new ventures at a higher per capita rate than populations in general. Yet, current knowledge of the ways in which immigrants and other minorities create ventures, the types of ventures they create and the outcomes of those ventures remains limited. As such, it becomes less clear how much we can generalize about immigrant or minority group entrepreneurship. Indeed there are important differences among immigrant groups. The Government of Canada found that per 1000 Filipino workers in Canada, 18 were self-employed; the same reported that per 1000 Greek workers in Canada, 124 were self-employed (Dana, 1991). How can such differences be explained? Other differences are also apparent across immigrant groups. For instance, while immigrant entrepreneurs are often characterized as having been forced into entrepreneurship because of limited opportunities within a host country, research studies (see Dana, 2007b) have demonstrated that a wide range of motives drive their behaviour. Furthermore, countries differ significantly in the extent to which they actively encourage entrepreneurial behaviour among new arrivals. Similarly, while one might conclude that immigrants only create lifestyle or ‘mom and pop’ type ventures concentrated in the retail sector, research suggests that significant diversity exists in the types of ventures that are being created. This chapter is a synthesis of the 48 perspectives on immigrant and minority entrepreneurship provided in Dana (2007b). As a kind of meta-analysis, we have attempted to capture the dominant themes, major arguments and key findings put forward by the outstanding collection of contributors. It is our contention that some important generalizations may be possible based on the patterns that emerge in this chapter. Toward this end, we have formulated an integrative model of factors that explains the emergence of an immigrant or ethnic venture. Implications are drawn from the model for theory building, entrepreneurial practice and public policy. A set of priorities are proposed for future research.

DEVELOPING A MODEL OF IMMIGRANT AND ETHNIC ENTREPRENEURSHIP The 48 perspectives provided in Dana (2007b), when considered collectively, suggest there may be a common set of key variables that explain immigrant entrepreneurship. That is, there may be common aspects to the immigrant experience that override ethnic 251

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and  cultural differences. Figure 30.1 illustrates our attempt to capture these key variables. It focuses on six key variables, each of which is summarized below. 1

The Immigrant

Entrepreneurship does not happen without entrepreneurs. While the literature has historically focused on the traits of these individuals, and more recently there has been considerable attention devoted to their cognitive styles, or how they think, the research in this volume has tended to emphasize the relevance of other considerations. Especially important in this vein are motives, values and skills. Motivation to create a venture can generally be categorized into ‘push’ versus ‘pull’ factors. Entrepreneurs are pushed into entrepreneurship when they have limited access to meaningful employment opportunities within existing companies. The obstacles can range from overt labour market discrimination and communication barriers to skill shortcomings. The need to make a living and support one’s family, absent opportunities with existing organizations, pushes the individual towards entrepreneurship. Similarly, having technical skills, but an inability to sell these in the labour market, pushes one to create a venture. Alternatively, recognition of opportunity and the desire to achieve a vision can pull an individual towards the entrepreneurial path. While it is generally assumed that immigrants are more pushed than pulled, we find ample evidence of immigrants driven by motives to build growth-oriented ventures and to create wealth. Values play a role as well, especially when the immigrant has a value-set that is strongly tied to his or her ethnic background. Strong identification with one’s ethnicity can lead to a preference to create ventures tied to the ethnic network or enclave, but also to a motivation to serve the ethnic community. Such values will often be manifested in the business practices of the entrepreneur, including employment practices, incurrence of debt and approach to customer service. Yet, there is also evidence that ethnic entrepreneurs share universal values that are unrelated to their ethnicity. Examples of such universal values include individualism, achievement, competitiveness, risk-taking and a strong work ethic. The very act of emigrating may be reflective of some of these so-called entrepreneurial values. Also relevant in this realm is the relative size of what we might call the ‘ethnic gap’, or the extent of difference between the norms, values, customs, symbols and language of the host and home countries. Where this gap is larger, the immigrant is driven towards the ethnic network or enclave and towards entrepreneurship. Finally, while the role of other demographics are clear, these chapters do suggest that age and gender also represent significant considerations in the tendency to create ventures in new environments, and in the types of ventures created. 2

Host Country Factors

While a wide range of country factors affect levels of entrepreneurship in general (for example, taxes, mandated social benefits provided by companies, regulation), our interest  is in the environmental elements that most influence immigrant entrepreneurship. Based on the range of work submitted to this volume, the role of the informal economy within the larger economy of the host country appears to be an especially

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Figure 30.1

Commonality of business interests with ethnic network interests and resource

Learning/ knowledge acquisition

• Type of venture • Dependence on ethnic enclave • Relative focus on the business versus the ethnic group

The immigrant venture

Ethnic network/enclave

• Access to international ethnic network • Homogeneity of ethnic group • Cost of membership in network/enclave • Reciprocity and trust • Diversity of business types • Extensiveness of network • Crowding within enclave • Infrastructure • Resources/cultural capital

Immigrant venture flowchart

• Values • Motives • Ethnic gap (home versus new country) • Age and gender • Communication and networking skills • Technical skills • Linkage to ethnic businesses back home

The immigrant

Host country factors

• Role of informal economy in larger economy • Host country entrepreneurial culture • Cultural heterogeneity • Historical role of immigration • Support programmes for entrepreneurs • Welfare/social benefit system • Permeability of markets • Regulatory constraints

Co-ethnic dependence over time

• Outcomes for immigrant – assimilation – income and wealth – upward social mobility • Venture outcomes • Societal outcomes • Upward social mobility • Assimilation

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salient consideration. The presence of a large population of unregistered businesses says something not only about limited opportunities within the ‘legitimate’ business sector, but also implies a culture of creating ventures to address needs, and a willingness of the government to look the other way. Countries also differ in terms of their overall entrepreneurial orientation, where the basic cultural values and norms of society are more consistent with individual initiative, personal responsibility, wealth creation, reward for hard work, competitiveness and innovation. Not only does immigrant entrepreneurship flourish in such environments, but these countries often have a history of high rates of immigration, with immigrants making major contributions to economic development. Similarly, such countries will tend to demonstrate great cultural heterogeneity. And, while cultural heterogeneity is consistent with higher levels of entrepreneurial activity, the tendency for immigrants to cluster both geographically and around certain industries appears to occur regardless of this heterogeneity. Hence, in both homogeneous and heterogeneous countries, the ethnic network plays a significant role in immigrant entrepreneurship. The entrepreneurial friendliness of a country will also be reflected in some other variables emphasized in the preceding chapters. Immigrant entrepreneurship is facilitated where markets are more permeable, regulatory constraints are limited, and specific support programmes exist not only for entrepreneurs, but for immigrant entrepreneurs. Ironically, immigrant entrepreneurship is also facilitated by a limited welfare or social benefit system in the host country. Generous social welfare may be more of a conduit either for unemployment or entry into the traditional labour market, as opposed to the creation of one’s own venture. 3

The Venture

The evidence here suggests that a large majority of immigrant and ethnic ventures are either retail or service businesses, or related to a skill or trade the immigrant brings from their home country. Most are in low entry barrier industries, where differentiation of the business is difficult and competition is often price based. The ethnic network or enclave can serve to offset these severe market challenges, in effect creating a workable competitive space for the entrepreneur. Yet, as noted above, there is considerable diversity in the types of ventures created by  immigrant and ethnic entrepreneurs. However, dependence on the ethnic enclave may  well limit growth and constrain innovation within the venture. This is not to say that there are not sizeable ventures that develop based on the ethnic enclave, but these appear to be the exception. In fact, a perusal of the many case examples provided within the pages of this book find few highly innovative ventures that compete on the basis of continuous new product or service development. There are also few examples of hightechnology or technology-based ventures. 4

Ethnic Networks and Enclaves

A unique aspect of immigrant and minority entrepreneurship is the frequent presence of an ethnic network or enclave as a facilitator of new venture creation. In some contexts, entire sub-economies have been created that involve a given immigrant or ethnic

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group controlling all stages of the value chain. In other instances, the ethnic network is a source of resources and legitimization. In still other cases, the network extends to the immigrant’s home country and/or is connected to a global diaspora. By viewing these ethnic networks and enclaves through the lens of different countries and ethnicities, we are better able to appreciate how they affect and interact with immigrant or ethnic entrepreneurs. The critical importance of ethnic networks in affecting immigrant entrepreneurship is strongly supported in country after country. They are an invaluable source of a wide range of resources (money, suppliers, employees, customers, distributors) and generate what has been termed ‘cultural capital’. Just as vital is the role of the network or enclave as a source of information and knowledge. They provide legitimacy and infrastructure, as  well  as the  aforementioned competitive space within which the entrepreneur can survive in the early stages of the venture. And they can frequently provide connections to a larger international network. Yet, ethnic networks differ based on some key characteristics. The relative homogeneity of the ethnic individuals within the network is a case in point. This homogeneity may contribute to levels of reciprocity and trust within the network or enclave. The greater the reciprocity and trust, the more engrained within the network a venture is likely to become over time. Another relevant characteristic is the extensiveness of the network. Extensiveness refers not simply to geographic scope, but to the diversity of the industries and business types represented within the network or enclave, the stages of the value chain within industries that are represented, the reach of the network or enclave into the non-profit and government sectors, and the related political activism of the network or enclave. Homogeneity, trust and extensiveness might also be expected to affect the cost of membership within the network or enclave, including resources (money, time, goods and services) that must be reinvested by the entrepreneur in the network over time. A related variable concerns the degree of ‘crowding’ within the network or enclave, particularly among ventures providing the same basic goods or services. Crowding undermines the relative returns to the entrepreneur from depending upon the network or enclave, and limits growth prospects. Yet, it can be an important incentive for ultimately lessening the venture’s dependency on the ethnic network or enclave. 5

Co-ethnic Dependence over Time: Two Intervening Variables

The growth path followed by immigrant or ethnic ventures has not received sufficient attention from researchers. For instance, richer insights are needed regarding crossnational differences in the survival and growth rates between ventures started by immigrants or ethnic minorities and those in the mainstream economy, and the underlying reasons contributing to such differences. Further, we need to better understand the extent to which ethnicity affects strategic intent. Again, the ethnic network plays a role. The studies here suggest that ethnic networks facilitate venture start-up and short-term growth, and may reduce failure rates, but might also either limit or have no effect on longer-term growth. Hence, dependency on the ethnic network, and the extent to which the entrepreneur views the venture as existing to serve the ethnic group, or views the ethnic group as a means of serving the venture, impact the firm’s growth path.

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Based on the work presented by the researchers in this volume, two key variables appear to impact the venture’s co-dependence on the ethnic network or enclave, and the venture’s ultimate growth path. The first concerns the amount of learning and knowledge acquisition that occurs over time. The more learning that is achieved by the entrepreneur and those working within his or her venture, the more growth occurs, while dependency on the ethnic network lessens. The network is initially the most critical source of information. The question is how much the entrepreneur identifies and utilizes new information sources over time, and how much he or she learns from ongoing experimentation with new products, markets, and internal business processes. The second variable impacting the venture’s growth path concerns the extent to which the core interests and needs of the venture coincide with the interests and resources of the ethnic network. Over time, commonalities in interests, needs and resources can often wane, especially as the ethnic network or enclave becomes more crowded. Emerging competitive practices within the industry can force the entrepreneur to develop new competencies in areas where the ethnic network has less to offer. The development of these competencies can, in turn, lead the entrepreneur to become less dependent on the ethnic enclave and to grow more aggressively. The dynamism of the ethnic network itself becomes an important consideration. More dynamic networks or enclaves can be expected to continually develop new capabilities and assets, fostered in part by the addition to the network of new but diverse immigrant or ethnic ventures. Less dynamic and more conservative networks will only limit the potential of the venture, and give rise to the entrepreneur diversifying away from co-ethnic dependency. 6

Outcomes

The immigrant and ethnic venture experience produces outcomes at three distinct but related levels. The first of these is for the immigrant or ethnic minority entrepreneur and his or her extended family. At this level, the most apparent outcome is income substitution and wealth generation. Yet, given the preponderance of survival and lifestyle ventures being created, wealth generation may be limited. Further, the considerable needs of the family combined with the need to invest in the ethnic community, may well constrain the amount of reinvestment into the business. Less clear is the extent to which these ventures represent stepping stones to employment in established companies within the mainstream economy. The opposite may often be the case, in that by focusing on the needs of the venture, the entrepreneur does not develop skills and experiences that are in demand within the labour market. The venture serves other purposes as well. One of these is upward social mobility for the entrepreneur, but even more so for the children of the entrepreneur. An interesting issue concerns the impact of venture creation on the amount and rate of assimilation by the entrepreneur of the culture and norms of the host country. Ventures operating in relatively narrow niches and less dynamic markets may actually hinder the  assimilation process. Heavy dependence on the ethnic network can also slow the assimilation process. A slow rate of assimilation can, in turn, limit the growth rate and directional path of the venture. This brings us to venture outcomes. The financial performance of these ventures over time (that is, sales growth, profit growth, growth in numbers of non-family employees) would seem to be directly

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associated with the variables outlined in the model. Hence, ventures will perform better based on the motives and skills of the entrepreneur, the entrepreneurial friendliness of the host country, the type of venture created, the resources, extensiveness, crowdedness and dynamism of the ethnic network or enclave, the amount of learning by the entrepreneur over time, commonality of the business interests and needs with the interests and resources of the ethnic network, and co-ethnic dependence over time. Finally, the perspectives provided in Dana (2007b) suggest that immigrant ventures can produce significant societal outcomes. National economic growth and vitality are chief among these outcomes. However, there is evidence to suggest that these ventures also contribute to a number of other quality-of-life dimensions. As these ventures are frequently  started in poorer or more economically challenged neighbourhoods, they provide a source of neighbourhood stability. Further, by providing for the economic welfare of the immigrant’s extended family, entrepreneurial ventures may serve as a deterrent to criminal and gang activity. In addition to any taxes paid, immigrant entrepreneurs frequently contribute in meaningful ways both to their communities and their ethnic networks. And, in the final analysis, these ventures add to the social, cultural and commercial fabric of society by adding diversity to communities, while also introducing new products and new business practices.

IMPLICATIONS Six decades ago, Cochran (1960) focused on the role of cultural factors in economic growth. In 2000, the Human Genome Project claimed that race did not exist. Today, scientific teams study the genetic traits of ethnic groups. Are behaviour and ethnicity linked and if so, how and why, and does it matter? The 49 chapters of Dana (2007b) all report on ethnic minorities and their respective entrepreneurial activities. As explained by Morris, ‘An ethnic group is a distinct category of the population in a larger society whose culture is usually different from its own. The members of such a group are, or feel themselves, or are thought to be, bound together by common ties of race or nationality or culture’ (1968: 167). Yet, ‘Ethnic groups only persist as significant units if they imply marked difference in behaviour, i.e., persisting cultural difference’ (Barth, 1969: 15–16). In some cases, ethnic groups integrate into host societies, into which they have immigrated; in most cases they do not. Where groups with unlike spheres of values coexist, the result is a pluralistic society. Barth (1963; 1966; 1967a; 1967b; 1981) is one who has placed great emphasis on the existence of different spheres of values. Central to his discussion is the notion of the entrepreneur as an essential broker, mediating boundary transfers in this situation of contacts between cultures. By being active in the transformation of a community, entrepreneurs are social agents of change. The nature pluralism in a host society affects ethnic minority entrepreneurship. It is, therefore, useful to distinguish among (1) melting pot pluralism; (2) structural pluralism; and (3) fragmented pluralism: 1.

When people, from different cultures, share activities in a secular mainstream arena, the expression of cultural differences tends to be limited to private life. Often,

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World encyclopedia of entrepreneurship employment is shared in a common sphere of life, while cuisine, customs, languages and religion are a domestic concern. This form of socio-economic pluralism is referred to as melting pot pluralism, and this is descriptive of the situation in the USA. Immigrant entrepreneurs thrive in such as scenario. In contrast, structural pluralism involves a society with different cultures that do not share a secular mainstream arena. In such a case, there is minimal interaction across cultures. Rather, each ethnic group has its distinct institutions, and members of a given community have a lifestyle that is incompatible with that of people from other backgrounds. This type of pluralism is prevalent in the Muslim areas of China (Dana, 2007a) and in the Central Asian republics (Dana, 2002), where entrepreneurs often cater primarily (or only) to members of their own ethnic group. Fragmented pluralism is an unstable state of socio-economic pluralism from which a society can shift toward ‘ethnic cleansing’. With fragmented pluralism, distinct societies are loosely held together by a weak political unit, such as was the case with Yugoslav federalism (Dana, 2005), and each ethnic group lives a separate life. In this context, there is minimal interaction between competing ethnic groups.

Gurău et al. (2020) address the variety of theoretical interpretations of ethnic minority entrepreneurship and provide a model of immigrant entrepreneurs along with a typology.

TOWARDS FUTURE RESEARCH Future research topics might include: the impact of the motives for migrating; host country factors such as the nature of pluralism; economic sectors of immigrant ventures; causal factors in patterns of growth among ethnic entrepreneurs; enclaves; and co-ethnic dependence over time. Also, more research would be welcome on the topic of ethnic networks, as pioneered by Aldrich and Zimmer (1986); on middlemen minorities, as pioneered by Bonacich (1973); and on social capital as discussed by Bates (1994). To what extent do immigrant entrepreneurs employ people from other ethnic communities? When do they cater to mainstream society? What might be the optimal strategy? Dabić et al. (2020) propose a research agenda.

REFERENCES Aldrich, H.E. and C. Zimmer (1986), ‘Entrepreneurship through social networks’, in D.L. Sexton and R.W. Smilor (eds), The Art and Science of Entrepreneurship, Chicago, IL: Upstart, pp. 3–20. Barth, F. (ed.) (1963), The Role of the Entrepreneur in Social Change in Northern Norway, Bergen: Norwegian Universities’ Press. Barth, F. (1966), Models of Social Organization, London: Royal Anthropological Institute. Barth, F. (1967a), ‘Economic spheres in Darfur’, in Raymond Firth (ed.), Themes in Economic Anthropology, London: Tavistock, pp. 149–74. Barth, F. (1967b), ‘On the study of social change’, American Anthropologist, 69 (6), 661–9. Barth, F. (1969), ‘Introduction’, in Fredrik Barth (ed.), Ethnic Groups and Boundaries: The Organisation of Cultural Difference, Oslo: Universitetsforlaget, pp. 9–38. Barth, F. (1981), Process and Form in Social Life, London: Routledge and Kegan Paul. Bates, T. (1994), ‘Social resources generated by group support networks may not be beneficial to Asian immigrant-owned small businesses’, Social Forces, 72 (3), 671–89.

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Bonacich, E. (1973), ‘A theory of middleman minorities’, American Sociological Review, 38 (5), 583–94. Cochran, T.C. (1960), ‘Cultural factors in economic growth’, The Journal of Economic History, 20 (4), 515–30. Dabić, M., B. Vlačić, J. Paul, L.-P. Dana, S. Sahasranaman and B. Glinka (2020), ‘Immigrant entrepreneurship: a review and research agenda’, Journal of Business Research, 113, 25–38. Dana, L.P. (1991), ‘Bring in more entrepreneurs’, Policy Options, 12 (9), 18–19. Dana, L.P. (2002), When Economies Change Paths: Models of Transition in China, the Central Asian Republics, Myanmar, and the Nations of Former Indochine Française, Singapore, London and Hong Kong: World Scientific. Dana, L.P. (2005), When Economies Change Hands: A Survey of Entrepreneurship in the Emerging Markets of Europe from the Balkans to the Baltic States, Binghamton: Haworth Press. Dana, L.P (2007a) Asian Models of Entrepreneurship – From the Indian Union and the Kingdom of Nepal to the Japanese Archipelago: Context, Policy and Practice, Singapore and London: World Scientific. Dana, L.P. (2007b), Handbook of Research on Ethnic Minority Entrepreneurship: A Co-evolutionary View on Resource Management, Cheltenham, UK and Northampton, MA, USA: Edward Elgar. Gurău, C., L.-P. Dana and I.H. Light (2020), ‘Overcoming the liability of foreignness: a typology and model of immigrant entrepreneurs’, European Management Review, doi:10.1111.emre.12392. Morris, H.S (1968), ‘Ethnic groups’, in David L. Sills (ed.), International Encyclopedia of the Social Sciences, London and New York: Macmillan, vol. 5, pp. 167–72.

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31. Evolution of entrepreneurship and its role in stewardship-based economics*

Raymond W.Y. Kao, Rowland R. Kao and Kenneth R. Kao

It has been exactly 30 years since the Ecologist began campaigning first at the self-destruction of mankind. Much has been achieved since, much remains to be done. (Fred Pearce, ‘The spirit of the age’, Ecologist, July/August 2000)

Now, not 30 but 50 years on, some of the issues raised by the Ecologist and many others are just reaching the critical mass of public opinion for action to be taken about them, with much more as yet largely ignored. World Bank statistics on global poverty alone tell us how much work remains to be done. The unfortunate realities that face us now, as we move forward through the twenty-first century, should make us wonder: how is it possible that we have done so little to ease the too legitimate concerns over the potential for the self-destruction of mankind? At the point of updating this chapter, the COVID-19 pandemic is in full force and will be remembered as a turning point in human history. The spread of the virus has been exacerbated by unprecedented levels of human movement around the world. Throughout this global crisis, entrepreneurism has taken a role front and centre – with all levels of enterprise from the small home-based businesses making face masks and personal protective gear, to large corporations, such as GM, manufacturing desperately needed ventilators  used to keep the most seriously affected patients alive to recover from this deadly disease – seen increasingly as addressing these issues, and stewardship accountability applied to entrepreneurial undertaking. Governments worldwide have also stepped up financial support for biotechnology and pharmaceutical companies to develop innovative ways to combat this deadly disease, lighting a fire under the entrepreneurial spirit. The lightning fast speed afforded by the Internet and social media, as well products of entrepreneurial innovation, have served to feed the entrepreneurial fever, demonstrating its importance to human survival. Also, quieter streets, cleaner air and wildlife returning to places they had not been seen for years, have reminded us of things that we had thought  we had lost, or taken for granted. It has thus, at least temporarily, reminded people of our stewardship role, and caused people all around the world to reassess their values. It could be argued that, at the heart of our fight against COVID-19, is a battle between economics and the health of human people. The current American president, Donald Trump, argues for re-opening the economy, which has been closed to stop the spread of the virus. While others do not share President Trump’s penchant for favouring illusory cures for COVID-19, the concerns about the world economy are real, as are concerns about the impact on health and society. Do we accept that people must die, sometimes in great distress and pain because of this pandemic, so that economies can be restarted and to prevent the loss of even more years of life owing to other causes? The danger brought about by the control policies themselves is real. Yet, while many have died, most people 260

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around the world are as healthy as they were before the pandemic, and ready to work. Thus the potential for productivity remains almost exactly the same as it was before the pandemic. What has changed is that the system of distribution is damaged. The fundamentals of economics are the same, no matter what the system or underlying philosophy involved: production (or the making of new or required combinations), exchange (the equal trading of value), redistribution (the accrual or loss of value by individuals or other economic entities) and consumption. Any attempt to coordinate all this should be viewed as unrealistic. Any human system requires human decision, and therefore at least some human freedom. Humans are not ants or bees, and our behaviour is driven by need, wants and desires, sometimes for more and more without any feeling of the need for a margin – that is, greed. Despite the negative connotations of greed in respect of needs and wants, it is a perhaps unfortunate reality that there is a co-dependency among the three; they all function in the marketplace to push human beings to create and innovate, resulting in a great deal of the progress that has been made to date. Personal desire and the push for more also affect the system of distribution. Thus, any economic system must reconcile the two aspects of the individual and the common good. Here, we argue that entrepreneurship is the key to reconciling this contrast but, to be sustainable, it must be an entrepreneurship that recognizes the concept of the residual. It has been recognized now for many decades that entrepreneurship is at the heart of human activity. Questioning whether there are any boundaries as to what entrepreneurship encompasses, however, could be seen as a matter of ethical and moral debate. Over 25 years ago, at the 1995 Entrepreneurship Conference held in Shanghai and jointly run by China’s Fu-Dan University and Nanyang Technological University of Singapore, the senior author delivered an opening address in which he noted that entrepreneurship should be identified as a creative and innovative human activity that benefits both selfinterest and the common good. A young attendee commented: In your address, you said that people in the drug-trafficking business are not entrepreneurs, but I think you are wrong. Drug trafficking is a business, and traffickers are just as much entrepreneurs as any other venture founders. They created the business, making money for themselves, and provide jobs for others. Why don’t you consider them to be entrepreneurs?

The senior author responded: ‘Well, I don’t know about China, but in Singapore, a drug trafficker, if caught and found guilty as charged can be sentenced to death by hanging.’ Definitions are, therefore, very important. In this case, the difference in definition between what is considered to be an entrepreneur (in the questioner’s mind) and what is considered a criminal (in Singaporean legislation) is literally the difference between life and death. Definitions are there to serve as a guide, in a learning environment, helping to communicate knowledge among those concerned. It is broadly agreed that laws are created on the basis of justice to govern the limits of human behaviour and business conducted. However, the law does not define justice. To enforce and interpret justice in the law is the task of a person (usually a judge), or a group of persons, such as a jury. Similarly, a definition is created with a specific purpose in mind and is intended to be used in practice. To uphold the intentions that lie behind a definition remains a human problem, for individuals to decide.

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WHO IS AN ENTREPRENEUR?

It is slightly fanciful to say that the dinosaurs became extinct because they failed to be sufficiently entrepreneurial and adapt to a changing environment, but it is no less true that, in the absence of entrepreneurial spirit, we would either be extinct ourselves or remain in a less innovative and creative society, as hunter-gatherers, just like our prehistoric ancestors. They certainly had no automobiles, computers, Internet, advanced medicine, cosmetic surgery or personal jets. These luxuries are the results of the entrepreneurial spirit in society and can also be the reward of entrepreneurial action on the part of the individual. It is equally true that not all those who achieve these things are entrepreneurs. We are reminded of a now old-fashioned term, the ‘American dream’. Once upon a time the American dream referred to the right of every individual, by virtue of their own talents, ambitions and hard work, to succeed. That is, America’s pride was to be an entrepreneurial society. Unfortunately, now the fruits of that dream are viewed by too many to be the dream itself – a lottery winner, for example, is viewed by many as living the American dream. Worse still, individuals can cheat and lie, manipulate the system, perhaps even commit heinous and harmful offences to get what they want, in the name of the American dream. In the current world of well-to-do countries, the desire for greater wealth is the main driver of many people’s actions, and perhaps this is how entrepreneurship was spurred. If so, the original meaning of the term has been lost – what is left is only a caricature of the original. Cantillon’s definition (see also Table 31.1) purported that the enterprise under a selfemployed individual has dual status: the enterprise is both an economic entity and a social entity. As an economic entity, the self-employed individual has the proprietary right to make decisions in allocating the uncertain returns for himself or herself. As a social entity, he or she is accountable as a steward for resources to see that all resource-providers receive a fair share of return for their contribution, including the restoration of what was taken from nature and a fair share of the fruits of their labour. Entrepreneurial Attributes The attribute of uncertainty signifies risk-taking. Cantillon’s four elements suggest that although an entrepreneur is a person, this person is at the centre of entrepreneurship knowledge. This definition, though almost 300 years old, generally fits in well with the production functions of economic analysis that typically include: ● ● ●

factor of distribution – income or profit; factor of exchange – income can only be generated from an exchange system under the market economy; and factors of production – the process of innovation and creation.

While an entrepreneur is generally perceived to be a risk-taker, this is only one attribute. Attempts to encompass the defining attributes of an entrepreneur are many (for example, Table 31.2). However, these definitions are problematic; for example, there are questions about the relationship between an entrepreneur and their firm. In a firm, there can be others who have similar attributes to those of the owner/entrepreneur, with every

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Definitions of an entrepreneur

Richard Cantillon

1710

A self-employed person with uncertain returns

Abbe Nicollas

1767

Jean-Baptiste Say Joseph Schumpeter Frank Knight

1801/1810 1910 1921

Edith Penrose

1959

J.E. Stepanek D.C. McCelland Robert E. Budner Orvis F. Collins W.D. Litzinger

1960 1961 1962 1964 1965

J.B. Rotter Israel Kirzner J.A. Timmons

1976 1979 1985

A leader of men, a manager of resources, an innovator of ideas, including new scientific ideas, and a risk-taker A coordinator of production with management talent A creative innovator A manager responsible for direction and control, who bears uncertainty A person with managerial capabilities separate from entrepreneurial capabilities, and able to identify opportunities and develop small enterprises A moderate risk-taker A person with a high need for achievement A person who has a high tolerance for ambiguity A person with a high need for autonomy Low need for support and conformity, leadership, decisiveness, determination, perseverance and integrity Internal locus of control An arbitrageur ‘A’-type behaviour pattern

Source:

Kao et al. (2010).

management level having at least one decision-maker who makes at least some proprietary or stewardship decisions. They, like the owner/entrepreneur, need to possess the ability to exercise characteristics, such as confidence, creativity and innovative ability, to assure a firm’s success. There are many known attributes of successful entrepreneurs. Hornaday’s and Gibb’s works are used here to highlight the essentials (Table 31.2). The Entrepreneur, Income or Profit Distribution and the Concept of Residual Must all profit go to the proprietary decision-maker (owner) or is profit viewed as a residual for redistribution to all those who have made a contribution? A number of issues must be considered. Wages to workers must be paid first before income – since the entrepreneur is self-employed, he or she would be the decision-maker to allocate resources (including human resources) according to their desires including, in particular, earned uncertain returns or profit which include appropriate remuneration to workers in the enterprise, traditionally providing a clear distinction between the entrepreneur and the non-entrepreneur. However, in accordance with Cantillon’s definition, it is the matter of making proprietary decisions (traditionally ownership decision) that counts. This definition suggests that a self-employed person is the only entrepreneur, and that the distribution of uncertain income or profit is entirely at the discretion of the self-employed entrepreneur. However, this also raises a question: if an individual displays many or all of the attributes used to define an entrepreneur, but does not have decision-making powers over the distribution of uncertain income, does that mean that this person is not an entrepreneur? If that is so, then the attempts to define entrepreneur attributes are meaningless, since they are wholly

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Table 31.2

A comparison of identified entrepreneur attributes between the works of Hornaday and Gibb

Hornaday

Gibb

Self-confidence Perseverance, determination Energy, diligence Resourcefulness Ability to take risks Need to achieve Creativity Initiative Flexibility Independence Foresight Dynamic leadership Ability to get along with people and take criticism Profit orientation Perceptiveness Optimism

Creativity Initiative High achievement Risk-taking (moderate) Leadership Autonomy and independence Analytical ability Hard work Good communication skills

Source:

Kao (1989: 7).

dependent on a single (external) factor. On a broader scale, this issue is how socialism or communism takes the route to challenge the entrepreneur’s decision. An approach to resolve decision-making conflict on profit distribution is to evolve to the concept of residual. To adopt the residual concept for business is not a complicated process. But to do so, profit must be reinterpreted in which the costs of Cantillon’s social entity are discounted from it, leaving the uncertain returns as the residual. For reporting and tax purposes, calculation of accounting income could be reformulated using the following guidelines. 1. 2. 3. 4.

Recognize residual and use it in financial reporting for shareholders and recognize stakeholders’ right to a share of residual with full disclosure. Establish residual to replace formally used the term of retained earnings. Full disclosure in respect of how unallocated residual was established. Unallocated residual is ultimately derived after deducting income tax.

The concept of residual has been adopted indirectly by many nations via taxation to account for excessive climate-damaging fossil fuel emissions. The recognition that climate stewardship as part of the social entity, could be incentivized by its integration into the income accounting spreadsheet. In this instance, a company that reduces its carbon footprint can lower its taxes, thus leaving a larger residual. The definition of an  entrepreneur, therefore, might include incorporating residual in their business activities.

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ENTREPRENEURSHIP, ENTERPRISING CULTURE AND THE EVOLUTION OF ENTREPRENEURIAL THOUGHT

Like the awareness and definition of the entrepreneur, the knowledge-based discipline of entrepreneurship could be said to have started with Cantillon in 1710. Cantillon was followed by a number of writers who established new criteria forming the basis of new definitions of the discipline, though all these remain widely quoted (Table 31.3). Cantillon’s early, narrow definition based on a self-employed person with uncertain income, was considerably broadened by increasingly generic terms of reference. Menger (1871, cited in Kao 1995a: 72) defined entrepreneurship as involving: obtaining information, calculation, an act of will, and supervision. Schumpeter’s (1934) definition some 40 years later was in many ways the key to the modern concept and can be paraphrased as the making of different combinations and something that everyone participates in sometimes, but never all the time. This was followed by Timmons narrowing the definition to actions involving searching and seizing business opportunities. At the same time, a few others seemed focused on pushing entrepreneurship development including business development, enterprise development and growth. Entrepreneurship is an all-encompassing term covering all human creative and innovative endeavours, not just in profit-making commercial undertakings and not-for-profit organizations, but also any individual who has the urge to do something new and something different, first as motivation for self-interest, then as part of a group as whatever he or she does must be of benefit to others as well. This progression from individual to the group can been seen in the evolution of entrepreneurial thought as seen by the senior author over the past half century. In the 1960s, the emphasis was on independent business, and few people could even pronounce or spell entrepreneurship. In the 1970s and 1980s, we saw the development of entrepreneurship as an academic discipline, with new chairs at universities and PhDs being offered. Finally, in the twenty-first century, the environment, poverty, health care and the drain of resources have become ever more urgent issues. The search for the meaning of entrepreneurship extends beyond its limited scope of small business commercial undertakings for the pursuit of profit-making. Kathleen R. Allen (1989: 4) had the following description: Table 31.3

Summary of entrepreneurship definitions

Contributor

Period

Carl Menger

1871

Joseph Schumpeter

1910

Harvey Leibenstein

1970

Israel Kirzner W. Ed McMillan and Wayne A. Long Howard H. Stevenson

1975 1990

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1992

Contribution Entrepreneurship involves obtaining information, calculation, an act of will and supervision Entrepreneurship is the finding and promoting of a new combination of productive factors Entrepreneurship is the reduction of organizational inefficiency and the reversal of organizational entropy The identification of market arbitrage opportunities Entrepreneurship is the building of growth organization Entrepreneurship is the pursuit of opportunity beyond the resources currently under your control

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Entrepreneurship is a mindset or a way of thinking that is opportunity focused, innovative, and growth oriented. Although entrepreneurship is most commonly thought of in conjunction with starting a business, the entrepreneurial mindset can be found within a large corporation, in socially responsible non-profit organizations, and anywhere individuals and teams are desiring to differentiate themselves from the crowd and apply their passion and drive to executing business opportunities.

It is certainly a notable effort to extend entrepreneurship from the narrowly confined meaning of just small business, to include all business undertakings, large or small. It should also be recognized, however, that entrepreneurs (creative and innovative individuals) exist in other organizations, such as not-for-profit organizations, governments, and so on. As a consequence, the definition of entrepreneurship needs to be welded together from the following three components: 1. 2. 3.

Wealth-creating and value-adding processes. Actions involved in wealth-creating and adding value to the process through venture formation and/or initiation of entrepreneurial endeavours. Wealth for the individual and value for society.

The definition emphasizes the importance of creating wealth and adding value. Also, it includes all such activities, and therefore departs from Cantillon’s self-employed individual. When the Journal of Enterprising Culture had its inaugural issue (in 1993), the editorial board decided to place the definition on the inside front cover, with a refinement to include who is an entrepreneur in a two-part definition, as follows: ‘To summarise, entrepreneurship is “The process of doing something new and something different for the purpose of creating wealth for the individual and adding value to society. An Entrepreneur is a person who undertakes a wealth-creating and value-adding process, through incubating ideas, assembling resources and making things happen”’ (original emphasis). This broadening of the definition has led to a natural extension to consider not just entrepreneurship as a function of some individuals, but as a property of a collective and the identification of an enterprising culture. Enterprise or enterprising culture needs to be recognized in any organization, in order to sustain development and growth. For a healthy enterprise culture, any organization is built on the academic discipline of research and learning. A.A. Gibb (1987) provided some useful guides for enterprise culture development, based on the cultivation of strong entrepreneur attributes within every individual in the organization (Figure 31.1). These definitions led to a further refinement in the author’s later work to replace ‘adding value to society’ with ‘the common good’. This same definition led to the development of the doctrine of entrepreneurism.

3.

ENTREPRENEURISM

The entire discipline of entrepreneurship is based on the human need to create and innovate, a need that is best fostered in an environment where these attributes are valued more than, for example, the need to avoid failure. In this view, entrepreneurship, creation and innovation efforts under a market system are the pillars that make everything possible

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Ample opportunities for familiarization with small business tasks especially during youth

Abundant positive role images of successful independent business

Enterprise culture

Opportunities to practice entrepreneurial attributes reinforced by society culture during formative years

Network of independent business/family contacts and acquaintances reinforcing familiarity and providing market entry opportunities

Provision formally and/or informally of knowledge and insight into the process of independent business management Source:

Gibb (1987: 14).

Figure 31.1

Enterprise culture

in the market economy. Entrepreneurship is a wonderful human endeavour; however, too many definitions dwell on profit-making. The desire to create and innovate is in all individuals, and is independent of market objectives. The efforts of these individuals in a fundamental sense contribute to the common good, to make life better for future generations. Profit is only a very small part of this, and unfortunately reflects the human craving for money with no regard for the common good. As in the Chinese saying that one rat dropping will spoil a pot of delicious soup, emphasis on the accumulation of wealth spoils the definition of entrepreneurship. Creation and innovation does not necessarily require the desire to accumulate wealth. This can be witnessed currently by the numerous stories of how businesses, which have been closed owing to public health lockdown to prevent the spread of the Covid-19 virus, are reformulating their industry to generate personal protective equipment to help the workers who care for those stricken with the potentially deadly virus. Alternatively, in less challenging times, should the corporate raider who liquidates the assets of companies, and dips into employees’ pension funds to accumulate personal sums of money, be considered an entrepreneur? Is Don Corleone in The Godfather a portrayal of an entrepreneur? Or are they representations of the old Chinese saying? Entrepreneurism is an ideology proposed as a sensible alternative to capitalism, on the one hand, and socialism, on the other, and being based on the common good. It is

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not just about making money, nor is it merely about starting up a venture or owning a small business – it is a way of life, applicable to all human economic activities. Living on a planet with finite resources, humanity is sustainable only if there is constant pursuit of innovation and creativity, not just for personal gain but also for the common good. It is also a philosophy, as it is based on the statement: ‘To create and innovate is not a matter of choice, but necessity.’ The definition of entrepreneurship must include the common good. Without this qualification, drug traffickers could easily justify their harmful trade by stating that they are job providers. How does this compare with the Chinese soup analogy? The notion of the common good can be seen in the following three sources: 1.

2.

3.

From the Second Vatican Council (1961, para. 65): ‘Factors that contribute to the common good and the overall conditions of life in society that allow the different groups and their members to be active in their own perfection more fully and more easily.’ From Wikipedia: ‘The Common Good is a term that can refer to several different concepts. In the popular meaning, [it] describes a specific “good” that is shared and beneficial for all (or most) members of a given community. This is also how the common good is broadly defined in philosophy, ethics, and political science’ (accessed 15 October 2020 at https://wiki.p2pfoundation.net/Common_Good). From the Government of Ontario, Canada website (accessed 15 October 2020 at https://news.ontario.ca/en/release/56537/ontario-joins-forces-with-the-private-sectorto-fight-covid-19): ‘Ontario together: help fight coronavirus, offers emergency products and innovative solutions or volunteer to support our response to COVID-19.’ In this case the common good is seen as the only way to find a solution for common benefit.

The ancient Chinese scholar, Moen-Tzu, tells us that humans can be born good or bad. Those with a good nature will do good for others, while the bad will take advantage of others. We are influenced by the examples of others, and can learn or be taught to be either good or bad. Those who were born bad and those characterized as bad through influence by others, can be taught and/or learn to be good. A meaningful definition will serve as a guide for action, but action is still in the hands of people. For example, job creation is one of many benefits to society resulting from the initiation of a new venture. It is hardly a benefit to society, however, to allow criminal activity aimed at making profit at the cost of human misery, to claim they are providing jobs. The idea of constructive destruction has been used by manufacturers of products that maximize the short term with a built-in obsolescence strategy that causes resource drain, creation of undue waste and contamination of the environment. Unfortunately, of late, this concept has been the norm, with big-box retailers and worldwide online ordering and delivery, placing the most useless trinkets literally at the fingertips of anyone with a smartphone. These are just a few negative repercussions that result when corporations have abused a sound concept for their own benefit, with no long-term vision for the common good. Reassessing the meaning of profit, it is more appropriate to advocate the use of residual to reduce harmful social injustice, avoiding unnecessary human conflict, still within the

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market system, to formulate an affordable means that will ease human conflict. A definition of entrepreneurism is therefore created on the premise that humans are driven by two fundamental desires: the desire to own and the desire to create. Ownership is not just the titular holding of property – physical, intellectual or otherwise – but the right to make decisions. That is, the right to free choice: the desire to create and the desire to take that which is there, and to alter its form to suit our purposes, bringing into being something that did not exist before. However, it must be fully recognized that there is a world of difference between ownership and stewardship. Entrepreneurism is all about making human proprietary decisions: exercising ownership rights on the one hand, and assuring stewardship responsibilities, on the other. Entrepreneurism is an ideology in which an individual is a creative and innovative agent with the desire for ownership and the right to make proprietary decisions, and the common good to guide action. As a body of knowledge, it presupposes the involvement of three independent yet interrelated entities: the state, business entity and individuals. 1.

2. 3.

The state: entrepreneurial government. Under entrepreneurism, the state is the infrastructure consisting of individuals committed to serving people for the common good that will facilitate their realization of economic freedom, their right to acquire ownership to harvest their labour, and their right and obligations to protect the environment. The individual: entrepreneurial person. The individual is the centre of the economy, and as a stakeholder in any undertaking is responsible to himself or herself. The individual views entrepreneurship and working as an entrepreneur as a way of life. The business entity: entrepreneurial entity and entity entrepreneurial managers.

Entrepreneurship is a process of doing something new (creative) and doing something different (innovative) for the purpose of creating wealth for the individual and adding value to society. Through entrepreneurship, the doctrine of entrepreneurism reigns over all economic endeavours. The entrepreneurial approach is applicable to business management in general, including the creation of new ventures, managing one’s own business, business with family members, government and public institutions, charitable and not-or-profit organizations as well as professionals and professional organizations. The entrepreneurial approach to corporate management is an integral part of entrepreneurial contemplation. In addition to the instinctive entrepreneurial contemplation in individuals, government, organizations business and others, entrepreneurism also puts forward the examination of accounting practice in matters of profit determination and cost recognition leading to the consideration of adopting residual for measurement and as a basis for redistribution. Human effort, in particular the redistribution of the fruits of labour, helps to relieve the tragedy of global poverty and environmental damage, and the renew depleted resources where possible.

4.

STEWARDSHIP-BASED ECONOMICS

Both capitalism and communism have their roots in Adam Smith’s An Inquiry into the Nature and Causes of the Wealth of Nations (1776). Capitalism can be viewed as a

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generalization of Schumpeter’s notion of constructive destruction, in that it emphasizes private property ownership without consideration for the common good. The pursuit of capital accumulation leads to aggregation beyond personal consumption requirements, exploitation of labour and exhaustion of non-renewable resources. The reliance on a market system to make adjustments itself would require waiting until there is a sub-system to make the ‘invisible hand’ to see human misery and desperate pleas to prevent environmental damage and the drain of resources. While innovation and creativity prompt new discoveries, better use of resources and the ability to harvest more for those who create and innovate, to advocate that profit goes only to those who create business and anticipate uncertain returns without taking into consideration the common good, would clearly push many people into the dark corner of poverty and lead our world towards disaster. While a capitalist society may stimulate the individual’s desire for more (greed), the issue of unfair distribution of resources (wealth) would inevitably lead to rebellion and, in this, communism is a natural outgrowth from capitalism. Communism may have attracted many individuals concerned over the problem of distribution, but it provides no clear incentive for the individual to create and innovate for their own personal benefit. Any system under the fair distribution scheme is less than effective and does not stimulate an individual’s interest for the common good. Ownership-based economics has led to the rapid development and apparent universal success of the market economy. It is a system built on the deception of unlimited resource availability and ill-defined profit, and is misled by the idea that an invisible hand alone can be an equitable system of distribution. While creating wealth for the few, it induces individuals and societies to continually grab for more. The undisciplined craving for more for the advantaged few, fuelled through the market system, creates poverty, damages environmental and human health, and drains limited resources which are not just for us but for the future as well. As long as our economy’s functionality is based on ownership, we will hardly see the end of these. It is neither feasible nor advisable to abolish the market system, however, we must realize that the ownership idea may be legal, but it has deceptively led us into a vicious circle of addiction out of which we may be unable to emerge. While entrepreneurism serves as a guide based on creative and innovative nature, the real issue of ownership challenge is that it fundamentally is little more than a struggle for owning. Indeed, the origin of human conflict throughout history is rooted in greed and forceful acquisition of ownership. In recent years, economic expansion has seen its share of unfairly acquired ownership over resources by the fabrication of information to commit criminal activities ranging from cheating innocent investors in the market system to inflicting civil war on a foreign country. Although Smith’s (1776) idea of wealth in the market system was to create wealth for me and for you as well, the unfortunate reality in today’s market economy is quite different from that which Smith had in mind. This is what the market economy is – all justice is based on the matter of competition, based on the decision made by invisible hands. To some people this ownership-based system is the only system for our ever-expanding economy. Therefore, we would have to accept that poverty is common, natural and inevitable, if: 1. 2. 3.

Greed is the sole motivation to be rich. The rich and powerful prefer to make the rich richer. The political policy favours the rich.

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There is no single sub-system within the market system to help ease the pressure on poverty. Government policy and religious and charitable organizations are all helpful, with significant effort to ease the pain. Bear in mind, both rich and poor are relative, and the only absolute is greed, an irrational desire for more. The fundamental problem is that while greed dictates that the sky’s the limit, we have no idea what that limit is. The depletion of non-renewable resources and erosion of environmental health available to current generations will mean there will be less for our descendants. Unless the creative and innovative efforts can restore what was once there for the future, we will have to expect that humans landing on Mars will be our only salvation; but how will this help to relieve the pressure on poverty, resources drain and environmental disaster? Stewardship-based economics recognizes the importance of the market system. It is irreplaceable, but we cannot take advantage of the system merely to satisfy an individual’s wants and greed at the expense of others’ labour, limited resources and the freely provided living environment. We must realize that we are a part of the Earth, but we do not own it. We must exercise our right to make proprietary decisions, but we must also assume stewardship responsibility. While proprietary decision-making might give us a twofold approach to easing the pressure on both the human race and the opportunity to allocate resources for self-interest, it is necessary to accept the responsibility to ensure all decisions made are also for the common good. Stewardship economics acts as a signpost towards balancing the short-term need for survival with the long-term need for sustainable growth, and serves as a philosophical beacon that will guide individuals, particularly business leaders, toward actions in the interest of humanity. As stewardship-based economics was developed from earlier work on entrepreneurship and entrepreneurism (Figure 31.2), it places a great deal of emphasis on acting now to be responsible stewards for making resources allocation decisions, as well as the need for education to consider a few key areas: ● ●

●

●

We have only one Earth, and everything on it is meant for everyone. Some are strong, others may be weak, but everyone is entitled to their share of what Earth has to offer. The number of countries with their diversity of people, culture and background makes it difficult to generalize. Nonetheless, it is clear that no individual can live alone, and no one should take resources ruthlessly just for their personal use. The sharing of resources should be a way of life. Resources are finite. The challenge lies not in deciding who should or should not have them, but in finding more sustainable and renewable resources through creation and innovation. As stewards, everyone has the right to make proprietary decisions while in control of the resources. Stewardship responsibility must, however, be exercised during decision-making, and there must be accountability for the consequences of actions taken based on any decision.

While entrepreneurship appeals to the individual’s desire for advancement of personal wealth, it also includes consideration of the common good to allow entrepreneurial activities to work for both the individual now as well as for the future for humanity. The common-good idea could not fulfil its required action, unless every individual appreciates the reality of living and acting on the basis of stewardship responsibility and

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World encyclopedia of entrepreneurship Entrepreneurship: doing something new and something different for self-interest and common good.

Entrepreneurism is all about making human proprietary decisions. Exercising ownership rights on the one hand, and assuring stewardship responsibilities on the other.

Stewardship-based economics: responsible stewardship for making resources allocation decisions, and educating others to act and think likewise. A broad knowledge-based discipline to overcome difficulties experienced by human beings through our past, of poverty, human conflicts, environmental damage and resources depletion. Figure 31.2

Evolution: from entrepreneurship to stewardship-based economics

accountability, recognizing that we may be a part of the Earth, but we do not own it. It is on this that the shift from ownership-based economics and the early conception of entrepreneurship to stewardship-based economics and entrepreneurism is founded.

NOTE *

After more than four decades of service to the discipline of entrepreneurship, Professor Raymond Kao passed away peacefully on 26 April 2019. This piece has been updated with some of his additional thoughts from an unfinished manuscript, contextualized to the present day by the other two authors.

REFERENCES Allen, K.R. (1989), Launching New Ventures, 4th edn, Boston, MA and New York: Houghton Mifflin. Gibb, A.A. (1987), ‘Enterprise culture, the meaning and implications for education and training’, Journal of European Industrial Training, 11 (2), 14. Kao, R.W.Y. (1989), Entrepreneurship and Enterprise Development, Toronto: Holt, Rinehart and Winston of Canada. Kao, R.W.Y. (1995a), Entrepreneurship: A Wealth-Creation and Value Adding Process, Singapore: Prentice Hall Asia. Kao, R.W.Y. (1995b), ‘Entrepreneurship definitions’, in Entrepreneurship, Englewood Cliffs, NJ: Simon & Schuster.

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Kao, R.W.Y., R.R. Kao and K.R. Kao (2010), ‘From Entrepreneurship to Stewardship-Based Economics’, in R.W.Y. Kao (ed.), Sustainable Economy Corporate, Social and Environmental Responsibility, Singapore: World Scientific, pp. 291–310. Pearce, F. (2000), ‘The spirit of the age’, Ecologist, 30 (July/August). Schumpeter, J.A. (1934), The Theory of Economic Development: An Inquiry into Profits, Capital, Credit, Interest, and the Business Cycle, Cambridge, MA: Harvard University Press. Second Vatican Council (1961), Mater et magistra, encyclical of Pope John XXIII on Christianity and Social Progress, 15 May. Smith, A. (1776), An Inquiry into the Nature and Causes of the Wealth of Nations, London: W. Strahan and T. Cadell. Timmons, J.A. (1990), New Venture Creation: Entrepreneurship in the 1990s, 3rd revd edn, Burr Ridge, IL: Irwin Professional.

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32. Exit

Karl Wennberg*

Much research has been devoted to look for characteristics that drive individuals towards engaging in entrepreneurship. Less attention has been given to the question of what makes people persist in or exit from entrepreneurship. However, recent years have seen an increasing focus on entrepreneurial exit in a number of specialized workshops and conferences, new research projects, and special issues in international journals. This chapter provides a stocktake on past exits, outlining the progress that research has made, together with some key problems in defining and investigating entrepreneurial exit. Conceptually, the chapter focuses on the level of analysis and different definitions of exit. Empirically, the chapter describes the streams of research suggesting that exit is either determined by the environment or the entrepreneur, together with a stream of research that emphasizes the connection between entry and exit as path-dependent processes. The chapter concludes by highlighting a number of unsolved issues and interesting pathways for future research on entrepreneurial exit. Entrepreneurial exit is a multifaceted and multi-level phenomenon. It concerns both exit of entrepreneurial firms from the marketplace and exit of self-employed individuals from their entrepreneurial activities on the labor market. Empirical studies of these topics hold that entrepreneurs and new firms will be less likely to exit as they persist over time. Yet, few of these studies acknowledge that exit is multifaceted in that there are different types of entrepreneurial exit, such as liquidation, bankruptcy or sell-off of a firm. For example, closure rates are likely to be lower as firms’ age and improve their performance, whereas sell-off rates increase with age but are less likely to be related to the firm’s performance (Mitchell, 1994). In studies of organizations and strategy, entrepreneurial exit has often been equated ‘failure’ as a fundamental performance measure of new organizations. Yet, recent studies show clear indications that exit from entrepreneurship is theoretically distinct from failure. Bates (2005) and Headd (2003) investigated the US Census Bureau’s 1996 survey ‘Characteristics of Business Owners’ (CBO) which is based on a large representative sample of US businesses founded between 1989 and 1992. They found that about one-third of the discontinued business owners characterized their firms as successful at closure. Ucbasaran et al. (2005) surveyed a representative sample of 767 entrepreneurs in Great Britain and found that among the entrepreneurs that had closed down a business, more than a third considered their last business to be ‘a success’. These studies indicate that, at least in the eyes of entrepreneurs, exit and failure are two distinct concepts. How, then, can we define the concept of entrepreneurial exit? In order to define a phenomenon with clarity and precision, one needs to satisfy four conditions (Chopra, 2005). First, a clearly defined object must be present on which the phenomenon acts. Second, the boundaries of the phenomenon must be distinct; moreover, the gradations of boundaries must be apparent. Third, forces associated with the phenomenon – that affects or are affected by it – must be clear. Fourth, knowledge of the 274

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process by which the phenomenon unfolds must be clear. Looking at the accumulated knowledge on entrepreneurial exit on these dimensions, it becomes obvious that exit as a phenomenon needs better clarity and precision. The literature has made significant progress on the third and, to some extent, the fourth elements, identifying predictors and consequences of exit. Yet, knowledge of exit processes as they unfold are still few (an excellent exception is Burgelman, 1994). Research has also made little progress on the first and second elements. Although having looked at individual, firm and populations as the objects on which the phenomenon acts, research has failed to distinguish between the role of individual-level, firm-level and population-level elements of the exit decision. For example, if individual characteristics are ignored in a firm-level study, for very small firms the firm-level factors will often be highly correlated with the (unmeasured) actions and characteristics taken by entrepreneurs. A more important problem is that the conceptual boundaries of exit have not been clearly defined and discussed. This has hampered theoretical progress since much of the empirical efforts do not distinguish between exit, failure and closure. Before outlining the available evidence on exit, it is therefore necessary to discuss some conceptual and definitional issues of entrepreneurial exit.

LEVEL OF ANALYSIS AND MEASUREMENT OF EXIT A key feature of entrepreneurship research is the intersection of individuals and organizations. Entrepreneurship is generally conceptualized as individuals pursuing entrepreneurial opportunities, often by the creation of new organizations. For new ventures, the firm may even be considered as ‘an extension’ of the founder (Chandler and Hanks, 1994). Yet, a problem in entrepreneurship research has been the lack of distinction between entrepreneurial failure and exit, that is, the difference between attempting to keep a business open but failing to do so, and the deliberate closure or successful sale of a business. Furthermore, exit operates on several levels of analysis: for example, the entrepreneur may exit (for instance, by selling and leaving the business) while the firm persists, signifying exit at the individual but not the firm level; or the entrepreneur may close the business but continue being an entrepreneur by starting a new business, that is through serial entrepreneurship. A fundamental reason for the lack of research on entrepreneurial exit is probably that it is very difficult to measure in precise ways. Since the probability of exit is highest in the very early period of a new firm or the career of a self-employed person, studying entrepreneurial exit necessitates access to unbiased data-tracking firms or individuals from the very onset of their entrepreneurial activities. In the empirical literature on exit, it is apparent that exit rates vary greatly between different studies. One explanation is the fact that very small firms (Mata and Portugal, 1994) and very early attempts at self-employment (Arum and Muller, 2004) have much higher exit rates compared with larger firm or individuals which are more established in self-employment. It is therefore likely that some of the differences in exit rates are due to differences in measurement. Specifically, studies using register databases seem to exhibit higher exit rates than studies relying on survey data (see, for example, Aviad and Vertinsky, 2006, in Canada; Delmar et al., 2006, in Sweden; or Mata and Portugal, 1994, in Portugal). This indicates that many studies might be affected by reporting bias. Evans and Leighton (1989) noted that

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annual survey data as in their own study tends to under-report very short spells in selfemployment. There are thus reasons to believe that the true exit rates, both of the firm level and on the individual level, might be much higher than the survey-based research has shown. It should also be noted that predictors of exit often seem to differ between selfemployed men and women (Arum and Muller, 2004), and between larger firms started and managed by men and women entrepreneurs (Kalleberg and Leicht, 1991). Since selfemployed men, or firms started and managed by men, almost always make up a majority of the samples used in studies of entrepreneurial exit, analyses of pooled data with only an indicator variable for sex are therefore likely to be conflated by statistical associations evident only for men. Furthermore, empirical studies that have distinguished between exit  by men and women entrepreneurs often find many fewer statistical relationships between theoretical variables and exit among women entrepreneurs, leading to poor explanatory power in these models. These facts have three important conclusions for research on entrepreneurial exit: (1) The theoretical predictors known to affect exit are based on samples dominated by men. Hence, we do not know if these theories matter for women entrepreneurs. (2) In order not to confuse statistical relationships, studies of entrepreneurial exit need to conduct separate analyses for men and for women. (3) the low explanatory powers of models of women’s exit pattern indicate that current theoretical models are not good at explaining women entrepreneurs’ exit, and that much more research on this specific issue is needed.

ENTRY AND EXIT AS PATH-DEPENDENT PROCESSES Many studies have found that initial conditions at the time of entrepreneurial entry are  vital in shaping entrepreneurial exit. For an individual entrepreneur, the personal reasons and factors associated with entry into entrepreneurship are also often associated with both if and how the person eventually chooses to leave entrepreneurship (Taylor, 1999). For a new firm, the very factors present at the time of founding can influence the firm in long-lasting ways, regardless of whether the environmental conditions at time of founding subsequently change (Delmar et al., 2006). These firm-level factors can essentially be grouped into two different categories. The first category consists of resources at the time of founding, such as capital assets and entrepreneurial team members/ employees. The second category consists of explicit goals and strategies for organizing and growing the firm. These two categories have been found to be the strongest types of predictors of exit. Studies of entrepreneurial exit have found that low probability of exit is strongly associated with a stronger resource base, both for the individual entrepreneur in terms of human capital and knowledge (Brüderl et al., 1992) and for the firm in terms of capital assets (Bates, 1990), product offerings (Kalleberg and Leicht, 1991) and number of employees (Delmar et al., 2006). Low exit rates are also associated with firms’ growth strategies (Brüderl et al., 1992) and entrepreneurs’ setting of specific goals with their ventures (Delmar and Shane, 2003; Kalleberg and Leicht, 1991). Goals and motivation at the time of founding affects both the likelihood of exit and how the exit process will evolve. That is, not all entrepreneurs have a clear goal of what they want to achieve with their venture. Some want to exploit a valuable invention or discovery. Some want

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freedom to decide how and when they work (Carter et al., 2003). These differences will affect how entrepreneurs consider the possibility of exit as well as the relative attractiveness of different exit paths. In this way, the progress of new firms and self-employed entrepreneurs follow a pathdependent process where initial conditions generally shape the paths by which firms and entrepreneurs subsequently evolve. Firm-level exit processes are path-dependent both in terms of initial goals and resource committed to the venture, as well as environmental conditions at the time of founding (Delmar et al., 2006). Individuals’ self-employment is also path-dependent in that their process is shaped by the conditions by which the individual engages in entrepreneurship. For example, the exit rate for entrepreneurs who enter self-employment from unemployed or on a part-time basis is much higher than those that enter from employment (Taylor, 1999; Wennberg et al., 2006). In empirical research, it might be difficult to untangle the effect of such initial factors and how they interact with the entrepreneur or the entrepreneurial team. For example, firms started at times of economic prosperity, such as during the dot-com boom, often have more ambitious goals and are more likely to attract resources to their venture. Also on the individual level, the entrepreneurs’ resources and knowledge are closely intertwined. Human capital factors have been found to be a strong predictor of both start-up capital and business survival, indicating that failure to control for entrepreneurs’ human capital characteristics might lead research to overestimate the importance of capital (Bates, 1990).

IS EXIT DETERMINED BY THE ENVIRONMENT OR THE ENTREPRENEUR? Various streams of literature have referred to individual-level, firm-level and populationlevel elements of the exit decision. In empirical studies, there are two predominant levels of analysis: the entrepreneur may exit while the firm persists, signifying exit at the individual but not the firm level; or the entrepreneur may close the firm but continue being an entrepreneur by starting a new firm. Yet, despite the preconception that ‘new firms more often fail’ in the organizational literature, new firms are not more likely to fail in unchartered markets than established firms engaging in this market. A study by Mitchell (1994) investigated 141 new entrepreneurial firms and 274 diversifying entrants in seven US medical product markets. He found that the new firms were no more likely than diversifying entrants to exit, but that they were less likely to sell their firm, ceteris paribus. This indication that entrepreneurs are less likely to sell their firm than diversifying entrants is interesting in that it suggests that entrepreneurs are attached to their ventures in excess of the economic value that can be earned from divesting them. Conversely, it is therefore also very likely that less profitable firms can subsist for many years, or as in van Witteloostuijn’s model of organizational decline, ‘Inefficient firms might outlast efficient rivals’ (van Witteloostuijn, 1998: 501). The issue of ‘environment versus organizational factors’ in entrepreneurial exit was investigated by Everett and Watson’s (1998) study of 5196 Australian retail and service start-ups between 1960 and 1999. They found that environmental economic factors were associated with between 30 per cent and 50 per cent of small business exits, depending on which definition of exit is used. Excluding exit due to bankruptcy, which was

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negatively related to macroeconomic conditions, exit rates defined as (1) sell-off, (2) closure, (3) ‘disbanding to prevent further losses’ or (4) failure ‘to make a go of it’, were found to be positively associated with macroeconomic conditions. Everett and Watson interpreted this as a strengthening economy may trigger voluntary exits since entrepreneurship seeks to maximize the returns available to them on both their financial and human capital. Perhaps the most conclusive evidence to date was provided by Gimeno et al. (1997) who followed 1547 US firms associated with the National Federation of Independent Businesses over the course of two to five years. They found that the exit of entrepreneurial firms was affected not only by individual-specific, firm-specific and environmental factors that simultaneously affected entrepreneurial income, but also by factors that did not affect income. They explained their findings by formulating a threshold model of entrepreneurial continuation, where a firm is terminated due to lack of performance below a critical level. This level, or threshold, is shaped by individuals’ perceived value of economic and psychic returns associated with entrepreneurship. A key finding of the study was that exit is underspecificated as a dependent variable, that is, that there are several different types of exit decisions that might involve different theoretical explanations.

ARE THERE DIFFERENT TYPES OF EXIT? The above studies provide some indications that delineating between different types of entrepreneurial exit could be an important area for future research. The dominating focus on ‘survival’ in the perspective on entrepreneurial exit inspired by organization theory reflects the implicit or explicit view that firms are frequently seen in the light of ‘going concern’ – that is, entities that try to prolong their existence. For incumbent firms with a multitude of stakeholders, such as large joint-stock corporations, this might not be an unreasonable assumption. Yet, for new independent firms run by one or a few entrepreneurs, the destiny of a firm is intimately linked to that of its owner(s). Headd (2003) investigated perceptual measures of success among the 12 185 firms in the 1996 ‘Characteristics of Business Owners’ survey, a representative sample of all US firms started between 1989 and 1992. He found that after four years in business, half of all businesses had exited, however one-third of all exiting entrepreneurs considered their firm to be ‘successful’. Headd also found that factors characterizing exiting firms such as lack of initial resources, started by a young entrepreneur, and so on, did not differ between what the entrepreneurs themselves perceived as ‘successful’ or ‘unsuccessful’ exits. A conclusion of the study was that searching for factors associated with firm exit is less meaningful since such a high proportion of exiting entrepreneurs seem to consider this a satisfactory outcome.1 Another conclusion was that entrepreneurs’ goals and time horizons at the onset of their firms are likely to diverge: some may want a lifestyle business, some are trying to build a high-growth firm that they can divest of in a few years, yet some others seek to avoid unemployment, and so on. This interpretation receives support from DeTienne and Cardon’s (2006) study of exit strategies among 189 entrepreneurs in the US electrical measurement and surgical medical instruments industries. They found that older entrepreneurs were more likely and entrepreneurs with medical training were less likely to have an exit strategy, and that common human capital variables such as

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age, education and experience were related to which specific exit strategy (family succession, sale to individual, employee buy-out, initial public offering, liquidation) that the entrepreneurs envisioned. Another study by Wennberg et al. (2007) followed 1735 Swedish firms started in 1994 for nine years, finding that similar human capital variables were also associated with the eventual exit outcome (that is, sell-off, closure due to good performance, or closure due to poor performance).

DO EXIT RATES CHANGE OVER TIME? The previously mentioned difficulties in measuring entrepreneurship from the time it is initiated, taken together with the studies suggesting there are types of exit that are systematically different, indicates two problems in summarizing and aligning the available evidence on entrepreneurial exit: if there is variation in the dependent variable that is not taken into account, and difficulties in measurement issues will cause most studies to sample on the dependent variable (that is, exclude most of the smallest/newest firms and self-employment attempts), it is not strange that prior research has been unable to align the various common predictors of exit into an overarching theoretical framework. Some research has found a trend in that individuals’ exit rates seem to have increased during the past few decades. Meager and Bates (2004) found that over half of the 9356 persons they studied in the first to ninth waves of the British Household Panel Study had exited within three years, while Taylor (1999) used retrospective accounts from the same data and found that only one-third of the 769 persons that entered self-employment between 1979 and 1991 had exited within three years. Also, the patterns for men’s exit seem to diverge greatly from those of women. In almost all studies, exit rates are significantly higher for women. This is a further indication that more research is needed on the exit processes of women entrepreneurs.

WHAT HAPPENS AFTER EXIT? Entrepreneurship research has been discussing the importance of moving from solely discussing firm-level outcomes towards looking also at individual-level and societal-level outcomes (Venkataraman, 1997). Yet, to date there is a dearth of studies of societallevel outcomes of entrepreneurial exit. An important exception is Aviad and Vertinsky’s (2006) investigation of manufacturing plants in 3908 local Canadian areas from 1983 to 1998. They found that the exit of older firms increases the entry rates of new firms, and that on average, new entrants were more productive. Also many questions related to individual-level outcome of exits remain to be answered. For example, Wennberg and Wiklund (2006) found in their study of 25 529 Swedish knowledge-intensive firms that 78 per cent of firms that were sold performed above the population average. They termed these seemingly successful sell-offs ‘exit by success’. In the literature to date, there are still no investigations of the firm founders of such firms post sell-off. How is the financial net worth of these individuals compared with before they started their firms? And in subjective terms, do these individuals evaluate their sold firm as ‘personal success’ or ‘personal failure’ (Bates, 2005), and what are the factors associated with such evaluations?

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NOTES *

I am grateful for comments from Miguel Amaral, Anders Landberg, and participants at the 2007 EM Lyon advanced entrepreneurship scholars retreat. All errors are mine alone. 1. An important objection to this interpretation would be that a large share of the successful exits might be due to entrepreneurs’ post-exit rationalization of what were in fact unwanted outcomes.

REFERENCES Arum, R. and W. Muller (2004), The Re-Emergence of Self-Employment: A Comparative Study of SelfEmployment Dynamics and Social Inequality, Princeton, NJ: Princeton University Press. Aviad, P.E. and I. Vertinsky (2006), ‘Firm failures as a determinant of new entry: is there evidence of local creative destruction?’, unpublished manuscript, Vancouver: University of British Columbia. Bates, T. (1990), ‘Entrepreneur human capital and small business longevity’, The Review of Economics and Statistics, 72 (4), 551–9. Bates, T. (2005), ‘Analysis of young, small firms that have closed: delineating successful from unsuccessful closures’, Journal of Business Venturing, 20 (3), 343–58. Brüderl, J., P. Preisendörfer and R. Ziegler (1992), ‘Survival chances of newly founded business organizations’, American Sociological Review, 57 (2), 227–42. Burgelman, R. (1994), ‘Fading memories: a process theory of strategic business exit in dynamic environments’, Administrative Science Quarterly, 39, 24–56. Carter, N.M., W.B. Gartner, K.G. Shaver and E.J. Gatewood (2003), ‘The career reasons of nascent entrepreneurs’, Journal of Business Venturing, 18 (1), 13–39. Chandler, G.N. and S.H. Hanks (1994), ‘Market attractiveness, resource-based capabilities, venture strategies, and venture performance’, Journal of Business Venturing, 9, 331–49. Chopra, A. (2005), ‘Survival’, paper presented at the Academy of Management Conference, Hawaii, 5–10 August. Delmar, F. and S. Shane (2003), ‘Does business planning facilitate the development of new ventures?’, Strategic Management Journal, 24, 1165–85. Delmar, F., K. Hellerstedt and K. Wennberg (2006), ‘The evolution of firms created by the science and technology labor force in Sweden 1990–2000’, in J. Ulhöi and P.R. Christensen (eds), Managing Complexity and Change in SMEs: Frontiers in European Research, Cheltenham, UK and Nothampton, MA, USA: Edward Elgar, pp. 69–102. DeTienne, D. and M. Cardon (2006), ‘Entrepreneurial exit strategies: the impact of general and specific human capital’, paper presented at the Babson College Entrepreneurship Research Conference, Bloomington, Indiana, 8–10 June. Evans, D.S. and L.S. Leighton (1989), ‘Some empirical aspects of entrepreneurship’, The American Economic Review, 79 (3), 519–35. Everett, J. and J. Watson, (1998), ‘Small business failures and external risk factors’, Small Business Economics, 11 (4), 371. Gimeno, J., T.B. Folta, A.C. Cooper and C.Y. Woo (1997), ‘Survival of the fittest? Entrepreneurial human capital and the persistence of underperforming firms’, Administrative Science Quarterly, 42 (4), 750–83. Headd, B. (2003), ‘Redefining business success: distinguishing between closure and failure’, Small Business Economics, 21 (1), 51–61. Kalleberg, A.L. and K.T. Leicht (1991), ‘Gender and organizational performance: Determinants of small business survival and success’, Academy of Management Journal, 34 (1), 136–61. Mata, J. and P. Portugal (1994), ‘Life duration of new firms’, The Journal of Industrial Economics, 42 (3), 227. Meager, N. and P. Bates (2004), ‘Self-employment in the United Kingdom during the 1980s and 1990s’, in R. Arum and W. Muller (eds), The Re-Emergence of Self-Employment: A Comparative Study of Self-Employment Dynamics and Social Inequality, Princeton, NJ: Princeton University Press, pp. 135–69. Mitchell, W. (1994), ‘The dynamics of evolving markets: the effects of business sales and age on dissolutions and divestitures’, Administrative Science Quarterly, 39 (4), 575–602. Taylor, M.P. (1999), ‘Survival of the fittest: an analysis of self-employment duration in Britain’, The Economic Journal, 109 (March), 140–55. Ucbasaran, D., D. Shepherd, P. Westhead and M.E. Wright (2005), ‘Experiences of habitual entrepreneurs: business failure, overconfidence and “small wins”’, paper presented at the Babson-Kauffman Entrepreneurship Conference, Babson College, Wellesley, 9–11 June.

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Van Witteloostuijn, A. (1998), ‘Bridging behavioral and economic theories of decline: organizational inertia, strategic competition, and chronic failure’, Management Science, 44 (4), 501–19. Venkataraman, S. (1997), ‘The distinctive domain of entrepreneurship research: An editor’s perspective’, in J. Katz and R.H.S. Brockhaus (eds), Advances in Entrepreneurship, Firm Emergence, and Growth, vol. 3, Greenwich, CT: JAI Press, pp. 119–38. Wennberg, K. and J. Wiklund (2006), ‘Entrepreneurial exit’, paper presented at the Academy of Management Meeting, Atlanta, 11–16 August. Wennberg, K., D. DeTienne, M. Cardon and J. Wiklund (2007), ‘Human capital predictors of entrepreneurial exit paths’, unpublished manuscript, Stockholm School of Economics. Wennberg, K., T.B. Folta and F. Delmar (2006), ‘A real options model of stepwise entry into self-employment’, in A. Zacharakis (ed.), Frontier of Entrepreneurship Research, Babson Park, MA: Babson College, pp. 119–32.

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33. Export support services for SME internationalization

Nathalie Belhoste, Rachel Bocquet and Véronique Favre-Bonté

Small and medium-size enterprises (SMEs) are key to the competiveness of advanced industrialized countries. Their growth is driven by many factors, among which internationalization plays a significant role (Dana et al., 1999; Etemad et al., 2001; Wright et al., 2015). International business and management studies frequently investigate SMEs’ internationalization (Dominguez and Mayrhofer, 2017; Johanson and Vahlne, 2009; Johanson and Wiedersheim-Paul, 1975; Vahlne and Johanson, 2013), a complicated process that demands significant resources, especially if the goal is to reach distant markets (Ojala, 2009; Zhang et al., 2016). Among these resources, those from public or private support services (that is, specialized organizations or actors that help companies expand internationally by providing advice, contacts, training or support) have received increasing attention in the literature. However, results are still contradictory or contrasted; some consider that their efficiency on the internationalization performance is real (Brouthers and Wilkinson, 2006; Gençtürk and Kotabe, 2001; Leonidou et al., 2011; Sousa and Bradley, 2009) while others show that their effect remains limited (Francis and CollinsDodd, 2004; Ramsden and Bennet, 2005) or that exporting can be successful without assistance (Dana et al., 2008). To clarify how public and private support services might encourage internationalization efforts by SMEs, we propose that specifying the type and stages of SMEs’ internationalization processes might be insightful. We thus consider that the way SMEs use support services regarding their specific processes (determined by their type and stage) is of utmost importance because it adds a complementary perspective to the debate regarding the efficiency of these services: this efficiency is not only intrinsic to the support service itself but might be enhanced if it is developed or used in conjunction with the process undertaken by the SME.

SMES’ INTERNATIONALIZATION SUPPORT SERVICES: WHAT WE KNOW SO FAR We define internationalization support services as specialized organizations or actors that help companies expand internationally by providing advice, contacts, training or support (De Holanda Schmidt and Ferreira Da Silva, 2012; Freixanet, 2012). They may be organized by the State (for example, national export promotion programs or assistance, or chambers of commerce services) or by private actors, and their focus moves beyond solely export services to include overall internationalization processes. Many SMEs rely on these actors to facilitate or perform their sales, logistics, marketing and service activities (Balabanis, 2000; 282

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Peng and Ilinitch, 1998) because the support service providers have superior local market knowledge or connections with relevant intermediaries. While the usefulness of export promotion programs or export performance assistance has been widely debated (for an updated review, see Coudounaris, 2018), the results remain contradictory or contrasted. Moreover, the question of the use of these services during the internationalization process is still an issue. The Usefulness and the Use of Internationalization Support Services On a general basis, studies focus more often on the frequency of use than on the use itself (Ayob and Freixanet, 2014). To describe how firms use these programs, most studies address the degree of adaptation to the firm’s needs (Crick, 1997; Naidu and Rao, 1993) or specific firm characteristics, such as its international experience (from non-exporter to advanced exporter) or size (Buckley, 1983; Freixanet, 2012). For example, Buckley (1983) and Sbrana and Tangheroni (1991) show that SMEs use support services less than larger firms do. However, given their budget constraints, they are more dependent than large firms on the information generated by business associations (Gashi et al., 2013). Kedia and Chhokar (1986) and Ahmed et al. (2002) assert that more experienced companies are more likely to be clients of international support service providers. Koksal (2009) combines these aspects to argue that larger, more experienced companies are more familiar with the various support services available from public authorities, so they can better understand and rely on the assistance options that suit their needs. Experience abroad and the stage of export development also might determine the link between support service use and export performance, though prior research offers some conflicting results. Denis and Depelteau (1985) and Seringhaus (1987) indicate that for the most internationally experienced companies, export services mostly support their pre-export activities. Crick (1997) instead finds that the most experienced firms are more aware of these programs, so they use them more. In general, firms with different degrees of internationalization expertise probably have different needs (Diamantopoulos et al., 1993; Spence, 2003). Singer and Czinkota (1994) use export stage as an antecedent to understand the relationship between service use and export outcomes. According to their findings, the type of service or product sold and the company’s experience abroad do not strongly influence its use of support services, whereas management commitment does. Czinkota (1996) also shows that firms have a greater need of export training services in their early export phase, while they need more support for sales logistics when they gain experience and reach a high advanced export level. Costa et al. (2017) explain that most industrial business associations (such as chambers of commerce) seem to provide continuous support for the international operations of SMEs, not only during the initial stages. Freixanet (2012) instead shows that the level of knowledge and uses of various programs vary with the type of assistance offered and the firm’s international experience; a proposed segmentation defines the firm’s level of internationalization involvement and skills using criteria such as export volume, size of the export department, creation of permanent establishments abroad and creation of production subsidiaries.

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Type and Variety of Internationalization Support Services Few of these studies take an in-depth look at the nature of the assistance though, or if they do, they focus on only one type. For example, Seringhaus (1987) describes trade missions that support foreign market entry. Observing the specific role of chambers of commerce, Leonidou and Theodosiou (2004) show that they provide first-hand information but that this information is not regarded as useful for firms. When gathering information for internationalization, Leonidou and Katsikeas (1997) observed that companies relied more on their personal network than on this institutional network. Crick (1997) details the type of assistance requested, such as the need for information or financial support, and Freixanet (2012) uses precise criteria to identify the nature of assistance programs and proposes measuring performance according to firms’ international experience. Furthermore, we note that most internationalization support services and programs are developed by state agencies, but not exclusively. Studying the direct and indirect effects (via geographic scope) of public support on the export intensity of European SMEs, Ciszewska-Mlinaric (2018) shows that only financial support (versus non-financial support) is positively, directly and indirectly associated with their export intensity. Beyond public actors, private companies have gradually emerged as important actors, though extant research mostly ignores their role. Among the few studies that analyse the impact of private-sector involvement in international trade policy (Singh, 1983), Bartoli et al. (2014) identify an important influence of banks in supporting export efforts by SMEs. Finally, most studies involve traditional exporters that take a gradual internationalization approach. Catanzaro et al. (2015) offer some conceptual insights, but they focus on the effectiveness of international assistance programs for specific stages of traditional internationalization processes. This literature review thus reveals two key gaps. First, most studies center specifically on the decision to start exporting. When studies expand to include support services applied to different stages, the results are still contradictory. Also, with the notable exception of Freixanet (2012), descriptions of internationalization stages tend to be limited, such as describing pre-export and export stages. Even Freixanet’s (2012) classification does not address how each stage of the process aligns with support service uses, despite evidence that SMEs’ needs shift with their growth and progress (skills and resources). Second, research focuses predominantly on the role of national export programs. We lack clear distinctions among the types of support provided and about the role of private support services.

THE USE OF SUPPORT SERVICES BY SMES DURING THEIR INTERNATIONALIZATION PROCESS: WHAT WE NEED TO KNOW In his seminal work, Freixanet (2012) called for longitudinal analyses that could confirm the causal effects of export programs. In line with this suggestion, Belhoste et al. (2019) analyse SMEs’ choice to use (or not) internationalization assistance supports during the entire internationalization process. In line with Hilmersson et al. (2017) and Efrat and Shoham (2012), they define SME internationalization process according to two main dimensions: (1) time to internationalization (that is, the time that has elapsed from a firm’s

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inception to its first sales abroad) and (2) the stage of their internationalization process (that is, early stage and later stage international operations). These temporal aspects of internationalization are used to discriminate between the type of SME process of internationalization (gradual or rapid) and the stage (entry or intensification). Based on a qualitative study of 32 French SMEs that have all reached Asian markets, either gradually (19 referred to as traditional SMEs) or rapidly (13 referred to as international new ventures, INVs), they identify different configurations of the use of internationalization support services by SMEs, challenging some previous assumptions and the conventional ways of studying export services designed to support SMEs. Type of Support Services and Time to Internationalization The results from this study show that support services help traditional SMEs to build knowledge, extend networks, reduce psychic distance (Johanson and Vahlne, 1990; Ojala, 2009) with Asia and, therefore, support gradual international involvement (Johanson and Vahlne, 1990). This contrasts with INVs that use fewer support services given their lack of resources. Traditional SMEs also look for specific private support services and are ready to pay more than INVs and rely less on funding – a specificity of public support services. We also observe high levels of disappointment from traditional SMEs regarding public support services while INVs found some value in those services. This study also constitutes an attempt to resolve some conflicting results in the literature. Ahmed et al. (2002), Crick (1997) and Kedia and Chhokar (1986) argue that most experienced companies are more likely to use international support structures. The findings indicate, contrary to Crick (1997), that the use of internationalization assistance services declines as the firm gains experience abroad if it is a traditional SME, but the same finding does not hold for INVs. Type of Support Services and Stage of Internationalization Previous literature had partially identified that the export phase (early export stage to more advanced stage) could impact the use of support services. Czinkota (1996) and Crick (1997) showed that firms have a greater need of export training services in their early export phase and that the type of support may vary. Belhoste et al. (2019) go one step further and complement Czinkota (1996) and Crick (1997)’s results showing that SMEs have a greater need for export training services in their early export phase but only if they are in a gradual process of internationalization. In contrast, most INVs realize they need help after their first steps locally. Furthermore, as the use of internationalization assistance services varies with experience, the content of this support also differs. Singer and Czinkota (1994) hypothesize that services providing objective knowledge (for example, workshops and advice) are more useful during pre-export activities, whereas experiential knowledge services (for example, trade shows abroad) are more useful at advanced stages. Belhoste et al. (2019) does not find such a clear distinction; rather, the use of these services varies with the time to internationalize and stage of internationalization. Their findings also reveal distinct, but complementary, uses of private and public support services. Consistent with Zahra and George (2002), they show that INVs seek tips and free services, given the scarcity of financial and human resources, but only during the intensification stage. The use of private support actors is less important during this stage, unless

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traditional SMEs seek them after being disappointed by public services. Since traditional SMEs know what services are available, they pursue an optimal mix of private and public services, next to their business networks.

CONCLUSION We think that this chapter provides a better understanding of the efficiency of support services in two different ways: first, in better distinguishing the type of help and support services actors used; and second, in measuring the efficiency regarding the internationalization process and stage rather than solely considering the export intensity as a dependent variable. Efficiency, in order to be evaluated, needs to consider not only the service by itself but also the type of firm that uses it according to its internationalization stage and process. We are convinced that this combination could help deepen the debate on efficiency of export support services whether they are public of private. These findings have several important managerial implications. In particular, support services (public or private) can use them to target their offer more precisely, according to the different types of SMEs they encounter and their internationalization process stages. Furthermore, SMEs can clarify their needs, according to their current stage in their internationalization process. In turn, they can determine which tailor-made proposals offered by private and public actors are most applicable to their internationalization efforts. It also paves the way for several research perspectives. Extensions to distinct geographic contexts might reveal whether the SME’s home country affects its use of support services; we anticipate that the economic, institutional and cultural characteristics of the home country likely influence how public and private support services develop their offers. Other factors of heterogeneity among the SMEs (Ingley et al., 2017) could be observed in order to study the use of support services by SMEs for their internationalization. In particular, since networks are particularly important in the decision to enter a new market (Castellaci, 2014), future research could investigate their (differentiated) role in the internationalization processes of SMEs in relation to support services. Finally, in line with Catanzaro et al. (2015), we call for more studies that investigate the impact of support services on SMEs’ performance, according to whether their internationalization process is gradual or rapid.

REFERENCES Ahmed, Z., O. Mohamed, J. Johnson and L. Meng (2002), ‘Export promotion programs of Malaysian firms: international marketing perspective’, Journal of Business Research, 55 (10), 831–43. Ayob, A.H. and J. Freixanet (2014), ‘Insight into public export promotion programs in an emerging economy: the case of Malaysian SMEs’, Evaluation and Program Planning, 46 (October), 38–46. Balabanis, G.I. (2000), ‘Factors affecting export intermediaries’ service offerings: the British example’, Journal of International Business Studies, 31 (1), 83–99. Bartoli, F., G. Ferri, P. Murro and Z. Rotondi (2014), ‘Bank support and export: evidence from small Italian firms’, Small Business Economics, 42 (2), 245–64. Belhoste, N., R. Bocquet, V. Favre-Bonté and F. Bally (2019), ‘How do SMEs use support services during their internationalisation process: a comparative study of French traditional SMEs and INVs in Asia’, International Small Business Journal: Researching Entrepreneurship, 37 (8), 1–27.

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Brouthers, L.E. and T.J. Wilkinson (2006), ‘Trade promotion and SME export performance’, International Business Review, 15 (3), 233–52. Buckley, P. (1983), ‘Government–industry relations in exporting: lessons from the United Kingdom’, in M.R.  Czinkota (ed.), Export Promotion, the Public and Private Sector Interaction, New York: Praeger, pp. 51–65. Castellaci, F. (2014), ‘Service firms heterogeneity, international collaborations and export participation’, Journal of Industry, Competition and Trade, 14 (2), 259–85. Catanzaro, A., K. Messeghem and S. Sammut (2015), ‘Impacts of export support: a conceptual model for export start-ups’, Management International, 19 (2), 226–45. Ciszewska-Mlinaric, M. (2018), ‘Export intensity, geographic diversification and the role of public support: the evidence from old and new Europe SMEs’, Entrepreneurial Business and Economics Review, 6 (2), 45–69. Costa, E., A.L. Soares and J. de Sousa (2017), ‘Institutional networks for supporting the internationalisation of SMEs: the case of industrial business associations’, Journal of Business & Industrial Marketing, 32 (8), 1182–202. Coudounaris, D.N. (2018), ‘Export promotion programmes for assisting SMEs’, Review of International Business and Strategy, 18 (1), 77–110. Crick, D. (1997), ‘UK SMEs’ awareness, use, and perceptions of selected government export assistance: an investigation into the effect of the internationalization process’, International Trade Journal, 11 (1), 135–67. Czinkota, M.R. (1996), ‘Why national export promotions?’, International Trade Forum, (2), 10–13. Dana, L.P., T. Chan and D. Chia (2008), ‘Micro-enterprise internationalization without support’, Entrepreneurship and Innovation, 9 (1), 5–10. Dana, L.P., H. Etemad and R.W. Wright (1999), ‘The impact of globalization on SMEs’, Global Focus, 11 (4), 93–106. De Holanda Schmidt, F. and J.F. Ferreira Da Silva (2012), ‘Export assistance: a literature review and challenges for future research’, discussion paper, Institute for Applied Economic Research, Brasilia. Denis, J.E. and D. Depelteau (1985), ‘Market knowledge, diversification, and export expansion’, Journal of International Business Studies, 16 (3), 77–89. Diamantopoulos, A., B. Schlegelmich and Y. Tse (1993), ‘Understanding the role of export marketing assistance: empirical evidence and research needs’, European Journal of Marketing, 27 (4), 5–18. Dominguez, N. and U. Mayrhofer (2017), ‘Internationalization stages of traditional SMEs: increasing, decreasing and re-increasing commitment to foreign markets’, International Business Review, 26 (6), 1051–63. Efrat, K. and A. Shoham (2012), ‘Born global firms: the differences between their short- and long-term performance drivers’, Journal of World Business, 47 (4), 675–85. Etemad, H., R.W. Wright and L.P. Dana (2001), ‘Symbiotic international business networks: collaboration between small and large firms’, Thunderbird International Business Review, 43 (4), 481–99. Francis, J. and C. Collins-Dodd (2004), ‘Impact of export promotion programs on firm competencies, strategies and performance: the case of Canadian high-tech SMEs’, International Marketing Review, 4 (5), 474–95. Freixanet, J. (2012), ‘Export promotion programs: their impact on companies’ internationalization performance and competitiveness’, International Business Review, 21 (6), 1065–86. Gençtürk, E.F. and M. Kotabe (2001), ‘The effect of export assistance program usage on export performance: a contingency explanation’, Journal of International Marketing, 9 (2), 51–72. Gashi, P., I. Hashi and G. Pugh (2013), ‘Export behavior of SMEs in transition countries’, Small Business Economics, 42 (1), 407–35. Hilmersson, M., M. Johanson and H. Lundberg (2017), ‘Time, temporality, and internationalisation: the relationship among point in time of, time to, and speed of international expansion’, Journal of International Marketing, 25 (1), 22–45. Ingley, C., W. Khlif and L. Karoui (2017), ‘SME growth trajectories, transitions and board portfolios: a critical review and integrative model’, International Small Business Journal: Researching Entrepreneurship, 35 (6), 729–50. Johanson, J. and J.E. Vahlne (1990), ‘The mechanism of internationalization’, International Marketing Review, 7 (4), 11–24. Johanson, J. and J.E. Vahlne (2009), ‘The Uppsala internationalization process model revisited: from liability of foreignness to liability of outsidership’, Journal of International Business Studies, 40 (9), 1411–31. Johanson, J. and F. Wiedersheim-Paul (1975), ‘The internationalization of the firm – four Swedish cases’, Journal of Management Studies, 12 (3), 305–22. Kedia, B.L. and J. Chhokar (1986), ‘Factors inhibiting export performance of firms: an empirical investigation’, Management International Review, 26 (4), 33–43. Koksal, M.H. (2009), ‘Organizational and exporting determinants affecting export promotion program awareness, utilization, and usefulness level’, Journal of Euromarketing, 18 (4), 219–32. Leonidou, L.C. and C.S. Katsikeas (1997), ‘Export information sources: the role of organizational and internationalization influences’, Journal of Strategic Marketing, 5 (2), 65–87.

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Leonidou, L.C. and M. Theodosiou (2004), ‘The export marketing information system: an integration of the extant knowledge’, Journal of World Business, 39 (1), 12–36. Leonidou, L.C., D. Palihawadana and M. Theodosiou (2011), ‘National export promotion programs as drivers of organizational resources and capabilities: effect on strategy, competitive advantage and performance’, Journal of International Marketing, 19 (2), 1–29. Naidu, G.M. and T.R. Rao (1993), ‘Public sector promotion of exports: a need-based approach’, Journal of Business Research, 27 (1), 85–101. Ojala, A. (2009), ‘Internationalization of knowledge-intensive SMEs: the role of network relationships in the entry to a psychically distant market’, International Business Review, 18 (1), 50–59. Peng, M.W. and A.Y. Ilinitch (1998), ‘Export intermediary firms: a note on export development research’, Journal of International Business Studies, 29 (3), 609–20. Ramsden, M. and R.J. Benett (2005), ‘The benefits of external support to SMEs: “hard” versus “soft” outcomes and satisfaction levels’, Journal of Small Business and Enterprise Development, 12 (2), 227–43. Sbrana, R. and M.S. Tangheroni (1991), ‘Italian exporting SMFs and their use of support services’, in F.H.R.  Seringhaus and P.J. Rosson (eds), Export Development and Promotion: The Role of Public Organizations, Boston, MA: Springer, pp. 145–60. Seringhaus, F.H.R (1987), ‘The use of trade missions in foreign market entry, Industrial Marketing and Purchasing, 2 (1), 43–60. Singer, T.O. and M.R. Czinkota (1994), ‘Factors associated with effective use of export assistance’, Journal of International Marketing, 2 (1), 53–71. Singh, N. (1983), ‘Communication and competence in private sector involvement in international trade policy’, in M.R. Czinkota (ed.), Export Promotion – the Public and Private Sector Interaction, New York: Praeger, pp. 110–26. Sousa, M.P. and F. Bradley (2009), ‘Effects of export assistance and distributor support on the performance of SMEs’, International Small Business Journal, 27 (6), 681–701. Spence, M.M. (2003), ‘Evaluating export promotion programmes: U.K overseas trade missions and export performance’, Small Business Economics, 20 (1), 83–103. Vahlne, J.E. and J. Johanson (2013), ‘The Uppsala model on evolution of the multinational business enterprise – from internalization to coordination of networks’, International Marketing Review, 30 (3), 189–210. Wright, M., S. Roper, M. Hart and S. Carter (2015), ‘Joining the dots: building the evidence base for SME growth policy’, International Small Business Journal, 33 (1), 3–11. Zahra, S.A. and G. George (2002), ‘International entrepreneurship: the current status of the field and future research agenda’, in M.A. Hitt, R.D. Ireland, S.M. Camp and D.L. Sexton (eds), Strategic Entrepreneurship: Creating a New Mindset, Oxford: Blackwell, pp. 255–88. Zhang, X., X. Ma and Y. Wang (2016), ‘What drives the internationalisation of Chinese SMEs? The joint effects of international entrepreneurship characteristics, network ties, and firm ownership’, International Business Review, 25 (2), 522–34.

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34. Family business

Frederik J. Riar and Franz W. Kellermanns

Family firms are essential to both emerging and advanced economies. Nearly 90 percent of all firms worldwide are family firms (Aldrich and Cliff, 2003); they outnumber nonfamily firms in terms of their contribution to global economic activity and employment (De Massis et al., 2015; Gedajlovic et al., 2012). Although many family firms are small, a sizable number are represented among medium and large corporations (La Porta et al., 1999), such as ALDI Group, BMW, Cargill and Walmart. Owing to the high relevance of family firms for the worldwide economy, scholars have recognized family business as a research field (Debicki et al., 2009). The theory of family firm conferences (see Chrisman et al., 2003; Chua et al., 2003), the highly visible publications on family business (for example, Schulze et al., 2001, 2003), and the establishment of family-firm specific conferences (for example, the International Family Enterprise Research Academy, IFERA, and the Federal Energy Regulatory Commission, FERC) have helped to start and fuel the growth of the field. Researchers have investigated many questions in this area, such as: how do family firms evolve? How and why do family firms differ in their behavior compared to non-family firms? What processes in family firms are affected by the idiosyncrasies that originate from family involvement? Indeed, both entrepreneurship and general management journals are now considered important outlets (Chrisman et al., 2008), among them Family Business Review, Journal of Family Business Strategy, Entrepreneurship Theory and Practice, the Journal of Management, the Academy of Management Journal and the Academy of Management Review. Recent research suggests that the contributions from the family-firm literature are central to questions in the wider fields of management and the organizational sciences (for example, Gedajlovic et al., 2012).

DEFINING FAMILY BUSINESS The definition of a family firm has never been fully settled, partly owing to the underlying heterogeneity of family firms. Not surprisingly, the literature provides a number of definitions of a family firm (for instance, Chua et al., 1999; Westhead and Howorth, 2007). Chua et al. (1999: 25), for example, define a family firm as ‘a business governed and/or managed with the intention to shape and pursue the vision of the business held by a dominant coalition controlled by members of the same family or a small number of families in a manner that is potentially sustainable across generations of the family or families’. According to this definition, family involvement in ownership, management, and succession are conditions that must apply (although not necessarily jointly) to distinguish a family firm from a non-family firm. Defining a family business is further complicated by how it originates. Do firms tend to be born as family businesses or can non-family firms be made into family businesses 289

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(Chua et al., 2004)? Both development patterns have important implications. On one side, a family business may be created through the organization of resources and capabilities of family members at its inception (for example, Sirmon and Hitt, 2003). On the other, a firm may start with no family involvement at all, often termed a lone-founder firm in the literature (for example, Miller et al., 2011). These firms may evolve into true family firms later, often after family members of the founder become involved in ownership and management. However, the initial intention of the founder is often not considered in this debate. Thus, some lone-founder firms are born as family firms, while others develop into family firms later, and yet others remain non-family businesses. Although the literature is ambivalent, empirical results seem to favor family firms being born over being made. Specifically, Chua et al. (2004) found that most firms were started as family firms with a high degree of family involvement and an expectation of transgenerational succession, while only a small fraction of family firms were started as non-family firms that gradually evolved into family firms. The authors found that, over time, family involvement tends to decline (Chua et al., 2004). This suggests that not only the ability of the family to influence the firm, but also the willingness to do so, should be an important part of defining family firms by behavior (Chrisman et al., 2015a; Chua et al., 1999).

FAMILY BUSINESS BEHAVIOR In addition to the questions of how family businesses are defined and how they evolve, scholars have devoted significant attention to comparing family firms with non-family firms, specifically, the drivers that distinguish between the two and that lead to heterogeneity of firm behavior (for example, Chrisman et al., 2009, 2015a; Gedajlovic et al., 2012). Chrisman et al. (2015a), for example, present a framework of how family involvement influences innovation management based on ability (discretion to act) and willingness (disposition to act), and show that rational models of firm behavior do not always apply to family firms. They suggest that although family firms have a superior ability to innovate when compared with non-family firms (see also, Duran et al., 2016), family firms often engage in idiosyncratic strategies, which lower their willingness to pursue technological innovation (Chrisman et al., 2015a). These important insights to firm behavior often assume a particular homogeneity of both family and non-family firms. This mere assumption and basic distinction between family and non-family firms, however, is insufficient for some research questions. Since firms in general and family firms in particular can be very different (Chua et al., 2012; Neubaum et al., 2019; Westhead et al., 2002), scholars have begun to study the heterogeneity of family firms by examining, for example, how family involvement affects aspects such as internationalization, proactive stakeholder engagement, professionalization or procedural justice climate (Arregle et al., 2012; Barnett et al., 2012; Cennamo et al., 2012; Kellermanns et al., 2012; Verbeke and Kano, 2012). In addition to investigating individual family-firm specific variables, recent family business scholars have applied new methodical approaches, such as latent profile analysis, to generate theoretically meaningful profiles of family firms (Stanley et al., 2017, 2019). Instead of focusing on individual variables, multiple variables are investigated together to generate profiles and insights from regression analysis. For example, Stanley et al. (2019),

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having established multiple profiles of family firms, provide insight on how firms differ in entrepreneurial orientation and performance. In particular, they found that tempered family firms (that is, family firms with a board of directors, a family chief executive officer and at least 50 percent family ownership) showed levels of entrepreneurial orientation and firm performance different from other established firm types (for example, family firms labeled strong family influence firms or dynasties). Taken together, the extant family business literature affirms the notion that family firms are not only unlike non-family firms but also differ significantly from each other.

FAMILY BUSINESS GOALS Family firm heterogeneity is often driven by diverging strategic orientations (Chua et al., 2012; García-Álvarez and López-Sintas, 2001; Sirmon and Hitt, 2003), which are motivated by family firms’ unique idiosyncratic goals (Chrisman et al., 2015b; Kotlar and De Massis, 2013). Williams et al. (2018) classify family business goal research as antecedents (for example, family presence or founder influence), characteristics (for example, number of goals or heterogeneity), related outcomes (for example, relationship related or governance related), moderators (for example, founder centrality or succession) and feedback loops (for example, conflict or reputation). The plethora of goals affect the type of utilities pursued by family firms. Recent research suggests that family firms are frequently managed to maximize not financial but non-financial goals, which are often associated with socio-emotional wealth (SEW) (Berrone et al., 2012; Debicki et al., 2016; Gomez-Mejia et al., 2011; Gómez-Mejía et al., 2007; Schulze and Kellermanns, 2015), that is, non-financial benefits that an owning family derives from a business to satisfy affective needs, such as living out ownership identity, exerting influence and control, and building or perpetuating a family dynasty (Gómez-Mejía et al., 2007). Prior research on SEW in the family business field suggests that the stronger the role of the family in the business, the greater the pursuit of SEW (Gomez-Mejia et al., 2011; Gómez-Mejía et al., 2007). Yet, pursuit of the various dimensions of SEW is not uniform (Randolph et al., 2019) and varies by the underlying goal structure of the family, specific characteristics of the family firm, and interactions among family members (Berrone et al., 2012; Debicki et al., 2016; Jiang et al., 2018; Randolph et al., 2019). A better understanding of the psychological micro-foundations of family firms is warranted (Jiang et al., 2018).

CONCLUSION Our brief overview of family business includes a discussion of definitions of family firms as well as a description of family-firm behavior and goals. While early research has characterized family firms as a uniform block, our overview emphasizes that family firms are now recognized as heterogeneous in the literature. This underlying heterogeneity offers multifarious opportunities for future research. For example, relationship conflict and its negative implications have been stressed both in the more practitioner-orientated literature (for example, Gordon and Nicholson, 2008)

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and in more academic-orientated research (for example, Kellermanns and Eddleston, 2004). Yet, differences in the occurrence, frequency, and strength of both positive and negative forms of conflict are probably driven by a plethora of family-related variables. The number of family members and their kinship relationships, as well as their relationship quality, are likely to affect the complexity of the conflict. In addition, family-firm specific variables, such as family ownership distribution, family involvement in the business, and succession planning, may affect conflict and suggest that heterogeneity is a key aspect not yet fully captured in the literature. More specifically, the heterogeneity of the family itself is important and can influence decision-making processes. While the notion of the importance of the family in family firms is not new (Aldrich and Cliff, 2003; Morris and Kellermanns, 2013), the role of the family often plays the part of an unobserved variable in the literature. For example, while succession is a dominant theme in family-firm research (De Massis et al., 2008), little is known of how kinship relationships play out during the succession process (for an exception, see Haberman and Danes, 2007). Focusing on kinship research and evolutionary psychology (Yu et al., 2020) or social psychology (Jiang et al., 2018) provides useful ways to capture family-firm heterogeneity. Finally, not all family firms are embedded in the same institutional environments. While the literature assumes that certain aspects of family firms are universal (that is, the pursuit of idiosyncratic behavior driven by family-specific elements), the why and how may differ dramatically according to the environment and culture to which the firm is exposed. For example, some researchers have focused on the uniqueness of family businesses in Asia (Eddleston et al., 2019), while others have examined family firms in Africa (Khavul et al., 2009), where kinship ties work in a unique way (Khayesi et al., 2014).

REFERENCES Aldrich, H.E. and J.E. Cliff (2003), ‘The pervasive effects of family on entrepreneurship: toward a family embeddedness perspective’, Journal of Business Venturing, 18 (5), 573–96. Arregle, J.-L., L. Naldi, M. Nordqvist and M.A. Hitt (2012), ‘Internationalization of family-controlled firms: a study of the effects of external involvement in governance’, Entrepreneurship Theory and Practice, 36 (6), 1115–43. Barnett, T., R.G. Long and L.E. Marler (2012), ‘Vision and exchange in intra-family succession: effects on procedural justice climate among nonfamily managers’, Entrepreneurship Theory and Practice, 36 (6), 1207–25. Berrone, P., C. Cruz and L.R. Gomez-Mejia (2012), ‘Socioemotional wealth in family firms’, Family Business Review, 25 (3), 258–79. Cennamo, C., P. Berrone, C. Cruz and L.R. Gomez-Mejia (2012), ‘Socioemotional wealth and proactive stakeholder engagement: why family-controlled firms care more about their stakeholders’, Entrepreneurship Theory and Practice, 36 (6), 1153–73. Chrisman, J.J., J.H. Chua and F. Kellermanns (2009), ‘Priorities, resource stocks, and performance in family and nonfamily firms’, Entrepreneurship Theory and Practice, 33 (3), 739–60. Chrisman, J.J., J.H. Chua and L.P. Steier (2003), ‘An introduction to theories of family business’, Journal of Business Venturing, 18 (4), 441–8. Chrisman, J.J., J.H. Chua, A. De Massis, F. Frattini and M. Wright (2015a), ‘The ability and willingness paradox in family firm innovation’, Journal of Product Innovation Management, 32 (3), 310–18. Chrisman, J.J., J.H. Chua, F.W. Kellermanns, C.F. Matherne III and B.J. Debicki (2008), ‘Management journals as venues for publication of family business research’, Entrepreneurship Theory and Practice, 32 (5), 927–34. Chrisman, J.J., H. Fang, J. Kotlar and A. De Massis (2015b), ‘A note on family influence and the adoption of discontinuous technologies in family firms’, Journal of Product Innovation Management, 32 (3), 384–8.

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Chua, J.H., J.J. Chrisman and E.P.C. Chang (2004), ‘Are family firms born or made? An exploratory investigation’, Family Business Review, 17 (1), 37–54. Chua, J.H., J.J. Chrisman and P. Sharma (1999), ‘Defining the family business by behavior’, Entrepreneurship Theory and Practice, 23 (4), 19–39. Chua, J.H., J.J. Chrisman and L.P. Steier (2003), ‘Extending the theoretical horizons of family business research’, Entrepreneurship Theory and Practice, 27 (4), 331–8. Chua, J.H., J.J. Chrisman, L.P. Steier and S.B. Rau (2012), ‘Sources of heterogeneity in family firms: an introduction’, Entrepreneurship Theory and Practice, 36 (6), 1103–13. De Massis, A., J.H. Chua and J.J. Chrisman (2008), ‘Factors preventing intra-family succession’, Family Business Review, 21 (2), 183–99. De Massis, A., A. Di Minin and F. Frattini (2015), ‘Family-driven innovation: resolving the paradox in family firms’, California Management Review, 58 (1), 5–19. Debicki, B.J., F.W. Kellermanns, J.J. Chrisman, A.W. Pearson and B.A. Spencer (2016), ‘Development of a socioemotional wealth importance (SEWi) scale for family firm research’, Journal of Family Business Strategy, 7 (1), 47–57. Debicki, B.J., C.F. Matherne, F.W. Kellermanns and J.J. Chrisman (2009), ‘Family business research in the new millennium’, Family Business Review, 22 (2), 151–66. Duran, P., N. Kammerlander, M. van Essen and T. Zellweger (2016), ‘Doing more with less: Innovation input and output in family firms’, Academy of Management Journal, 59 (4), 1224–64. Eddleston, K.A., P. Jaskiewicz and M. Wright (2019), ‘Family firms and internationalization in the Asia-Pacific: the need for multi-level perspectives’, Asia Pacific Journal of Management, 37 (2), 345–61, doi:10.1007/ s10490-018-9608-6. García-Álvarez, E. and J. López-Sintas (2001), ‘A taxonomy of founders based on values: the root of family business heterogeneity’, Family Business Review, 14 (3), 209–30. Gedajlovic, E., M. Carney, J.J. Chrisman and F.W. Kellermanns (2012), ‘The adolescence of family firm research’, Journal of Management, 38 (4), 1010–37. Gomez-Mejia, L.R., C. Cruz, P. Berrone and J. De Castro (2011), ‘The bind that ties: socioemotional wealth preservation in family firms’, Academy of Management Annals, 5 (1), 653–707. Gómez-Mejía, L.R., K.T. Haynes, M. Núñez-Nickel, K.J.L. Jacobson and J. Moyano-Fuentes (2007), ‘Socioemotional wealth and business risks in family-controlled firms: evidence from Spanish olive oil mills’, Administrative Science Quarterly, 52 (1), 106–37. Gordon, G. and N. Nicholson (2008), Family Wars: Classic Conflicts in Family Business and How to Deal with Them, London and Philadelphia, PA: Kogan Page. Haberman, H. and S.M. Danes (2007), ‘Father-daughter and father-son family business management transfer comparison: family FIRO model application’, Family Business Review, 20 (2), 163–84. Jiang, D.S., F.W. Kellermanns, T.P. Munyon and M.L. Morris (2018), ‘More than meets the eye: a review and future directions for the social psychology of socioemotional wealth’, Family Business Review, 31 (1), 125–57. Kellermanns, F.W. and K.A. Eddleston (2004), ‘Feuding families: when conflict does a family firm good’, Entrepreneurship Theory and Practice, 28 (3), 209–28. Kellermanns, F.W., K.A. Eddleston and T.M. Zellweger (2012), ‘Extending the socioemotional wealth perspective: a look at the dark side’, Entrepreneurship Theory and Practice, 36 (6), 1175–82. Khavul, S., G.D. Bruton and E. Wood (2009), ‘Informal family business in Africa’, Entrepreneurship Theory and Practice, 33 (6), 1219–38. Khayesi, J.N.O., G. George and J. Antonakis (2014), ‘Kinship in entrepreneur networks: performance effects of resource assembly in Africa’, Entrepreneurship Theory and Practice, 38 (6), 1323–42. Kotlar, J. and A. De Massis (2013), ‘Goal setting in family firms: goal diversity, social interactions, and collective commitment to family-centered goals’, Entrepreneurship Theory and Practice, 37 (6), 1263–88. La Porta, R., F. Lopez-De-Silanes and A. Shleifer (1999), ‘Corporate ownership around the world’, Journal of Finance, 54 (2), 471–517. Miller, D., I. Le Breton-Miller and R.H. Lester (2011), ‘Family and lone founder ownership and strategic behaviour: social context, identity, and institutional logics’, Journal of Management Studies, 48 (1), 1–25. Morris, M.L. and F.W. Kellermanns (2013), ‘Family relations and family businesses: a note from the guest editors’, Family Relations, 62 (3), 379–83. Neubaum, D.O., N. Kammerlander and K.H. Brigham (2019), ‘Capturing family firm heterogeneity: how taxonomies and typologies can help the field move forward’, Family Business Review, 32 (2), 106–30. Randolph, R.V., B.N. Alexander, B.J. Debicki and R. Zajkowski (2019), ‘Untangling non-economic objectives in family & non-family SMEs: a goal systems approach’, Journal of Business Research, 98 (May), 317–27. Schulze, W.S. and F.W. Kellermanns (2015), ‘Reifying socioemotional wealth’, Entrepreneurship Theory and Practice, 39 (3), 447–59. Schulze, W.S., M.H. Lubatkin and R.N. Dino (2003), ‘Exploring the agency consequences of ownership dispersion among the directors of private family firms’, Academy of Management Journal, 46 (2), 179–94.

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Schulze, W.S.,M.H. Lubatkin, R.N. Dino and A.K. Buchholtz (2001), ‘Agency relationships in family firms: theory and evidence’, Organization Science, 12 (2), 99–116. Sirmon, D.G. and M.A. Hitt (2003), ‘Managing resources: linking unique resources, management, and wealth creation in family firms’, Entrepreneurship Theory and Practice, 27 (4), 339–58. Stanley, L.J., R. Hernández-Linares, M.C. López-Fernández and F.W. Kellermanns (2019), ‘A typology of family firms: an investigation of entrepreneurial orientation and performance’, Family Business Review, 32 (2), 174–94. Stanley, L.J., F.W. Kellermanns and T.M. Zellweger (2017), ‘Latent profile analysis’, Family Business Review, 30 (1), 84–102. Verbeke, A. and L. Kano (2012), ‘The transaction cost economics theory of the family firm: family-based human asset specificity and the bifurcation bias’, Entrepreneurship Theory and Practice, 36 (6), 1183–205. Westhead, P. and C. Howorth (2007), ‘“Types” of private family firms: an exploratory conceptual and empirical analysis’, Entrepreneurship and Regional Development, 19 (5), 405–31. Westhead, P., C. Howorth and M. Cowling (2002), ‘Ownership and management issues in first generation and multi-generation family firms’, Entrepreneurship & Regional Development, 14 (3), 247–69. Williams, R.I., T.M. Pieper, F.W. Kellermanns and J.H. Astrachan (2018), ‘Family firm goals and their effects on strategy, family and organization behavior: a review and research agenda’, International Journal of Management Reviews, 20 (S1), S63–S82. Yu, X., L.J. Stanley, Y. Li, K. Eddleston and F.W. Kellermanns (2020), ‘The invisible hand of evolutionary psychology: the importance of kinship in first-generation family firms’, Entrepreneurship Theory and Practice, 44 (1), 134–57.

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35. Financial issues of entrepreneurship Jean-Michel Sahut and Eric Braune

Entrepreneurial companies are characterized by strong, even hyper, growth in their sales and/or assets. For many researchers, the strong growth of start-ups is linked to  the characteristics of the company, its resources and its governance structure. Companies have only limited resources at the time of their creation. To grow, they consume many resources, both financial and cognitive. Their growth thus depends on  their ability to mobilize numerous stakeholders who distribute these resources, but  who  in  return  modify  the governance structure of the company (Dowling et al., 2019). Therefore, entrepreneurs face specific financial problems compared with other businesses. These are the issues addressed in this chapter. They have given rise to a considerable amount of research on entrepreneurial finance at the intersections between  several  disciplines including finance, but also entrepreneurship and even innovation. These issues are explored in two parts: start-up financing cycles and the challenges inherent to entrepreneurial financing.  

1.

START-UP FINANCING CYCLES

Start-ups usually consume more cash than they generate owing to their investments (particularly in technology and marketing) and working capital requirements greatly exceeding net cash flows (income minus out-of-pocket expenses) from operations. Thus, their lack of financial resources can lead growing start-ups to default and then to file for bankruptcy. Financial difficulties for start-ups also stem from: ●

●

●

their intangibility. Their most valuable assets are usually intangibles (patents, trademarks and other intellectual property rights) which are inherently difficult to finance with credit; the nature of their growth. This is generally based on innovative products or services which are very promising but for which the market is uncertain. This increases both the risk of bankruptcy and the potential gain if successful; and their team. Start-ups must attract, motivate, compensate and retain highly qualified technical and entrepreneurial talent in ways which minimize the impact on the company’s current cash flows, which are often severely limited.

More specifically, the financial requirements of start-ups evolve mainly according to their stage of development. As young companies increase their turnover, investments must be increased and the uncertainties in their target market must decrease. 295

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Angels, FFF Seed capital Co-founders

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VCs, acquisitions/mergers & strategic alliances Later stage Early stage

Public market Mezzanine 3rd Break even

IPO

2nd 1st

Valley of death

Time

Note: Horizontal axis is the time or age of the start-up; vertical axis is the revenue of the start-up; bold curve = evolution of start-up revenues; 1st = first stage of financing; 2nd = second stage of financing, 3rd = third stage of financing, mezzanine = at this stage, firms can access to mezzanine financing. At the first stage, the new firm seeks out seed capital and funding from family, friends and fools (FFF), angel investors and accelerators. Then, if the firm can survive through the ‘valley of death’ – the period when the firm is trying to develop on a ‘shoestring’ budget – the firm can raise capital from diverse sources, including venture capitalists (VCs). Source:

Accessed 18 April 2020 at https://www.wikiwand.com/en/Venture_capital.

Figure 35.1

Start-up financing cycle

Actors financing the start-up will therefore intervene according to their assessment of three fundamental parameters of the start-up: its stage of development (level of turnover or assets), the volume of capital requested and the perceived risk. The financing of start-ups has transformed over the past decade to become more complex owing to the arrival of new players, Figure 35.1 provides an overview of these players according to their revenue and time. There are many possible sources to finance a start-up: ● ● ● ● ●

self-financing (provided by the founders); subsidies (provided by governments or non-governmental organizations); working capital (provided by suppliers and customers); credit (provided by banks and other investors); and increase in capital (provided by friends, business angels, venture capitalists and other investors).

Only equity financing (via capital increases) is accessible in the early stages of development because creditors need the company to have already been active for a few years to

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assess its risk and then to lend money. However, with the development of crowdlending, entrepreneurs can have access to credit at earlier stages of development in which banks will not intervene. Aside from the founders of the start-up, the various stakeholders who may participate in increasing the capital (equity) of the start-up in its different stages of development are ●

●

●

●

● ●

family, friends and fools (FFF): those close to the entrepreneur (family, friends and acquaintances) can be a source of possible financing at the time of creation. Usually, these people invest for friendly or personal reasons, and they generally remain passive vis-à-vis the management of the start-up they have helped to create; crowd (by crowdfunding): a new kind of participative financing. Through a platform, an intermediary presents different projects in order to solicit funding from Internet users; business angels: including private individuals who decide to invest part of their financial wealth in innovative companies. Passionate about the entrepreneurial adventure, they are generally former entrepreneurs themselves (or even serial entrepreneurs); venture capital (including seed funds and government venture capital funds): a type of financing provided by companies or funds to small, early-stage, emerging companies; private equity: an alternative investment type and consists of capital that is not listed on a public exchange; initial public offering (IPO, including individual and institutional investors): the first sale of stock issued by a company in order to be exchanged later, on a stock market.

Segmentation of the different financing actors listed in Figure 35.1 tends to evolve with the impulse of new players, different forms of crowdfunding, the shift of certain traditional players towards seed capital (risk capital interventions in seed capital) and the development of co-investment between different types of players (Drover et al., 2017; Sahut et al., 2020). This evolution makes it easier for the entrepreneur to access various sources of financing from the start. By restoring power to the entrepreneur vis-à-vis capital providers, the entrepreneur can thus develop a real financing strategy and trajectory (Bellavitis et al., 2017), by decompartmentalizing the types of resources provided and negotiating financing agreements which are more advantageous for them (in the shareholders’ pact, for example). Governance, the purpose of which is to govern the entrepreneur’s conduct by regulating interactions with the various providers of resources (Cumming et al., 2020) therefore becomes an increasingly crucial issue in both the financing of start-ups and their success.

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ENTREPRENEURIAL FUNDING CHALLENGES

Informational and Cognitive Problems Linked to Financing Decisions Made by Innovative Start-ups Financing decisions ideally should be based on perfect information from managerentrepreneurs. While problems of agency are often mentioned when the business environment is static, environmental uncertainty leads to an increase in information problems faced by fund investors and entrepreneurs alike. We must therefore try to analyse all problems relating to financing entrepreneurial projects in a climate marked by radical uncertainty. It is widely accepted that manager-entrepreneurs have an informational advantage in external capital markets. According to agency theory (Jensen and Meckling, 1976), this informational asymmetry can lead managers to make non-optimal decisions from the perspective of funders. Innovative projects in particular, in the context of business creation, can, by the intangible nature of the assets they generate and on which they are based, give rise to different forms of manipulation by entrepreneurs, and can generate residual losses for investors. Aboody and Lev (2000) note that executives of companies engaged in research and development activities earn three to four times more from buying or selling shares in their companies than do executives of other companies. It seems, therefore, that the managers of research and development intensive enterprises are taking advantage of the informational advantage they have to make the most of the financial valuation of the companies they run. For example, the Myers and Majluf (1984) model shows that the announcement of financing of a new project through the issuance of shares reveals a type of company whose assets are of low value and overvalued by the market. The issuance of shares then allows the executive to retain a disproportionate share of the operating flows generated by the new project at the expense of new shareholders. Aboody and Lev (2000) propose that investors favour financing projects which have the shortest recovery times. O’Sullivan (1998) argues that the objective of financial markets has never been to finance innovation or entrepreneurship, but instead to provide liquidity to capital providers or to transform initially illiquid investments into negotiable property rights on the financial markets. The possibilities for activating research and development expenditures are highly regulated by accounting standards, including IAS 38. However, this strict boundary does not necessarily meet the conservative objective of those who drafted the standard. Indeed, Lev (2001) points out that the manager can aggressively decide to spend all research and development expenses on charges. On the one hand, this decision will not be sanctioned by investors who are not sensitive to the exceptional losses recorded by the company. On the other, if the research and development project is successful, the company will be able to count on net depreciation revenue streams and in this way display an illusorily inflated profitability ratio over a period of several years. This mechanism may seem interesting to manager-entrepreneurs who are both concerned with masking the research and development effort of the company they are managing while demonstrating their ability to generate a high rate of return on investment. It is also consistent with the findings underpinning Daniel and Titman’s (2006) model.

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They found that the income of past intangibles is positively and strongly correlated with the issuance of shares, and strongly and negatively correlated with the company’s future revenues. Investors’ expectations are therefore skewed owing to the concealment of the origin of the income they see. The vagueness of traditional assessment models also contributes to the choice of funding for projects with a rapid recovery time. Sahut and Mnejja (2009) highlight the vagueness surrounding profitability estimates of innovative projects and start-ups. This difficulty, aside from any agency problems, generates a cognitive cost associated with the exchange of information between the entrepreneur and potential investors in the project, and this cost is borne in full by the company. Empirically, Lev et al. (2005) show that companies with high growth rates in research and development expenditure and relatively low revenue growth – typically intangible, asset-intensive start-ups – are systematically undervalued by investors. As a consequence, projects may be excluded because of the cognitive costs associated with information exchange between project proponents and their financers. This brings into question the traditional framework and the usual nature of information exchanges between business leaders and investors. The Capital Structure of Innovative Start-ups and Financing of Research and Development Expenses: Debt versus Cash Flow According to agency theory, the presence of a large volume of debt in the liabilities of the company can encourage shareholders to opt for high-risk investment projects with high hopes for income. If successful, shareholders will withhold most of the revenue from the project; if the project fails, the bankers will bear the bulk of the cost. Contractual arrangements protect bankers from this risk and the industries where the risk of asset substitution is greatest must have the highest debt financing costs. As a result, innovative start-ups should have a particularly high cost of capital. Opler and Titman (1994) and Shi (2003) identify the different costs associated with financing innovative companies through debt. Shi (2003) notes that the increase in research and development spending is associated with an increase in the financial cost of debt. The author also points out that debt remains a means of financing widely used by innovative companies. Opler and Titman (1994) argue that highly indebted companies which invest in research and development are those which will lose the most market share in the event of a slowdown in economic activity. In this situation, banks seek to recover their debt by cutting investments, which is particularly detrimental to start-ups engaged in highly innovative markets. The results recorded by Opler and Titman (1994) therefore validate the hypothesis that creditors lack knowledge about investment opportunities. A study of relational banking financing in Japan arguably demonstrates that banks do not have a sufficient time horizon nor the expertise necessary to assess the quality of the links between the business model of the company and its financing strategy as soon as the environment becomes complex. Analysing the sources of financing for US companies during the 1951–96 period, Fama and French (1999) highlight the predominant role of self-financing in company investment strategies. While the issuance of shares only financed 7.9 per cent of investments and long-term debts financed little more than 17 per cent of these, the revenues generated by the company cover 69.5 per cent of the financing needs of the investment. This leads to a general acceptance of the manager’s authority in investment decisions: they enjoy an

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informational advantage over shareholders and concentrate most of the resources needed on financing their investment choices. Companies’ preference for financing investments through cash flow raises the problem of the financial constraint on investment decisions. Manager-entrepreneurs identify investment opportunities and forgo incurring expenses owing to insufficient current availability or the uncertainty weighing on its future cash flow. In summary, if the solution of financing investments by cash flow predominates, this method of financing generates different types of problems which concern: ● ● ●

centralization of information and decisions made by the manager; concentration of financial management resources; and limited investment financing capacity.

Expanding the Concept of Financing: Property Rights versus Rights of Control and Access The new forms of production organization are now characterized by a dispersion of knowledge which is accompanied by a movement to specialize company expertise (Minkler, 1993). For example, Lewis (1995) argues that goods and services purchased by an industrial company account for between 50 per cent and 70 per cent of the value created. However, if the organization of production is based on shared knowledge, the products exchanged between sellers and buyers possess qualities that are difficult to measure. As a consequence, these transactions cannot easily be organized through a market relationship. It is therefore not surprising that pragmatic collaborations (Helper et al., 2000) have replaced the old types of alliances. As argued by Helper et al. (2000), these new forms of collaboration are characterized by a common desire to improve the property being traded without this work being accompanied by a clear division of property rights and control over goods and services generated in this way. The acquiring company retains the right to source from other suppliers, and its partner can freely redeploy the proceeds of collaboration from other purchasers. These flexible collaborations appear to be well adapted to the organization of production in markets characterized by rapid technological change. On the one hand, they allow buyers to quickly change partners and thus take advantage of the innovations proposed by innovative start-ups without delay. For example, Gilson et al. (2009) report that inter-company collaborations to develop new products do not necessarily come with a requirement to supply the partner. Analysing the contract between Warner-Lambert and Ligand Pharmaceuticals, a biotechnology laboratory, Gilson et al. (2009) note that Warner-Lambert provides the bulk of research and development funding for Ligand Pharmaceuticals, while ensuring that the former can terminate the relationship at any time. Expenses already incurred would then be deemed unrecoverable costs. In this case, Warner-Lambert must waive ownership rights over the results already achieved by terminating the collaboration and Ligand is then free to continue research with the partner of its choice. The contract also provides that Ligand will receive compensation based on the salary of the researchers involved in the project as well as a fee for the research undertaken if Warner Lambert decides to withdraw from the project. On the other hand, the terms of Ligand’s withdrawal are not envisaged in the contract,

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which seems to indicate that this collaboration is not accompanied by any opportunity costs for Ligand. This seems to validate the access logic described by Rajan and Zingales (1998). According to these authors, companies that possess a scarce resource and control their partners’ access to this resource can encourage them to specialize in ways that are favourable to them. In this context, the control rights exercised over access are sufficient for the partners to specialize, and there is therefore no need to resort to integrating the latter into the company. Thus, for Rajan and Zingales (1998) the exercise of control rights over access to a resource can replace property rights over assets, and this enables the company holding a scarce resource to multiply its collaborations with other entities, including start-ups whose research and development it can finance in full or in part. The disconnection of control rights and property rights leads to a division of roles between companies. Innovative start-ups are tasked with exploring the possibilities offered by different fields of knowledge, while established companies build system products which can incorporate these different fields (Chesbrough and Rosenbloom, 2002). Venture Capital Brown et al. (2009) attribute 75 per cent of the technology boom of the 1990s to the massive growth in financing of innovative start-ups during this period. Kortum and Lerner (2000) suggest that venture capital, although on average less than 3 per cent of a company’s research and development spending during the period 1983–92, was nevertheless responsible for 10 per cent of the American industrial innovations of that decade. In order to describe venture capitalists, we must differentiate fund managers, termed general partners, from investors or sponsors, known as limited partners. The former raise funds from the latter, make investment decisions and sit on the board of innovative start-ups. The remuneration of general partners consists of fees and a percentage, usually 20 per cent, of the gains from the sale of the fund’s ownership rights to financed companies (Gompers and Lerner, 1999). Venture capitalists may be confused with general partners, but most of the former delegate management of their investment and are content to have a passive role in controlling the return rate of their investment. Limited partners do not intervene in the management of companies financed by the fund. Furthermore, some companies, such as Apple, directly finance innovative start-ups. Others, such as Dell, have set up subsidiaries dedicated to corporate venturing investments or intervene through funds issued by independent financial companies dedicated to corporate venturing (Dushnitsky, 2006). In all cases, corporate venturing investments cannot exceed the available funding of the companies in question. The first work of venture capital companies therefore involves selecting projects, and each of these can be assessed against the information available to the venture capitalist about the companies’ internal research and development. Furthermore, Manigart et al. (2000) note that Anglo-Saxon and continental European countries do not use the same assessment tools and do not give equal importance to the different criteria always present at the time of selection. Consequently, US companies, whose activity is more business orientated and less solely financial, tend to favour two criteria. The first is the entrepreneur’s résumé. They must have previously demonstrated their ability to carry out innovative projects and at this stage, this dimension is considered discriminating by investors. Moreover, when the marketing phase of the innovative product commences, the head of

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the company can be replaced by a different profile and it is therefore not necessary for the project to be initiated by a manager (Kaplan et al., 2009). The second criterion relates to the overall coherence of the project, although solely accounting aspects are background considerations. As Chesbrough and Rosenbloom (2002) note, the business plan can be developed as innovation takes shape, and the example of Xerox’s invention of the photocopier demonstrates that the inadequacy of the business plan cannot be sufficient to invalidate a project. Therefore, the credibility of the project and the quality of the research previously carried out by the contractor are the two key factors that can favourably guide the decisions made by investors. The second work of venture capital companies relates to project financing conditions. These have two characteristics: the sequencing and syndication of investments, the interests of are mentioned next (Rédis and Sahut, 2013). Venture capital financing is sequential, that is, additional funds are made available to the contractor based on the status of the project. Funders can also stop investing if the project or contractor do not keep their promises. Sequencing of the investment is part of an innovative four-step management plan for the start-up, having an average duration of six years (Kaplan and Schoar, 2005). It appears that the role of venture capitalists, regardless of the nature of the venture capital, far exceeds the functions traditionally assigned to a company’s financial partners. In addition to the usual control activities, organizational, legal, technical and commercial expertise are also available, and these are all sources of added value for the company. Furthermore, sequencing funding enables dynamic risk management. Start-up companies receive fewer resources, are refinanced more frequently than expansion companies and their financing is conditional to a higher internal return rate than traditional companies (Gompers and Lerner, 1999). Moreover, the study undertaken by Sorenson and Toby (2001) concerning the conditions of funding for 7590 start-ups reveals that more than two-thirds of this funding was syndicated. This means that different venture capitalists simultaneously or successively invested in the same innovative project. In addition, when the analysis focuses on corporate venture capital strategies, this ratio increases further, to almost 90 per cent (Basu et al., 2011). Syndication of venture capital investments has several advantages. First, compared with traditional financing, this mechanism makes it possible to invest in a larger number of projects and therefore constitutes a means of risk diversification (Abel and Nisar, 2007). Furthermore, Brander et al. (2002) argue that co-financing practices enable investors with limited resources to participate in more projects and thus improve their information and knowledge on innovative projects. Finally, research into co-financing makes it possible to multiply opinions on the project at hand before committing funds. Convertible bonds are by far the preferred financing instrument for venture capital companies. The study conducted by Kaplan and Stromberg (2000) shows that convertible bonds were used in 189 of the 200 funding sequences they analysed. Convertible bonds have a unique feature which makes them particularly attractive in financing risky projects; they enable investors to change the nature of the debt they hold in the company according to the state of the project completed. Thus, if the project succeeds, the venture capital companies are the residual creditors of the company. In any other outcomes, the convertible bond is comparable to a company debt. Therefore, the use of this financial instrument allows risk to be transferred to the entrepreneur when things go wrong and changes the rights of investors to cash flow as the project is developed (Schmidt, 2003). Furthermore, Hellmann (2006) states that venture capital companies generally employ a particular

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type of convertible bond, termed a preferred convertible equity bond, which allocates decision-making rights to investors prior to conversion of the stock into shares, and it is accompanied by a right to an additional dividend. According to Hellmann (2006) this leads the investors to prefer an exit by acquisition of the company, even if this appears less favourable to the entrepreneur. The acquisition value must reflect the expected future revenues of the company. However, in the event of a sale, the preferential convertible equity bonds held by the investors are not converted into common shares. The financers therefore capture a significant portion of the proceeds of the sale at the expense of the entrepreneur, who is not paid to the extent of the effort he or she has provided. Kaplan et al. (2009) argue that capital companies rely more on ‘the horse’ than ‘the jockey’, and note that the common thread of the project does not evolve significantly between the different investment sequences. Kaplan et al. (2009) note that the replacement of the entrepreneur is positively related to the development of alienated assets, such as patents. Investors will not hesitate to part with the initiator of the project as soon as the human capital held by the project no longer represents a critical resource for the company. Focusing on sharing the value created, Kaplan et al. (2009) measure the evolution of the median share of property rights held by the initiator of the project. However, this decreased from 31.7 per cent during the construction phase of the business plan to 12.5 per cent shortly before the company’s initial public offering. A year later, the initiator of the project will only own 3.2 per cent of the company he or she helped to create.

REFERENCES Abell, P. and T.M. Nisar (2007), ‘Performance effects of venture capital firm networks’, Management Decision, 45 (5), 923–36. Aboody, D. and B. Lev (2000), ‘Information asymmetry, R&D, and insider gains’, Journal of Finance, 55 (6), 2747–66. Basu, S., C. Phelps and S. Kotha (2011), ‘Towards understanding who makes corporate venture capital investments and why’, Journal of Business Venturing, 26 (2), 153–71. Bellavitis, C., I. Filatotchev, D.S. Kamuriwo and T. Vanacker (2017), ‘Entrepreneurial finance: new frontiers of research and practice’, Venture Capital, 17 (1–2), 1–16. Brander, J.A., R. Amit and W. Antweiler (2002), ‘Venture-capital syndication: improved venture selection vs. the value-added hypothesis’, Journal of Economics & Management Strategy, 11 (3), 423–52. Brown, J.R., S.M. Fazzari and B.C. Petersen (2009), ‘Financing innovation and growth: cash flow, external equity, and the 1990s R&D boom’, Journal of Finance, 64 (1), 151–85. Chesbrough, H. and R.S. Rosenbloom (2002), ‘The role of the business model in capturing value from innovation: evidence from Xerox Corporation’s technology spin-off companies’, Industrial and Corporate Change, 11 (3), 529–55. Cumming, D.J., T.R. Vanacker and S.A. Zahra (2020), ‘Equity crowdfunding and governance: toward an integrative model and research agenda’, Academy of Management Perspectives, forthcoming, accessed 18 April 2020 at https://ssrn.com/abstract=3317678. Daniel, K. and S. Titman (2006), ‘Market reactions to tangible and intangible information’, Journal of Finance, 61 (4), 1605–43. Dowling, M., C O’Gorman, P. Puncheva and D. Vanwalleghem (2019), ‘Trust and SME attitudes towards equity financing across Europe’, Journal of World Business, 54 (6), art. 101003. Drover, W., M.S. Wood and A. Zacharakis (2017), ‘Attributes of angel and crowdfunded investments as determinants of VC screening decisions’, Entrepreneurship Theory and Practice, 41 (3), 323–47. Dushnitsky, G. (2006), ‘Corporate venture capital: past evidence and future directions’, in M. Casson, B. Yeung, A. Basu and N. Wadeson (eds), The Oxford Entrepreneurship Handbook, New York: Oxford University Press, pp. 387–431. Fama, E.F. and K.R. French (1999), ‘The corporate cost of capital and the return on corporate investment’, Journal of Finance, 54 (6), 1939–67.

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Gilson, R.J., C.F. Sabel and R.E. Scott (2009), ‘Contracting for innovation: vertical disintegration and interfirm collaboration’, Columbia Law Review, 109 (3), 431–502. Gompers, P. and J. Lerner (1999), ‘An analysis of compensation in the US venture capital partnership’, Journal of Financial Economics, 51 (1), 3–44. Hellmann, T. (2006), ‘IPOs, acquisitions, and the use of convertible securities in venture capital’, Journal of Financial Economics, 81 (3), 649–79. Helper, S., J.P. MacDuffie and C. Sabel (2000), ‘Pragmatic collaborations: advancing knowledge while controlling opportunism’, Industrial and Corporate Change, 9 (3), 443–88. Jensen, M.C. and W. Meckling (1976), ‘Theory of the firm: managerial behavior, agency costs and ownership structure’, Journal of Finance Economics, 3 (4), 305–60. Kaplan, S.N. and A. Schoar (2005), ‘Private equity performance: Returns, persistence, and capital flows’, Journal of Finance, 60 (4), 1791–823. Kaplan, S.N. and P. Stromberg (2000), ‘How do venture capitalists choose and manage their investments?’, working paper, University of Chicago. Kaplan, S.N., B.A. Sensoy and P. Strömberg (2009), ‘Should investors bet on the jockey or the horse? Evidence from the evolution of firms from early business plans to public companies’, Journal of Finance, 64 (1), 75–115. Kortum, S. and J. Lerner (2000), ‘Assessing the contribution of venture capital to innovation’, RAND Journal of Economics, 31 (4), 674–92. Lev, B. (2001), Intangibles, Management, Measurement, and Reporting, Washington, DC: Brookings Institution Press. Lev, B., B. Sarath and T. Sougiannis (2005), ‘R&D reporting biases and their consequences’, Contemporary Accounting Research, 22 (4), 977–1026. Lewis, J. (1995), The Connected Corporation, New York: Free Press. Manigart, S., K. De Waele, M. Wright, K. Robbie, P. Desbrières, H. Sapienza, et al. (2000), ‘Venture capitalists, investment appraisal and accounting information: a comparative study of the USA, UK, France, Belgium and Holland’, European Financial Management, 6 (3), 389–403. Minkler, L. (1993), ‘The problem with dispersed knowledge: firms in theory and practice’, Kyklos, 46 (4), 569–87. Myers, S.C. and N.S. Majluf (1984), ‘Corporate financing and investment decisions when firms have information that investors do not have’, NBER Working Paper No. 1396, National Bureau of Economic Research, Cambridge, MA. O’Sullivan, M. (1998), ‘The innovative enterprise and corporate governance’, Cambridge Journal of Economics, 24 (4), 393–416. Opler, T.C. and S. Titman (1994), ‘Financial distress and corporate performance’, Journal of Finance, 49 (3), 1015–40. Rajan, R.G. and L. Zingales (1998), ‘Power in a theory of the firm’, Quarterly Journal of Economics, 113 (2), 387–432. Rédis, J. and J.M. Sahut (2013), ‘Entrepreneuriat répété, capital organisationnel et accès au financement par capital-risque’ (‘Repeated entrepreneurship, organizational capital and access to venture capital finance’), Gestion 2000, 30 (4), 85–108. Sahut, J.M. and A. Mnejja (2009), ‘Capital risque dans les secteurs innovants et performance des FCPI’ (‘Venture capital in innovative sectors and FCPI performance’), Gestion 2000, 26 (1), 119–38. Sahut, J.M., L. Iandoli and F. Teulon (2020), ‘The age of digital entrepreneurship’, Small Business Economics, forthcoming, doi:10.1007/s11187-019-00260-8. Schmidt, K.M. (2003), ‘Convertible securities and venture capital finance’, Journal of Finance, 58 (3), 1139–66. Shi, C. (2003), ‘On the trade-off between the future benefits and riskiness of R&D: a bondholders’ perspective’, Journal of Accounting and Economics, 35 (2), 227–54. Sorenson, O. and E. Toby (2001), ‘Stuart syndication networks and the spatial distribution of venture capital investment’, American Journal of Sociology, 106 (6), 1546–88.

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36. George Eastman: pioneer of industrial R&D Léo-Paul Dana

The father of convenient photography, George Eastman (1854–1932) was the third child of Geo. Washington Eastman and Maria Kilbourn, who were married in 1844. Geo. Washington Eastman was well known as the founder of Eastman’s Commercial College and later as co-author of A Practical System of Book-Keeping by Single and Double Entry (Fulton and Eastman, 1856). The couple’s first two children were Ellen Maria and Emma Kate. Their third child was George, born 12 July 1854, in Waterville, New York. The family moved to Rochester, New York, in 1860. When Maria lost her husband, in 1862, the family was headed from riches to rags, and she lodged boarders to make ends meet. These conditions may have influenced George to later become an entrepreneur (Hagen, 1962; Geertz, 1963). To help support his mother and siblings, young George started his first job in March 1868, earning $3 per week as a messenger boy for an insurance firm. Over time, he changed jobs and received promotions. In the evenings, he studied accounting. In 1874, he left the insurance sector and became a junior clerk at the Rochester Savings Bank. By 1876, George’s annual salary was an admirable $1400. As George was planning a trip for the summer of 1877, a colleague at the bank suggested to him to take pictures during his travels. For this, George bought the necessary equipment, much more than a camera at the time; this included glass plates, various chemicals and a tent that could serve as a darkroom. Although he paid a local photographer $5 to teach him how to use his new equipment, he cancelled his travels. Nevertheless, he had learned how complicated the photographic process was at the time, when sensitive-coated glass plates were required to be wet when exposed in the camera and development could only be achieved before the emulsion dried. The silver nitrate, although corrosive and awkward to travel with, had to be taken to each subject photographed. Reading the Almanac of the British Journal of Photography, George came across the formula for making a sensitive gelatine emulsion, with which glass plates could be coated and used dry. A workaholic, he was a daytime bank clerk and at night conducted experiments, working as described by Ackerman (1930: 26), ‘frequently all night long . . . He was as “thin as pie crust,” . . . He would make dry plates and market them . . . He would give up his clerkship at the bank and go into business! These thoughts stimulated him into action’. In 1879, George Eastman invented a machine that could mass-produce dry plates; in contrast to wet plates that needed to be exposed and developed immediately, the dry plates offered unprecedented convenience of being exposed at leisure. That year, he travelled to England where he received his first patent. Fascinated by the business possibilities of photography, in April 1880 he went into business for himself and began commercial production of dry plates in a rented loft of a building in Rochester, New York. His business plan was based on four principles: (1) low prices; (2) mass production by machines; (3) world-wide distribution; and (4) extensive 305

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advertising. George Eastman’s policy was to use machinery in order to attain economies of scale, thereby allowing him to charge low prices, appealing to the general public. He believed in the power of facts and in using extensive advertising, and he sought European markets as well as his own. Although the Eastman Dry Plate Company was formed on 1 January 1881, this was only a part-time occupation at first. Ackerman (1930: 38) cited a letter written by George Eastman, ‘I retained my place in the Savings Bank until Sept. 1881, giving the business what attention I could between the hours of three P.M. and breakfast time’. Thus, George Eastman initiated the industry of film photography. By 1882, the Eastman Dry Plate Company of Rochester, New York, was purchasing lamps from the newly established Electro-Dynamic Light Company of New York City. A professor of political economy at Columbia University, Edwin R.A, Seligman, explained, ‘Mr. Eastman was the first manufacturer in the United States to formulate and put into practice the modern policy of large-scale production at low fixed costs for a world market, backed by scientific research and extensive advertising’ (Seligman, 1930: xiv). However, George Eastman soon discovered that the passage of time dulls the sensitiveness of photographic emulsion on dry plates. An error had been made in not selling first in, first out. George Eastman made an expensive recall, closed his factory, lost a fortune, but saved his reputation. Henceforth, he would test samples of every ingredient prior to making a purchase. His research and development (R&D) focused not simply on improving profitability, but on producing an improved product. George Eastman was concerned with quality and cost. The result was a continuous roll of film, fastened to spools, and more user-friendly than were glass plates. In 1884, the Eastman Dry Plate & Film Company was incorporated, with George Eastman as Treasurer. Eastman American, the first commercial transparent photographic film, was manufactured the following March. Also in 1885, George Eastman opened a wholesale office in London. Meanwhile at home, George Eastman was among the first industrialists to employ a full-time research scientist to facilitate the commercialisation of a flexible, transparent film base. He advertised, in 1885, that ‘shortly there will be introduced a new sensitive film which it is believed will prove an economical and convenient substitute for glass dry plates both for outdoor and studio work’ (Capstone Encyclopaedia, 2003: 146). In 1887 George Eastman sent a $50 donation to the Mechanics Institute of Rochester (later the Rochester Institute of Technology). This amount was approximately the amount he earned as his weekly salary. ‘Kodak’ was registered as a trademark in 1888. In June that year, George Eastman introduced a box camera so light that it did not require a tripod. He called this creation the No. 1 Kodak, registered 4 September the same year and later registered in England. For use in the No. 1 Kodak, George Eastman was the first to manufacture and sell continuous film in spools. The No. 1 Kodak, loaded with film for 100 photographs, sold for $25. In 1889, George Eastman introduced cellulose nitrate film, making possible the development of motion pictures. The same year, Thomas Edison purchased a Kodak and used it to make his first motion-picture camera. In the United States, the Eastman Company was incorporated, taking over the assets of the Eastman Dry Plate and Film Company. In November 1889, the Eastman Photographic Company Limited, was incorporated in London. A manufacturing plant in

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George Eastman 307 Harrow, England, followed in 1891, and a branch office was opened in France the same year. Also in 1891, the company marketed its first daylight-loading camera, not requiring a darkroom to load. In 1892, the Company’s name was changed to the Eastman Kodak Company of New York. His brand was becoming a household name in the United States. In 1895, George Eastman introduced the Pocket Kodak, using roll film. Among the employees in the spooling room of Kodak Park (near Rochester), that year, was Glenn H. Curtiss (1878–1930), later entrepreneur and founder of the airplane manufacturer bearing his name. In 1896, the year after the discovery of x-rays, George Eastman entered into an agreement to supply plates and paper for the new process. Kodak also marketed the first film especially coated for motion-picture use. The year 1897 saw a wholly owned subsidiary in France. By 1898 George Eastman had $1 million, and in 1899, he provided a significant cash gift for each of his employees. Also in 1899, the Canadian Kodak Company Limited, was established as a distribution centre in Toronto. It was later to become Kodak Canada Inc. In 1900, the Brownie camera was introduced. It sold for $1. In 1901, the Eastman Kodak Company of New Jersey (the current parent company) was created, with George Eastman as its president. The following year, the Kodak Developing Machine rendered it possible to develop film without a darkroom. In 1903, Kodak Non-Curling Film was introduced. In 1908, George Eastman produced the world’s first commercially practical safety film using a cellulose acetate base, replacing the highly flammable cellulose nitrate base formerly in use. That same year, a manufacturing plant was opened in Australia. In 1911, George Eastman created a benefit, accident and pension fund for employees. The following year, Kodak employees received their first wage dividend. Also in 1912, George Eastman hired a scientist to organise and head a research laboratory in Rochester; this was among the first industrial research centres in North America. In 1913, the introduction of Eastman Portrait Film began the transition from glass plates to sheet film for professional photographers. During World War I, Kodak developed aerial cameras for the United States Signal Corps. George Eastman also offered the Navy supplies of cellulose acetate used in the production of unbreakable lenses for gas masks. George Eastman turned 65 in 1919, but retirement was unthinkable. He was quoted as saying: If a man has wealth, he has to make a choice, because there is the money heaping up . . . He can keep it together in a bundle and then leave it for others to administer after he is dead. Or, he can get it into action and have fun, while he is still alive. I prefer getting it into action and adapting it to human needs. (Ackerman, 1930: 382)

Feeling that the prosperity of his enterprise was partly down to the goodwill and loyalty of employees, in 1919, George Eastman gave over $3 million of his own stocks to his employees. In 1921 the Eastman Savings and Loan Association was set up to assist employees finance the purchase of a home. George Eastman decided to donate millions to the advancement of dentistry and education. Passionate about in music, he donated funds to the School of Music (now the Eastman School of Music) at the University of Rochester and, to make music more

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accessible, he helped support a symphony orchestra. The Eastman Theater was opened on 5 September 1922. In 1924 he donated most of his securities. The Massachusetts Institute of Technology (MIT) and the University of Rochester each received more than a $1 million that year. In 1925, George Eastman became chairman of Kodak’s board of directors. With over 20 000 employees around the world, in 1928, Kodak introduced disability benefit, life insurance and a retirement annuity. In 1929, Kodak introduced its first motion-picture film for sound movies. George Eastman turned 75 and received birthday cards from Thomas A. Edison and President Herbert Hoover. After falling ill and learning that he would not get better, George Eastman decided to leave the bulk of his assets to the University of Rochester, and committed suicide on 14 March 1932. Shortly thereafter, Kodak introduced the Six-16 Brownie Junior camera for 616 film. Manufactured in the United States, the camera had the appearance of a leatherette covered metal box, the front panel of which had a distinctive geometric art deco design (Figure 36.1). It featured a close-up lens, a slide on top of the camera for a smaller f/stop and a slide above the shutter release for time exposures. Its two brilliant viewfinders were ideal for taking horizontal or vertical pictures. The camera was discontinued in December 1941. George Eastman is remembered as an inventor, a global visionary, a marketer, a champion of inclusion and a philanthropist, modest and unassuming. His philosophy was ‘What we do during our working hours determines what we have; what we do in our leisure hours determines what we are’.

Figure 36.1

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Six-16 Brownie, on loan from Loulou Scharf; photograph by Léo-Paul Dana

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FURTHER READING Butterfield, R. (1954), ‘The prodigious life of George Eastman’, Life, 26 April, 154–68. Eastman, G. (1927), Chronicles of an African Trip, Rochester, NY: George Eastman.

REFERENCES Ackerman, C.W. (1930), George Eastman: Founder of Kodak and the Photography Business, Boston, MA: Houghton Mifflin. Butterfield, R. (1954), ‘The prodigious life of George Eastman’, Life, 26 April, 154–68. Capstone Encyclopaedia (2003), ‘George Eastman’, in The Capstone Encyclopaedia of Business, Oxford: John Wiley, pp. 145–7. Eastman, G. (1927), Chronicles of an African Trip, Rochester, NY: George Eastman. Fulton, L.S. and G.W. Eastman (1856), A Practical System of Book-Keeping by Single and Double Entry: Containing Forms of Books and Practical Exercises, Adapted to the Use of the Farmer, Mechanic, Merchant, and Professional Man, New York: A.S. Barnes. Geertz, C. (1963), Pedlars and Princes: Social Development and Economic Change in Two Indonesian Towns, Chicago, IL: University of Chicago Press. Hagen, E. (1962), On the Theory of Social Change: How Economic Growth Begins, Homewood, IL: Dorsey. Seligman, E.R.A. (1930), ‘Introduction’, in C.W. Ackerman, George Eastman: Founder of Kodak and the Photography Business, Boston, MA: Houghton Mifflin, pp. xi–xviii.

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37. Global entrepreneurship and transnationalism1 Ivan H. Light

To an earlier generation of scholars, diasporas meant ethno-national communities scattered around the globe that nonetheless remained in continuous, long-term contact with one another as well as with their real or putative homeland (Armstrong, 1976; Cohen, 1997: 185). Their real or putative homeland constituted the hub of ethnic diasporas. The  colonies scattered abroad represented the spokes. Thanks to their hub and spoke structure, diasporas linked distant continents such that ethnic minorities resident in any  one place had strong social ties and cultural ties with co-ethnics in many others. Ethnic diasporas were commercially important, but they were not numerous. Diasporas were uncommon because most immigrants just assimilated into host societies within three  generations. As a result, unless renewed by new migration, the spokes ceased to communicate with one another and with the hub. Before globalization, which began in about 1965 (Dicken, 1992), and arguably changed this arrangement, the world’s international immigrants routinely assimilated to host societies in historically short order (Caliner, 2000). At a minimum, assimilation meant acquiring the language of one’s new homeland and forgetting the language of one’s ethnic origin. For immigrants, the road to  assimilation went from monolingualism in a foreign language to bilingualism and back  to monolingualism in a new language. In the USA, Canada, Australia and New Zealand assimilation meant that, whatever one’s ethnic origins, one’s grandchildren would become English monolinguals. Therefore, thanks to assimilation, international immigration routinely left no permanent ethnic colonies in place abroad as a permanent historical legacy. Diasporas were the exceptions to this generalization. In the early twentieth century, diasporic communities initially attracted Max Weber’s attention because of the remarkable commercial entrepreneurship they exhibited.2 Weber termed this entrepreneurship ‘pariah capitalism’ because of the local unpopularity of the entrepreneurial minorities. Subsequent scholars agreed that diasporic ethnic communities displayed exceptional entrepreneurship, especially in international commerce (Cohen, 1971; Laguerre, 1998; Light et al., 1993: 38–43; Moallem, 1996). Entrepreneurial ethnic communities that operated around a diasporan structure earned the sobriquet ‘middleman minorities’ in the literature of social science (Bonacich, 1973; Kieval, 1997; Light and Gold, 2000: 6–8). Middleman minorities were non-assimilating ethnic minorities noteworthy for their abundant and persistent entrepreneurship wherever they lived. Among the middleman minorities, the Jews of Europe, the Hausa of Nigeria, the Sikhs of East Africa, the Chinese of South East Asia, the Armenians of the Near East and the Parsees of India were the most prominent, but there were others as well. Eschewing agriculture, middleman minorities were especially common in retail trade and international commerce. Indeed, the term ‘middleman’ reflected this specialization since the role of the middleman is to trade goods, not to manufacture or grow them. The exceptional involvement of middleman minorities in international trade arose in part because of the ethno-religious oppression to which they were subjected, but 310

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Global entrepreneurship and transnationalism 311 also because of the unique ethnic resources they enjoyed (Light and Gold, 2000: 6–7).3 Exploited and oppressed by host societies, which treated them as pariahs, middleman minorities turned to self-employment for self-defense amid the general absence of alternative earning options. This strategy increased their self-employment. However, the middleman minorities had also evolved over centuries distinct ethnic resources that facilitated commercial entrepreneurship. The middleman minorities were bilingual people, who bestrode international social networks of co-ethnics. The also controlled and enjoyed superior business skills, which had worked their way over centuries into the cultural fabric of the community. These three characteristics of the entire group created serious natural advantages in trade promotion for individual group members (Collins, 1998: vol. 2, 398–99; Lever-Tracy et al., 1991: xi, 113). First, such people more easily notice the business opportunities that cultural frontiers generate than do mono-cultural stay-at-homes. Second, such people have the international social capital that supports international business (Fukuyama, 1995; Walton-Roberts and Hiebert, 1997; Wong, 1998: 95).4 When they see a potential trading opportunity, they have the connections abroad to bring it to prompt fruition. Third, because they controlled superior business skills that they passed on through socialization to younger generations, middleman minorities produced many shrewd and effective business people. Taken together, these three characteristics (languages, networks, skills) supported and encouraged the entrepreneurship of group members to an outstanding degree, and the result was persistently high rates of self-employment among the middleman minorities. Trading diasporas shipped commodities around the diaspora to continents that were, in terms of travel time, much more distant from one another than they are now and in historical epochs that did not have today’s business-support electronics. In each diaspora site, co-ethnic merchants sold imported goods to locals. Middleman minority’s specialization in international trade was a product of the diaspora’s distinct advantages for this activity. The international disasporan structure conferred two well-known advantages to international traders recruited within each site. First, the ethno-linguistic homogeneity within diasporas supported the performance of the middleman minority’s trading specialty. For example, an Armenian merchant in Lima could order rugs from an Armenian merchant in Istanbul in the Armenian language, thus surmounting the language problem that Turks and Peruvians encountered when they attempted to trade. The Armenians in Lima sold at retail in Spanish; the Armenians in Istanbul sold at retail in Turkish. To one another Armenian merchants spoke fluent and colloquial Armenian. Thanks to the Armenian diaspora, Turks and Peruvians could trade without having to learn one another’s language. Additionally, the social capital of diasporas permitted enforceable social trust among merchants, even over long distances. As a result, for example, Armenian merchants in Istanbul could ship rugs to Armenian merchants in Lima in confidence that invoices would be paid and that, if unpaid, informal community pressures could compel payment without recourse to litigation in Peruvian courts. Lacking equivalent social capital in the  other country, Turks and Peruvians could not trade without the intercession of Armenians whose unique resource was their bilingualism and their international social capital. Whatever initially caused a middleman diaspora, such as myths or projects of ultimate repatriation and redemption, once locked into international trading, middleman

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minorities had real economic motives to retain their cultural and social ties with their homeland. The mythos of repatriation and redemptive nationalism were cultural, but their consequence was real economic motives that acquired an independent influence of their own in the life of the community. After all, their diasporan livelihood depended upon their retaining the ability to speak the language of their ethnic homeland as well as their social capital there and in the diaspora. Hence, assimilation attacked their livelihood. If unable to speak Armenian, a sign of assimilation, an Armenian merchant in Lima could neither buy rugs in Istanbul through a co-ethnic intermediary nor feel confident that Armenian exporters there would offer him credit. Remaining ethnically Armenian was a prudent business policy under these circumstances, not just a sentimental  attachment to an ancient culture and homeland. The point is not to reduce international ethnic solidarity to economic interest, but only to acknowledge the self-renewing support that economic interest gave to ideologically motivated non-assimilation. The culture promoted the business, and the business supported the culture.

TRANSNATIONALISM AND GLOBALIZATION Unlike the older literature of middleman minorities, which addresses non-assimilating communities, the contemporary literature of transnationalism addresses novel processes that generate a transnational elite even within immigrant communities (Wong, 1997; Guarnizo and Diaz, 1999; Guarnizo et al., 1999; Landolt et al., 1999; Smart and Smart, 1998). In an influential paper, Schiller et al. (1992: 1–2) define transnationalism as ‘processes by which immigrants build social fields that link together their country of origin and their country of settlement’. Immigrants who build such social fields they dub ‘transmigrants’. Transmigrants are resident in at least two societies between which they shuttle frequently enough to remain active participants in both, but fully encapsulated (monocultural) participants in neither. Transmigrants acculturate, but they do not assimilate.5 This cosmopolitan lifestyle enables transmigrants to form bi-cultural colonies that lodge within mono-cultural host societies. In this respect, contemporary transmigrants resemble middleman minorities who also acculturated without assimilating. The single best and most accessible indicator of bi-cultural status is long-term maintenance of the transmigrants’ complete fluency in the language of their homeland when coupled with complete fluency in the language of the host society (Portes and Hao, 1998). Native speaker fluency in two languages distinguishes transmigrants from immigrants, who lose their foreign language fluency within three generations. Transnationalism arrives ‘from above’ when nation states give privileged access to entrepreneur immigrants, hoping thereby to stimulate economic growth (Wong, 2003). States award this privileged access when they set aside non-quota immigration priority to  persons who pledge to start businesses or, at least, to invest in business in the host society. This increasingly common practice leavens immigrant populations with stateprioritized entrepreneurs, who were selected for admission precisely because of their existing business skills and financial capital. These entrepreneurs have class resources that their non-entrepreneur co-ethnics normally lack, but they nonetheless increase the percentage of self-employed within their immigrant group. Transnationalism also arrives from below. Recent interest in transnationalism ‘from

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Global entrepreneurship and transnationalism 313 below’ (Chik, 2000; Lever-Tracy and Ip, 1996; Lie, 1995) identifies social processes that generate transmigrants from the immigrant population without recourse to the mechanism of state pre-selection that characterizes transnationalism from above. The literature of transnationalism from below has returned to many of the ideas that animated the  middleman minorities literature as well. First, transmigrants have diasporas just as did and do middleman minorities. However, because of transnationalism, it is argued, ethno-racial groups that were never middleman minorities can now have diasporas too.  For example, Brazilians or Filipinos can have a diaspora such as was previously available only to middleman minorities like the Jews, Armenians, or Chinese (Gold, 1997: 410). In an era of globalization, diasporas are easier to maintain now than they were earlier, and much more numerous around the world in consequence (Cohen, 1997: 176).6 Therefore, transnational studies examine groups that are not historic middleman minorities, but which have diasporas as well as, of course, classical middleman minorities.  Haitians, Dominicans, Turks, Koreans, Colombians and Filipinos are exemplary transnational groups, who have never been middleman minorities. This novel combination  of diaspora without a middleman minority’s history would not have occurred in the past when middleman minorities virtually overlapped with disasporan minorities. In effect, if contemporary theorists of transnationalism are correct, diasporas are no longer reserved to middleman minorities so many more people can live in diasporas now than previously did so. Second, contemporary transmigrants are bi-cultural just as are and were members of the classic middleman minorities. As a result, transmigrants enjoy some of the same advantages for international trade that middleman majorities enjoyed in the past. The spokes of the transmigrants’ diaspora communicate with one another and with the diaspora’s hub in the mother tongue while selling locally in the local vernacular. They can  do this because and to the extent that transmigrants, like middleman minorities, retain their native-speaker fluency in the mother tongue over generations, for example, they do not assimilate. This is the advantage that Armenian merchants in Lima enjoyed when trading with Persia in the eighteenth century. Third, like middleman minorities, contemporary transmigrants have international social capital that provides access to enforceable trust. International social capital hugely simplifies international trade. Enjoying international social capital, a Haitian transnational residing in New York City can buy and sell goods from a co-ethnic in Port-auPrince in confidence that invoices will be paid or, if unpaid, can be informally collected without recourse to law. If Haitians simply assimilated, as do immigrants, that transnational merchant would lose the social networks that access Haitian business circles and underpin his or her creditworthiness. Because they shuttle frequently between Haiti and New York City, a lifestyle made possible by jet airplanes, and because they receive and send satellite messages from and to Haiti, a facility made possible by satellite communication, Haitians in New York City can retain social capital in Haitian business circles for protracted, even indefinite periods, thus retaining the advantages in international trade that international social capital permits. Should they assimilate, they would lose those advantages. Given these similarities to middleman minorities, it is unsurprising that transmigrants  from below display high entrepreneurship, especially in international trade (Portes,  2003). Some evidence reports that transmigrants are ten times more likely to

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become entrepreneurs than are co-ethnic immigrants. Portes et al. (2002) studied selfemployment rates among immigrant Dominicans, Colombians and Salvadorans in five American cities. None of these ethno-racial groups is or was a middleman minority. Defining transnational entrepreneurs as those who went abroad for business twice a year or more, the authors found that only 5 per cent of each national-origin sample were  transnational entrepreneurs, but 58 per cent of the self-employed were transmigrants. ‘Transnational entrepreneurs represent a large proportion, often the majority, of  the self-employed persons in immigrant communities’ (Portes et al., 2002: 293). Better  educated than co-ethnics, the transnational entrepreneurs also earned higher incomes than non-transnational co-ethnics. Transnationalism is even said to have affected  middleman minorities. Ooka (2001) reports that ‘ethnic social capital’ did not increase the income of Chinese business owners in Toronto, but bridging social capital (connected to non-Chinese) did, as did class resources. Ethnic social capital would have been more characteristic of middleman minorities so its ineffectiveness here suggests a new kind of international business among the Chinese. Wong and Ng (2002: 509) also claim that Chinese transnational business represents a new form of Chinese business. Although still small business, like the Chinese business of the past, the new transnational Chinese business supposedly has a different modus operandi (Li, 1993; Yeung, 1999). The Chinese transnational business owners have more business associates in Asia than non-transnational Chinese entrepreneurs; they are also more likely to make use of Chinese business contacts, and more likely to target non-Chinese customers than are non-transnational Chinese entrepreneurs (552). The international traffic in prohibited drugs, sex commerce and immigrant smuggling offer additional illustrations of transnational business. The bilingualism and international social capital that confer success in legal industries also confer it in these illegal ones.7 Massey (et al., 1993: 446) observe that economic globalization ‘creates cultural links between core capitalist countries and their hinterlands’ and transnationalism is one of the ways globalization accomplishes this end. This line of thought eventuates in the hypothesis that transnationalism promotes international trade by multiplying the ethnic resources formerly restricted to middleman minorities. Transmigrants are a minority of the groups to which they belong whereas middleman minorities are whole groups, not just an elite. Middleman minorities enter business because of their underlying lifestyle, which makes business congenial to them; transmigrants more commonly adopt a cosmopolitan lifestyle in the interest of promoting their business. This lifestyle is an elite lifestyle. The past lingers. The era of transnationalism did not demolish middleman minorities. Middleman minorities did not vanish when transnational business elites appeared. However, if the theorists of transnationalism are correct, more people can have the key business-supporting resources now than could do so in the past when international commerce relied on middleman minorities. Therefore, more international trade is possible now. This attractive hypothesis already has some documentation to support it. The hypothesis links transnationalism and the expansion of world trade, which is the hallmark of globalization. Indeed, one could conclude that globalization requires transnationalism, which it also promotes. International trade requires international traders, and international traders are transmigrants. Hence, Silj and Cross (1999: 135) declare that transmigrant entrepreneurs no longer promote a ‘second-rate form of capitalism’ as Weber believed (Light and Gold, 2000: 6–7). Instead, transnational traders are ‘the

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Global entrepreneurship and transnationalism 315 forefront of new economic ties’. If so, tranmigrant entrepreneurs arguably caused some of the last half century’s increase in international trade (Kotkin, 1996). That is, because more people had access to the requisite skills, the world sprouted more international entrepreneurs, and more world trade ensued. Strictly in its economic terms, globalization means the reduction of tariff and non-tariff barriers to trade, freer mobility of capital across international boundaries, international standardization of products, specifications, and legal codes as well as the migration of Third World workers, skilled and unskilled, to the developed countries (Hollifield, 1998– 99; Sassen, 1994). As globalization knits world markets, opportunities for trade increase as does the importance of international trade (Wolff and Pett, 2000: 35). World trade has increased substantially in the last generation, a result usually attributed to globalization. In the USA, the share of exports in national income rose from 4 per cent to 7 per cent between 1950 and 1990. The share of merchandise exports in the output of manufactured goods, a more revealing ratio, increased over the same period from 6 per cent to nearly 20 per cent (The Economist, 1997), and other countries have seen comparable changes. Exports now account for more than 20 per cent of US economic growth. Exports create more than 11 per cent of American jobs (Rondinelli et al., 1998: 75). This abrupt growth of international trade could not have relied upon middleman minorities whose supply of international traders could not expand rapidly enough to match the growing need. Rather, it appears that even classic middleman minorities like the  Jews and Chinese added transmigrant elites (from below + from above) to their existing population of middleman traders (Gold, 1997; Hamilton and Waters, 1997). Whether generated from above or from below, transmigrant elites utilized class resources of entrepreneurship, such as human and financial capital, more than the ethnic resources on which middleman minorities characteristically relied and continue to rely.8 Similarly, hitherto non-trading immigrant communities began to produce international traders as an elite whose entrepreneurial resources derived from their class status rather than from the ethnic resources of traditional trading minorities. The joint result was expansion of the supply of persons qualified to undertake international business. Without this expansion, the growth of international commerce would be constrained by an inadequate supply of traders with the requisite entrepreneurial resources of social and cultural capital. Transnationalism arguably accomplished this historical task, outfitting more or less every immigrant group with its own cosmopolitan, bi-cultural and non-assimilating business elite, who had the resources to become international business owners and traders (Farrell, 1993). The result was a globalized world in which old-fashioned middleman minorities now shared international trade with new transnational elites rather than dominating it by themselves as they once had.

GLOBALIZATION AND ENGLISH LANGUAGE DOMINANCE However, before pledging allegiance to this attractive hypothesis, we should examine the embeddedness of transnationalism in globalization, which is much bigger than just transnationalism. Globalization is changing the world in multiple ways, not just by way of transnational business elites. Kloosterman and Rath (2003: 7) and their colleagues have already drawn attention to possible increases in demand for immigrant entrepreneurs

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within the developed economies as a result of the transition to post-industrial economies in which small business has new advantages. Cultural globalization also generates demand in the developed countries for exotic food, merchandise and services (acupuncture, falafel, images of Buddha) that emanate from Third World countries and that immigrant entrepreneurs can readily provide (Light, 2004). In these cases, the impact of globalization tends generally to support and enhance the presence and viability of immigrant entrepreneurs abroad. But these positive effects, much celebrated though they are, may not end the story. An additional and less studied effect of globalization on immigrant business occurs via the increasing international dominance of the English language in science, business, and government, a development that was not always welcomed (Crisafulli, 1996). English has  not always been the world’s dominant language. Globalization created the dominance of English since 1945 (Fishman, 1998–99; Fox, 2000; Phillipson, 1992). In effect, the contemporary dominance of English and transnational immigration are both effects of globalization. The dominance of the English language embeds transnational business elites in a world quite different from the one in which classic middleman minorities lived. Possibly that difference affects the trading advantages that transmigrants and middleman minorities enjoy. We inhabit a globalized world in which English has almost become the universal second language of business people everywhere. In this world, bi-cultural transmigrants enjoy less linguistic advantage than classic middleman minorities earlier enjoyed before globalization. This reduction arises because so many non-immigrants have learned English as their second language. If, in an extreme and limiting case, all the inhabitants of the world’s non-English-speaking countries achieved complete fluency in English, then anyone could trade with anyone elsewhere on the strength of their common second language, English. Immigrants would no longer need bi-cultural elites or middleman minorities to effectuate their international trade as they did when immigrants were monolinguals. Today the Japanese business travelers in Eastern Europe prefer to speak English to their Polish or Czech trading partners rather than having to learn Czech or Polish, and the Poles and Czechs reciprocate the preference. Thanks to the dominance of English, Japanese, Czechs and Poles now have this option. Returning to the illustration earlier used, we recall that Peruvians in Peru and Turks in Turkey patronized the  Armenian diaspora because Peruvians did not speak Turkish and Turks did not speak  Spanish. Lacking a common language, Turks and Peruvians needed to communicate through bi-cultural Armenians, one group of whom spoke Spanish and the other Turkish. Armenian intermediaries (middlemen) were indispensable in that world’s rug business. In a fully globalized world, however, Turks speak English and Peruvians speak English. Therefore, Turks and Peruvians can communicate in English, and neither side needs Armenian middlemen any more just for the purpose of communication. Of course, this thought-experiment relies upon a fully globalized world that does not yet exist. Nonetheless, the increasing dominance of the English language in world business does tend to move the world in that direction. In continental Europe today, half of the adult population claims to speak English. This unprecedented state of affairs means that the French and Germans, the Spanish and the Italians, or any other European combination can speak English to one another for purposes of international trade, reducing any need for either middleman minorities or transmigrants to interpret for them.

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Global entrepreneurship and transnationalism 317 Middleman minorities translated business into Armenian from local vernaculars; transnational immigrant traders speak their native language plus the adopted language  of  their destination country. Both acquire trading advantages to the extent that everyone does not already speak English. If everyone speaks English, then neither middleman minorities nor bilingual transmigrants have any linguistic resource to exploit in commerce. True, the European trading partners may not trust one another even though they communicate in English with other non-native speakers of English. To that extent, the Europeans would still need middleman minorities or the transmigrants whose international social capital stands surety for their business deals. Nonetheless, looking only at the  linguistic indispensability, which the middleman minorities once exploited, we conclude that the dominance of English as a world language reduces, even if it does not yet extinguish, the linguistic advantage of both middleman minorities and of transmigrants today. If so, middleman minorities, like the Chinese, would have lost their trading advantage in intra-European trade, and would retain it only in the organization of trade between China and their current host country. This point is speculative. However, evidence has already begun to build up behind other, trade-related economic effects of English dominance (Van Parijs, 2000). Examining the foreign trade of the USA and Canada in the 1980s, David Gould (1990; 1994) found that the volume and skill levels of immigrants increased the dollar volume of both American and Canadian exports to the immigrants’ home countries without increasing imports from them. This discrepancy did not attend immigration from English-speaking countries. He explained the unexpected discrepancy by reference to transaction costs, arguing that immigrants enjoyed transactional advantages for exports, but not for imports. Light (2001) and Light et al. (2002) replicate Gould’s basic finding on a comparable but slightly different American data-set. They too find that immigrants to the USA increased American exports to their home countries without increasing American imports from their home countries. However, this discrepancy does not attend immigration from English-speaking countries, which increased neither exports nor imports. Light and his colleagues considered the possibility that transnational immigrants increased international trade more than non-transnational immigrants, but less than middleman minorities who, unlike transmigrants, have centuries of entrepreneurial culture on which to draw. Comparing the Chinese diaspora and the Spanish diaspora, they found that both diasporas increased American trade with overseas homelands net of control variables, but the size of the Chinese effect was twice the size of the Spanish effect. Moreover, a measure of fluency in English found that, net of control variables, high fluency in English increased immigrants’ exports to their overseas homelands without increasing their imports from their homeland. This manipulation implied that English-speaking countries need the help of non-English-speaking immigrants to export goods to the immigrants’ non-English-speaking homelands because, partially thanks to globalization, English-speaking countries lack foreign language skills. Even in the world of globalized international commerce, an ancient rule of marketing still prevails: ‘the merchant speaks the customer’s language’. Nineteenth-century Armenians in Peru peddled rugs in Spanish. Today this ancient rule requires English-speaking countries to peddle their exports in languages other than English when they export to non-Englishspeaking countries. Thanks to the dominance of English as a world business language,

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itself a product of globalization, the English-speaking countries have learned to rely on the rest of the world’s fluency in English, thus relieving them of the necessity of learning foreign languages. Therefore, when they have to market their exports in non-Englishspeaking countries, English-speaking countries rely upon the assistance of bi-cultural immigrants, who retain full fluency in foreign languages. Transmigrants have this capacity. Fully fluent in English, they are also fluent in the language of their homeland. However, again thanks to the world dominance of English, the opposite situation does  not apply. When exporting to English-speaking countries, non-English-speaking countries enjoy a linguistic advantage. The exporters already speak English as a second language. Speaking English as their second language, the Spanish, the Koreans, the Chinese or the Swedes do not need the help of co-ethnic immigrants in the USA, Canada, Australia or New Zealand to market their exports to those English-speaking countries. As a result, Swedish or Spanish transmigrants residing abroad in English-speaking countries cannot contribute to the marketing effort of their homeland’s companies in those English-speaking countries. This observation would explain why immigrants in the USA and Canada increase those countries’ exports to the immigrants’ overseas homelands without increasing their homelands’ exports to the USA and Canada. They also explain or help to explain why immigrants from English-speaking countries have no effect on the imports or exports of the USA and Canada to their homeland. Immigrants from Englishspeaking countries have no linguistic advantage in another English-speaking country. It was correct to assert, as David Gould did, that cultural skills reduce the transaction  costs of international commerce. However, Gould still thought of language as a trade friction, not a trade structure. Prior to globalization, when languages were more or less on an international standing of parity, with perhaps some superiority to French in the nineteenth century, one could conceptualize translation as a frictional cost of international business. Middleman minorities thrived in the shadow of that frictional cost. In the globalized world that is increasingly coming into existence, the global dominance of the English language is a global structure, not what economists call ‘a friction’. This global linguistic structure affects international trade in new ways that require new theory. The theoretical heritage of middleman minorities, properly amended, offers the tools to accomplish this task.

CONCLUSION Existing literature has correctly inferred that transmigrants from above and from below enjoy linguistic and social capital advantages that fit them advantageously for international commerce and entrepreneurship. On this view, transnationalism endows regional ethnic groups that were not historical middleman minorities and that do not inherit an ethnic culture of entrepreneurship with newly acquired class resources of entrepreneurship. As a result, those class resources of entrepreneurship are more common than they were previously among immigrants; hence, international trade can progress more rapidly than it did earlier. International trade requires international traders, and international traders require the resources of enforceable trust and bi-culturalism. These inferences are correct as far as they go. However, missing from existing transnationalism literature, whether from above or from below, is any awareness that

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Global entrepreneurship and transnationalism 319 globalization reduces the utility of bilingual combinations that do not include English. Spanish to French competence is not useful when all French people and all Spanish people speak English. In this case, Spanish people can talk to French people in English, and vice versa, so what additional utility is conveyed by speaking French as well as Spanish? Globalization increasingly embeds world commerce, science, cinema and diplomacy in a dominant language, English. This dominant language creates a global linguistic structure where previously only linguistic frictions existed. There is every reason to suppose that economic consequences flow from the global dominance of English, and  some recent evidence supports that hypothesis. Presumably the dominance of the English language embeds the world in a structure that transnationalism must subserve. Studying the manner in which transmigrants fit into this new language structure emerges as a future research path of consequence. Both practical and theoretical issues are at stake. On the theoretical side, we learn that transmigrants are not just middleman minorities revived and many times multiplied. Even  if they were, the world has changed in some ways advantageous to immigrant entrepreneurs and in some ways disadvantageous. Even if post-industrial economies and cultural globalization enhance demand for immigrant-owned business, as some authorities maintain, the linguistic effect of globalization diminish it. The global dominance of English reduces the advantage that bilingualism conveys in international trade, undermining transmigrants and middleman minorities alike. Both middleman minorities and transnational business elites exploit bilingualism for commercial advantage in international trade. Bilingualism is not their only resource; they also have enforceable social trust embedded in international networks. Nonetheless, the bilingualism has been a salient commercial advantage, which the increasing dominance of English tends to erode throughout the world. For this reason, extrapolating the dominance of English into the future, the long-term outlook for both transmigrants and middleman minorities, the modern and old-fashioned forms of international trade elites, is clouded. On the practical side, the fourfold expansion of international trade since 1950, which is a defining feature of globalization, owes something to transnationalism in the functional sense of mutual affinity and support. Transmigrants made the expansion of globalization possible, and profited from the opportunities this expansion afforded. In effect, globalization and transnationalism co-produced one another. Moreover, in the context of the increasing dominance of the English language, the English-speaking countries derived peculiar and idiosyncratic advantages from transnational business migrants who increased their exports without increasing their imports! Because of this lop-sided advantage, the massive and dangerous balance of payments deficit of the USA was reduced, but not eliminated. This reduction performed a service to world trade, rendering it more secure than it otherwise would have been. Operating in tandem, transnational business elites and the dominance of the English language jointly reduced the vulnerability of the USA to the normal monetary corrections that attend large and protracted trade deficits. The same would obviously be true as well of other English-speaking countries, but since their international role is less pivotal than that of the world’s super power, their trade deficits are comparably less important. Since that American balance of payments deficit has been many times identified as the endangered cornerstone of the global economy, whose collapse would pull down the whole global edifice, transnational business elites have proved a social adjunct of globalization in the last generation.

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NOTES 1. An early version of this paper was presented at the European Science Foundation’s ‘Asian Immigrants and Entrepreneurs Conference’ that was held at the Catholic University of Nijmegen, on 11 May 2001. Please direct all correspondence regarding this paper to [email protected]. 2. For an extended discussion, see Light and Karageorgis (1994). 3. The 2004 film Ararat offers Hollywood’s attempt to deal with the oppression of Armenians, and their recourse to commercial entrepreneurship in self-protection. 4. ‘Trust and cultural affinities facilitate involvement in transnational ethnic businesses. The moment of business encounter is not solely determined by formal rationalized rules, but also by the presence of cultural codes favoring the process of trust building in business transactions. In small-scale transnational entrepreneurial activities, culture can both promote and limit business opportunities. In this context, formal and rationalized market structures are subordinated to the economic culture of the social agents’ (Moallem, 1996: 12). 5. To acculturate is to acquire the language and culture of a host society. To assimilate is to identify with the host society. Inter-marriage is the single most powerful indicator of assimilation. 6. ‘Globalization has enhanced the practical, economic, and affective roles of diasporas, showing them to be particularly adaptive forms of social organization’ (Cohen, 1997: 176). 7. The 2004 film Maria Full of Grace illustrates the operation of a drug smuggling ring around a Colombian diaspora. 8. The distinction between class and ethnic resources is discussed in Light and Karageorgis (1994).

REFERENCES Armstrong, J.A. (1976), ‘Mobilized and proletarian diasporas’, American Political Science Review, 9, 393–408. Bonacich, Edna (1973), ‘A theory of middleman minorities’, American Sociological Review, 38, 583–94. Caliner, Geoffrey (2000), ‘The language ability of U.S. immigrants: assimilation and cohort effects’, International Migration Review, 34, 158–82. Chik, Frances (2000), ‘Hong Kong Chinese immigrant women in business: the impact of transnational networks’, paper presented at the Fifth Annual Metropolis Conference, Vancouver, 14 November. Cohen, Abner (1971), ‘Cultural strategies in the organization of trading diasporas’, in Claude Meillassoux (ed.), The Development of Indigenous Trade and Markets in West Africa, London: Oxford University Press, pp. 266–84. Cohen, Robin (1997), Global Diasporas, Seattle, USA: University of Washington Press. Collins, Jock (1998), ‘Cosmopolitan capitalism: ethnicity, gender and Australian entrepreneurs’, vols 1 and 2, PhD dissertation, University of Wollongong. Crisafulli, Edoardo (1996), ‘La Diffusione dell’Inglese e l’Imperialismo Linguistico’, Rivista delle Lingue, 5, 20–23. Dicken, Peter (1992), Global Shift: The Internationalization of Economic Activity, New York: Guilford Press. Farrell, Christopher (1993), ‘Shut out immigrants and trade may suffer’, Business Week, 5 July, 82, 84. Fishman, Joshua A. (1998–99), ‘The new linguistic order’, Foreign Policy, 28, 26–40. Fox, Justin (2000), ‘The triumph of English’, Fortune, 142, 209ff. Fukuyama, Francis (1995), ‘Social capital and the global economy’, Foreign Affairs, 74, 89–103. Gold, Steven (1997), ‘Transnationalism and vocabularies of motive in international migration: the case of Israelis in the United States’, Sociological Perspectives, 40, 409–27. Gould, David Michael (1990), ‘Immigrant links to the home country: implications for trade, welfare, and factor returns’, PhD dissertation, University of California, Los Angeles. Gould, David M. (1994), ‘Immigrant links to the home country: empirical implications for US bilateral trade flows’, Review of Economics and Statistics, 76 (2), 302–16. Guarnizo, Luis Eduardo and Luz Marina Diaz (1999), ‘Transnational migration: a view from Colombia’, Ethnic and Racial Studies, 22, 397–421. Guarnizo, Luis Eduardo, Arturo Ignacio Sanchez and Elizabeth M. Roach (1999), ‘Mistrust, fragmented solidarity, and transnational migration: Colombians in New York City and Los Angeles’, Ethnic and Racial Studies, 22, 367–96. Hamilton, Gary G. and Tony Waters (1997), ‘Ethnicity and capitalist development: the changing role of the Chinese in Thailand’, in Daniel Chirot and Anthony Reid (eds), Essential Outsiders: Chinese and Jews in the Modern Transformation of Southeast Asia and Central Europe, Seattle and London: University of Washington, pp. 258–84.

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Global entrepreneurship and transnationalism 321 Hollifield, James F. (1998–99), ‘Migration, trade, and the nation-state: the myth of globalization’, Journal of International Law and Foreign Affairs, 3 (2), 595–636. Kieval, Hillel J. (1997), ‘Middleman minorities and blood: is there a natural economy of the ritual murder accusation in Europe?’, in Daniel Chirot and Anthony Anthony Reid (eds), Essential Outsiders: Chinese and Jews in the Modern Transformation of Southeast Asia and Central Europe, Seattle and London: University of Washington Press, pp. 208–36. Kloosterman, Robert, and Jan Rath (2003), ‘Introduction’, in Robert Kloosterman and Jan Rath (eds), Immigrant Entrepreneurs: Venturing Abroad in the Age of Globalization, Oxford: Berg, pp. 1–16. Kotkin, Joel (1996), ‘Cities of hope: thanks to global trade urban America’s potential is revealed’, World Trade, 9 (4), 24–30. Laguerre, Michel (1998), ‘Rotating credit associations and the diasporic economy’, Journal of Developmental Entrepreneurship, 3, 23–34. Landolt, Patricia, Lilian Autler and Sonia Paires (1999), ‘From Hermano Lejano to Hermano Mayor: the dialectics of Salvadoran transnationalism’, Ethnic and Racial Studies, 22, 290–315. Lever-Tracy, Constance and David Ip (1996), ‘Diaspora capitalism and the homeland: Australian Chinese networks into China’, Diaspora, 5, 239–71. Lever-Tracy, Constance, David Ip, Jim Kitay, Irene Phillips and Noel Tracy (1991), Asian Entrepreneurs in Australia, Canberra: Australian Government Publishing Service. Li, Peter S. (1993), ‘Chinese investment and business in Canada: ethnic entrepreneurship reconsidered’, Pacific Affairs, 66, 219–43. Lie, John (1995), ‘From international migration to transnational diaspora’, Contemporary Sociology, 24, 303–6. Light, Ivan (2001), ‘Globalization, transnationalism and trade’, Asian and Pacific Migration Journal, 10, 53–79. Light, Ivan (2004), ‘The ethnic economy’, in Neil Smelser and Richard Swedberg (eds), The Handbook of Economic Sociology, 2nd edn, New York: Russell Sage Foundation, pp. 650–77. Light, Ivan and Steven J. Gold (2000), Ethnic Economies, San Diego, CA: Academic. Light, Ivan, and Stavros Karageorgis (1994), ‘The ethnic economy’, in Neil Smelser and Richard Swedberg (eds), Handbook of Economic Sociology, New York: Russell Sage Foundation, pp. 647–71. Light, Ivan, Parminder Bhachu and Stavros Karageorgis (1993), ‘Migration networks and immigrant entrepreneurship’, in Ivan Light and Parminder Bhachu (eds), Immigration and Entrepreneurship, New Brunswick, NJ: Transaction, pp. 25–50. Light, Ivan, Min Zhou and Rebecca Kim (2002), ‘Transnationalism and American exports in an Englishspeaking world’, International Migration Review, 36, 702–25. Massey, Douglas S., Joaquin Arango, Graeme Hugo, Ali Kouaouci, Adela Pellegrino and J. Edward Taylor (1993), ‘Theories of international migration: a review and appraisal’, Population and Development Review, 19, 431–66. Moallem, Minoo (1996), ‘Transnationalism, migrancy, and entrepreneurship’, Beatrice M. Bain Research Group and Sociology Department, University of California, Berkeley. Ooka, Emi (2001), ‘Social capital and income attainment among Chinese immigrant entrepreneurs in Toronto’, Asian and Pacific Migration Journal, 10, 123–44. Phillipson, Robert (1992), Linguistic Imperialism, Oxford: Oxford University. Portes, Alejandro (2003), ‘Conclusion: theoretical convergencies [sic] and empirical evidence in the study of immigrant transnationalism’, International Migration Review, 37, 874–92. Portes, Alejandro and Lingxin Hao (1998), ‘E pluribus unum: bilingualism and loss of language in the second generation’, Sociology of Education,71, 269–94. Portes, Alejandro, William J. Haller and Luis Eduardo Guarnizo (2002), ‘Transnational entrepreneurs: an alternative form of immigrant economic adaptation’, American Sociological Review, 67, 278–98. Rondinelli, Dennis A., James H. Johnson, Jr and John D. Kasarda (1998), ‘The changing forces of urban economic development: globalization and city competitiveness in the 21st century’, Cityscape, 3, 71–105. Sassen, Saskia (1994), ‘Economic internationalization: the new migration in Japan and the United States’, Social Justice, 21, 62–82. Schiller, Nina Glick, Linda Basch and Cristina Blanc-Szanton (1992), ‘Transnationalism: a new analytic framework for understanding migration’, in Nina Glick Schiller, Linda Basch, and Cristina Blanc-Szanton (eds), Towards a Transnational Perspective on Migration, Annals of the New York Academy of Sciences, vol. 645, New York: New York Academy of Sciences, pp. 1–24. Silj, Alessandro and Malcolm Cross (1999), Ethnic Conflict and Migration in Europe, Rome: Consiglio Italiano per le Scienze Sociali and Centre for European Migration and Ethnic Studies. Smart, Alan, and Josephine Smart (1998), ‘Transnational social networks and negotiated identities in interactions between Hong Kong and China’, in Michael Peter Smith and Luis Eduardo Guarnizo (eds), Transnationalism From Below, New Brunswick, NJ: Transaction, pp. 103–29. The Economist (1997), ‘The world economy’, 20 September.

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Van Parijs, Philippe (2000), ‘The ground floor of the world: on the socio-economic consequences of linguistic globalization’, International Political Science Review, 21, 217–33. Walton-Roberts, Margaret and Daniel Hiebert (1997), ‘Immigration, entrepreneurship, and the family: IndoCanadian enterprise in the construction of Greater Vancouver’, Canadian Journal of Regional Science, 20, 119–40. Wolff, James A. and Timothy L. Pett (2000), ‘Internationalization of small firms: an examination of export competitive patterns, firm size, and export performance’, Journal of Small Business Management, 38, 34–47. Wong, Bernard (1998), Ethnicity and Entrepreneurship: The New Chinese Immigrants in the San Francisco Bay Area, Boston, MA: Allyn and Bacon. Wong, Lloyd L. (1997), ‘Globalization and transnational migration’, International Sociology, 12, 329–51. Wong, Lloyd L. (2003), ‘Chinese business migration to Australia, Canada, and the United States: state policy and the global immigration marketplace’, Asian and Pacific Migration Journal, 12, 301–35. Wong, Lloyd L. and Michele Ng (2002), ‘The emergence of small transnational enterprise in Vancouver: the case of Chinese entrepreneur immigrants’, International Journal of Urban and Regional Research, 26, 508–30. Yeung, Henry Wai-Chung (1999), ‘The internationalization of ethnic Chinese business firms from Southeast Asia: strategies, processes and competitive advantage’, International Journal of Urban and Regional Research, 23, 103–27.

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38. Growth

James Bort, Wei Yu and Johan Wiklund

New-venture growth has been and continues to be a critically important area of inquiry for entrepreneurship research (Nason and Wiklund, 2018). Entrepreneurship scholars have invested substantial efforts in the growth phenomenon and the related theoretical and methodological foundations, such as defining various modes of growth that new ventures may pursue (McKelvie and Wiklund, 2010), understanding the consequences of researchers’ measurement choices (Shepherd and Wiklund, 2009) or exploring the relevance of viewing growth as a development process consisting of a number of stages (Levie and Lichtenstein, 2010). Despite this progress, scholars have noted that theoretical development on new-venture growth has been notably slower than some other areas within the literature (cf. DeSantola and Gulati, 2017; Gilbert et al., 2006). Growth is a dynamic process – a change in size from one moment to another – that shapes the new venture as the process unfolds (Levie and Lichtenstein, 2010). Streams of research concerning new-venture growth generally fall under three major conceptual approaches (cf. McKelvie and Wiklund, 2010) including: the antecedents of growth (that is, growth is the dependent variable, typically being explained by a set of independent variables in regression analysis); the consequences of growth (that is, studies that examine how organizations change as a consequence of becoming larger); and how firms grow, which examines how the growth process unfolds over time. In this chapter, we explore these streams and then turn our attention to complexities of high-growth firms. While rare, these firms are very impactful. We conclude by highlighting several avenues related to new-venture growth that warrant future study.

ANTECENDENTS OF GROWTH In research, growth is often used as a proxy for overall firm performance among new ventures and forms an important part of the new venture performance and wider strategy literatures (cf. Shepherd et al., 2019). This stream of research seeks to explain variance in growth rates across firms. The factors contributing to explaining variation in growth across firms differ across multiple levels of analysis, including attributes of individual entrepreneurs, entrepreneurial teams, the firm, stakeholders and the institutional (for example, country, industry) context in which the firm operates. The Entrepreneur Owing to the relatively young age and small size of new ventures, the entrepreneur wields significant influence over the strategy and the performance of the firm (Miller, 1983). Ample evidence suggests that the characteristics of entrepreneurs influence whether and how their firms grow. Early research extensively examined the relationship between the 323

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entrepreneur’s human capital (for example, education and previous experience) and firm growth (Cooper et al., 1994; see also Gilbert et al., 2006 for a review), though meta-analysis suggests that this relationship, while positive, is relatively weak (Unger et al., 2011). Entrepreneurs’ personal social networks have also been linked to the growth of their ventures (Ostgaard and Birley, 1996). Although building social networks requires large investment of the entrepreneur, the consensus of numerous studies is that this investment will pay off in most cases, with the strongest positive effects of network diversity (Stam et al., 2014). Whereas the human and social capital of the entrepreneur are important, the entrepreneur’s attitudes towards growth and their motivation to expand the business are equally salient (Baum and Locke, 2004). Ample empirical evidence challenges the notion that all entrepreneurs are growth orientated. Entrepreneurs start their businesses for multiple reasons, which have consequences for their willingness to expand. For example, those that primarily seek independence may not want to grow (Douglas, 2013). Also, preferences for small-scale and intimate work relationships as well as the possibility of working with favorite work tasks, rather than becoming an administrator, often keeps growth motivation down (Wiklund et al., 2003). Psychological income can be sufficient reason to continue operating a poorly performing firm (Gimeno et al., 1997). Entrepreneurs’ attitudes towards growth are shaped by the anticipated consequences of growth (Wiklund et al., 2003). Growth brings changes, sometimes disruptive, to the nature of the work and the firm. As firms grow, the nature of the entrepreneur’s role within the firm changes, and often he or she becomes less involved in the day-to-day operations and more focused on higher-level firm issues (Mathias and Williams, 2018). If the firm adds new employees, professionalization of inner-firm processes and human resources also becomes increasingly important to the firm (Flamholtz and Randle, 2012). Growth often precedes profit, thus requiring an influx of external capital in the form of debt or equity, which in turn requires further growth to either fulfill debt obligations or appreciate the market value of the firm. As the founder’s stake in the firm becomes diluted, so does his or her decision-making independence from outside influence. In light of these outcomes of growth, some entrepreneurs proceed with caution when considering growth strategies. For example, employee well-being and the entrepreneur’s independence from stakeholders were among the most salient issues of concern among entrepreneurs in Wiklund et al.’s (2003) sample. From the personal psychology viewpoint, researchers have also examined entrepreneurs’ personality traits in the growth process (for example, Baum and Locke, 2004; Lee and Tsang, 2001). Meta-analysis by Rauch and Frese (2007) suggests that traits such as need for achievement, generalized self-efficacy, innovativeness and stress tolerance are crucial for new venture success, including firm growth. Focusing more broadly on the Big-5 personality traits, Zhao et al.’s (2010) meta-analysis finds the positive link between conscientiousness, openness to experience, emotional stability and firm growth. Recent works have started to look at negative personality traits though, such as the dark triad (narcissism, psychopathy and Machiavellianism) (Hmieleski and Lerner, 2016). Narcissistic entrepreneurs have a higher propensity to pursue novel opportunities (Navis and Ozbek, 2016), while also having an easier time making difficult decisions, such as changing strategic course or making personnel changes, in uncertain entrepreneurial environments (Smith et al., 2018). Accordingly, narcissistic entrepreneurs hold a

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performance advantage in uncertain environments. Similarly, while traits related to the entrepreneur’s mental health, such as attributes linked to attention deficit hyperactivity disorder (ADHD), for example impulsivity, may have potential downsides (Lerner et al., 2019), they also have potential upsides for firm growth (Yu et al., 2019). The Firm The findings in Yu et al. (2019) suggest that the entrepreneurial orientation (EO; Miller, 1983) of the firm mediates the relationship between entrepreneurs’ ADHD and firm growth, highlighting that firm-level strategy influences growth. Entrepreneurial orientation has been one of the most examined firm strategic orientations in entrepreneurship literature, and numerous studies, including meta-analysis, highlight its positive role for firm growth (for example, Rauch et al., 2009). Further corroborating EO’s influence on new-venture growth, more recent studies such as McKelvie et al. (2017) show that particular firm-level innovative activities, such as new product introduction and sales generated from new products, mediate the relationship between an entrepreneur’s growth aspirations and achieved firm growth. In addition to EO, early research has also examined generic strategies, such as differentiation and cost-leadership, but with mixed results (for example, Baum et al., 2001; Chandler and Hanks, 1994; Siegel et al., 1993). Firm strategy does not exist in a vacuum but is influenced and complemented by firm resources. Firms can be viewed as a collection of bundles of idiosyncratic resources. Hence, studies have adopted the resource-based view (for example, Mahoney and Pandian, 1992; Penrose, 1959) to examine how different types of resources can be linked to firm growth. Among the types of resources examined, previous literature has focused on, for example, financial, human and legitimacy-related resources (for example, Cooper et al., 1991; Wiklund and Shepherd, 2003b; Zimmerman and Zeitz, 2002). Instead of focusing on the types of resources, emerging research has started to investigate the versatility of the resources a new venture controls. Nason and Wiklund’s (2018) meta-analysis found that versatile resources are superior to non-versatile resources in that they can be deployed or recombined to create growth. For example, high-quality leaders can be deployed to new projects to elude managerial capacity constraints – a common problem that stunts future growth (for example, Kor, 2003). Collectively, researchers examining firm-level strategies and resources have adopted and called for an interactionist perspective, that is, firm growth depends on the complementarity between the strategy and the resource occupied by the firm. Particular strategies are to be better implemented when there is resource support; and firm growth is to be achieved when there is a fit between strategy and resource (Chandler and Hanks, 1994). For example, Wiklund and Shepherd (2003a) suggest and find that EO and firm growth is moderated by the firm’s financial capital. Similarly, Chandler and Hanks (1994) find that the positive influence of quality differentiation strategy depends on resources in support of it. External Stakeholders External stakeholders (Parmar et al., 2010) also influence the new venture’s growth. Early-stage investors are often dependent on a high-value exit (for example, initial public

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offering or buyout) from a select few of the firms in their portfolios (Huang and Pearce, 2015). Thus, entrepreneurs must tell a story that is congruent with this end goal in mind (Lounsbury and Glynn, 2001). Further, professional investors such as venture capitalists are unmoved by displays of passion, and instead are moved by the preparedness of the founder(s) (Chen et al., 2009). Accordingly, professional investors are often heavily involved in their investments, amplifying the legitimacy of the firm with future customers and other investors (Ko and McKelvie, 2018), which in turn enables further growth. In addition, stakeholders beyond shareholders have the potential to influence firm growth. One recent example can be found in benefit corporations. The benefit corporation (b-corp) is an external certification that’s purpose is to highlight how the certified firm creates value with non-own stakeholders, such as their community, employees and the natural environment (Kim et al., 2016). An exploratory study found that maintaining b-corp status, which can be a foundational value of the firm that seeks certification (cf. Gehman and Grimes, 2017), inhibited the firm’s growth (Parker et al., 2019). Some firms, such as Etsy, abandoned their b-corp certification as they approached their initial public offering. However, research on mission drift highlights the risks firms face as they abandon their core principles (Grimes et al., 2019). Institutions The legal, political and market institutions surrounding the new venture influence growth. Firms operating in countries with high levels of corruption generally have lower growth rates (for example, Fisman and Svensson, 2007). Despite the positive attributes microfinance has on entrepreneurship in developing countries (Anglin et al., 2020), these firms struggle to grow owing to the instability of their governments (Ahlin et al., 2011), which often complicates the purpose of the firm (Moss et al., 2019). We noted previously the link between growth aspirations and growth (Douglas, 2013; McKelvie et al., 2017). In turn, country-level institutional factors influence growth aspirations. Corruption inhibits, and strong property protection and functional governments enhance growth aspirations (Estrin et al., 2013). Firm growth is of interest to policymakers, as it can be a vehicle to reshape regions, create jobs and spur innovation (Shane, 2009). Public policy can be used to buffer new ventures, against resource scarcity, bridge new ventures with necessary external stakeholders (Amezcua et al., 2013) and/or boost organizational capacities for growth (Autio and Rannikko, 2016). Recent empirical research has set out to provide some implications for policies (for example, see Wright et al., 2015 for a review). Autio and Rannikko (2016) provide one of the most direct and robust tests. By examining Finnish high-technology new ventures, they find that ‘policy initiatives that are selective, impose milestones and focus on capacity boosting are able to accelerate new firm growth’ (Autio and Rannikko, 2016: 44).

HOW FIRMS GROW Whereas many have examined the determinants of growth, many fewer have opened the ‘black box’ of the growth process; that is, how the inputs are transferred to the outputs.

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Growth is a continuous process resulting in changes within the firm (Penrose, 1959); thus, examining how a firm grows and the processual dynamics of growth are essential for our understanding of new-venture growth (cf. McKelvie and Wiklund, 2010). To a large extent, early works in this vein built on stages of development or life-cycle metaphors (for example, Greiner, 1989; Kazanjian, 1988; Lewis and Churchill, 1983). That is, firms are viewed similar to living organisms that go through predictable stages of development. For example, Grenier (1972) argued that firms experience evolutional (stability and growth) phases followed by revolutionary phases (disruptive changes) of development. These models have great intuitive appeal, but have been heavily criticized based on their lack of empirical validity (firms do not develop in accordance with these models) and because of their deterministic nature (for instance, Levie and Lichtenstein, 2010). For example, avoiding determinism, McKelvie and Wiklund (2010) instead suggest that new ventures can choose to expand using various modes of growth. Firms choosing organic growth mainly create their own internal resources, while firms adopting acquisitive growth take over already existing resources from other firms. Collaborations, such as strategic alliances, constitute another option where firms co-utilize resources needed for growth. While new ventures can be creative in developing resources (Baker and Nelson, 2005), they generally face resource constraints and lack internal capital to fuel their own growth in the way a larger firm might (Penrose, 1960; Baker and Nelson, 2005). This creates incentives to look externally for resources (Drover et al., 2017). However, the utilization of external resources often leaves new ventures in a difficult predicament because they have to balance the tradeoff between resource access and resource control. For example, in seeking external financing, founding teams often cede some level of control to their investors (Drover et al., 2014), and the greater the stake in the firm, the more potential for conflicts on growth strategy (Khanin and Turel, 2015). Moreover, reliance on external resources can also deprive the firm of developing the necessary internal capabilities. For example, Nason et al. (2019) turned the spotlight on research and development (R&D). In their study, they found an inverted-U shape relationship between new-venture growth and leveraging R&D external to the new venture. However, this strategy eventually leads to power asymmetries with partners as the new venture’s dependence on external R&D increases, which will then inhibit growth. Through acquisitions, new ventures can expand their opportunity set. There are limits to how fast a firm can grow organically solely by generating its own resources internally, as predicted by Penrose’s theory (Lockett et al., 2011). However, by relying on acquisitions, firms can expand their opportunity set (McKelvie and Wiklund, 2010). One recent example is Uber’s acquisitions of firms specializing in artificial intelligence, which they have used to expand their driverless car capabilities.1 A key challenge to sustaining a high growth rate is the Penrose effect. Firms are limited by their ability to expand their managerial capacity to handle the expanding business, that is, access to competent managers is crucial to achieve growth. However, it takes time for individuals to acclimate to managerial responsibilities. Existing managers cannot endlessly expand their scope of responsibilities as the firm expands, and additional managers are needed to handle the expansion. However, regardless of a manager’s previous experiences, he or she needs to gain an understanding of the idiosyncrasies of his or her new position. External hires need to be socialized into the firm. Employees newly promoted need to

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learn new skills to be effective in their elevated role. As Penrose (1959: 46) states, a firm is not merely a collection of managers, but a collection of managers who have experience working together. The development of cohesion as a team takes time to unfold and, as it does, it places increased pressure on the experienced incumbent employees. The Penrose effect and the very elegant associated theoretical arguments were proposed in the 1950s, but seem equally relevant today, although empirical examinations still remain sparse.

THE CONSEQUENCES OF GROWTH Growth can have both positive and negative consequences for the life of the entrepreneur, the employees and the firm itself. Running a highly successful new venture can be rewarding (Laguna and Razmus, 2019), but also highly stressful (Cardon and Patel, 2015) for the entrepreneur. Thus, the health and well-being of the entrepreneur is an important consequence of firm growth. Growth is not only a key mechanism to reduce the probability of firm failure, but also positively influences an entrepreneur’s persistence (Stephan, 2018). Hence, growth can bring psychological well-being while failure is emotionally taxing for entrepreneurs (Shepherd et al., 2009). However, stress and burnout experienced by entrepreneurs may be particularly extensive during periods of rapid growth, especially when there are not enough experienced employees to share the responsibility (see Stephan, 2018 for a review), which will be inevitable during rapid growth (cf. the Penrose effect). Growth is subject to the limits of managerial capacity, which takes time to develop internally (Penrose, 1959). Thus, one key outcome of growth is the limitations of firm growth in future periods (Lockett et al., 2011). As firms increase their scope through the introduction of new products or expand into new markets, there are adjustment costs that must be absorbed by the firm, which have a negative impact on growth in future periods (Hutzschenreuter and Horstkotte, 2013). Another key outcome of growth is the professionalization of the new venture (Flamholtz and Randle, 2012), which inevitably changes the firm’s culture. As the firm evolves, the firm’s founder(s) have little choice but to delegate tasks to their expanding leadership team (Mathias and Williams, 2018). Generally, founder(s) recruit to fill specific gaps in knowledge. While they try to fill the new roles with people that they think will be a good fit (Forbes et al., 2006), filling roles in this manner is challenging to maintain (Wry et al., 2011).

RAPID GROWTH: A DOUBLE-EDGED SWORD Mainly thanks to the observation that a small number of rapidly growing ventures contribute more to new job creation than the large number of more mundanely growing firms, policymakers (in particular) and scholars (to some extent) have become interested in understanding high-growth firms (HGFs). High-growth firms have been defined as firms that exhibit more than 20 percent annual growth over three consecutive years and have at least 10 employees at the start of the observation period (Eurostat-OECD, 2007). While HGFs constitute a small number of new ventures (Shepherd and Wiklund, 2009), they

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have an outsize impact on the economy, leading some to suggest focusing more attention on HGFs instead of entrepreneurship in general (for example, Shane, 2009). These firms are largely responsible for the process of creative destruction as described by Schumpeter (1934), and many of them have completely redefined industries (for example, Uber for transportation, Square for point of sale and Airbnb for accommodation). As such, HGFs are of interest to scholars and policymakers alike (Coad et al., 2014). To the firm and the entrepreneur, rapid growth may allow firms the ability to enter new markets quickly, capitalizing on their first mover advantage (Kuratko et al., 2020). Highgrowth firms may also be vehicles for rapid wealth creation. Countries with high levels of economic freedom (for example, property rights and low corruption) tend to produce a disproportionate number of billionaires who generate their wealth as entrepreneurs leading HGFs (Sanandaji and Leeson, 2013). High growth may also provide resources back to the entrepreneur’s investors who can then reinvest into the next generation of new ventures. To workers, HGFs generate new job opportunities (Haltiwanger et al., 2013). As firms scale up, the quality of the jobs tends to improve to achieve parity with established firms (Burton et al., 2018). High-growth firms offer existing employees new career opportunities because expansion creates new positions (Bennett and Levinthal, 2017). However, rapid expansion comes with challenges. Penrose’s (1959) theory of firm growth highlights that growth has a tipping point where a firm faces managerial capacity constraints. Incumbent employees become overworked as new employees learn the internals of the firm. Developing and socializing new team members inevitably takes time and resources away from incumbent employees (Rutherford et al., 2003), and the effect is exacerbated when a majority of the firm’s employees are new, as is the case when a firm’s workforce doubles or triples in size in a single period. A key internal challenge for a firm facing managerial capacity constraints is the degradation of their company’s culture (DeSantola and Gulati, 2017), often requiring the replacement of the founder and executive team (for example, Uber, WeWork). While new venture survival rates increase with growth (Phillips and Kirchhoff, 1989), the effect diminishes when new ventures grow too quickly (Coad et al., 2020; Pe’er et al., 2016). Research also finds that HFGs are unlikely to sustain their extraordinary growth rate for very long (Daunfeldt and Halvarsson, 2015). Firms that grow too quickly without building the necessary capabilities have an increased likelihood of poor performance when entering markets. High-growth firms also tend to be dependent on external capital as they often run long-term losses for market expansion (Kenney and Zysman, 2019). If the firm fails to find a profitable avenue, investors may deescalate their commitment to the venture, ultimately letting it fail (Dimov and De Clercq, 2006).

LOOKING FORWARD Despite the progress within the new-venture growth literature, many questions have yet to be answered, leaving fertile ground for future research. First, as noted by many scholars (DeSantola and Gulati, 2017; Gilbert et al., 2006; Wiklund, 1998), the dynamics of growth are best studied longitudinally. Growth is a function of time, and the effects of new-venture growth may also take time to unfold inside the firm. Thus, multi-year studies are necessary, with careful consideration for measurement, methods (Shepherd

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and Wiklund, 2009) and growth mode (McKelvie and Wiklund, 2010). Second, given the problems scholars have in generating a set of independent variables that reliably predict growth across time and across samples, it may be appropriate to roll things back. A more fundamental issue is if there are factors that are necessary for growth to occur. That is, it could be fruitful to differentiate between necessary and sufficient (or other) conditions for growth, as a baseline. Are there things that firms must fulfill in order to grow, that they simply cannot be without? Researchers interested in this can readily adopt the new methodology termed necessary condition analysis (NCA; Dul, 2016), which has already been effectively used in examining nascent gestation activities (Arenius et al., 2017). Third, as noted in previous research (for example, McKelvie and Wiklund, 2010), not all growth is the same. Scholars need to differentiate between, and clearly articulate, what mode of growth their research examines. The study by Lockett et al. (2011) provides a good example of the implications of studying growth mode, where they clearly demarcated organic and acquisitive growth, leading to new theoretical insights in how the growth mode influenced future growth. Next, growth can generate enormous amounts of wealth for entrepreneurs (Sanandaji and Leeson, 2013) and investors (Drover et al., 2017). The question remains as to whether new-venture growth is a key contributor to wealth inequality (for example, Carney and Nason, 2018) or if growth increases the standard of living for many stakeholders (for example, Packard and Bylund, 2018). Thus, who benefits from growth remains an open question. At a time when the concept of growth is being questioned for sustainability and other reasons, it seems that taking a wider view, and asking if and how new-venture growth influences various stakeholders, would be prudent. For example, future research could gauge the relationship between growth and environmental sustainability. Tension between commercial and socially orientated motives are inevitable (Moss et al., 2011; Stevens et al., 2015). A recent study by Parker et al. (2019) found challenges associated with retaining b-corp status and achieving firm growth simultaneously. Future studies should push this further, testing whether sales and employment growth have consequences for a firm’s sustainability initiatives, and how these firms are perceived by their stakeholders (for example, employees and customers) if their actions become incongruent with the virtues they claim to uphold (Grimes et al., 2019). Finally, whereas most previous research assumes that new-venture growth is a positive outcome, a more critical view also taking into account the dark side of growth, such as potentially negative effects on the entrepreneurial workforce and other stakeholders, can generate deeper insights. An example is Therenos, whose founder defrauded customers and investors, and bullied employees in a process of very aggressive growth. Although the company achieved extraordinary growth, it can hardly be considered positive. As the fraud was detected, investors lost millions of dollars and a number of employees lost their jobs. While the firm’s culture will inevitably change during periods of rapid growth (cf. DeSantola and Gulati, 2017), the processes that trigger the toxicity leading to fraud and other bad behaviors remains underexplored.

NOTE 1. https://www.crunchbase.com/organization/uber/acquisitions/acquisitions_list (accessed 28 February 2020).

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39. Historical context of entrepreneurship Mark Casson

ECONOMIC THEORIES OF THE ENTREPRENEUR The entrepreneur is a leading character in many accounts of economic growth. He appears in business biographies as a charismatic founder of a company; in industry studies as a prominent innovator, or a leading figure in a trade association or cartel; and in general economic histories as one of the hordes of self-employed small business owners who confer flexibility and dynamism on a market economy. Entrepreneurship is not confined to the private sector; it can also be discerned in personalities of people who establish progressive charitable trusts and reform government administration. An adequate theory of entrepreneurship must address the following issues: 1. 2. 3.

What does the introduction of the entrepreneur add to our understanding of economic behaviour? Do accounts of entrepreneurial behaviour supplement statistical evidence, or merely retell the same story through biographical anecdote? Is entrepreneurship just a label for an area of ignorance? Does it – like ‘culture’ and ‘institutions’ – sometimes just denote residual causes of growth that cannot be properly measured? Can anyone really know what goes on inside the mind of an entrepreneur? If not, what is the point of speculating about the subject?

The term ‘entrepreneur’ appears to have been introduced into economic theory by Richard Cantillon (1755), an Irish economist of French descent. According to Cantillon, the entrepreneur is a specialist in taking on risk. He ‘insures’ workers by buying their output for resale before consumers have indicated how much they are willing to pay for it. The workers receive an assured income (in the short run, at least), while the entrepreneur bears the risk caused by price fluctuations in consumer markets. This idea was refined by the US economist Frank Knight (1921), who distinguished between risk, which is insurable, and uncertainty, which is not. Risk refers to recurrent events whose relative frequency is known from past experience, while uncertainty relates to unique events whose probability can only be subjectively estimated. Knight thought that most of the risks relating to production and marketing fall into the latter category. Since business owners cannot insure against these risks, they are left to bear them by themselves. Profit is a reward for bearing this uninsurable risk: it is the reward of the pure entrepreneur. With freedom of entry into industries, profits in one industry can exceed profits in another industry in the long run only if the uncertainties are greater in the more profitable industry – in other words, if the demands on entrepreneurship are greater in that industry. Popular notions of entrepreneurship are based on the heroic vision put forward by Joseph A. Schumpeter (1934). The entrepreneur is visualized as someone who creates 335

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new  industries and thereby precipitates major structural changes in the economy. The entrepreneur innovates by carrying out new combinations; he is not a pure inventor, because he adopts the inventions made by others, nor is he a financier, because he relies on bankers to fund his investments. The entrepreneur takes the crucial decision to commit resources to the exploitation of new ideas. An element of calculation is involved, but it is not pure calculation, because not all of the relevant factors can be accurately measured. He is motivated by profit, but not purely by profit: the other motivators include ‘dream and the will to found a private kingdom’; the ‘will to conquer: the impulse to fight, to prove oneself superior to others’; and the ‘joy of creating’. Schumpeter was concerned with the ‘high level’ kind of entrepreneurship that, historically, has led to the creation of railways, the development of the chemical industry, and the growth of integrated oil companies. His analysis left little room for the much more common, but no less important, ‘low level’ entrepreneurship carried on by small firms – in particular, by firms in the wholesale and retail trades. Alfred Marshall (1919) described the role of these firms in some detail, but omitted them from his formal analysis  of supply and demand. Given the techniques that were available to him, Marshall could only model equilibrium situations, and so could not fit entrepreneurship into his analysis. The essence of low-level entrepreneurship can be explained by the Austrian approach of Friedrich A. von Hayek (1937) and Israel M. Kirzner (1973). Entrepreneurs are middlemen who provide price quotations as an invitation to trade. While bureaucrats in a socialist economy have little incentive to discover prices for themselves, entrepreneurs in a market economy are motivated to do so by profit opportunities. They hope to profit by buying cheap and selling dear. In the long run, competition between entrepreneurs arbitrages away price differentials, but in the short run, such differentials, once discovered, generate a profit for the entrepreneur. The difficulty with the Austrian approach is that it isolates the entrepreneur from the organization of routine activities which is so characteristic of a firm. It fits an individual dealer or speculator far better than it fits a small manufacturer, because the latter has to oversee an organization whereas the former does not. The link between the entrepreneur and the firm is considered in greater detail below.

JUDGEMENTAL DECISION-MAKING The insights of these economists can be synthesized by identifying an entrepreneurial function that is common to all approaches. This is the exercise of judgement in decisionmaking (Casson, 1982). A middleman who buys before he knows the price at which he can resell must make a judgement about what the future price will be. An arbitrager must make a judgement about where price differentials are most likely to be found, in order to focus his price discovery effort on a suitable segment of the market. An innovator must assess whether a new product will prove attractive to consumers, or whether a new technology will really cut costs by as much as its inventor claims it will. If information were freely available, and could be costlessly processed, then there would be no need for judgement. Every decision would be correctly taken and no mistakes would ever be made. But in practice information is costly. It is time-consuming to

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make and record observations. Human memory capacity is limited. Above all, communication is an expensive process. It follows that people do not have all the information they need when taking a decision. When decision-makers cannot afford to collect all the information they need, they have to act under uncertainty. But the uncertainty faced by one person may be different from the uncertainty faced by another person. Sources of primary information are highly localized; for example, only people ‘on the spot’ can directly observe an event. Different people in different places will therefore have different perceptions of any given situation. They may therefore make different decisions. The nature of the decision therefore depends on the identity of the person who makes it. The entrepreneur matters because their judgement of a situation is potentially unique. Not all information is reliable. The senses may be confused, but the biggest risk relates to information obtained from other people. The other person may be unreliable, or their message may be misunderstood. Alternatively, they may set out deliberately to mislead, so that they can extract more profit from their information for themselves. One person may check their information sources more carefully than another, and therefore stand less chance of being misled. The interpretation of information may differ too. Different people may hold different  theories about the way the environment works. As any social scientist knows, it is difficult to test conclusively between rival theories because of data limitations. Thus different theories may coexist, leading to different interpretations of similar evidence. In a business context, entrepreneurs may act differently on the basis of similar information because they interpret the situation in different ways. If a situation recurs frequently, it is worthwhile investigating it carefully in order to find the theory that fits it best. This theory identifies which information is required to make the correct decision. Arrangements can be made to collect the information on a regular basis, so that it is always to hand when required. Whenever a decision needs to be made, this information is processed using an appropriate decision rule in order to arrive at a correct decision. If some information is very costly to collect, then its costs have to be traded off against its benefits to arrive at the correct decision rule. This rule does not guarantee the correct decision; but it is optimal in economic terms, in the sense that it trades off the risk of a mistake against the saving in information cost. Once this optimal decision rule is known there is no further need for the entrepreneur. Everyone knows how the decision rule has been specified, and so no reward can be earned by those who take the decision properly. Now consider the opposite case in which no such rule is available. This is likely to involve a novel situation. It either has no precedent, or is so unusual that it never pays to investigate it fully. Nobody knows the correct decision rule, and nobody systematically collects information on the situation. The more complex the situation, the more inadequate the theory is likely to be. There may be no theory at all, or there may be a range of rival theories which it is difficult to choose between. There may be no information, or a surfeit of information, because no one is quite sure what information is relevant and what is not. Matters are even worse if the decision has to be arrived at quickly – for example, because the situation is unstable, and will continue to deteriorate until something is done. This is the kind of situation that calls for the most intensive judgement. To improvise a decision quickly, people have to rely on the theories with which they

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are already familiar, and the information that they can retrieve from their memory. Differences in theories, combined with differences in memories, lead to differences in decisions. The people with the most relevant theories and the most comprehensive memories will tend to make the best decisions. These are the entrepreneurs – they possess the quality of judgement required to improvise a decision successfully when no agreed decision rule is available. The greater the cost of a mistake, the greater the importance of finding the appropriate  person to take the decision. The cost of a mistake depends upon the value of the resources involved, and the extent to which an erroneous decision can be reversed before it is too late. The greater the ‘sunk costs’ involved, the more important the quality of judgement becomes, and the more important it is that the decision is taken by a fully competent entrepreneur.

COMPLEXITY OF DECISIONS To fully operationalize this theory, it is necessary to specify the nature of complexity. Complexity is best defined in terms of the size of the model that is required to represent the principal features of the situation. So far as entrepreneurship is concerned, the involvement of other ‘major players’ in the situation is a major source of complexity. Other firms are important players, whether as competitors or as potential partners in alliances. Government too is an important player, particularly in industries connected with defence, where it is a customer as well as the policy-maker. The greater the strategic skills of the other players, the more complex the situation becomes. International business issues are more complex than domestic issues because there are a larger number of skilful players involved. Examples of judgemental decisions include the following: ●

●

An opportunity to exploit a new technology has been identified and a quick decision is required in order to pre-empt a rival. The investment is irreversible – that is, the costs are sunk – so that a mistake cannot be corrected afterwards. The revenue stream is uncertain, and cannot be guaranteed by forward sales of output. Should the investment be undertaken right away? A new source of competition has just emerged from a firm in a newly industrializing  country. Should the dominant firm in the industry cut its price, or can it rely  upon its existing customers not to switch to the rival firm? Is the rival firm producing more cheaply because of low-cost labour and/or subsidies, about which nothing can be done, or is it using more efficient techniques which ought to be imitated?

THE SUPPLY OF GOOD JUDGEMENT People differ in their quality of judgement. Some people have a personal comparative advantage in exercising judgement, and others do not. Those who own resources do not necessarily possess the quality of judgement needed to utilize them properly. Wealthy

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aristocrats, for example, do not necessarily make good businessmen. Economic efficiency requires that people with the best judgement are matched to the most judgemental decisions. There are various reasons why people differ in their quality of judgement. Some people may be very observant, and notice things that others miss. Others may have strong powers of concentration, that enable them to process information more quickly than other people. Older people may have ‘longer’ memories, so that they can retrieve more information about similar situations that have arisen in the past. This is particularly useful in areas where theory is weak – for example, in understanding the motivations of other people. Some people may be more methodical than others, and better at checking information. For all these reasons, some people face lower information costs than other people. For a given expenditure of effort, they are more likely to arrive at a correct decision. In a free society, people are allowed to decide for themselves whether their judgement is good. In choosing their occupations, people who are confident that their judgement is good will tend to gravitate to jobs that call for intensive use of judgement, while those who believe that their judgement is bad will gravitate to jobs where other people take decisions  for them. On this view, entrepreneurs will specialize in taking judgemental decisions. Although everyone takes judgemental decisions from time to time – such as whether to marry, or change job, or move house – entrepreneurs specialize in taking these decisions on behalf of other people. Not all entrepreneurs are successful. There is a strong bias in the historical literature towards successful entrepreneurs, for fairly obvious reasons: successful entrepreneurs make an impact on the national economy, they are inclined to self-promotion, and the enterprises they create survive long enough to leave good records. The successful entrepreneurs are those whose confidence in their judgement turns out to be well placed. For every high-profile success, however, there tend to be numerous failures. Small start-up businesses are notoriously prone to failure in the first two to three years. Failures are normally caused by over-confidence, though bad luck may also play its part. Luck is also a factor in business success, because ill-founded judgements may occasionally be validated by chance events. However, the proportion of luck to judgement in entrepreneurial success remains unknown. Given the scarcity of entrepreneurship, the question naturally arises as to whether its supply can be increased, and if so how. For a given size of population, there are two main ways of increasing the overall supply of entrepreneurs. The first is to improve the quality of judgement in the population, and the second is to give people more confidence in the judgement that they have. The first approach raises the question of whether entrepreneurs are ‘born’ or ‘made’. There is little evidence that entrepreneurship is inherited: the evidence on family firms suggests that sons usually display less initiative than the fathers they succeed. There is some support for the idea that entrepreneurial qualities are incubated in adversity. Fatalistic acceptance of poverty is certainly not an entrepreneurial characteristic, but determination to reverse an economic setback often seems to be (Brenner, 1983). The idea of ‘proving oneself’ in order to live down some humiliation may also be a factor, although the evidence is only anecdotal on this point. Many entrepreneurs claim to be ‘self-made’, but it is impossible to know whether, in making this claim, they are simply unwilling to give credit to parents, teachers and others who have helped them along their way.

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The second approach suggests that people should be encouraged to become more selfconfident, and to take greater risks. This attitude was characteristic of the ‘enterprise culture’ of the 1980s and 1990s (see below); the problem is that by encouraging people with poor judgements to make risky decisions, more resources may simply be wasted instead.

THE CONTRACTUAL POSITION OF THE ENTREPRENEUR The preceding approach is based upon a functional definition of the entrepreneur: ‘an entrepreneur is what an entrepreneur does’, in other words. But how is an entrepreneur to be identified in practice; in particular, how can he be recognized in relation to the firm? The principle of specialization outlined above provides the answer to this question. As Schumpeter emphasized, there are few roles that consist purely of taking judgemental decisions; most senior roles also involve some minor routine, as well as ritual activity such as making speeches. Specialization in entrepreneurship is not total, therefore, but a matter of degree. It follows that anyone who exercises judgement more than an average person is an entrepreneur to some degree. In a market economy, specialization by entrepreneurs takes two main forms. In the first, the entrepreneur is an employee, and in the second they own a firm in which others invest. Looked at from the point of view of an entrepreneur, the problem is how to gain control of resources on a significant scale when personal means are modest. One method is to obtain a job that gives scope for the exercise of judgement over how the employer’s resources are used; the other is to become self-employed, and borrow sufficient funds to buy the requisite resources.

THE REPUTATION OF THE ENTREPRENEUR Some writers, such as Knight, claim that entrepreneurs are always owners and never employees. They argue that no one would ever trust someone else to take judgemental decisions on their behalf. The logic of this position, however, leads to Knight’s bizarre conclusion that the shareholders in large joint-stock companies are all entrepreneurs, however passive their role. The crucial judgement exercised by the shareholders concerns the appointment of a suitable manager to run the business; once he has been appointed, said Knight, his job would become routine. Knight overlooked the fact that firms can offer managers both pecuniary and nonpecuniary rewards that are contingent on the performance of the firm: pecuniary rewards include promotions, bonus payments and stock options, while non-pecuniary rewards include status and recognition of achievement. These rewards can align the incentives of the shareholders and the employee-entrepreneur. The employee may not have a major investment at stake, but their reputation may be ‘on the line’ when they take a decision on their employer’s behalf. Their reputation will affect their promotion prospects and their own self-esteem. They may therefore give just as much care and attention to decisions as if the resources were their own. Not all entrepreneurs have a good reputation, however. There are two main aspects to reputation in business: honesty and competence. Honesty refers to the fact that an

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entrepreneur needs to be a faithful steward of other people’s money. This not only means avoiding the temptations of fraud, but also a commitment to working hard even though others will be the main beneficiaries of the effort. Competence concerns effective handling of routine matters, but above all the quality of judgement. Neither of these factors can be directly observed. Reputation must therefore be based on symptoms of these qualities. Where honesty is concerned, older family members may put their confidence in the filial duty of the younger generation. Members of a local community may rely upon the sense of shame that failure will bring to the entrepreneur. If the entrepreneur is believed to be a sincerely religious person, then they would be expected to feel very guilty if they behaved in a dishonourable way. Matters are less clear where competence is concerned. An obvious indicator of competence is educational qualification: this should reveal whether the entrepreneur is intelligent, and whether they have worked hard at their studies. In fact, however, education seems to be a poor indicator of future entrepreneurial success. Examination performance may measure the ability to analyse abstractions, rather than the complex real world situations confronted by the entrepreneur. Schooling may reward conformity of belief, rather than the independent judgement by the entrepreneur; it places pupils in a subordinate role in a hierarchical organization, which is not conducive to an independent ‘free spirit’ who aspires to be their own boss. Given the pragmatic nature of entrepreneurial activity, track record in business is an obvious basis for reputation. However, many entrepreneurs successfully re-enter business after failure, and some notable successes have only been achieved after a string of failures. It appears that many financial backers value the entrepreneur’s previous experience for its own sake, independently of whether they were successful or not. People who fail lose some of their reputation – but not all of it: those who lack reputation most are those who have never tried it in the first place.

FINANCING ENTREPRENEURSHIP An entrepreneur with a good reputation can borrow funds fairly easily. He can sell shares in his business to the public, or take loans from banks (or both). However, if he is raising large sums of money then he may need to subordinate himself to a board of directors by becoming the salaried manager of a firm in which he also owns shares; the existence of an active board reassures investors that if he should lose his reputation then he can be voted out of office. By contrast, an entrepreneur who lacks reputation (or who has gained a bad reputation) must accumulate all the capital he requires for himself. However good his judgement, he cannot become an entrepreneur unless he has sufficient wealth. The resulting capital constraints can be alleviated in four main ways: ●

Inheritance. The entrepreneur’s parents or wealthy relatives may die while he is still young. Being the first son under primogeniture, and having elderly parents, is an advantage in this respect. Wealth can be augmented by strategic marriage too – for example, acquiring other people’s inheritance from wealthy widows (except when their property is entailed).

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World encyclopedia of entrepreneurship By working and saving. This is a slow method, but has the advantage that the entrepreneur may acquire useful skills while in employment, especially if he can obtain a responsible job. He may also make useful contacts with potential customers while in his job. By starting on a very small scale and steadily reinvesting profits. This method is also potentially slow but can be expedited if the initial venture is high risk. Thus a merchant may begin by smuggling, gun-running or piracy, and then become legitimate once sufficient capital has been accumulated to support a proper import-export business. Other means, including gambling and insurance fraud (for example, over-insuring warehouse contents and then committing arson).

The capital-constrained scenario is one that confronts many entrepreneurs from poor backgrounds. The factors identified above are therefore highly relevant to financing of growth of small businesses started by immigrant refugees and members of minority ethnic groups.

INFORMATION SYNTHESIS Judgemental decisions normally require the synthesis of different types of information. A synthesis of information has commercial value only if it relates to a profit opportunity. If everyone recognizes the same opportunity at the same time then profits will be competed away. Thus a profitable synthesis needs to be unique. There are two main ways in which a synthesis can be unique. The first is that the entrepreneur has different information from other people. For example, the entrepreneur may have access to the latest news, enabling him to act on the basis of information that other people do not yet possess. Alternatively, he may have effected a unique combination of information. While every item of information that he knows may also be known to someone else, no one possesses exactly the same combination of items. The second possibility is that the entrepreneur can interpret information better than other people. He may have exactly the same information as other people, but he interprets  it differently. This difference of interpretation arises because the entrepreneur brings different theories to bear on the subject. While these theories may be formal scientific theories, they are much more likely to be intuitive theories which the entrepreneur employs as a metaphor or heuristic device. Some of these theories may have been imbued from the culture in which the entrepreneur was brought up. Others may be generalizations that the entrepreneur has arrived at on the basis of his own personal experiences. An entrepreneur who wishes to be the first to exploit the news must cultivate access to people who handle it prior to publication. Location in a major metropolis is a great advantage from this point of view. This is the place where travellers often call first when arriving from overseas; it is where journalists collect information for their stories, and where groups of people assemble to take important decisions – politicians in Parliament, business leaders at their headquarters, and so on. This explains why so much high-level entrepreneurial activity in any country is concentrated in the metropolis. An entrepreneur who wishes to effect a unique synthesis from ordinary information

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needs to build a unique configuration of contacts. He requires a ‘networking strategy’, which involves joining suitable organizations, attending appropriate events, and generally  obtaining introductions to the ‘right people’. If he needs information about new inventions then he may socialize with scientists and engineers – for example, by sponsoring meetings of professional associations. To gain access to finance he may join organizations with a wealthy membership – for example, a sporting club, or the board of trustees of a charity. He needs to ensure that as far as possible other people do not replicate his pattern of contacts, for otherwise they may arrive at the same conclusions as himself where commercial opportunities are concerned. He therefore needs to belong to different organizations whose memberships do not otherwise overlap. So far as the interpretation of information is concerned, some of the theories employed by the entrepreneur will be a cultural product, while others will have developed  out of his experience. For a low-level entrepreneur, narrow experience of a specialized field may be of the greatest value, but for a high-level entrepreneur broad experience is likely to be most useful. The greater scale on which the high-level entrepreneur operates means that he must synthesize information not only from different functions areas – production, marketing, research and development (R&D), and so on – but from different countries and regions as well. He needs to be acquainted with the jargon of different professions, and with the languages of different countries too. It is therefore an advantage for him to have held different sorts of jobs, and to have lived and worked in different countries.

ENTREPRENEURIAL STRATEGY: PRE-EMPTING OPPORTUNITIES Information has the properties of a ‘public good’ because it can easily diffuse to other people. An entrepreneur will therefore want to keep his information synthesis secret until he has pre-empted the profit opportunity. There are three main ways of pre-empting an opportunity, but not all of them are available in every case: ●

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Patents, etc. The simplest way is to obtain a legally enforceable monopoly: this may consist of a state charter, license or franchise, or a patent linked to the technology employed. This privilege will normally be valid for a fixed term, after which it may or may not be renewed. Speculation and arbitrage. In the absence of legal enforcement, the best alternative is to appropriate the profit from a speculative deal in some resource. This provides a basis for rapid capital gains; the entrepreneur can buy up the resources which appear undervalued in the light of his information, and then sell these resources on to others at higher prices once the information has entered the public domain. Commodity and currency traders appropriate profit in this way on a daily basis. The same strategy can be applied to land, mining rights, and the like: for example, buying up land that is used for agriculture and selling it off to a builder for housing. Loyalty. Where manufacturing and commerce are concerned, profit cannot usually be appropriated through a once-for-all transaction. The opportunity involves

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World encyclopedia of entrepreneurship creating a market for a type of product that did not previously exist, or making an existing product in a different way. It involves a succession of trades over a long period of time. The closest analogy to the speculative strategy is to tie in suppliers and customers using long-term contracts. This would prevent the suppliers and customers from switching to rival firms later on. These long-term contracts would capitalize the flow of future costs and benefits in the same way that the price of the speculative asset did before. The transactions costs associated with this strategy are likely to be high, however. Furthermore, once alerted to the situation, customers  and suppliers will be reluctant to sign such contracts, since they will realize that they can get a better deal once competitors arrive on the scene. Under these conditions, the best strategy is to win the loyalty of their customers and suppliers, so that they are reluctant to switch to rivals when they appear. If rivals expect the clients to be loyal to the innovator, then this will discourage them from entering in the first place.

THE MARKET FOR ENTREPRENEURS The demand for entrepreneurship, like the demand for any other factor of production, is  a  derived demand. Unlike more conventional factors of production, however, the demand for entrepreneurship derives not from the overall level of product demand, but rather from the volatility of such demand. If the pattern of product demand were completely stable, so that nothing ever changed, then every firm could repeat the same production plan from one period to the next without any difficulty. It is only because product demand changes that production decisions need to be reconsidered. Moreover, if product demand simply alternated between the same small number of states, the firm could prepare its plans in advance for each possible state, and simply implement the pre-specified plan appropriate to whichever of these states appeared. The demand for entrepreneurship arises from the fact that product demand is likely to enter new and unprecedented states for which no plan already exists, because it is uneconomic to devise in advance a plan for every conceivable state, since many conceivable states exist that may never actually occur. It is not only the state of demand that is volatile in this way. In an open international economy, supply shocks are a regular occurrence. Then there are technology shocks arising from new inventions and discoveries, and cultural and institutional shocks which affect the contractual basis on which business is carried on. In general, the more volatile the environment, the greater the demand for entrepreneurs. This means, in practical terms, that when volatility increases there will be an increase in the demand for entrepreneurs and a corresponding decline in the demand for substitutes, such as managers. This will normally be reflected in the formation of more small firms and the restructuring of large firms. The large firms may disappear through bankruptcy, or be split up through management buyout and ‘asset-stripping’; alternatively, they may be reorganized in a more flexible form, as a coalition of internal entrepreneurs. Greater competition to hire entrepreneurial employees means that pay structures will tend to become more flexible, because it will no longer be possible to offer both entrepreneurial employees and non-entrepreneurial employees the same rates of pay.

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GEOGRAPHICAL MOBILITY OF THE ENTREPRENEUR It was noted above that everyone takes judgemental decisions from time to time. These decisions concern choice of occupation, where to live, and selection of partner – in business and marriage. People tend to be most mobile between the time that they leave school and the time that they settle down to pursue their main career. At this stage, entrepreneurs are more likely to move and non-entrepreneurs to stay. This is particularly true of people brought up in isolated rural areas where there are few opportunities for profit. Such areas tend to selectively lose their more entrepreneurial young people. Conversely, large cities tend to attract entrepreneurial young people. They offer greater profit opportunities, a wider choice of jobs, and access to large amounts of specialized information through clubs and societies that flourish there. Those who succeed in the city may well retire to the countryside, buying their way into the local gentry and acquiring positions of status – for example, becoming a magistrate. Some may retire to the area where they grew up, but envy of their success by those who remained behind may sometimes keep them away. If entrepreneurs are prepared to move long distances, then they have a choice of political regimes under which to operate. The regimes that are most attractive to mobile entrepreneurs will have the following characteristics: ● ● ● ● ● ● ● ●

private property, which is freely alienable, subject to certain minimal restrictions freedom of movement, and freedom to associate with business partners confidentiality of business information, especially regarding the relations with customers and suppliers protection of creative work through patents, copyright, design protection, and so on access to impartial courts which will enforce property rights and which have the competence to settle complex commercial claims a stable currency, based on a prudent control of the money supply democratic government, with sufficient balance of power between opposing interests to reduce the risks of draconian interventions in industry and commerce openness to immigration by entrepreneurs and skilled workers (and possibly other groups as well).

While the presence of such institutions may account for economic success, the converse also applies: the absence of such institutions may lead to poor performance. Their absence may explain the failure of many less-developed countries to commercialize and industrialize on a significant scale. Assuming that the leaders of these countries are seeking economic progress, their persistence in maintaining inappropriate institutional structures remains to be explained. One possibility is that their time horizons are very short and their motives are venal; their objective is to maximize the perks of holding political office for as long as they can cling to power. This approach appears quite common in countries where military dictators hold ultimate power. Another possibility is that the leader has misguided beliefs about the way that economies function. They overestimate the ‘gains from raids’ and underestimate the ‘gains from trade’, and therefore focus their attention on waging wars against neighbouring countries. They fail to appreciate that sources of

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information are highly decentralized, and therefore underestimate the value of competitive profit seeking, while overestimating the benefits of state control. A third possibility is that attitudes are so traditional and inward-looking that change of any kind is resisted, including change to a more entrepreneurial economy. Cultural attitudes may be so parochial that leaders are unaware, or unconcerned, about how far their country is lagging behind the most advanced economies.

OCCUPATIONAL MOBILITY OF THE ENTREPRENEUR Young men who remain behind in a locality may well follow their father into the same line of business. Where father is an employee, they follow him ‘into the works’ or ‘down the pit’. Father may even use his influence to get his son a job, even though the industry’s long-term prospects may be poor. To those with narrow horizons and a parochial outlook, any long-standing local industry may appear secure. Those entrepreneurs who remain behind will reveal their qualities by getting jobs, or starting firms, in newer industries instead. The non-entrepreneurial workers may eventually join the ranks of the ‘structurally unemployed’. The same mechanism applies in a family firm (Church, 1993). ‘One day all this will be yours’, the father tells the son, and the son feels morally obliged to succeed his father, even though his interests lie elsewhere. A more entrepreneurial son might turn down the offer and set up his own business in a different industry, forcing the father to look outside the family for a successor – possibly with beneficial results for the firm. Business owners who remain behind in a declining industry or region may join forces to lobby for protective tariffs or industrial subsidies. They harness organizations, such as  trade associations, which were originally established to promote the provision of industry-specific ‘public goods’ like training, for collusive purposes. They attempt to maintain profit levels through (covert) price-fixing; to counter trade union power by bargaining collectively, and so on. A secretive and conspiratorial business culture develops, reflecting the entrepreneurial weaknesses of the business group.

HISTORICAL APPLICATIONS OF THE CONCEPT OF THE ENTREPRENEUR Early academic writers on British economic and social history offered no systematic interpretation of the role of the entrepreneur, and employed the concept mainly as a descriptive device. The ‘Victorian entrepreneur’ was regarded more as a sociological than an economic phenomenon: a member of an upwardly mobile lower middle class, imbued with the bourgeois values of proprietary capitalism. The Victorians themselves seem to have been more impressed with their own engineering feats than their entrepreneurial achievements; thus it was the civil and mechanical engineers, rather than the railway promoters or the company secretaries, that were seen as the heroes of the Railway Revolution (Smiles, 1862). More generally, it was the creation of the Empire, rather than an entrepreneurial domestic economy, that was the main political preoccupation. Contemporary interest in Victorian entrepreneurship is more a reflection of a

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desire to recover something that has been lost than the continuation of a concern that the Victorians themselves expressed. In the USA a powerful mythology developed around the ‘rags to riches’ entrepreneur  (Sarachek, 1978). This was notable for sustaining a climate of optimism around small business start-up and playing down the very high risk of business failure. Where serious investigations were carried out (see, for example, Taussig, 1915) they highlighted the middle-class professional origins of many successful entrepreneurs. The large-scale entreprenurial exploits of the ‘robber barons’ of the late nineteeenth century were chiefly of interest to the ‘muck-raking’ press. Schumpeter (1939) provided one if the earliest economic applications of entrepreneurial  theory. He identified five main types of ‘new combination’ effected by entrepreneurs: new products, new processes of production, the development of new export markets, the discovery of new sources of war material supply, and the creation of new forms of institution – such as the cartel or trust. Schumpeter’s classification fits well with the major forms of innovation that occurred in Europe during the ‘Age of High Imperialism’, 1870–1914. Schumpeter was also able to show that this schema fitted the earlier history of the Western economies, from the growth of Mediterranean trade during the Renaisssance down to the Industrial Revolution. Schumpeter also claimed that he could explain Kondratieff ‘long waves’ of 50–60 years duration by the periodic clustering of innovations since the Industrial Revolution. Unfortunately, however, the empirical basis of Schumpeter’s speculations on long waves has not stood the test of time very well (see Solomou, 1987). Pursuing the Schumpeterian theme, Hughes (1965) examined the influence of the ‘vital few’ in promoting economic growth. Hughes’s approach is mainly biographical, emphasising the personality factor in entrepreneurship. The great value of his contribution lies in the fact that he recognizes the role of the entrepreneur in the public as well as the private sector, although he sees the public sector entrepreneur as heavily implicated in the growth of bureaucracy. The policy implication of Hughes’s study would appear to be that people with entrepreneurial personalities need to be attracted into the private sector where, thanks to competitive markets, the incentives are better aligned with the long-run public interest. A rather similar conclusion arises from Jones’s (1981; 1988) studies of long-term world economic growth. Adopting an international comparative perspective, Jones argues that entrepreneurship is a natural feature of human behaviour which government can either encourage or suppress. Encouragement is provided by a regime of freedom under law, which allows people to carry out experiments in commercial and industrial organizations at their own expense. Suppression is effected by governments that fall into the hands of elites, who think they know best which experiments are socially desirable and which are not. They subsidize prestigious experiments out of taxes, and repress ordinary experiments because they are seen as either useless, immoral or politically subversive.

THE DEBATE ON BRITISH ENTREPRENEURIAL DECLINE The most substantive recent discussion of entrepreneurship has focused on the alleged decline of entrepreneurship in Britain after 1870 (see, for example, Aldcroft, 1964;

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Sandberg, 1981). This decline is seen as having both technological and cultural roots (Wiener, 1981). One of the major symptoms of failure is said to be lack of investment in key industries. It has been correctly pointed out, however, that good entrepreneurship does not always mean deciding to invest, for in many situations the correct decision is not to invest at all. Nor is innovation always an indicator of good entrepreneurship; it sometimes pays to let others make the first move, and to learn from their mistakes. For the historian to know whether entrepreneurs should have invested more heavily in new technologies, it is necessary to develop a counter-factual scenario. This scenario will normally be based on what happened in other situations where such investment was undertaken, and the crucial question then becomes whether these situations were really similar to the original situation or not. Even if it seemed, with the benefit of hindsight, that investment should have been undertaken, it may be asked whether a correct judgement could really have been made at the time, given the information that was then available. Were there other people arguing a sound case for investment, and were their opinions dismissed on spurious grounds? If not, then it may be more appropriate to ascribe the outcome to misfortune rather than entrepreneurial failure. Finally, investment that seems worthwhile from a social point of view may not appear worthwhile from a private point of view. For example, if an innovator cannot capture profit from a successful innovation because imitation is too easy, then if the innovation is expensive each entrepreneur will wait for the others to make the first move. Conversely, an innovation may be profitable from a private point of view even though it is harmful from a social point of view – for example, because no charges are incurred for polluting the environment. This distinction between private and social returns is the basis of Baumol’s (1990) distinction between ‘productive’ and ‘unproductive’ entrepreneurship. The literature on entrepreneurial failure has touched upon all of these issues, but not in  a systematic way. There is evidence that innovations made in other countries were ignored by some British entrepreneurs, despite British commentators urging that they should be imitated, while other innovations were adopted only with considerable delay. Some investments which might have been socially beneficial in maintaining employment in isolated reasons may have been rejected because the entrepreneurs concerned were fixing prices and restricting output. Overall, the debate remains inconclusive on whether more investments, made sooner, would have been more successful or not. A satisfactory analysis of entrepreneurial decline needs to embed the issue within a wider perspective. There was significant emigration of entrepreneurial individuals, who left to colonize the growing Empire, and the London capital market played a major role in channelling resources to their overseas ventures. The great railway and mining entrepreneurs did not so much disappear, as transfer their skills overseas once the domestic  railways system had matured, and traditional mining areas had begun to decline. Supplies of entrepreneurship are finite, and migration is a selective process. It is therefore hardly surprising that the limited group of less entrepreneurial businessmen who remained behind in Britain, and inherited family businesses, concentrated their efforts on managing their existing Imperial export trade, rather than pioneering new industries, in the manner of entrepreneurs in other countries that were attempting to ‘catch up’ with Britain. Moreover, in so far as there were deficiencies in UK technological innovation, these may have more to do with the limitation of the English university system than the

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quality of entrepreneurship per se – thus Scottish entrepreneurs were very active in hightechnology shipbuilding throughout the period of ‘decline’.

ENTERPRISE CULTURE When there is a general perception in a society that volatility has increased, social and political attitudes may change as well. This is what appears to have happened in many Western industrial countries towards the end of the 1970s. Increasing awareness of global competition, and the failure of large-firm ‘national champions’ to respond effectively, led people to believe that future job-creation would come from small business. Recognizing the risks involved in small-firm start-up, the USA and the UK governments sought to reduce marginal tax rates in order to encourage risk-taking. Successful entrepreneurs became popular ‘role models’, creating a new set of myths about the ‘rags to riches’  entrepreneur. This ‘enterprise culture’ encouraged young people to make their careers in the private sector; recruitment to the public sector was discouraged through loss of status and pay restraint. Considered as a historical phenomenon, the enterprise culture of the 1980s and 1990s was a natural reaction to some of the anti-entrepreneurial attitudes that had taken root in the West in the early post-war period. The growth of the Welfare State allowed public investment to ‘crowd out’ private investment, while the Cold War focused inventive activity on military projects. Productivity stagnated, while Keynesian full employment policy sustained unrealistic wage aspirations. It should not be inferred, however, that the enterprise culture of the 1980s and 1990s was based on a correct understanding of the role of the entrepreneur. The highly competitive and materialistic form of individualism promoted by ‘enterprise culture’ did not  accurately represent the dominant values of successful entrepreneurs of previous generations. For example, the Victorian railway entrepreneurs operated through social networks based in Britain’s major provincial towns and cities. The limited amount of historical evidence that has been collected and analysed in a systematic way suggests that successful entrepreneurship is as much a cooperative endeavour, mediated by entrepreneurial networks, as a purely individualistic and competitive one.

REFERENCES Aldcroft, Derek (1964), ‘The entrepreneur and the British Economy, 1870–1914’, Economic History Review, 2nd series, 17, 113–34. Baumol, William J. (1990), ‘Entrepreneurship: productive, unproductive and destructive’, Journal of Political Economy, 98 (5), 893–921. Brenner, Reuven (1983), History: The Human Gamble, Chicago, IL: University of Chicago Press. Cantillon, Richard (1755), Essai sur la Nature du Commerce en Generale, ed. Henry Higgs, London: Macmillan, 1931 edn. Casson, Mark (1982), The Entrepreneur: An Economic Theory, Oxford: Martin Robertson. Church, Roy (1993), ‘The family firm in industrial capitalism: international perspectives on hypotheses and history’, Business History, 35 (4), 17–43. Hayek, Friedrich A. von (1937), Economics and knowledge’, Economica, new series, 4, 33–54. Hughes, Jonathan R.T. (1965), The Vital Few: The Entrepreneur & American Economic Progress, New York: Oxford University Press.

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Jones, Eric (1981), The European Miracle, Cambridge: Cambridge University Press. Jones, Eric (1988), Growth Recurring, Oxford: Clarendon Press. Kirzner, Israel M. (1973), Competition and Entrepreneurship, Chicago, IL: University of Chicago Press. Knight, Frank H. (1921), Risk, Uncertainty and Profit, Boston, MA: Houghton Mifflin. Marshall, Alfred (1919), Industry and Trade, London: Macmillan. Sandberg, L.G. (1981), The entrepreneur and technological change, in R. Floud and D. McCloskey (eds), The Economic History of Britain since 1700: 2. 1860 to the 1970s, Cambridge: Cambridge University Press, pp. 99–120. Sarachek, B. (1978), ‘American entrepreneurs and the Horatio Alger myth’, Journal of Economic History, 38, 439–56. Schumpeter, Joseph A. (1934), The Theory of Economic Development, trans. Redvers Opie, Cambridge, MA: Harvard University Press. Schumpeter, Joseph A. (1939), Business Cycles, New York: McGraw-Hill. Smiles, Samuel (1862), Lives of the Engineers, London: John Murray. Solomou, Solomos (1987), Phases of Economic Growth, 1850–1973, Cambridge: Cambridge University Press. Taussig, Frank W. (1915), Inventors and Moneymakers, New York: Macmillan. Wiener, Martin J. (1981), English Culture and the Decline of the Industrial Spirit, Cambridge: Cambridge University Press.

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40. Howard Hughes Teresa E. Dana

Among the great entrepreneurs and philanthropists (see Acs and Dana, 2001, on entrepreneurship and philanthropy) of the twentieth century, Howard Robard Hughes was born in Texas in 1905 and lived until 1976. He was the only child of Howard Hughes Senior, who had patented the two-cone roller bit, an innovative tool that revolutionized oil  drilling, and that was sold by his enterprise, the Hughes Tool Company. Howard Hughes, the son, became a film producer and industrialist. He also redefined the competitive environment for trans-Atlantic air travel, to the benefit of consumers as well as his airline. He was America’s first billionaire (Hack, 2002). (See also Barlett and Steele, 1979; Dietrich and Thomas, 1972; Keats, 1966; and Moore, 1984.) In 1922 Howard’s mother died from pregnancy complications. In 1925, he moved to California where he became a film producer the following year. In 1932, he founded the innovative Hughes Aircraft Company, the shares of which he later donated to the Howard Hughes Medical Institute. In 1939, he was awarded the Congressional Gold Medal in recognition of his achievements in advancing science. Howard Hughes contributed to the development of the Boeing 307 Stratoliner (see Figure 40.1), the first commercial airliner to feature a pressurised cabin. Transcontinental & Western Air (TWA) – formed in 1930 when Transcontinental Air Transport merged with Western Air Express – would receive its first Boeing 307 in 1940. Meanwhile, Hughes had begun investing in the airline and by 1941 he had purchased controlling interest of the airline of which Charles Lindbergh (see Figure 40.2) was formerly President. During his presidency, Lindbergh asked Douglas Aircraft, of Long Beach California, to design an aeroplane with transcontinental capabilities. This resulted in the DC-1 (see Figure 40.3), the bigger DC-2 (see Figure 40.4), and DC-3 Douglas Sleeper Transport (see Figure 40.5). By 1938, the DC-3 was carrying 95 per cent of United States air traffic. Howard Hughes approached Lockheed to build an even better aeroplane, to replace the Boeing 307. The result was the Lockheed Constellation (see Figure 40.6), capable of flying across the Atlantic Ocean. TWA bought 40 of these. During World War II, TWA flew 40 million miles for the United States military and Howard planned route expansions once the war would be over. When Pan American World Airways attempted to be the only US-based airline allowed to cross the Atlantic, Howard personally defended the right to have competition. He succeeded and in 1946 his Lockheed Constellations flew transatlantic for TWA, which he renamed Trans World Airlines. In 1947 Howard flew his Spruce Goose, the largest aeroplane ever made of wood (Barton, 1982). In 1948, he gained control of a studio in Hollywood. In 1961, Trans World Airlines retired its Lockheed 1649 Starliner (Figure 40.7) from the  New York–Rome route, thus becoming the first airline to use only jet aircraft on international services. Among TWA’s jets was the 615 mile-per-hour Convair 880 (Figure 40.8) an aeroplane type that broke many speed records and still holds some today. 351

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Figure 40.1

TWA Boeing 307 Stratoliner; TWA photograph courtesy of Carl Barley, editor, TWA Seniors Skyliner

Figure 40.2

Charles A. Lindbergh at left, with Juan T. Trippe, founder of Pan American World Airways; photograph courtesy of Pan American World Airways

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Figure 40.3

TWA Douglas DC-1 at Glendale, California; TWA photograph courtesy of Carl Barley, editor, TWA Seniors Skyliner

Figure 40.4

American Airlines Douglas DC-2; photograph courtesy of American Airlines

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Figure 40.5

United Air Lines Douglas DC-3; photograph courtesy of United Airlines

Figure 40.6

TWA Lockheed Constellation 749; TWA photograph courtesy of Carl Barley, editor, TWA Seniors Skyliner

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Figure 40.7

TWA Lockheed 1649 Starliner; TWA photograph courtesy of Carl Barley, editor, TWA Seniors Skyliner

Figure 40.8

Convair 880 formerly belonging to Elvis Presley; photograph by Léo-Paul Dana

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Figure 40.9

Figure 40.10

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Republic Airlines Convair 580 turbo-prop; photograph by Léo-Paul Dana

NWA Airbus 319; photograph by Léo-Paul Dana

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Howard Hughes 357 In 1962, Trans World Airlines opened its Terminal 5 at New York’s Idlewild Airport, renamed JFK the following year. In 1967, Trans World Airlines purchased Hilton International, operator of Hilton Hotels outside the USA. In 1970, Hughes used profits from the sale of Trans World Airlines to purchase Air West and create Hughes Air West, later merged into Republic (see Figure 40.9) and subsequently engulfed by Northwest Orient, later NWA (see Figure 40.10). In 2008, Delta Air Lines announced its intention to absorb NWA, which it did in 2009.

REFERENCES Acs, Zoltan J. and Léo-Paul Dana (2001), ‘Two views of wealth creation’, Small Business Economics, 16 (2), 63–74. Barlett, Donald L. and James B. Steele (1979), Empire: The Life, Legend, and Madness of Howard Hughes, New York: W.W. Norton. Barton, Charles (1982), Howard Hughes and his Flying Boat, Fallbrook, CA: Aero. Dietrich, Noah and Bob Thomas (1972), Howard: The Amazing Mr Hughes, Greenwich, CT: Fawcett Publications. Hack, Richard (2002), Hughes: The Private Diaries, Memos and Letters: The Definitive Biography of the First American Billionaire, Beverly Hills, CA: New Millennium Press. Keats, John (1966), Howard Hughes, New York: Random House. Moore, Terry (1984), The Beauty and the Billionaire, New York: Pocket Books.

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41. The Hudson’s Bay Company Lynn Ferguson

Chartered on 2 May 1670, the Hudson’s Bay Company (HBC) is the oldest incorporated joint-stock merchandising company in the English-speaking world. King Charles II approved the charter incorporating the group as ‘The Governor and Company of Adventurers of England trading into the Hudson’s Bay’. These were the signatories of the Royal Charter – the original investors of the ‘The Governor and Company of Adventurers of England trading into the Hudson’s Bay’: 1. 2. 3. 4. 5. 6. 7.

8.

9. 10.

11. 12. 13. 14.

Prince Rupert – Count Palatine of the Rhine, Duke of Bavaria and Cumberland, Earl of Holderness, the first Governor of ‘Rupert’s Land’ and dear cousin to King Charles II. Sir George Carteret – considered to be the wealthiest man in England at the time. Anthony Ashley Cooper, Lord Ashley, Earl of Shaftesbury – recognized as the ‘Father of modern Liberalism’. Christopher Monck, 2nd Duke of Albemarle – Member of Parliament for Devonshire, Gentleman of the Bedchamber, Lord Lieutenant of Devon. Sir James Hayes – Barrister-at-law and Member of Parliament. Sir Robert Vyner – Prince of the Goldsmiths, Controller of the Mint, and Sheriff and Lord Mayor of London. Sir John Robinson – an administrative wizard holding the positions of Committeeman of the East India Company, Court Assistant (chief lobbyist) for the Levant Company, Lord Lieutenant of the Tower of London, Member of the House of Commons, Colonel of the Green Regiment, preceded Sir Robert Vyner as the Lord Mayor of London and acted as the first Deputy Governor of the Hudson’s Bay Company from 1670 to 1673. Sir William Craven, Earl of Craven – had his estates seized by Oliver Cromwell for supporting King Charles II during his Continental exile. House of Stuart after King Charles II regained power. Held the positions of Privy Councillor, Tangier commissioner, Master of Trinity House, a Lord Proprietor of the Carolinas and a patentee of the Royal Fisheries Company. Sir Peter Colleton – served a term as Governor of Barbados. Sir John Kirke – the only adventurer with first-hand knowledge of the fur trade in America with an understanding and familiarity with both the European markets and the French goods and methods of trading. Publicized the Hudson’s Bay beaver hats in England. Sir Paul Neele – philosopher and founding member of the Royal Society. Sir Edward Hungerford – Knight of the Bath, elected to the House of Commons. John Portman – Hudson’s Bay Company’s first Treasurer, goldsmith and banker, treasurer of the Carolinas and New Providence (Bahamas) companies. Francis Millington – Commissioner of Customs, draper and brewer. 358

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The Hudson’s Bay Company 359 15. 16. 17. 18.

Sir John Griffith – Professional soldier and Keeper at the Blockhouses of West Tilbury and Gravesend. William Pretyman – held the title of King’s Remembrancer of the First Fruits, and held a sinecure with the Treasury. John Fenn – Paymaster of the Admiralty. Henry Bennet, Lord Arlington – Secretary of State, Keeper of the Privy Purse.

The Royal Charter stipulated several points of political and monetary significance for both the Crown and the investors including: Structure – the structure of the company’s authority was to be made up of a board of seven members, lead by the Governor (his cousin, Prince Rupert) and Deputy Governor. Minerals – the right to utilize mineral deposits as they saw fit. Land – extent of land covered by the Charter, namely, forty per cent of present-day Canadian boundaries.

The following is taken from original Royal Charter: . . . have, at their own great Cost and Charges, undertaken an Expedition for Hudson’s Bay in the North-west Part of America, for the Discovery of a new Passage into the South Sea, and  for the finding some Trade for Furs, Minerals, and other considerable Commodities, and by such their Undertaking, have already made such Discoveries as do encourage them to proceed further in Pursuance of their said Design, by means whereof there may probably arise very great Advantage to Us and Our Kingdom. AND WHEREAS the said Undertakers, for their further Encouragement in the said Design, have humbly besought Us to incorporate them, and grant unto them, and their Successors, the sole Trade and Commerce of all those Seas, Straits, Bays, Rivers, Lakes, Creeks, and Sounds, in whatsoever Latitude they shall be, that lie within the entrance of the Straits commonly called Hudson’s Straits, together with all the Lands, Countries and Territories, upon the Coasts and Confines of the Seas, Straits, Bays, Lakes, Rivers, Creeks and Sounds, aforesaid, which are not now actually possessed by any of our Subjects, or by the Subjects of any other Christian Prince or State. (Royal Charter 1670)

THE COMPANY’S ENTREPRENEURSHIP At one point, the Hudson’s Bay Company owned much of Canada (Stefansson, 1908). Trading posts and stores, flying the company flag, opened at the junctions of rivers encompassing the Hudson Bay. Alliances were formed with bands of Cree traders living in the area. The blueprint for success, created by the company’s original investors, was beginning to show a profit, for both the company and the indigenous people, but the European system of sovereignty and land holding was unfamiliar to the political systems of the indigenous groups, living in Rupert’s Land. Aboriginal beliefs of land and ownership did not coincide with the European, possession and control, point of view. The indigenous people knew their land, taught the Europeans how to build canoes for transportation, and showed them the best trails and canoe routes. Many Europeans would not have survived without the help of friendly aboriginal peoples. Dying of hunger  and  sickness the Huron and Algonquin helped them by providing food, and showing them how to boil spruce bark to cure scurvy. They showed the settlers how to

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live in the freezing climate, made mittens and leggings for them, and taught them how to snowshoe and toboggan, allowing them to travel in the winter. The indigenous people were no strangers to hard work and offered their knowledge of the land and willingness to work to their new friends. The Cree, for instance, provided a connection between the trading posts by delivering the much anticipated mail. Since maps had not been drawn of the areas, and they knew the routes and trails, they were hired as guides. Maps of the routes were drawn in the sand, on birch bark, in the dirt, or in the snow. The Iroquois, originally from the east, moved west with the fur trade, some travelled all the way to British Columbia. The Iroquois were thrifty, clever traders, but also proud warriors, which often got them into trouble with other aboriginal people. Indigenous women were employed to prepare furs for transportation. The Europeans made money faster with these talented women, since the unit of currency, established by the European system, was based on a beaver pelt, cleaned, stretched and tanned. The ‘Made Beaver’ or ‘MB’ was traded at the Hudson’s Bay posts for different European items.  Other animal pelts, such as otter, squirrel or moose were quoted in MB equivalents.  It was not  remarkable for a European to be married to more than one native woman at that time. Times were changing and the places to trade pelts were becoming more competitive. More furs, more wives, different companies to trade with, meant more wealth.

COMPETITION The Cree, Ojibwa, Montagnais, and Assiniboine would descend the Rupert, Moose, Albany or Eastmain Rivers to James Bay or down the Severn River or Hayes River to the west shore of Hudson Bay and know there was a Hudson’s Bay Company outpost at each stop. Axes, kettles and other trade goods were more accessible as the trading posts grew in numbers. Native traders brought their trade goods far into the west, and each spring more canoes came downriver to the company posts. Competition was beginning to interfere with the company’s profits, however. War with the French overflowed to the ‘New World’ where fierce wars saw France taking control of some of Britain’s outposts. When the native people arrived at the outpost, they were met by the French, so they traded with whomever they could. The Treaty of Utrecht, in 1741, settled the unrest in Britain’s favour, allowing Britain to regain control over their captured forts. After the Treaty, the competition took on a new faces, namely, the North-West Company and the XY Company. The North-West Company – formed by Simon McTavish, Isaac Todd and James McGill, after 1763 to exploit the North-West Territories not covered by the 1670 charter. In 1784 the North-West company gathered more investors and formalized its organization and name. The XY Company – in 1798 some disgruntled members of the North-West Company organized the New North-West Company, commonly known as the XY Company. The XY Company lasted until 1804 when they reconciled with the North-West Company. In 1821 the British Parliament merged the North-West Company with the Hudson’s Bay Company.

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The Hudson’s Bay Company 361 Competition was not only a problem with the Hudson’s Bay; the aboriginal people had their competitions also. Wars between rival tribes were constant. The Huron, Susquehanne  and the Seneca were literally wiped out, by the Iroquois, making the Iroquois the most powerful Eastern Nation.

EXPANSION The Hudson’s Bay Company expanded its holdings from Newfoundland (see Figure 41.1) to Vancouver Island and from the St. Lawrence to the Arctic. The popularity of their trading methods saw further expansion in the 1800s to the American Pacific Northwest, Alaska and Hawaii. There is a possibility that the Snake Country Expeditions reached as far south as Texas. In the 1920s there were HBC posts in the Russian Far East. Through this expansion the Hudson’s Bay Company encountered a large array of people by forming allies with other fur trade companies such as, the American Fur Company, the Russian American Company and Revillon Freres. In 1849 Britain granted the colony of Vancouver Island to the Hudson’s Bay Company, to be developed as an agricultural community. Chief Factor James Douglas was appointed governor, in 1851. In 1858, the existing colony of British Columbia was formed out of New Caledonia. Sir James Douglas, governor of British Columbia, was ordered by the Crown to resign his commission with the company, beginning its independence from the Crown.

Figure 41.1

The Hudson’s Bay Company in Newfoundland; photograph by Léo-Paul Dana

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INDEPENDENCE Success and adventure had attracted many Europeans to the ‘New World’, and by 1812 the company was obliged to provide supervision in the settlements. Up until now the company’s chief concern was the fur trade, but the population was growing quickly and there was no other choice, but to take charge. The International Financial Society bought controlling interest of the Hudson’s Bay Company in 1863. Major changes were likely to happen in the not too distant future, because the majority of the new shareholders were more interested in real estate and the economic development of the West. Change also happened when the USA bought Alaska in 1867: The United States of America purchased Alaska from Russia in 1867, and within two years evicted Canadians from the Hudson Bay Company (HBC) post, Fort Yukon, that was built in 1846 on the Yukon River in Alaska . . . In 1870, the HBC ceded all interest in the Yukon Territory and Northwest Territories (NWT) to the Government of Canada . . . . (Anderson, 2008: 185)

Under the terms of the agreement, the company received £300 000 and one-twentieth of the abundant areas for settlement. It also was able to keep title to the lands that already had trading establishments. The terms of the agreement strongly influenced company development after 1870. The amalgamation of Rupert’s Land into the new Dominion of Canada meant that the HBC had to adapt as an agricultural settlement. Retail stores began to appear in towns and cities across the prairies and British Columbia, leading to their slogan ‘The Great Traders of the Great West’. Trade and industry growth progressed quickly after 1870, as the amount of business with the settlers escalated. Originally, most of this activity was carried out at trading posts, but since the market was so much different than the trade with the native people, settlers’ accounts were separated. Retail and wholesale divisions eventually emerged, distinctly different from the fur trade outlets.

CHANGE The company began opening department stores in 1912. The company became involved in the real estate market, selling farm lands and town lots. The retention of mineral rights, included with their properties, was the foundation of their ventures into the oil business. In 1926 it co-founded Hudson’s Bay Oil and Gas. Expansion across Canada continued for the company, from the 1960s to the early 1990s. Acquisition of companies such as: Morgan’s, Freimans, Zellers, Simpsons (see Figure  41.2), Towers and Woodward’s (see Figure 41.3), as shall be discussed below. The company even venturing so far as to acquire a mail-order liquor business during the Prohibition of the 1930s. The Hudson’s Bay Company took on the responsibility as shipping and purchasing agents for the governments of Romania, Belgium, Russia and France during the First World War. The ‘French Government Business’, business was so productive that a subordinate company, The Bay Steamship Company Ltd, was created to handle their fleet.

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Figure 41.2

Simpsons building in Montreal; photograph by Léo-Paul Dana

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Figure 41.3

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This Woodward’s was built in Vancouver in 1903 and the building was demolished in October 2006; photograph by Léo-Paul Dana

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The Hudson’s Bay Company 365 Atypical businesses like frozen salmon companies, comic film productions and reindeer farming partnered with the company during the 1920s. The Hudson’s Bay Company was spreading its wings, in a big way, all across Canada. In 1960, the Hudson’s Bay Company purchased the Henry Morgan department store in Montreal and renamed it La Baie, in 1972. Queen Elizabeth II granted a new charter to the company withdrawing most of the conditions of the original charter and officially transferring the company from the UK to Canada. Headquarters was established in Winnipeg, Manitoba, and later shifted to Toronto. In 1978, the Hudson’s Bay Company purchased the Zellers chain of stores. In 1979, the Hudson’s Bay Company purchased the Simpsons chain of department stores. In 1987, the Hudson’s Bay Company sold its Northern Stores. In 1998, the Hudson’s Bay Company purchase Kmart Canada, formerly Kresge, and made these Zellers stores.

THE HUDSON’S BAY COMPANY TODAY Real estate continues to be in the company veins. In 1973 it acquired control of Markborough Properties before branching it off in 1990 as an individual company. Also in 1973 the Hudson’s Bay Company acquired 35 per cent of Siebens Oil and Gas, but disposed of it in 1979, only to buy controlling interest in Roxy Petroleum in 1980. In 1982 interest in HBOG was sold to Dome Petroleum. Expansion was still primary for the Hudson’s Bay Company in 1978, when, it purchased controlling interests in the Simpsons and Zellers retail chains. In the late 1970s a take over occurred between Canadian billionaire Kenneth Thomson and George Weston Limited fighting for control of the Hudson’s Bay Company. Thomson eventually came out ahead obtaining a 75 per cent stake in a $400 million transaction. In 1993 the Hudson’s Bay Company purchased the bankrupt Woodward’s Department Store chain and K-Mart Canada’s stores followed in 1997, adding them to the Zellers division. In 1997 the Thomson family sold the last of its shares, but in the superseding years they had sold off the company’s interests in the oil and gas business, financial services and a distillery, along with other acquisitions, for approximately $550 million. The Hudson’s Bay Company leads its closest competitor, Sears, in terms of annual sales.  In 2003, the Hudson’s Bay Company published revenues of $7.4 billion and employed close to 70 000 employees working in 562 stores. The 7.4 billion in revenue for 2003 is broken down as follows: The Bay – 34.7 per cent; Zellers – 59.7 per cent; financial services from each store – 4.5 per cent; the rest of the revenue is divided up between Fields, and Home Outfitters. The company also reported $4.1 billion in total assets. The Hudson’s Bay Company permanently left the Canadian fur trade in January 1991, when it stopped selling fur coats, losing the estimated $350 million market. Today, the Hudson’s Bay Company have retained their methods of trade through their stores and have now entered the computer age by offering online sales. From its entrepreneurial roots, the Hudson’s Bay Company has been an integral part of history for 340 years, and holds the distinction of being the longest operating corporation in Canada.

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REFERENCES Anderson, Erik (ed.) (2008), Canada’s Relationship with Inuit: A History of Policy and Program Development, Ottawa: Minister of Indian Affairs and Northern Development. Stefansson, V (1908), ‘On the Mackenzie River’, Bulletin of the American Geographical Society, 40 (3), 157–69.

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42. Humane entrepreneurship Roberto Parente

Our world is experiencing environmental and social threats never seen before, and this should lead us towards a radical re-discussion about theories and policies that have guided our social life. The field of entrepreneurship cannot be insensitive to that compelling need of a careful scrutiny of leading beliefs and assumptions that have set the agenda of scholars through the years. I think that few today could believe that free-market forces alone, and the entrepreneurial spirits, free of constraints, can solve the environmental and social issues we are facing. I also think we should be skeptical about recipes that show unlimited faith in politics and social institutions to fix negative externalities created by human activities. The good news is that all around the world there is a growing body of firms and entrepreneurs that are aligning their strategic choices to become more responsible towards people and the planet. To explain this behaviour, considering an entrepreneur simply as an abstract economic agent, who acts to maximize his or her own economic interest, is no longer sufficient. Can we currently still limit our attention to how, without considering why and to which ends, entrepreneurs express their potential energy of creative destruction? Free (but not wild) markets are essential. Politics and society can do a great deal, but individual and groups orientations and behaviours expressed in creating and leading economic organizations, are crucial. This is why by connecting three streams of researches – defining entrepreneurship as an orientation of the firm (EO); exploring the expanding boundaries of social responsibility in economic activities; and addressing the issue of organizational leadership – a group of scholars started to work around the concept of humane entrepreneurship (Ki Chan et al., 2018; Parente et al., 2018, 2020). The humane entrepreneurship (hument) concept developed as a particular entrepreneurial mode of action capable of aligning orientation towards competition with orientation towards organizational welfare and orientation towards social needs. Hument lies at the base of entrepreneurship as a firm’s behaviour but considers classic EO as just one of the elements of that behaviour. Interestingly, in the efforts of hument theory building, the old (and almost forgotten) concept of civil economy drafted by some of the early economists in the eighteenth century, come to our aid. For those ancestors, enlightenment philosophers who were investigating the nascent phenomena of industrial revolution, reciprocity, interpersonal relationships and social incentives, are the pillars on which to build a civil economy, a model of behaviour good for themselves and good for society.

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ENTREPRENEURSHIP AND ITS RESPONSIBILITY IN WEALTH CREATION

The idea that entrepreneurship is a driving force in wealth creation is old and widely accepted. The nature of such a positive force has been described as a capability to introduce innovations on the market (Schumpeter, 1934), to bear risks and face fundamental uncertainties (Knight, 1921) or to relentlessly scan for entrepreneurial opportunities (Kirzner, 1979), to quote just few of the most famous scholars in the field. However, wealth for whom and for what still remain hard questions to answer. The hidden, largely accepted, assumption is that, since the firm is the property of entrepreneurs and shareholders, the only relevant wealth-creation process is that of remunerating the capital invested in a firm, and the only limit (save the limit imposed by legislations) is that which is caused by competition forces (Friedman, 1962). An assumption, that profit maximization is the only driver for strategic choices, is becoming increasingly questionable in theory and in practice. One of the most relevant disconnections from the concept that the value-creation process is for the benefit of shareholders alone, has been made by the Business Roundtable, an organization that represents hundreds of the most powerful chief executive officers (CEOs) in the USA. In an official ‘Statement on the purpose of a corporation’ they acknowledge that ‘Each of our stakeholders is essential. We commit to deliver value to all of them, for the future success of our companies, our communities and our country’ (Business Roundtable, 2019). This reimagined vision of the goals of a corporation drops the age-old notion that they function first and foremost to serve their shareholders and maximize profits, and, in parallel, that investing in employees, delivering value to customers, dealing ethically with suppliers, and supporting outside communities and the environment, might be the right means for companies to prosper in the future. It is sometimes a long journey for a new body of theory to became standard practice in everyday business life, as in this instance. The necessity to assess and to constructively give answers to the expectations not only of the shareholders, but of the firm’s many stakeholders, has been circulating for decades. According to the triple bottom line (TBL) model of sustainability, a firm must address three different domains – profit, people and planet – to preserve long-term financial performance (Elkington, 1997). The building blocks of this new vision can be traced back to the firm’s stakeholder theory that has been framed by R.E. Freeman in the 1980s. In his stakeholder theory, stating that managers, ‘must pay attention to any group or individual who can affect or is affected by the organization’s purpose’ (Freeman, 1984: vi), he provided an appropriate lens for considering a more complex perspective of value creation and how to measure a firm’s performance (Harrison and Wicks, 2013). The need to have a system of accountability, from a social perspective, of the results a firm achieves in its life has been the foundation on which the concept of corporate social responsibility (CSR) was built (Carroll, 1991). According to Aguinis (2011: 855, original emphasis), CSR covers ‘contexts specific organizational actions and policies that take into account stakeholders’ expectations and the triple bottom line of economic, social, and environmental performance’. The growing body of theory about the opportunity to have a wider approach on the issue of a firm’s goals and performance assessment has been influenced by a parallel body

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of theories about the role of ethics in personal and groups’ behaviours (Treviño et al., 2006). Taking a broader perspective, this philosophical line of thought argues over the influence of ethical dimensions in the emergence of orientations and behaviours of economic agents. The ethical perspective in doing business has led to a fine-grain distinction between immoral, amoral and moral orientations in management (Carroll, 2001), while more recent work introduced an interesting distinction, from the point of view of environmental sustainability, between egoistic, altruistic and biospheric orientation in personal behaviour (De Groot and Steg, 2008). On a positive note, humanistic management emerged as a managerial (and possibly entrepreneurial) orientation characterized by a management which ‘emphasizes the human condition and is oriented to the development of human virtue, in all its forms, to its fullest extent’ (Melé, 2003: 77). It regards concern for persons and human aspects in managing organizations. It is orientated not only to obtaining results through people, but also, and most importantly, towards people themselves, showing care for their flourishing and well-being (Melé, 2016). The vision of the human being in the hument rejects the reductionist view of the homo economicus of the neoclassical economic theory, or that of the homo mechanicus of Taylor’s scientific management. In the new approach, the human being is both rational and emotional; he or she is also the bearer of talent and creativity, and therefore able to introduce innovation. From this perspective, managers should combine control with the promotion of beneficial human attitudes, and avoid stifling creativity or creating resentment and resistance (Emery, 1970). The concept eventually was explored at society level, where ‘Humane orientation’ is defined as ‘the degree to which an organization or society encourages and rewards individuals for being fair, altruistic, friendly, generous, caring, and kind to others’ (House et al., 2004: 569).

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SOCIAL ENTREPRENEURSHIP, SUSTAINABLE ENTREPRENEURSHIP AND HUMANE ENTREPRENEURSHIP

Scholars in the field of entrepreneurship have been increasingly involved in this debate, incorporating in their research agenda the study of new forms of entrepreneurship that are spreading all around the world, to respond to social pressures of being more responsive to sustainability. Social entrepreneurship and sustainable entrepreneurship have been the two dominant areas of interest in this area of study. Definitions of social entrepreneurship stress the positive contribution of new ventures or existing organizations that offer creative solutions to complex and persistent social problems (Zahra, 2009). Others prefer a more specific definition that focuses on how to improve the situation of segments of the population that are excluded or marginalized (Saebi et al., 2019). Also, the role of technology in solving social problems has been emphasized. Social entrepreneurs put effort into solving social problems by developing a synergistic combination of products, capabilities, processes and technology to obtain sustainable solutions (Auerswald, 2009). In parallel with this, the concept of social innovation has been defined as any innovation in process, product or technology essentially focused on meeting social need (Mulgan, 2006).

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In an effort to reconcile the many perspectives that have been proposed on the issue of social entrepreneurship, an epistemologically supported and justified definition has been proposed: ‘Social entrepreneurship is a socially mission-oriented innovation which seeks beneficial transformative social change by creativity and recognition of social opportunities in any sectors’ (Forouharfar et al., 2018: 33). The concept of sustainable entrepreneurship emerged, in the past decade, as a relevant area of study within the field of entrepreneurship. Most of the contributions focus on the environmental aspect of sustainability (Ndubisi and Nair, 2009; Schaltegger et al., 2002), while others focus on the non-economic aspects of work, such as social improvement or a more general social aspect of sustainability (De Clercq and Voronov, 2011; Lumpkin et al., 2013; Prahalad and Hammond, 2002). Furthermore, other works jointly integrate social, environmental and economic aspects (Shepherd and Patzelt, 2011; Tilley and Young, 2009). Scholars identified several types of entrepreneurs following the emergence of sustainable entrepreneurship: (1) the green entrepreneur (Berle, 1991) or the environmental entrepreneur (O’Neill and Gibbs, 2016; Schaltegger et al., 2002), defined as an entrepreneur who builds a business by adopting strong environmental values; (2) the social entrepreneur (Dees and Emerson, 2001; Mair and Marti, 2006), defined as entrepreneurs who adopt the creation of social value as a top business priority; and (3) the sustainable entrepreneur, defined as an entrepreneur who strongly believes in the need for a substantial improvement in the consumption of economic, social and environmental capital (Dyllick and Hockerts, 2002). Although sustainability entrepreneurship is a relatively new concept and its definition is still in progress (Gast et al., 2017), Young and Tilley (2006) emphasize that special targets are gained by incorporating environmental, social and economic components of sustainability within a firm’s organizational design. While the hument concept has profound connections with those of social and sustainable entrepreneurship, it diverges from them with respect the theoretical foundations on which it has been built. Humane entrepreneurship is based on the concept of EO, a constitutional question in the definition of entrepreneurship as an academic field of research. Following Miller and Friesen’s (1983) foundational paper on managerial orientation description, a number of scholars have tried to answer the question of when a firm can be considered entrepreneurially managed and applying which organizational behaviour or strategic posture, defining in this way the basic constructs of the EO concept. After more than three decades of research building, EO has become one of the most established constructs in entrepreneurship, and there have been several reviews on the evolution of the constructs (Anderson et al., 2015; Basso et al., 2009; Covin and Miller, 2014; Wales, 2016). The question currently is whether EO, intended as a strategic posture of the firm, can continue to be an effective base from which to generate value at firm level, no matter which direction proactivity, risk-taking and innovation propensity may lead it. Over time, conditions gave rise to a more sophisticated entrepreneurial strategic posture, capable of integrating stakeholders’ behaviours and expectations (Freeman, 1984) into a more sustainable platform for opportunity-seeking and competitive advantage-building (Ireland et al., 2003). The starting point is that a firm’s stakeholders always are there, and you can simply ignore them in your strategic choices, try to incorporate their expectations or, better still,

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to some extent, try to leverage those expectations to build a more powerful entrepreneurial strategic posture.

3.

HUMANE ENTREPRENEURSHIP, ITS COMPONENTS AND ITS APPLICATION

The new hument theory describes an entrepreneurial strategic posture (ESP) that integrates the classical concepts of EO with two additional orientations concepts, those of, sustainable orientation (SO) and humane resource orientation (HRO) (Ki Chan et al., 2018; Parente et  al., 2018). In this view, the hument theory postulates that the ESP is better suited to take on the challenges of the twenty-first century, and it is based on the need for employees be inspired and supported in enhancing their talents in the service of an entrepreneurial project. At a wider external level, the ability of entrepreneurs to build consensus, in local communities and in society, is relevant to identify and exploit entrepreneurial opportunities (Parente et al., 2018). HRO refers to the ability to recognize employees and executives and is linked with leadership. One of the most closed concepts is servant leadership theory (SLT) (Barbuto and Wheeler, 2006; Greenleaf, 1977; Russell and Stone, 2002; Van Dierendonck, 2011). Servant leadership theory is not a new concept; its roots date back to ancient teachings of the world’s great religions, as well as to statements of numerous great leaders and thinkers (Sendjaya and Sarros, 2002). Whereas other leadership theories are traditionally defined only by what the leader does, servant leaders are defined by their character and their commitment to others. Servant leaders link their leadership style with their firm’s strategic positions regarding ethics, virtues and morality (Graham, 1991; Lanctot and Irving, 2010; Parolini et al., 2009; Whetstone, 2002). Servant leadership emphasizes collaboration, empathy, trust and ethical use of power in order to enhance teamwork and personal involvement. Therefore, SLT is in line with the intuitions and the main starting points of hument: (1) it emphasizes service to others; (2) it recognizes that one of the main roles of businesses is to enable people to build a better tomorrow; (3) it effectively responds to the growing perceptions that corporate leaders have become selfish; and (4) it has been proposed as a viable leadership theory to face the challenges of the twenty-first century (Parris and Peachey, 2013). Explaining the hument model, Ki Chan et al. (2018) mainly focus on the necessity to complement EO with a specific orientation towards employees, highlighting as leadership and entrepreneurship domains, that have been evolved separately, have now to go hand in hand. Starting from the key elements identified by Pfeffer (1998), and agreeing with Melé’s (2003) principles of humanistic management which refer to a management that emphasizes the human condition and that is orientated to the development of human virtue, Ki Chan et al. (2018) propose an integration of entrepreneurship, leadership, and human resource management to create wealth and quality jobs. In doing so, they identify employee engagement as a powerful strategy for driving organizational improvement (Carmeli et al., 2011; Finkelstein and Hambrick, 1996), qualifying humane entrepreneurship orientation (H-EO) through the following components: empathy, equity, enablement and empowerment. Related to its inner significance, sustainability orientation is encompassed in literature

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in any of the following terms: strategy (Branzei and Vertinsky, 2002); strategic stance (Roxas and Coetzer, 2012); attitude (Muñoz and Dimov, 2015; Jahanshahi et al., 2017); and motivation (Bos-Brouwers, 2010). Roxas and Coetzer (2012) developed a set of items that capture the strategic orientation of small firms towards the adoption of sustainable natural environment management practices. They proposed to measure environmental sustainability orientation with 18 items built around the concepts of the knowledge within the firm about environmental issues and practices; the current practices of the firm that are related to sustainable environmental management; and, finally, the commitment of the firm to pursuing a proactive orientation toward sustainable environmental management. The concept of sustainability orientations (SO) is more congruent with that of hument, and has been defined by Kuckertz and Wagner (2010), who operationalize their own idea of sustainability orientation, by means of six items referring to environmental protection and social responsibility. Similarly, Jahanshahi et al. (2017) modified the scale proposed by Muñoz and Dimov (2015) to reveal the degree to which firms engaged in sustainability-orientated entrepreneurial actions adopted the following eight items: (1) improving health and wellbeing of people around the firm; (2) creating and distributing economic value amongst all stakeholders; (3) improving the quality of life in a particular community; (4) creating employment opportunities; (5) protecting or restoring the natural environment; (6) creating ethical and fair products; (7) establishing fair trading with suppliers; and (8) promoting democratic business models. Hument, as an enlarged ESP theory, postulates that by having care for clients, for society and for organizations, firms (Figure 42.1) can better face pressures and expectations that are growing in the organization’s environment (Dillick and Hockerts, 2002). Care for clients is the foundation of a successful business’s cycle, where the capability to

Care for firm

Compensations People’s cycle

Society’s cycle

Employees’ commitment

Society’s commitment

Responsibility Business’s cycle

Care for organization

Value creation

Clients’ commitment

Care for society

Care for clients

Figure 42.1

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create real value for clients enhances their commitment to remain loyal to the firm. Care for the organization is the basis of a virtuous people’s cycle, where employees’ commitment to quality and innovation is well recognized through material and non-material compensation. Care for society is at the core of a vital relationship with society, where responsible behaviour leads to society commitment to sustain and endorse the firm’s activity. A further assumption is that the best results in adopting hument as an ESP are obtained when it is possible to connect the three cycles, i.e.: (1) inspiring people you can (2) obtain commitment from them, which leads to (3) rising innovation capabilities of the company, and (4) if innovation capabilities are addressed in a way to minimize natural resources use, then (5) the firm can count on society commitment, which leads to (6) the possibility to have returns which can to grow compensation for people. The final and most relevant assumption is that the correct performance measurement system to evaluate hument is not short-term, financial-based indicators, but a more complex system of indicators able to evaluate the firm’s long-term capability to survive.

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Pfeffer, J. (1998), The Human Equation: Building Profits by Putting People First, Boston, MA: Harvard Business School Press. Roxas, B. and A. Coetzer (2012), ‘Institutional environment, managerial attitudes and environmental sustainability orientation of small firms’, Journal of Business Ethics, 111 (4), 461–76. Russell, R.F. and A.G. Stone (2002), ‘A review of servant leadership attributes: developing a practice model’, Leadership & Organization Development Journal, 23 (3), 145–57. Saebi, T., N.J. Foss and S. Linder (2019), ‘Social entrepreneurship research: past achievements and future promises’, Journal of Management, 45 (1), 70–95. Schaltegger S., M. Wagner, F. Figge and T. Hahn (2002), ‘The sustainability balanced scorecard – linking sustainability management to business strategy’, Business Strategy and the Environment, 11 (5), 269–84. Sendjaya, S. and J.C. Sarros (2002), ‘Servant leadership: Its origin, development, and application in organizations’, Journal of Leadership & Organizational Studies, 9 (2), 57–64. Shepherd, D.A. and H. Patzelt (2011), ‘The new field of sustainable entrepreneurship: studying entrepreneurial action linking “what is to be sustained” with what is to be developed’, Entrepreneurship Theory and Practice, 35 (1), 137–63. Schumpeter, J.A. (1934), The Theory of Economic Development: An Inquiry into Profits, Capital, Credit, Interest and the Business Cycle, Cambridge, MA: Harvard College. Tilley, F. and C.W. Young (2009), ‘Sustainability entrepreneurs – could they be the true wealth generators of the future?’, Greener Management International, (55), 79–92. Treviño L.K., G.R. Weaver and S.J. Reynolds (2006), ‘Behavioral ethics in organizations: a review’, Journal of Management, 32 (6), 951–90. Van Dierendonck, D. (2011), ‘Servant leadership: a review and synthesis’, Journal of Management, 37 (4), 1228–61. Wales, W.J. (2016), ‘Entrepreneurial orientation: a review and synthesis of promising research directions’, International Small Business Journal, 34 (1), 3–15. Whetstone J.T. (2002), ‘Personalism and moral leadership: the servant leader with a transforming vision’, Business Ethics European Review, 11 (4), 385–92. Young, W. and F. Tilley (2006), ‘Can businesses move beyond efficiency? The shift toward effectiveness and equity in the corporate sustainability debate’, Business Strategy and the Environment, 29 (6), 402–15. Zahra, S.A., E. Gedajlovic, D.O. Neubaum and J.M. Shulman (2009), ‘A typology of social entrepreneurs: motives, search processes and ethical challenges’, Journal of Business Venturing, 24 (5), 519–32.

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43. Incubators and support systems for business creation: the French model Luc Duquenne

All over the world, numerous support schemes for future entrepreneurs have been created under various names and forms, following the different government policies to encourage entrepreneurship. Start-up support networks, incubators, business incubators and business accelerators all aim to transform unemployed people, students, women and, even, employees into entrepreneurs. The methods implemented also take different names. Some say they practise coaching, others tutoring, mentoring or consulting. As early as the 1970s in France, a group of actors started to create a particular form of support for business creation. It was at this time that the French term accompagnement (accompaniment in English) was coined from the medico-social field for business creation. With objectives that are sometimes a little vague, currently there are almost 3000 structures in France that raise awareness about entrepreneurship and support future entrepreneurs, hence claiming to provide entrepreneurial support. Owing to its atypical structure and impressive number of support structures, the French example is remarkable and deserves to be developed.

1.

HISTORIC REMINDER1

1.1

The 1970s: An Alternative Movement

In France, the ‘events’ of 1968 were, in many ways, a showcase for the feelings of the French people in general, and of young people in particular. The great idea that emerged from this movement is summed up well in an expression that was often used at the time: vivre autrement (live differently).2 One of the most famous slogans worn by the students in May 1968, ‘sous les pavés, la plage’ (‘under the cobblestones, the beach’) illustrates this state of mind. Several movements were thus built in the line of protest against society and the system, such as feminists, demanding the right to equality for women, anti-militarists, who contested the existence of the army and all forms of war, and ecologists demonstrating against the construction of nuclear power stations. Young people were longing for new ways of living and this deep desire for change led to different streams of thought that were expressed in a variety of ways. Some, who I refer to as neo-rurals, wanted to rediscover the true values of agriculture and craftsmanship. They decided to leave the cities to settle in rural areas. Others grouped together in communities with a founding desire to share activities, income and power. These trends were accompanied by a search for new forms of organisation. People came together, they wanted to share and they want to explore new paths. Communities, associations and cooperatives were multiplying. 376

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Incubators and support systems for business creation 377 However, these changes did not eliminate the difficulties. On the contrary, they created new problems, often owing to the lack of experience or hindsight of the actors. The most informed, either by their level of education or nurtured by their experience, then specialised in providing advice to the neophytes. Little by little, they organised the reception of candidates for change. Thus, in 1979, the Boutique de Gestion (Management Shop) was created in Paris to help new entrepreneurs, imitating the Boutiques de Droit (Law Shops), a community of lawyers providing free legal advice. The same type of initiative was emerging in other regions of France, in very diverse forms. In the Dordogne, for example, the Institut Rural d’Information (IRI) hosted project leaders in an Indian tepee. A magazine, created in 1975 by Henry Dougier, with the title Autrement3 (Differently) was to become the spearhead of this movement. The magazine published an issue titled Et si chacun créait son emploi (What If Everyone Created their Own Jobs), with the subtitle Le retour des entrepreneurs: ils inventent collectivement une économie différente (The Return of Entrepreneurs: They Collectively Invent a Different Economy). In 1980, the magazine organised a meeting in the Dordogne in partnership with IRI on the theme of business creation. All the representatives of the French alternative movement were present. Realising that they had taken the same approach, several associations decided to meet again and, shortly afterwards, adopted the concept and the name Boutique de Gestion. They founded the Comité de Liaison des Boutiques de Gestion (CLGB; Management Shop Liaison Committee). Shortly afterwards, they drafted a collective charter of ethical operation titled ‘Initiative and solidarity’. 1.2

The 1980s and 1990s: A Possible Alternative to Unemployment

Meanwhile, the number of dismissals ‘for economic reasons’ had risen dangerously and the number of unemployed rapidly exceeded the forecasts made by the French government.4 The situation of some unemployed people was beginning to worsen, with the consequent emergence of social difficulties (financial, family, health, legal, and so on). Faced with the shortage of job offers, the path of entrepreneurship was gradually emerging as a possible solution. Although the interest of the French public authorities in the creation of businesses can be traced back to 1973, it was not until 1977 that the State really got involved. Raymond Barre, the then Prime Minister, refers to the creation of companies by the unemployed. He created the first aid scheme for unemployed entrepreneurs and launched the National Agency for Business Creation in 1979. The Boutiques de Gestion hosted project holders with completely different motivations: they increasingly considered creating their own jobs not because they wanted to change, but by default. It is sometimes necessary not only to test the real motivations of the candidates, but also to adapt the support methodologies to the financial or social difficulties of the would-be entrepreneurs. A new profession was emerging, accompanying job-seekers in the creation of new businesses, as well as a new language related to this profession. The arrival of a left-wing government in 1981, with President Mitterand, was to greatly facilitate the development of this type of organisation advocating ideas close to those of the new government. A

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state/CLBG agreement led to the inclusion in this first plan of a three-year subsidy for the creation of a new Boutique de Gestion. In France, support for the creation of a company thus became a service delegated by the State. However, the treatment of social difficulties became a responsibility of the financiers, forcing the evolution of the methodologies of accompaniment towards the public most in difficulty. New forms of support were appearing, within specialised organisations. These orders generated new forms of funding that organisations were encouraged to accept in order to meet their budgetary constraints. Faced with the arrival of these a priori insolvent publics and these new funding opportunities, existing support systems are gradually moving towards other targets. Strongly guided by public policies, support for business creation was as a consequence increasingly aimed at job-seekers. Against the backdrop of soaring unemployment, France was to develop microcredit as a lever for business creation and reintegration, by involving banks and individuals more closely in its financing. Other organisations were emerging in specialised services, which were relatively well paid at that time. This interesting funding represented a new market that generates new competition, revealing ambiguity about the real objectives of creative support systems. Indeed, the numerous redundancy plans of large companies were leading to the emergence of outplacement firms as new players in the field of support for business creation. Rewarded on the basis of results, these firms are strongly positioned in this niche, as business creation is counted as a positive outcome, and therefore remunerated. 1.3

Since 2000: Encouraging Innovation and Entrepreneurship, Developing Territories

Foster innovation Thus, the main French policy measures in favour of business creation were aimed more at reducing the unemployment rate than at creating sustainable businesses. Business creation had become an end in itself, and it did not matter what happened to businesses afterwards. It was not until the end of the 1990s that an important development took place with a strong impetus from the French government to promote innovation-based business creation by enacting a law authorising research and higher education institutions to encourage and contribute to business creation,5 and by launching a call for projects aimed at creating incubators. These measures, aimed primarily at innovative project leaders, made resources (advice and funding) available to them, and probably stimulated and contributed significantly to the development of innovative companies (Pupion, 2012) and initiated the numerous public and private incubator creations that followed. Encourage entrepreneurship Although American universities understood the importance of teaching entrepreneurship as early as the 1970s, beyond the actions of a few pioneers, the first teaching on entrepreneurship in France only really became widespread in the 1990s,6 following the development of research on this topic. Indeed, it was during the 1990s that two reports commissioned by the French Ministry of Industry7 deplored the lack of teaching on entrepreneurship in higher education institutions. The report by Alain Fayolle (2001) for the Ministry of Research and Technology undoubtedly marked a strong acceleration in the introduction of student awareness.

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Incubators and support systems for business creation 379 Based on the experience in Grenoble, the French Ministry of Research and Technology, following a call for projects in 2004, encouraged the establishment of the first Houses of Entrepreneurship within higher education institutions. These houses are responsible for raising awareness of entrepreneurship among students, training the most motivated and, where appropriate, they begin to support those who would carry a project in partnership with the creators in their territory. In 2009, the Plan d’action national Entrepreneuriat Etudiant (PEE; National Student Entrepreneurship Action Plan), supported by the Ministry of Higher Education and Research, introduced entrepreneurship on a long-term basis, both through teaching and research in higher education. It was during this period that the ‘Pôles Entrepreneuriat Etudiants’ (Student Entrepreneurship Poles) appeared, followed by the ‘Pôles de Recherche et d’Enseignement Supérieur’ (Research and Higher Education Poles) and specialised courses (Bachelor’s and Master’s degrees) in business creation. Also, incubators for student-driven projects were developed in large numbers in French universities and other high education institutions, each wanting its own. In 2013, this craze took shape with the organisation, on the initiative of the French government, of the ‘Assises de l’Entrepreneuriat’ (Entrepreneurship Conferences), leading to a vast action plan in favour of student entrepreneurship. This plan aimed to make entrepreneurship a lever for pedagogical change in higher education by developing an entrepreneurial culture for the implementation of innovative projects and thus achieve a target of 20 000 business start-ups or takeovers in four years by young people from higher education. It was in the spirit of this new plan that the Pôles Etudiants pour l’Innovation, le Transfert et l’Entrepreneuriat’ (PEPITE; Student Poles for Innovation, Transfer and Entrepreneurship) was launched during 2013–16, together with the student-entrepreneur status for students or young graduates with business creation projects – two support systems for creation that still exist in France. The number of business start-ups in France reached a record level in 2009, with nearly 600 000 new businesses created. This considerable increase (over 75 per cent compared with 2008) followed the creation of the status of auto-entrepreneur by the French government. Intended to promote entrepreneurship, this scheme has made it possible to greatly simplify business creation formalities with a simple online registration and a single payment of all contributions and taxes. The scheme was part of a series of measures taken in the modernisation of the economy law.8 It also allowed employees to be self-employed at the same time. Territorial development The closure of industrial sites for some and rural desertification for others are pushing the French regions and other local authorities to radically revise their policy of aid for business start-ups by investing in the setting-up and financing of facilities to accommodate small businesses. The Nord-Pas de Calais Region,9 which has been hit by the closure of coal mines and major metallurgical sites, launched a vast programme to encourage business start-ups by bringing together the various support schemes in its area and organising a communication campaign commensurate with its ambitions. The results are commensurate with the programme undertaken; with nearly 25 000 new businesses created in 2013,

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business start-ups in the Nord-Pas de Calais region have increased by 169 per cent in ten years (2003–13). The Limousin region and the Auvergne region are two other remarkable examples of commitment to business start-ups. There are two main reasons for this in these two regions: rural desertification and a worrying ageing of the population, the latter being a consequence of the former. Young people were moving en masse to more attractive urban areas, and the older people were staying behind. To face these difficulties, the Limousin region decided, in 1997, to give priority to encouraging creation. It launched two contests to encourage entrepreneurship, targeting young people and newcomers.10 The first, to support projects in the development phase, has three categories of prizes: best project, innovation and young people. The second, named creation campus, was a contest aimed at students from the Limousin region and intended to encourage them to create in the Limousin. In 2002, the Limousin region organised the first installation fair in Limoges and, to ensure a maximum number of interested visitors, chartered a special train from Paris to take 300 installation candidates, selected on the quality of their projects, to the location of the fair in Limoges. The candidates were offered a round trip Paris–Limoges by train and accommodation for the night. In 2007, Objectif Création became a support programme for future entrepreneurs. Together with 15 partners (consular and associative networks) for which it provides funding for this activity, the project leaders are accompanied from the creative idea to the formalisation of the project up to the first steps of the new company. They can benefit from training and financial aid. In 2009, the Limousin Regional Development Agency launched the ‘110 projects for young people’ initiative and talent detector aimed at 18–30-year-olds who wish to set up their own business. Winners received assistance of up to €15 000 and benefited from the advice and follow-up of a regional referent. We could make an almost identical inventory for the Auvergne region with a policy of encouragement leading in 2015 to the ‘I create in my region’ scheme.

2.

IMPACTS AND LIMITATIONS OF THE FRENCH MODEL

If the support systems have largely justified their reason for existence, the reality of the accompaniment practised is multiple and complex and has developed without any serious reference in a competitive market context (Bruyat, 2003; Duquenne, 2014; Verzat and Gaujard, 2009). As a result, these systems have a certain number of limitations that somewhat reduce the reputation of the system. The research literature on the evaluation and impact of support systems is relatively recent. Although some of the articles focus on highlighting the difficulties in making progress on this topic (Messeghem et al., 2013; Phan et al., 2005; Stéphany and Vedel, 2010), researchers tend to find positive effects of coaching as it is practised. In addition to the best sustainability rates cited in the following paragraph, they cite the entrepreneur’s self-efficacy (St-Jean and Mathieu, 2011), identity building and networking (Certhoux and Perrin, 2010; Fabbri and Charue-Duboc, 2013; Richomme-Huet and D’Andria, 2013), overcoming isolation and building legitimacy (Messeghem and Sammut, 2010), or identifying opportunities (Ozgen and Baron, 2007; St-Jean and Tremblay, 2011) and survival rates (Cours des Comptes, 2013; CSES, 2002; Paturel and Masmoudi, 2005).

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A Definite Positive Impact

In 2012, the Organisation for Economic Co-operation and Development (OECD) published its annual report11 showing the evolution of entrepreneurship in the different OECD member countries. The report clearly showed that the statistics showing the evolution of business start-ups between 2006 and 2012 placed France well ahead of the rest, with the number of start-ups almost doubling in France while it stagnated in the other countries and even halved in Spain. After a period of stability from 1997 to 2002, when the number of business start-ups in France was hovering around 270 000 per year, a first major increase took place in 2003–04. This can only be seen as a result of the law ‘pour l’Initiative économique’ published in France in August 2003,12 a law designed to facilitate the creation of new businesses and simplify procedures. However, the most significant increase came in 2009 after the government promulgated the status of auto-entrepreneur. On this subject, the OECD report states: ‘In subsequent quarters, start-up rates began picking up, toward pre-crisis levels, spectacularly so in France in response to the introduction of a simplified procedure to start-up an individual enterprise, namely the “régime de l’auto-entrepreneur”’ (OECD, 2012: 11). In addition to strong growth in 2003, Figure 43.1 shows the impact of the auto-entrepreneur status was very strong growth in 2009. Until 2008, distribution was roughly equal between individual creations and collective projects structured as companies. From 2009 onwards, the number of start-ups by auto-entrepreneurs alone was almost equal to the total number of start-ups in previous years. Our question concerns the real impact of the support mechanisms on these results, and specifically of the particular form, claimed by the French players, of this support. Since the end of the 1970s, the term ‘accompaniment’ has been used in France to designate the support provided to future entrepreneurs. Launched in a particular context, this term has been adopted in different contexts for all forms of support for business creation. Currently, however, the organisations involved find it very difficult to agree on the form of the actions implemented under this term. Bruyat (2003: 11) writes that it is ‘very difficult to know what we are talking about when we talk about support’. Fayolle and Surlemont (2009: 5–6) think that it is a ‘widely used notion but often misused and insufficiently understood’. According to the initiators of the movement, when describing their profession, the professionals working in the support systems for future entrepreneurs say that almost all of them ‘do not do it in place of the entrepreneurs’ (Duquenne, 2014: 78). The seniority of the scheme, and consequently the seniority and experience of some professionals, has probably had an effect on the transmission and standardisation of practices, but in the absence even currently of a reference system to characterise the profession, it is very difficult to obtain a clear description and, even more so, to carry out an objective assessment of practices. Support mechanisms have thus evolved over the years with policies to encourage creation, target audiences and territories, and according to the funding available in a competitive market. Without being able to measure their efficiency, however, several elements allow us to affirm that support mechanisms have played, and still play an important, effective role in the evolution of business creation in France.

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2000

2002

2003

2004

2005

Number of start-ups from 2000 to 2014

2001

Auto-entrepreneurs

Sole proprietorships other than auto-entrepreneurs

Companies in corporate form

INSEE.

Figure 43.1

Source:

0

100 000

200 000

300 000

400 000

500 000

600 000

700 000

2006

2007

2008

2009

2010

2011

2012

2013

2014

Incubators and support systems for business creation 383 On the development of an entrepreneurial culture The various surveys carried out show a strong desire for entrepreneurship among the French people, and the proportion of those willing to create a company is increasing. However, from a simple analysis of the figures for business start-ups in France it is not possible to qualify the level of entrepreneurial culture of the French people. We have seen that if the number of start-ups has changed significantly on two occasions (2003 and 2009), this was owing to a policy aimed primarily at encouraging job-seekers to create their own jobs. France is generally presented as a country with a weak entrepreneurial culture. For a long time, and particularly during the thirty glorious years, referring to the 1944–74 period of strong and continuous growth, the French education systems trained employees in order to make the country a major industrial power. It was therefore only as a consequence of the 1973 oil shock and the worrying rise in unemployment figures that French policies were directed towards the creation of companies. While they may have an influence on the desire to undertake new business projects, these incentives cannot transform employees excluded from their company into managers of their own company, that is, entrepreneurs. It is certainly at this level that support schemes have taken their full place, and that the public authorities have understood their importance by freeing up the funding necessary for their operation. It is probably also for this reason that the term ‘accompaniment’ has become widespread in France to designate support actions. Accompaniment is the action of the companion on the road, the companion being the one who shares the bread.13 Although the angle of evaluation of accompaniment has only been addressed relatively recently in the entrepreneurship research literature, several positive effects have already been demonstrated. Thus, in addition to the survival rate discussed below (Paturel and Masmoudi, 2005; Cours des Comptes, 2013), several other aspects related to the development of entrepreneurial culture can be noted: particularly with regard to the self-efficiency of the entrepreneur (St-Jean and Mathieu, 2011), identity building and networking (Certhoux and Perrin, 2010; Fabbri and Charue-Duboc, 2013; Richomme-Huet and D’Andria, 2013), overcoming isolation and building legitimacy (Messeghem and Sammut, 2010), or identifying opportunities (Ozgen and Baron, 2007; St-Jean and Tremblay, 2011). On access to financing The development of support mechanisms for creation through public policies has quickly led to the creation of support mechanisms in the search for financing and, then, financing mechanisms adapted to the relevant audience. As job-seekers were the main target of measures in favour of business creation, they inevitably presented unfavourable profiles for access to bank loans. Already penalised by their situation as job-seekers, most of them saw their resources dwindle sharply. Consequently, it became essential for the public authorities to set up appropriate financing and to promote not only access to financing for these people to create their own business, but also support to enable them to present a project and a profile that would be more acceptable to banks.14 With the laws on innovation and research, several support networks were created with the aim of helping the creation and progression of innovative companies with high

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development potential. These networks also had to facilitate the search for financing, or even contribute directly to the financing.15 The support mechanisms, and in particular those specialising in financial support, have therefore played and continue to play a key role in the creation of start-ups in France, through the assistance they have been able to provide in obtaining public and private funding for their projects. On the perpetuation of the companies created Beyond the number of creations, it is also necessary to pay attention to the quality of the enterprises created. This can be assessed on the basis of the survival rate of the new enterprises. Even if the support systems have largely demonstrated their contribution to public policies, mainly focused on facilitating the creation of a business, the evaluation of the sustainability of the enterprises created remains an important measure of impact of these systems. Many surveys and studies (see previously) clearly show that companies assisted by support schemes, whatever these may be, have a better sustainability rate than nonsupported companies, even if the causes deserve further investigation. 2.2

The Limits of the System

Few mention the effects that could pervert the objectives of support systems (Dubard Barbosa and Duquenne, 2016, 2018; Duquenne, 2014; Fayolle and Nakara, 2010; LévyTadjine, 2011; Vial and Caparros-Mencacci, 2007). The literature on entrepreneurial coaching has strangely seemed to neglect this less rewarding aspect of this system, which nevertheless includes some components necessary to understand the whole. A complex, unordered system History shows that the French support system was not born out of political will on the part of the government. Originally the schemes were born out of private initiatives and developed or diversified according to the funding available. The government has relied on existing mechanisms to implement its policies and its only levers of influence have been the funding attached to these policies. Some organisations have grouped together in networks, with the aim of forming influential lobbies, while others have been set up and operate independently. The origins of the systems, the multiplication of networks and organisations, combined with the diversity of funding sources16 have generated a system that may appear coherent a priori, but is in reality very complex and not at all coordinated and regulated as a whole, except by the mass of funding distributed in a highly competitive environment.17 Three elements support this observation: ● ● ●

There is no shared reference system for clear identification and objective assessment of practices. There is no serious and recognised official training programme to deliver a universally recognised diploma for the profession. There is no longer any place for reflection and consultation bringing together all the actors involved in the field.

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Incubators and support systems for business creation 385 Perverse effects of a competitive market The increases of funding opportunities has created a market in which existing organisations have to fight to ensure their sustainability, but which has given rise to new organisations with each increase, thus reinforcing the competitive effect. This competitive effect generates additional constraints on the organisation and, as a consequence, has a strong influence on the services provided and on the systems: ●

●

●

Systematic competitive tendering has significantly reduced the level of remuneration for interventions, and therefore for the staff involved. The use of young staff and staff with little experience has become frequent and has undoubtedly had an influence on the level of services provided. Financers are imposing increasing constraints in the specifications of calls for tender. Some of these constraints, whether administrative, in setting quantified objectives, or the duration of the service, are all factors that devalue the quality of the intervention of systems. However, the fragmentation of funding sources has led the schemes to negotiate with interlocutors, generally technical intermediaries in charge of files in departments. Some of them, invested with a new power, then take the liberty of taking peremptory positions on the way in which services should be carried out. Thinking that they are vested with skills as well as powers for their mission, these technicians often add constraints arising solely from the way they perceive the subject, thus sometimes creating strong deviations in the process.

Targeting deviations The breakdown of funding dedicated to specific categories of target groups (young people, students, women, the disabled, the long-term unemployed, and so on) has sometimes been responsible for disturbing deviations from the announced targets. In this, a serious question has arisen with regard to the use of dedicated funds. Two examples can be used to illustrate and sustain these questions: ●

●

The AGEFIPH18 is a para-public organisation intended to facilitate the integration or professional reconversion of active disabled people. Following an invitation to tender, it finances and gives exclusive rights to an organisation in a given territory to support this particular group of people. However, this type of project leader is not excluded from being supported by other state or regional funding. This often leads these project leaders to be accompanied successively by at least two organisations overlapping on the support work carried out. Moreover, they are often counted twice in the statistics of the people accompanied in a territory, as the different counts have no system of verification and consistency between them. The example of incubators, especially those initiated by the major business schools, is also interesting enough to illustrate these deviations. They were initially dedicated to hosting innovative projects with high development potential. Faced with the multiplication of these mechanisms, several incubators have not been able to find enough projects that closely meet these criteria. In order to be able to justify actions and funding, we have seen projects being incubated that should not have been

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By way of comparison, an average Boutique de Gestion-type organisation can support more than 600 project leaders on its territory in one year with five or six advisers and two secretaries. An incubator will easily employ three people to support 10 to 20 potential creators. Questioning the entrepreneurial stance If we accept that the entrepreneurial position is characterised in particular by a creator orientated towards risk-taking and value creation, then we can consider that the number of entrepreneurs who have created is imperfectly measured by the number of newly created businesses. Entrepreneurs have very different profiles, some with a development objective and others, the most numerous20, whose main objective is to ensure their own employment with the least possible risk. France is frequently described as a country where failure is stigmatised and the French people present an aversion to risk. To explain this risk aversion, specialists generally question the Cartesian education that the French receive from childhood. To this must be added deep cultural roots in the Catholic religion, where failure is reprehensible and must be punished. The exact opposite can be observed in some countries, where mistakes and failures are instead perceived as positive experiences. For example, respect for failure is cited by Silicon Valley entrepreneurs and their financial partners as one of the major contributions to their success, and Toyota’s managers systematically disperse all members of a failed project in order to generalise at company level the learning acquired through failure. We must therefore question the position of the French support system for business start-ups with regard to uncertainty and risk-taking and, therefore, decision-making. Dubard Barbosa and Duquenne (2016) mention the following biases that could lead to a drift of the support system: ● ● ● ● ●

possible divergence in the perception of risks differing between the coach and the project leader; focus of the coach on reducing the risk of failure; degree of decision-making influence of the coach; financing constraints; and constraints of the support system.

Based on these biases, Dubard Barbosa and Duquenne (2016) highlight several types of possible excesses of this system: ●

●

The withdrawal of the creator before a speech of expertise by the accompanier, which tends to make the project leader take a position of ignorant layman and let himself be guided by the judgements of the accompanier, which can lead him or her to miss an opportunity, or even to stop the project; Difficulties in accessing the resources necessary for the project in the face of an over-evaluation of risks by the accompanier, as the latter’s opinion is frequently sought upstream;

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Incubators and support systems for business creation 387 ● ● ●

Alternatively, too easy access to the same resources in the face of an under-evaluation of risks by the accompanier; A systematic elimination of risks to meet financing constraints, which places banks at the forefront of this drift; The ambiguity of the accompaniment service subject to constraints of objectives, financing and evaluation, which can lead the accompaniment, on the one hand, to remove the project leader from an in-depth reflection on the risk and the decision, and, on the other, to artificially accelerate or slow down the creation process, which can be detrimental to the decision-making process and risk-taking.

In 2014, Duquenne added that for many schemes aimed mainly at job-seekers, support development policies had ‘essentially made creation a goal in itself, sometimes forgetting the true meaning of the approach: transforming candidates for creation into entrepreneurs’ (Duquenne, 2014, original emphasis). 2.3

Conclusion

From the European Commission’s ‘Proposals for a Recommendation on Key Competences for Lifelong Learning’,21 we reiterate that ‘Entrepreneurship refers to an individual’s ability to turn ideas into action. It includes creativity, innovation and risk taking, as well as the ability to plan and manage projects in order to achieve objectives’. Thus, in order for individuals with an entrepreneurial spirit to declare a real intention to set up a business, they must also be able to assume the risk associated with setting up that business. The French model of support for business creation is unique and remarkable in several aspects. Faced, however, with its limits and possible abuses, there are many points of defence that are too unevenly taken into account by the players involved, who are subject to the constraints of what has become a vast competitive market of such complexity that it is difficult to control, both by the political authorities and by the organisations responsible for implementing these policies.

3.

SOME EXAMPLES OF SUPPORT ORGANISATIONS IN FRANCE

The language of the business creation support schemes has borrowed a number of expressions from the field of agriculture and livestock farming. 3.1

Couveuses (Incubators)

In order to distinguish destinations of equivalent devices, the French distinguish in entrepreneurship several words from the field of breeding, ‘couveuse’, ‘incubateur’ and ‘pépinière’ designating the same thing – incubator or nursery. Although experiments were carried out from the end of the 1990s, the real development of couveuses in France took place after 2003. Prior to this, French law did not allow them to carry out an activity without having an official status. The reflection of a group

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of actors22 on the need for future entrepreneurs to test the reality of their project before its finalisation, led the government to change the law in 2003,23 thereby allowing project leaders to test the feasibility of the planned activity while keeping the status of employee or job-seeker. While leaving the future entrepreneur the autonomy to start his or her activity,24 business incubators (mostly constituted in the form of associations) offer a legal accommodation service as well as a support service for the project for a period ranging from a few months to three years. The incubator is remunerated by taking a share of the revenues generated by the entrepreneur. There are nearly 90 couveuses in France, more than three-quarters of which are members of the Union des couveuses d’entreprises (Union of Business Incubators). 3.2

Cooperatives d’activités (Cooperatives of Activity)

Developed according to the same principles as incubators, activity cooperatives are cooperatives managed by a majority of employees. In addition, they offer the future entrepreneur the status of employee-entrepreneur with an obligation, within a maximum period of three years, to become a member of the cooperative. This status was defined by law in 2014. There are about 70 business cooperatives in France. 3.3

Incubateurs (Incubators)

Incubateurs are public or private structures that claim to give priority to innovative projects with high development potential. They offer a range of services to future entrepreneurs: advice, putting them in touch with experts, professionals, bankers, future partners and help in raising funds. They also generally provide future entrepreneurs with logistic resources: offices, meeting rooms, equipment, and workshops for research and prototype production. Some incubateurs host start-ups, thus encouraging exchanges between young entrepreneurs and future entrepreneurs. Almost 250 incubateurs are currently registered in France. However, four main categories of incubators can be distinguished: ●

● ●

●

Originally, incubateurs related to technological innovation and public research created in higher education research centres (universities, colleges and public research organisations) following the 1999 law on innovation and research. Thirty of these exist in France. Incubateurs linked to public authorities (metropolises, economic development agencies, competitiveness clusters, and so on). Imitating École Supérieure des Sciences Economiques et Commerciales (ESSEC Business School) in 2000, incubateurs created by the grandes écoles, that is, highlevel business and engineering schools. Currently, almost all of these ‘grandes écoles’ have integrated an incubateur, even if the projects supported are often outside the field of innovation. Based on the models of the American incubators Idealab, created in 1996 by Bill Gross and, later, Y-Combinator33, created in 2005 by Paul Graham, private incubateurs, in effect hosting projects developed in the digital sector, some of which are

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Incubators and support systems for business creation 389 directly involved financially in the projects, relying on the capital gains obtained from the resale of shares once the projects are operating. 3.4

Pépinières d’entreprises (Nurseries)

Pépinières d’entreprises, some of which are named hôtel d’entreprise (business hotels), are intended to house entrepreneurs after their creation in order to support them in the development of their activities. The first pépinière d’entreprise appeared at the end of the 1970s. They offer premises, rooms and equipment on a time-sharing basis, as well as advisory and development support services, for example, in the search for new partners. In principle, their exit from the scheme is scheduled after a maximum of five years, but companies usually stay between one and three years. Most pépinières d’entreprises have been initiated by local authorities. There are currently almost 250 of them in France. 3.5

Réseaux d’accompagnement (Support Networks)

The term réseaux d’accompagnement refers to a group of organisations working in support of business creation under the term réseau (network) and grouped by specialisation or simply by adherence to the same operating charter. These organisations make up the vast majority of support structures for business creation in France. The networks are generally represented by a network head who is in charge of harmonising the interventions of the members, training their employees, organising communication at the national level and negotiating agreements at the national level, in particular with the ministries. Some networks specialise in financing start-up projects, others in supporting projects with high development potential, while yet others are aimed at a specific public (particularly disadvantaged people, women and disabled workers). In addition to chambers of commerce and chambers of trade and crafts, members of the networks are generally constituted in the form of non-profit associations. Until the beginning of the 2000s, about 15 significant networks could be identified, known as major support networks. They continue to represent the bulk of the volume of support for creation, in the number of future entrepreneurs supported and the number of hours spent on this activity. The systematic grouping of actors working in a particular field seems to represent a French originality, and the increase of groupings and networks of actors in business creation since the beginning of the twenty-first century is further proof of this. For example, women willing to create a company can contact Action’elles, the Centre de resources pour l’Entrepreneuriat au Féminin (CREF; Resource Centre for Women’s Entrepreneurship), Femmes entrepreneurs, or even more specialised structures, such as Force femmes for those aged over 45 years, Mampreneurs for mother entrepreneurs, Diversitelles for women creators from diverse backgrounds, Génération Startupeuse for women creators of start-ups or Enovatrices which encourages e-commerce.

NOTES 1.

For a full account, see Duquenne (2009).

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390 2. 3. 4.

5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19. 20. 21. 22.

23. 24.

World encyclopedia of entrepreneurship Hence the term, alternative movement. His first publication was titled Jeunesse en rupture (Broken Youth). Stable forecasts had been made for 1970 of around 350 000 unemployed. On this subject, Georges Pompidou, Prime Minister of France, declared in 1967: ‘if one day the number of unemployed people reached the 500,000 mark, then it would certainly be a revolution’ (Le Monde, 2013). In 1978, this number exceeded 1 million and was well over 2 million in 1990. Law No. 99-587 of 12 July 1999 on innovation and research, known as the Loi Allègre. In 1984, the first course on business creation was delivered at the Ecole Supérieure de Commerce de Lyon, and was targeting entrepreneurs outside the school. Mortier (1996) and Beranger et al. (1998). Law No. 2008-776 of 4 August 2008 on the modernisation of the economy. Now renamed, Les hauts de France. Newcomers: families coming from other regions, mainly urban, and willing to settle in the territory. OECD (2012). Law No. 2003-721 of 1 August 2003 on economic initiative. From the Latin ‘companio, companione’, and panis (bread), literally ‘the one who shares the bread’, hence companion (compagnon in French). For example, Association pour le Droit à l’Initiative Economique (ADIE; Association for the Right to Economic Initiative), France Initiatives, and the France Active network. For example, the Entreprendre network, initiated by André Mulliez, now brings together approximately 14 000 business leaders. Every year in France, it supports almost 1500 high-potential business start-ups. Funding can come from different ministries, regions, departments, Europe’s business community, or several other public or private bodies. Most of the funding is now allocated to the best bidders on the basis of calls for tenders. ‘Association de Gestion du Fonds pour l’Insertion Professionnelle des Personnes Handicapées’ (Association for the Management of the Fund for the Vocational Integration of Disabled Persons). For example, a food truck project for pizzas or Internet ordering and delivery of organic baskets was observed. This number has increased considerably since 2009 with the introduction of the auto-entrepreneur status, see diagram above. COM(2005) 548 final (quote from p. 17). Working group initiated by the EFICEA association, which later became ‘Synergie Créateurs’, bringing together professional players and representatives with the obligation to propose concrete solutions to the problems raised. These working groups were at the origin of several innovative proposals to facilitate the creation of companies in France. Law no. 2003-721 of 1 August 2003 on the CAPE contract (Contrat d’Appui au Projet d’Entreprise – Business Project Support Contract). There is no relationship of subordination between the incubator and the future entrepreneur.

BIBLIOGRAPHY Albert P., M. Bernasconi and L. Gaynor (2003), Incubateurs et pépinières d’entreprises: un panorama international, Paris: L’Harmattan. Beranger J., R. Chabal and F. Dambrine (1998), ‘La formation entrepreneuriale des Ingénieurs’, report for the French Ministry for Economy and Finance (MINEFI). Bonneau M. and Y. Alberi (1994), Les pépinières d’entreprises, Paris: Agency for the Creation of Companies. Bruyat, C. (2003), ‘Création d’entreprise: contribution épistémologique et modélisation’, PhD thesis, Higher School of Business, Pierre Mendès University France, Grenoble. Centre for Strategy & Evaluation Services (CSES) (2002), Benchmarking of Business Incubators, Brussels: European Commission. Certhoux, G. and A. Perrin (2010), ‘Les pratiques d’accompagnement des Business Angels en phase de préinvestissement: une étude exploratoire en France’, Gestion 2000, 27 (3), 91–104. Clergeau C. and N. Schieb-Bienfait, (2005), ‘Université et Entrepreneuriat: comment créer une cellule ressources dédié à l’entrepreneuriat’, Gérer et Comprendre, 79, 16–30. Cours des Comptes (2013), ‘Le marché du travail: face à un chômage élevé, mieux cibler les politiques’, report of the Court of Audit, library of reports, National Council for Poverty and Social Exclusion Policies (CNLE), Paris. Cuzin, R. and A. Fayolle (2004), ‘Les dimensions structurantes de l’accompagnement en création d’entreprise’, Revue des Sciences de Gestion, 210, 77–88.

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Incubators and support systems for business creation 391 Dubard Barbosa, S. and L. Duquenne (2016), ‘Les dérives du système d’accompagnement sur la prise de décision et de risqué dans la création d’entreprise: réflexions pour la recherché et la pratique’, Revue internationale PME, 29 (3–4), 193–239. Dubard Barbosa, S. and L. Duquenne (2018), ‘La prise de risque entrepreneurial et l’accompagnement: du danger des biais cognitifs’, in C. Bérard and C. Teyssier (eds), La gestion des risques dans les PME, London: ISTE editions, pp. 207–23. Duquenne, L. (2009), ‘Au commencement étaient les Boutiques de gestion’, L’Expansion Entrepreneuriat, 2, 39–46. Duquenne, L. (2014), ‘L’illusion de l’accompagnement’, Entreprendre & Innover, 3–4 (11–12), 77–89. Fabbri, J. and F. Charue-Duboc (2013), ‘Un modèle d’accompagnement entrepreneurial fondé sur des apprentissages au sein d’un collectif d’entrepreneurs: le cas de La Ruche’, Management International/International Management/Gestiòn Internacional, 17 (3), 86–99. Fayolle, A. (2001), ‘Les enjeux du développement de l’enseignement de l’entrepreneuriat’, report for the Technology Department of the Ministry of Research, Paris. Fayolle, A. and W. Nakara (2010), ‘Création par nécessité et précarité: la face cachée de l’entrepreneuriat, Economies et Sociétés, Série’, Etudes Critiques en Management, 2, 1729–64. Fayolle, A. and B. Surlemont (2009), L’auberge espagnole de l’accompagnement’, L’Expansion Entrepreneuriat, 2, 5–6. Le Marois, H. (1985), ‘Contribution à la mise en place de dispositifs de soutien aux entrepreneurs’, PhD thesis, University of Lille. Le Monde (2013), Le Monde, 24 November, p. ‘economie’. Lévy-Tadjine, T. (2011), ‘Peut-on modéliser la relation d’accompagnement entrepreneurial?’, Revue des Sciences de Gestion, 251 (5), 83–90. Messeghem, K. and S. Sammut (2010), ‘Vers de nouvelles formes d’accompagnement?’, Revue de l’Entrepreneuriat, 9 (2), 1–5. Messeghem, K., S. Sammut, L. Lemri and E. St-Jean (2013), ‘Les mutations de l’accompagnement entrepreneurial’, Revue française de gestion, 46 (286), 59–67. Mortier, D. (1996), ‘Rapport sur la création d’entreprises à forte croissance’, report for the Ministry of SMEs, Paris. Organisation for Economic Co-operation and Development (OECD) (1999), Business Incubation: International Case Studies, Paris: OECD. Organisation for Economic Co-operation and Development (OECD) (2012), Entrepreneurship at a Glance, Paris: OECD. Ozgen, E. and R.A. Baron (2007), ‘Social sources of information in opportunity recognition: effects of mentors, industry networks, and professional forums’, Journal of Business Venturing, 22 (2), 174–92. Paturel, R. and R. Masmoudi (2005), Les structures d’appui à la création d’entreprise: contribution en vue de l’évaluation de leurs performances, 4th edn, Paris: Congrès de l’Académie de l’Entrepreneuriat. Paul, M. (2002), ‘L’accompagnement: une nébuleuse’, Éducation Permanente, 153, 43–56. Paul, M. (2004), L’accompagnement: une posture professionnelle, Paris: L’Harmattan. Phan, K.L., D.A. Fitzgerald, P.J. Nathan, G.J Moore, T.W. Uhde and M.E. Tancer (2005), ‘Neural substrates for voluntary suppression of negative affect’, Biological Psychiatry, 57 (3), 210–19. Pupion, P.C. (2012), ‘Le rôle de l’incubateur public dans la création d’entreprises innovantes: le cas Etincel’, Gestion 2000, 29 (6), 67–78. Richomme-Huet, K. and A. D’Andria (2013), ‘L’accompagnement entrepreneurial par et pour les mampreneurs’, Management International/International Management/Gestiòn Internacional, 17 (3), 100–111. Sammut, S. (2003), ‘L’accompagnement de la petite entreprise en création: entre autonomie, improvisation et créativité’, in S. Marion, X. Noel, S. Sammut and P. Senicourt, Réflexions sur les outils et les méthodes à l’usage du créateur d’entreprise, Paris: Les Editions de l’ADREG, pp. 13–33. Sangiorgio J. and S. Veyer (2009), ‘Les coopératives d’activités et d’emploi: un exemple de construction’, Projectics/Proyéctica/Projectique, 1 (1), 51–61. St-Jean, E. and C. Mathieu (2011), ‘Les déterminants du développement de l’auto-efficacité entrepreneuriale dans un contexte de mentorat’, Revue de l’Entrepreneuriat, 10 (3), 13–31. St-Jean, E. and M. Tremblay (2011), ‘Opportunity recognition for novice entrepreneurs: the benefits of learning with a mentor’, Academic of Entrepreneurship Journal, 17 (2), 37–48. Stéphany E. and B. Vedel (2010), ‘Effet de sélection et accompagnement des entreprises hébergées dans un incubateur: une analyse causale’, paper presented at the Congrès international francophone en Entrepreneuriat et PME, Bordeaux, October. Verzat, C. and C. Gaujard (2009), ‘Expert, conseiller, mentor, confident ou tout à la fois?’, L’Expansion Entrepreneuriat, 2, 6–12. Vial, M. and N. Caparros-Mencacci (2007), L’accompagnement professionnel? Méthode à l’usage des praticiens exerçant une fonction éducative, Brussels: De Boeck.

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44. Incubators: how they adapt to a changing world Amandine Maus and Sylvie Sammut

Bergek and Norman (2008: 20) define incubators as ‘an overall denomination for organizations that constitute or create a supportive environment that is conducive to the “hatching” and development of new firms’. According this definition, the term ‘incubator’ is understood in relation to an integrative perspective (Grimaldi and Grandi, 2005; Lamine et al., 2018; Mian et al., 2016). Lamine et al. (2018) effectively group together under this term: (1) traditional incubators, whose employees support entrepreneurs over the course of several years (Aernoudt, 2004; Bruneel et al., 2012; Hackett and Dilts, 2004), (2) business accelerators, which support entrepreneurs for several months thanks to mentoring sessions and events (Cohen et al., 2019; De Massis et al., 2018; Pauwels et al., 2016) and (3) pre-accelerators, which guide student-entrepreneurs and postdoctoral students towards business creation through resources from the universities that are funding the incubator (Lamine et al., 2018; Wright et al., 2017). We aim to demonstrate that there has been evolution in the perception of these different organizations within academic literature. The incubator industry has become very competitive and subject to technological and legislative changes (Ahmad and Thornberry, 2018; Lamine et al., 2018; Messeghem et al., 2018). Incubators are economic development tools that are widely used by the public authorities (Allen and McCluskey, 1990; Campbell and Allen, 1987; Lumpkin and Ireland, 1988), and in the last decade they have been acting like firms themselves (Ahmad and Thornberry, 2018; Baraldi and Ingemansson Havenvid, 2016; Vanderstraeten et  al., 2016). These organizations, traditionally studied using a more managerial and operational approach (Aernoudt, 2004; Bergek and Norman, 2008; Hackett and Dilts, 2004), have been defined from a much more strategic point of view since the early 2000s (Aaboen, 2009; Baraldi and Ingemansson Havenvid, 2016; Vanderstraeten and Matthyssens, 2012). Researchers now see organizations in search of competitive advantage and growth drivers. The strategic choices made by incubators to adapt are thus described using concepts from the strategic management literature (Calmé et al., 2016; Pauwels et al., 2016; von Zedtwitz, 2003). In section 1 of this chapter, we refer to the traditional point of view, which defines incubators from a more managerial and operational angle. The academic works that position themselves in this way focus on the resources that are redistributed to entrepreneurs by the incubators. In section 2, we demonstrate that a more strategic perspective has developed. Researchers using this approach describe how incubators confront an environment that has become turbulent by using concepts from the strategic management literature. We focus on the business model concept as it makes it possible to better understand how incubators create and capture value in a changing environment.

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A TRADITIONAL APPROACH TO INCUBATORS: A MANAGERIAL AND OPERATIONAL PERSPECTIVE

The origin of the managerial and operational approach can be found in the etymology of the word ‘incubator’. It comes from the Latin incubatio, meaning a place of rituals where animals were sacrificed (Aernoudt, 2004). The men who performed these sacrifices were hoping to obtain remedies for illnesses through divine intervention. The incubatio is thus the ancestor of the medical incubator. Nowadays, medical incubators are used to provide premature infants with the resources they need to survive and develop correctly. Business incubators have the same nursery function, a managerial function highlighted by research work. These organizations effectively accumulate, manage and redistribute resources that encourage the survival and development of entrepreneurial projects and young companies (Allen and McCluskey, 1990; Campbell and Allen, 1987; Lumpkin and Ireland, 1988). Campbell and Allen (1987) explain the origin of business incubators through the emergence of state-funded programs for economic development in Great Britain in the mid-1970s and early 1980s. Hackett and Dilts (2004) mention a similar past for incubators in the USA. According to these researchers, the first incubator appeared in 1959 in Batavia, in the state of New York. Mian et al. (2016) detected another pioneering university support program in 1951: the Stanford Research Park in California. These models of incubator were adopted by the American government in the 1960s and 1970s, as a way of playing a part in projects to revitalize the economy in the Mid-West. From this point of view, incubators were operational players as they enacted the economic development directives defined by the state authorities. In the traditional approach, researchers understand incubators are tools created by local public institutions for the economic development of a specific geographic area (Lumpkin and Ireland, 1988; Markley and McNamara, 1995; Mian, 1996). The literature thus studies the variety of resources offered to entrepreneurs by these incubators. The resources can be (1) material (office spaces, laboratories, and so on) (Bruneel et al., 2012; von Zedtwitz, 2003), (2) financial (funding of either public or private origin) (Carayannis and von Zedtwitz, 2005; Grimaldi and Grandi, 2005), (3) human (coach who advises entrepreneurs in business management) (Bergek and Norman, 2008; Patton, 2014; Sammut, 2003), (4) a professional network (network composed of financiers, supported or experienced entrepreneurs, industrial partners, and so on) (Ebbers, 2014; Peters et al., 2004; Patton, 2014), or (5) shared services (secretary, printing, and so on) (Aernoudt, 2004; Carayannis and von Zedtwitz, 2005). Depending on how they are organized, these resources make it possible to characterize incubators and draw up typologies (Allen and McCluskey, 1990; Barbero et al., 2014; Carayannis and von Zedtwitz, 2005). It is thus possible to identify five categories of incubator: (1) the economic development incubator (with a mission to create business and jobs in its region thanks to public resources), (2) the academic incubator (with a mission to act as the intermediary between entrepreneurs and university resources, to encourage the emergence of academic spin-offs), (3) the private incubator (developed by private investors to find investment opportunities, or designed by entrepreneurs to sell support services), and (4) the incubator developed within companies (with a mission to spin off projects developed by the employees) (Carayannis and von Zedtwitz, 2005; Grimaldi and Grandi, 2005; Barbero et al., 2014). Carayannis and von Zedtwitz (2005) described a

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final, original category: (5) the virtual incubator (with a mission to use digital resources to support entrepreneurs). According to Phan et al. (2005), the traditional approach to incubators has been structured around four research trends in order to study this heterogeneity. The first trend focuses on the businesses supported by incubators. Pena (2004), for example, studied the factors that favor the survival of the businesses supported, based notably on the human capital allocated by the incubators. A second trend is structured around identifying the boundaries of the incubator concept. In the 1980s, definitions focusing on the economic development aspect multiplied (Allen and McCluskey, 1990; Campbell and Allen, 1987; Lumpkin and Ireland, 1988). The third research trend placed incubators within a systemic approach. The literature thus studied these organizations positioned at the level of the universities that manage them, their ecosystem, their region or their country (Dutt et al., 2016; Gulbranson and Audretsch, 2008). The final trend explored the individual level, by studying entrepreneurs welcomed into the incubator (Ebbers, 2014; Kamei and Dana, 2010; Rice, 2002). Kamei and Dana (2010), for example, focused on the support relationship, and Rice (2002) defended its co-constructed nature. In addition to these four research trends, Phan et al. (2005: 166) evoked the need to create a fifth, focusing on a strategic perspective: ‘A second area we identify is the need to employ a strategic approach to building models of science parks and incubators that considers issues of resource substitution and complementarity’. In this trend, researchers focus their work in particular on the strategies that make up the performance drivers that help incubators survive in a context that has become turbulent (Baraldi and Ingemansson Havenvid, 2016; Vanderstraeten and Matthyssens, 2012; Vanderstraeten et al., 2016).

2.

A MORE RECENT THEORETICAL APPROACH TO INCUBATORS: A STRATEGIC VIEW

This research trend first appeared in the early 2000s, at a time when a more turbulent entrepreneurial support environment was emerging. The effervescence observed at that time was the result of profound changes which are still raising questions in incubators. This questioning particularly concerns their way of understanding their support mission (Ahmad and Thornberry, 2018; Cohen et al., 2019; Vanderstraeten et al., 2016). Four major changes have been identified in the literature: (1) a high level of competitiveness between incubators, caused, on the one hand, by the growth in their number – the association NBIA indicates that there are more than 7000 incubators in the world (Lukeš et al., 2019; van Weele et al., 2017) – and, on the other, by the arrival of newcomers (private incubators, banks, chartered accountants, and so on) who have played a part in the development of new incubation models (acceleration, coworking and pre-acceleration) (Garrett et al., 2017; Lamine et al., 2018; Shankar and Shepherd, 2018); (2) diversity in the profiles of the entrepreneurs who are seeking support that is more in line with their personal concerns (Ramadani et al., 2013; Soetanto and Jack, 2016; Stevens et al., 2015); (3) digital technology, which plays a part in the development of entrepreneurial support that is more flexible in its ability to respond to the needs of the entrepreneurs (Fielden and Hunt, 2011; Maus and Sammut, 2017; Vanderstraeten et al., 2016), and which attracts entrepreneurs toward methods that come in particular from the USA (for example, the

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lean start-up) (Mansoori et al., 2019); and, finally, (4) in Europe, public resource-saving policies play a part in reducing the budget of incubators, the majority of which are still financed through public funding (Messeghem et al., 2018). These changes have forced researchers to question how incubators adapt to them. Vanderstraeten and Matthyssens (2012: 656) effectively stated that, ‘These changes in the incubation market have prompted scholars to devote more attention to how incubators can strategically position themselves’. The strategic approach has transformed the definitions proposed for incubators. These definitions still take the economic development mission into consideration (Ahmad and Thornberry, 2018; Messeghem et al., 2018). Researchers, however, include characteristics that highlight the opening of a new chapter: incubators are understood as organizations (Baraldi and Ingemansson Havenvid, 2016; Peters et al., 2004; Vanderstraeten et al., 2016). The term ‘organization’ differentiates the works that are emerging in the literature from the seminal articles that use the concept of tool (Allen and McCluskey, 1990; Campbell and Allen, 1987; Lumpkin and Ireland, 1988). This change indicates a passage from being a passive, operational player subject to the decisions made by local authorities, to an organization that constructs its own development path. Comparisons have been made with businesses when studying incubators and their strategic behavior (Aaboen, 2009; Baraldi and Ingemansson Havenvid, 2016; Bruneel et al., 2012). These organizations are described as being committed to a value-creation process for the entrepreneurs supported and for their financiers – a process that they improve continually (Ahmad and Thornberry, 2018; Bruneel et al., 2012). The aim of incubators is thus to have good performances, in order to survive in an intensely competitive market (Aaboen, 2009; Vanderstraeten and Matthyssens, 2012; Vanderstraeten et al., 2016). To go into further detail on the strategic perspectives of incubators, researchers have used the literature from strategic management field of research (Pauwels et al., 2016; Schwartz and Hornych, 2008; Vanderstraeten et al., 2016). A growing number of works study the strategies used by incubators (Baraldi and Ingemansson Havenvid, 2016; Blackburne and Buckley, 2019; Vanderstraeten et al., 2016). The first works in this field focused on the strategies used to select entrepreneurs. Clarysse et al. (2005), for example, mention the low selection strategies developed by incubators in research centers. The works of Schwartz and Hornych (2008, 2010) and Vanderstraeten and Matthyssens (2012) focus on the specialization strategy. Schwartz and Hornych (2010) and Vanderstraeten and Matthyssens (2012) discuss the diversified strategy. More recently, academic works have described the strategies that allow incubators to propose support that has better performances. Vanderstraeten et al. (2016) studied the personalizing strategy which develops flexible support. This is thus a source of differentiation and competitive advantage for incubators (Vanderstraeten et al., 2016). Finally, some works focus on the strategies whose aim is to stand up to a competitive support industry. Baraldi and Ingemansson Havenid (2016) highlight internationalization, cooperation and competition strategies. Some incubators effectively choose the international route for supporting entrepreneurs from all around the world (Blackburne and Buckley, 2019). This strategy also allows them to obtain funding granted by international organizations. To provide additional serious consideration for this strategic perspective, researchers also use other concepts taken from strategic management, in particular the concepts of the value proposition (Bruneel et al., 2012) or the business model (Calmé et al., 2016;

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Pauwels et al., 2016; von Zedtwitz, 2003). Bruneel et al. (2012) participate in the development of incubators’ strategic perspectives by citing three generations of incubators based on value propositions that were renewed between 1950 and 1990. Each new generation differentiates itself from the generation that went before by proposing new resources that transform the support provided for entrepreneurs (premises, entrepreneurial support and professional network). Furthermore, the concept of value proposition itself is one of the components of the business model, a research subject from the literature on strategic management (Laasch and Pinkse, 2019; Zott and Amit, 2010). To the best of our knowledge, few works focus on the business model of incubators. The research conducted by von Zedtwitz (2003) was pioneering in its use of the business model concept as a means of studying incubators. A definition of the concept, however, remains missing from this work. The researcher perceives this concept as a tool used in incubator strategy, but without providing any further details. The research by Pauwels et al. (2016) is another example of work about the business model. These scholars looked into the workings of a specific type of incubator’s business model: the acceleration. To study this, they used the works of Zott and Amit (2010), who structure the concept in an activitiesbased approach. However, similar to von Zedtwitz (2003), Pauwels et al. (2016) provide few elements that clearly define that business model. Calmé et al. (2016) conducted a first in-depth review of the business model literature. They ultimately used the works of Lecocq et al. (2006) to study the incubator’s business model developing in collaboration with crowdfunding platforms. Finally, Verstraete and Jouison-Laffitte (2012) propose work on adaptation which focuses on the specificities of the business model concept for incubators, starting with the generation, remuneration and share (GRP) model based on the conventionalist theory. Both Calmé et al. (2016) and Pauwels et al. (2016) highlighted in their works that the business model concept was particularly relevant for studying how incubators adapt to their turbulent environment. The acceleration business model effectively renews the interest entrepreneurs and financiers have in incubators (Pauwels et al., 2016). A business model built on collaboration with crowdfunding platforms makes it possible to deal with the reduction in public funding (Calmé et al., 2016). The works by Calmé et al. (2016), Verstraete and Jouison-Laffitte (2012) and Pauwels et al. (2016) have furthermore led to the identification of two theoretical gaps which naturally form two research avenue for future works: (1) this research is sporadic and does not retrace the entire process of incubator business models innovation; similarly, (2) the capacities that incubators have that allow them to make their business model innovation remain unexamined. Defining them would make it possible to orientate the directors of incubators toward greater performances. We therefore encourage researchers to develop longitudinal research to study the business models of incubators.

3.

CONCLUSION

Our purpose in this chapter was to shed light on the adaptability of the literature on incubators. This literature effectively analyzes changes in the definition of these organizations since the 2000s. The seminal works that emerged in the 1980s adopted more of an operational and managerial approach. The operational nature came from the use of the word

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‘tool’: incubators were seen as players that obeyed the directives of the public authorities that funded them. The managerial aspect designated their mission for the accumulation, management and distribution of resources. The early 2000s were thus a turning point. Some researchers suggested developing a more strategic approach to studying incubators. The literature then described the choices made by these organizations to adapt to an environment that had become turbulent. Comparisons have been made with businesses: strategic management concepts were used to illustrate this new position. The strategies used by incubators are detailed, as are their business models. The latter are particularly pertinent in this context because they describe the way incubators manage to transform their created value over time to attract new financiers and new entrepreneurs. There are nevertheless lines of research that are yet to be explored in this area. In particular, they encourage researchers to adapt process-based approaches.

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Tašaminova (2013), ‘Women entrepreneurs in the Republic of Macedonia: waiting for directions’, International Journal of Entrepreneurship and Small Business, 19 (1), 95–121. Rice, M.P. (2002), ‘Co-production of business assistance in business incubators: an exploratory study’, Journal of Business Venturing, 17 (2), 163–87. Sammut, S. (2003), ‘L’accompagnement de la jeune entreprise’, Revue Française de Gestion, 144 (3), 153–64. Schwartz, M. and C. Hornych (2008), ‘Specialization as strategy for business incubators: an assessment of the Central German Multimedia Center’, Technovation, 28 (7), 436–49. Schwartz, M. and C. Hornych (2010), ‘Cooperation patterns of incubator firms and the impact of incubator specialization: empirical evidence from Germany’, Technovation, 30 (9–10), 485–95. Shankar, R.K. and D.A. Shepherd (2018), ‘Accelerating strategic fit or venture emergence: different paths adopted by corporate accelerators’, Journal of Business Venturing, 34 (5), 1–19. Soetanto, D. and S. Jack (2016), ‘The impact of university-based incubation support on the innovation strategy of academic spin-offs’, Technovation, 50–51, 25–40. Stevens, R., N. Moray and J. Bruneel (2015), ‘The social and economic mission of social enterprises: dimensions, measurement, validation, and relation’, Entrepreneurship: Theory and Practice, 39 (5), 1051–82. Van Weele, M., F.J. van Rijnsoever and F. Nauta (2017), ‘You can’t always get what you want: how entrepreneur’s perceived resource needs affect the incubator’s assertiveness’, Technovation, 59, 18–33.

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Vanderstraeten, J. and P. Matthyssens (2012), ‘Service-based differentiation strategies for business incubators: exploring external and internal alignment’, Technovation, 32 (12), 656–70. Vanderstraeten, J., A. van Witteloostuijn, P. Matthyssens and T. Andreassi (2016), ‘Being flexible through customization – the impact of incubator focus and customization strategies on incubatee survival and growth’, Journal of Engineering and Technology Management, 41 (C), 45–65. Verstraete, T. and E. Jouison-Laffitte (2012), ‘A conventionalist theory of the business model in the context of business creation for understanding organizational impetus’, Management International, 15 (2), 109–28. Von Zedtwitz, M. (2003), ‘Classification and management of incubators: aligning strategic objectives and competitive scope for new business facilitation’, International Journal of Entrepreneurship and Innovation Management, 3 (1–2), 176–96. Wright, M., D.S. Siegel and P. Mustar (2017), ‘An emerging ecosystem for student start-ups’, Journal of Technology Transfer, 42 (4), 909–22. Zott, C. and R. Amit (2010), ‘Business model design: an activity system perspective’, Long Range Planning, 43  (2–3), 216–26.

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45. Indigenous entrepreneurship as a function of cultural perceptions of opportunity Léo-Paul Dana and Robert Brent Anderson

INTRODUCTION Why do individuals from some nations have a greater propensity to engage in different forms of entrepreneurship, than do others who have unlike values? It appears that any given situation may present itself as an opportunity, or not, based on culturally influenced  interpretation. Helander argued that ‘the time is ripe for a new paradigm when looking at the issues of indigenous people’ (1999: 26–7). Indeed, it is. The leading scholars who contributed to Dana and Anderson (2007) discussed the contemporary economic activities of indigenous peoples from a variety of perspectives, including anthropology, business, development, education, entrepreneurship, ethnic studies, geography, management, sociology and subsistence. The editors could have assigned categories of analysis prior to data collection; instead, we wished to avoid imposing classifications in advance. Taking an emic approach, we opted to seek units of conceptualization by analysing the experiences of the people studied. Let us consider some inductive analysis, to identify patterns, themes that emerge from the data described in the collection.

OBSERVATIONS AND PATTERNS 1

Heterogeneity among Indigenous Peoples

There is rich heterogeneity among indigenous peoples; their respective values are far from identical. Even within one indigenous people, there can be significant differences, as explained, for example, by Helena Ruotsola’s chapter in Dana and Anderson (2007). Some people are Dionysian, with emphasis on being. Others are Promethean, with emphasis on doing. Benedict wrote, ‘Like most of the American Indians, except those of the Southwest pueblos, the tribes of the Northwest Coast were Dionysian’ (1935: 175). More recently, Renshaw wrote: in order to understand the economy of the Chaco societies one must look beyond the external constraints that determine the Indian’s economic situation and consider the system of values that underlies the economy. This system of values, with its emphasis on equality and personal autonomy, is, I believe, a defining feature of the Indians’ sense of ethnic identity. An understanding of the Chaco societies’ economic values, especially their conceptions of property . . . also helps shed light on their .  .  . preference for wage labor over other forms of production. (2002: 180)

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Indigenous entrepreneurship as opportunity 401 Dana (2007: 152) explained that even one region reveals differences among unlike indigenous peoples, ‘the Mina came to dominate to the exclusion of northern tribes, whom they treated as savages and excluded from significant positions’. In Dana and Anderson (2007), Nkongolo-Bakenda described the differing approaches to entrepreneurship among the Nande, Luba-Kasai and the Kumu in Northern Congo. Other authors bring out differences in a similar manner. Olurode (2007) wrote that in Nigeria, the Yoruba regard work as the essence of creation; therefore, right from childhood, the young are socialized into a world of work. Older adults who fail to allocate roles to children may be regarded as permissive, as it is believed by the Yoruba that the only antidote against poverty is work. Work is not regarded as an ordeal but an integral part of social existence; in order to make it a routine, while work tasks are carried out, these may be interspersed with light entertainment, jokes, singing and dancing. Those who detest work are referred to as ole – the lazy ones – considered to be companions of thieves. Those who are wretched or poor because of failure to work or who don’t display a positive attitude to work are undeserving of support. We would like to emphasize, therefore, that there is not only one indigenous worldview about entrepreneurship. What we find that does tie indigenous approaches together is a special attachment to ‘place’ as the original inhabitant, that in most cases has been disrupted by relatively recent experience with colonization (military and/or economic) usually by the nations of the ‘core’. And there is usually a related desire to reassert control over traditional territories and rebuild their communities with entrepreneurship and enterprise, shaped by history, culture1 and values, often playing a prominent role in this process. 2

Incompatibility with Assumptions of Mainstream Theories

Cultural values of indigenous peoples are often incompatible with the basic assumptions of mainstream theories, which may be based on a different set of cultural values. As noted by Dana et al. (2005), entrepreneurship among the Inuit is different in form and substance from the commonly accepted model. This implies that when a person from an indigenous group starts a business, it may be difficult for people from unlike cultures to understand fully the causal variables and rationale behind attitudes toward enterprise. Renshaw, for instance, wrote, ‘the system of tenure in the Indian colonies reflects the Indians’ resistance to the idea of individual landholding, a resistance that is so strong that  desire to hold individual title is taken as evidence that a person wants to adopt Paraguayan rather than Indian identity’ (2002: 164). In Dana and Anderson (2007: 20), Wuttunee explained that what sets them apart are the personal values that they choose to bring to the workplace. Yet, as Hindle and Landsdowne indicated in Chapter 2 of Dana and Anderson (2007), ‘entrepreneurship research has shown scant interest in values’. An exception is Dana (2006). Another exception is Chapter 9 in Dana and Anderson (2007), about Basuto culture in Lesotho, showing how cattle have an intrinsic value in this kingdom. In Dana and Anderson (2007), Chapter 8 about the Maasai, Ndemo reported that results show that if it was their choice, they would rather retain their traditional economic  system instead of integrating themselves with the rest of Kenya in a market economy. Chapter 9 of the same volume, about Basuto culture, showed how cultural

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values influence the definition of commodities and influences entrepreneurship accordingly. This confirms Dana (1995) who showed that aboriginal and non-aboriginal persons  expressed  fundamentally  different concepts of self-employment; findings suggested that the causal variable behind entrepreneurship is not simply an opportunity, but rather one’s cultural perception of opportunity. Chapter 19 in Dana and Anderson (2007), by Rønning, explained that likewise the historical, natural and cultural landscape in which Sámi people live and undertake their  reindeer herding business makes a strong contextual framework that itself has a conservative effect on change in the industry. While mainstream economics suggest that rationally one might choose to maximize profit, we learn from indigenous people that entrepreneurship has non-economic causal variables. The individual profit motive exists; however, there are also community needs and objectives. Likewise, Degen’s Chapter 10 in Dana and Anderson (2007: 115), noted that Bedouins persist in raising sheep, even at an economic loss, for ‘maintenance of Bedouin traditional lifestyle’. Chapter 26 about the Namgis First Nation explained that some sales had an economic motivation, others a symbolic one. This supports the earlier findings of Lindsay, who stated ‘indigenous entrepreneurship is more holistic than non-indigenous entrepreneurship; it focuses on both economic and non-economic objectives’ (2005: 1). 3

Immediately Available Resources

Indigenous people are often close to nature and in some cases depend on immediately available resources, such as animals or fish; the Oroqen people, for instance, were huntergatherers until the 1980s. Chapter 14 of Dana and Anderson (2007) stated ‘Ainu are self-employed fishermen, hunters and collectors by heritage’. As illustrated in Chapter 15 the Dhivehis also rely on immediately available resources. Sejersen, in Chapter 17 found the same among the Inuit of Greenland. Chapter 25 by William Simeone described the economy of the Athabaskan-speaking Han, based on hunting, fishing and gathering. Chapter 26 about the Namgis First Nation discussed the traditional reliance of the Kwakwaka’wakw economy, on immediately available resources. Likewise, Chapter 29, about Iqaluit illustrated the Inuit practice of relying on immediately available resources. Chapter 31 by Wall and Masayesva described how the Hopi relied strictly on precipitation and runoff water, along with hard work and prayer. This is consistent with earlier findings. About the Sámi people, Müller-Wille wrote, ‘Original, indigenous land use was based on locally available renewable resources’ (1987: 352). Renshaw described ‘the lack of any perceived need for long-term planning, since the Indians of the Chaco assume that their needs can be met on a day-to-day basis’ (2002: 157). Hukkinen et al. (2006) noted the goal of promoting reindeer herding based on natural pastures (as opposed to feeding), which provides the herders with employment and income. In contrast to mainstream societies, where firms have regular working hours, work in indigenous communities is often irregular, depending on animals, the weather or the tide. 4

Sustainability

Indigenous enterprise is often environmentally sustainable. As noted by Harris, ‘Wastefulness is more a characteristic of a modern agribusiness than of traditional

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Indigenous entrepreneurship as opportunity 403 peasant economies. Under . . . automated feed-lot beef production in the United States, for example, cattle manure not only goes unused, but it is allowed to contaminate ground water over wide areas and contributes to the pollution of nearby lakes and streams’ (1974: 31–2). Along the same theme, Morgan wrote, ‘It is truly amazing that after fifty thousand years they have destroyed no forests, polluted no water, endangered no species, caused no contamination, and all the while they have received food and shelter. They have laughed a lot and cried very little’ (1999: 111). While this may be an overstatement – there are certainly cases where indigenous populations have had a considerable impact on the environment – there are several chapters in our volume which illustrate sustainable activities often associated with traditional practices. For example, in Chapter 20 of Dana and Anderson (2007) Solveig Joks noted that Sámi reindeer herders utilized all parts of the slaughtered reindeer in an environmentally sustainable manner. 5

Kinship Ties

Social organization among indigenous people is often based on complex kinship ties, and not created in response to market needs. In Dana and Anderson (2007), Degen described the division of labour among self-employed Bedouins. Likewise, business activity and personal autonomy among the Sámi, are so intimately interwoven that it is difficult for the  individual person to differentiate between business and household. In Chapter 11 of the same volume, Povoroznyuk also emphasized the importance of the family, and Ruotsola’s Chapter 23 explained that Sámi reindeer owners employed their relatives. In Chapter 25, William Simeone explained that among the Athabaskan-speaking Han the distribution of resources was structured along kinship lines. Again, this is all consistent with earlier findings. Renshaw, for instance, explained, ‘on the few occasions when individuals have tried to engage in commerce . . . stores have disappeared within a few weeks, since their owners have felt obliged to give credit to their kin and neighbors until the entire stock was used up’ (2002: 179). Lindsay explained: the indigenous ‘team’ involved in new venture creation and development may involve not only the entrepreneur and the business’ entrepreneurial team but also the entrepreneur’s family, extended family, and/or the community. Thus, in indigenous businesses, there are more stakeholders involved than with non-indigenous businesses. For this reason, indigenous businesses can be regarded as more complex than non-indigenous businesses and this complexity needs to be reflected in defining entrepreneurship from an Indigenous perspective. (2005)

6

Markets and Internal Economic Activity

Much of the entrepreneurial activity conducted by indigenous people does not take place in the markets of the modern economy. Instead in some cases activities occur in the absence of exchange markets of any kind. They are internal subsistence activities. While in other cases there are markets but they are based on a traditional model, the bazaar, or they occur in the informal sector, outside the mainstream markets of the economy. In certain cases there are no market transactions at all, but that is not to say there was no exchange. Wealth is created by individuals and within the community, but not through the creation and sale of goods and services for profit. That which is created is consumed or saved for personal use or exchanged through non-market cultural mechanisms such as

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the potlatch among the indigenous people of the northwest coast of Canada. Subsistence self-employment may take the form of farming (see Dana, 2006), hunting (see Kassam, 2005), or fishing, as described in Chapter 26 of Dana and Anderson (2007), about the Namgis First Nation. In Chapter 19 of Dana and Anderson (2007), Rønning explained that among the Sámi in Northern Europe, ‘self-employment is the way of self-subsistence because it is the way to make a living’. Likewise, in this volume, Simeone’s Chapter 25 discussed subsistence among the Athabaskan-speaking Han. The Inuit discussed in Chapter 29 were also involved in internal and informal activities. Chapter 33, about the Kuna, also discussed subsistence economic activities. In instances where there are market transactions they often take place in the bazaar2 and/or the informal sector. In contrast to mainstream society’s firm-type organizations that are structured as aggregations of activities and tasks (with people being replaceable), each enterprise in the bazaar is organized according to roles and relationships that are central to recruitment, retention, promotion and purchasing. Prices in the bazaar are often negotiated, and the level of service quality reflects the relationship between the buyer and the seller. In this scenario, consumers do not necessarily seek the lowest price or the best quality. An individual may give business to another with whom a relationship has been established, to ensure that this person will reciprocate. Reciprocal preferential treatment reduces transaction costs. As discussed by Dana (2006), the bazaar is central to the Berber economy. As noted by Tayler, ‘getting a job in Morocco, for Berbers and Arabs alike, frequently depends not on talent but on connections’ (2005: 90). The informal sector is important among indigenous peoples whose small firms rarely take on the qualities of large-scale entrepreneurship, because this would require an extensive infrastructure, for communications, information, transportation and capital (see Chapter 35 in Dana and Anderson, 2007, about Bolivia, for instance). Without these,  businesses are generally local. This was well explained by Naudé and Havenga in Chapter 5 of Dana and Anderson (2007). Informal economic activity can take the form of an impromptu stall or itinerant vending. Unrecorded cash sales circumvent taxation as well as regulation. The law is often bent, but authorities generally tolerate the sector. A relevant discussion from Dana (1992) was presented concisely by Chamard and Christie (1996). Johnson et al. (1998) discuss discretion in the sector. Kloosterman et al. (1998), noted that ‘those who have poor access to the opportunities offered by the regular economy, are likely to be over-represented in the underground economy’ (1998: 251). Often, regulatory barriers to entry and bureaucratic structures prompt small-scale enterprises to operate in the informal sector. Dana (1996) observed that municipalities in Mozambique have tried to discourage the informal sector. Likewise, Chapter 13 in Dana and Anderson (2007), noted the perceived privileged treatment of the untaxed shadow sector in Mongolia. In contrast to firms in many mainstream societies, enterprise in the bazaar and in the  informal sector often functions very well with limited inventory. This is evident, for example, among the indigenous people in Bolivia (Chapter 35 in Dana and Anderson, 2007). 7

Propensity for Cooperation

Some communities have a propensity for cooperation in entrepreneurship. Chapter 2 (in Dana and Anderson, 2007: 14), by Hindle and Lansdowne mentioned the ‘individuality

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Indigenous entrepreneurship as opportunity 405 versus collectivity paradox’. Wuttunee discussed community capitalism in Chapter 3 of the same book. The Sámi entrepreneurs discussed in this book are another example of a people who cooperate; although reindeer are owned individually, they are cared for communally. Ziker’s Chapter 12, about indigenous people in Russia, stated that family/clan and communal/clan holdings had both an indigenous identity and a kinship element in their organization. George Currie’s Chapter 37 offers interesting insights into innovation to achieve non-monetary goals as well as monetary goals in Papua New Guinea. In some communities, notably among the Maori in New Zealand and aboriginal people in Canada, ownership of land and more generally the package of indigenous rights (hunting, fishing, and so on) are held by the community and not the individual. An activity that draws on the capacity provided by these resources must be communal in nature, even if only to the extent that permission for an individual to use the land and/or exercise the right must be granted by the community. Given the nature of reindeer herding, cooperation among Sámi has been and continues to be essential; reindeer herding neo-entrepreneurship requires a will to cooperate. In  contrast, Chapter 30 of Dana and Anderson (2007), about the Mohawks suggests that these people prefer cooperative entrepreneurship built on alliances. In Chapter 34, Peredo discussed co-operatives and community-based enterprise in the context of Peru. 8

Culturally Influenced Opportunity Recognition

Opportunity recognition is culturally influenced, as are definitions of and the measurement of success. Mainstream society may give paramount importance to economic performance, growth in sales, growth in productivity, growth in profit, share value and growth in market share. So do many indigenous people and groups with many stating that their entrepreneurial ventures must be financially able to compete before they can deliver the other benefits often sought. In this respect, financial viability is not an end in itself, but rather a precondition necessary for the achievement of the success sought; for example, respect for and preservation of traditional values and practices; reduction of poverty, improvement in living conditions, employment creation, and so on. Generally, value to society is not synonymous with value to a firm and monetary value is not necessarily social value. Similarly, it is useful to distinguish between shareholder value and  stakeholder value. In addition, the social value of self-employment varies greatly. Chapter 9 (in Dana and Anderson, 2007), about Basuto culture and entrepreneurship explained how cattle are a measure of success among the indigenous people of Africa. Thus, it can be said that opportunity recognition is therefore culturally determined, because different cultures have different goals and culturally specific needs. If person A wants to eat a fish and person B comes from a vegetarian culture, person B may not perceive an opportunity to go fishing as an opportunity having utility. Yet for person A, fishing is a means of attaining the goal of subsistence. The Cree people of the Lac La  Ronge Cree Nation in northern Saskatchewan are developing a successful wild, organic mushroom harvesting and marketing operation. The processing, marketing and distribution methods are modern in every respect. But, the harvesting methods are not. Measured on purely economic terms, the return to harvesters is very low in relation to the hours invested. But these hours are ‘on the land’ and are highly valued for other than economic reasons. Indeed, the cash from the harvest is almost a bonus. So for this group

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harvesting wild mushrooms in a remote northern forest is a wonderful opportunity for entrepreneurship, while for others with different objectives it is not. 9

External Forces

Culturally determined opportunities for entrepreneurship are often disrupted by entities external to indigenous people. Crawford wrote: The State-Nation, a model invented in Europe, was exported around the world. It contributed to the marginalisation and even the exclusion of the languages and the cultures that could not acquire an official or national status in the states . . . However, there are languages and cultures that resisted this process of uniformity. Today, these . . . cultures are entitled to be respected and to exist. (2002: 60)

In Dana and Anderson (2007), Helena Ruotsola’s Chapter 23 described suffering by the Komi people under Soviet rule. Likewise, Chapter 22 by Dana and Remes explained how the European Union is perceived as intervening with Sámi entrepreneurship. Also in this volume, Henry’s Chapter 42 discussed interference by government in New Zealand. Interestingly, in both Canada and New Zealand the state is beginning to acknowledge that the best way to foster development among its indigenous people is to redress past wrongs by recognizing indigenous claims to land and resources, with these to form the basis for development by the indigenous people. We suggest that the ability to produce wealth is more sustainable than the ability to sell resources. We believe that the ability to produce wealth is a function of skills and institutions. Welfare programmes likely reduce indigenous entrepreneurship and hinder macroeconomic development, given concomitant tax expansion. 10

Need versus Desire

Indigenous people are sometimes pulled to traditional forms of self-employment3 but pushed to other money-earning activities, out of economic need. Ndemo’s Chapter 8, in Dana and Anderson (2007), explained that virtually all those interviewed had livestock besides the business owned. Likewise, Chapter 9 about Basuto culture and entrepreneurship reported that indigenous people in Lesotho invest in cattle, even when their income comes from other sources. Degen’s Chapter 10 noted that, while raising livestock is a desirable activity, many Bedouins have integrated into mainstream society, although ‘as it is not socially acceptable, among the Bedouins, for women to work outside the house’ (Dana and Anderson, 2007: 123). Chapter 22, by Teresa Dana and Liisa Remes, noted that Sámi people in Finland are sometimes pulled to traditional forms of self-employment but pushed to other money-earning activities, out of economic need. Likewise, Rønning wrote in Chapter 19, that many families partly rely on wages from external employment. 11

Emphasis on Community

Western-style, mainstream entrepreneurship is not for everybody, and should not be forced upon people with incompatible values. Indeed, some indigenous communities believe in elements of egalitarianism, sharing and communal activity. This was central

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Indigenous entrepreneurship as opportunity 407 to the discussion by Cajete, who wrote, ‘Native people traditionally lived a kind of communal environmental ethics that stemmed from the broadest sense of kinship with all life’  (2000: 95). Similarly, Renshaw wrote about ‘a strongly held egalitarian ethic, an ethic  that predisposes the Indians of the Chaco to view the accumulation of material possessions – beyond a certain, limited level – as a threat to the social order’ (2002: 159). In Dana and Anderson (2007: 315) William Simeone’s Chapter 25 about the Han discussed how sharing of resources is a ‘hallmark of a subsistence economy and sharing was and continues to be a strong value of Han culture’. Also in Dana and Anderson (2007), Chapter 33 discussed the indigenous people of San Blas, in whose communities one finds minimal differences among household assets, and minimal variation in material circumstance; while some may explain this in terms of poverty, we believe that this is a function of a strong egalitarian ethic. In some cases it appears that the principles of equality provide a basis for identity. Thus, in some instances, Western business values conflict with  traditional values. Along the same lines, Renshaw explained, ‘In the traditional context, there appears to have been little or no possibility of an individual’s accumulating property, let alone of using property as a means of acquiring prestige’ (2002: 160). Of course, this contrasts sharply with the use of coppers among the Kwakwaka’wakw, discussed in Chapter 26 of Dana and Anderson (2007). Egalitarianism may be said to lead to sharing and communal activities, which appear frequently in indigenous communities. Wenzel wrote about sharing among the Inuit, ‘The result is an economy that, from Alaska to Greenland, optimizes social inclusiveness rather than the maximization of individual or family economic well-being’ (2005, p. 1894). Renshaw described a similar situation among indigenous people in Paraguay, ‘Commerce is an even more contradictory activity than either agriculture or stock raising,  since it implies the deliberate negation of generosity, with market relations taking  the place of sharing’ (2002: 179). This is consistent with works by Bodenhorn (2000), Damas (1972), and Van de Velde (1956). In Dana and Anderson (2007), Chapter 9 explained how cattle in Lesotho are privately owned but may be used by others than the proprietor: Each owner of cattle is expected to lend his herd to other members of the community in order to plough their fields. Conversely, if an individual were to sell an ox for personal gain, this would be interpreted as hostile against society. Thus, such animals serve as a symbol of cultural identity and cultural regulation inhibits the convertibility of such property into property for consumption.

Also in this book, Curry (Chapter 37) discussed the context of economic decisionmaking, ‘A villager returning home with a 1 kg carton of laundry detergent is likely to use only a very small proportion of the detergent himself before his supply is exhausted, because he would feel obligated to acquiesce to the demands of relatives for the remaining detergent after washing his own clothes’.

CONCLUSION There is rich heterogeneity among indigenous peoples, and some of their cultural values are often incompatible with the basic assumptions of mainstream theories. Indigenous

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entrepreneurship often has non-economic explanatory variables. Some indigenous communities’ economies display elements of egalitarianism, sharing and communal activity. Indigenous entrepreneurship is usually environmentally sustainable; this often allows indigenous people to rely on immediately available resources, and consequently, work in indigenous communities is often irregular. Social organization among indigenous peoples is often based on kinship ties, not necessarily created in response to market needs. Much entrepreneurial activity among indigenous people involves internal economic activity with no transaction, while transactions often take place in the bazaar and in the informal sector, where enterprises often have limited inventory. Why do people from different cultures react in unlike ways, even when exposed to similar stimuli? It appears that what is an opportunity for some is less so for others. Individuals from different ethno-cultural backgrounds do not all become self-employed for the same reason, nor should they be expected to respond the same way to any stimulus.  The perception of opportunity is culturally influenced, as is the measurement of success. We propose that entrepreneurship opportunity recognition and evaluation is therefore culturally determined; however, we note that culturally determined opportunities for entrepreneurship are often disrupted by entities external to indigenous people. Indigenous people are sometimes pulled to traditional forms of self-employment but pushed to other money-earning activities, out of economic need. Perhaps it is appropriate for us, now, to remind our readers the words of Marlo Morgan, who wrote about her experience with indigenous people, ‘They all agreed, automobiles were handy objects of transport. Being a slave to the payment of it, however . . . wasn’t worth it, in their opinion. Besides they are never in a hurry . . . Maybe instead of calling this place the Outback, they should consider it the center of human concern’ (1999: 106–7). Dana (2015) noted that indigenous entrepreneurship is among the youngest fields of academic research. Nevertheless, during the past few years, some articles about indigenous entrepreneurs and indigenous entrepreneurship – although very few – have been accepted in top journals, including: Entrepreneurship & Regional Development: An International Journal; Entrepreneurship: Theory and Practice (among the 50 journals used in the Financial Times Research Rank); and the Journal of Business Research. This reflects and indicates growing mainstream interest in indigenous entrepreneurship. In Entrepreneurship & Regional Development: An International Journal, Dana and Light (2011) compared indigenous and non-indigenous entrepreneurs in the same sector in Finland. Content analysis of interviews conducted with reindeer herders – referred to as reindeer husbandry entrepreneurs, by the Reindeer Herders’ Association – revealed  that  respondents who identified themselves as ethnic Finns viewed their self-employment as an individualistic form of entrepreneurship and they focused their discussion on matters related to financial capital and profit. In contrast, indigenous Sámi respondents claimed that a significant causal variable behind their herding was maintenance of a cultural tradition and not necessarily limited to the maximization of financial profits. Sámi respondents emphasized cooperation, social capital and reindeer herding skills that are acquired on the job, reflecting that considerable cultural capital is passed from adults to children in the course of primary socialization. A consequence of family participation in various aspects of community-based indigenous

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Indigenous entrepreneurship as opportunity 409 entrepreneurship is that Sámi children learn about and become indigenous entrepreneurs at a young age. The Entrepreneurship Theory and Practice study, Light and Dana (2013), focused on Old Harbor, Alaska, a remote outpost, mainly populated by indigenous Alutiiq people. This study found that all entrepreneurs here self-identified as Euro-Americans or multiethnic, not Alutiiq. Although Alutiiq people here have abundant social capital, employed for economic purposes, they did not use their social capital for commercial entrepreneurship. This study was recipient of an award at the Academy of Management. Henry et al. (2018) examined how factors from indigenous entrepreneurship research help explain the high level of Māori entrepreneurial performance in the mainstream screen industry. Based on a one-year series of structured interviews, this study showed that these indigenous entrepreneurs benefit jointly from cultural and social capital. The research shed new light on how indigenous ventures can pursue mainstream entrepreneurship while maintaining cultural identity. In the Journal of Business Research, Angulo-Ruiza et al. (2020) hypothesized several boundary conditions that affect the internationalization of social hybrid firms and tested them with a representative dataset of small and medium-sized, privately owned, indigenous businesses in Canada. Findings revealed that indigenous social hybrid firms were more likely to internationalize when the levels of institutional isomorphism are high and when the organization leverages economic network ties. However, the research revealed that social network ties and government support reduced the likelihood of social hybrid firms to internationalize. The study pioneered theoretical and practical implications related to the phenomenon of internationalization of indigenous entrepreneurs.

NOTES 1. Lindsay defined culture as ‘the collective programming of the mind that distinguishes the members of one category of people from another . . . Culture influences attitudes and behavior, varies within and across nations and across ethnicities, and is strongly embedded in indigenous communities’ (2005: 1–2). 2. For a detailed discussion of the bazaar, see Dana (2000). 3. King wrote, ‘Without deer there is no culture’ (2003: 133).

REFERENCES Angulo-Ruiza, Fernando, Albena Pergelova and Léo-Paul Dana (2020), ‘The internationalization of social hybrid firms’, Journal of Business Research, 113 (May), 266–78, doi:10.1016/j.jbusres.2019.10.017. Benedict, Ruth (1935), Patterns of Culture, London: George Routledge & Sons. Bodenhorn, Barbara (2000), ‘It is good to know who your relatives are but we were taught to share with everybody: shares and sharing among Iñupiaq households’, in George W. Wenzel, Grete Hovelsrud-Broda and Nobuhiro Kishigami (eds), The Social Economy of Sharing: Resource Allocation and Modern HunterGatherers, Osaka: National Museum of Ethnology, pp. 27–60. Cajete, Gregory (2000), Native Science: Natural Laws of Interdependence, Sante Fe, New Mexico: Clear Light. Chamard, John and Michael Christie (1996), ‘Entrepreneurship education programs: a change in paradigm is needed’, Entrepreneurship, Innovation, and Change, 5 (3), 217–26. Crawford, David (2002), ‘Morocco’s invisible Imazighen’, Journal of North African Studies, 7 (1), 53–70. Damas, David (1972), ‘Central Eskimo systems of food sharing’, Ethnology, 11 (3), 220–40. Dana, Léo-Paul (1992), ‘Entrepreneurship, innovation and change in developing countries’, Entrepreneurship, Innovation, and Change, 1 (2), 231–42.

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Dana, Léo-Paul (1995), ‘Entrepreneurship in a remote sub-Arctic community: Nome, Alaska’, Entrepreneurship: Theory and Practice, 20 (1), 55–72. Reprinted in Norris Krueger (ed.) (2002), Entrepreneurship: Critical Perspectives on Business and Management, vol. 4, London: Routledge, pp. 255–75. Dana, Léo-Paul (1996), ‘Small business in Mozambique after the war’, Journal of Small Business Management, 34 (4), 67–71. Dana, Léo-Paul (2000), Economies of the Eastern Mediterranean Region: Economic Miracles in the Making, Singapore, London and Hong Kong: World Scientific. Dana, Léo-Paul (2006), ‘Business values among the Imazighen’, EuroMed Journal of Business, 1 (2), 82–91. Dana, Léo-Paul (2007), ‘Promoting SMEs in Africa: some insights from an experiment in Ghana and Togo’, Journal of African Business (The official publication of the International Academy of African Business and Development), 8 (2), 151–74. Dana, Léo-Paul (2015), ‘Indigenous entrepreneurship: an emerging field of research’, International Journal. Business and Globalisation, 14 (2), 158–69. Dana, Léo-Paul and Robert Brent Anderson (eds) (2007), International Handbook of Research on Indigenous Entrepreneurship, Cheltenham, UK and Northampton, MA, USA: Edward Elgar. Dana, Léo-Paul and Ivan Light (2011), ‘Two forms of community entrepreneurship in Finland: are there differences between Finnish and Sámi reindeer husbandry entrepreneurs?’, Entrepreneurship & Regional Development: An International Journal, 23 (5–6), 331–52. Dana, Léo-Paul, Teresa E. Dana, and Robert B. Anderson (2005), ‘A theory-based empirical study of entrepreneurship in Iqaluit, Nunavut’, Journal of Small Business & Entrepreneurship, 18 (2), 143–52. Harris, Marvin (1974), Cows, Pigs, Wars and Witches: The Riddles of Culture, New York: Random House. Helander, Elina (1999), ‘Traditional Sámi knowledge’, in Ludger Müller-Wille (ed.), Human Environmental Interactions: Issues and Concerns in Upper Lapland, Finland, Rovaniemi: Arctic Centre, University of Lapland, pp. 25–7. Henry, Ella Y., Léo-Paul Dana and Patrick J. Murphy (2018), ‘Telling their own stories: Māori entrepreneurship in the mainstream screen industry’, Entrepreneurship & Regional Development: An International Journal, 30 (1–2), 118–45, doi:10.1080/08985626.2017.1388445. Hukkinen, Jane, Hannu Heikkinen, Kaisa Raitio and Ludger Müller-Wille (2006), ‘Dismantling the barriers to entrepreneurship in reindeer management in Finland’, Journal of International Entrepreneurship and Small Business, 3 (6), 705–27. Johnson, Simon, Daniel Kaufmann and Pablo Zoido-Lobaton (1998), ‘Regulatory discretion and the unofficial economy’, American Economic Review, 88 (2), 387–92. Kassam, Karim-Aly (2005), ‘Hunting, subsistence’, in Mark Nuttall, Encyclopedia of the Arctic, New York: Routledge, pp. 899–901. King, Alexander (2003), ‘Without deer there is no culture, nothing’, Anthropology and Humanism, 27 (2), 133–64. Kloosterman, Robert, Joanne van der Leun and Jan Rath (1998), ‘Across the border: immigrants’ economic opportunities, social capital and informal business activities’, Journal of Ethnic and Migration Studies, 24 (2), 249–68. Light, Ivan H. and Léo-Paul Dana (2013), ‘Boundaries of social capital in entrepreneurship’, Entrepreneurship Theory and Practice, 15 (1), 23–35. Lindsay, Noel J. (2005), ‘Toward a cultural model of indigenous entrepreneurial attitude’, Academy of Marketing Science Review, 2005 (5), 1–18. Morgan, Marlo (1999), Mutant Message Down Under, New York: HarperCollins. Müller-Wille, Ludger (1987), ‘Indigenous peoples, land-use conflicts, and economic development in circumpolar lands’, Arctic and Alpine Research, 19 (4), 351–6. Olurode, Lai (2007), ‘Ifa, the deity of wisdom, and importance of work among the Yoruba people’, Journal of Enterprising Communities: People and Places in the Global Economy, 1 (2), 135–41. Renshaw, John (2002), The Indians of the Paraguayan Chaco: Identity & Economy, Lincoln: University of Nebraska Press. Tayler, Jeffrey (2005), ‘Among the Berbers: a journey through Morocco’s high Atlas Mountains’, National Geographic, 207 (1), 78–97. Van de Velde, Frans (1956), ‘Rules for sharing the seals among the Arviligjuarmiut Eskimo’, Eskimo, 41, 3–6. Wenzel, George (2005), ‘Sharing’, in Mark Nuttall (ed.), Encyclopedia of the Arctic, New York: Routledge, pp. 1891–4.

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46. Innovation systems and entrepreneurship research Jan Vang, Heidi Wiig and Léo-Paul Dana

INTRODUCTION Innovation systems research and entrepreneurship research are two of the critical research streams explaining how companies and countries compete and grow in the current globalizing learning or knowledge economy (Asheim and Vang, 2006; Chaminade and Vang, 2008a, 2008b; Dana, 2004; Lundvall et al., 2011). Their centrality reflects that innovation increasingly has become the new source of sustained competitive advantage especially in developed countries, but also in developing countries owing to their recent transformation processes (Chen and Vang, 2008; Landström et al., 2012a; Lundvall et al., 2006, 2011). Developed countries have been going through a gradual deindustrialization process where manufacturing firms have outsourced offshore their manufacturing activities and only kept their headquarters and research and development (R&D) activities in their home countries (Chaminade and Vang, 2008a). These countries, therefore, had to create development trajectories based on innovative activities such as R&D and design as well as find new means for generating growth, prosperity and jobs (Mahnke et al., 2005; Vang and Asheim, 2006). In respect of the latter, entrepreneurs, especially technology entrepreneurs and university spin-offs, have been identified as the central driver in this process (Etzkowitz and Zhou, 2017). Indeed, with increasing fine slicing of global value chains, R&D has also been outsourced, and even developing countries, especially China and India, rely heavily on innovation and entrepreneurship (Mudambi, 2008; Vang and Asheim, 2006; see Padilla-Pérez, 2011, for Latin American examples). Meanwhile, innovation systems (IS) research has established itself as one of the leading innovation research streams approaches (Chaminade and Vang, 2008a; Dolfsma et al., 2008; Lundvall et al., 2011). Innovation systems research has contributed to economics by both conceptualizing innovation in economics and inserting innovation as the critical activity behind economic growth and development (Lundvall et al., 2011). While there are several distinct IS approaches (for example, national, technological, global, regional, corporate and sectoral) this chapter focuses on two that are distinctively different: national (Lundvall et al., 2011) and regional (Asheim et al., 2007a, 2007b; Ashourizadeh et al., 2014). We also include the systems innovation approach as it has recently embraced the emerging sustainability challenges the planet is facing (Geels, 2004; see also Dana et al., 2019, for a new approach). In parallel, entrepreneurship research has established itself as a critical player in explaining how entrepreneurs create new ventures which by default are innovative (at least, their activities are new to the firm), which is crucial in a globalizing learning economy characterized by economic turbulence, technological and market uncertainty (Acs et al., 2017; Ramadani et al., 2019; Schøtt et al., 2014). In contrast to IS, this literature has a strong focus on micro aspects of entrepreneurial activities, such the importance of the personality of an entrepreneur, the impact of the initial team, his or her network, and the ability of 411

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the entrepreneur to identify or create entrepreneurial opportunities (Alvarez et al., 2016; Ashourizadeh et al., 2014). Despite the dominant focus on the micro-dimensions of entrepreneurial activities, scholars in the field have increasingly incorporated institutional and environmental dimensions into the analysis where the eco-systems approach is perhaps the most prominent. The ecosystems approach maintains a clear focus on the individual entrepreneur and his or her interaction with the systemic surroundings and represents a more neoliberal version of IS research (Stam and Spigel, 2017). Whereas IS research focuses on established companies and their innovative activities (more than on the individual entrepreneur), entrepreneurship eco-systems research has as its focus the individual technology-entrepreneur. We illustrate why there is a need for integrated IS and entrepreneurship eco-systems research, and how regional IS scholars have already laid the foundation for the approach (Asheim et al., 2007a). Stam (2015) has already proposed a framework for integrating the two approaches. We follow this integration but suggest that there is a need to supplement Stam’s approach with insights into the IS approach sustainability transitions literature, which signals that particular dynamics related to sustainability challenges to dominant technological paradigms cannot easily be explained within Stam’s synthetic approach. Origin of Innovation Systems Theory The purpose of this section is to give a brief introduction to IS research; the section does not aim to provide a comprehensive review but explains the central tenets of the approach. Innovations systems have many different definitions. Lundvall is an authoritative voice in this context. According to Lundvall (1992), a national innovation system refers to the various nodes interacting in connection with production, diffusion and use of new knowledge. Lundvall and other scholars within this tradition highlight how national IS are crucial in shaping the interactions that influence the creation, diffusion and use of new knowledge on a national level. The IS scholars have only had limited interaction with entrepreneurship scholars thus far (while entrepreneurial researchers have paid more attention to IS and parallel streams of research) (Lundvall, 1992; Lundvall et al., 2011). The aim is, first and foremost, to contribute to explaining growth and prosperity (and sustainability, as Kemp and Soete had already pointed out in their 1992 text); the goal is not to derive managerial implications. The limited interaction with entrepreneurship scholars and management scholars in general reflects that the national IS literature is rooted in heterodox economics, particularly in evolutionary economics, and is a macroeconomic discipline. It emerged as a reaction to neoclassical growth theory, where technology was an exogenous variable reduced to a residual accounting for the largest part of the variance of the dependent variable (Chaminade and Vang, 2008a; Lundvall, 1992). In neoclassical economics, technology was supplementing the main explanatory variables, being capital and labor. That is, technology, the largest part of R-square, was accounted for by an exogenous variable and not an endogenous component of the model. According to IS research, this gave an inadequate explanation of economic growth and justified the need for a supplementary theory. This alternative, IS, explanation proposed that innovation should be conceptualized as an interactive process, not as a demand or supply model. This interactive process entailed not just internal actors but also external actors (Brambini and Vang, 2018; Chaminade and

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Innovation systems and research 413 Vang, 2008a; Lundvall, 2009; Lundvall et al., 2011; Vang and Brambini, forthcoming). The actors are firms, universities and research institutions, government bodies, to mention a few (Asheim and Vang, 2006; Asheim et al., 2007a; Lundvall, 1992). The concept of firms is not unpacked clearly. However, in the majority of papers, the focus is on larger companies, and when the focus is on smaller companies, it is mainly the contextual setting the scholars pay attention to (Lundvall et al., 2011; Padilla-Pérez et al., 2011). The notion of large firms is also implicit in that researchers refer to unlearning as an ingrained component of the challenges that firms face in the globalizing learning economy (Lundvall and Johnsson, 1994; Lundvall et al., 2006). Entrepreneurial firms may also need to unlearn routines but it is not the main issue for an entrepreneurial company (which is a lack of routines in an ad hoc organization). The importance of large firms also surfaces in the early studies of user–producer interaction, which is a central component of IS research. User–producer interaction focused on the interaction between mature players and their users; it is not on the user–producer issues entrepreneurs face when establishing a start-up (Brambini and Vang, 2018; Chaminade and Vang, 2008a, Lundvall, 2009; Padilla-Pérez et al., 2011). The focus on external actors led to a focus on how the external actors were embedded in the external institutional context. However, where institutional theory posits that institutions can be analyzed through a conceptual framework looking into the normative, regulative and cognitive components of the institutional setting, IS research applies a systemic dimension and focuses on the interaction between the nodes in the system. The nodes are inhabited by actors. Nodes can be universities, firms and other organizations (Chaminade and Vang, 2008a; Vang et al., 2007). Institutions in this perspective are, in our interpretation, the mechanisms governing through support and selection the innovation system and thereby the direction and rate of technological change. Freeman (2008), a founder of the IS approach, paid special attention to Kondratieff cycles and how technologies emerged and decreased in importance. Dosi (1992) introduced the concept of technological paradigms and trajectories. Other scholars emphasized more the policies needed to initiate and sustain technological change (Chaminade et al., 2009). Well-configured IS ensure systemic effects which refer to that those actors who inhabit the nodes share a certain sense of direction and that the selection mechanisms (for example, policy support) support a balance between the continuous development of the technology trajectory and new path creation (Chaminade et al., 2009). This reflects the Schumpeterian definition of innovations as recombinations. Selection reduces variety and thereby the possibilities for recombination; therefore the systems support mechanisms should simultaneously create conditions for variety creation. In principle, variety creation could be the result of entrepreneurial activities. However, IS research does not explicitly theorize the role of entrepreneurs in systemic variety creation. Focus is more attuned to ensuring systemic effects from a shared direction (Chaminade et al., 2009; Lundvall et al., 2011). The different IS approaches share most tenets but place the accent on different activities (Asheim et al., 2007a). Whereas national innovations systems (NIS) research focuses on the nations and national differences, regional innovation systems (RIS) share their roots in Schumpeterian ideas but not the origin in criticizing neoclassical growth theory; thus the role of technology is less pronounced in RIS (Vang and Chaminade, 2006). Whereas NIS aims at explaining economic growth, RIS aims at explaining the spatial

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distribution of economic growth including changes in industrial concentration across space (Chaminade and Vang, 2006; Intarakumnerd and Vang, 2006; Vang, 2007). Economic geography was initially an idiosyncratic science without much theoretical anchoring, which was subsequently replaced by a positivist spatial science focusing on formal modelling on interactions between different places. A consequence of the shortcomings of the formal modelling approach was the emergence of a Marxist geography approach. The Marxist approach worked especially with uneven spatial development. This literature assumed strong power asymmetries between multinational corporations (MNCs) and small companies, and predicted an increased domination of MNCs globally (Harvey, 2009). Empirical data, however, suggested that small and medium-size enterprises (SMEs) in industrial districts, such as Prato in Italy, continued to thrive. This spurred an increased interest in how clustered SMEs could benefit from being embedded in localized networks, supported by specialized institutions and with access to the local specialized industrial atmosphere (Chaminade and Vang, 2006, 2008b; Lorenzen et al., 2008; Vang, 2007; Vang and Chaminade, 2007). These externalities were referred to as Marshallian externalities, a reference to Alfred Marshall’s pioneering research. This stream of research was popularized by Piore and Sabel (1984) in their book, The Second Industrial Divide, and strongly influenced economic geography. That is, whereas large companies had economies of scales (and possible core rigidities), clustered SMEs had the flexibility and an ability to accommodate new demands or fluctuations quickly. Nevertheless, RIS scholars experienced that the cluster approach was most efficient in explaining exploitation as opposed to exploration (Brambini and Vang, 2013; Intarakumnerd and Vang, 2006; Maher et al., 2013; Vang and Asheim, 2006). Exploitation refers to use and modification of existing resources, while exploration is capturing innovative activities requiring the development of new resources. Regional innovation systems scholars, therefore, shifted attention to how innovation and RIS shaped the regional development. The scholars, in general, concurred with the notion of a globalizing learning economy, and central scholars had already pioneered notions such as learning regions. Regional innovation systems, as presented by Asheim, consist of two pillars, being an exploitation and exploration pillar (Asheim et al., 2007a). The exploitation pillar greatly assembled the insights already established by the cluster literature. In contrast, the exploration pillar focused on universities and similar knowledge-producing organizations, and how their activities influenced the ability of the exploitative pillar to pursue innovationbased activities. Initially, attention was primarily paid to local actors and local networks but, as clusters became fragments, RIS scholars followed suit and reconceptualized RIS as local, partially open, nexuses of local, national and international actors and their enactments (Chen et al., 2012). Technology changes scholars have already from the onset paid attention to environmental issues. Soete (1992), for example, analyzed the need for developing green technologies. Freeman early on identified a green Kondratieff circle. Lundvall et al. (2011) explicitly refer to the development and how this entails social and environmental sustainability. Vang et al. (2020) included the Sustainable Development Goals. While the scholars cannot be accused of technological determinism, they nevertheless pay more attention to technology than to the human agency creating technology in new ventures. As a reaction to what selected scholars experienced as an inadequate conceptualization in IS research of challenges about the development and upscaling of radical

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Innovation systems and research 415 environmental technologies, a new stream of innovation research has emerged, referred to as systems innovations or sustainable transition research (Geels, 2005, see also Dana et al., 2019). This literature posits that it is an alternative to IS but is de facto a sub-approach (as are technological IS, and sectoral and global IS). The focus of this literature is on the barriers to transforming society from being nonsustainable to sustainable (see Chapter 10 in this volume). The basic idea is that societies can be decomposed into three elements: the landscape, the regime and the niche (sometimes referred to as the arena) (Geels, 2019). There is booming and nuanced literature in the field; hence it is difficult, if not impossible, to introduce the nuances in the body of work. In brief, the literature is concerned with the development of new radical technologies that can pave the way to a sustainable society and the drivers in and barriers to getting the technology accepted and upscaled (Geels, 2019). The theory is rooted in evolutionary economics, and the focus is on the conditions shaping the selection mechanisms and the impact of the selection mechanisms on the survival of alternative sustainable technologies. It is assumed that the regime actors – the actors currently part of and typically benefiting from the current technological trajectories  – are reluctant to engage in massive transformations especially those that threaten their position within the regime. Since the selection mechanism favors these actors, there is a need for establishing niches, which are protective spaces where the regime-favoring selection mechanism is suspended. These protective spaces are populated by actors with an idea, vision or similar for creating a new sustainable technology. The niche is space where the idea can mature and in readiness to engage in competition with dominant regime technologies (supported by the dominant regime) actors. These actors are akin to sustainability entrepreneurs, although they are often not considered as entrepreneurs in the literature. Instead, they are labelled non-governmental organizations (NGOs), activists and grassroots (Smith and Seyfang, 2013). However, as numerous examples such as Vestas show, eventually several of these actors turn out to be entrepreneurs. Vestas started as a small experiment and to date has built more than 41 000 wind turbines in 61 different countries; thus they have moved from being a niche player with an inefficient technology to being a global leader in sustainable energy provision. Theoretically, the main barriers to creating sustainable upscaled technologies are to be found in the technologies and in the resistance from the regime or dominant regime players (Geels, 2005). These are assumed in general to benefit from the currently established regime and threatened by new emerging technologies. It is mainly when new, challenging technologies are supported by pressure from the landscape (society at large) and thereby destabilizes it, that new technologies are accepted and upscaled (Geels, 2019). This has spurred a valuable literature on co-evolutionary processes between niches and regimes, and destabilization processes, but only paid limited attention, to the role of entrepreneurs in creating sustainable entrepreneurial ventures (this is not explicitly covered by the social entrepreneurship literature which has less of a technological change foundation). Systems innovation scholars have established the concept of forerunners, which refers to actors who have ideas challenging the status quo as opposed to enforcing it (Smith and Stirling, 2010). While this may not be acknowledged, this shared definitional affinity with entrepreneurs is as outliers who can see or create opportunities not identifiable by the representative citizen.

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From Innovation Systems to Entrepreneurship While entrepreneurship research initially focused mainly on micro-dimensions of entrepreneurship, it has recently paid more attention to the surrounding society (Baklanov et al., 2014). This section illustrates this journey. According to (Landström et al., 2012a: 1167) the theoretical foundation of entrepreneurship is based on framework imported from (1) economic disciplines, such as Schumpeter (1934 [1961], 1942), Kirzner (1973), Knight (1916) and Casson (1982), (2) from behavioral sciences (McClelland, 1961) as well as (3) on an evolutionary view of the firm (Aldrich, 1999; Nelson and Winter, 1982; Penrose, 1959; Stinchcombe, 1965). Alvarez et al. (2016) state that entrepreneurship research is diverse and expanding. It covers fields such as opportunity identification and exploitation processes; psychological, behavioral, educational and sociodemographic backgrounds and influences on entrepreneurial ability and ambition; and support and foundations for innovation and creative drive (Saridakis et al., 2019). There are many definitions in the current literature on the concept of entrepreneurship (Saridakis et al., 2019). Shane and Venkataraman (2000: 218) defines it as ‘the scholarly examination of how, by whom, and with what effects opportunities to create future goods and services are discovered, evaluated and exploited’. This suggests that entrepreneurs pursue innovative activities as entrepreneurship by definition is new to the firm (but not necessarily new to the industry or the world). The early contributions to our knowledge of entrepreneurship come from scholars such as Schumpeter, Kirzner and Knight, representing classical scholars rooted in economics and in ‘the function of entrepreneurship in the creation of new markets’ (Landström et al., 2012b). Schumpeter (1934 [1961], 1942: 82–5) visualized the entrepreneur as an innovator creating new industries and precipitating significant structural changes, setting off a disequilibrium force in the economy leading to gales of ‘creative destruction’ which enables growth. The Schumpeterian entrepreneur is a risk-taker, sees opportunities and develops new combinations through the systematic production of new, economically useful knowledge out of existing knowledge (Kurz, 2012). This is the notion underpinning IS research. Schumpeter also focused on the institutional structure of society and argued that increased rationality in society weakens entrepreneurship and leads to the stagnation of capitalism (Landström et al., 2012a). This definition is more aligned with the contemporary entrepreneurial eco-systems than with IS. Large organizations, including government, stifle and block entrepreneurial activities. In IS, the focus is more on system failures as a conceptual corrective to neoclassical market failures. In IS, a system failure calls for government interaction, in (a great deal of) entrepreneurship research it calls for deregulation, and market failures not stemming from overregulation is equated with entrepreneurial opportunities. This is precisely the view of Kirzner. Kirzner (1973) saw entrepreneurship as creative discoveries. The entrepreneur could notice inefficiencies in the market and was concerned with the establishment of the market order. The Kirznerian entrepreneur is seeking out these imbalances or failures in the market, trying to coordinate resources more effectively and leading a process towards a new equilibrium. Schumpeter, however, looked at the entrepreneur as someone transforming market order. The entrepreneurial function was related to introducing

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Innovation systems and research 417 change through economic action, inventions and innovation. Knight (1921) argued that entrepreneurial returns result from activities that cannot be predicted and that entrepreneurial competence is the individual’s ability to deal with uncertainty. Knight sees entrepreneurship primarily as a reward for uncertainty, if change is predictable, there is no opportunity for profit. Innovation systems research acknowledges the association between innovation and uncertainty, but is less concerned with the propensities of those who can see opportunities than on how the institutional setting supports iterative innovation processes. According to Casson (1982: 23), an entrepreneur is a person (not a team, committee or organization) who ‘specializes in taking judgmental decisions about the coordination of scarce resources’. Persons discover entrepreneurial opportunities. Some of the conceptual debates among Schumpeterian researchers has been related to how opportunities are created or discovered (Alvarez et al., 2013; Ardichvili et al., 2003). The opportunity identification and ideation processes within entrepreneurship are related to individuals possessing different knowledge, so opportunities evident to one person may not be evident to another who has a different set of knowledge, information and beliefs. This asymmetry is necessary to recognize in order to understand why some people exploit opportunities in the market, while others might not (Shane and Venkataraman, 2000). The actual ideation and discovery processes are black-boxed in IS research (and entrepreneurship by or within incumbents firms is not integrated into the Schumpeterian processes). The asymmetry in seeing commercial opportunity has been explored in research by looking at sociodemographic background variables. Psychological and behavioural traits have also been essential to understand entrepreneurial ability. Personal qualities of the entrepreneur occupied a prominent position in entrepreneurship research during the 1970s and 1980s. The earliest study linking unique personal qualities to entrepreneurship is McClelland (1961), who argued that the need to achieve was a vital motivational factor and psychological trait for entrepreneurs, more critical than economic profit. This trait within entrepreneurship research was subject to criticism and eventually came to be regarded as something of a dead-end, leading researchers to argue for a better understanding of entrepreneurship systems and networks (Landström et al., 2012a; Shane and Venkataraman, 2003), but is currently undergoing a revitalization. Innovation systems researchers ignore individual traits, and the lowest unit of analysis is usually the firm. Individuals interact with other people and can be influenced by the environment and their peers. Kirzner (1980: 12) notes that that the institutional framework within which entrepreneurial decisions are made ‘may itself vitally affect the alertness out of which those decisions emerge’. Again, IS research focuses more on the competency side as opposed to how institutions create alertness. Entrepreneurship research focusing on the evolution of entrepreneurship and the entrepreneurial process was a consequence of evolutionary models of economic change accelerated during 1970, heavily inspired by Schumpeter, who was a prominent exponent of the idea that economic change could be conceptualized as an evolutionary process (Fagerberg, 2002). Nelson and Winter (1982) were pioneers in the application of evolutionary models of economic change at the micro level. Evolutionary theory emphasizes co-evolutionary processes in the economy, involving knowledge, organizations’ industrial

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structure and institutions (Nelson, 1994). The concept of co-evolution in entrepreneurship, then, are connected to the processes during the diffusion, use and creation of knowledge, involving both individuals and organizations in their economic and social context (Malerba and McKelvey, 2018; McKelvey, 1996). Aldrich (1979) focused on the organizational behavior level, arguing that organizations flourish or fail because they are more or less suited to the particular environment in which they operate and that entrepreneurship needs to be embedded in networks  of  relationships (Aldrich and Zimmer, 1986). Entrepreneurship is then lifted  from  the individual, to include the nexus of entrepreneurship and context (Hamilton and Harper, 1994) linking to the conditions stimulating entrepreneurial innovation and innovative entrepreneurship (Acs and Audretsch, 2003; Acs et al., 2014; Autio et al., 2014). Individuals’ decisions are part of a system of decisions which constitute the environment of any institution (Schmid, 2004: 8). This reflects a position similar to that of IS scholars. IS researchers are, however, not preoccupied with decision-making structures. Inspired by evolutionary economics they pay more attention to how bounded rationality and satisfying behavior influence actors’ behavior in general. According to our knowledge, how institutions influence the content of bounded rationality and satisfying behavior, have to our knowledge not received much attention in IS research.

ENTREPRENEURIAL ECOSYSTEMS In the innovation system approach, the organization (the firm) is a node in the system while the role of entrepreneurs remains a black box (Stam, 2015; also, see Chapter 10 in this volume for an introduction to digital platform ecologies). This has opened up for an alternative system approach termed the entrepreneurial ecosystem approach. This approach focuses mainly on high-growth start-ups. Such start-ups are considered to be an important source of innovation, productivity growth and employment (Mason and Brown, 2014). This type of entrepreneurship takes place in a community of interdependent actors emphasizing the role of the (social) context of entrepreneurship. Innovation system researchers concur with the contextual part but consider the focus on high-growth start-ups to be too narrow; innovation is also pursued in large companies with dedicated R&D departments and so on. The entrepreneurial ecosystems approach draws upon scholars from economic geography, economics and other disciplines, who all seek to understand why firms cluster together in geographical space and the benefits that arise from this. Stam and Spigel (2017) define entrepreneurial ecosystems as a set of interdependent actors and factors. These factors are coordinated in such a way that they enable productive entrepreneurship within a particular territory. The entrepreneurial ecosystem approach shares the focus on the local and regional external business environment and the focus on relational elements within regions that govern innovation and entrepreneurship with the regional innovation system approaches. However, the entrepreneurial ecosystem starts with the entrepreneurial individual instead of the firm or organization, and it sees the entrepreneur as created by the system as well as an actor in creating the system. The approach focuses on people, networks and

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Innovation systems and research 419 institutions. The novelty of the entrepreneurial ecosystem approach lays in its focus on (productive) entrepreneurship as an output of the ecosystem (Acs et al., 2017). Ontologically, this indicates a difference between the entrepreneurial eco-systems and the IS approach, where entrepreneurship researchers emphasize the agency of the individual agent. In contrast, IS researchers emphasize the structure. This could be seen as an incompatible difference but, assuming a normal distribution of entrepreneurial dispositions, high-growth start-up entrepreneurs can be considered to be on the skewed side of the distribution and equipped with more agency than the ordinary citizen or employee. Thus the differences can be reconciled. According to Isenberg (2011), the eco-systems approach potentially replaces or becomes a pre-condition for the successful deployment of cluster strategies, IS, knowledge economy or national competitiveness policies. The key policy challenge addressed is that, even in an environment which is conducive to business start-ups, there is a paucity of highgrowth businesses (Mason and Brown, 2014); the environments in which high-growth firms flourish are distinct from those that have high rates of start-ups and knowledge spillovers (Ramadani et al., 2017). The policy implication is that other types of resources are needed, and they cannot be restricted to top-down efforts focusing on framework conditions. They must consider bottom-up initiatives involving other tiers of government as well as non-government actors and must be distinctly different from policies directed towards start-ups (Mason and Brown, 2014: 8). The focus in entrepreneurial ecosystems on local conditions and bottom-up processes is also to be found in the literature on regional innovation and growth. The approach also aligns with recent contributions in entrepreneurship, focusing on ambitious entrepreneurs and institutions (cf. Cooke et al., 2011; Stam et al., 2012). Towards an Extended Synthesis The system approach in entrepreneurship research reveals the need to acknowledge the dependence and relationships between actors and factors that enable and constrain entrepreneurship (Dana et al., 2019). It moves from the individual entrepreneur as the locus of value creation to a contextual turn emphasizing the need to situate the entrepreneurial phenomena in a broader context incorporating temporal, social, organizational and market dimensions of context (Wooley, 2017; Zahra, 2007; Zahra et al., 2014; cited in Stam and Van de Ven, 2019). Stam and Van de Ven (2019) view the entrepreneurial ecosystem as consisting of the critical entrepreneurs and firms that govern, integrate and perform all of the functions required for entrepreneurship to flourish in a territory. A healthy ecosystem will then produce entrepreneurship as an outcome that ultimately will create value. In order to understand how entrepreneurial economies function and how they produce entrepreneurship as a property of the system, Stam (2015) developed ten fundamental elements of an entrepreneurial ecosystem and Stam and Van de Ven (2019) constructed an index consisting of 10 quantifiable elements. These elements are formal institutions, culture, networks, physical infrastructure, demand, leadership, talent, finance, knowledge and intermediate services. In their research, they found the entrepreneurial ecosystem elements are mutually interdependent and co-evolve in a territory. Further, they found that there is a strong correlation between talent, entrepreneurial culture and support services as well as knowledge and leadership. The strong

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correlations of values of the ten individual elements provide evidence for the value of a systemic approach that looks at entire sets of multiple elements in order to understand the evolution of entrepreneurial ecosystems. This turn in entrepreneurship research then takes context into the conceptual framework suggesting more in-depth examinations of structures and processes, including the not-for-profit sectors and policy. The system builds up from the level of the entrepreneur, not fixating on the individual entrepreneur but with an emphasis on the interdependencies, also shifting policy from quantity to quality and towards creating a regional policy focusing on creating a system for entrepreneurship. The model adds value to IS research by highlighting the micro-foundations of innovative entrepreneurial activities, which has been black-boxed in IS research. The model, although it could be clarified, suggests that focus should be on entrepreneurs and entrepreneurial employees. This is aligned with the implicit idea in IS research that there are actors responsible for, or drivers of, innovations within established companies; Stam, however, seems to ignore the role of entrepreneurial employees in larger companies. Innovation systems place importance on two different learning models (Lundvall et al., 2011). ‘The Science, Technology and Innovation (STI) mode, is based on the production and use of codified scientific and technical knowledge. The other, the Doing, Using and Interacting (DUI) mode, relies on informal processes of learning and experience-based know-how’ (Jensen et al., 2007: 680). In our opinion, Stam’s model needs to be supplemented with the DUI model; this also entails acknowledging that while radical innovations are critical in an entrepreneurial context (where the start-up may not be able to survive in the long run unless offering novelty), already established market players can under particular circumstances maintain their market power using incremental innovations (many incumbents pursue this approach successfully). Incremental innovations may then accumulate over time and result in radical innovations. The focus on DUI also reveals that process improvement can be equally or more important than product or service development. Finally, we propose that the synthesis can benefit from being extended with insights  from the systems innovation literature owing to entrepreneurs increasingly having to compete with incumbents by offering sustainable innovations (Vang et al., 2020). Innovation systems tend to be biased in favor of incumbents. As suggested previously in the introduction to IS research, the framework underpinning the systems innovations literature is especially strong in framing how and under what conditions (entrepreneurial) sustainable radical technologies are being blocked and adopted by the regime (incumbent) players, and when the sustainable technologies replace dominant technologies (Dana et al., 2019). The literature proposes that entrepreneurs pursuing radical sustainable technologies threatening the dominant regime players will need to be affiliated with protective spaces, for example, engage in collaboration with universities where funding is based on novelty and not performance only since radical sustainable technologies require extensive periods of maturation. Moreover, the approach also identifies where the eco-system is being destabilized and, thereby, where  there  are opportunities for the entrepreneur. Besides, the systems innovation literature is concerned with how to increase the speed of acceptance of new radical sustainable technologies, which is a core concern of entrepreneurs fearing the burn

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Innovation systems and research 421 rate; a theme not sufficiently dealt with by either the eco-systems or the IS approach (Geels, 2019).

CONCLUSIONS This chapter aims to illustrate how entrepreneurship and IS research have mutually complementary perspectives, which in combination can contribute to creating a more complete understanding of entrepreneurship, especially in the globalizing learning economy (Dolfsma et al., 2008). The authors illustrate that the entrepreneurial approach has a strong focus on microfoundations of entrepreneurship, while IS tend to black-box the firm. The entrepreneurial focus can contribute to improving the micro-donations of IS research. Entrepreneurial eco-systems research provides an extension incorporating elements that are central in IS research (Vang and Asheim, 2006), and especially so for the importance of institutions. This approach, therefore, is a fruitful starting point for elaborating in greater detail how the two approaches can be better integrated. The synthesis is, however, not without limitations. Entrepreneurship research included in the eco-systems approach tends to focus too much on the entrepreneurial person or firm and ignores the importance of incremental innovations in incumbent firms. Innovation systems research is particularly strong in the latter domain and contributes by introducing DUI-learning modes. The sub-branch of IS research labelled systems innovation contributes to the synthesis by providing a unique angle on how the system can be analyzed to better accommodate the barriers that sustainability entrepreneurs face (Asheim and Vang, 2006) – even though the focus is too much on power. Future research will need to go in this direction to nuance the framework and add new dimensions (Dana et al., 2019). The framework is also developed on a high level of aggregation, and detailed case-based research is required to provide more content to the institutional components of the framework. Also, it is still an open question if the systems innovation approach provides the most appropriate framework for integrating sustainability into the synthesis; other complementary approaches may be considered instead. Finally, interactive learning can benefit from being theoretically strengthened by including insights from the participation literature (Latif and Vang, forthcoming a, forthcoming b; Vang and Brambini, forthcoming).

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47. Innovative behavior* Yang Song

Schumpeter (1934) suggested that entrepreneurs are characterized mainly by innovative behavior. An entrepreneur’s innovative behavior has a direct and significant influence on business achievement. This chapter reflects on the notion of defining innovative behavior. An early definition of ‘innovative behavior’ was suggested by Rogers and Shoemaker (1971, p. 27) at an individual level, which referred to the ‘degree to which an individual is relatively earlier in adopting an innovation than other members of his system’. Later, researchers started exploring group innovative behavior, which emphasizes the extent to which the group or team supports innovative change and the pursuit of new ideas (Kanter, 1983). Innovative behavior at an organizational level was defined as the implementation of an internally generated or a borrowed idea – whether pertaining to a product, device, system, process, policy program or service – that was new to the organization at the time of adoption (Zaltman et al., 1973). West and Farr (1989) conclude with individual, group and organizational levels, and define innovative behavior as the intentional creation, introduction, and application of new ideas within a work role, group or organization, in order to benefit role performance, the group or the organization. Beyond the levels of innovative behavior, researchers are more willing to consider innovative behavior as a process of refining, promoting and implementing ideas (Kanter, 1988), or three stages of behavioral tasks, idea generation, idea promotion and idea realization (Carmeli et al., 2006; Janssen, 2003; Janssen et al., 2004; Scott and Bruce, 1994). Innovative behavior begins with problem recognition and generation of ideas or solutions (novel or adopted), building a coalition of supporters for ideas and producing ‘a prototype or model of the innovation’ (Scott and Bruce, 1994, pp. 581–2). This definition is commonly used by a large majority of researchers (Carmeli et al., 2006; Janssen et al., 2004; Scott and Bruce, 1994). Thus far, researchers seem to agree on the definition of innovative behavior. It is worth noting again that innovative behavior is one of the most important characteristics for entrepreneurship. Innovative behavior is widely claimed to contribute to long-term organizational effectiveness (Janssen, 2003) and is very important to enable an organization to succeed in a dynamic business environment (Thurlings et al., 2015; Waheed et al., 2018; West and Farr, 1990; Yuan and Woodman, 2010). Therefore, what motivates or enables innovative behavior is critical (Scott and Bruce, 1994).

WHAT MAKES BEHAVIOUR INNOVATIVE? Management research on innovative behavior focuses on the human aspect in order to understand situations and factors that make behaviors innovative. In order to encourage innovative behavior, a variety of research has explored factors that might influence innovative behaviors (Ford, 1996; Janssen, 2004, 2005; Kleysen and Street, 2001; Scott and 426

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Bruce, 1994; West and Farr, 1989). As mentioned previously, innovative behaviors can occur at individual, group or organizational level. Here we discuss the most important impact factors. From an individual-level perspective, innovative behavior is construed as a generalized willingness to change (Hurt et al., 1977) which can be decided upon freely by the employee. This is mainly a motivational issue (Amabile, 1988; Pieterse et al., 2010). Therefore, innovative behavior is related to the ability of employees to create new ideas, and their enthusiasm to bring those ideas to fruition (Scott and Bruce, 1994; West and Farr, 1989). Personal features such as career stage, systematic problem-solving style (Scott and Bruce, 1994), tolerance for ambiguity, stability and self-confidence (Michael et al., 2011; Topcu et al., 2015), and stress reactions of job-related anxiety and burnout (Janssen, 2004) are relevant for innovative behaviors. From the group-level perspective, innovative behavior is related to group characteristics, such as structure and relationships. Structural and psychological empowerment were statistically significant predictors of innovative behavior (Knol and Van Linge, 2009). Work-group relationships may influence individual innovative behavior (Scott and Bruce, 1994; Wang et al., 2015; Xerri, 2013). Group diversity may have both beneficial and detrimental effects on innovation (Van der Vegt and Janssen, 2003). From an organization-level perspective, innovative behavior is related to organizational characteristics including leadership, organizational support and firm size. The role of leadership on innovative behavior is also controversial. Different types of leadership may encourage or constrain the output of innovative behavior (Amabile et al., 2004; Carmeli et al., 2006; Janssen, 2005; Oldham and Cummings, 1996; Pieterse et al., 2010; Scott and Bruce, 1994). For example, transformational leadership can be positive (Amabile et al., 2004; Pieterse et al., 2010), negative (Basu and Green, 1997) or have no effect at all (Moss and Ritossa, 2007) on innovative behavior. Organizational support includes organizational commitment and organizational justice. Organizational commitment may mediate the effects of leadership on employee innovative behavior (Gu et al., 2017) or influence innovative behavior directly (Galende and de la Fuente, 2003; Janssen, 2005; Xerri, 2013; Yuan and Woodman, 2010). Organizational justice promotes innovative behavior through the psychological mechanism of perceived organizational support rather than directly (Young, 2012). Furthermore, there is research suggesting that organizational climate is positively related to employee innovative behavior indirectly through employee passion for inventing (Kang et al., 2016). Also, the reward system of an organization has an effect on innovative behavior (Zhou et al., 2009). Other organizational-level factors, such as the size of the firm, can be important determinants of innovative behavior (Galende and de la Fuente, 2003; Sundbo et al., 2007).

CONCLUSION In this chapter, we shared our vision on innovative behavior. As the core of entrepreneurship and innovation, the output of innovative behavior has always been the main concern for management and sociology researchers. This also gives us another critical question for innovative behavior, that is: what motivates or enables innovative behavior? For both output of innovative behavior or impact factors of innovative behavior, we may conduct

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our research from different levels (West and Farr, 1989), stages (Scott and Bruce, 1994), behaviors (Janssen, 2003) and dimensions (Kleysen and Street, 2001). Empirical research on innovative behavior studies mainly focuses on cross-sectional data, which may limit the causality in the analysis. Therefore, more studies focusing on longitudinal designs should be included in future studies. From evolutionary economics perspectives, we also expect that innovative behavior may bring benefits to the whole industry or society. Therefore, the evolution of innovative behavior can be interesting to study, in particular, from a network perspective. Last but not least, we believe the definition of innovative behavior is changing as are all the other behaviors.

NOTE *

This chapter is supported by the National Natural Science Foundation of China (No. 71874068).

REFERENCES Amabile, T.M. (1988), ‘A model of creativity and innovation in organizations’, Research in Organizational Behavior, 10 (1), 123–67. Amabile, T.M., E.A Schatzel, G.B. Moneta and S.J. Kramer (2004), ‘Leader behaviors and the work environment for creativity: perceived leader support’, Leadership Quarterly, 15 (1), 5–32. Basu, R. and S.G. Green (1997), ‘Leader–member exchange and transformational leadership: an empirical examination of innovative behaviors in leader–member dyads’, Journal of Applied Social Psychology, 27 (6), 477–99. Carmeli, A., R. Meitar and J. Weisberg (2006), ‘Self-leadership skills and innovative behavior at work’, International Journal of Manpower, 27 (1), 75–90. Ford, C.M. (1996), ‘A theory of individual creative action in multiple social domains’, Academy of Management Review, 21 (4), 1112–42. Galende, J. and J.M. de la Fuente (2003), ‘Internal factors determining a firm’s innovative behaviour’, Research Policy, 32 (5), 715–36. Gu, H., P. Duverger and L. Yu (2017), ‘Can innovative behavior be led by management? A study from the lodging business’, Tourism Management, 63 (December), 144–57. Hurt, H.T., K. Joseph and C.D. Cook (1977), ‘Scales for the measurement of innovativeness’, Human Communication Research, 4 (1), 58–65. Janssen, O. (2003), ‘Innovative behaviour and job involvement at the price of conflict and less satisfactory relations with co-workers’, Journal of Occupational and Organizational Psychology, 76 (3), 347–64. Janssen, O. (2004), ‘How fairness perceptions make innovative behavior more or less stressful’, Journal of Organizational Behavior, 25 (2), 201–15. Janssen, O. (2005), ‘The joint impact of perceived influence and supervisor supportiveness on employee innovative behaviour’, Journal of Occupational and Organizational Psychology, 78 (4), 573–9. Janssen, O., E. van de Vliert and M. West (2004), ‘The bright and dark sides of individual and group innovation: a special issue introduction’, Journal of Organizational Behavior, 25, 129–45. Kang, J.H., J.G. Matusik, T.-Y. Kim and J.M. Phillips (2016), ‘Interactive effects of multiple organizational climates on employee innovative behavior in entrepreneurial firms: a cross-level investigation’, Journal of Business Venturing, 31 (6), 628–42. Kanter, R.M. (1983), The Change Masters: Innovation for Productivity in the American Corporation, New York: Simon and Schuster. Kanter, R.M. (1988), ‘When a thousand flowers bloom: structural, collective, and social conditions for innovation in organizations’, Knowledge Management and Organisational Design, 10 (January), 93–131. Kleysen, R.F. and C.T. Street (2001), ‘Toward a multi-dimensional measure of individual innovative behavior’, Journal of Intellectual Capital, 2 (3), 284–96. Knol, J. and R. Van Linge (2009), ‘Innovative behaviour: the effect of structural and psychological empowerment on nurses’, Journal of Advanced Nursing, 65 (2), 359–70, doi:10.1111/j.1365-2648.2008.04876.x Michael, L.H., S.T. Hou and H.L. Fan (2011), ‘Creative self-efficacy and innovative behavior in a service setting: optimism as a moderator’, Journal of Creative Behavior, 45 (4), 258–72.

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Moss, S.A. and D.A. Ritossa (2007), ‘The impact of goal orientation on the association between leadership style and follower performance, creativity and work attitudes’, Leadership, 3 (4), 433–56. Oldham, G.R. and A. Cummings (1996), ‘Employee creativity: personal and contextual factors at work’, Academy of Management Journal, 39 (3), 607–34. Pieterse, A.N., D. van Knippenberg, M. Schippers and D. Stam (2010), ‘Transformational and transactional leadership and innovative behavior: the moderating role of psychological empowerment’, Journal of Organizational Behavior, 31 (4), 609–23. Rogers, E.M. and F.F. Shoemaker (1971), Communication of Innovations: A Cross-Cultural Approach, New York: Free Press. Schumpeter, J. (1934), The Theory of Economic Development, Cambridge, MA: Harvard University Press. Scott, S.G. and R.A. Bruce (1994), ‘Determinants of innovative behavior: a path model of individual innovation in the workplace’, Academy of Management Journal, 37 (3), 580–607. Sundbo, J., F. Orfila-Sintes and F. Sørensen (2007), ‘The innovative behaviour of tourism firms – Comparative studies of Denmark and Spain’, Research Policy, 36 (1), 88–106. Thurlings, M., A.T. Evers and M. Vermeulen (2015), ‘Toward a model of explaining teachers’ innovative behavior: a literature review’, Review of Educational Research, 85 (3), 430–71. Topcu, M.K., A. Gursoy and P. Gurson (2015), ‘The role of the servant leadership on the relation between ethical climate perception and innovative work’, European Research Studies, 18 (1), 67–80. Van der Vegt, G.S. and O. Janssen (2003), ‘Joint impact of interdependence and group diversity on innovation’, Journal of Management, 29 (5), 729–51. Waheed, A., Q. Abbas and O.F. Malik (2018), ‘“Perceptions of performance appraisal quality” and employee innovative behavior: do psychological empowerment and “perceptions of HRM system strength” matter?’, Behavioral Sciences, 8 (12), art. 114, accessed 15 October 2020 at https://www.mdpi.com/2076-328X/8/12/114. Wang, X.H., Y. Fang, I. Qureshi and O. Janssen (2015), ‘Understanding employee innovative behavior: integrating the social network and leader–member exchange perspectives’, Journal of Organizational Behavior, 36 (3), 403–20. West, M.A. and J.L. Farr (1989), ‘Innovation at work: psychological perspectives’, Social Behaviour, 4 (March), 15–30. West, M.A. and J.L. Farr (1990), Innovation and Creativity at Work: Psychological and Organizational Strategies, Chichester: Wiley. Xerri, M. (2013), ‘Workplace relationships and the innovative behaviour of nursing employees: a social exchange perspective’, Asia Pacific Journal of Human Resources, 51 (1), 103–23. Young, L.D. (2012), ‘How to promote innovative behavior at work? The role of justice and support within organizations’, The Journal of Creative Behavior, 46 (3), 220–43. Yuan, F. and R.W. Woodman (2010), ‘Innovative behavior in the workplace: the role of performance and image outcome expectations’, Academy of Management Journal, 53 (2), 323–42. Zaltman, G., R. Duncan and J. Holbek (1973), Innovations and Organizations, New York: John Wiley & Sons. Zhou, Y., Y. Zhang and Á. Montoro-Sanchez (2009), ‘How do the reward approaches affect employees’ innovative behaviors? An empirical study in Chinese enterprises’, Academy of Management Proceedings, Briarcliff Manor, NY: Academy of Management.

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48. Intermediated internationalization theory Zoltan J. Acs and Siri Terjesen

This entry outlines Acs and Terjesen’s (2008) theory of intermediated internationalization and offers suggestions for future research. Intermediated internationalization is ‘the  channeling of a venture’s innovation through an existing multinational enterprise, located at home or abroad’ (Acs and Terjesen, 2008: 1).

TWO PATHS TO INTERNATIONALIZATION: DIRECT AND INTERMEDIATED International new ventures (INVs) are firms that, from their beginnings, pursue the use of resources and the sale of goods in multiple countries and are discussed by Ben Oviatt in this encyclopedia. When considering international markets for their goods and services, entrepreneurs face a variety of entry modes including export, license, joint venture, wholly owned subsidiary and greenfield investment. In the case of exporting, firms have two channel options: (1) export directly to customers abroad or (2) export indirectly through an intermediary (Peng and York, 2001). Direct exporting is a common path to internationalization and is well addressed in the extant literature.1 The direct mode leads to the international new venture, however it is not always optimal given new venture’s high trade barriers abroad, low levels of innovation, predominant focus on domestic niches and lack of necessary financial capital, information and ability to protect property rights abroad. Faced with these barriers, new ventures may choose the second path, intermediating their innovation through an established multinational enterprise. This process creates a feedback mechanism from new ventures to existing organizations, as new ventures become a part of existing multinationals’ supply chains. Supply chain management takes place through formal and informal governance structures. The new venture’s decision to pursue direct or intermediated paths to internationalization is based on an assessment of the costs of property rights protection, transactions and rent extraction. Oviatt and McDougall (1994) employ two dimensions, coordination of value chain activities (few versus many) and number of countries involved (few versus many), to identify four types of international new ventures: export/import start-up, multinational  trader, geographically focused start-up and global start-up. Acs and Terjesen (2008) suggest that for each case, there is also an intermediated form that is underexplored in the literature. For example, an export/import start-up with low levels of value chain activities and few countries could choose to go directly, or could pursue internationalization through an intermediary. See Figure 48.1 for the resulting matrix of eight cells.

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Intermediated internationalization theory Few activities coordinated across countries

Export/import start-up

Multinational trader Direct

Direct

Intermediated

Intermediated

Coordination of value chain activities Many activities coordinated across countries

431

Geographically focused start-up Direct

Direct Intermediated

Intermediated

Global start-up Few

Number of countries involved

Many

Note: Shading = optimal mode. Source:

Modified from Oviatt and McDougall (1994) in Acs and Terjesen (2008).

Figure 48.1

Two avenues to internationalization for each of four INV types

INTERMEDIATED INTERNATIONALIZATION: PHENOMENON Entrepreneurial firms distinguish between the decision to exploit an opportunity and the decision to pursue overseas markets. The choice is a strategic one based on how best to maximize value. New ventures face higher barriers to foreign market entry than do large, established firms, and can meet this challenge by specializing in niche innovations and taking advantage of existing multinational enterprises’ (MNEs’) supply chains. The intermediation phenomenon is also driven by the compartmentalization of ventures, as Saxenian (2002: 184) describes: Today, independent enterprises produce all of the components that were once internalized within a single large corporation – from application software, operating systems and computers to microprocessors and other components. The final systems are in turn marketed and distributed by other independent enterprises. Within each of these horizontal segments again there is further specialization of production and a deepening social division of labor.

An emerging strand of research explores how entrepreneurial firms pursue indirect paths to internationalization (for example, Acs and Terjesen, 2008; Acs et al., 1997; Bell et al., 2003; Coviello and Munro, 1997; Hessels and Terjesen, 2008; Jones, 2001; Peng and York, 2001; Terjesen et al., 2008) using local and foreign intermediaries to sell their goods and services across national borders. Intermediaries include agents and distributors located at home or abroad (Burgel and Murray, 2000; Peng and York, 2001) and the  local  subsidiaries of MNEs (Terjesen et al., 2008). Export intermediaries play an important ‘middleman’ role in international trade, ‘linking individuals and organizations that would otherwise not have been connected’ (Peng and York, 2001: 328) and can help their clients overcome knowledge gaps, reduce uncertainties and to identify customers,

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sources of financing and distribution infrastructure (Balabanis, 2000). Intermediation is central to entrepreneurship: the term ‘entrepreneur’ stems from the French verb ‘entreprendre’ derived from ‘entre’ (between) and ‘prendre’ (to take) and has long been used to describe individuals who are ‘in the middle’ of business activities.

THE THEORY OF INTERMEDIATED INTERNATIONALIZATION In developing a theory of intermediated internationalization, we start with theories of new venture creation. Entrepreneurial opportunities involve the discovery of novel means–ends relationships, through which new goods, services, resources and agency are created (Casson, 2003; Shane and Venkataraman, 2000). A key distinction between entrepreneurship and economics literatures is the existence of opportunities. In the entrepreneurship literature, opportunities are generally considered endogenous; however, in the economics literature, opportunities are endogenous and are more prevalent in certain industries such as high technology (Scherer, 1965). Innovations often come from third party firms or research institutions and spillover for application by other firms (Acs and Audretsch, 2005), although geographically bounded. The knowledge spillover theory of entrepreneurship (Acs et al., 2005) describes how the asymmetries between the agent possessing the knowledge and the incumbent organization’s decision-making hierarchy leads to the gap in the valuation of this knowledge. Start-ups with access to such knowledge spillovers are more likely to be innovative: ‘the revolutionary breakthroughs continue to come predominantly from small entrepreneurial enterprises, with large industry providing streams of incremental improvements that also add up to major contributions’ (Baumol, 2004: 9). Thus, knowledge spills over from incumbent firms to individuals who endogenously create new firms, albeit geographically bounded. These knowledge spillovers must then be converted into innovative outputs which can then be internationally diffused. Resource-constrained entrepreneurial firms with innovative products face a key decision in a world dominated by large, multinational enterprises. Entrepreneurs can choose to ‘fight’ giants by taking their innovations directly to international markets or they can ‘dance’ with giants by collaborating through indirect exports, becoming suppliers of foreign firms, becoming licencees/franchisees of foreign brands, becoming alliance partners of foreign direct investors and by investing and exiting through sell-off without leaving the home country (Peng, 2006). There is a rich literature on internalization in international business. An MNE is ‘a private institution devised to organize, through employment contracts, interdependencies between individuals located in more than one country’ (Hennart, 2001: 127). Internalization theory describes how an MNE gains economic benefits by exploiting assets across international markets (Buckley and Casson, 1976) and will expand abroad (assuming is it already in another country) when it can organize interdependencies between agents located in different countries more efficiently in the firm than in open markets. Thus, according to internalization theory, the MNE has a firm specific asset with the potential for foreign exploitation and the choice of entry mode depends on the tradeoff between the costs of internally developing and absorbing local market

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knowledge versus the costs associated with accessing such resources from external actors. An MNE will organize interdependencies through hierarchy when it can do so more efficiently than markets. Three conditions must be met (Hennart, 2001: 136): (1) interdependent agents must be located in different countries, (2) the MNE must be the most efficient way to organize these interdependencies, and (3) given condition (2), the costs incurred by MNEs to organize these interdependencies are lower than the benefits of doing so. Dunning (1999: 28) describes how the boundaries of the firm are changing from hierarchy to alliance capitalism, suggesting that firms will increasingly pursue alternative governance strategies, for firms to benefit most from innovation-led production, the upgrading of consumer demand, and the imperatives of globalization, they need to engage in a network of cooperative agreements  with other firms. This reflects the fact that economic activity is becoming more interdependent, and in order to exploit their core assets effectively, firms have to combine these with the core assets of other firms – or of public authorities. However, rather than enlarge their hierarchical influence, they prefer to establish cooperative relationships with other firms, namely, extend their soft boundaries. By so doing, they are able to improve and make better use of their own competencies, which, in turn, will help them sustain or push out further their market boundaries.

SYMBIOTIC RELATIONSHIP AND STRATEGIC CHOICE OF MNES AND NEW VENTURES As described above, firms face two choices when internationalizing. Just as an MNE must consider a range of firm and country specific advantages when making the decision to pursue internalization (hierarchy) or use markets (licensing), an entrepreneurial venture has the same option. Due to the lack of resources, new ventures will pursue alternative governance structures even in the face of rent extraction. From the new venture’s point of view, it must pursue some sort of internationalization strategy that relies on strategic alliances, technology licensing, and joint ventures. Figure 48.2 depicts the symbiotic relationship between new ventures and MNEs. In the traditional model of internalization, an MNE has a firm specific asset with the potential for foreign exploitation. The choice is determined by the transaction costs of absorbing local knowledge versus the costs associated with assessing resources from external sources. A new venture also faces two options: it can internationalize on its own and forgo the costs of contracting and rent extraction or it can pursue an intermediated form of governance structure. These are shown by the arrows to the market and the governance boxes on the right. While both a new venture and an MNE can pursue market led internalization through exports and licensing, these market relationships do not involve direct governance relationships. However, what is not neutral ground is the intermediated internationalization box. Over the past two decades, a large literature has emerged in international management and strategy that suggests that networked forms of governance play an increasingly important role in international business for both new ventures and MNEs. In fact, alternative governance structures represent a form of international expansion that is increasingly common to both MNEs and INVs operating in a global economy. For example, Gomes-Casseres’s (1999) study of the alliance strategies of small

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World encyclopedia of entrepreneurship Organization via internationalization modes Example (sample decision criteria)

Economic transactions Organizations New venture

Economic transactions Organizations Multinational enterprise

Source:

International new venture via direct internationalization in the market NV or MNE exports directly overseas (limited scope of countries and activities, low barriers to internationalization) New venture via intermediated internationalization through governance structures with other organizations Asymmetric alliances as NV innovations are distributed through MNE efficiency (for the NV, great scope of countries and activities, high barriers to internationalization; for the MNE, has scope/efficiency, extractable rents) Hierarchy through internal governance structures MNE directly controls activities overseas (for the MNE, efficient for scope and internationalization barriers)

Acs and Terjesen (2008).

Figure 48.2

INV and MNE symbiotic relationship under alliance capitalism

firms identifies a bimodal distribution of firms going overseas, however Kohn (1999) finds that indeed a large number of firms go overseas alone. These firms pursue a ‘deepniche’ strategy and tend to be technology leaders and dominant players in their markets and to operate mostly in producer goods industries. Both studies suggest that both new ventures and MNEs rely on strategy as the source of how to expand internationally, particularly when technology is at stake.

FUTURE RESEARCH DIRECTIONS Further research could pursue a number of directions. First, research could explore in what directions are firms evolving: Are there more direct, hierarchical or intermediated modes? Second, the propositions could be tested with a large dataset of new ventures across different industry and country contexts. Third, more fine-grained analyses of the decision to export directly or indirectly (or not at all) could prove promising. Key questions include: what is the process of decision making? How does the decision to pursue the indirect mode impact the decision to pursue the direct mode? What is the speed and growth trajectory of internationalizing firms? Fourth, further work in the area of new venture international entry modes has the potential to develop linkages between entrepreneurship and internationalization. A fifth promising stream of research would explore the regionalization of new ventures. Are INVs, in fact, mostly regional rather than international? Do new ventures select particular intermediaries based on the advantages  they offer vis-à-vis particular regions? Do MNEs seek new ventures that offer particular region specific, in addition to firm, industry and national advantages? Further research could take into account network perspectives, the role of institutional environments, economic geography, learning, managerial cognition and absorptive capacity.

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NOTE 1. Direct internationalization research has explored variables such as product uniqueness (Cavusgil and Nevin, 1981), founder age (Westhead, 1995), top management team experience in doing business abroad (Eriksson et al., 1997), government support for internationalization (Wilkinson, 2006), environmental turbulence (Westhead et al., 2001), and the characteristics of foreign markets (for example, the level of competition abroad) (Thirkell and Dau, 1998) and domestic markets (for example, production costs in the home market) (Axinn, 1988).

REFERENCES Acs, Z. and S. Terjesen (2008), ‘Born local: two avenues to internationalization’, Working Paper, Max Planck Institute of Economics. Acs, Z.J. and D.B. Audretch (2005). Entrepreneurship, Innovation and Technological Change, Foundations and Trends in Entrepreneurship, Boston, MA: Now Publishing. Acs, Z.J., D.B. Audretsch, P. Braunerhjelm and B. Carlsson (2005), ‘The knowledge spillover theory of entrepreneurship’, CEPR Discussion Paper No. 4326. Acs, Z.J., R. Morck, J.M. Shaver and B. Yeung (1997), ‘Small and medium sized enterprises in the global economy: a policy perspective’, Small Business Economics, 9 (1), 7–20. Axinn, C.N. (1988), ‘Export performance: do managerial perceptions make a difference’, International Marketing Review, 5, 67–71. Balabanis, G.I. (2000), ‘Factors affecting export intermediaries’ service offerings: the British example’, Journal of International Business Studies, 31 (1), 83–99. Baumol, W.J. (2004), ‘Entrepreneurial enterprises, large established firms and other components of the freemarket growth machine’, Small Business Economics, 23 (1), 9–24. Bell, J., R. McNaughton, S. Young and D. Crick (2003), ‘Towards an integrative model of small firm internationalisation’, Journal of International Entrepreneurship, 1, 339–62. Buckley, P.J. and M. Casson (1976), The Future of the Multinational Enterprise, London: Macmillan. Burgel, O. and G.C. Murray (2000), ‘The international market entry choices of start-up companies in high technology industries’, Journal of International Marketing, 8 (2), 33–62. Casson, M. (2003), ‘Entrepreneurship, business culture and the theory of the firm’, in Z. Acs and D. Audretsch (eds), Handbook of Entrepreneurship Research, Boston, MA and Dordrecht: Kluwer, pp. 223–46. Cavusgil, S.T. and J.R. Nevin (1981), ‘Internal determinants of export marketing behavior: an empirical investigation’, Journal of Marketing Research, 18 (1), 114–19. Coviello, N. and H. Munro, (1997), ‘Network relationships and the internationalization process of small software firms’, International Business Review, 6 (4), 361–86. Dunning, J.H. (1999), ‘Reconfiguring the boundaries of international business activity’, in Z.J. Acs and B. Yeung (eds), Small and Medium-Sized Enterprises in the Global Economy, Ann Arbor, MI: University of Michigan Press, pp. 24–44. Eriksson, K., J. Johanson, A. Majkgård and D.D. Sharma (1997), ‘Experiential knowledge and cost in the internationalization process’, Journal of International Business Studies, 28 (2), 337–60. Gomes-Casseres, B. (1999), ‘Alliance strategies fo small firms’, in Z.J. Acs and B. Yeung (eds), Small and Medium-Sized Enterprises in the Global Economy, Ann Arbor, MI: University of Michigan Press, pp. 67–87. Hennart, J.-F. (2001), ‘Theories of the multinational enterprise’, in A. Rugman and T. Brewer (eds), Oxford Handbook of International Business, Oxford: Oxford University Press, pp. 127–50. Hessels, J. and S. Terjesen (2008), Indirect Internationalization: A Development and Test of Two Theories, Wellesley, MA: Babson. Jones, M.V. (2001), ‘First steps in internationalisation: concepts and evidence from a sample of small high technology firms’, Journal of International Management, 7 (3), 191–210. Kohn, T.O. (1999), ‘Small firms as international players’, in Z.J. Acs and B. Yeung (eds), Small and MediumSized Enterprises in the Global Economy, Ann Arbor, MI: University of Michigan Press, pp. 88–102. Oviatt, B.M. and P.P. McDougall (1994), ‘Toward a theory of international new ventures’, Journal of International Business Studies, 25 (1), 45–64. Peng, M.W. (2006), Global Strategy, Cincinnati, OH: Thomson South-Western. Peng, M.W. and A.S. York (2001), ‘Behind intermediary performance in export trade: transactions, agents and resources’, Journal of International Business Studies, 32 (2), 327–46. Saxenian, A. (2002), ‘Transnational communities and the evolution of global production networks: the cases of Taiwan, China and India’, Industry and Innovation, 9, 183–202.

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Scherer, F.M. (1965), ‘Firm size, market structure, opportunity, and the output of patented inventions’, American Economic Review, 55 (5), 1097–125. Shane, S. and S. Venkataraman (2000), ‘The promise of entrepreneurship as a field of research’, Academy of Management Journal, 25 (1), 217–26. Terjesen, S., C. O’Gorman and Z.J. Acs (2008), ‘Intermediated mode of internationalization: new software ventures in Ireland and India’, Entrepreneurship & Regional Development, 20, 89–109. Thirkell, P.C. and R. Dau (1998), ‘Export performance: success determinants for New Zealand manufacturing exporters’, European Journal of Marketing, 32 (9/10), 813–29. Westhead, P. (1995), ‘Exporting and non-exporting small firms in Great Britain’, International Journal of Entrepreneurial Behavior and Research, 1 (2), 6–36. Westhead, P., M. Wright and D. Ucbasaran (2001), ‘The internationalisation of new and small firms: a resource- based view’, Journal of Business Venturing, 16 (4), 333–58. Wilkinson, T.J. (2006), ‘Entrepreneurial climate and US state Foreign Trade Offices as predictors of export success’, Journal of Small Business Management, 44 (1), 99–113.

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49. International entrepreneurship

Benjamin M. Oviatt, Vladislav R. Maksimov and Patricia P. McDougall

DEFINITION As its name suggests, international entrepreneurship combines international business and entrepreneurial behaviour. The international aspect of the phenomenon refers to the process of internationalization of firms as well as to the differences in firm behaviour based on national origin, while the entrepreneurial aspect refers to the act of tapping into new organizational opportunities. Oviatt and McDougall (2005: 540) offer the following formal definition: ‘International entrepreneurship is the discovery, enactment, evaluation, and exploitation of opportunities – across national borders – to create future goods and services.’ The processes of discovery, enactment, evaluation and exploitation of opportunities are specific acts of a broader process that is commonly referred to as taking advantage of opportunities. Although general and simplified, the latter term is more practical and easily grasped in general discussions. At an intuitive level, taking advantage of opportunities could be equated to the act of exploitation. However, it is clear that opportunities have to first emerge and then be evaluated in order to be exploited. Opportunities can emerge either through an act of discovery or through enactment. Discovery is present when entrepreneurs find information about a potential business opportunity which is also readily available to others. Enactment is present when entrepreneurs create a business opportunity through a unique interaction with other people, sources of information, available knowledge through prior experiences, motivation to search for innovations, and other factors of their social environment. The above definition of international entrepreneurship also allows for comparative studies of domestic entrepreneurs or organizations in different countries. For example, entrepreneurial actors in different countries could differ in the way they take advantage of business opportunities. Their behaviour can differ substantially because of the different institutional environment in each country (Busenitz et al., 2000). In this case, the phenomenon is international because of the international comparison of the actors, not the opportunity. To summarize the implications of the definition of international entrepreneurship above and to explicate its meaning in practical terms, a few examples of the phenomenon are offered. The domain of international entrepreneurship includes the following: 1. 2.

a new venture is set up by an individual or a group of individuals to take advantage of an international business opportunity from inception or soon afterwards, any existing venture crosses national borders to take advantage of opportunities to create future goods and services, or 437

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World encyclopedia of entrepreneurship a comparison of entrepreneurial ventures in different countries when those ventures take advantage of either domestic or international opportunities to create future goods or services.

HISTORY While acts of international entrepreneurship have existed for centuries, the term is relatively new in the academic literature. According to Zahra and George (2002) it first appeared in an article by Morrow (1988), where he discussed the increased accessibility to once remote markets due to technological advances and increased cultural awareness. As the discipline has grown and been defined more accurately, it has become clear that certain aspects of international entrepreneurship had been discussed before 1988 in such areas as strategic management, international business and entrepreneurship (all being multidisciplinary themselves). However, academic study in international entrepreneurship gained popularity in the 1990s with the recognition of and fascination with the international new venture. First, McDougall’s (1989) empirical study comparing domestic and international new ventures provided rich insights into the differences between these two types of firms. Then, building on case studies of international new ventures developed by academics working independently around the globe and an interest in the popular business press in rapid internationalization, Oviatt and McDougall (1994) provided a theoretical base for the study of international new ventures. They defined such a venture ‘as a business organization that, from inception, seeks to derive significant competitive advantage from the use of resources and the sale of outputs in multiple countries’ (ibid.: 49). The available theories at that time could not explain the existence of international new ventures. For this reason, Oviatt and McDougall (1994) presented an integrative framework that explains an international new venture and describes it as one that owns certain valuable assets, uses  alliances and network structures to control a relatively large percentage of vital assets, and has a unique resource that provides a sustainable advantage and is transferable to a foreign location. Following this early focus on international new ventures, the field of international entrepreneurship broadened and went through a number of redefinitions to specify the array of phenomena hosted under the term. First, scholars recognized that international entrepreneurship should include corporate entrepreneurship – established firms which venture internationally – because such firms can also demonstrate entrepreneurial behaviour (Wright and Ricks, 1994; Zahra, 1993). This increased focus on entrepreneurial  behaviour led scholars in the field to centre the definition around the set of entrepreneurial orientations – innovativeness, proactiveness and risk-taking – following Lumpkin and Dess (1996). As a result, the field expanded to include non-profit and government organizations in addition to business organizations (McDougall and Oviatt, 2000). Second, as the definition of entrepreneurship itself evolved from a focus on entrepreneurial orientations to one on opportunities and individuals who take advantage of them (Shane and Venkataraman, 2000), so did the definition of international entrepreneurship. Zahra and George (2002) suggested that the definition should emphasize creative

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discovery and exploitation of international opportunities. More recently, Oviatt and McDougall (2005) expanded the definition to include discovery, enactment, evaluation and exploitation. Such a change in focus obviated the debate over how many dimensions of entrepreneurial orientations were important for definitional purposes. Oviatt and McDougall (2005) formally recognized that international entrepreneurship includes comparisons of entrepreneurial behaviour across national borders. Such comparisons had been commonly agreed to be an integral part of the field since its infancy. As the authors put it: ‘The comparison branch . . . has always been a part of the study of international entrepreneurship from the first special issue on the topic to appear in an academic journal (Hisrich, Honig-Haftel, McDougall and Oviatt, 1996) to the most recent comprehensive handbook on international entrepreneurship (Dana, 2004)’. In summary, the current definition of international entrepreneurship focuses on opportunities, highlights entrepreneurial behaviour across national borders, permits both new venture formation and corporate venturing, includes non-profit and government organizations, and acknowledges cross-country comparisons of entrepreneurial behaviour.

MODELS OF INTERNATIONALIZATION Until now, the discussion has focused mainly on the actors of international entrepreneurship  – those who take advantage of international opportunities to create future goods and services. However, following Shane and Venkataraman’s (2000: 218) definition of entrepreneurship, it is also important to examine how and with what effects these opportunities are taken advantage of. In this section, the two main models of how firms internationalize are described. The first model is often referred to as the Uppsala Model or the process model of firm internationalization and is associated primarily with the work of Johanson and Vahlne (1977; 1990), who studied the initial internationalization activities of Swedish manufacturing firms. The authors explain that the process begins with an entry in a psychically close market and evolves over time through an interaction between foreign market knowledge and foreign market commitment. Initially, the commitment of the firm is low as indicated by such modes of entry as exporting or licensing, which require relatively few resources and could be terminated relatively quickly. However, over time firms gain experience, and hence their tacit knowledge about a foreign market increases. As a result, firms may decide to increase their foreign market commitment by forming alliances or making greenfield investments. As the managers of the firm feel more comfortable doing business in a particular foreign market, they can later decide to expand to a more psychically distant foreign market. The incremental pattern of taking advantage of international opportunities in the Uppsala Model, however, makes this process of internationalization less entrepreneurial than a process of accelerated internationalization. Therefore, the second model that has emerged is a model of accelerated internationalization and is associated primarily with the work of Oviatt and McDougall (1994; 2005) and McDougall and Oviatt (2000). The process of rapid internationalization can reveal itself in a number of ways, for example, rapid initial entry into a foreign market

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after inception, fast accumulation of the number of foreign markets entered and/or a quick increase in the percentage of revenue coming from foreign sales. At the core, such processes are a result of taking advantage of international opportunities to create future goods and services relatively quickly. Such fast actions could be enabled by technological advances in transportation and communication or motivated by the fear of competitive action or retaliation. Further, the accumulation of foreign market knowledge, as well as the increase in knowledge intensity, has been reported to significantly improve the ability of firms to internationalize fast (Autio et al., 2000; McNaughton, 2001; 2003; Reuber and Fischer, 1997). Similarly, certain characteristics of the entrepreneurial actor’s network  – tie strength, size, and density – are said to moderate positively the ability of firms to internationalize rapidly (Oviatt and McDougall, 2005).

IMPORTANCE OF INTERNATIONALIZATION SPEED The accelerated model of internationalization has received substantial attention within the field of international entrepreneurship because of the potential for a counter-intuitive, positive relationship between internationalization speed and performance. Two empirical studies in this regard have had a substantial impact in the field. First, Autio et al. (2000) looked at the effects of early internationalization on subsequent growth. Their indication of a significant positive relationship has highlighted the existence of certain advantages of newness – in addition and counter to the widely accepted liabilities of newness (Stinchcombe, 1965). Second, Zahra et al. (2000) have related the international diversity and commitment of new venture firms to performance. Their study indicated that greater diversity and higher commitment entry modes lead to greater technological learning which, in turn, leads to better performance. Collectively, these studies suggest that the speed of internationalization is an important factor which should be paid greater attention to in future.

CURRENT STATE AND FUTURE DIRECTIONS Academia has increasingly recognized the importance of international entrepreneurship. Special issues and forums have appeared in various journals, including Entrepreneurship Theory & Practice in 1996 and Academy of Management Journal in 2000. Other journals, such as Journal of Business Venturing and Journal of International Business Studies regularly publish articles in the area. The Journal of International Entrepreneurship was launched as interest in international entrepreneurship grew and is specifically devoted to its study. In 2004, an edited handbook of international entrepreneurship was published (Dana, 2004), while in 2007, an edited volume reviewing the field appeared (Oviatt and McDougall, 2007). The annual Academy of Management meeting has devoted specific sessions and forums to the topic, while other academic meetings focused specifically on international entrepreneurship take place on multiple continents. Overall, the academic interest in the field is strong and growing. The domain of international entrepreneurship is rich in opportunity. As suggested by its definition, the field is broad and many interesting research questions can be explored.

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Researchers can employ various existing theories from different fields, such as international business, entrepreneurship, strategic management, economics, psychology, finance, sociology, and so on. The rich, multidisciplinary nature of the field provides both an opportunity and a promise for an abundance of valuable and interesting research. It is well known that when insights from different domains are brought together, valuable new knowledge is often created. Further, by its nature the field also encourages cooperation of researchers from multiple countries. A number of multi-country research teams have been utilized to work on international entrepreneurship projects and have resulted in excellent scholarly achievements.  As with bringing insights from different domains together, bringing people with different backgrounds together can prove invaluable. Overall, the field provides opportunities not only for academic exploration, but also for individual learning and enrichment, which can later become an indispensable asset in conducting international entrepreneurship research.

REFERENCES Autio, E., H.J. Sapienza and J.G. Almeida (2000), ‘Effects of age at entry, knowledge intensity, and imitability on international growth’, Academy of Management Journal, 43 (5), 909–24. Busenitz, L.W., C. Gomez and J.W. Spencer (2000), ‘Country institutional profiles: unlocking entrepreneurial phenomena’, Academy of Management Journal, 43 (5), 994–1003. Dana, L.-P. (2004), Handbook of Research on International Entrepreneurship, Cheltenham, UK and Northampton, MA, USA: Edward Elgar. Hisrich, R.D., S. Honig-Haftel, P.P. McDougall and B.M. Oviatt (1996), ‘International entrepreneurship: past, present, and future’, Entrepreneurship: Theory & Practice, Summer, 5–7. Johanson, J. and J.-E Vahlne (1977), ‘The internationalization process of the firm – a model of knowledge development and increasing foreign market commitments’, Journal of International Business Studies, 8 (1), 25–34. Johanson, J. and J.-E. Vahlne (1990), ‘The mechanism of internationalization’, International Marketing Review, 7 (4), 11–24. Lumpkin, G.T. and G.G. Dess, (1996), ‘Clarifying the entrepreneurial orientation construct and linking it to performance’, Academy of Management Review, 21, 135–72. McDougall, P.P. (1989), ‘International versus domestic entrepreneurship: new venture strategic behavior and industry structure’, Journal of Business Venturing, 4, 387–99. McDougall, P.P. and B.M. Oviatt, (2000), ‘International entrepreneurship: the intersection of two research paths’, Academy of Management Journal, 43, 902–8. McNaughton, R.B. (2001), ‘The export mode decision-making process in small knowledge-intensive firms’, Market Intelligence and Planning, 19, 12–20. McNaughton, R.B. (2003), ‘The number of export markets that a firm serves: process models versus the bornglobal phenomenon’, Journal of International Entrepreneurship, 1, 297–311. Morrow, J.F. (1988), ‘International entrepreneurship: a new growth opportunity’, New Management, 3, 59– 61. Oviatt, B.M. and P.P. McDougall, (1994), ‘Toward a theory of international new ventures’, Journal of International Business Studies, 36 (1), 29–41. Oviatt, B.M. and P.P. McDougall (2005), ‘Defining international entrepreneurship and modeling the speed of internationalization’, Entrepreneurship: Theory & Practice, 29 (5), 537–53. Oviatt, B.M. and P.P. McDougall, (eds) (2007), International Entrepreneurship, Cheltenham, UK and Northampton, MA, USA: Edward Elgar. Reuber, A.R. and E. Fischer (1997), ‘The influence of the management team’s international experience on the internationalization behavior of SMEs’, Journal of International Business Studies, 28 (4), 807–25. Shane, S. and S. Venkataraman (2000), ‘The promise of entrepreneurship as a field of research’, Academy of Management Review, 25, 217–26. Stinchcombe, A.L. (1965), ‘Social structure and organizations’, in J.G. March (ed.), Handbook of Organizations, Chicago, IL: Rand McNally, pp. 142–93.

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Wright, R.W. and D.A. Ricks (1994), ‘Trends in international business research: twenty-five years later’, Journal of International Business Studies, 25, 687–701. Zahra, S.A. (1993), ‘Conceptual model of entrepreneurship as firm behavior: a critique and extension’, Entrepreneurship: Theory & Practice, 14 (4), 5–21. Zahra, S.A. and G. George (2002), ‘International entrepreneurship: the current status of the field and future research agenda’, in M.A. Hitt, R.D. Ireland, D. Sexton and D.L. Camp (eds), Strategic Leadership: Creating a New Mindset, London: Blackwell, pp. 255–88. Zahra, S.A., R.D. Ireland and M.A. Hitt (2000), ‘International expansion by new venture firms: international diversity, mode of market entry, technological learning, and performance’, Academy of Management Journal, 43 (5), 925–50.

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50. Internationalization support ecosystems Alexis Catanzaro and Karim Messeghem

It is well accepted that, similarly to their bigger counterparts, small and medium-sized enterprises (SMEs), whatever their age, can take part in international opportunities. Internationalization can, therefore, be seen as an entrepreneurial process (Scwheizer et al., 2010) of discovery, enactment, evaluation and exploitation of opportunities – across national borders – to create future goods and services (Oviatt and McDougall, 2005), which can be followed by any firms that are internationally orientated. However, this process is uncertain as the international environment is generally qualified as an unfamiliar and high-risk environment, especially for SMEs (Bannò et al., 2014; AmankwahAmoah and Wang, 2019). Indeed, many of them face the liability of newness, smallness and foreignness that puts them in a disadvantageous position to operate successfully on an international scale, that is, by meeting growth and profitability (Lu and Beamish, 2006; De Maeseneire and Claeys, 2012; Li et al., 2016). Many governments have implemented and developed appropriate internationalization support programs for SMEs (Lloyd-Reason et al., 2009) to provide the firm with the resources needed for internationalization (Leonidou et al., 2011) and, consequently, to reduce the international risks (Bannò et al., 2014). In the context of financial restrictions on public expenses, the effectiveness of these support programs has become a crucial issue (Yannopoulos, 2010; Catanzaro et al., 2018). Therefore, the evaluation of these programs used by SMEs is a major challenge. Academic reviews still provide relevant information on internationalization support and its effectiveness (for instance, Freixanet, 2012; Bannò et al., 2014; Catanzaro et al., 2018; Malca et al., 2020), but the literature is not unanimous regarding the effectiveness of these programs on SME performance, and the empirical results are inconclusive or contradictory (Francis and Collins-Dodd, 2004; Shamsuddoha et al., 2009; Freixanet, 2012; Love and Roper, 2015). The rest of the chapter is structured as follows. The next section presents the entrepreneurial ecosystem of internationalization support. This is followed by a focus on the process of internationalization support and on its effectiveness. We then present the current state and future direction of the field.

THE ENTREPRENEURIAL ECOSYSTEM OF INTERNATIONALIZATION SUPPORT As for the entrepreneurial ecosystem of business support (Theodoraki and Messeghem, 2017), the internationalization support ecosystem can be considered as a sub-ecosystem of the broader entrepreneurial ecosystem. We define the internationalization support ecosystem as a set of interconnected actors, organizations and institutions which formally and informally coalesce to support local companies in their international development. In France, for instance, the internationalization support ecosystem is organized 443

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CCIFI

National Professional federations AFD

Regional French Foreign Trade Advisors

Custom house OSCI

Business France Bpifrance DEEI International CCI Incubators/ Accelerators

Notes: AFD – Agency French Development; CCIFI – French Chamber of Commerce and Industry based abroad; DEEI – Directorate of Business and International Economy of Regional Council; OSCI – Entrepreneurs’ Federation of International Trade, comprising international support companies, export management companies, and international trading companies.

Figure 50.1

Internationalization support ecosystem’s actors, organizations and institutions

at international, national and regional levels. However, there is a regional coordination via the Regional Economic Development, Innovation and Internationalization Schemes (SRDEII). These regional ecosystems aim to pool the tools and resources that all partners make available to companies in order to facilitate the development, deployment and monitoring of an effective international strategy. Thus, as with the entrepreneurial ecosystem in general, the entrepreneurial ecosystem of international support in particular is the result of an entrepreneurial territorial strategy (Acs et al., 2017; Audretsch and Belitski, 2017). As an example, Figure 50.1 lists the main actors of the French internationalization support ecosystem. The entry point into the device is the International CCI which has a role of guidance toward the right organizations according to the need of the firm. Some actors, such as Business France, the French Foreign Trade Advisors and OSCI (in grey) have a physical presence in France with representatives in the region, but also a presence in foreign markets. The actors indicated in italics are actors in the private sphere. The two sides of the private/public support system aim to strengthen their collaboration and create more

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bridges to enable companies, according to needs, to solicit one or the other type of actors. Lederman et al. (2010) note that a support system organized around large and powerful organizations is more effective than a system composed of multiple small and disparate actors. The private and public players work together, sharing resources and expertise, and leading the firm into a process of support where different types of programs can be used along the path according to the internationalization development needs.

INTERNATIONALIZATION SUPPORT PROCESS The internationalization support programs can be classified into three major types: informational, operational and financial support (Catanzaro et al., 2018). These programs are intended to complement the internal resources and capabilities of firms (Yannopoulos, 2010), and, consequently, can be considered as external resources (Seringhaus, 1986), either tangible (financial) or intangible (information, knowledge, relationships, and organizational advice). As shown in Table 50.1, informational support, provided by the majority of public structures and considered by some authors as market intelligence support (Yannopoulos, 2010), includes market information about specific foreign markets and their related risks, export practices, seminars or meetings, detailed documentation and market studies, and knowledge about specific needs of customers abroad. Operational support is related to services involving contact with the foreign market and its actors, such as trade shows abroad, foreign buyers’ visits, prospecting missions or networking services with other support structures or local partners abroad. These operational supports include logistic aids and high-value contacts. They can bring useful information to the firm concerning foreign markets, customers’ needs, local networks, legal or social rules, and their related risks. Finally, financial support provided by insurances or financial institutions concerns loans or subsidies designated to finance prospection or market-study expenses, guarantees and insurance for covering project failure, non-payment of customers or exchange rate risk. Figure 50.2 uses the French context to illustrate the main stages of support provided by the public system, with reference to a type of support path. First, we seek to make a diagnosis of the company and its export capacity. It is generally an interview with the Table 50.1

Types of internationalization support programs

Types

Characteristics

Informational

Market information Export training, seminars, and meetings Documentation and market studies Trade shows Foreign buyers’ visits Prospecting missions Networking services Loans to exporting Subsidies to finance prospection or market study expenses Guarantees and insurances

Operational

Financial

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8

7

Evaluation of export capacity

1 2

Market presence reinforcement

Information collecting

3

Guarantee against risks

Training

6

Strategy designing

Financing Market prospecting

Figure 50.2

4

5

The generic process of international support

Chamber of Commerce and Industry’s (CCI’s) international development adviser that will make it possible to determine the company’s strengths and weaknesses, and see to what extent the company has sufficient resources to initiate an internationalization process. Once this potential has been qualified, it is necessary to collect information on the two or three potential foreign countries in order to characterize them at the macroeconomic and microeconomic levels (economic situation, political stability, state of industry, customer needs, identification of necessary adaptations, and so on). Then, its support is followed by the offer of training in various forms, depending on the company’s needs (for example, customs procedures, International Commercial Terms, intercultural management and country information days). These first three steps aim to give the company the necessary information resources to define its strategy and launch itself internationally or enter into a new foreign market (step 4). The company then becomes able to prospect the markets it has identified by participating in trade shows, prospecting missions and meeting key players who will enable it to record its first sales in the targeted territory (step 5). This is when the financing part will be able to intervene, sometimes with subsidies (in particular via the VIE1 scheme), more often with export loans when the company meets the eligibility criteria (step 6), and very often with insurance to guarantee itself against the various risks linked to international activity, prospecting insurance being the flagship insurance of the scheme (step 7). Once these seven steps have been completed, and if successful, the support can help the company strengthen its presence in the country and/or canvass new foreign countries (step 8).

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Among private actors,2 the approach is different, without being contradictory. First, the latter can be directly involved in the above-mentioned approach by intervening at the different stages, depending on the degree of complexity or when the public actor simply prefers to delegate to a private actor. For example, many regional CCIs have private consultants carry out step 1 of the company’s export capacity assessment. Sometimes the training provided requires very specific knowledge that requires the support of private actors. Other times again, Business France abroad or the CCIs abroad commission private actors to carry out certain services (market studies, legal analysis, and so on). Despite this rich device of internationalization support that we can find in most countries (Lederman et al., 2010; Seringhaus and Rosson, 1991), its effectiveness is uncertain, especially when we integrate the question of the different types of internationalization SMEs, such as traditional SMEs versus born global firms or international new ventures.

EFFECTIVENESS OF INTERNATIONALIZATION SUPPORT PROGRAMS Several quantitative studies on the effectiveness of internationalization support in enhancing firm resources and performance have been conducted over the past few decades. The literature has demonstrated a positive and significant relationship between government programs and the development of some internationalization-related knowledge and competencies (Leonidou et al., 2011; Bannò et al., 2014; Spyropoulou et al., 2018), such as risk management practices (Catanzaro and Teyssier, 2020), and network relationships or international relational capital (Ojala, 2009; Catanzaro et al., 2018). Felzensztein et al. (2015) have suggested that this type of support accelerates the process of internationalization, which may improve the international performance of SMEs (Hilmersson and Johanson, 2016). Further studies demonstrate that international support has a positive influence on performance and deserves to be integrated into companies’ strategic thinking (Catanzaro et al., 2018). Moreover, some studies show that the positive effect of internationalization support is stronger among smaller firms and, for some programs, among firms with less international experience (Leonidou et al., 2011). However, studies do not produce homogenous findings (Francis and Collins-Dodd, 2004; Wilkinson and Brouthers, 2006; Shamsuddoha et al., 2009; Love and Roper, 2015). The usefulness of these programs differs for firms in different stages in international activities, for firms realizing different percentages of sales from international markets, and for firms of different sizes and receiving different amounts of support (Yannopoulos, 2010). In that direction, recent studies conducted on born global firms (Rennie, 1993) or international new ventures (Oviatt and McDougall, 1994), that is, firms with early and rapid internationalization, showed that internationalization support does not have the same influence on these firms than on traditional SMEs with incremental internationalization. On the one hand, Belhoste et al. (2019) showed that traditional SMEs use these programs more during their initial entry into the foreign market, whereas firms with early and rapid internationalization use these devices more during their intensification phase into the market. On the other hand, Catanzaro et al. (2015, 2018) demonstrated and found that internationalization support reinforces the relational capital and the number of foreign markets of the firms with early and rapid internationalization, whereas previous studies on traditional SMEs were only focused

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on knowledge of foreign market and economic performance. Taken as a whole, empirical studies argue that internationalization support programs influence some specific resources, capabilities and performances of the firms, according to their internationalization profile. Figure 50.3 provides a framework of internationalization support programs’ influences.

CURRENT STATE AND FUTURE DIRECTIONS Qualitative and quantitative studies about internationalization support and its effectiveness have been conducted in several contexts. The recent studies about internationalization support and types of internationalized SMEs address a relevant issue giving public players and policymakers new insight into support program design and adaptation. Nevertheless, we see other avenues for future research, both theoretically and methodologically. From a theoretical viewpoint, there is a need for better articulating the literature on entrepreneurial ecosystem and internationalization support. To our knowledge, academic studies have focused only on a micro perspective of support effectiveness and influences on supported firms. Consequently, we do not know which ecosystem characteristics have the greatest impact on the international success of companies. Similarly, the cultural aspect of the ecosystem could be expected to be a strong determinant of international entrepreneurship of a territory. The literature shows that cultural aspects, tradition and history of a territory influence the perception of opportunities and the way individual entrepreneurs exploit it (Dana, 1995, 1996). Moreover, Dana (2007) explains that these cultural aspects can orientate the support program design from the government. Thereby, it could be relevant to analyze how the cultural and historical specificities of a territory influence the entrepreneurial ecosystem, the internationalization support programs designed, and the way firms seek and exploit international opportunities. The issue of the differences between traditional SMEs and firms with early and rapid internationalization is another topic, which needs to be addressed more intensively. The testing of a global conceptual model with multi-group analysis distinguishing the two types of internationalized firms, ideally in different countries, would be a relevant project for the field. The question of internationalization support could also be applied to companies following alternative models which are less widespread in the literature, such as the casino model (Hakanson and Kappen, 2017), or the born again global model (Bell et al., 2001), both of which border traditional SMEs and rapid internationalizers. Other theoretical avenues are possible. Taking into account the level of international development – launching or intensification in the same market or in a new market – is not sufficient in existing empirical studies, especially in quantitative studies. Also, private support could be integrated into future models in a more systematic way. Otherwise, the combined study of internationalization support with other forms of support is far from irrelevant for the field, particularly with innovation support, given the strong link between internationalization and innovation. A study by Saridakis et al. (2019) shows that SMEs are more likely to internationalize when they are innovative, especially those introducing new products rather than services, and even more so those that combine product, service and process innovation. These elements plead for conceptual models to mobilize the two logics, and could feed reflection on a strategy of double support of internationalization and innovation.

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Figure 50.3

Resources and competencies of the firm

Moderator variables

- Foreign markets knowledge - Relational capital - Export capabilities - International entrepreneurial orientation - Risk management practices

Framework of internationalization support programs’ influences

- Degree of support - Stage in international activities - Start of international activities - Size of the firm

- Informational supports - Operational supports - Financial supports

Internationalization support programs

- Export turnover - Number of foreign markets - Speed of internationalization

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From a methodological viewpoint, longitudinal studies, which are still clearly lacking in the field (Freixanet, 2012), are necessary to refine our understanding of the influence of internationalization support. Another methodological approach lies in the implementation of international comparative studies distinguishing firms from different ecosystems. Thereby, the field is rich with research opportunities, and is of as great importance for policymakers as for internationalized SMEs and for future firms.

NOTES 1. International Corporate Volunteering (VIE) system proposed by Business France. 2. In France, with OSCI’s players: Entrepreneurs’ Federation of International Trade.

REFERENCES Acs, Z., E. Stam, D. Audretsch and A. O’Connor (2017), ‘The lineages of the entrepreneurial ecosystem approach’, Small Business Economics, 49 (1), 1–10. Amankwah-Amoah, J. and X. Wang (2019), ‘Opening editorial: contemporary business risks: an overview and new research agenda’, Journal of Business Research, 97 (April), 208–11. Audretsch, D. and M. Belitski M. (2017), ‘Entrepreneurial ecosystems in cities: establishing the framework conditions’, Journal of Technology Transfer, 42 (5), 1030–51. Bannò, M., L. Piscitello and C. Varum (2014), ‘The impact of public support on SMEs’ outward FDI: evidence from Italy’, Journal of Small Business Management, 52 (1), 22–38. Belhoste, N., R. Bocquet, V. Favre-Bonté and F. Bally (2019), ‘How do SMEs use support services during their internationalisation process: a comparative study of French traditional SMEs and INVs in Asia’, International Small Business Journal, 37 (8), 804–30. Bell, J., R. McNaughton and S. Young (2001), ‘“Born-again global” firms: an extension to the “born global” phenomenon’, Journal of International Management, 7 (3), 173–89. Catanzaro, A., K. Messeghem and S. Sammut (2015), ‘Impact of export support: a conceptual model for export start-ups’, International Management, 19 (2), 177–96. Catanzaro, A., K. Messeghem and S. Sammut (2018), ‘Effectiveness of export support programs: impact of the relational capital and international performance of early internationalizing small businesses’, Journal of Small Business Management, 57 (2), 436–61, doi:10.1111/jsbm.12489. Catanzaro, A. and C. Teyssier (2020), ‘Export promotion programs, export capabilities, and risk management practices of internationalized SMEs’, Small Business Economics: An Entrepreneurship Journal, doi:10.1007/ s11187-020-00358-4. Dana, L.P. (1995), ‘Entrepreneurship in a remote sub-Arctic community’, Entrepreneurship Theory and Practice, 20 (1), 57–72. Dana, L.P. (1996), ‘Self-employment in the Canadian sub-Arctic: an exploratory study’, Canadian Journal of Administrative Sciences, 13 (1), 65–77. Dana, L.P. (2007), ‘A comparison of indigenous and non-indigenous enterprise in the Canadian sub-Arctic’, International Journal of Business Performance Management, 9 (3), 278–86. De Maeseneire, W. and T. Claeys (2012), ‘SMEs, foreign direct investment and financial constraints: the case of Belgium’, International Business Review, 21 (3), 408–24. Felzensztein, C., L. Ciravegna, P. Robson and J. E. Amorós (2015), ‘Networks, entrepreneurial orientation, and internationalization scope: evidence from Chilean small and medium enterprises’, Journal of Small Business Management, 53 (S1), 145–60. Francis, J. and C. Collins-Dodd (2004), ‘Impact of export promotion programs on firm competencies, strategies and performance: the case of Canadian high-technology SMEs’, International Marketing Review, 21 (4–5), 474–95. Freixanet, J. (2012), ‘Export promotion programs: their impact on companies’ internationalization performance and competitiveness’, International Business Review, 21 (6), 1065–86.

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Hakanson, L. and P. Kappen (2017), ‘The “casino model” of internationalization: an alternative Uppsala paradigm’, Journal of International Business Studies, 48 (9), 1103–13. Hilmersson, M. and M. Johanson (2016), ‘Speed of SME internationalization and performance’, Management International Review, 56 (1), 67–94. Lederman, D., M. Olarreaga and L. Payton (2010), ‘Export promotion agencies: do they work?’, Journal of Development Economics, 91 (2), 257–65. Leonidou, L.C., D. Palihawadana and M. Theodosiou (2011), ‘National export-promotion programs as drivers of organizational resources and capabilities: effects on strategy, competitive advantage, and performance’, Journal of International Marketing, 19 (2), 1–29. Li, W., G.D. Bruton, and L. Filatochev (2016), ‘Mitigating the dual liability of newness and foreignness in capital markets: the role of returnee independent directors’, Journal of World Business, 51 (5), 787–99, doi:10.1016/j. jwb.2016.06.004. Lloyd-Reason, L., K. Ibeh and B. Deprey (2009), ‘Top barriers and drivers to SME internationalisation’, report by the OECD Working Party on SMEs and Entrepreneurship, Organisation for Economic Co-operation and Development, Paris. Love, J.H. and S. Roper (2015), ‘SME innovation, exporting and growth: a review of existing evidence’, International Small Business Journal, 33 (1), 28–48. Lu, J.W. and P.W. Beamish (2006), ‘SME internationalization and performance: growth vs. profitability’, Journal of International Entrepreneurship, 4 (1), 27–48, doi:10.1007/s10843-006-8000-7. Malca, O., J. Peña-Vinces and F. Acedo (2020), ‘Export promotion programmes as export performance catalysts for SMEs: insights from an emerging economy’, Small Business Economics, 55 (3), 831–51, doi:10.1007/ s11187-019-00185-2. Ojala, A. (2009), ‘Internationalization of knowledge-intensive SMEs: the role of network relationships in the entry to a psychically distant market’, International Business Review, 18 (1), 50–59. Oviatt, B. and P.P. McDougall (1994), ‘Toward a theory of international new ventures’, Journal of International Business Studies, 25 (1), 45–64. Oviatt, B.M. and P.P. McDougall (2005), ‘Defining international entrepreneurship and modelling the speed of internationalization’, Entrepreneurship Theory and Practice, 29 (5), 537–53. Rennie, M. (1993), ‘Global competitiveness: born global’, McKinsey Quarterly, 4, 45–52. Saridakis, G., B. Idris, J.M. Hansen and L.P. Dana (2019), ‘SMEs’ internationalisation: when does innovation matter?’, Journal of Business Research, 96 (March), 250–63. Schweizer, R., J.E. Vahlne and J. Johanson (2010), ‘Internationalization as an entrepreneurial process’, Journal of International Entrepreneurship, 8 (4), 343–70. Seringhaus, F.H.R. (1986), ‘The impact of government export marketing assistance’, International Marketing Review, 3 (2), 55–66. Seringhaus, F.H.R. and P.J. Rosson (1991), ‘Export promotion and public organizations: the state of the art’, in F.H.R. Seringhaus and P.J. Rosson (eds), Export Development and Promotion: The Role of Public Organizations, Boston, MA: Kluwer Academic, pp. 3–18. Shamsuddoha, A.K., M.Y. Ali and N.O. Ndubisi (2009), ‘Impact of government export assistance on internationalization of SMEs from developing nations’, Journal of Enterprise Information Management, 22 (4), 408–22. Spyropoulou, S., C.S. Katsikeas, D. Skarmeas and N.A. Morgan (2018), ‘Strategic goal accomplishment in export ventures: the role of capabilities, knowledge, and environment’, Journal of the Academy of Marketing Science, 46 (1), 109–29. Theodoraki, C. and K. Messeghem (2017), ‘Exploring the entrepreneurial ecosystem in the field of entrepreneurial support: a multi-level approach’, International Journal of Entrepreneurship and Small Business, 31 (1), 47–66. Wilkinson, T. and L.E. Brouthers (2006), ‘Trade promotion and SME export performance’, International Business Review, 15 (3), 233–52. Yannopoulos, P. (2010), ‘Export assistance programs: insights from Canadian SMEs’, International Review of Business Research Papers, 6 (5), 36–51.

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51. Involuntary entrepreneurship

Teemu Kautonen, Simon Down, Friederike Welter, Kai Althoff, Jenni Palmroos, Susanne Kolb and Pekka Vainio

Involuntary entrepreneurship refers to the phenomenon of business enterprises replacing employment relationships with contracted self-employed workers as a result of vertical de-integration and outsourcing processes. An involuntary entrepreneur is an individual who has become self-employed even though he or she would prefer paid employment, and  who is mainly self-employed in contractual terms but in practice is treated as an employee because of the way the contract is executed. Other terms used in this context include forced (Hakala, 2006; Palkkatyöläinen, 2007) and reluctant entrepreneurship (Boyle, 1994; Stanworth and Stanworth, 1997), false self-employment (Harvey, 2001), para-subordination (Perulli, 2003), employed self-employment (Paasch, 1990; Wank, 1988), hybrid self-employment (Bögenhold, 1987) and dependent self-employment (Böheim and Muehlberger, 2006). Developments such as vertical de-integration, lean production and outsourcing in large firms as well as the introduction of new technologies allowing for a separation of work place and activity (Beck, 2000; Boyle, 1994; Harrison, 1994; Sennett, 1998) have given rise to growing political interest and concern regarding people being pushed into new forms of precarious self-employment. These new working arrangements are located somewhere in a grey area between employment and self-employment (Perulli, 2003; Schulze Buschoff, 2004). The employer’s motive for such arrangements is to find more flexibility by avoiding the costs, obligations and responsibilities related to employment relationships. The employee, on the other hand, is often effectively ‘forced’ into becoming a subcontractor. Two streams of literature relate to this context: one addressing the  negative ‘push’ motives behind the decision to start up in business and the other focusing on the legal and economic aspects of operating in the grey area between an employment relationship and self-employment. The main arguments and central policy questions of each stream are introduced in the following two sections. The expressions ‘self-employed’ and ‘entrepreneurs’ are used interchangeably to refer to individuals who are in business for themselves.

THE INVOLUNTARINESS OF ENTREPRENEURSHIP The involuntariness in the employee’s decision to become self-employed is related to a strong influence of ‘push’ factors (for the pull/push discussion see, for example, Brüderl et al., 1996; Granger et al., 1995; Mallon, 1998; Stanworth and Curran, 1973). Perhaps the most common ‘push’ factor is unemployment or its threat. This affects people in situations where work that used to be done in employment relationships is being 452

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outsourced. Here, former employees and other individuals are offered work but only if  they do this as self-employed. These individuals would not become self-employed were it not for (the threat of) unemployment. However, involuntariness does not mean that the individuals were ‘forced’ into self-employment – it rather means that remaining  in  paid  employment would have been their preference. Moreover, involuntariness has a dynamic dimension too. Previous studies point out that self-employment which began as a reluctant choice may evolve to a desirable alternative over time (Granger et al., 1995; Hinz and Jungbauer-Gans, 1999). Thus, the central empirical question in this context is whether the entrepreneur, at a given time, would be willing to give up self-employment if he or she could continue doing the same work in an employment relationship. The central policy question concerns whether the involuntariness of self-employment has any consequences to the new entrepreneur personally or to the performance and development of his or her business. Examining the motives for starting up in business is an ‘evergreen’ issue in entrepreneurship research (for example, Blackburn, 2001; Davidsson, 1995). The aim of this research is to identify which ‘types’ of entrepreneurs are more successful in developing their venture and thus produce more positive externalities associated with entrepreneurship, such as job creation, increased potential for innovation and improvement of technological adaptability (for example, Ministerie van Economische Zaken, 2000; Parker, 2004; see also the opportunity/necessity discussion in the Global Entrepreneurship Monitor studies, for example, Reynolds et al., 2002). Thus, the discussion around whether entrepreneurship is push or pull-driven implicitly assumes that the motives for entering self-employment and subsequent business development are closely linked. For example, Amit et al. (1996: 2) suggest that ‘the decision to start a new venture gives a strong basis for predicting the likely success’. In other words: the contribution of involuntary entrepreneurship to economic development is likely to be limited. This becomes apparent in most Global Entrepreneurship Monitor studies, which tend to judge necessity entrepreneurship (as opposed to opportunity entrepreneurship) as a negative factor as far as national growth and development are concerned (for example, Allen et al., 2006; Reynolds et al., 2002). Moreover, involuntary entrepreneurs have been found to have a lower job satisfaction and a higher level of stress and risk related to the personal unsuitability of self-employment compared to paid employment (Block and Wagner, 2006).

OPERATING IN THE ‘GREY AREA’ BETWEEN EMPLOYMENT AND SELF-EMPLOYMENT The discussion on involuntary entrepreneurship is not limited to the motives, but it also includes the legal and economic aspects of precarious self-employment in the ‘grey area’ between employment relationships and self-employment. Following Dietrich (1999) and Schmidt and Schwerdtner (1999) the notion ‘quasi self-employed’ is used in the following to address the (quasi-)legal status of an individual who is mainly self-employed in contractual terms but in practice is treated as an employee because of the way the contract is executed. Typical characteristics associated with such working arrangements include not having employees, the initiative for self-employment and the business idea originating from

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the former employer, economic dependence on one client (often the former employer), and working under the authority of the client with little control over the time, place, and content of work (Böheim and Muehlberger, 2006; Harvey, 2001; Kautonen et al., 2007). Depending on the political, legal and economic framework of the country in question, quasi self-employed individuals may face several disadvantages compared to being an employee or a ‘real’ entrepreneur. Compared to an employment relationship, such downsides include for example loss of trade union representation and the benefits of collective bargaining, loss of legal status and protection as an employee, a downgrade in social security status, and having to take care of one’s own pension, sick and parental  leave arrangements (Block and Wagner, 2006; Böheim and Muehlberger, 2006; Filion,  2004;  Parker, 2004). Since quasi self-employed are highly dependent on one client,  they lack such independence as often associated with ‘real’ entrepreneurs. On the other hand, ‘real’ entrepreneurs – for example, industrial subcontractors – can also be economically dependent on one client, and since this dependence can guarantee a steady flow of business, it is not necessarily a negative factor. However, it becomes one if a company hires self-employed workers primarily in order to avoid the commitment involved in an employment relationship and to shift the risk of fluctuations in demand to the new self-employed, who as a result may experience periods of near unemployment  (Böheim and Muehlberger, 2006). Also ambiguities regarding the legal status – whether their working arrangement is interpreted as employment or self-employment by  tax or other authorities – may cause problems to the new entrepreneurs (see, for example, Harvey, 2001). According to a recent investigation of involuntary entrepreneurship in Finland, Germany and the UK (Kautonen et al., 2007), the primary policy concern in terms of the  legal position of the quasi self-employed appears to be the need to protect the interests of the individual, who as an involuntary entrepreneur is in a disadvantageous position compared to an employee. Interestingly, the disadvantages compared to ‘real’ entrepreneurs or the actual involuntariness of entrepreneurship seemed to be minor concerns. The central question in this context is how to correctly assess and legally classify (self-)employment and to distinguish one from the other (Perulli, 2003). By which criteria individual working arrangements are classified as employment, self-employment or something in between, and what rights and obligations such classifications involve, is a political matter that varies between countries and governments. The aforementioned cross-country examination of involuntary entrepreneurship revealed an unsurprising divergence between employers and trade unions on this issue (Kautonen et al., 2007). The employers are concerned about the possibility of rising labour costs through extensions of employment rights (and thus employer’s obligations) to more of the atypical workforce, or the possible regulation of quasi self-employment harming ‘voluntary’ forms of inter-firm cooperation or business concepts such as franchising which in some respects may resemble quasi self-employment (Vainio, 2007). The trade unions, on the other hand, reject this and emphasize the confusion, short-sightedness and injustice involved in precarious working arrangements.

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REFERENCES Allen, I.E., N. Langowitz and M. Minniti (2006), Global Entrepreneurship Monitor: 2006 Report on Women and Entrepreneurship, Babson College and London Business School, available at: http://www.gemconsortium. org (accessed 16 August 2010). Amit, R., K.R. MacCrimmon and J.M. Oesch (1996), ‘The decision to start a new venture: values, beliefs, and alternatives’, paper to the Babson College-Kauffman Foundation Entrepreneurship Research Conference, Seattle, June. Beck, U. (2000), The Brave New World of Work, Cambridge: Polity. Blackburn, R. (2001), ‘Researching entrepreneurship and small firms: towards a new agenda?’, keynote address to the RENT XV Conference, Turku, November. Block, J. and M. Wagner (2006), ‘Necessity and opportunity entrepreneurs in Germany: characteristics and earnings differentials’, MPRA Paper No. 610. Bögenhold, D. (1987), Der Gründerboom: Realität und Mythos der neuen Selbständigkeit, Frankfurt and New York: Campus. Böheim, R. and U. Muehlberger (2006), ‘Dependent forms of self-employment in the UK: identifying workers on the border between employment and self-employment’, IZA Discussion Paper No. 1963. Boyle, E. (1994), ‘The rise of the reluctant entrepreneurs’, International Small Business Journal, 12, 63–9. Brüderl, J., P. Preisendörfer and R. Ziegler (1996), Der Erfolg neugegründeter Betriebe: eine empirische Studie zu den Chancen und Risiken von Unternehmensgründungen, Berlin: Duncker & Humblot. Davidsson, P. (1995), ‘Determinants of entrepreneurial intentions’, paper to the RENT IX, Pracenza, November. Dietrich, H. (1999), ‘“Scheinselbständige” oder “Quasi-Firmen”? – Zwei Seiten einer Medaille’, in D. Bögenhold and D. Schmidt (eds), Eine neue Gründerzeit? Die Wiederentdeckung kleiner Unternehmen in Theorie und Praxis, Amsterdam: Fakultas, pp. 71–98. Filion, L.J. (2004), ‘Two types of self-employed in Canada’, in L.P. Dana (ed.), Handbook of Research on International Entrepreneurship, Cheltenham, UK and Northampton, MA, USA: Edward Elgar, pp. 308–29. Granger, B., J. Stanworth and C. Stanworth (1995), ‘Self-employment career dynamics: the case of unemployment push in UK book publishing’, Work, Employment and Society, 9, 499–516. Hakala, A. (2006), ‘Yrittäjyys ei ole aina vapaaehtoinen valinta’, Uutispäivä Demari, 18 May. Harrison, B. (1994), ‘The small firms myth’, California Management Review, 36, 142–58. Harvey, M. (2001), Undermining Construction: The Corrosive Effects of False Self-employment, London: Institute of Employment Rights. Hinz, T. and M. Jungbauer-Gans (1999), ‘Starting a business after unemployment: characteristics and chances of success (empirical evidence from a regional German labour market)’, Entrepreneurship and Regional Development, 11, 317–33. Kautonen, T., S. Down, F. Welter, K. Althoff, J. Kantola, S. Kolb and P. Vainio (2007), ‘Involuntary entrepreneurship as a public policy issue in selected European countries’, paper to the ICSB 2007 World Conference, Turku, June. Mallon, M. (1998), ‘The portfolio career: pushed or pulled to it?’, Personnel Review, 27, 361–77. Ministerie van Economische Zaken (MEK) (2000), The Entrepreneurial Society: More Opportunities and Fewer Obstacles for Entrepreneurship, Den Haag: MEK. Paasch, U. (1990), ‘Selbständig oder abhängig? Deregulierung von Arbeitsbedingungen per Statusdefinition’, in J. Berger (ed.), Kleinbetriebe im wirtschaftlichen Wandel, Frankfurt and New York: Campus, pp. 129–58. Palkkatyöläinen (2007), ‘Pakkoyrittäjät: oman onnensa sepät’, Palkkatyöläinen 1/2007, available at: http:// www palkkatyolainen.fi/pt2007/pt0107/p070131-a5.html (accessed 3 May 2007). Parker, S.C. (2004), The Economics of Self-Employment and Entrepreneurship, Cambridge: Cambridge University Press. Perulli, A. (2003), ‘Economically dependent/quasi-subordinate (parasubordinate) employment: legal, social and economic aspects’, study for the European Commission, Committee on Employment and Social Affairs, Brussels. Reynolds, P., W.D. Bygrave, E. Autio, L.W. Cox and M. Hay (2002), Global Entrepreneurship Monitor: 2002 Executive Report, London: GEM. Schmidt, B. and P. Schwerdtner (1999), Scheinselbständigkeit. Arbeitsrecht – Sozialrecht, Munich: Jehle-Rehm. Schulze Buschoff, K. (2004), ‘Neue Selbstständigkeit und wachsender Grenzbereich zwischen selbstständiger  und abhängiger Erwerbsarbeit – Europäische Trends vor dem Hintergrund sozialpolitischer und arbeitsrechtlicher Entwicklungen’, Discussion Paper 2004-108, Berlin: Wissenschaftszentrum Berlin für Sozialforschung. Sennett, R. (1998), The Corrosion of Character: The Personal Consequences of Work in the New Capitalism, New York: Norton.

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Stanworth, C. and J. Stanworth (1997), ‘Reluctant entrepreneurs and their clients – the case of self-employed freelance workers in the British book publishing industry’, International Small Business Journal, 16, 58–73. Stanworth, M.J.K and J. Curran (1973), Management Motivation in the Smaller Business, London: Gower Press. Vainio, P. (2007), ‘Vastentahtoisen yrittäjyyden oikeudellinen arviointi’, in T. Kautonen (ed.), Vastentahtoinen yrittäjyys. Työpoliittinen tutkimus 327, Helsinki: Ministry of Labour, pp. 121–288. Wank, R. (1988), Arbirtnehmer und Subständinge, Munich: Beck.

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52. Islamic entrepreneurship Veland Ramadani

Exploiting the latest and appropriate literature on the topic, this chapter discusses entrepreneurship based on the Islamic approach and principles. In order to present the connection between Islam as religion and entrepreneurship, several verses from the Holy Qur’an and teachings and traditions of Muhammad (sallallahu alayhi wa salaam – blessings and peace be upon him, hereafter SAW) are presented. This chapter highlights the importance of Islamic context as a driver of entrepreneurial activity. Here are discussed taqwa (faith), knowledge, innovativeness, risk-taking, resource management, financing, business ethics and social responsibility. Recommendations for further research and suggestions are provided.

1.

ISLAM

Islam is a monotheistic religion teaching that there is no God but Allah (Subhanahu Wa Ta’ala, hereafter SWT) and that Muhammad (SAW) is the messenger of Allah. According to the Pew Research Center (2017), Islam is the second-largest religion in the world, with over 1.9 billion adherents. The same research foresees that, if the current trends continue, Islam will grow faster than any other major world religion and, by 2050, the number of Muslims will nearly equal the number of Christians around the world. Mecca (Makkah), a city located in the western Saudi Arabia, is the religious centre of Islam, where Muslims make pilgrimages (haj), as one of the basic obligations and pillars of Islam. The Qur’an, which contains the God’s words, is the holy book of Muslims. It includes all the principles and traditions of the Islamic religion (Kayed and Hassan, 2010; Ramadani et al., 2017). Islam as a religion is founded on five pillars (Table 52.1), which represent the main obligations and spiritual beliefs (Churchil, 2009; Pistrui and Fahed-Sreih, 2010; Ramadani et al., 2017, Ullah et al., 2013). Entrepreneurship is studied and treated from different perspectives and contexts. There are very few studies thus far that have studied entrepreneurship from the perspective of Islam; that is, based on the Holy Qur’an and the Hadith (teachings and traditions). The lack of these studies is a consequence of several reasons (Adas, 2006; Barber, 1995; Dana, 2006; Davis, 2013): (1) considering that the few studies written about Islamic entrepreneurship are in Arabic, Urdu or other non-commonly spoken languages by western scholars, it was (and still is) very hard to find reliable and primary sources related to Islamic entrepreneurship; (2) so many western scholars still think that Islam as a religion is contradictory to capitalism and private initiatives and businesses; and (3) there is still a lack of understanding of explanatory activities of Muslim entrepreneurs who deconstruct and reconstruct the connection between Islam and entrepreneurship (Ramadani et al., 2015). Interest in Islamic entrepreneurship and its principles has risen recently among 457

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Table 52.1

Pillars of Islam

1

The creed The creed is based on two very important beliefs: 1 There is no God but Allah and that Muhammad is the prophet of Allah 2 Muhammad is God’s final prophet to human kind, after whom there will be no other

2

Prayer There are two types of prayers central to Muslims: 1 Salat, ritual prayers prescribed at specific times in particular forms 2 Du’a, a personal prayer or invocation addressed by the believer to God

3

Charity The third pillar called zakat relates to ‘alms giving and social welfare’: ● Conceived as a tax paid by Muslims to the community, which is used to help the needy ● Early social system that emerged into a complex global system of charitable foundations and institutions

4

Fasting The fourth pillar relates primarily to the holy month of Ramadan and abstention: ● Fasting from dawn to dusk for the entire month as prescribed by the Koran and following the solar calendar ● Abstention from certain food and drink, tobacco, sexual relations, alcohol and pork

5

Pilgrimage The fifth pillar relates to the obligation of all Muslims who are able to make a pilgrimage to Mecca for Haji: ● Once in a life requirement to make a pilgrimage to the holy cities of Mecca and Medina and engage ● Two types of pilgrims, scholars and merchants centred around experiences connected with knowledge and contacts

Source:

Based on Pistrui and Fahed-Sreih (2010) and Ramadani et al. (2017).

academics, practitioners and policy-makers. Ghoul (2011) and Ramadani et al. (2017) assume that the following factors have contributed to this. ●

● ●

Currently, Islam with 1.9 billion adherents (representing 24.1 per cent of the world’s population), accompanied by the high growth rate of Islamic countries, represents a respectable target for Muslim and other companies. High liquidity as a consequence of the surge in oil prices in Islamic countries. Realization of the significance of Shari’ah (Islamic religious law that governs not only religious rituals but also aspects of day-to-day life in Islam) rules and principles in business dealings owing to the religious awakening of Muslims. As Feldman (2008) writes, In the Muslim world, . . . the reputation of Shari’ah has undergone an extraordinary revival in recent years. A century ago, forward-looking Muslims thought of Shari’ah as outdated, in need of reform or maybe abandonment. Today, 66

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percent of Egyptians, 60 percent of Pakistanis and 54 percent of Jordanians say that Shari’ah should be the only source of legislation in their countries. ●

●

●

Internal conflicts, wars with neighbouring countries, high unemployment rates, poverty, gender issues and political oppression plague the majority of Muslim countries. The outcome of these circumstances is an increase in the number of Muslims immigrating to the western world (especially North America and Europe) and growth in the establishment of Muslim enterprises in Muslim immigrant communities as a necessity. The interest of non-Muslim clients who seek socially responsible and ethical products and services is growing, and this contributes to sustainable growth of Muslim enterprises. Many Muslims brought their money home after the 11 September 2001 attacks in the USA, fearing new regulations would cause higher scrutiny of the capital of Muslims all over the world.

Dana (1995a), Ramadani and Schneider (2013) and Welter (2011) noted that it is very important to understand entrepreneurship in its context. In this, Fayolle (2013: ix–x) claims that: entrepreneurship is a complex and multidimensional research object, and in this regard, context should be considered as a key variable . . . The notion of context encompasses spatial (geographical location, country, community, religion, etc.) and temporal dimensions, business dimensions (industry, market), and social (networks, family and friends, etc.) and institutional dimensions (culture, society, economic system, etc.).

Further, the renowned scholars, David Audretsch (2007) and Léo-Paul Dana (2009, 2010, 2011), were among the first scholars who examined religion as an explanatory variable for entrepreneurship. As regards Islam, if we carefully read and study the Holy Qur’an verses and the Prophet Muhammad’s SAW teachings, it easily can be concluded that Islam as a religion has paid great attention to entrepreneurship as a field of study (Ramadani et al., 2017). Thus, we believe that treating entrepreneurship from the Islamic context will represent a precious contribution to the field. According to Islam, people are encouraged to become entrepreneurs (Faizal et al., 2013; Ratten et al., 2017a). There are many successful Muslims entrepreneurs, such as Jawed Karim, the co-founder of YouTube, and Azim Premji, the chairman of Wipro. The main principles of conducting entrepreneurial activities are generated from the Holy Qur’an and the Hadith of Muhammad SAW. Entrepreneurship and entrepreneurs have a special place in Islam as a religion. This can be illustrated by the Allah’s SWT words in the Holy Qur’an (24:37), ‘By men whom neither traffic nor merchandise can divert from the remembrance of Allah, nor from regular prayer, nor from the practice of regular charity’, while the Prophet Muhammad SAW claimed that ‘An honest and sincere businessman will be placed with the prophets, siddiqin and al-syuhada’ (al-Tirmidhi, 1987: 515). Both the Qur’an and the Hadith confirm that entrepreneurs are considered as recognized people in Islam, while entrepreneurship is seen as a religious ritual (ibadah) to Allah SWT so they are carried out honestly and for the right reason (Vargas-Hernández et al., 2010; Yaacob and Azmi, 2012).

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ISLAMIC ENTREPRENEURSHIP CONCEPT

Islam encourages people to be involved in entrepreneurial activities (Audretsch, 2007). The Prophet SAW has said that ‘nine out of ten sources of rezeki (incomes) can be derived from the business activities’ (Salwa et al., 2013: 61). Muslims are increasingly motivated to set up their own businesses in harmony with Shari’ah law, and permanently remembering and thanking God for all achieved results: ‘Then when the prayers have ended, disperse and go your ways in quest of God’s bounty. Remember God always, so that you may prosper’ (Holy Qur’an, 62:10). Islam requires all people to be active, opportunity-seekers, diligent and hard workers – considered to be entrepreneurs’ main qualities. Table 52.2 summarizes Islamic principles related to modern business practices. Ratten et al. (2017a: 15) define Islamic entrepreneurship as ‘discovery, evaluation and exploitation of opportunities utilizing an Islamic belief system in the business environment’, while, according to Mebroui and Mosbah (2020: 462), Islamic entrepreneurship ‘refers to business conducts that obey Sharia, but not necessarily businesses conducted by Muslims’. Further, it should be emphasized here that Islamic entrepreneurs ‘are not only those who act in Middle East or in Islamic countries, but also those who create entrepreneurship outwards, in different countries where Islam is not necessarily the main religion’ (Carneiro-da-Cunha et al., 2015: 274). Islamic entrepreneurship, in general, is based on the following principles (Gümüsay, 2015; Lewis and Churchill, 2009; Ramadani et al., 2017): entrepreneurship is considered an integral part of Islam as a religion; success is not only measured by the end result, but also by the means of achieving that result; Islam encourages people to take (moderate) risks in business; doing business is a way of ibadah, or doing a good deed; undertaking entrepreneurial activities must be based strictly on the Holy Qur’an and the Prophet’s Hadith values and rules; and ethics and social responsibility are based on the exemplary behaviour of the Prophet, Muhammad SAW. According to Ramadani et al. (2015), successful Islamic entrepreneurs should possess an appropriate education, accurate knowledge and skills, and readiness to take proactive rather than reactive actions. Based on the survey conducted by Anggadwita et al. (2017), Islamic entrepreneurs should be smart, honest, trustworthy, communicative and encouraged. Some of the survey’s respondents stated as follows: ‘Entrepreneurs must have the characters of honesty, trustworthy, and able to communicate well’; ‘Entrepreneurs must have the characters of honesty, consistent and courageous’; and ‘Entrepreneurial must have the characters of smart, honesty, trustworthy, ability to communicate well, consistent and courageous’. These characteristics are similar to those of the Prophet, Muhammad SAW (Anggadwita et al., 2017), listed below: 1. 2. 3. 4.

Fathonah means intelligent and competent. The Prophet was considered as a genius trader. Amanah means trustable. The Prophet was honest in doing business and had a great respect among traders. Siddiq means truthful and high integrity. The Prophet’s words and deeds were true and always his words were in correlation to his deeds. Tabligh means to convey (communicative). The Tabligh character is explained in the

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lslamic principles related to modern business practices

Islamic principles based on the Holy Qur’an

Corresponding modern business practices

‘And follow not (O man i.e., say not or do not or witness not) that of which you have no knowledge’ (17:36)

Honesty and truthfulness: investigation and verification before action: right and ethical conduct, true witness

‘...the best of men for you to hire is the strong, the trustworthy’ (28: 26)

Merit and competency should be the standard for selection and hiring

‘And observe the weight with equity and do not make the balance deficient’ (55:9. 83:1^3)

Truthfulness, sincerity and honesty in business dealings

‘And those who answer the call of their Lord and establish prayer and who conduct their affairs by mutual consultation’ (42:38)

Consultative decision-making

‘O you who believe! Fulfil your obligations’ (5:1)

Responsibility cannot be avoided

‘...when you contract a debt for a fixed period, write it down... take witness whenever you make a commercial contract’ (2:282)

Written contract and keeping witness

‘...and We raise some of them above others in ranks, so that some may employ others in their work’ (43:32)

Managerial hierarchies are necessary and acceptable

‘O mankind! We have created you from a male and a female, and made you into nations and tribes, that you may know one other’ (49:13)

Globalization, multiculturalism, international trade and business, group and team working

‘...stand out firmly for justice, as witnesses to God, even though it be against yourselves, or your parents, or your kin, be he rich or poor’ (4:135)

Non-discriminatory treatment for everyone in the workplace, no scope for cover-up encouragement and protection for ‘whistle blowers’. Equal treatment for everyone (no special treatment for the rich and for the superiors)

‘...if a wicked person brings you some news, inquire into it carefully lest you should harm people in ignorance...’ (49:6)

Reliance on accurate information before making decisions and taking actions. Existence of powerful and reliable MIS

Islamic principles based on the Hadith

Corresponding modern business practices

‘He who cheats is not one of us’

Defects of an item are to be disclosed

‘God likes that when someone does anything, it must be done perfectly well’

Excellence and quality of work, no scope for negligent behaviour

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Table 52.2

(continued)

Islamic principles based on the Hadith

Corresponding modern business practices

‘Don’t outbid one another in order to raise the price... Don’t enter into a transaction when others have already entered into that transaction’

No artificial price increase, fairness in contract negotiation

‘Whoever takes money of the people with the intention of repaying it, God will repay it on his behalf (should he fail to do so): and whoever takes it in order to spoil it, then God will spoil him’

Need for fair play. No deception or plundering with public money

‘One who employs a labourer and takes full work from him but does not pay him for his labour shall face God’s wrath in the day of Judgment’

A fair wage for a fair day’s labour

Source:

Based on Uddin (2003: 29−30).

Qu’ran (72:28): ‘That He may know that they have conveyed the messages of their Lord. He encompasses what they have, and has tallied everything by number.’ Istiqamah means steadfastness and consistency of courage. The Prophet remained consistent in doing good deeds until the end of his life.

5.

Islamic entrepreneurial activities must be conducted in an honest way that pleases and earn rida (acceptance) from Allah SWT (Hamid and Sa’ari, 2011). Entrepreneurs must possess taqwa (faith) in Allah SWT. According to Islam, they must believe in Allah SWT as the only God, and in his Messenger, Muhammad SAW, in order to be successful (Faizal et al., 2013). This is confirmed in the Holy Qur’an, as follows: O you who have believed, shall I guide you to a transaction that will save you from a painful punishment? It is [that] you believe in Allah and His Messenger and strive in the cause of Allah with your wealth and your lives. That is best for you, if you should know. (Holy Qur’an, 61:10–11)

According to Din (2007), religious Muslim entrepreneurs are characterized by: ● ● ● ● ● ●

referring to the Holy Qur’an as daily basis; performing prayer five times a day; performing zakat (tithe); donating to the poor and those in need; performing night and morning prayers (dhuha); and performing gratitude prayers.

Taqwa is clearly connected with halal (lawful, permissible), haram (unlawful, not permissible) and mushtabeh (doubted). According to Alserhan (2011), as cited in Ramadani

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et al. (2015), halal includes three levels: (1) wajib (duty; obligatory acts) is described as the core halal. If the Muslim entrepreneurs fail to implement them, they make a sin and they cannot be seen as Shari’ah-compliant. So, entrepreneurs must implement the wajib acts. Examples of wajib acts are being honest and transparent. (2) Mandoob are preferable, but not obligatory acts, and if the entrepreneurs do not perform them, it is not considered a sin. Mandoob are considered to be the supplementary halal. These are preferable to be performed if possible. Examples of mandoob include being helpful and exceeding expectations. (3) Makroohare are not preferable acts and are discouraged by Islam. These are usually seen as a last resort and should be avoided by entrepreneurs if possible. Haram includes the forbidden acts that Islam sentences explicitly and implicitly. These acts are considered to be sins. Muslims’ entrepreneurial activities must be halal (lawful), not haram (unlawful). According to the Qur’an and the Hadith, some business elements and activities are not allowed and are judged as haram, such as interest payments, alcohol, gambling, producing and processing pork, prostitution, illegal drugs, speculation, usury, pornography and some types of entertainment (Hassan and Hippler, 2014; Ramadani et al., 2015). Allah SWT says in the Holy Qur’an: ‘O mankind, eat from whatever is on earth [that is] lawful and good and do not follow the footsteps of Satan. Indeed, he is to you a clear enemy’ (Holy Qur’an, 2:168). Mushtabeh are questioned acts and entrepreneurs should avoid them as much as possible because they might be haram or lead to haram. These acts could be perceived as unscrupulous by stakeholders.

3.

ENTREPRENEURSHIP ASPECTS IN THE QUR’AN AND THE HADITH

3.1

Opportunities

Islam teaches us that opportunities are in the hand of Allah SWT. He creates opportunities for everything, including those for business. Allah SWT, in Qur’an (5:15), says: ‘There has come to you from Allah Light and a Plain Book.’ Opportunities are everywhere, but they should be identified, evaluated and used by entrepreneurs. Entrepreneurs should be vigilant and aware of the events and trends around them (Dana, 1995b; Ramadani and Gërguri, 2011). This is mentioned in the Holy Qur’an, ‘Indeed, the worst of living creatures in the sight of Allah are the deaf and dumb who do not use brain/reason’ (8:22) ‘And that there is not for man except that [good] for which he strives’ (53:39). It should be noted that not all opportunities in the environment are seen in the same way, or as Ramadani et al. (2015) put it, a priest sees ham as an opportunity for a nice meal, an imam does not; an Irishman sees in beer an opportunity for a nice drink; a Frenchman may prefer wine; a Muslim in France may drink beer; a Muslim in Egypt can choose not to drink.

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3.2

Knowledge and Innovation

The first order by Allah SWT to the Prophet Muhammad SAW, when he was sitting in the Cave of Hira, near Mecca, was: ‘Read, in the name of your Lord, who created. He created man from an embryo. Read, and your Lord, Most Exalted. Teaches by means of the pen. He teaches man what he never knew’ (Holy Qur’an, 96:1–5). This proves that knowledge is in the heart of Islam. Islam is knowledge and vice versa. Knowledge and its importance in Islam were mentioned several times in Qur’an verses. ‘Are those who know equal to those who do not? Only those with insight can keep it in mind’ (The Holy Qur’an, 39:9) and ‘God will exalt those who believe among you and those who have knowledge to high ranks’ (Holy Qur’an, 58:11). Beside the Qur’an, the Prophet Muhammad SAW also in his teachings passionately encouraged people to seek and earn knowledge as much as they can. According to Islamic scholars, there can be found more than 40 hadiths that are strongly related to knowledge (Muhamadul, 2011; Raza, 1999; Yaakub et al., 2015). Here are three of the most important: ‘Seeking knowledge is an obligation upon every Muslim’; ‘The scholars are the successors of the prophets. Verily, the prophets do not pass on gold and silver coins, but rather they only impart knowledge’; and ‘Whoever travels a path in search of knowledge, Allah will make easy for him a path to Paradise. People do not gather in the houses of Allah, reciting the book of Allah and studying it together, but that tranquillity will descend upon them, mercy will cover them, angels will surround them, and Allah will mention them to those near him’. Yaacob and Azmi (2012: 87) emphasized that Islamic entrepreneurs should be ‘wise, strong, and intelligent, [have] a strong memory, [be] knowledgeable, very experienced, modest, honest, prudent, just and [have] a strong will’. They must possess knowledge and skills in order to be successful and at the same time are obliged to share their (old or new) knowledge and skills to others (Yusoff, 2002). As Hoque et al. (2014: 134) noted: ‘there is no room for an indolent and idle brain in Islam’. It is generally known that innovativeness is counted within the main qualities of entrepreneurship and entrepreneurs. People should endeavour to change something in order to make their life simpler, healthier and better. Islam requires that its followers work on such changes and innovations. As regards this, Allah says: ‘We do not change the circumstances of people until they do not change what is within themselves’ (Holy Qur’an, 13:11). Anggadwita et al. (2017) argues that Islam encourages Muslims to be innovative and active entrepreneurs. Omri et al. (2017) found that those individuals who possess stronger Islamic beliefs are more likely to be involved in creative skills and positively influence entrepreneurial behaviour. Here it should be noted that Islam encourages innovations in businesses practices as they do not violate the Shari’ah law, but prohibit innovations that are related to the religion (Adhama et al., 2012; Muhamad and Abd Rahman, 2004). Innovation in religious matters is known as a bid’ah and it is considered to be a sin.

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465

Resources and Financing

Islam promotes prosperity through the accurate use of the resources given by Allah SWT. Resource mismanaging is not allowed neither by the Qur’an, nor by the Prophet’s Hadith. Once, a friend of Muhammad SAW was seen misusing the water during ritual ablution. The Prophet SAW immediately warned him not to repeat that misuse: ‘O Sa’d, how wasteful you are!’ Then his friend asked if the water could be considered as a misused even in religious rituals, the Prophet SAW replied: ‘Yes, even if you are using the running water of a river’ (Gümüsay, 2015: 205). The appropriate use of resources is treated in the Holy Qur’an as well, where Allah SWT says: ‘Oh children of Adam! eat and drink but waste not in excess, for Allah does not love the wasters’ (Holy Qur’an, 7:31); and ‘Indeed, the wasteful are brothers of the devils, and ever has Satan been to his Lord ungrateful’ (Holy Qur’an, 17:27). According to Aysan et al. (2016), in Islamic finance, transactions need to occur via al-bay (exchange contract) instead of the more common approach of al-riba (interest rate contract); this encourages risk-sharing as a part of the moral obligation in Islamic finance in order to utilize funds for the benefit of society (Ratten et al., 2017b). Therefore, Islam encourages entrepreneurship but prohibits borrowing money with interest (usury) and this is explicitly remarked upon in the Holy Qur’an: Those who swallow down usury cannot arise except as one whom Shaitan [Devil] has prostrated by (his) touch does rise. That is because they say, trading is only like usury; and Allah has allowed trading and forbidden usury. To whomsoever then the admonition has come from his Lord, then he desists, he shall have what has already passed, and his affair is in the hands of Allah; and whoever returns (to it) – these are the inmates of the fire; they shall abide in it. Allah does not bless usury, and He causes charitable deeds to prosper, and Allah does not love any ungrateful sinner. (Holy Qur’an, 2:275–276) O you who believe! do not devour usury, making it double and redouble, and be careful of (your duty to) Allah, that you may be successful. (Holy Qur’an, 3:130) And their taking usury though indeed they were forbidden it and their devouring the property of people falsely, and We have prepared for the unbelievers from among them a painful chastisement. (Holy Qur’an, 4:161)

Since Islam prohibits interest, Lewis and Churchill (2009) argues that it represents a barrier to capital access and discourages entrepreneurship. But Rehan et al. (2019: 560) noted that ‘this argument is not straightforward: even if interest is generally not allowed, investments are allowed, and people do have options of getting finances through Islamic banking channels’. Islamic banking provides only products that are in compliance with the Islamic law. Usually these products are related to mortgages, construction and investing in local stock markets, whereby a basic principle is risk-sharing, if the person, company or bank, respectively, invests and provides finances to your business or activity, he or it participates in your profit or loss (Pistrui and Fahed-Sreih, 2010). Islamic banks contribute to economic development and people’s well-being (Zafar and Sulaiman, 2019).

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3.4

Decision-making, Risks and Success

All entrepreneurs take decisions on a daily basis. Islamic entrepreneurs during the decision-making process, always should have in mind the following Qur’anic verse: ‘when you have made a decision, put your trust in Allah, certainly, Allah loves those who put their trust (in Him)’ (Holy Qur’an, 3:159). According to the Qur’an, the results that come as a result of entrepreneurs’ decisions are strictly related to Allah’s SWT will – this is known as Tawakkul. However, Islam also teaches that entrepreneurs should not rely only on Allah’s SWT will, without making any effort by themselves (Hoque et al., 2014). Some other Quranic verses regarding decision-making are presented in Table 52.2, where Allah SWT requests that individuals (entrepreneurs) have a consultative approach and base their decisions and actions on truthful information. The decision-making process includes risk-taking by itself. Risk-taking is an entrepreneurs’ feature as well. Ibn Taimiyyah (Dusuki, n.d.) noted that in Islamic law there is no obvious evidence that categorically prohibits all forms of risks. Risk alone does not constitute prohibition. Further, he claims that Islam do[es] not prohibit all types of risks, or all activities which are doubtful in terms of whether it is profitable or loss or safe (neither profitable nor loss) . . . Instead, the type of risk which is prohibited concern[s] consumption of property in an unjust or wrongful manner. The main reason for prohibition from [the] Shari’ah viewpoint is mainly concerned [with] the unjust consumption of property even without the element of risk. (Dusuki, n.d.: 4)

Some risks, such as those associated with uncertainty (gharar) or gambling (maysir), are thoroughly forbidden. Every entrepreneur opens his or her own business with a desire to achieve a particular success. According to Islamic teachings, success is measured ‘not only by personal financial success, but also by how well religious goals are achieved, which may provide the entrepreneur with rewards in the afterlife’ (Hassan and Hippler, 2014: 172). Entrepreneurs are characterized with a high level of self-confidence and strongly believe that they will be successful in their business initiatives and activities. The Holy Qur’an assures that individuals who have faith will be under God’s protection: ‘God is the protector of those who have faith: From depths of darkness He leads them forth into light’ (Holy Qur’an, 2:257). According to Azaddin (2001) there are three Arabic words associated with success: najah, fawz and falāḥ, the last two words of which are mentioned in the Holy Qur’an (fawz – 29 times; falāh – 40 times), while the word najah is never mentioned in it. To reach falāḥ means to be among the muflihun (individuals who succeed), whereas fawz is primarily related to reward (Aminuddin et al., 2016). According to Islamic principles, as Balog et al. (2014) noted, the measurement of success should integrate the spiritual and religious goals on a personal basis rather than just financial and material goals – a good life in this world and hoping for a good place in the hereafter (paradise).

4.

ISLAMIC ETHICS AND SOCIAL RESPONSIBILITY

Ethics and social responsibility have a special place in Islam, as a religion. This is confirmed by many scholars (Emrullah and Hâdimî, 2014; Hashi, 2011; Rafiki and Nasution,

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2019; Tafti et al., 2012; Yousef, 2001) and by the Holy Qur’an and the Hadith. According to Rahim (2013), ethics is defined as akhlaq, which means character, nature and disposition. Ethical and socially responsible behaviour are praised at the highest level in Islam (Ramadani et al., 2015). Ethics in Islam is transcendental, where Allah SWT determines what is ethical and what is not. The ethical and socially responsible behaviour in the Holy Qur’an is described as: Righteousness does not consist of turning your faces towards the East and the West. But righteous is he who believes in God, and the Last Day, and the angels, and the Scripture, and the prophets. Who gives money, though dear, to near relatives, and orphans, and the needy, and the homeless, and the beggars, and for the freeing of slaves; those who perform the prayers, and pay the obligatory charity, and fulfil their promise when they promise, and patiently persevere in the face of persecution, hardship, and in the time of conflict. These are the sincere; these are the pious. (Holy Qur’an, 2:177) And serve Allah and do not associate any thing with Him and be good to the parents and to the near of kin and the orphans and the needy and the neighbour of (your) kin and the alien neighbour, and the companion in a journey and the wayfarer and those whom your right hands possess; surely Allah does not love him who is proud, boastful. (Holy Qur’an, 4:36) Let there arise out a group of people inviting to all that is good enjoining what is right and forbidding what is wrong. They are the ones who attained success. (Holy Qur’an, 5:44)

While, the Prophet SAW has said (Ayloush, 2015; Kamali, 2010; Rahim, 2013): ‘Nothing is heavier on the scale than having the good character’; ‘I was sent to uphold and sanctify the noble characteristics’; ‘Among the greatest number of people who enter paradise are of the pious and the virtues’; ‘Give the wages of employee before his sweat dry’; ‘I will be the opponent of three types of people on the Day of Judgment’ and he listed one of these three types as ‘one who hires a worker, but does not pay him his right wages owed to him after fulfilling his work’.

5.

CONCLUSIONS

Islam as a religion, as seen in the Holy Qur’an verses and Prophet’s teachings cited, strongly encourages individuals to undertake entrepreneurial activities and assure wellbeing for themselves and economic development for their countries (Ramadani et al., 2015). This chapter aims to increase the interest of scholars to understand and examine entrepreneurship from different perspectives, such is Islam as a religion. Islamic entrepreneurship might be an interesting cultural and economic contribution to the field of entrepreneurship. Islamic entrepreneurship is becoming increasingly important as the world continues to globalize and innovative activity is encouraged (Ratten et al., 2017b). In the future, different studies should be conducted in order to answer the following research questions: do Muslim entrepreneurs respect utterly Islamic principles in their

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business endeavours, even in Islamic countries? What are the major challenges of Muslim entrepreneurs in non-Islamic countries? Do they take into consideration Islamic rules and principles when they collaborate with non-Muslims entrepreneurs? How do they cooperate with Muslim and non-Muslim women entrepreneurs?

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53. Learning business planning Paula Kyrö and M. Niemi

The objective of the constructive learning business planning (LBP) research project is to provide a novel application for learning business planning that considers learning as a process of innovative, opportunity recognition, development of individual readiness and abilities by adopting intelligent, human-like, non-linear soft computing. The traditional business planning literature is somewhat normative, and, as Carrier (2005) argues, it neglects aspects of innovation and creativity. Some research findings indicate that there is actually only a tenuous relationship between business planning and performance (Karlsson, 2005) while others show no significant relationship between these two (Carter et al., 1996; Delmar and Shane, 2004). Hindle (1997) suggests that the normative nature and linear logic of business planning easily leads to reductionism and inhibits an integrated approach to planning. It is therefore suggested that we indeed face a challenge to improve both the business planning models and our teaching practices. In order to study how to overcome these problems and to advance this dialogue, we apply a constructive problem-solving orientated research approach. Lukka (2001) argues that the basic nature of the constructive research approach concerns problem-solving, which provides solutions as an outcome of the interplay between practice and theories. The constructive approach relies on heuristic innovations, thus differing from a decisionoriented approach to problem-solving. This approach aims to solve a real-world problem by implementing a new construct, which, according to Lukka (2001), should contribute both practice and theories. As a result we have developed a new, non-linear, five-phase, two-layer configuration model for an intelligent soft computing simulation tool of learning business planning. This simulation tool applies fuzzy linguistic variables, fuzzy rule sets and fuzzy reasoning.  Thus we can differentiate the interface the learner experiences and the layer that technically transforms the complex data-handling processes. In this way we are able to apply computer modelling to more complicated phenomena than has previously been possible in linear models. This modelling offers an opportunity to advance traditional business planning models and their teaching. This should help potential entrepreneurs to understand how they can learn business competence, and can show them the essential relations within their business activities. The leading partner of the LBP project is the Helsinki School of Economics (HSE). It is the largest and leading business school in Finland. The Helsinki School of Economics was awarded Association to Advance Collegiate Schools of Business (AACSB) accreditation in 2007. The Small Business Center at the Helsinki School of Economics (HSE) specializes in developing entrepreneurship and business abilities. Its offices are located in Helsinki, Mikkeli, St Petersburg and Tallinn. Its services are based on HSE core skills which have received many national and international quality awards. The HSE has received an award three times from the Ministry of Education for high-quality adult 471

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education. Other partners are the University of Tampere, the University of Helsinki and the BISC group at Berkley University of California.

REFERENCES Carrier, C. (2005), ‘Pedagogical challenges in entrepreneurship education’, in P. Kyrö and C. Carrier, The Dynamics of Learning Entrepreneurship in a Cross-cultural University Context, Entrepreneurship Education Series 2/2005, Hämeenlinna: University of Tampere, Research Centre for Vocational and Professional Education. Carter, N.M., W.B. Gartner and P.D. Reinolds (1996), ‘Exploring start-up event sequences’, Journal of Business Venturing, 11, 151–66. Delmar, F. and S. Shane (2004), ‘Legimitating first: organizing activities and the survival of new ventures’, Journal of Business Venturing, 19, 385–410. Hindle, K. (1997), An Enhanced Paradigm of Entrepreneurial Business Planning, Swinburne: Swinburne University of Technology. Karlsson, T. (2005), ‘Business plans in new ventures – an institutional perspective’, JIBS Dissertation series, No. 030, Jönköping International Business School. Lukka, K. (2001), ‘The constructive research approach’, available at: www.metodix.com (accessed 25 August 2010).

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54. Mature-age entrepreneurship

Paull C. Weber and Michael T. Schaper

MATURE ENTREPRENEURS Business researchers, policy-makers and practitioners have used many varied terms to describe those in self-employment who in their ‘latter years’ determine to own (or continue to own) and operate a business venture. Synonymous terms include: ● ● ● ● ● ● ●

grey entrepreneurs (Weber and Schaper, 2004) senior entrepreneurs, or seniorpreneurs (Goldberg, 2000) golden entrepreneurs (Arkebauer, 1995) second career entrepreneurs (Baucus and Human, 1994) third age entrepreneurs ((Blackburn et al., 1998) elder entrepreneurs (De Bruin and Dupuis, 2003) mature small business owners (Weber, 2006).

While there has been a recent tendency to use the phrase ‘grey entrepreneur’, this has some negative connotations; accordingly, the term ‘mature entrepreneur’ or ‘mature age entrepreneur’ is preferred. The ‘mature’ terminology adopted also has resonance with the generational segmentation descriptions utilized by authors such as Still et al. (2004). All of these terms are descriptors which recognize that there are significant behavioural, resource and motivational differences between older and younger entrepreneurs. These patterns begin to become noticeable somewhere between 45 and 55 years of age. Studies that specifically look at mature entrepreneurs have only emerged in the past two decades (see, for example, Blackburn et al., 2000; Karoly and Zissimopoulos, 2004; Kean et al., 1993; Singh and DeNoble, 2003). Some studies have pointed out that the age of the business owner can have a direct impact on the business, as older individuals typically have lower levels of personal energy, but more commercial and life experience, more accumulated financial assets that can be used to fund the business venture, and access to a wider and longer-established network of personal contacts and supporters (Barclays Economic Reports, 2001; Blackburn et al., 1998; Carnegie UK Trust, 1993; Curran and Blackburn, 2001; Seymour, 2002). Other researchers have noted that mature entrepreneurs tend to have different work patterns (Quinn, 1996), personal values (Burroughs and Rindfleisch, 2002; King, 2002), attitudes towards self-employment (Curran and Blackburn, 2001) and more limited alternative employment options (Platman, 2003) than younger entrepreneurs. There is no given numerical point at which an entrepreneur can automatically be categorized as either mature-age or not. However, a point somewhere in the 50+ age bracket appears to be the most effective demarcation point. For example, age 55 is the minimum early retirement age for Australian workers (Senate Committee for Employment Workplace  Relations and Education, 2003); age 50 is the youngest point in Britain at 473

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which individuals can access retirement entitlements (Blackburn et al., 1998); and other developed nations likewise have retirement points somewhere around this age point. Weber (2006) also found that differences between mature-age entrepreneurs and other younger owner-operators became more pronounced after the age of 55. By this point, the age-related characteristics and resources of the entrepreneur are likely to have become well-entrenched, and to have some practical bearing on the firm’s activities. Mature-age entrepreneurs do, however, share a number of characteristics in common with all other business venturers. They typically have majority or outright control of the enterprise, make most or all of the decisions, and remain one of the major influences in what it does and the strategies that it pursues. In summary, mature entrepreneurs can typically be defined by reference to both age and the control they exert over the entrepreneurial business venture: Mature Entrepreneurs (MEs) are over 55 years of age, own a business where they have close control of the business capital and are the principal decision-makers (see Figure 54.1).

REFERENCES Arkebauer, J.B. (1995), Golden Entrepreneuring: The Mature Person’s Guide to a Successful Business, New York: McGraw-Hill. Barclays Economic Reports (2001), Third Age Entrepreneurs – Profiting from Experience, London: Barclays PLC. Baucus, D. and S.E. Human (1994), ‘Second career entrepreneurs: a multiple case of entrepreneurial processes and antecedent variables’, Entrepreneurship Theory and Practice, 19 (2), 41–71. Blackburn, R., M. Hart and M. O’Reilly (2000), ‘Entrepreneurship in the Third Age: new dawn or misplaced expectations?’, proceedings of the 23rd ISBA National Small Firms Policy and Research Conference, Aberdeen University, pp. 1–17. Blackburn, R., L. Mackintosh and J. North (1998), Entrepreneurship in the Third Age, Kingston: Kingston University Small Business Research Centre. Burroughs, J.E. and A. Rindfleisch (2002), ‘Materialism and well-being: a conflicting values perspective’, Journal of Consumer Research, 29 (December), 348–70. Carnegie UK Trust (1993), Life, Work and Livelihood in the Third Age, The Carnegie Inquiry Into The Third Age, Dumfermline: The Carnegie United Kingdom Trust. Curran, J. and R. Blackburn (2001), ‘Notes and issues, older people and the enterprise society: age and selfemployment propensities’, Work, Employment & Society, 15 (4), 889–902. De Bruin, A. and A. Dupuis (2003), Entrepreneurship: New Perspectives in a Global Age, Aldershot: Ashgate. Goldberg, S. (2000), ‘Business week: senior startups’, Business Week, available at: www.kellogg.northwestern. edu/news/hits/000814bw.htm (accessed 26 March 2003). Karoly, L.A. and J. Zissimopoulos (2004), ‘Self-employment among older U.S. workers’, Monthly Labor Review, 127 (7), 24–47. Kean, R.C., S. Van Zandt and W. Maupin (1993), ‘Successful ageing: the older entrepreneur’, Journal of Women & Aging, 5 (1), 25–42. King, S. (2002), ‘Entrepreneurs measure of success: is it more than profits?’, proceedings of the 47th World Conference of the International Council for Small Business (ICSB), SBANC University of Central Arkansas, 16–19 June, San Juan, Puerto Rico. Platman, K. (2003), ‘The self-designed career in later life: a study of older portfolio workers in the United Kingdom’, Ageing & Society, 23 (3), 281–302. Quinn, J. (1996), ‘The role of bridge jobs in the retirement patterns of older Americans in the 1990s’, proceedings of the International Association for Research in Income and Wealth Conference, Lillehammer, 16–23 August. Senate Committee for Employment Workplace Relations and Education (2003), Select Committee on Superannuation: Planning for Retirement, Canberra: Senate Printing Unit. Seymour, N. (2002), ‘Starting up after 50’, CELCEE Kauffmen Centre for Entrepreneurial Clearinghouse on  Entrepreneurship Education, available at: http://www.celcee.edu/publications/digest/Dig02-05.html (accessed 25 February 2003).

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Figure 54.1

Simha is over 55 years of age, owns a business where he has close control of the business capital and is the principal decision-maker; photograph by Léo-Paul Dana

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Singh, G. and A. DeNoble (2003), ‘Early retirees as the next generation of entrepreneurs’, Entrepreneurship Theory and Practice, 23 (3), 207–26. Still, L.V., G.N. Soutar and E. Walker (2004), ‘Generational differences in the start-up goals and later satisfaction of women small business proprietors’, Small Enterprise Research, 12 (1), 71–9. Weber, P. (2006), ‘Understanding mature small business owners: success and age-related correlates of success within the Western Australian tourism industry’, PhD thesis, School of Management, Curtin University of Technology, Australia. Weber, P and M. Schaper (2004), ‘Understanding the grey entrepreneur’, Journal of Enterprising Culture, 12 (2), 147–64.

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55. Mental health in entrepreneurship Isabella Hatak

For nearly half a century, researchers have devoted considerable resources to understanding differences in health between entrepreneurs and employees and/or the general population. More recently, there has been growing interest on the role of health in the entrepreneurial process. When referring to health, we need to differentiate between mental health – ‘the state of the mind, including basic intellectual functions’ – and physical health – ‘the physiological and physical status of the body’ (Ware et al., 1981: 621). While earlier research has disproportionally focused on the productivity of general health or specific physical health indicators, such as height and nutritional status, recent years have seen an increasing focus on entrepreneurs’ mental health in a number of specialized workshops and conferences, new research projects and special issues in international journals. This is not surprising as entrepreneurs play a key role in their business, with their mental health functioning as a personal resource or strength that can facilitate or obstruct their entrepreneurship endeavors delivering value (Shepherd and Patzelt, 2015). This entry provides a stock-take on mental health in entrepreneurship, outlining the progress that research has made in considering mental health in the entrepreneurial process. Conceptually, the entry focuses on the individual entrepreneur as the unit of analysis. Empirically, it describes the streams of research suggesting that mental health is a resource in the entrepreneurial process, together with a stream of research that focuses on mental health conditions as a strength in entrepreneurship. The entry concludes by highlighting a number of unsolved issues and interesting pathways for future research on entrepreneurial mental health.

MENTAL HEALTH AND THE ENTREPRENEURIAL PROCESS In general, mental health is one of the most important topics in society. However, mental health represents something much more fundamental in the entrepreneurial context. That is, the mental health of entrepreneurs can facilitate or obstruct entrepreneurship from delivering value (Shepherd and Patzelt, 2015). Entrepreneurship research has been discussing mental health as a resource that improves entrepreneurs’ ability to perform tasks in the entrepreneurial process (for an overview see Hatak and Zhou, 2019). First, mental health can help entrepreneurs broaden the range of ideas they have for their business (Fredrickson, 1998; Stephan, 2018) and strengthen the focus on opportunities (Gielnik et al., 2012), such as those for firm growth (Rietveld et al., 2016). Second, mental health is a prerequisite for learning (Colquitt et al., 2000), with absorption of direct and vicarious experience, and transforming that experience into knowledge affecting opportunity recognition and exploitation. Moreover, when running their ventures, entrepreneurs face high cognitive demands (Cardon and Patel, 2015) so that the quality of their judgments typically becomes more dependent on mental health (for example, Taylor and Brow, 1988), and aspects of mental health, such as positive affect 477

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(Headey et al., 1993), enhance entrepreneurial decision making. This is owing to the positive affect associated with mental health, which fosters entrepreneurs’ cognitive flexibility (Baron and Tang, 2011), allowing them to make more efficient and effective decisions (Lyubomirsky et al., 2005). Third, mental health as human capital supports obtaining and protecting other utilitarian resources, such as social capital (Gielnik et al., 2012), which, in turn, is necessary for opportunity recognition and exploitation. Mental health also affects important outcomes of the entrepreneurial process, that is, success. This is because health, including mental health, constitutes a core type of human capital (Becker, 2002; Schultz, 1961). Human capital theory postulates that individuals attempt to receive a compensation for their investments in human capital (Becker, 1964); thus, individuals aim to maximize their utility given their human capital (Unger et al., 2011). Consequently, entrepreneurs who have invested more in their human capital are likely to strive for more entrepreneurial success compared with those who have invested less in their human capital (Cassar, 2006), simply because they want to receive more compensation for their capital investments. According to human capital theory, entrepreneurs’ mental health as human capital should therefore lead to entrepreneurial success. A recent study by Hatak and Zhou (2019) showed that entrepreneurs with better mental health achieve greater monetary entrepreneurial success (Hatak and Zhou, 2019). Moreover, mental health improves entrepreneurs’ subjective well-being (Hatak and Zhou, 2019), which is considered by entrepreneurs to be an important non-monetary accomplishment from exploiting a potential opportunity, by increasing the probability of surviving in the future (Becker, 2007). The relationship between mental health and monetary success is pronounced among the solo self-employed as compared to employer entrepreneurs (Hatak and Zhou, 2019). On the one hand, productivity improvements depend entirely on the solo self-employed’s own capacity to adapt. On the other, while employer responsibility delivers more autonomy to the entrepreneur, the solo self-employed tend to be more ‘dependent on others for allocating them tasks over which they have little control’ (Standing, 2011: 16). Finally, it is important to consider that mental health can function as a substitute for education in entrepreneurship. On the one hand, this can be explained by prior research arguing that the enhancement of general human capital, which can be applied in different contexts, increases the perceived opportunity costs associated with maintaining a business venture (Gimeno et al., 1997). On the other, it seems that it is not the increase in general human capital per se that is unproductive for the entrepreneur, but that the portfolio investment in general human capital may not pay off in the context of entrepreneurship. Hatak and Zhou (2019) find, among entrepreneurs lacking higher education, that mental health is more salient for success in entrepreneurship. Thus, for entrepreneurs, it seems worth specializing in investment in general human capital to garner productivity improvements in entrepreneurship.

MENTAL HEALTH CONDITIONS AND THE ENTREPRENEURIAL PROCESS Entrepreneurship research also has been examining the other side of the coin; that is, there is an increasing body of evidence indicating that particular mental health conditions

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– understood as ‘clinically significant disturbance in an individual’s cognition, emotion regulation, or behavior that reflects a dysfunction in the psychological, biological, or developmental processes underlying mental functioning’ (APA, 2013: 20) – constitute a strength in entrepreneurship. Individuals with mental health conditions appear to be more common in the entrepreneurial population than in the general population (Freeman et al., 2019). This may be owing to the strong fit between traits associated with particular mental health conditions and characteristics of entrepreneurship, making people more attracted to and better prepared for the tasks central to the entrepreneurial process (for an overview see Wiklund et al., 2018). Specifically, by broadening individuals’ attention, attention deficit hyperactivity disorder (ADHD) can facilitate the recognition of new entrepreneurial opportunities (Wiklund et al., 2017). Furthermore, individuals with some mental disorders, such as bipolar disorder and ADHD, experience an unusually high positive affect (Wiklund et al., 2018), which can also facilitate opportunity recognition (Baron, 2008). Moreover, both bipolar disorder and ADHD have been associated with higher levels of creativity, suggesting that people with these mental health conditions may recognize opportunities that are more novel (Wiklund et al., 2018). Similarly, many individuals with dyslexia develop unusual right-brain capabilities related to creativity and superior interpretive capability, which may enable them to recognize opportunities others fail to even imagine (Logan and Martin, 2012). Furthermore, entrepreneurs with dyslexia appear to use compensatory strategies developed early in their lives to successfully delegate, communicate with and motivate employees, with their mental health condition thus affecting opportunity exploitation (Logan, 2009). In line with the notion of a positive relationship between mental health conditions and opportunity exploitation (see also Lerner et al., 2019), Thurik et al. (2016) found that small business owners with ADHD symptoms have a higher entrepreneurial orientation. As regards important outcomes of the entrepreneurial process, that is, success, there is reason to believe that mental health conditions can be both positive and negative. On the one hand, ADHD symptoms, for example, facilitate action under uncertainty  – a defining characteristic of success in entrepreneurship. On the other, entrepreneurial success requires focused attention and perseverance in the pursuit of a wide variety of tasks, many of which are complex and challenging in entrepreneurship (Wiklund et al., 2017). People with ADHD have difficulties preserving and sustaining focus when tasks become difficult, while they can become completely immersed in the things that they are passionate about (Wiklund et al., 2016). Using two samples of entrepreneurs from the United States and Spain, Yu et al. (2019) find that impulsive and hyperactive symptoms of ADHD are largely conducive to firm performance through entrepreneurial orientation (EO), while inattention symptoms are not. This suggests that the performance advantages of entrepreneurs with ADHD symptoms can be derived from greater focus on risk-taking, proactiveness and innovation. Beyond this, the mechanisms through which ADHD symptoms and other specific mental health conditions, such as dyslexia and bipolar disorder, relate to important outcomes of entrepreneurship are still open to debate. Examination of the success implications of mental health conditions will be important to move this research forward, and to offer direct practical implications for recommendations to those with ADHD symptoms, that is, how to effectively use their talents, thus contributing to personal well-being and to value creation in society.

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TOWARDS FUTURE RESEARCH Entrepreneurship research tends to focus on understanding the good in entrepreneurship. This is understandable as we, as researchers, assume that our findings can inform entrepreneurs, their families and stakeholders, as well as policy, about how to facilitate processes and practices to generate more benefits through entrepreneurship (Shepherd, 2019). However, we know that a large proportion of entrepreneurs is not doing well with their mental health, so research limited to the well seems to poorly reflect the population of entrepreneurs and the wider entrepreneurship phenomenon. If research largely focuses on the bright sides of entrepreneurship, it has little to say to a large portion of the population, including entrepreneurs’ families and the broader environment in which the entrepreneurs are embedded. In addition, for entrepreneurship research to continue to be interesting, it is important to challenge conventional wisdom, and this can be achieved by exploring for whom, when, where and why the good becomes bad, and the bad becomes good. Many entrepreneurially desirable characteristics – mainly at the level of the individual entrepreneur – are likely to be valuable for entrepreneurship effectiveness in many if not most circumstances. Yet, the same characteristics could be counterproductive in particular environments or with stakeholders, such as investors or business partners, who do not regard them as favorable for meaningful cooperation. For example, positive affect such as entrepreneurial passion as an aspect of mental health, fosters persistence and sustained focus critical to success. Yet, intense positive feelings for founding and developing that are appropriate in the start-up stage (Cardon et al., 2009) may become a burden to the entrepreneur’s family, as they may lead to work–family conflicts, ultimately resulting in loneliness in the family sphere. We also observe a similar phenomenon for socially undesirable characteristics (for example, mental health disorders, which are viewed negatively by most individuals in society), in that these preconditions might compromise occupational and family effectiveness in general, but actually enhance functioning in entrepreneurship (Wiklund et al., 2018). For example, an increasing number of people suffer from mental health conditions, such as ADHD or bipolar disorder, which hamper careers in employment. However, recent research indicates that the symptoms and traits of particular disorders may be advantageous and provide benefits in the performance of some entrepreneurial tasks (Wiklund et al., 2017). To the extent that, and under what conditions, such generally dark characteristics are associated with positive entrepreneurial outcomes, there is an interesting opportunity to push the boundaries of existing theories and provide new and relevant insights, including the notion of equifinality in entrepreneurial endeavors and plurality in entrepreneurial logics for action (Wiklund et al., 2018). Beyond context, where the effectiveness of bright and dark characteristics depends on the particular environment, we could also see similar countervailing effects based on the intensity of one’s characteristics, where modest levels of a bright characteristic (for example, passion as an aspect of mental health) are good, while extreme levels (for example, obsessive passion) may imply impairments for the well-being of the entrepreneur and the business. The exploration of extremely high levels of bright characteristics in conjunction with specific entrepreneurial outcomes, such as innovation, growth and societal value, will enable us to understand the potentially detrimental influences of variables that

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have generally been viewed as positive in entrepreneurship. The study of extreme levels is also important in generating new theoretical insights and relevant practical implications.

REFERENCES American Psychiatric Association (APA) (2013), Diagnostic and Statistical Manual of Mental Disorders DSM-5, 5th edn, Washington, DC: American Psychiatric Association. Baron, R.A. (2008), ‘The role of affect in the entrepreneurial process’, Academy of Management Review, 33 (2), 328–40. Baron, R.A. and J. Tang (2011), ‘The role of entrepreneurs in firm-level innovation: joint effects of positive affect, creativity, and environmental dynamism’, Journal of Business Venturing, 26 (1), 49–60. Becker, G.S. (1964), Human Capital, New York: Columbia University Press. Becker, G.S. (2002), ‘The age of human capital’, in E.P. Lazear (ed.), Education in the Twenty-First Century, Stanford, CA: Hoover Institution Press, pp. 3–8. Becker, G.S. (2007), ‘Health as human capital: synthesis and extensions’, Oxford Economic Papers, 59 (3), 379–410. Cardon, M.S. and P.C. Patel (2015), ‘Is stress worth it? Stress-related health and wealth trade-offs for entrepreneurs’, Applied Psychology, 64 (2), 379–420. Cardon, M.S., J. Wincent, J. Singh and M. Drnovsek (2009), ‘The nature and experience of entrepreneurial passion’, Academy of Management Review, 34 (3), 511–32. Cassar, G. (2006), ‘Entrepreneur opportunity costs and intended venture growth’, Journal of Business Venturing, 21 (5), 610–32. Colquitt, J.A., J.A. LePine and R.A. Noe (2000), ‘Toward an integrative theory of training motivation: a metaanalytic path analysis of 20 years of research’, Journal of Applied Psychology, 85 (5), 678–707. Fredrickson, B.L. (1998), ‘What good are positive emotions?’, Review of General Psychology, 2 (3), 300–319. Freeman, M.A., P.J. Staudenmaier, M.R. Zisser and L.A. Andresen (2019), ‘The prevalence and co-occurrence of psychiatric conditions among entrepreneurs and their families’, Small Business Economics, 53 (2), 323–42. Gielnik, M.M., H. Zacher and M. Frese (2012), ‘Focus on opportunities as a mediator of the relationship between business owners’ age and venture growth’, Journal of Business Venturing, 27 (1), 127–42. Gimeno, J., T. Folta, A. Cooper and C. Woo (1997), ‘Survival of the fittest? Entrepreneurial human capital and the persistence of underperforming firms’, Administrative Science Quarterly, 42 (4), 750–83. Hatak, I. and H. Zhou (2019), ‘Health as human capital in entrepreneurship: individual, extension, and substitution effects on entrepreneurial success’, Entrepreneurship Theory and Practice, doi:10.1177/1042258719867559. Headey, B., J. Kelley and A. Wearing (1993), ‘Dimensions of mental health: life satisfaction, positive affect, anxiety and depression’, Social Indicators Research, 29 (1), 63–82. Lerner, D., I. Verheul and R. Thurik (2019), ‘Entrepreneurship and attention deficit/hyperactivity disorder: a large-scale study involving the clinical condition of ADHD’, Small Business Economics, 53 (2), 381–92. Logan, J. (2009), ‘Dyslexic entrepreneurs: the incidence; their coping strategies and their business skills’, Dyslexia, 15 (4), 328–46. Logan, J. and N. Martin (2012), ‘Unusual talent: a study of successful leadership and delegation in entrepreneurs who have dyslexia’, Inclusive Practice, 4 (1), 57–76. Lyubomirsky, S., L. King and E. Diener (2005), ‘The benefits of frequent positive affect: does happiness lead to success?’, Psychological Bulletin, 131 (6), 803–55. Rietveld, C.A., H. Bailey, J. Hessels and P. van der Zwan (2016), ‘Health and entrepreneurship in four Caribbean Basin countries’, Economics & Human Biology, 21 (May), 84–9. Schultz, T.W. (1961), ‘Investment in human capital’, American Economic Review, 51 (1), 1–17. Shepherd, D.A. (2019), ‘Researching the dark side, downside, and destructive side of entrepreneurship: it is the compassionate thing to do!’, Academy of Management Discoveries, 5 (3), 217–20. Shepherd, D.A. and H. Patzelt (2015), ‘The “heart” of entrepreneurship: the impact of entrepreneurial action on health and health on entrepreneurial action’, Journal of Business Venturing Insights, 4, 22–9. Standing, G. (2011), The Precariat: The New Dangerous Class, London: Bloomsbury. Stephan, U. (2018), ‘Entrepreneurs’ mental health and well-being: a review and research agenda’, Academy of Management Perspectives, 32 (3), 290–322. Taylor, S.E. and J.D. Brown (1988), ‘Illusion and well-being: a social psychological perspective on mental health’, Psychological Bulletin, 103 (2), 193–210. Thurik, A.R., A. Khedhaouria, O. Torrès and I. Verheul (2016), ‘ADHD symptoms and entrepreneurial orientation of small firm owners’, Applied Psychology, 65 (3), 568–86.

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Unger, J.M., A. Rauch, M. Frese and N. Rosenbusch (2011), ‘Human capital and entrepreneurial success: a meta-analytical review’, Journal of Business Venturing, 26 (3), 341–58. Ware, J.E., R.H. Brook, A.R. Davies and K.N. Lohr (1981), ‘Choosing measures of health status for individuals in general populations’, American Journal of Public Health, 71 (6), 620–25. Wiklund, J., I. Hatak, H. Patzelt and D. Shepherd (2018), ‘Mental disorders in the entrepreneurship context: when being different can be an advantage’, Academy of Management Perspectives, 32 (2), 182–206. Wiklund, J., H. Patzelt and D. Dimov (2016), ‘Entrepreneurship and psychological disorders: how ADHD can be productively harnessed’, Journal of Business Venturing Insights, 6, 14–20. Wiklund, J., W. Yu, R. Tucker and L. Marino (2017), ‘ADHD, impulsivity, and entrepreneurship’, Journal of Business Venturing, 32 (6), 627–56. Yu, W., J. Wiklund and A. Perez-Luno (2019), ‘ADHD symptoms, entrepreneurial orientation and firm performance’, Entrepreneurship Theory and Practice, doi:10.1177/1042258719892987.

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56. Open innovation and entrepreneurship Anja Leckel

The open innovation paradigm focuses on the exchange of knowledge and technological assets across organizational boundaries in pursuit of innovation and entrepreneurship (Chesbrough, 2003; West and Bogers, 2014). It is based on the assumption that a large amount of talent and knowledge needed for successful innovation projects is located outside the focal firm, which increasingly directs attention to external stakeholders. Defined as ‘a distributed innovation process that relies on purposively managed knowledge flows across organizational boundaries, using pecuniary and non-pecuniary mechanisms in line with the organization’s business model to guide and motivate knowledge sharing’ (Chesbrough and Bogers, 2014: 24), the concept of open innovation has had a remarkable impact on innovation management practice and research. In addition to the rise of digital platforms, open innovation is assumed to be one of the two emergent phenomena that have notably transformed the nature and pursuit of entrepreneurship (Nambisan et al., 2018). Considered the ‘hottest topic’ in the Journal of Product Innovation Management’s topic landscape for the last two decades (Antons et al., 2015), a large and growing body of research demonstrates the entrepreneurial opportunities unleashed by open innovation initiatives (for example, Chesbrough, 2012; Frey et al., 2011; Jeppesen and Lakhani, 2010; King and Lakhani, 2013; Nambisan, 2018; Terwiesch and Xu, 2008). Since open innovation involves knowledge sharing, collaboration and embracing external ideas for new products and services, Trimi and Berbegal-Mirabent (2012) drew parallels to the notion of collaborative entrepreneurship. Open innovation serves as an approach for connecting local entrepreneurial ecosystems to global innovation networks, where distributed knowledge arises from entrepreneurial activity that originates foremost in universities, research institutes and small and medium-sized enterprises (SMEs) (Malecki, 2011). Von Hippel (1988) refers to these sources of innovation outside the focal firm as distributed innovation, and emphasizes the need to address individuals, firms and communities in the external search process. Regarding the sources and exchange processes of external knowledge, two foci have emerged. Following Chesbrough (2003, 2006), the notion of open innovation strongly refers to corporate entrepreneurship, which is primarily concerned with leveraging external knowledge to improve internal innovation processes, such as technical problem solving, in order to increase the firm’s performance (Piller and West, 2014). Hence, the pecuniary motive and strong intellectual property (IP) protection are paramount in this perspective (Bogers and West, 2012; van de Vrande et al., 2009; Vanhaverbeke et al., 2008). Open innovation practices seem to have a positive effect on entrepreneurial spirit and newventure creation (Eftekhari and Bogers, 2015), as individual entrepreneurs or small firms can provide ideas, knowledge and expertise to other firms. Open innovation is considered to be a path to modern entrepreneurship as it positively affects the innovation capability and export performance of SMEs (Wynarczyk, 2013), and facilitates access to global innovation networks (Malecki, 2011). 483

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In contrast to this firm-centric perspective, von Hippel’s (2005, 2007, 2017) research on user innovation focuses on the benefits of using an innovative product or service, and the conditions under which users innovate. This research stream investigates when individual users and user communities innovate and share their innovations among themselves or with producers (Baldwin and von Hippel, 2011). Acknowledging users as an important source of innovation, Baldwin and von Hippel (2011) argue that value to users is an alternative motive for investing in innovation as opposed to generating profits. Since, in this instance, users innovate to solve a personal need and do not intend to gain financial profits from their innovation, they often freely distribute their knowledge or innovation with a community or producers (de Jong and von Hippel, 2009; Harhoff et al., 2003). Both perspectives are highly relevant for entrepreneurship, since user innovation research also has investigated the commercialization of innovations created or codeveloped by users. Firms can, for example, use toolkits that enable co-innovation with users (von Hippel and Katz, 2002; Franke and von Hippel, 2003), or benefit from user communities and open source software (Dahlander and Wallin, 2006; Jeppesen and Frederiksen, 2006). Another example of entrepreneurial activity arises when a user has an idea and innovates, that is, develops a product that solves a personal need, and shortly afterwards, when the product attracts public attention, realizes that other people face the same need. Shah and Tripsas (2007: 124) define this type of user entrepreneurship as ‘the commercialization of a new product and/or service by an individual or group of individuals who are also users of that product and/or service’. Popular examples of user innovation and user entrepreneurs are childcare products (for example, jogging strollers) and sports products (for example, the CamelBak pack) that have partly even created completely new sporting disciplines (for example, kite surfing or mountain biking). The user entrepreneur is different to a user innovator in that he or she blocks the knowledge flow to other users or organizations. A user entrepreneur refrains from freely revealing new insights as he or she intends to produce and commercialize the innovation. While the early, exploratory stage of user entrepreneurship is similar to other user innovation processes, the later stages are similar to open innovation in a corporate entrepreneurship setting in which firms seek to commercialize external sources of innovation (Shah and Tripsas, 2007).

CHALLENGES OF IMPLEMENTING OPEN INNOVATION IN ENTREPRENEURSHIP In recent years, the implementation of open innovation has found broad acceptance in both policy initiatives and companies, especially in large multinational enterprises. This has led to the creation of new professions as open innovation leader or open innovation policy advisor on the national and global level. Main functions are the nurture and governance of the knowledge flow and relationships between research, industry and government actors. However, research has shown that it is difficult for smaller firms to implement open innovation. Therefore, numerous studies focus on suitable adoption and implementation strategies for open innovation in SMEs (Brunswicker and Vanhaverbeke, 2015; Spithoven et al., 2013; Wynarczyk, 2013). Established benefits of implementing open innovation in SMEs primarily involve an increase in innovative performance, whereas

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the number and scope of recognized barriers (Bigliardi and Galati, 2016; Radziwon and Bogers, 2019; Usman et al. 2018) suggest that open innovation research has failed to some extent to promote the right setting for a widespread adoption among SMEs (Parida et al., 2012). Larger companies often develop internal knowledge gatekeepers and organizational learning routines to seek new opportunities and engage in knowledge transfer (Alexander and Martin, 2013; Billington and Davidson, 2013). For smaller companies, however, providing these roles is often too resource-intensive. In summary, many SMEs lack resources as well as the absorptive capacity to manage open innovation, for example, by coordinating multiple networks or online platforms to find the appropriate approach for the respective problem (Carayannis and Meissner, 2017). Independent of firm size, the initial challenge is to establish the level of openness that enables information on the internal research and development (R&D) problem to be shared but that does not constitute a point of attack for competitors. Balancing the potential benefits and risks is characterized as the paradox of openness (Arora et al., 2016; Laursen and Salter, 2014). In corporate entrepreneurship, the choices on the degree of openness depend on the nature of the appropriation strategies available to the organization (Freel and Robson, 2016). Moreover, there are common cultural and psychological barriers on individual and team levels that inhibit successful implementation of open innovation. Upon broadcasting a technical problem that could not be solved internally, it poses a challenge for R&D professionals to declare the need for external support in their field of expertise. As Lifshitz-Assaf (2018) framed it, domain experts are struggling with the need to re-define their professional identity from problem solver to solution seeker. Another prominent cognitive bias comes into play at a later stage in the innovation process. After valuable external solutions have already been found, this bias triggers a negative attitude towards knowledge from external sources, and often leads to its rejection (referred to as not-invented-here syndrome; Agrawal and Cockburn, 2010; Antons and Piller, 2015).

THE ROLE OF OPEN INNOVATION INTERMEDIARIES Depending on the level of openness, there is a number of possible institutional arrangements for integrating external knowledge and for sharing internal knowledge with external actors: dyadic research contracts, in- and out-licensing or IP agreements, and networkbased approaches (Janssen et al., 2018) such as the often tournament-based crowdsourcing via the broadcast search mechanism (Dahlander and Gann, 2010; West and Bogers, 2014). However, the focus on intentionally opening up to the outside world has not only led to new forms of collaboration in technology and innovation management, but also to the formation of dedicated service organizations to facilitate the discovery, creation and pursuit of entrepreneurial opportunities (Nambisan et al., 2018). These open innovation intermediaries play a key role in facilitating the adoption of open innovation despite the aforementioned challenges. Intermediaries are ‘organizations that provide a supportive role for collaboration between two or more parties during various stages of the innovation process’ (De Silva et al., 2018: 70; Howells, 2006: 720). Especially to support collaboration for innovation in SMEs, a repeatedly proposed solution is an intermediated network approach (Knockaert et al., 2014; Lee et al., 2010). Following the work of Howells (2006),

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Knockaert et al. (2014) and Lee et al. (2010), we understand an intermediated network approach for SMEs to be a mechanism initiated and conducted by one or more intermediaries who facilitate collaboration between two or more parties during various stages of the innovation process, their main mission being technology and knowledge transfer and network creation, which takes account of SMEs’ limited ability in searching for partners and contributes to building trust among network members (Leckel et al., 2020). In the following sections, we consider these aspects in more depth by addressing both local and digital open innovation intermediary approaches.

LOCAL OPEN INNOVATION APPROACHES FOR ENTREPRENEURSHIP Since small firms are associated with resource constraints and being locally embedded (Freel, 2003), research on SMEs often focuses on regional innovation systems, clusters and social capital. Social capital is an important intangible resource for entrepreneurship, with social networks forming its core (Grichnik et al., 2017). Building and leveraging social capital, that is, through engaging in direct interaction and sharing a common perspective (language, background and committing to the same goals), is of utmost importance for regional innovation systems (Cooke, 1992; Cooke et al., 1997; Doloreux and Parto, 2005; Laursen et al., 2012; Rutten and Boekema, 2007; Yoon et al., 2015). Social capital is defined as the resources available to individuals and groups through membership of social networks; that is, the connections among individuals in social networks and the norms of reciprocity and trustworthiness that arise from these connections (Putnam, 2001). It facilitates individual or collective action, generated by networks of relationships, reciprocity, trust and social norms (Coleman, 1998). Positively affecting resource exchange and combination in order to innovate, is a necessary condition for successful cooperation in a network (Tsai and Ghoshal, 1998). Leveraging social capital in a network facilitates reciprocity and network effects. However, previous open and user innovation research highlights the prospects of implementing open innovation on a global scale, whereas, especially for smaller firms, it is important to acknowledge enabling factors of spatial proximity and face-to-face interaction. Therefore, by connecting concepts from innovation management and regional studies, integrating spatial proximity in a broadcast search and the formation of localized trust forms a valuable extension of the research on open innovation as it increases collaboration intentions. Finding a balance between the advantages of local embeddedness and the apparent advantages of accessing external knowledge by engaging in unrestricted distant search is a key challenge in establishing a regional innovation ecosystem that aims at integrating entrepreneurial actors that are not used to collaborating on a larger scale. In contrast to the theoretically established importance of geographic proximity (Obrecht, 2011), there are mixed empirical findings regarding the effects of geographic proximity on entrepreneurial success (Knoben and Oerlemans, 2006; Staber, 2011). However, our empirical findings show support for geographic proximity serving as a key enabler of opening up to make new valuable connections outside the current network and across industries. We therefore contribute a local concept open innovation, defined as an intermediated network approach for collaborative problem solving using the broadcast search

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mechanism to reach out to potential solution providers emphasizing relationships of trust through personal contact and the deliberate restriction to a defined geographical region to mitigate issues stemming from resource limits and cognitive constraints on the side of solution seekers, while also increasing intrinsic motivation on the solver-side (Leckel et al., 2020). Local open innovation is a specific form of open innovation that constitutes a local intermediated network approach aimed at facilitating collaboration on real problems while at the same time establishing a regional innovation ecosystem of diverse organizations within a community.

DIGITAL OPEN INNOVATION APPROACHES FOR ENTREPRENEURSHIP Promoting openness in various ways, digital technologies have radically changed the notion of openness in degree, scale and scope (Nambisan et al., 2019). Prior research on open and user innovation offers a number of comprehensively researched digital means for different entrepreneurial actors, ranging from user entrepreneurs to digital start-ups or corporate entrepreneurship. Enabled through digital platforms, they are meant to be easily accessible means to share knowledge and initiate collaboration. Intermediaries are renowned for creating and managing these networks for idea generation, problem solving and acquiring resources (Cromie et al., 1993; Hingley et al., 2010). Crowdsourcing and crowdfunding constitute the most popular digital means of open and user innovation enabling entrepreneurial actors a specific form of resource management in online social networks. Crowdsourcing is a thriving method, where the intermediary platform connects solution-seeking organizations with a mass of solvers through the broadcast search mechanism. Distributed via the online platform, organizations’ problems can be dispersed to a mass of diverse problem solvers who can self-select a problem and submit a solution – usually in return for predefined monetary rewards (Afuah and Tucci, 2012; Jeppesen and Lakhani, 2010). Broadcasting a problem is not only a way to receive solutions to problem calls, but it is a way to build new business relationships by connecting to already existing expertise in other industries. Open innovation research has mainly focused on the seeker side, that is, organizations looking for new ideas and solutions. However, entrepreneurial actors can also offer their expertise as solvers – not only to capture value in the form of monetary rewards, but for signaling their competence as a means to demonstrate capabilities for future business relationships (Backes-Gellner and Werner, 2011). Focusing on open innovation intermediaries specialized on crowdsourcing start-up ideas, it has to be noted that often only the challenge and pre-selection is broadcast digitally in order to reach a large mass of potential collaborators. However, owing to the reasons elaborated previously, the interaction is often based on personal interaction in an event-based setting. Start-up entrepreneurs can self-select to a challenge and signal their expertise in a specific subject to the focal firm. Start-up challenges provide the opportunity to gain monetary rewards or public exposure, but also enable connection to large enterprises to benefit from incubation or from resource facilitation and guidance while still remaining independent. Therefore, many large multinational corporations, such as BMW, Siemens, Mercedes or Bayer, have their

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own open innovation platform and start-up hub to source knowledge and ideas from all over the world. They operate under different programs regarding IP rights or rules for mergers and acquisitions. Theoretically, digitalization reduces the power and necessity of intermediaries in value chains (Bakos, 1998), as it enables the coordination of geographically distributed stakeholders (Nambisan, 2017; Thomas et al., 2014). Hence, it reduces the dependency on location-specific value-chain assets and resources, and opens new opportunities for interactions with solvers and potential business partners. It supports direct interactions between seekers and solvers, enabling them to bypass intermediaries. However, in practice, open innovation intermediaries still play an important role. Adjusting to changing demands, many move from providing access to their own pool of solvers, to building brand-specific open innovation platforms with a software-as-service business model or offer consulting services to facilitate open innovation activities along the innovation process (Leckel, 2020). Finally, user innovation research highlights the role of crowdfunding for entrepreneurship. User innovators without any organizational funds for explorative product development often rely on crowdfunding platforms. These provide the opportunity to raise funding for a promising idea through a digital network of interested users. By collecting money from platform participants who would like to benefit from using the product once it is developed, it is possible to turn a product idea into reality without involving venture capital firms. Crowdfunding supports traditional entrepreneurship in providing entrepreneurs with a direct interaction with potential end-users, gaining feedback on how to improve the initial idea, aggregating market expectations about future trends, and attracting potential customers and higher visibility (Agrawal et al., 2015; Hopp et al., 2019; Mollick and Kuppuswamy, 2014).

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Henkel and E. von Hippel (2003), ‘Profiting from voluntary information spillovers: how users benefit by freely revealing their innovations’, Research Policy, 32 (10), 1753–69. Hingley, M.K., A. Lindgreen and M.B. Beverland (2010), ‘Barriers to network innovation in UK ethnic fresh produce supply’, Entrepreneurship and Regional Development, 22 (1), 77–96. Hopp, C., J. Kaminski and F. Piller (2019), ‘Accentuating lead user entrepreneur characteristics in crowdfunding campaigns – the role of personal affection and the capitalization of positive events’, Journal of Business Venturing Insights, 11 (June), e00106. Howells, J. (2006), ‘Intermediation and the role of intermediaries in innovation’, Research Policy, 35 (5), 715–28. Janssen, M.J., C. Castaldi and A.S. Alexiev (2018), ‘In the vanguard of openness: which dynamic capabilities are essential for innovative KIBS firms to develop?’, Industry and Innovation, 25 (4): 432–57. Jeppesen, L.B. and L. 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Knoben, J. and L.A. Oerlemans (2006), ‘Proximity and inter-organizational collaboration: a literature review’, International Journal of Management Reviews, 8 (2), 71–89. Knockaert, M., A. Spithoven and B. Clarysse (2014), ‘The impact of technology intermediaries on firm cognitive capacity additionality’, Technological Forecasting and Social Change, 81 (1), 376–87. Laursen, K. and A.J. Salter (2014), ‘The paradox of openness: appropriability, external search and collaboration’, Research Policy, 43 (5), 867–78. Laursen, K., F. Masciarelli and A. Prencipe (2012), ‘Regions matter: how localized social capital affects innovation and external knowledge acquisition’, Organization Science, 23 (1), 177–93. Leckel, A. (2020), ‘The mediating role of value capture – investigating determinants of social capital on OI platforms’, Academy of Management Proceedings, (1), 14629. Leckel, A., S. Veilleux and L.P. Dana (2020), ‘Local open innovation: a means for public policy to increase collaboration for innovation in SMEs’, Technological Forecasting and Social Change, 153 (April), 119891, doi:10.1016/j.techfore.2019.119891. Lee, S., G. Park, B. Yoon and J. Park (2010), ‘Open innovation in SMEs – an intermediated network model’, Research Policy, 39 (2), 290–300. Lifshitz-Assaf, H. (2018), ‘Dismantling knowledge boundaries at NASA: the critical role of professional identity in open innovation’, Administrative Science Quarterly, 63 (4), 746–82, doi:10.2139/ssrn.2431717. Malecki, E.J. (2011), ‘Connecting local entrepreneurial ecosystems to global innovation networks: open innovation, double networks and knowledge integration’, International Journal of Entrepreneurship and Innovation Management, 14 (1), 36–59. Mollick, E. and V. Kuppuswamy (2014), ‘After the campaign: outcomes of crowdfunding’, Kenan-Flagler Research Paper No. 2376997, University of North Carolina at Chapel Hill, Chapel Hill, NC, doi:10.2139/ ssrn.2376997. Nambisan, S. (2017), ‘Digital entrepreneurship: toward a digital technology perspective of entrepreneurship’, Entrepreneurship Theory and Practice, 41 (6), 1029–55. Nambisan, S. (2018), ‘Emerging issues and perspectives at the intersection of open innovation, ecosystems and entrepreneurship’, in S. Nambisan (ed.), World Scientific Reference on Innovation, Volume 3, Open Innovation, Ecosystems and Entrepreneurship: Issues and Perspectives, Singapore: World Scientific, pp. 1–12. Nambisan, S., D. Siegel and M. Kenney (2018), ‘On open innovation, platforms, and entrepreneurship’, Strategic Entrepreneurship Journal, 12 (3), 354–68. Nambisan, S., M. Wright and M. Feldman (2019), ‘The digital transformation of innovation and entrepreneurship: progress, challenges and key themes’, Research Policy, 48 (8), 103773. Obrecht, J.J. (2011), ‘Environment for entrepreneurship’, in L.-P. Dana (ed.), World Encyclopedia of Entrepreneurship, Cheltenham, UK and Northampton, MA, USA: Edward Elgar, pp. 122–39. Parida, V., M. Westerberg and J. Frishammar (2012), ‘Inbound open innovation activities in high-tech SMEs: the impact on innovation performance’, Journal of Small Business Management, 50 (2), 283–309. Piller, F. and J. West (2014), ‘Firms, users, and innovation’, New Frontiers in Open Innovation, 29 (1), 29–49. Putnam, R.D. (2001), ‘Social capital: measurement and consequences’, Canadian Journal of Policy Research, 2 (1), 41–51. Radziwon, A. and M. Bogers (2019), ‘Open innovation in SMEs: exploring inter-organizational relationships in an ecosystem’, Technological Forecasting and Social Change, 146 (September), 573–87, doi:10.1016/j. techfore.2018.04.021. Rutten, R. and F. Boekema (2007), ‘Regional social capital: embeddedness, innovation networks and regional economic development’, Technological Forecasting and Social Change, 74 (9), 1834–46. Shah, S.K. and M. Tripsas (2007), ‘The accidental entrepreneur: the emergent and collective process of user entrepreneurship’, Strategic Entrepreneurship Journal, 1 (1–2), 123–40. Spithoven, A., W. Vanhaverbeke and N. Roijakkers (2013), ‘Open innovation practices in SMEs and large enterprise’, Small Business Economics, 41 (3), 537–62. Staber, U. (2011), ‘Geographic proximity in entrepreneurship’, in L.-P. Dana (ed.), World Encyclopedia of Entrepreneurship, Cheltenham, UK and Northampton, MA, USA: Edward Elgar, pp. 188–97. Terwiesch, C. and Y. Xu (2008), ‘Innovation contests, open innovation, and multiagent problem solving’, Management Science, 54 (9), 1529–43. Thomas, L.D., E. Autio and D.M. Gann (2014), ‘Architectural leverage: putting platforms in context’, Academy of Management Perspectives, 28 (2), 198–219. Trimi, S. and J. Berbegal-Mirabent (2012), ‘Business model innovation in entrepreneurship’, International Entrepreneurship and Management Journal, 8 (4), 449–65. Tsai, W. and S. Ghoshal (1998), ‘Social capital and value creation: the role of intrafirm networks’, Academy of Management Journal, 41 (4), 464–76. Usman, M., N. Roijakkers, W. Vanhaverbeke and F. Frattini (2018), ‘A systematic review of the literature on open innovation in SMEs’, in W. Vanhaverbeke, F. Frattini, N. Roijakkers and M. Usman (eds), Researching Open Innovation in SMEs, Singapore: World Scientific, pp. 3–35.

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Van de Vrande, V., J.P. De Jong, W. Vanhaverbeke and M. De Rochemont (2009), ‘Open innovation in SMEs: trends, motives and management challenges’, Technovation, 29 (6), 423–37. Vanhaverbeke, W., V. Van de Vrande and H. Chesbrough (2008), ‘Understanding the advantages of open innovation practices in corporate venturing in terms of real options’, Creativity and Innovation Management, 17 (4), 251–8. Von Hippel, E. (1988), The Sources of Innovation, New York: Oxford University Press. Von Hippel, E. (2005), ‘Democratizing innovation: the evolving phenomenon of user innovation’, Journal für Betriebswirtschaft, 55 (1), 63–78. Von Hippel, E. (2007), ‘Horizontal innovation networks – by and for users’, Industrial and corporate change, 16 (2), 293–315. Von Hippel, E. (2017), ‘Free innovation by consumers – how producers can benefit: consumers’ free innovations represent a potentially valuable resource for industrial innovators’, Research-Technology Management, 60 (1), 39–42. Von Hippel, E. and R. Katz (2002), ‘Shifting innovation to users via toolkits’, Management Science, 48 (7), 821–33. West, J. and M. Bogers (2014), ‘Leveraging external sources of innovation: a review of research on open innovation’, Journal of Product Innovation Management, 31 (4), 814–31. Wynarczyk, P. (2013), ‘Open innovation in SMEs: a dynamic approach to modern entrepreneurship in the twenty-first century’, Journal of Small Business and Enterprise Development, 20 (2), 258–78. Yoon, H., S. Yun, J. Lee and F. Phillips (2015), ‘Entrepreneurship in East Asian regional innovation systems: role of social capital’, Technological Forecasting and Social Change, 100 (November), 83–95.

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57. Opportunities approach to international entrepreneurship Joe Schembri and Pavlos Dimitratos

The notion of opportunity is today at the core of international business (IB) and international entrepreneurship (IE), with the latter domain now conceptualised as the pursuit of international opportunities across borders (Reuber et al., 2018). Research on opportunities represented an emergent area within IE until a decade ago (Jones et al., 2011). The more recent review of Mainela et al. (2014) confirms that interest in the opportunity concept had increased significantly by the latter part of the 1989–2012 period. This chapter explains the underlying assumptions of an opportunities approach to IE, integrates ideas from the seminal theories within IB and IE, while arguing for a focus on the central role of international opportunities in explaining entrepreneurial internationalisation.

CORE ASSUMPTION: INTERNATIONALISATION AS A DYNAMIC, EVOLUTIONARY PROCESS Internationalisation is an evolutionary entrepreneurial process in which firms identify and exploit international opportunities over time. Opportunities, their type, sequence, intensity and execution, define the internationalisation trajectory of a firm in a process characterised by time and entrepreneurial behaviour (Jones and Coviello, 2005). This evolutionary process involves the dynamics of opportunity identification, resource deployment for opportunity exploitation and engagement with competition (Mathews and Zander, 2007). It is a process in which the outcomes of one opportunity become the antecedents of a subsequent opportunity (Jones and Coviello, 2005), using networks and feedback from real project execution (Chandra et al., 2012). Jones and Coviello (2005) present an integrated theoretical framework for IE by considering entrepreneurial internationalisation as a time-based, behavioural process. In their model, entrepreneurship is proactive behaviour that results in innovation as a process and whose outcome creates value. Change is core to Jones and Coviello’s (2005) model, as it triggers the process of innovation. The view of entrepreneurial internationalisation as an evolutionary process is shared in the call by Reuber et al. (2017) for a focus on firms’ pursuit of international opportunities. Close examination of opportunities, their underlying processes and impact on the growth of the firm necessitates stepping back from the categorisations of the time of first market entry, which has been the traditional approach within IE, and focusing on the dynamics of the process (Reuber et al., 2017). Internationalisation and the pursuit of opportunities are inherently dynamic phenomena. As shown by Coviello and Jones (2004), various time-based dynamics effect entrepreneurial internationalisation, and this 492

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is because each firm ‘has a history composed of internationalisation events occurring at specific points in time’ (Jones and Coviello, 2005: 290). Key to understanding how opportunities develop is consideration of how events occurred over time, against historical backdrops (Autio et al., 2000), their sequence, the gap until first internationalisation and a consideration that some events have duration and do not happen just once (Reuber et al., 2017). Closely connected to the time imperative is the role of key events and epochs that have a strategic impact on the process of opportunity development (Johns, 2006; Oesterle, 1997). Understanding dynamic phenomena requires a process view of ‘how things evolve over time and why they evolve in this way’ (Langley, 1999: 692). Reuber et al. (2017) quote various IB and IE scholars researching process theory to investigate opportunities (McMullen and Dimov, 2013; Suddaby et al., 2015) but identify a gap in process approaches. Research inspired by both international process theory (IPT) and international new ventures (INVs) converges on the need to understand the dynamic process of entrepreneurial internationalisation (Madsen and Servais, 1997). Understanding the changes in the processes used by firms to pursue opportunities is important (Reuber et al., 2017), where path-dependency (Chandra et al., 2012) and routine change (Prashantham and Floyd, 2012) are key. According to Reuber et al. (2017), this owing to effective processes that are self-reinforcing and persist. International new ventures might enjoy learning advantages of newness (Autio et al., 2000) and, if opportunity development is successful in its early stages, its underlying processes become standard routines. Context is key to the opportunity focus, as it determines the applicability of the explanation (Welch et al., 2011) and can shape the relevance of an opportunity owing to timing (Michael-Tsabari et al., 2014) and the actions that need to be taken within a window of opportunity (Kirzner, 1973; Tang et al., 2012). A focus on the dynamic nature of opportunity development through entrepreneurial action accounts for known facts, such as the adjustments/changes that firms make after first market entry (Santangelo and Meyer, 2017) and that firms pursue different types of opportunities, akin to an opportunity portfolio (Chandra et al., 2015). This dynamism cannot be adequately investigated with the straitjacket of static categories, as when a firm entered a market. It is an evolutionary process driven by events that trigger an opportunity development process and change the firm in the meantime. The evolutionary character of firm internationalisation has been masked by the debate on whether firms internationalise rapidly or gradually. As the core criticism levelled against the IPT (or Uppsala model) revolved around its lack of explanation of internationalisation at the very early stages of a firm’s existence, the debate therefore centred on this new type of firm and its internationalisation. Categorisation is a convenient way of making sense of a complex debate, and in IE categorising firms as INVs, born globals (BGs) or born-again globals has helped to explain their distinction from other types of internationalising firms (Reuber et al., 2017). However, this categorisation risks highlighting one aspect of a phenomenon and ignoring others, with a second danger being of ‘pressures for conformity to known categorizations and penalties for deviance’ (Reuber et al., 2017: 413) leading scholars to stick to known categories only. Recent research in IB and IE acknowledges that the focus on earliness or otherwise has largely neglected consideration of individual-level factors related to the recognition and pursuit of opportunities, the institutional- and industry-level factors that enable or constrain the pursuit

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of opportunities, and the post-entry processes and outcomes through which the pursuit of opportunity is enacted (Reuber et al., 2018: 396). A focus on opportunities, and the dynamic way in which they are developed over the life of a firm, becomes a useful, alternative view in explaining entrepreneurial internationalisation (Jones et al., 2011; Mainela et al., 2014; Mathews and Zander, 2007). Looking at the process of opportunity development by firms in different contexts can reconcile the views of IP theorists and those studying INVs, specifically by bringing the evolutionary nature of internationalisation to the fore. Research by Chandra et al. (2012: 95) has shown that ‘behind the gradual or revolutionary form of internationalisation reported in the literature, there is a basic evolutionary, path-dependent process of opportunity development and cross-border venturing activities’. An evolutionary, opportunity-based explanation of the entrepreneurial internationalisation process can bring together ideas from IPT and INV research. It can unlock the insights from decades of IP and INV research by shifting the focus from time of internationalisation to the opportunity-based process of internationalisation over time. International process theory and INV are complementary in some important ways, and a review of their core ideas serves as a foundation for the opportunity view adopted in this research. This chapter is structured as follows. The next two sections provide a brief overview of the IPT and the INV theory. The subsequent section presents the opportunity-based view as a synopsis of the two prevalent theories and discussed the seven core themes of such a perspective to internationalisation.

INTERNATIONALISATION PROCESS THEORY The work of Johanson and Vahlne (1977, 2006, 2009; Vahlne and Johanson, 2017) and their colleagues (Carlson, 1974; Wiedersheim-Paul et al., 1978) is considered to be seminal in explaining the internationalisation of firms, even smaller ones. The assumption of the IPT is that lack of knowledge about foreign markets and operations is an important barrier to internationalisation and that this knowledge can be acquired by operating abroad (Johanson and Vahlne, 1977). Knowledge of opportunities initiates decisions; evaluation of alternative action depends on knowledge of future demand and supply (Carlson, 1974); and experiential knowledge (Penrose, 1959) is critical. Foreign market entry is explained by two mechanisms: the state elements of the current knowledge base of the firm and its current commitment to a market; and the ‘change’ elements of current activities and commitment decisions. The original model posits that firms change by learning from their experience of current activities, and by the decisions that they take to be better positioned in a foreign market. The IPT has been criticised as much as it has been cited over the past 40 years. The staged model is seen as too deterministic by some (Reid, 1983; Turnbull, 1987), claiming that the assumption that firms move forward one step at a time is not realistic and that there are industry, company and people contexts that it ignores (Bell et al., 2003). Moreover, evidence emerged of the role of critical events or epochs (Oesterle, 1997) and the consequential different pathways of internationalisation among traditional, BG and born-again global firms (Bell et al., 2003). Johanson and Vahlne (2009) argue that in their

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model the firm’s commitment to a foreign market may decrease or stop, depending on performance and prospects, thus denying that it does not address contingencies. The 2017 update of their model is clearly ‘anchored in process ontology’, according to the authors (Vahlne and Johanson, 2017: 1087). Based on behavioural thinking, it is about ‘the processes of knowledge development and resource commitment – rather than on isolated investment decisions’ (Vahlne and Johanson, 2017: 1088).

INTERNATIONAL NEW VENTURES The economic landscape of the 1990s was drastically different from that of the 1970s, when the empirical observations of the Uppsala school were published. The decade following 1990 was a golden age of globalisation (Economist, 2019), with the invention of the Internet browser and the first online bookstore occurring in its first half. Rennie’s (1993) observation of a new breed of exporters, who start internationalising nearly from inception and reach very high export intensities, questioned the need for initial success in the domestic market and challenged the prevalent theories of incremental international growth. These INVs, defined as business organisations that ‘from inception, seek to derive substantial competitive advantage from the use of resources and the sale of outputs in multiple countries’ (Oviatt and McDougall, 1994: 49), require a change in theoretical paradigm to explain their growth (McDougall et al., 1994). The assumption that firms internationalise after being established domestically is replaced by paying attention to the entrepreneurs and their backgrounds. Early internationalisation steers firms away from domestically focused path dependency and demands the use of alternative organisational arrangements to fuel growth (McDougall et al., 1994). The effort to understand the internationalisation of INVs gave rise to a new research field, IE, defined as ‘the discovery, enactment, evaluation, and exploitation of opportunities – across national borders – to create future goods and services’ (Oviatt and McDougall, 2005b: 7). International new ventures theory has been criticised for limited applicability, shallow theoretical grounding and outright misclassification of phenomena. Scholars, such as Zahra (2005), challenged early development of INV theory for being too mechanical, ignoring the motivations for rapid internationalisation. Others argued that the conceptual approach of the INV is more useful in explaining early internationalisation, and especially of small, knowledge-intensive firms (Autio et al., 2000; Bell et al., 2003). Oviatt and McDougall (1994) acknowledge that unique technological knowledge, especially in software, is essential for INVs but similar internationalisation patterns have also been recorded for more traditional firms, in different circumstances (Madsen and Servais, 1997).

A SYNTHESIS: AN OPPORTUNITY-BASED VIEW OF FIRM INTERNATIONALISATION Internationalisation viewed through an IPT lens and entrepreneurial processes in INVs exhibit ‘striking similarity’ according to Johanson and Vahlne (2003), with processes of learning underpinning both. Firms learn from changes in their environment, leading to

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the adoption of a market entry mode (Jones and Coviello, 2005), reflecting innovation (Knight and Cavusgil, 2004) which is also central to both IPT and INV models. If internationalisation events ‘are the most valid representation of what occurs in the development and change process that is internationalisation’ (Jones and Coviello, 2005: 289), it is likely that what unites theories of gradual or rapid internationalisation is its evolutionary nature. Concept of Opportunity The Oxford English Dictionary (Simpson and Weiner, 2014) defines opportunity as ‘a time, condition, or set of circumstances permitting or favourable to a particular action or purpose’. The concept, in its raw de-contextualised form, includes a temporal component apart from the combination of circumstances or conditions which precede action. Various definitions of the opportunity concept have been presented in the relevant literature. A key distinction is made by Reuber at al. (2018) between definitions which originate from entrepreneurship and those originating in IB. Entrepreneurship scholars typically see the concept as entrepreneurial opportunity, or the opportunity for new resource combinations and their underlying innovation (Shane and Venkataraman, 2000). Researchers with an IB background who look at the concept see the notion as a market opportunity, particularly new market entry (Chandra et al., 2012). Reuber at al. (2018) attribute the difference, especially in their emphasis on innovation, to the respective histories of the two fields. In their review Mainela et al. (2014) contrast the entrepreneurship definition (Shane and Venkataraman, 2000) with that used in effectuation theory where opportunity arises from perceptions and actions to create goods and services before a market for them exists (Sarasvathy, 2003). Mainela et al. (2014) reconcile various conceptions of opportunity around the notions of value creation and competitive imperfections, and establish two key assumptions: first, that entrepreneurship is about the generation of new economic activity; and, second, that it is behaviour, whether discovering or creating opportunities. The authors conceptualise an international opportunity as ‘a situation that both spans and integrates elements from multiple national contexts in which entrepreneurial action and interaction transform the manifestations of economic activity’ (Mainela et al., 2014: 120). This is the definition of international opportunity used in this research. Ardichvili et al. (2003) believe that an opportunity may arise either by chance to meet a market need or by a recombination of resources to create superior value. An opportunity typically develops over time and goes through the three processes of (1) sensing market needs or underemployed resources, (2) recognising or discovering a fit between market needs and specified resources, and (3) creating a new fit in the form of a business concept (Ardichvili et al., 2003). Their conceptualisation of opportunities follows Kirzner’s (1973) assumption that opportunity discovery is a function of the unequal availability of information in society (Hayek, 1945), and that individual differences explain the opportunities that people discover, mostly determined by the knowledge developed previously by an individual through education and work experience (Shane and Venkataraman, 2000; Venkataraman, 1997). Mainela et al. (2014) quote various scholars who integrate Kirzner’s discovery and Schumpeter’s creation view (Chiasson and Saunders, 2005) or who provide

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complementarity between them (Vaghely and Julien, 2010). Mainela et al. (2014) provide a new insight into the conceptualisation of opportunities by making a distinction among innovation opportunity, arbitrage opportunity, opportunity discovery and opportunity creation. According to Mainela et al. (2014), innovation opportunities move markets towards disequilibrium through creative distraction (Schumpeter, 1934), requiring invention and innovation driven by the entrepreneur typically dissatisfied with current options. Alternatively, markets in a state of disequilibrium present arbitrage opportunities, out of disparity between supply and demand where the alert entrepreneur recombines resources to meet an unsatisfied need (Kirzner, 1973, 1997). Mainela et al. (2014) describe opportunity discovery as arising from exogenous shocks, such as industry, market or technology changes. Opportunity discovery, however, is typically realised through active search, with the risk associated with the opportunity possibly mitigated through rational decisionmaking (Alvarez and Barney, 2007). Finally, opportunity creation is a continuous process and a flexible activity of creating meaning, sense-making and sense-giving in an ambiguous context, where neither supply nor demand exist and the entrepreneur cannot know the future (Alvarez and Barney, 2007). Effectuation logic sees opportunity development as closer to the creation view (Sarasvathy, 2001), taking a set of resources or means as given and selecting the various possible effects that can be created with those means. According to Sarasvathy et al. (2014), there are at least three characteristics of conducting cross-border business that cry out for theories of effectuation, cross-border uncertainty, limited resources and network dynamics. Both the case study presented in Sarasvathy et al. (2014) and that of Schweizer et al. (2010) seem to prove empirically that an effectuation logic is useful. In the effectuation model, opportunities may be endogenous outcomes of the process and not merely an antecedent variable objectively related to other variables as in the effectuationentrepreneurship model (Sarasvathy et al., 2014). Table 57.1 summarises the main definitions of opportunity found in the literature. The definition from Mainela et al. (2014), adopted in this chapter, covers both innovation and arbitrage opportunities, including combinations of both, as well as the discovery and creation of opportunity. An international opportunity, as defined, emphasises the contextual element of how the cross-border situation influences the development of opportunities. Core Themes of an Opportunity-based View According to Mathews and Zander (2007), understanding firm internationalisation as neither stages nor as a result of comparable static advantages but as pathways of entrepreneurial action is aligned with an evolutionary approach. On this view, the firm’s preventure activities matter and instead of being a push or pull factor, internationalisation is a process of discovering, integrating and adopting new ideas into global structures. Madsen and Servais (1997) adopt an evolutionary process approach in a comparison between IPT and BGs. The authors notice that while IPT is based on risk reduction in view of uncertainty, BGs share the same reality, but mitigate it through international experience, knowledge and networks of their founders. The same starting conditions (Chandra et al., 2012) allow BGs to quickly take decisions and accelerate their internationalisation. Madsen and Servais (1997) argue that these founding conditions need to be considered

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Table 57.1

Main definitions of opportunity in the literature

Sarasvathy (2001) Eckhardt and Shane (2003) Ardichvili et al. (2003) Styles and Seymour (2006) Alvarez and Barney (2010) Busenitz et al. (2014) Mainela et al. (2014)

A set of ideas, beliefs and actions that enable the creation of future goods and services in the absence of current markets for them Situations in which new goods, services, raw materials, markets and organising methods can be introduced through the formation of new means, ends, or means–ends relationships The chance to meet a market need (or interest or want) through a creative combination of resources to deliver superior value The behavioural processes associated with the creation and exchange of value through the identification and exploitation of opportunities that cross national borders Creation opportunities are not formed by exogenous shocks to preexisting industries, but are formed by the actions of entrepreneurs themselves The discovery and creation of new means–ends relationships that can evolve from the interaction between markets and environments A situation that both spans and integrates elements from multiple national contexts in which entrepreneurial action and interaction transform the manifestations of economic activity.

and acknowledge that early IPT brought to the fore issues involving the pre-export stage (Wiedersheim-Paul et al., 1978), which are more important for small resource-constrained firms. Born globals fit squarely into the network-enabled thinking of IPT, according to Madsen and Servais (1997), owing to their strong reliance on network-based governance arrangements and networks that lead to their founding conditions. The way the IPT and INV models treat the concept of opportunity reveals overlaps that can be synthesised in opportunity-focused, evolutionary thinking. The experiential knowledge which triggers opportunity is core to IPT and explains BG opportunity discovery also, if pre-venture knowledge and the intensive use of networks are taken into consideration. Networks are a melting pot of knowledge, opportunities and joint commitment for both models, with BG networks preceding the legal set-up of the venture. Theoretical development that helps us understand the process of firm internationalisation needs to move beyond the concern with either gradual or rapid international expansion (Reuber et al., 2017). Whereas the debate on the process and speed of market entry, as well as the different categories of firms, has uncovered the complexities and dynamics of the phenomenon, understanding the bigger picture necessitates an appreciation of overlaps between the two main models and the development of coherent theory. Research concerning opportunities, how they are developed and how they determine the trajectory of a firm, represents a step in that direction (Eckhardt and Shane, 2003; Reuber et al., 2017). Using an opportunities lens, rapid internationalisation might not be seen as revolutionary, and its internationalisation speed can be explained by its history and networks (Chandra et al., 2012). Based on process research, Chandra et al. (2012: 95), conclude that INVs and incremental internationalisers share the same underlying processes of ‘leveraging existing knowledge, resources and learning and feedback processes resulting from firm

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action’ combined with the use of network relationships. Born globals are only different as they accelerate this process. One reason Chandra et al. (2012) provide for this potential oversight in extant research is that often only the internationalisation phase of INVs has been studied, ignoring their past. Chandra et al. (2012) acknowledge that looking at when a firm was set up legally is logical but claim that emphasis on the age of the firm at first market entry has obscured the important role of history in the evolution of the firm’s internationalisation. The history of a firm matters because past opportunities, experience and networks are available to the firm before it starts its international journey (Chandra et al., 2012), and for start-ups through the experience and connections which the founders bring with them. Looking at how history matters (Jones and Khanna, 2006) requires an evolutionary logic, where the choices available to a firm today depends to some degree on the actions it took yesterday, and where understanding the internationalisation process forces us to look beyond the date of legal set-up (Madsen and Servais, 1997). This convergence around the development of opportunities holds theoretical promise to reconcile models which developed in parallel over time. Although the role of opportunities in firm internationalisation remains an under-developed area within IB (Reuber et al., 2018), interest in entrepreneurial opportunities has a rich history. Table 57.2 outlines the key opportunity-related themes in the IB and IE literatures and compares the position of IPT, INV and the opportunity-based view (OBV) on each. Path and History Dependence International process theory acknowledges the role of path and history dependence, particularly the latter, which encompasses ‘the evolutionary nature of the firm and the potential for revolutionary adaptation’ (Vahlne and Johanson, 2017: 1089). This dependence on history, however, does not eliminate managerial discretion, and together they determine resource commitments in the internationalisation process. In INV thinking, path-dependence has a negative connotation, as the experience of the firm in domestic markets imposes restrictions on the rapid internationalisation of the firm. For ambitious and rapidly growing INVs, these restrictions have a marginal impact on internationalisation, according to McDougall et al. (1994). International new ventures try to avoid domestic path-dependency by having international routines and approaches from the outset (Oviatt and McDougall, 2005b). Path and history dependence are more central in the OBV, where internationalisation is defined as a ‘path-dependent process of opportunity development shaped by the context in which the key actors and organisations have operated in the past and in which they are currently operating’ (Chandra et al., 2012: 85). Feedback, learning and commitment are driven by path-dependency. Chandra et al. (2012) posit that acknowledging path and history dependence eliminates the distinction between gradual and rapid internationalisers, and that what at first might appear as a chance event can be explained by path-dependency. Psychic Distance Psychic distance (PD) has a long but contentious history in IB (Smith et al., 2011). Johanson and Vahlne (2009) acknowledge that the impact of PD has reduced compared

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Table 57.2

Comparing the IPT, INV and OBV on key opportunity-related themes

Opportunityrelated theme

International process theory (IPT)

International new ventures (INV)

Opportunity-based view (OBV)

Path and history dependence

Path dependency, together with managerial discretion determine the resource commitment in internationalisation Short PD facilitates relationships

The restrictive pull of pathdependency (PD) is mitigated in INVs, given their short history and the intention of accelerated growth PD has very little influence

Opportunity development process is path and history dependent

Learning

Gradual, experiential learning

Networks

‘Outsidership’ from relevant networks is the cause of uncertainty

The international trajectory of the firm

Internationalisation as a gradual process of increasing commitment with experience and growth Push products in internationalisation journey The process of opportunity development includes elements of both discovery and creation

Congenital, grafted and vicarious learning based on advantages of newness International entrepreneurs use networks to develop ideas, then leverage further networks to access markets, capital and resources Rapid internationalisation

Psychic distance

Developing core service offering Process of opportunity development

International exposure pulls firms to rapidly internationalise Process is mostly driven by Schumpeterian creation

PD decreases owing to networks but is not an influence on discovered opportunities Early feedback, networks and knowledge-sharing are the basis of learning The domestic and international networks of entrepreneurs lead to opportunity development Evolutionary trajectory, following a punctuated equilibrium model Opportunity development is both a pull and a push activity Early opportunities are discovered, later opportunities are searched

with the time of the original model (Johanson and Vahlne, 1977). While typically PD has shortened because of increasing access to knowledge on foreign markets made possible by technological advancements, it is still relevant in recognising and exploiting opportunities, as short PD facilitates relationships (Johanson and Vahlne, 2009). For BGs or INVs, PD is less relevant owing to the increasing flow of information on foreign markets (Autio, 2005). While this position is held by the main INV proponents (Bell, 1995; Oviatt and McDougall, 2005b), the empirical findings of Chetty and Campbell-Hunt (2004) attribute a role to PD in the internationalisation of BGs. Participation in networks reduces PD, according to proponents of the OBV. In the case of the firm’s first or early international opportunities, PD has limited impact. This is because early opportunities are usually ‘discovered’ with an element of surprise through the firm’s regular operations (Chandra et al., 2009). In their study of first international opportunities, Chandra et al. (2009: 48) find that subsequent opportunities are searched rather than discovered and in such active search processes firms ‘enter psychologically close countries and/or optimise their choices of foreign markets, which are examples of incremental innovations rather than truly entrepreneurial acts’. Therefore, for the OBV,

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PD is a relevant consideration, but mostly for the subsequent, searched opportunities, compared with the initial opportunities. Learning The heterogeneity of firms, core to competitiveness, mostly comes from experiential learning, which is part of the overall knowledge development of the firm according to IPT (Johanson and Vahlne, 2009). This knowledge development is the starting point of change in the Uppsala model (Vahlne and Johanson, 2017), making the model in effect an explanation of a learning process. According to Fletcher et al. (2013), the acquisition of specific market knowledge, as explained in the Uppsala model, occurs through the extension of operations in individual markets, and firms can transfer general knowledge from one country to another, thus facilitating growth. Learning is incremental, based on operational experience and leads to the reduction of uncertainty. Young, rapidly internationalising firms may have a ‘learning advantage of newness’ (Autio et al., 2000) because they have fewer ‘established routines that inhibit their learning opportunities’ (McDougall and Oviatt, 2000: 904). International new ventures replace incremental experience with congenital, grafted and vicarious learning (Casillas et al., 2015) and their learning processes develop over time (Pellegrino and McNaughton, 2015). Learning and feedback underpins both incremental and rapid internationalisation according to the OBV. Learning from early opportunities allows firms to discover and search for subsequent opportunities; failed opportunities are also learning sources (Chandra et al., 2009). The history of the firm, comprising successful or missed opportunities, determines the perception of future opportunities, as ‘perceptions about opportunities (foreign market entries) are affected by network development in, and learning from, past opportunities (market entries) pursued’ (Reuber et al., 2017: 416). However, learning does not result automatically from experience but depends on knowledge-sharing. (Laperrière and Spence, 2015). Networks International process theory has introduced a major role for networks in its explanations. The ideas of inter-firm cooperation, adopted from industrial networks (Axelsson and Johanson, 1992; Johanson and Mattsson, 1987), gradually grew into an acknowledgment that networks are a reality in all aspects of firm growth, and being isolated from the right networks is a liability (Johanson and Vahlne, 2009). A firm’s participation in various networks provides a bridge into new knowledge and opportunities (Johanson and Vahlne, 2006), as it accesses knowledge held by network partners. Network members build knowledge together as they increasingly trust each other and allow each other privileged access to know-how and further networks (Agndal and Chetty, 2007; Coviello and McAuley, 1999; Johanson and Vahlne, 2009). It is in network relationships that ‘the experience and managerial intent of various economic actors come together’ (Vahlne and Johanson, 2017: 1099). This has manifested in various empirical investigations, including small knowledge-intensive firms, as cited by Coviello and Munro (1997) and Bell et al. (2004). Relationship experiences that create the prior knowledge necessary for opportunity identification are often held at the boundaries of the firm (Shane, 2000), for example, in

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subsidiaries or presumably the outward-facing roles in the firm, those ‘working on the market’ (Johanson and Vahlne, 1977: 29). They are also brought to the firm by its founders and decision-makers (Wiedersheim-Paul et al., 1978). For scholars researching INVs, international entrepreneurs use networks to develop ideas, then leverage further networks to access markets, capital and resources (McDougall et al., 1994). Opportunities for rapid internationalisation are developed in networks. Once an opportunity is identified, according to Oviatt and McDougall (2005b), the entrepreneur uses established international network relations to assess how quickly it can be exploited in foreign locations. These networks help the entrepreneur identify opportunities, gain credibility and form important alliances (Coviello and Munro, 1997). The personal and professional networks of the founders of a BG firm constitute the ‘genes’ that influence the key opportunity and precede the setting of the firm (Madsen and Servias, 1997). One aspect of the role of networks which differs from the view within IPT is that INVs typically use network-based, not hierarchical/internal, structures. Oviatt and McDougall (2005c: 35) explain how, faced with limited resources INVs choose ‘hybrid structures, such as licensing, and franchising, are often useful alternatives to both internal control and market control over the exchange of resources’. The OBV postulates that the networks in which firms and entrepreneurs operate, or would have operated in the past, shape the opportunity development process for both incrementally and rapidly internationalising firms. Networks are where knowledge and ideas are diffused, and this influences how and who can identify, develop and exploit new market opportunities (Chandra et al., 2009). The review of opportunity research by Mainela et al. (2014) reveals a number of aspects of the role of networks in opportunities. Networks assist a firm overcoming resource constraints and lead to opportunities, even if restricted to the delimitations of the network (Weerawardena and Mort, 2006). The embeddedness in local networks leads to the recognition of opportunities (Lorentz and Ghauri, 2010) and the founder’s (rather than the firm’s) networks influence the opportunity identification process (Sasi and Arenius, 2008). Mathews and Zander (2017) propose an approach to firm internationalisation, which stresses the integration of the firm into the global economy. This integration is neither a push nor a pull, but a process of history and path-dependent discovery and adaptation of business ideas into global structures and networks. The International Trajectory of the Firm Another cross-cutting theme from an opportunity perspective is the overall international growth of the firm with the development of several opportunities. The Uppsala model sees internationalisation as a gradual process of increasing commitment to international markets with experience and growth (Johanson and Vahlne, 2009). This incremental, risk-minimisation approach relies on nurturing relationships and fine-tuning operations in strategy implementation and adaptation (Vahlne and Johanson, 2017). Comparing the IPT view with the INV view, Autio (2005) observes that whereas the Uppsala model highlights the risks and restraints of internationalisation, proposing ways of navigating through them gradually, INV theorists underline the possibilities of rapid internationalisation by shifting the accent to individual knowledge and risk-taking. In

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their research on post-entry speed (PSI) of INVs, Sadeghi et al. (2018) break down PSI into intensity, spread and diversity. Sadeghi et al. (2018: 799) demonstrate the conditions under which managers should accelerate internationalisation while highlighting when this can be detrimental, comparing the situation to ‘an experienced chess player who plans ahead for the next moves and mentally examines different variations’. Doubtless, the period during which the INV phenomenon started being discussed academically differed substantially from that of the late 1970s when the Uppsala model was developed. Autio (2005) explains that in the mid-1990s information flows about foreign markets were much easier, travel and communication were cheaper, experienced international managers were more available, and firms had started employing alternative mechanisms, such as outsourcing and franchising. The size of a typical INV is usually associated inversely with their rapid growth, since new firms do not have to change restrictive routines and are less drawn by path dependence. Thus ‘the relative flexibility of newer firms allows them to rapidly learn the competencies necessary to pursue continued growth in foreign markets’ (Autio et al., 2000: 919). The same authors found that early venturing across borders instils a proactive culture, enabling the firm to perceive and seize opportunities more easily. Autio et al. (2000: 919) conclude that whereas smaller firms are unlikely to take one-off decisions on large investments, they ‘are capable of taking small, incremental steps more rapidly than older firms’. As explained by Knight and Cavusgil (2004), through their adaptation to the environment, mostly based on innovation, INVs are capable of fast growth. A further element which explains INVs’ rapid growth is their knowledge intensity (Weerawardena et al., 2007). Autio et al. (2000) established that the more knowledge intensive the firms were, the faster their internationalisation, attributing this growth to the effort the firms make to acquire and assimilate new knowledge. The findings of Chandra et al. (2012) reveal how particular events change their trajectory to acceleration or deceleration of internationalisation. The trajectory of the firm, according to researchers inspired by the OBV, is a punctuated equilibrium, rather than a linear process of incremental or rapid growth. The pace of internationalisation is dynamic, and changes depending on knowledge, commitment and resources. Chandra et al. (2012: 91) observe that ‘uncertain and unexpected outcomes and events can often disrupt the trajectory of a firm’s evolution in both positive and negative ways’, leading some firms to decelerate or temporarily or permanently withdraw from an international market. These findings, echoing those of Bell (1995) a decade earlier, are aligned with the approach proposed by Jones and Coviello (2005), seeing entrepreneurial internationalisation as firm-level behaviour manifested by events and outcomes over time. According to Jones and Coviello (2005), market entry and international growth is dictated by the rate, sequence, earliness or otherwise, and intensity of key events. The idea of the internationalisation trajectory following a punctuated equilibrium pattern is also advocated by Reuber et al. (2017). They posit that events, on an individual, firm or institutional level, affect the firm and punctuate its status quo. While these events can vary from foreign travel, changes in leadership, change of government or adjustments to policies, they lead to the perception that pursuing a particular opportunity is timely. Events, and their context, can explain what sometimes appears as serendipity in an internationalisation trajectory, according to Reuber et al. (2017).

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Developing the Core Service Offering The approach of the IPT, INV and OBV literatures in respect of the core product or service at the heart of internationalisation varies substantially. The original Uppsala model (Johanson and Vahlne, 1977) assumes a previously developed product being pushed to agents, distributor and other parties up the establishment chain. With the introduction of the networking component, Johanson and Vahlne (1990) start acknowledging that network exchanges can go beyond buying and selling, and include the co-development of products, whether directly or indirectly. This is further developed in the latest IPT model (Vahlne and Johanson, 2017) which, being based on innovation, introduces the development of new products via the trust, flexibility and knowledge within the network. Still, within the IPT the concept is of a product being pushed, even if co-developed. As observed by Autio (2005), the INV needs to internationalise in order to make value creation possible, not in order to disseminate its outputs (qua IPT). A degree of pull is thus present as opportunities are developed from international exposure and resources. International new ventures learn from the market, and this opens up new avenues for growth (Zahra, 2005). This is highlighted in research by Knight and Cavusgil (2004: 127) who describe the INV product development process as ‘fluid and dynamic, with ongoing market expansion and redefinition resulting in frequent competitive improvements to the firm’s offerings and routines’. Within INVs, opportunities are also seen as cross-border combinations of resources and markets (Di Gregorio et al., 2008). Instead of seeing opportunities as occasions to sell internationally, this view considers internationalisation along the wider value chain (Zahra and George, 2002) and is thus concerned with both markets and resources. The evolutionary framework presented by Matthews and Zander (2007) incorporates both a push and a pull element. They observe that ‘it is the exposure to the resources and opportunities in the IB environment that draws entrepreneurs and firms into involvement across national borders, through contracting, licensing or other transacting relationships’ (Matthews and Zander, 2007: 395). In proposing the OBV, Chandra et al. (2012) note an initial period of internationalisation in which the firm is clarifying its opportunity space. This is akin to an experimental phase (Zahra, 2005) during which, on the basis of actual opportunity implementation, the firm understands better and develops its ideas as regards ‘which opportunity, business partner, client, country domain to enter or be involved in or not’ (Chandra et al., 2012: 91). It is reasonable to assume that the adjustment of the ‘opportunity’ during the identification of opportunity space includes adjustments, upgrades and refinement of the core product or service offering. This malleability of the core product or service, particularly during the early phases of internationalisation, is implied in the OBV, including the opportunities for firms to develop products on the basis of lead users among their customers (Chandra and Coviello, 2010). Process of Opportunity Development Markets are never in equilibrium, according to Kirzner (1973). Therefore the entrepreneur who is alert and open to surprises is likely to discover the hitherto unknown through the normal course of business rather than through active search for opportunity (Johanson

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and Vahlne, 2009). The natural alertness of the entrepreneur Kirzner (1973) is sharpened by experience and idiosyncratic knowledge that creates a knowledge corridor which allows him or her to discover some opportunities and not others (Shane, 2000). Thus, in the IPT, the identification of opportunities is likely to result from ‘a serendipitous strategy characterised by effort and luck, combined with alertness and flexibility’ (Johanson and Vahlne, 2009: 1419). Entrepreneurial discovery, rooted in experiential knowledge and leading to commitment decisions, initiates the process. Firms are necessarily involved in networks in which members share knowledge to differing degrees and this shared social capital generates opportunities (Johanson and Mattsson, 1987). The IPT, in line with the argument of Ardichvili et al. (2003), refutes the claim that an opportunity can be either discovered or created. Proponents of the discovery view follow Kirzner (1973) in believing that opportunities are objective phenomena that are simply not known to all owing to information asymmetry, and are thus waiting to be discovered by an alert entrepreneur (Shane and Venkataraman, 2000). Scholars who believe that opportunities are created endogenously, by the actions, reactions and enactment of entrepreneurs exploring ways to produce new products or services, occupy a position inspired by Schumpeter (1934). According to Johanson and Vahlne (2009), international opportunities involve elements of both discovery and creation. A firm develops multiple opportunities over its lifetime (Chandra et al., 2015). Given the gradual nature of the model, it is likely that the firm perceives, and exploits, opportunities related to present opportunities, a concept termed opportunity horizon in the original model (Johanson and Vahlne, 1977). The updated models do not address the issue directly, and while we can assume that exposure to networks might increase the novelty of opportunities, the linearity remains despite a recent update in this regard (Santangelo and Meyer, 2017). Forty years after the initial model, the IPT sees opportunity development as the meshing of knowledge development processes (experiential learning, trust-building and resource allocation) and state variables, such as capabilities and resource positions (Vahlne and Johanson, 2017). The INV’s opportunity concept is based on Schumpeter’s (1934) definition, according to Autio (2005). Firms do not internationalise to disseminate their outputs but do so to create value by combining cross-border resources, typically in the form of unique technologies. This makes them fundamentally different from domestic ventures and they can sustain their competitive advantage through intellectual property protection or by upgrading their knowledge outputs (Autio, 2005). Conceptualisation of opportunity, such as Schumpeterian innovation, is also found in Knight and Cavusgil (2004), who claim that the flexibility and agility of young firms allows them to introduce product and process innovations. Knight and Cavusgil (2004) find that being highly innovative, BGs develop knowledge which allows them to build capabilities that support early internationalisation. Opportunities are also seen as resulting from creative destruction, or at least innovation, in Kropp et al. (2006) and Acs et al. (1997). Mainela et al. (2014: 114) disagree that opportunity is a Schumpeterian concept in the INV approach, finding that typical of INV studies is ‘the Kirznerian view of entrepreneurship and related emphasis on alertness as a key characteristic and knowledge as a key determinant of IE’. They quote research showing that alertness to opportunities and cross-border opportunity identification are indeed key capabilities of INVs. The

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early conceptualisations of INVs seem to imply that these firms combine ‘imbalances of resources’ with ‘creating markets where none existed’ (Oviatt and McDougall, 1994: 58) in pursuing international opportunities. Whether inspired by Kirzner or Schumpeter, the perception of opportunity is likely to depend on the culture in which the entrepreneur is raised and in which he or she functions. The Inuit, born and raised in a culture which promotes the collective and dislikes competition, is likely to be influenced by these cultural norms (Dana, 1995) whether the opportunity he or she perceives is the result of arbitrage or disruption. Dana (1996, 2007) criticises the ethnocentric approaches to the concept of entrepreneurial opportunity and, with the benefit of ethnographic methods, concludes that ‘the causal variable behind enterprise is not an opportunity, but rather one’s cultural perception of opportunity’ (Dana, 2007: 278, original emphasis). This paradigm of opportunity development, bringing in the cultural context that surrounds the international entrepreneur, has found support in various studies (Kreiser et al., 2010; Mitchell et al., 2002) and has helped shift the debate on opportunity propensities from individual characteristics (Autio et al., 2000) to cognition (Mitchell et al., 2002). Focusing on the firm–opportunity nexus, Chandra et al. (2009) find that initial and early opportunities are discovered, and always include a degree of surprise, whereas later opportunities are actively searched as prior experience teaches the firm lessons and reduces surprise. The surprise associated with early opportunities should not imply that early opportunity development is down to pure chance, as the firm’s position in networks and the prior knowledge of the founders are the subtle underlying logic, according to the OBV.

CONCLUSION A focus on entrepreneurial opportunities can reconcile the positions of IPT and INV. Putting aside issues of the earliness or otherwise of internationalisation allows the emergence of several core themes that, while being relevant to an opportunity perspective, have roots in over three decades of internationalisation research. After reviewing IPT, INV and the few studies that adopt an evolutionary, opportunity-based perspective, this chapter identified seven themes which cut across both IPT and INV but which take on a fresh perspective seen through an opportunity’s lens. The OBV regards the opportunitydevelopment process as path and history dependent, a process during which the firm learns from feedback and knowledge-sharing, and in which past and present networks are the primary driver. According to the OBV, the firm changes throughout the process, with periods of regular growth punctuated by main events of strategic significance. Approaching internationalisation using an opportunities perspective can represent a fresh perspective to internationalisation managers and practitioners. It is a shift of focus, from the over-reliance on strategic planning to a balance between the long-term objectives and the significance of each international opportunity developed by the firm. Initial opportunities, including in the domestic market, are likely to be a rich source of learning on which future opportunity development can be based. Even failed opportunities are a source of knowledge if acknowledged and reflected upon. Furthermore, firms should build and refine their international offerings based on successful recent projects, as this

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presents a more robust market test than any simulation. Another managerial implication is that for opportunity development to be sustained over time, the firm needs to invest in the appropriate structure and opportunity-development practices. Entrepreneurial internationalisation is a journey in many ways. The type, scale and intensity of opportunities developed by a firm determine the internationalisation path and growth of the firm. By shifting the focus on the international opportunity, IE research can better explain entrepreneurial internationalisation.

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58. Organizational processes as foundations of dynamic capabilities Shaker A. Zahra

Organizational processes are the foundation of capabilities (Zahra and George, 2002). Processes are an interconnected series of activities that together ensure the completion of a given task (Garvin, 1998). These processes are what transforms managers’ visions into reality, that is, real achievements (Harrington, 1994). In so doing, routines emerge or are created, revised, refined, deployed and used. These routines are the constituent elements of organizational capabilities. Changes in the complexion and uses of these routines give meaning and substance to dynamic capabilities. These changes also ensure the currency and usefulness of capabilities, and make it possible for organizations to attain evolutionary fit. Given the importance of organizational processes for dynamic capabilities, it is difficult to explain why they have not received as much attention as the content of these capabilities. One possible factor is the complexity of observing organizational processes; some are ephemeral but crucial for task completion. Others are long-lasting across space and time; they require considerable time and effort to observe and document. However, these processes are essential for the emergence, evolution and maturation of dynamic capabilities. Focusing on organizational processes is important for theorizing on the microfoundations of dynamic capabilities. These microfoundations center on individual actions (and conditions shaping them) and how they lead to macro results and outcomes. For instance, understanding how employees collaborate to create new product designs requires understanding the context in which collaborations occur, the motivation behind these collaborations, types of interactions, and so on in order to understand how these activities evolve into an organization-wide capability in design. The development of this capability requires the integration of cognitive, emotional and physical resources by multiple people (Garvin, 1998). Infusion of knowledge into this mix can induce dynamism into these capabilities Moreover, people improvise as they go about addressing tasks at hand, constantly revising existing processes. They may also find shortcuts that expedite the completion of their jobs, thus removing bottlenecks or reducing costs. These actions also bring about greater dynamism into firms’ capabilities (Zahra et al., in press a). Despite the acknowledged importance of organizational processes for market and competitive success, studying processes is a rarity (McNulty and Ferlie, 2004; Van de Ven, 1992). Studies seeking to document these processes face great difficulties in gaining access to research sites, observing activities as they unfold, and making sense of how processes emerge and evolve. These are good reasons to study these processes. Competitors often encounter the same issues in understanding their rivals’ processes and capabilities. This is why organizations work hard to embed these processes within their culture, internal systems and structures, instead of including them in their familiar operation manuals and procedures (Langley et al., 2013). 511

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There are different ways to capture these processes (Garvin, 1998; Harrington, 1994; McNulty and Ferlie, 2004). One is to follow the emergence of new capabilities as they unfold across the company’s different functions, taking shape through the interactions of multiple actors in different parts of the company. These processes also unfold as firms work to connect their dynamic capabilities; this integration often requires process innovations that ensure effective synchronization. Another way to study organizational processes is to focus on the activities undertaken to make dynamic capabilities actionable, ensuring that they are effectively deployed to achieve the firm’s goals (Zahra et al., in press b). This requires taking an inventory of these capabilities, thinking about their strategic roles, recognizing their interferences and interdependencies, deciding where to use them, and establishing the temporal and spatial links among them and deploying them. As these activities materialize, managers determine which processes work and which need refinement, further perpetuating the search for process innovations. The link between entrepreneurialism and processes also deserves careful attention. Processes shape entrepreneurial activities within a firm, affecting its direction, pace and outcomes. However, entrepreneurship also generates new processes that often become the foundation of new or revamped organizational dynamic capabilities. Entrepreneurial activities also enhance learning about capability building and upgrade. The knowledge gained is then put to use to upgrade and improve capabilities, further enhancing their dynamism. To date, researchers have ignored this virtuous cycle where entrepreneurship fuels process development and improvements which, in turn, spark learning that fosters that creation and upgrade of dynamic capabilities. In turn, these capabilities pave the way for new entrepreneurial initiatives that lead to new organizational processes. This virtuous cycle is likely to be observed as managers work to make dynamic capabilities actionable (Zahra et al., in press b). Discussion of process aspects of dynamic capabilities opens a number of important research avenues. For instance, are these processes different between dynamic and ordinary capabilities? How are these processes developed in the first place, and by whom? Where and how they are integrated? How do these processes retain the dynamism of capabilities and when do they become rigid? Studying these issues can provide rich insights into the valuable role of organizational processes in the development and evolution of dynamic capabilities.

REFERENCES Garvin, D.A. (1998), ‘The processes of organization and management’, Sloan Management Review, 39 (4), 33–51. Harrington, H.J. (1994), Business Process Improvement, Boston, MA: Association for Quality and Participation. Langley, A.N.N., C. Salman, H. Tsoukas and A.H. van de Ven (2013), ‘Process studies of change in organization and management: unveiling temporality, activity, and flow’, Academy of Management Journal, 56 (1), 1–13. McNulty, T. and E. Ferlie (2004), ‘Process transformation: limitations to radical organizational change within public service organizations’, Organization Studies, 25 (8), 1389–412. Van de Ven, A.H. (1992), ‘Suggestions for studying strategy process: a research note’, Strategic Management Journal, 13 (S1), 169–88. Zahra, S. and G. George (2002) ‘Net-enabled business innovation cycle and the evolution of dynamic capabilities’, Information Systems Research, 13 (2), 147–50.

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Organizational processes as foundations 513 Zahra, S., D. Neubaum and J. Hayton (in press a), ‘Knowledge integration: fusing micro and macro perspectives’, Academy of Management Annals. Zahra, S., O. Petricevic and Y. Luo (in press b), ‘Toward an action-based view of dynamic capabilities in international business’, Journal of International Business Studies.

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59. Pastoralism as a form of entrepreneurship among Negev Bedouin A. Allan Degen

Entrepreneurship is expressed in different ways by various societies (Dana, 1995 [2002]). In this entry, I focus on entrepreneurship as it is practised by the Bedouin. The word Bedouin is derived from the Arabic word badawi, meaning man of the desert. Traditionally, Negev Bedouin depended on nomadic pastoralism for their lifestyle and livelihood. Sheep, goats and camels provided them with milk and milk products, wool and hair for weaving carpets and tents, and animals for traditional slaughter. Currently, there are approximately 250 000 Bedouin in the Negev Desert of southern Israel. About 70 per cent of these Bedouin live in planned urban communities and 30 per cent in rural, spontaneous, non-authorized settlements. Figure 59.1 shows Bedouin women selling Awassi lambs at a weekly Thursday market at Beer Sheva, and Figure 59.2 shows Awassi sheep being sold at a weekly Saturday market at the Bedouin community of Rahat. Many of these Bedouin families raise some livestock, mainly sheep but also goats, camels and cattle. Changes since 1948 have turned the Bedouin pastoralists of pre-Israel times into

Figure 59.1

Bedouin women selling Awassi lambs at a weekly Thursday market at Beer Sheva; photograph by A.A. Degen 514

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Figure 59.2

Awassi sheep being sold at a weekly Saturday market at Rahat, a Bedouin urban settlement in the Negev Desert; photograph by A.A. Degen

marginal pastoralists today. Two important characteristics of current Bedouin pastoral activity in the Negev below the 220-millimetre isohyte are evident: (1) pastoralism can be practised mainly on margins of other agricultural activities, on fallow and aftermath fields and in uncultivatable areas; and (2) that it has become a marginal occupation for the Bedouin population as only about 1000 families, or less than 10 per cent of the population, mainly rural Bedouin, derive their livelihood from raising sheep. The grazing sources under their control are insufficient to meet year-round flock maintenance, yet flock movement to available grazing areas are strictly limited and regulations pertaining to their shepherding practices are costly. In spite of these difficulties, the number of sheep has been increasing over the years, although the ratio of number of Bedouin to sheep has been decreasing. Officially, 200 000 sheep were registered with the Ministry of Agriculture’s Veterinary Services in 2002, a number that has stayed relatively constant during the past few years. However, the ministry, which is responsible for compulsory vaccination of livestock, estimated that the actual number of sheep owned by Bedouin was in the vicinity of 300 000, as many sheep were not vaccinated and registered (Table 59.1). Furthermore, according to the Ministry, there were approximately 1500 registered flocks in 2002, with about half the flocks from urban and half from rural, non-authorized localities. According to the records of the Statistical Yearbook of the Negev Bedouin (1999, 2004), in 1998 and 2001, there were 1395 and 1281 registered flocks, of which 1186 (85 per cent) and 1063 (83 per cent), respectively, were owned by tribes from rural, non-recognized localities. The yearbook lists the 1281

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Table 59.1 Year Bedouin (B) Sheep (S) Camels (C) Ratio (S:B) Ratio (C:B) Ratio (C:S)

Number of camels and sheep (includes goats) raised by the Bedouin and number of Bedouin in the Negev between 1932 and 2017 (thousands) 1932

1955

1961

1974

1988

1997

2002

2017

60 100 10–14 1.67 0.17–0.23 0.10–0.14

15 60 9–10 4.00 0.60–0.67 0.15–0.17

18 70 10–11 3.50–4.36 0.56–0.61 0.14–0.16

37 130 10–11 3.51 0.27–0.30 0.07–0.08

69 140–250b 5–6 2.02–3.62 0.07–0.09 0.02–0.04

104 150–300b 5 1.44–2.88 0.05 0.02–0.03

159 200–300b 5–6 1.25–2.33 0.03–0.04 0.02–0.03

230 250–350 4 1.09–1.52 0.02 0.02–0.01

a

Notes: a 40 000 in 1976 (Shmueli, 1980); 37 000 was estimated in 1974. b Lower value from Ministry of Agriculture; higher value was estimated.

registered flocks according to flock size (number of head) with 75 per cent of the flocks falling between 50 and 250 head. There were 335 flocks between 50 and 100 head, 184 flocks of less than 50 head and three flocks greater than 650 head.

FLOCK MANAGEMENT After the establishment of Israel, Bedouin pastoral practices can be regarded as a response adaptation to government restraints. Noy-Meir (1975) identified major Bedouin pastoral systems within the Negev, determined by ecological conditions, flock movements and types of pasture, and the degree of feed supplementation. Bedouin practise the seasonal type of practice in the semiarid to arid Negev in that flocks are kept near the homestead in winter and are moved from the homestead for grazing in spring and summer. Among Bedouin currently, flocks are generally owned by household heads. However, this may not mean as their outright possession, but instead as their responsibility for decision-making in management of the flock. Each household is usually related to others in a complex of alliances, obligations, reciprocal relationships and clan obligations (Marx, 1974; personal data). Some members within (wives and children) and outside the household (married sons and relatives) may own some animals in the flock or corral them near the homestead, and these are considered their property (Abu-Rabia, 1994; personal data). Furthermore, household heads often register some animals in the names of other family members and/or understate the number of animals in their flocks to the government veterinary authority. As a family-operated enterprise, wages are not paid (except where shepherds are hired) nor are expenses and income shared among family members. Husbands decide when and where to graze the flock, when to corral the main flock at home and when to sell or buy sheep. Husbands are responsible for flock movement, either by foot or by truck, to distant pasture sources. They are also responsible for the everyday management of the flock, such as providing drinking water (by either piped water or tractor-drawn water tanks). It should be noted, also, that there are cases where a woman (wife) is the sole owner of a flock, in particular in urban centres (Degen, 2003). In families living within rural settlements, usually unmarried daughters shepherded animals; wives and, occasionally, husbands and sons helped. However, as more girls are

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Pastoralism as entrepreneurship 517 now attending school, since education has become compulsory under Israeli law (AbuSaad, 1996), the family labour force is being reduced. Of 24 families surveyed in 2003, children shepherded only 14 flocks, wives 10 flocks and men seven flocks (Stavi et al., 2006). Prior to 1999, shepherds from the administered territories were hired when needed, at 130 dinars (1 dinar = US$1.3) per month plus meals. This practice has stopped owing to security problems. Each year, household heads apply to the Bedouin Affairs Department of the Ministry of Agriculture for grazing areas. Permits are issued only after sheep have received mandatory veterinary vaccinations against foot and mouth disease and rinderpest (at a cost of $0.70 per sheep and $0.40 per sheep, respectively), and ewe-lambs vaccinated against brucellosis (no charge). Current optional recommended treatments, but not required for a grazing permit, are for clostridium ($1.05 per sheep), pox ($0.40 per sheep) and parasites ($1.35 per sheep). The former two are administered by government veterinarians; the latter by the Bedouins themselves and/or private veterinarians. Vaccinated sheep are eartagged with an identifying number, and only sheep with these tags can be moved within Israel. Sheep without tags cannot be brought to markets as they can be confiscated. Consequently, veterinary care constitutes a compulsory and important expense in the flock management budget. Grazing permits allow flock movement for about nine months during spring and summer, from approximately mid-February to October. The permits stipulate the designated areas and exact dates for grazing, and payment for these sites is minimal and based on flock numbers. The grazing period is dependent on the condition and availability of pasture. In spring, these are usually lands in the control of the Jewish National Fund (mainly forests), the army and the Land Authority. Arrangements are also made to graze land under private control such as those of kibbutzim or moshavim. In these instances, fields are rented mainly for summer grazing and consist of cereal aftermath and winter fallowed fields that are weed infested. Bedouin are not able to graze their animals outside their permitted areas and must keep the flocks at the homestead for about three months during the late summer and autumn, during which time they are vaccinated. Black goats are restricted to the confines of the household because of the ‘black goat’ law passed in 1977 (grazing black goats were considered destructive). Currently, there are a number of problems in sheep management and marketing. First, the Palestinian West Bank is closed for security reasons much of the time, thus preventing buyers in the territories from entering Israel. This is a serious setback as these buyers purchased most of the Bedouin sheep in the past and brought them to the territories. Secondly, shepherds from the territories cannot be employed as, by law, they cannot remain overnight in Israel. Thirdly, outbreaks of contagious diseases, such as foot and mouth, occur frequently, which prevents animal movement and limits sales. These factors, together with frequent droughts, result in lower sheep prices and higher grain and fodder prices.

PRODUCTION AND ECONOMIC DETAILS In a two-year study by Degen et al. (2000), six Negev Bedouin families averaged 130 breeding ewes per household, ranging from 61 to 176 ewes, and two to four rams. Sheep

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Figure 59.3

Bedouin woman milking an Awassi ewe in the Negev Desert; photograph by A.A. Degen

were mainly Awassi (see Figures 59.3 and 59.4), a fat-tailed breed common in the Middle East that is raised for meat, milk and wool. Most lambings occurred between November and March but continued sporadically throughout the year as rams grazed with the ewes. Of the ewes lambing, 2.5 per cent had twins and 130 ewes produced a total of 120 lambs of which 105 survived. Thus, the lambing rate over the two years was 0.93, with lamb mortality at 12.5 per cent. Sheep mortality during the period was about 3.0 per cent. Of the surviving lambs, 68 (55–60 per cent) were sold at 3 to 5 months of age, which mainly covered expenses. Of the rest, 15 ewe-lambs were kept as replacements for ewes that either died, were sold or were slaughtered, and 20 lambs were used as presents and for traditional slaughter. It was estimated that five to 10 lambs were received as gifts or other reasons. In addition, about 10 lambs (at $136 per lamb) were expended for socio-economic reasons, such as maintaining or establishing good relationships with people who might in the future act, among other things, as intermediaries on their behalf in obtaining grazing permits and other transactions necessary for managing their flocks. Sick animals were not slaughtered for home consumption but sold whenever possible. The income from sheep sales averaged US$9394, but the variation among the six individual households was considerable. All families milked some sheep and goats for household use. However, only one family, owning 160 sheep, milked all the lactating ewes in one year of the two-year study. Labour

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Figure 59.4

Bedouin girl shepherding Awassi sheep in the Negev Desert; photograph by A.A. Degen

shortage was given as the main reason for not milking by the other families. In the flock that was milked, ewes were milked once daily in the morning by two women: by two wives or by one of the wives and one of two daughters. Milk yield was approximately 20 kilograms per day over a two-month period between February and March, for a total of 1200 kilograms. The women processed the milk into yogurt (laban), butter (samne) and a hard, dry cheese (afig) which was stored for future consumption. It was estimated that 100 kilograms each of samne and of afig were made for home consumption, but occasionally some was given as presents and some was sold by the women. Samne sold for about $10.6 per kilogram and afig for about $7.3 per kilogram. All sheep were hand-sheared prior to summer, yielding an average of 1.5 kilograms of wool per sheep. Husbands, assisted by wives, children and/or shepherds, usually did the shearing, although wives and children often did the shearing as well. There was little demand for the wool and none was sold. Much of the wool was discarded, although some was used for blanket and pillow fillings. Almost no tents are made of wool and no wool weaving was observed during the study. Tents are made from burlap bags and carpets are handwoven from colourful, synthetic material. On average, expenses in raising sheep were US$7121 to US$7818 and constituted about 80 per cent of incomes from sheep. Most expenditure was on animal feed (60 per cent), followed by land rental (20 per cent), wages (8 per cent) and veterinary costs (7 per cent).

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In some households, expenses surpassed incomes from sheep-raising; in the most favourable cases expenses were 55–60 per cent of incomes and in all other cases it was more than 67 per cent. The average balance showed a yearly profit of US$1873. This does not take into account lambs used for social purposes and for home consumption. Net income varied from a loss of US$878 to a gain of US$5300. Within individual households, there were large yearly fluctuations. Indeed, large fluctuations were the rule, rather than the exception, as was also found by Ginguld (1994) who studied nine Bedouin flocks over one year. The highest net income was realized not by the largest flock (176 sheep), but by an average-sized flock (131 sheep). However, the lowest net income (negative balance) was realized by the owner of the smallest flock (81 sheep), although this owner was in the process of building up his flock. Marketing Bedouin must have access to grazing areas, supplementary feeds (straw, bran, hay and grains), seeds, agricultural contractors for cultivation, harvesting and transport in order to maintain their flocks and cultivate crops. They also must have outlets for their produce and access to retail markets for essential human foodstuffs. There are no official marketing channels, such as those available for other agricultural enterprises in Israel (for example, milk, poultry, fruit and citrus marketing boards), for Bedouin livestock raisers. Furthermore, since Bedouin cultivate land below the 220-millimetre isohyte, they are not eligible for drought compensation. Bedouin pastoralists, from the mid-1950s, changed relatively quickly from a mainly subsistence and self-contained economy into the money-dependent market economy that exists today. Nearly all transactions take place on a purely cash and carry basis, that is, buying and selling depends on ready availability of cash. The absence of any organized marketing venue and lack of any drought compensation effectively prevent the Bedouin from financial assistance, such as credits and guaranteed prices. They are rarely able to negotiate bank loans or overdraft accounts. In addition, as Bedouin buy their agricultural inputs individually, large processing mills and factories, as well as Israeli agricultural cooperatives (kibbutzim and moshavim) prefer to sell their products to large traders or through marketing boards. Apart from the above sources and their own cultivated areas, inputs such as straw, hay and grains are purchased from large-scale traders. Long-term relationships may be established with these traders as a means of financial assistance in the form of extended credit or loans. For instance, inputs may be purchased on the basis of agreements to sell lambs, kids and mature stock to the traders in lieu of cash payment. Bran, an important feed input, is purchased directly from grain mills usually found in the seven Bedouin municipal localities. Livestock are sold often from the households to other Bedouin, including members of the extended family, for traditional purposes such as religious holidays, weddings, births and circumcisions, and some to traders, often Palestinians. Prices of sheep increase considerably at holidays. Sheep are also sold at weekly morning markets (Kressel and Ben-David, 1995). A market is held at Beer Sheva on Thursday and smaller markets are held at the Bedouin localities of Tel Sheva on Friday and Rahat on Saturday. In the past,

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Pastoralism as entrepreneurship 521 most buyers were traders from the Palestinian administered towns of Dahariyya, Hebron and Gaza. However, for security reasons, very few if any traders from the administered territories currently attend these markets.

CONCLUSIONS In general, Bedouin claim that raising sheep is non-profitable and that they are losing money in this enterprise (Degen et al., 2000). Furthermore, grazing restrictions are imposed upon the Bedouin, and land conflicts are common. Why, then, do Bedouin persist in raising sheep for their livelihood today? Of prime importance is the maintenance of their traditional lifestyle (Kressel, 2003). Economic difficulties and high unemployment in the wage labour market may also provide part of the answer. Retention of a flock may be a rational choice as a supplement for those Bedouin who are financially stressed, providing families with milk and other dairy products. Maintaining some sheep acts as a hedge against the risk of unemployment and, if sheep-raising does become more profitable, it would be easy to start this enterprise (Dinero, 1996). Moreover, as noted by Ginguld et al. (1997), Bedouin have a decided advantage over other sectors in raising sheep, namely, cheap labour available in most households, cheap inputs in that marginal land is used and little investment in equipment. The future of most Bedouin would appear to be an integration into the Israel urban economy while attempting to maintain cultural traditions. Nonetheless, a relatively small but stable number of households will continue to practise agro-pastoralism as a means of livelihood.

REFERENCES Abu-Rabia, A. (1994), The Negev Bedouin and Livestock Rearing: Social, Economic and Political Aspects, Oxford: Berg. Abu-Saad, I. (1996), ‘Provision of educational services and access to higher education among the Negev Bedouin Arabs in Israel’, Journal of Education Policy, 11 (5), 527–41. Dana, L.P. (1995), ‘Entrepreneurship in a remote subArctic community: Nome, Alaska’, Entrepreneurship: Theory and Practice, 20 (1), 55–72; reprinted in N. Krueger (ed.) (2002), Entrepreneurship: Critical Perspectives on Business and Management, vol. 4, London: Routledge, pp. 255–75. Degen, A.A. (2003), ‘Roles of urbanized Negev Bedouin women within their households’, Nomadic Peoples, 7 (2), 108–16. Degen, A.A., R.W. Benjamin and J.C. Hoorweg (2000), ‘Bedouin households and sheep production in the Negev Desert, Israel’, Nomadic Peoples, 4 (1), 125–47. Dinero, S.C. (1996), ‘Resettlement and modernization in postnomadic Bedouin society: the case of Segev Shalom, Israel’, Journal of Planning Education and Research, 15 (2), 105–16. Ginguld, M. (1994), ‘Managing herds and households: management practices and livelihood strategies of sheepowning Bedouin households in the Negev Region of Israel’, MA thesis, the Institute of Social Studies, The Hague, The Netherlands. Ginguld, M., A. Perevolotsky and E.D. Ungar (1997), ‘Living on the margins: livelihood strategies of Bedouin herd-owners in the northern Negev, Israel’, Human Ecology, 25 (4), 567–89. Kressel, G.M. (2003), Let Shepherding Endure, New York: State University of New York Press. Kressel, G.M. and J. Ben-David (1995), ‘The Bedouin market – corner stone for the founding of Be’er Sheva: Bedouin traditions about the development of the Negev capital in the Ottoman period’, Nomadic Peoples, 36/37, 119–44. Marx, E. (1974), The Bedouin Society in the Negev, Tel Aviv: Reshavim (in Hebrew).

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Noy-Meir, I. (1975), ‘Primary and secondary production in sedentary and nomadic grazing systems in the semi-arid region: analysis and modeling’, research report, Ford Foundation. Department of Botany, Hebrew University, Jerusalem. Shmueli, A. (1980), ‘The Bedouin of the land of Israel: settlement and changes’, Urban Ecology, 4 (4), 253–86. Statistical Yearbook of the Negev Bedouin (1999), Negev Development Authority, Ben Gurion University of the Negev, Beer Sheva. Statistical Yearbook of the Negev Bedouin (2004), Negev Development Authority, Ben Gurion University of the Negev, Beer Sheva. Stavi, I., G. Kressel, Y. Gutterman and A.A. Degen (2006), ‘Flock use among Bedouin in “spontaneous” – settlements in the Negev Desert, southern Israel’, Nomadic Peoples, 10 (1), 53–69.

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60. Poverty and entrepreneurship in developed economies Michael H. Morris

Entrepreneurial activity is a means of breaking out of the vicious cycle of poverty. The poverty experience poses social and economic challenges that directly impact the choices people make, constraints they face and opportunities available to them. Yet, around the world, the poor are leveraging resources, starting ventures and building sustainable businesses (Banerjee and Duflo, 2007). In the process, many millions of people have been pulled out of poverty (Abraham, 2012). Critically, pursuit of entrepreneurship should not be seen as the exception – something that only very talented or lucky individuals are able use to uplift them from poverty. In spite of the substantial obstacles faced by the poor, pursuit of entrepreneurship should be the norm. Whether they are starting ventures that are part-time or full-time, formal or informal, for-profit or non-profit, entrepreneurship is accessible to all. It is a worthy path of self-empowerment, where the individual creates and captures value, addresses needs and can contribute to the fabric of a community. While the focus of much of the extant research is what is termed the base of the pyramid, our focus in this chapter is on the role entrepreneurship can play in developed economies, although many of the issues addressed here apply to poverty anywhere.

WHAT IS POVERTY? Poverty is not a characteristic of a person, but of their situation. It can be defined in absolute or relative terms. Absolute poverty measures poverty in relation to the amount of money necessary to meet basic needs, such as food, clothing and shelter. The individual or family struggles simply to survive and faces a severely limited set of choices. In the US, the poverty level is designated by the federal government based on the size of a household. So, for a family of four, the poverty level includes those earning less than about $25 000. This amount is only part of the picture, as the real costs and abilities to meet a family’s needs depend upon geographic location and a host of personal circumstances that define a family’s needs. While absolute poverty is concerned with meeting basic survival requirements, it does not consider a person’s quality of life or how they compare to the way most people live. Recognition of the importance of non-economic needs for a person’s well-being led to the concept of relative poverty. Here, a person is thought to be poor if they do not have the income to maintain the average standard of living in a society. Hence in Britain, a household that does not earn at least 60 percent of the median household income is deemed to be in poverty. As income levels increase in a country, the relative poverty level also increases, which means relative poverty will always be with us. 523

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Another perspective is provided by the Human Poverty Index (HPI), a multi-dimensional indicator created by the United Nations. The HPI considers not only the percentage of the population living below the poverty line (defined as 50 percent of median household income), but also how long people live (the probability at birth of not living past age 60) and knowledge (the percentage of adults lacking functional literacy skills). The data demonstrate significant variations om the HPI among developed countries, with nations such as Ireland, Italy, Spain, Great Britain, the US and Australia demonstrating markedly poorer scores. A distinction can also be drawn between generational and situational poverty. Where an individual is part of a family that has experienced ongoing poverty for two generations or more, it is termed generational poverty. Generational poverty is argued to have its own culture, hidden rules and belief systems (Payne et al., 2009). Situational poverty occurs when circumstances, such as divorce, health problems, job loss, bankruptcy, being a victim of serious crime or some other life crisis, leave a person without sufficient resources to cover necessities. What becomes evident from this discussion is that poverty is both simple and complex. It is simple in that it indicates a person or family does not have enough in the way of financial resources to meet basic needs. Poverty is also complex in that it involves direct and indirect interactions among an array of factors that are not just economic in nature.

UNDERSTANDING POVERTY AND ENTREPRENEURSHIP: THE LACK OF DATA Statistics and established findings on poverty and entrepreneurship in developed economies are very limited. The lack of data can be traced to a number of causes. First, poverty issues are usually not a priority of those responsible for collecting national, regional and local data on entrepreneurial activity. When registering a business, the founder does not generally indicate that they are poor. Second, disagreements continue to exist over how poverty should be defined, and the types of measures that should be employed when gathering data. Third, as regards data collection and reporting, finding poor people who have launched ventures and getting them to complete surveys or submit data can be problematic. Finally, research efforts are limited by poverty in developed countries, despite being widespread, often being hidden (see de Vos and Zaidi, 1997, for an illustration of these issues). The consequence is a picture that is both scant in its details, and filled with mixed, and sometimes conflicting, findings. Poverty itself is not a static phenomenon, and this further complicates our ability to understand its role in entrepreneurship. Although poverty rates are relatively stable (around 14 percent in the US), the total number of poor people has increased with population growth. Numbers of poor in single-parent households headed by women have been on the increase. Also on the rise are numbers of people in poverty who formerly were in the lower middle class. Historically concentrated in rural areas, poverty in the US evolved to be more prevalent in metropolitan-core areas, but there are now more poor people living in the suburbs (Brown and Hirschl, 1995). Data from 2014 revealed that American cities had about 13 million poor people, while the suburban poor totaled almost 17 million

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(Allard, 2017). It is likely that poor can increasingly be found virtually anywhere within developed countries and regions.

WHAT DO WE KNOW? PATTERNS IN LOW-INCOME ENTREPRENEURSHIP To what extent do the poor start ventures? The research to date has produced mixed results. Based on data from the Kauffman Foundation, Slivinski (2015) determined that 380 of every 100 000 low-income Americans are entrepreneurs, indicating an average entrepreneurship rate of 0.38 percent. When compared with a national rate of 0.30 percent (Fairlie, 2010), we find that a larger proportion of the low-income population are entrepreneurs than the proportion for the general population (Slivinski, 2015). Other research notes that minorities are more heavily represented among the poor, and that they have demonstrated higher start-up rates in recent decades than has society at large (Barr, 2008; Edelman et al., 2010). Further, data from the Panel Study of Entrepreneurial Dynamics suggests that, while the poor represent 14 percent of the population, about 17 percent of nascent entrepreneurs live in low-income households (Edmiston, 2008). These findings are countered by studies that consider only low-income neighborhoods or communities. The Center for an Urban Future (Laney, 2013) conducted research in the five boroughs of New York City, and found that the postal codes with the lowest rates of self-employment were those with the lowest median family incomes. Further, these neighborhoods have higher percentages of native-born Americans than the average for the city. Another perspective on low-income neighborhoods is provided by the US Small Business Administration. Entrepreneurial activity in these areas was assessed using data from the American Community Survey (focusing on labor market patterns) and County Business Patterns (focusing on business activity) (Kugler et al., 2017). The authors note that two out of every nine workers reside in low-income areas, when only two out of every 11 self-employed workers reside in these areas. Finally, research on Appalachia, one of the poorest regions in America, found lower firm birth rates when compared to the US as a whole (Acs and Kallas, 2008). Does entrepreneurship impact poverty rates? Here the evidence is clearer. Slivinski (2015) calculated the low-income entrepreneurship rate in each state by taking the number of low-income entrepreneurs divided by the number of total low-income respondents in the population. The results indicated that Colorado has the highest rate of low-income entrepreneurship (0.75 percent) and Mississippi has the lowest rate (0.10 percent). It is interesting to note that six of the top 15 states ranked by low-income entrepreneurship rate are home to Hispanic and Latino populations twice the size of the national average. Perhaps the most important finding, however, concerns the relationship between a state’s rate of entrepreneurship and the change in the state’s poverty rate (between 2001 and 2007). Those states with the highest rates of entrepreneurship demonstrated the largest reductions in poverty, while lower rates of entrepreneurship corresponded to increases in poverty (Slivinski, 2012, 2015). More specifically, for every one percentage-point increase in the rate of entrepreneurship, there is a 2 percent decline in the poverty rate. Separately, the Self-Employment Learning Project of the Aspen Institute followed over 405 individuals running microbusiness for five years (from 1991 to 1997), of which 133

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were poor at the time of the study (that is, households less than 150 percent of the poverty level) (Clark et al., 1999). They found that 72 percent of poor micro-entrepreneurs increased their household income over five years (the average increase was $8484), enough to move 53 percent of these entrepreneurs out of poverty. Owing to these household family gains, poor micro-entrepreneurs were able to diminish their dependence on public assistance programs by 61 percent on average. It is also possible to shed some light on what these entrepreneurs look like. Relying on the annual report on income and poverty from the US Census Bureau (for example, Semega et al., 2017) and the Kauffman Index of Entrepreneurial Activity (Fairlie et al., 2015), Slivinski (2015) created a demographic picture of low-income entrepreneurs. Although males (45 percent) represent a smaller portion of the low-income population than females (55 percent), Slivinski (2015) concludes that males constitute a higher proportion of low-income entrepreneurs (67 percent versus 33 percent). With regard to race, the largest group of low-income entrepreneurs appears to be White (59 percent), followed by Hispanic/Latinos (24 percent) and African American (10 percent). As Hispanics/ Latinos make up 17 percent of the population, they are disproportionately likely to start a business. Immigrants make up a large percentage of low-income entrepreneurs, and Hispanics generally comprise about 90 percent of immigrant entrepreneurs. Half of the low-income entrepreneur population falls within the age range of 30 to 49 years old, 22 percent are between 20 and 29 years old, 22 percent are between 50 and 59 years old and 6 percent are over 60. Low-income entrepreneurs generally achieve lower education levels than the general population, with 23 percent of the general population holding a bachelor’s degree, compared with 11 percent of low-income entrepreneurs. Kugler et al. (2017) found entrepreneurs in low-income areas to be younger, less educated and disproportionally female (in contrast to the Slivinski previously), Black and Hispanic. They were less likely to be married or to speak English. Their businesses had fewer employees. Entrepreneurs in low-income areas who had incorporated their businesses generated higher average incomes than those who did not. Most low-income entrepreneurial activity results in survival types of ventures. A study involving 1000 microbusiness owners (annual revenues between $30 000 and $2 million) in the US found that half of them could survive just one month or less (that is, 55 percent could cover just one month or less of business expenses using current savings), 30 percent had no savings and 15 percent would be unable to cover a $1000 emergency business expense (McKay, 2014). These figures support the argument that the low-income condition of the individual is frequently mimicked in the marginal-income type of business that they create. The majority of self-employed workers in low-income areas own businesses in five sectors: construction (15.2 percent), professional services (14 percent), other services (12 percent), trade (10.9 percent) and healthcare (8.9 percent). The least represented industries are food and accommodation services (2.9 percent), arts, entertainment and recreation (2.5 percent), education (1.5 percent), information (1.1 percent), mining and extraction (0.4 percent) and manufacturing (0 percent). The majority of these business are operated from home and are not incorporated (Kugler et al., 2017). While these patterns are largely from the US, entrepreneurship is increasingly recognized in Europe as a vehicle for poverty alleviation, as reflected in the Entrepreneurship 2020 Action Plan, Other developed countries, such as Australia and Canada, have also

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identified entrepreneurship as a solution to poverty (Blyth, 2015; Kendall, 2001). Despite this recognition, even less data is available on poverty and its relationship to entrepreneurial activity outside the US. The limited research suggests extensive poverty among entrepreneurs in Europe. Studies of the 28 European Union (EU) countries demonstrate that self-employed individuals are more at risk of in-work poverty than regularly employed individuals (Crettaz, 2011; Herman, 2014), especially those who do not have employees (Spasova et al., 2017). This is in line with previous research that found high in-work poverty rates among the self-employed (Halleröd et al., 2015). The likelihood of the self-employed being in poverty rose in most European countries between 2007 and 2014 (Eurofund, 2017). A different perspective can be found in the work of Amorós and Cristi (2011). Building on a body of research demonstrating that rates of start-up are higher in less developed countries, they explore how start-up activity affects poverty in both developed and developing economies. Using data from 29 developed and 37 developing countries, their findings indicate higher levels of entrepreneurship are associated with greater reductions in poverty both in developed and developing countries – with a higher relative impact in developing countries. Yet another perspective has examined informal sector entrepreneurship in a developed economy. The poor frequently launch unregistered and unlicensed businesses, as well as ventures engaged in illegal or illicit activities. Williams (2007) attempts to measure informal sector activity using a stratified sample of households that are representative of localities across England. He finds that 5.3 percent of adults in the sample were early-stage entrepreneurs engaged in informal activities, while 4.5 percent ran established informal businesses. He refers to a hidden enterprise culture that is an asset to be harnessed. This conclusion is reinforced by the work of Cristi et al. (2011), who provide empirical evidence regarding the positive impact of informal sector entrepreneurship on poverty reduction and economic development.

CONDITIONS OF POVERTY: IMPLICATIONS FOR ENTREPRENEURSHIP The most salient aspect of the poverty experience is a severe lack of resources, so that priorities must be set and choices made between addressing one necessity (the utility bill in the winter season) and taking care of others (feeding the family, paying for transportation or seeing the doctor). Ongoing pressing financial needs create a very short-term orientation (Wilson, 1996). These undermine the ability to learn how to save, while late payments and defaults compromise the building of a good credit history and strong credit score. Time is another scarce resource. When work can be found, it is typically labor intensive and often part-time employment with no benefits. The individual may be working two jobs, taking long commutes, and rushing home to take care of children and other family members. The result is not just a lack of time to plan or consider new possibilities, but constant fatigue and even physical exhaustion (Tirado, 2015). Schools are frequently substandard and lack critical skills training, and few other mechanisms exist for developing skills (for example, local jobs training programs or enlisting in the military). High school drop-out rates are high (about 16 percent higher

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than the average) among the poor. Hernandez (2011) found substandard reading and writing skills combined with conditions of poverty contribute to these drop-out rates. Literacy is a multifaceted problem that encompasses not only difficulties in reading, comprehension and communication, but also math literacy, financial literacy and technological literacy. Inadequate housing conditions and a poor diet, coupled with unaffordable medical care, can result in poor health and chronic medical conditions for potential entrepreneurs and their family members (for example, Morland et al., 2002). Unable to afford the expenses that go with owning a car, public transportation often must be relied upon. Crime rates are typically high, as are insurance rates. The presence of gangs can contribute to crime while also imposing strong social pressures on young people. Taken together, these factors can discourage community engagement. People in poor neighborhoods tend to be segregated from much of the rest of society (Wilson, 2012). This segregation, combined with lack of resources, substandard education, literacy challenges, lack of transportation and many other conditions described here, places limits on the nature and reach of their social networks. Further, when raised in lowincome communities, the individual learns rules, norms and values that enable him or her to survive but which differ from those of the middle or wealthy classes. Payne et al. (2009) discuss rules related to everything from money and possessions to language, time, destiny and worldviews. In addition, a poor person is less likely to have entrepreneurial role models and mentors, or exposure to operations of small enterprises. In noting the disproportionate number of African Americans in poverty, Fairlie and Robb (2010) provide evidence that Black business owners are less likely to have a self-employed family member, and associate this with poor venture performance. Some of the more important implications of these poverty conditions for starting a venture are summarized in Table 60.1. We can first trace a lower tendency to pursue venture creation to many of the conditions we have described, but especially to the severe resource constraints and perceived inability to obtain resources. Other key contributors include a lack of time and energy, lack of transportation, and the presence of gangs and negative social influences. Just as important, though, is recognizing entrepreneurship as a possibility, and encouragement from others to become an entrepreneur. Here, key drivers might include not having entrepreneurial role models, mentors or entrepreneurs in the family, and a general state of low self-efficacy. What about the types of ventures that get started? Beyond the dearth of resources, the businesses of the poor are strongly impacted when entrepreneurs have weaker educational backgrounds, literacy problems and lack relevant skills. The venture opportunities receiving attention are restricted by segregation and limited social networks, few entrepreneurial role models and limited opportunity horizons. Such factors can lead the poor to create survival or marginal lifestyles ventures. All too often, these entrepreneurs find themselves selling a commodity-type of product or service, where there is little perceived difference among providers. They must operate in highly competitive markets, sell to customers with low buying power and compete on the basis of price – conditions that produce small profit margins. Beyond this, entrepreneurship can be incredibly time-consuming, particularly in the early days. Lack of time and money can force the poor to hold on to part-time or full-time jobs and make a slower transition to becoming a full-time business owner, again limiting

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Poverty conditions and their implications for venture creation

Poverty condition

Implications for entrepreneurship

Lack of financial resources and an inability to save

No money to start a venture; entrepreneur limited to more labor-intensive ventures with limited growth prospects; reduced capacity to expand or grow; customers often also lack buying power Narrow skills set can limit venture types pursued and constrain the opportunity horizon

Lower-quality schooling, limited education, lack of skills training Poor literacy (including reading and writing but also financial and technical literacy) Preoccupation with immediate needs and crises Lack of time from working multiple jobs, childcare, and so on Physical exhaustion from working multiple jobs, childcare, and so on Health problems from poor diet, poor environments, unaffordable healthcare Lack of transportation Prevalence of crime Social pressures from gangs and other negative influences Segregation and limited social network Lack of understanding of hidden rules of other income classes Lack of entrepreneurial role models Lack of entrepreneurial mentors, support network Lack of exposure to operations of small businesses

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Difficulties in pricing, managing cash flow, understanding contracts, marketing, preparing tenders, bookkeeping, complying with regulations, filing taxes, using technology, using social media and online tools, and so on Lack of planning for the future, reduced cognitive resources to focus on the business, divided attention with individual and family problems Need to start the business while keeping other part-time jobs, and slowly making transition to full-time business owner – may compromise on some key tasks requiring attention Reduced cognitive bandwidth; lack of energy to dedicate to the business Ill-health limits time and depth or quality of attention the entrepreneur can give the business Reduced mobility to meet potential and current clients, suppliers and others, attend networking events and get immersed in local ecosystem Higher vulnerability to robberies, theft, defaulting clients; subject to distrust by suppliers, bankers and partners; increased costs of doing business Tendency to engage in the informal economy, pursue illicit strategies Limited access to key people, critical resources, diversified markets; limited opportunity horizon Limited access and ability to successfully interact with customers, suppliers, investors, regulators, distributors, gatekeepers and others who come from different economic classes and backgrounds Lack of inspiration to guide an entrepreneur’s efforts; lack of appreciation for values and behaviors required to succeed in small business; possible lowering of self-efficacy; lower social capital Limited guidance and direction on business decisions; no reinforcement and encouragement Reduced knowledge of pricing, marketing, bookkeeping, accounting, operations, inventory, and so on; unrealistically low expectations regarding time and cost requirements

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the types of venture that emerge. Hence, they often create ventures that reflect their personal circumstances and which can inhibit their abilities to overcome these circumstances. Finally, let us consider the issue of performance. Many of these businesses perform marginally or lose money (Fairlie and Robb, 2010), which is owing to more than just the types of ventures being launched. If we consider the requirements of managing daily operations, procurement, pricing, marketing, bookkeeping, cash flow, administration, regulatory compliance and related responsibilities, other factors contribute to anemic performance. Chief among these are a short-term orientation and weaker planning skills, literacy problems (including financial literacy) and a substandard education. Other contributors include a limited understanding of the hidden rules of others (for example, suppliers, financiers, distributors and customers) who come from middle- and upper-income classes, little previous exposure to the internal operations of a small business, and absence of mentors and an entrepreneurial support network. Also important are external factors, such as high crime rates and the limited buying power (and high credit risk) of the types of customers targeted by many of these ventures. Growth of the business then becomes an even more problematic undertaking (Gartner and Bhat, 2000). Lack of cash flow and the inability to save make it impossible to invest in growth. While there may also be some fear of growth, the vehicles for growth (for example, adding employees, buying additional machinery, expanding the product/service line, integrating technology, and otherwise making small and time-lagged investments) are beyond the reach of the operating entrepreneur.

MOTIVES OF LOW-INCOME ENTREPRENEURS Entrepreneurial action requires motivation. Living in poverty can produce apathy, inaction, and a negative impact on emotional and mental well-being. The psychological burden and cognitive load on the poor can be significant enough that they suffer from reduced mental bandwidth with which to perform everyday tasks and engage in activities that might help them escape from poverty (Mani et al., 2013). The question becomes one of understanding the motives that offset these forces and enable the individual to pursue venture creation. Key motives include: (1) addressing basic economic needs (necessity-driven entrepreneurship); (2) realizing a more productive use of their resources (for example, Brice and Nelson, 2008; Edmiston, 2008); (3) the need for achievement, where they are motivated by an idealized goal to be achieved, or a unique image of a better future (McClelland, 1965); (4) desire for independence, or to take control over the important decisions in their life, fighting against the conditions in which he or she is immersed. Entrepreneurship can play different roles in the lives of the poor, and these roles can reflect different motives. Examples include part-time ventures to supplement family income from regular jobs, ventures that have a social purpose or that help the community, ventures that allow for self-expression (for example, through cooking, sewing, design, music, fashion or making something), ventures that can build wealth and ventures that simply allow the freedom of not having to work for anyone else. The implication is that motives vary for the poor just as they do for everyone else, and those in poverty demonstrate the same entrepreneurial motivations as do others. Finally, motives such as achievement, independence and a more productive return

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go hand in hand with the concepts of self-efficacy and locus of control. Self-efficacy reflects the extent to which someone perceives they have the ability to execute courses of action necessary to perform a given task or behavior (for example, start a business) (Bandura, 1997). Locus of control concerns the extent to which someone perceives their own actions determine outcomes (internal locus) or external forces dictate what happens in their life (external locus). Higher self-efficacy tends to be associated with an internal locus of control (Judge et al., 2002), and entrepreneurs tend to demonstrate higher scores on both. Research findings suggest poverty conditions can result in lower self-efficacy (Quane and Rankin, 1998; Wilson, 1996). Boardman and Robert (2000) report that both individual and neighborhood socioeconomic status contribute to low self-efficacy, and that living in a better neighborhood can lead to higher self-efficacy for a person with low socioeconomic status. Chen et al. (1998) note, in considering disadvantaged populations, that there are those who shun entrepreneurial activities not because they lack necessary skills but because they believe they do. Similarly, lower socioeconomic status has been associated with an external locus of control (Rotter, 1966). Accordingly, the motivation to start a business is undermined when those in poverty evidence low self-efficacy and an external locus of control. Chen et al. (1998) conclude both can be enhanced by exposure to entrepreneurial role models, small business operations, and a community infrastructure that supports and reinforces entrepreneurial actions.

CONCLUSIONS:ENTREPRENEURSHIPASANATURALPATHFORTHE POOR It may seem, based on this discussion, that the outlook for entrepreneurship among the poor is bleak. This conclusion is reflected in an aggregate assessment of entrepreneurship within low-income communities conducted by Acs and Kallas (2008). They conclude that the supply-side in these communities is characterized by low-quality human capital, limited financial capital, poor infrastructure and limited leadership; the demand side includes weak export demand, weak backward linkages and few tradable goods. Yet, while the conditions may be extremely adverse, the potential for entrepreneurship is promising. The numbers suggest that, on balance, considerable entrepreneurial activity occurs among the poor. The start-up numbers are especially impressive when compared with entrepreneurs from the middle and upper economic classes – people operating in far more favorable circumstances. What is striking is not that their slightly lower percentage of start-ups (at least in some studies, but higher in others) compared with the rates for these other groups, but that the gap is not a lot larger. More remarkable is that these numbers do not consider the large numbers of start-ups not captured in official databases or the available research. Although some of these missed ventures are formally registered entities, many are unregistered and operate in the informal economy providing legitimate goods and services. Still others engage in activities that are illicit or criminal. Regardless of the nature of their businesses, there is a sizable hidden economy in most poor communities. Banerjee and Duflo (2011), in an 18-country study, report that 44 percent of the extremely poor in urban areas operate a business. Hence, in spite of the challenges, large numbers of those in poverty do start ventures, and many create sustainable businesses that enable them to climb out of poverty and

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generate a satisfactory living (Shirk and Wadia, 2004). Some build highly successful enterprises that generate tremendous wealth. Entrepreneurship is a natural path for the poor, certainly more natural than working for someone else at low wages, with few (or no) benefits, limited opportunity for advancement or personal development, and the potential to be fired at will. To create something of value, benefit directly from the fruits of their labors, take control of their future, hire others who are poor and make a contribution to their community is a more innate tendency. The indomitable spirit of the individual cannot be underestimated. Neither should we undervalue the significant inventory of underutilized resources to be found in poor communities (Edmiston, 2008). In addition, aspects of surviving in poverty can help prepare one for entrepreneurship. Living in vulnerable conditions where they must continually adapt, find creative ways to survive, make the most of limited resources and rely on nonconventional approaches to addressing basic needs can serve as a vehicle for nurturing the development of entrepreneurial competencies. So, too, can dissatisfaction with the status quo and a propensity for breaking rules. Daymond John, founder of the apparel company FUBU and star of the popular television program Shark Tank, reinforces this point in The Power of Broke (John and Paisner, 2016). Building on his own poverty experience, he provides a series of case examples of people who took advantage of having nothing, were committed and hungry for success, stayed laser-focused, and had to scrape and scramble. These individuals have a greater need to succeed, and tend to be more fully invested emotionally and personally. He concludes: Broke, on its own, is just broke. If you let broke beat you down, if you let it break you, you’ll never find a way to thrive or even survive. You’ll never lift yourself up . . . But if you look broke in the face, if you define it, own it, make it a part of who you are and how you go about your business, well, then you’ve got something. (John and Paisner, 2016, p. 11)

REFERENCES Abraham, R. (2012), ‘Doing business at the base of the pyramid: the reality of emerging markets’, Field Actions Science Reports. The Journal of Field Actions, (special issue 4). Acs, Z.J. and K. Kallas (2008), ‘State of literature on small- to medium-sized enterprises and entrepreneurship in low-income communities’, in G. Yago, J.R. Barth and B. Zeidman (eds), Entrepreneurship in Emerging Domestic Markets, Boston, MA: Springer, pp. 21–45. Allard, S.W. (2017), Places in Need: The Changing Geography, New York: Russell Sage Foundation. Amorós, J.E. and O. Cristi (2011), ‘Poverty, human development and entrepreneurship’, in M. Minniti (ed.), The Dynamics of Entrepreneurship: Theory and Evidence, Oxford: Oxford University Press, pp. 209–30. Bandura, A. (1997), Self-Efficacy: The Exercise of Control, New York: Freeman. Banerjee, A.V. and E. Duflo (2007), ‘The economic lives of the poor’, Journal of Economic Perspectives, 21 (1), 141–67, doi:10.1257/jep.21.1.141. Banerjee A.V. and E. Duflo (2011), Poor Economics: A Radical Rethinking of the Way to Fight Global Poverty, New York: Public Affairs Books. Barr, M. (2008), ‘Policies to expand minority entrepreneurship’, in G. Yago, J.R. Barth and B. Zeidman (eds), Entrepreneurship in Emerging Domestic Markets, New York: Springer, pp. 141–50. Blyth, A. (2015), ‘Entrepreneurship as a solution to poverty’, Sydney Morning Herald, 25 September. Boardman, J.D. and S.A. Robert (2000), ‘Neighborhood socioeconomic status and perceptions of self-efficacy’, Sociological Perspectives, 43 (1), 117–36. Brice, J. and M. Nelson (2008), ‘The impact of occupational preferences on the intent to pursue an entrepreneurial career’, Academy of Entrepreneurship Journal, 14 (1), 13–36. Brown, D.L. and T.A. Hirschl (1995), ‘Household poverty in rural and metropolitan-core areas of the United States’, Rural Sociology, 60 (1), 44–66.

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Chen, C.C., P.G. Greene and A. Crick (1998), ‘Does entrepreneurial self-efficacy distinguish entrepreneurs from managers?’, Journal of Business Venturing, 13 (4), 295–316. Clark, P., A. Blair, L. Zandiniapour, E. Soto and K. Doyle (1999), ‘Microenterprise and the poor: five year survey of entrepreneurs’, Washington, DC: Aspen Institute, accessed 10 October 2020 at https://www.aspen institute.org/publications/microenterprise-poor-findings-self-employment-learning-project-five-year-surveymicroentrepreneurs/. Crettaz, E. (2011), Fighting Working Poverty in Postindustrial Economies: Causes, Trade-Offs and Policy Solutions, Cheltenham, UK and Northampton, MA, USA: Edward Elgar. Cristi, O., J.E. Amoros and J.P. Couyoumdjian (2012), ‘Does it make sense to go against shadow entrepreneurs?’, Proceedings of the 7th European Conference on Innovation and Entrepreneurship, Reading: Academic Publishing International. De Vos, K. and M.A. Zaidi (1997), ‘Equivalence scale sensitivity of poverty statistics for the member states of the European Union’, Review of Income and Wealth, 43 (3), 319–33. Edelman, L., C. Brush, T. Manolova and P. Greene (2010), ‘Start-up motivations and growth intentions of minority entrepreneurs’, Journal of Small Business Management, 48 (2), 174–96. Edmiston, K.D. (2008), ‘Entrepreneurship in low and moderate income communities’, in G. Yago, J.R. Barth and B. Zeidman (eds), Entrepreneurship in Emerging Domestic Markets, Boston, MA: Springer, pp. 1–8. Eurofund (2017), In-Work Poverty in the EU, Luxembourg: Publications Office of the European Union. Fairlie, R.W. (2010), ‘Kauffman Index of Entrepreneurial Activity (1996–2009)’, Ewing Marion Kauffman Foundation, accessed 7 June 2018 at http://www.kauffman.org/kauffman-index/about/~/media/1333e2edf059 43a8b051facad500f2c2.ashx. Fairlie, R.W. and A.M. Robb (2010), Race and Entrepreneurial Success: Black-, Asian-, and White-Owned Businesses in the United States, MIT Press. Fairlie, R.W., A. Morelix, E.J. Reedy and J. Russel (2015), ‘2015 Kauffman Index of Startup Activity, National Trends’, accessed 10 September 2020 at http://www.kauffman.org/kauffman-index/reporting/startup-activity. Gartner, W. and S. Bhat (2000), ‘Environmental and ownership characteristics of small businesses: Impact on development’, Journal of Small Business Management, 38 (3), 14–27. Halleröd, B., H. Ekbrand and M. Bengtsson (2015), ‘In-work poverty and labour market trajectories: poverty risks among the working population in 22 European countries’, Journal of European Social Policy, 25 (5), 473–88. Herman, E. (2014), ‘Working poverty in the European Union and its main determinants: an empirical analysis’, Engineering Economics, 25 (4), 427–36. Hernandez, D.J. (2011), ‘Double jeopardy: how third-grade reading skills and poverty influence high school graduation’, research report, April, Annie E. Casey Foundation, Baltimore, MD. John, D. and D. Paisner (2016), The Power of Broke. New York: Currency. Judge, T.A., A. Erez, J.E. Bono and C.J. Thoresen (2002), ‘Are measures of self-esteem, neuroticism, locus of control, and generalized self-efficacy indicators of a common core construct?’, Journal of Personality and Social Psychology, 83 (3), 693–710. Kendall, J. (2001), ‘Circles of disadvantage: aboriginal poverty and underdevelopment in Canada’, American Review of Canadian Studies, 31 (1–2), 43–59. Kugler, M., M. Michaelides, N. Nanda and C. Agdayani (2017), Entrepreneurship in Low-Income Areas, Washington, DC: US Small Business Administration Office of Advocacy, accessed 7 June 2020 at https:// www.sba.gov/advocacy/entrepreneurship-low-income-areas. Laney, K. (2013), Launching Low-Income Entrepreneurs, New York: Center for Urban Future. Mani, A., S. Mullainathan, E. Shafir and J. Zhao (2013), ‘Poverty impedes cognitive function’, Science, 341 (6149), 976–80. McClelland, D.C. (1965), ‘Need achievement and entrepreneurship: a longitudinal study’, Journal of Personality and Social Psychology, 1 (4), 389–92. McKay, K.L. (2014), ‘Achieving financial security through entrepreneurship: policies to support financially vulnerable microbusiness owners’, Federal Policy Proposal, Corporation for Enterprise Development (CFED), August, accessed 7 June 2020 at https://prosperitynow.org/federal-policy-proposals. Morland, K., S. Wing, A. Diez Roux and C. Poole (2002), ‘Neighborhood characteristics associated with the location of food stores and food service places’, American Journal of Preventive Medicine, 22 (1), 23–9. Payne, R.K., P. DeVol and T.D. Smith (2009), ‘Bridges out of poverty’, Strategies for Professionals and Communities, New York: Aha. Quane, J.M. and B.H. Rankin (1998), ‘Neighborhood poverty, family characteristics, and commitment to mainstream goals: the case of African American adolescents in the inner city’, Journal of Family Issues, 19 (6), 769–94. Rotter, J.B. (1966), ‘Generalized expectancies for internal versus external control of reinforcement’, Psychological Monographs: General and Applied, 80 (1), 1–28. Semega, J.J., K.R. Fontenot and M.A. Kollar (2017), ‘Income and poverty in the United States: 2016’, September, US Census Bureau, Suitland, MD and Washington, DC.

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Shirk, M. and A.S. Wadia (2004), Kitchen Table Entrepreneurs: How Eleven Women Escaped Poverty to Become Their Own Bosses, Boulder, CO: Westview Press. Slivinski, S. (2012), ‘Increasing entrepreneurship is a key to lowering poverty rates’, Policy Report No. 254, 13 November, Goldwater Institute, Phoenix, AZ. Slivinski, S. (2015), ‘Bootstraps tangles in red tape: how state occupational licensing hinders low-income entrepreneurship’, Policy Report No 272, 23 February, Goldwater Institute, Phoenix, AZ. Spasova, S., D. Bouget, D. Ghailani and B. Vanhercke (2017), Access to Social Protection for People Working on Non-Standard Contracts and as Self-Employed in Europe: A Study of National Policies, Brussels: European Social Policy Network, European Commission. Tirado, L. (2015), Hand to Mouth: Living in Bootstrap America, New York: Penguin. Williams, C.C. (2007), ‘The nature of entrepreneurship in the informal sector: evidence from England’, Journal of Developmental Entrepreneurship, 12 (2), 239–54. Wilson, W.J. (1996), When Work Disappears, New York: Vintage Books. Wilson, W.J. (2012), The Truly Disadvantaged: The Inner City, the Underclass, and Public Policy, Chicago, IL: University of Chicago Press.

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61. Religion as an explanatory variable for entrepreneurship* Léo-Paul Dana1

People with unlike cultural beliefs and religious values have looked at entrepreneurship  with varying degrees of legitimacy. The Greek philosopher Aristotle (384–322 bc), a student of Plato and teacher of Alexander the Great, viewed entrepreneurship as unnatural and therefore illegitimate (Aristotle, 1924). Becker (1956) explained that some cultures consider business an unholy occupation. Woodrum (1985) found participation in religious activities to be a predictor of entrepreneurial success among Americans of Japanese origin. Dana (1995a) and Lumpkin and Dess (1996) advocated that a small firm’s orientation is grounded in the values of its entrepreneur. Values and culture shape the environment for entrepreneurship as well as the entrepreneurial event. Aldrich (1979) noted that the environment could provide or withhold resources. From an anthropological perspective, Stewart (1991) suggested that the legitimization of enterprise was a function of culture. From a sociological perspective, Reynolds (1991) confirmed the importance of non-economic factors such as the legitimacy of entrepreneurship, on entrepreneurial activity. Specht (1993) emphasized the importance of cultural acceptance. Cultural acceptance of entrepreneurship varies among people with different cultural values. Likewise, people from different religious backgrounds have unlike propensities to become entrepreneurs. Farmer and Richman wrote: There is a close correlation of countries in terms of how deeply the Calvinist spirit has penetrated their economic and social behavior with real per capita income and level of economic development. Thus, in 1958, all fifteen countries of the world with per capita incomes of over $700 per year were those which had followed the Calvinist ethic extensively; and, with the possible exceptions of France and Belgium, all were quite extensively Protestant in religion. No country where the Calvinist ethic had deeply penetrated was not included in this list of most wealthy countries, while none of the extensively non-Calvinist nations had yet achieved such economic success. (1965: 157)

More recently, Enz et al. (1990) identified different value orientations among various communities and concluded that value orientation may be an important component in entrepreneurs. Some cultures simply value entrepreneurial activity more than others and empirical evidence suggests that some religions are less conducive to entrepreneurship than others. The Government of Canada found that per 1000 Filipino workers in Canada, 18 were self-employed; the same reported that per 1000 Greek workers in Canada, 124 were self-employed (Dana, 1991). How can such differences be explained? Could it be that the  Greek Orthodox religion inculcated certain values among members of one group? Indeed, the world view of Greek Orthodoxy fosters a work ethic and leadership style that may facilitate successful entrepreneurship. 535

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Galbraith et al. (1997) examined differences and similarities in attitudes and cultural norms between two groups in the USA: Catholic Hispanic entrepreneurs and nonHispanic entrepreneurs; this study hypothesized that the first group consisted of hybrid persona, combining aspects of the traditional notion of the entrepreneur while retaining important cultural characteristics of the Hispanic community. The authors found that successful Hispanic entrepreneurs were also leaders in their Hispanic community; business leaders were often leaders in the religious realm. Studies that investigate entrepreneurship as if it were an isolated phenomenon – derived from the self and based on psychological traits of the entrepreneur – risk ignoring important causal variables arising from the environment, including the religious milieu. As suggested by Drakopoulou-Dodd and Anderson (2007) the dynamics of embeddedness and social conditioning should be attributed equal weight to the entrepreneur’s individual agency. Religions are depositories of wisdom and of values; furthermore, religious beliefs are intertwined with cultural values. Are prevailing religious beliefs explanatory variables for a propensity for, or indifference about, entrepreneurship? Empirical findings suggest a causal relationship. Drakopoulou-Dodd and Gotsis (2007) provided a literature review addressing implications of religious convictions in business settings. Religious beliefs – and cultural values deriving from these – influence the social desirability of entrepreneurship and its nature as well. Drakopoulou-Dodd and Gotsis (2007) categorized individual outcomes of religious belief. A religion does not necessarily directly promote or prohibit entrepreneurship. Rather,  religions teach, promote and propagate cultural value systems within a given society. Value orientations in turn affect propensity toward entrepreneurial activity. For instance, Methodism accepts disparity between the rich and poor. The wealthy may be charitable, and it can be argued that acquisition of wealth is good in that it allows one to be philanthropic. Asa Chandler, the pharmacist who incorporated The Coca-Cola Company, was a devout Methodist and Sunday school teacher who believed that making money was a form of worship. During the following century, Prime Minister Margaret Thatcher (raised with strict Methodist values2) stated ‘I believe in “Judaeo-Christian” values: indeed my whole political philosophy is based on them’ (Thatcher, 1993: 509). She emphasized that her political party originated as a Christian party, concerned with the Church and the State in that order, and she stated that religion was the source of a nation’s values. Candland (2000) viewed faith as social capital and Brammer et al. (2007) found that religious individuals tend to hold broader conceptions concerning the social responsibility of businesses than non-religious individuals. Anderson et al. (2000) suggested that a reduction in church attendances cannot be taken as a direct consequence of a reduction in religiosity. Regardless of whether a person is religious, it can be argued that one is influenced by cultural values propagated by religions. As suggested by Anderson et al. (2000), it seems reasonable, to assume that religion has an impact upon the legitimization of enterprise, despite secularization. In this chapter, the author combines three decades of personal studies and a review of the literature to discuss ways in which religion shapes entrepreneurship. Blending a

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sociological understanding of values, with an anthropological interpretation of culture, it will be suggested that religion is a vehicle to perpetuate both values and culture, thus shaping various forms of entrepreneurship. It will be shown that: (1) various religions value entrepreneurship to different degrees; (2) different religions yield unlike patterns of entrepreneurship, possibly due to value differences (such as asceticism, frugality and thrift) but also due to specialization (sometimes resulting in a monopoly) and networks; (3) specialization along religious lines shapes entrepreneurship; (4) credit networks, employment networks, information networks and supply networks of co-religionists affect entrepreneurship; (5) religions provide opportunities for entrepreneurship; (6) religious beliefs may hamper entrepreneurial spirit; and (7) religions have built-in mechanisms for the perpetuation of values.

VALUES AND CULTURE Feuerbach (1855) argued that religion included values produced by people in the course of their cultural development. Durkheim (1912) and Thomas and Znaniecki (1918) were among the pioneers who studied the concept of values. David Emile Durkheim, son of Rabbi Moise and Melanie Durkheim of Epinal, is well known for his work The Elementary Forms of Religious Life (Durkheim, 1912). In this, he identified a pattern of organization consistent within all human societies; for this pattern, he used the term ‘structural functionalism’. In essence, his theory described society as being built upon order that incorporates interrelationship and balance among various parts of its constitution; he argued that construction and identity of any given society is based on shared norms and values as the basis of existence. One of two major macro-sociological perspectives, functionalism conceives society as a system of interrelated parts in which no part can be understood in isolation from the whole. A change in any part is seen as leading to a degree of imbalance that changes other parts of the system and at times the system as a whole. Functionalism places a great emphasis on values in terms of the functions they perform in a sociocultural system. As such, it contrasts directly with the other major macro-sociological perspective, conflict theory. Sociology as well as anthropology provided early definitions. From a sociological perspective, Thomas and Znaniecki interpreted a value as having an acquired social meaning and, consequently, ‘is or may be an object of activity’ (1918: 21). Clyde Kluckhohn provided an anthropological definition of culture as the total life way of a society; he emphasized each culture is formed by values that the people from that culture consider as being normal. He defined a value as, ‘A conception, explicit or implicit, distinctive of an individual or characteristic of a group, of the desirable which influences the selection from available modes, means and ends of action’ (1951: 395). Kluckhohn’s theoretical development was published in two famous books, Mirror for Man (Kluckhohn, 1949) and  Culture: A Critical Review of Concepts and Definitions (Kroeber and Kluckhohn, 1952). Trying to put Clyde’s theory into practice, Clyde’s wife, Florence, studied indigenous Americans and co-authored with Fred L. Strodtbeck (Kluckhohn and Strodtbeck, 1961). These authors defined value orientations as:

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complex but definitely patterned (rank-ordered) principles, resulting from the transactional interplay of three analytically distinguishable elements of the evaluative process – the cognitive, the affective, and the directive elements – which give order and direction to the ever-flowing stream of human acts and thoughts as these relate to the solution of ‘common human’ problems. (Kluckhohn and Strodtbeck, 1961: 4)

They suggested that cultures can be classified according to five value orientations: time; humanity and the natural environment; relating to other people; motive for behaving; and the nature of human nature. During the same decade, Farmer and Richman suggested that religious beliefs ‘usually have a direct and very significant bearing on the dominant view toward work and achievement’ (1965: 157). Shortly thereafter, Rokeach (1968) defined a value as ‘a type of belief, centrally located within one’s total belief system, about how one ought or ought not to behave, or about some end-state of existence worth or not worth attaining’ (1968: 124). Rokeach (1968) considered two sets of values: terminal values and instrumental values. Terminal values are cultural goals to be attained and developed, while instrumental values are the means of achieving the desired goals. Rokeach (1973) provided a new rendition of values and value systems: ‘A value is an enduring belief that a specific mode of conduct or endstate of existence is personally or socially preferable to an opposite or converse mode of conduct or end-state of existence. A value system is an enduring organization of beliefs concerning preferable modes of conduct or end-states of existence along a continuum of relative importance’ (1973: 5; original emphasis). Hiebert defined culture as ‘the integrated system of learned behaviour patterns, ideas and products characteristic of a society’ (1976: 25). Hofstede defined a value as: ‘a broad tendency to prefer certain states of affairs over others’ (2001: 5). Relying heavily on culture and values as key constructs, he stated, ‘Values are held by individuals as well as by collectivities; culture presupposes a collectivity’ (Hofstede, 2001: 5). Schwartz (1992) focused on a variety of values including: achievement, benevolence, conformity, hedonism, power security, self-direction and tradition. Some of these values may be influential in determining the social desirability of entrepreneurship and the nature of entrepreneurial activity.

FINDINGS 1

Various Religions Value Entrepreneurship to Different Degrees

Over the years, numerous empirical studies have reported on the influence of religion on the economy or, more specifically, that some religions are more represented than others in entrepreneurship and/or the small business sector. Classical social theorist Max Weber compared taxation figures in Baden, and reported an average of 589 marks per Catholic, 954 marks per Protestant and 4000 marks per Jew (Weber, 1904); he argued that while Protestantism stressed the development of economic security, Catholics believed that it was easier for a camel to fit through the eye of a needle than for a wealthy man to go to  heaven.3 Weber also studied how religion affected the emergence of entrepreneurship in India; he explained that the Jains, an ascetic religious sect, became a trading sect for purely ritualistic reasons, as only in trading could one practise ahimsa, the absolute

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prohibition of the killing of live things. In contrast, Theravadism, as practised in Laos, discourages entrepreneurial behaviour and noted that the result is a relative absence of Lao men in entrepreneurial activity (Dana, 1995b). Shapero wrote, ‘Some cultures that value entrepreneurship are the . . . Jains . . . Jews . . . Mennonites and Mormons’ (1984: 26). Writing about Estonia after its independence from  the Russian Empire, Liuhto noted, ‘Another interesting detail from the statistics is  the considerable share of the companies classified as Jewish’ (1996: 319). Analysing the  Middle East, after the Second World War, Sayigh (1952) found Christians and Jews to be the prominent entrepreneurs of Lebanon. Gadgil (1959) noted that Muslims, Christians and Jews were the chief traders of Kerala, in South India. Lasry (1982) noted the percentage of entrepreneurs among Sephardic Jewish immigrants in Montreal as being significantly higher (38 per cent) than among immigrants to Canada, in general. Jenkins (1984) showed that Protestants in Northern Ireland manipulated ethnicity in the realm of economic transactions, and thus dominated the economy in Northern Ireland. In Germany, Klandt found that a Protestant upbringing ‘is more likely to lead to independent business activity than a Catholic upbringing’ (1987: 31). In Britain, Quakers have been (Corley, 1998) and continue to be (Ackrill and Hannah, 2001) overrepresented in the realm of enterprise. In the USA, Kraybill and Bowman (2001) and Kraybill and Nolt (1995) identified a causal relationship between religion and self-employment among the Amish. In a study of attitudes, Guiso et al. noted that ‘with the exception of Buddhists, religious people of all denominations are more inclined to believe that poor people are lazy and lack will power’ (2003: 228). Zingales suggested, ‘Buddhism and Christianity seem most conducive to capitalism, and Islam the least’ (2006: 228). He elaborated: Comparing the average response of different religious denominations we find that, other things being equal, Buddhism seems to promote the best attitudes towards the market system. Christian religions follow .  .  . Islam appears as the religion least conducive to capitalism. Muslims are very much against competition, against private property and less willing to trade off equality for incentives. (Zingales, 2006: 228–9)

In contrast, Badawi suggested: Islam preaches a holistic and comprehensive notion of development in this world and for the hereafter. It does not negate the pursuit of material development in this world . . . The teachings of Islam are also eminently suited to development in the modern, knowledge-based economy . . . Besides its emphasis on knowledge, Islam also enjoins a work ethic that equips the individual to excel in economic pursuits. (Badawi, 2006: 208)

Arslan (2000) tested whether Muslims exhibited some values that corresponded to those encouraged by the Protestant work ethic; using multivariate and univariate analysis of variance, the study found high Protestant work ethic scores among Turkish Sufis. In a study of Mennonite entrepreneurs in Paraguay, it was found that the Mennonite religion: values asceticism, frugality and thrift, but not private property. Entrepreneurship takes a collective form and cooperatives are important economic vehicles, providing jobs for indigenous workers and markets for the produce of self-employed farmers. While Mennonite cooperatives

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thrive here, Indian cooperatives modelled after them have not had the same levels of success. (Dana and Dana, 2007: 82)

In the words of Lewis, ‘If a religion lays stress upon material values, upon thrift and productive investment, upon honesty in commercial relations, upon experimentation and risk-bearing . . . it will be helpful to growth, whereas in so far as it is hostile to these things, it tends to inhibit growth’ (1955: 105). 2

Different Religions Yield Unlike Patterns of Entrepreneurship

A contemporary of Weber, Sombart (1911) observed that the economic centre of Europe shifted with the migration of Jews; he linked economic development in Europe to Jewish entrepreneurs.4 Across the Atlantic, William Howard Taft, former president of the USA, suggested that Jews ‘developed trade, poetry, philosophy, science and literature’ (Taft, 1919: 7). Taft also gave examples of how Europeans prospered by means of Jews, who ‘were forbidden to hold land. The nobility manufactured the liquor, and they were willing and anxious to have the Jews sell it, who thus, for lack of other occupation, became the innkeepers, the purveyors in the demoralizing liquor business’ (Taft, 1919: 10). In a landmark study comparing different religious groups in New York City, Glazer and Moynihan noted: Jews already constitute a majority of those engaged in many businesses . . . In the great banks, insurance companies, public utilities, railroads, and corporate head offices that are located in New York, and in the Wall Street law firms, few Jews are to be found . . . Obviously, in addition to discrimination, one must also reckon with taste and tradition among Jews, which may have had their origin in discrimination, but which may now lead a good number of Jews voluntarily to avoid huge bureaucratic organizations in favour of greater freedom in small companies, as independent entrepreneurs . . . (1963: 147–8)

Iyer noted: The case of Indian business communities is slightly different from the generalized pattern observed for the rest of Asia, especially in that such business communities have traditionally evolved within specific religions and castes. Moreover, the religion of the Indian merchant community, in contrast to the general strictures on wealth and profits as in other religions (including Asian religions, such as Confucianism), treats money as neutral and does not condemn wealth generation itself. This has important implications in the ways the Indian merchant community assimilates the contradictory objectives of wealth creation and frugality with religious piety that serves to enhance market reputation. (1999: 103)

Circumstance led Jews to become merchants in Alsace: Their religion prevented them from working on Saturday, and the Church forbade them labouring in their fields on Sundays. The Church also banned them from giving employment to Christians. In addition, experience taught the Jews that, in times of religious persecutions, it was more convenient to have moveable assets, such as gold, cattle and later diamonds, than to own immovables . . . By the fourteenth century, Jews no longer had a choice; under the Saxon civil code, Meißener Rechtsbuch, Jews were banned from owning land. Yet, in Alsace, this did not lead to urbanisation, because Jews were not allowed to live in the cities. Alsace remained part of the Holy German Empire until being acquired in 1648, by the Kingdom of France. At

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the time, the French army was facing a shortage of horses, and a lack of animal feed for the horses it had. The Jews of Alsace, with their experience in commerce, efficiently supplied the French with horses and with animal feed. The French offered protection to these people who supplied their army and this led to a mass immigration of Jews from central Europe, to Alsace. (Dana, 2006: 589)

Controlling for climate, geographic position and other factors, Baldacchino and Dana (2006) compared entrepreneurship in French St Martin with that in Dutch Sint Maarten, the latter more influenced by a Protestant work ethic. While two cultures share a little island, colonial influences have been different, and the entrepreneurship sector reflects this. While Dutch Sint Maarten is home to prosperous traders, French St Martin is home to self-employed farmers. 3

Specialization along Religious Lines Shapes Entrepreneurship

In some cases, certain religious groups specialized in specific economic sectors. For two centuries, Quaker entrepreneurs including John Cadbury, Joseph Fry and the Rowntree family, dominated the chocolate industry across England. Cadbury flourished in Birmingham, Fry blossomed in Bristol and the Rowntrees prospered in York. John Cadbury expanded his business when he invited his brother Benjamin to join him, in 1847; employees were well cared for, in accordance with religious values. During the mid-nineteenth century, Seventh-day Adventists in the USA – preaching vegetarian values – established the Western Health Reform Institute, later renamed the Battle Creek Sanitarium, in Battle Creek, Michigan. Aligned with the beliefs of Sylvester  Graham (the minister who invented the Graham cracker5) patients were required  to adhere to strict diets. The superintendent was a fervent Seventh-day Adventist, Dr John Harvey Kellogg, who with his brother William Keith Kellogg invented the modern breakfast cereal, in line with their religious beliefs. Kellogg’s thus began with 44 employees in Battle Creek, Michigan. A patient, Charles William Post, founded a competing manufacturer and launched the first nationwide advertising campaign in the USA. In Australia and New Zealand, the Seventh-day Adventist Church also had connections to the cereal sector; important players included Grain Products and Sanitarium. In Canada, meanwhile, Methodist entrepreneurs established large department stores. In 1869, Timothy Eaton opened a store introducing fixed prices and cash sales (as opposed to negotiated prices and credit sales) soon expanding into the Eaton’s chain; he introduced the mail order catalogue to Canadians in 1884. Robert Simpson opened his first department store in 1872, and this also developed into a national chain of department stores. Norcliffe (2001) noted that Toronto’s principal bicycle manufacturers, during  the  late nineteenth century, were owned by Methodists, including the Flavelle, Harris and Massey families. Fishberg (1911) observed that Jews were concentrated in precarious occupations such as commerce; he suggested that Jews were ‘ambitious and persevering, possessing an enormous amount of “push”, which he cannot always bring into play while struggling against adverse circumstances’ (1911: 531). Raphaël (1980) noted the clustering of Jews in the livestock trade in Alsace. Dana wrote:

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Still forbidden to own land, deprived of entry into universities, excluded from the guilds and not allowed to reside in cities, these people tended to be travelling merchants, linking the urban and rural economies. In September 1791, Jews were permitted to reside in the cities of Alsace, and this helped them expand their commercial networks .  .  . The fathers and elder brothers would carry their loads on backs. This included utensils, candles and soap, as well as animal hides, laces, string and used clothing. Wealthier merchants used man-powered pushcarts. The exceptions were those known as Esselje´de (donkey-Jews), as they would travel from one village to another with a donkey-drawn cart; they traded kitchenware and other household items, accepting rags and beehives as payment. Livestock merchants constituted a class of their own. Some had a horse-drawn wagon on which two calves could be transported. At the end of the nineteenth century, Jews had a monopoly in cattle dealing in areas of Baden, Bavaria, Hanover, Rhineland and Westphalia. Until the First World War, most independent cattle dealers in Germany (including Alsace) were Jewish. (2006: 590)

Based on oral testimonies of retired entrepreneurs and verified by means of triangulation,  Dana (2006) provided an account of the livestock distribution system, which prevailed in Alsace, until the Second World War. In this region of traditional rivalry between French and Germans, the sector was dominated by Jewish entrepreneurs speaking  Jédich-Daitch, serving as a middleman minority, and dealing between Frenchspeakers and German-speakers, who did not trade with one another. In their study of New York City, Glazer and Moynihan found more evidence of clustering: Merchandising, garment manufacturing, and entertainment maintain their importance, but to them has been added a sizable range of light manufacturing, and real estate and building. In the latter, especially, Jews play a prominent role . . . In the great office-building boom that has transformed Manhattan, most of the big builders have been Jews: Uris Brothers, Tishman, Erwin Wolfson, Rudin, Webb and Knapp (Zeckendorf) .  .  . The finest of the postwar office buildings, Seagram’s, which is perhaps the most lavish and expensive in use of space and detail, was erected by a company headed by a Canadian Jewish communal leader, Samuel Bronfman . . . (Glazer and Moynihan, 1963: 151)

Hawley wrote, ‘Amish entrepreneurs tend to cluster heavily in certain small business ventures. This phenomenon can best be described by order of the Ordnung, which requires that the Amish establish only those stores and small businesses that meet the product and service needs of the Amish community’ (1995: 320). Dana explained, In order to maintain their values, the Amish try to avoid close contact with people who do not hold the same traditions. Furthermore, due to religious discrimination in the past, the Amish often exhibit a mistrust of outsiders. The primary motive of self-employment among the Amish is neither profit nor prestige, but rather the maintenance of cultural values, separately from mainstream society such as to emphasize humility over pride. (2007b: 142)

Such segregation, from mainstream society, helps the Amish retain social capital, and this supports Borjas (1992), who analysed ethnic capital and the value of isolation. An ethnographic study of Morocco noted that some goods: were sold only by Jews while others were sold only by Muslims. Silversmiths were invariably Muslim, while goldsmiths were Jewish. Jews were also very active in the spice trade, and they specialised in the socio-economic function of distribution . . . Many Jews were peddlers, or suppliers to other vendors, inland. They served as Barthian middlemen. (Dana and Dana, 2008: 215)

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Credit Networks, Employment Networks, Information Networks and Supply Networks of Co-religionists Affect Entrepreneurship

4.1 Credit networks Credit is at times linked to marriage within the Jain community. Dundas (1992) discussed carefully regulated marriage alliances among Jains, and Laidlaw further explained that when a Jain ‘family contracts a good marriage, its credit increases’ (Laidlaw, 1995: 355). Iyer and Shapiro (1999) refer to credit networks among Korean and Chinese in the USA. Juteau and Paré (1996), refer to credit networks of Jewish entrepreneurs in Canada. Likewise, Dana (2006) noted that Jewish cattle dealers relied heavily on other Jews for financing. Co-religionists provided finance when needed. ‘A network of livestock merchants, across the region, facilitated the dissemination of knowledge and availability of finance among co-religionists. In the event of bankruptcy, an individual was given assistance by other merchants’ (Dana, 2006: 594). Discussing Jewish and Muslim entrepreneurs in Morocco, Dana and Dana noted that ‘Merchandise was often purchased on credit, thereby requiring a relationship of trust between supplier and peddler’ (2008: 215). Again, there was often dependence on coreligionists for finance. In a study of Catholic Hispanics, Galbraith et al. (2004) suggested that a co-ethnic capital market appears to be the last dimension developed within an ethnic community. 4.2 Employment networks Porter (1937) noted that entrepreneurs were giving preference to members of their immediate circle rather than giving equal opportunity to outsiders. Raistrick (1950) found Quakers to be clannish and nepotistic. Kraybill and Nolt (1995) observed that Amish entrepreneurs gave preference in business to co-religionists. Dana’s ethnographic study explained the reason behind this: ‘While the Amish people believe that a community of voluntary believers is the context for life, the fundamental unit of Amish society and of their economy is the family . . . home-based enterprises allow family members to work together, reinforcing the Amish family unit’ (2007b: 146). Galbraith et al. (1997) found that successful Hispanic entrepreneurs, often holding important leadership roles in the local Catholic church, were actively finding employment for other recent immigrants. Galbraith et al. (2003) and Stiles et al. (2007) suggested that Catholic Hispanic and Muslim Arab entrepreneurs are both dependent on co-ethnic business in their respective enclave, relying upon co-religionists for labour, especially at the start-up phase. In Malaysia, Abdullah (1992) found that Muslim Malays expressed strong preference for employing Muslim candidates over non-Muslims. In a study of Turkish entrepreneurs,  Altinay (2008) likewise found a strong relationship between the religion of an entrepreneur and recruitment. 4.3 Information networks Apart from co-religionist networks that provide credit or preferential treatment for employees, information networks also appear in the literature and these are sometimes comprised of co-religionists. Boissevain and Grotenbreg observed: ‘Hindustanis appear

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to have a larger network of relatives than do Chinese and Creole businessmen. Given the value they attach to family loyalty, this seems to indicate that Hindustanis have access to a wider information and support network’ (1987: 117). A co-religionist information network existed in Alsace: ‘They managed the link between the rural and urban economies, providing cash for farmers and a source of meat for consumers. In addition, they spread information as required. If one farmer needed a bull, temporarily, for breeding purposes, a livestock merchant could source this need’ (Dana, 2006: 590). There were also individuals who specialized in information: Some Jews did not themselves deal with livestock, but served as brokers, or informers who simply  sold information which would lead to transactions. These entrepreneurs were called Schmüsser, and their commission was referred to as Sassergeld. Operating informally, these individuals mingled with the villagers, identified needs and opportunities and then waited by the side of a road, knowing that livestock merchants would be passing by eventually. The Schmüsser then sold their information to livestock merchants. (The word they used for this activity was vermassere, literally meaning ‘to inform.’) In order to reduce time spent away from their own villages, the transient merchants preferred to pay for this market research, rather than to conduct this time-consuming task themselves. The Schmüsser thus formed an integral part of the business network. (Dana, 2006: 592–3)

Likewise in his study of 1200 Muslim entrepreneurs in London, Altinay (2008) found a  strong relationship between religion and advice-seeking practices. One interviewee stated, ‘If people from the same religion and the background do not help and support each other, who else would do so’ (Altinay, 2008: 120). Altinay (2008) found that Muslims who practise6 their religion rely more on advice from co-ethnics. 4.4 Supply networks Juteau and Paré (1996) and Lee (1999) found co-ethnic suppliers were prevalent among Jewish entrepreneurs in Canada and in the USA, respectively. Lee (1999) noted that this provided access to lower wholesale costs, which could translate to lower retail costs and enhanced competitiveness. Galbraith (2007) examined buyers and sellers among two groups: Catholic Hispanics and Muslim Arabs, within a US metropolitan area; he suggested that the perceived advantage of intra-enclave buying and selling lies in a sense of ethnic identification that comes primarily from a religion, either Catholic or Muslim, common to each enclave. 5

Religions Provide Opportunities for Entrepreneurship

Religious values may create needs, and these can sometimes be translated into opportunities for entrepreneurship. When Toronto observed a day of rest and streetcars were prohibited on Sundays while bicycles were permitted, bicycle manufacturers – mostly Methodists – made unprecedented sales (Armstrong and Nelles, 1977). In this case, the observation of religion helped entrepreneurs in the bicycle sector. The production of religious products also provides opportunities for entrepreneurship. Orthodox icons, for instance, bring profits to dealers as well as to those who make the icons. Likewise, religious dietary requirements can yield profits to entrepreneurs catering to specific needs. Buddhism, Hinduism, Islam, Jainism and Judaism are among

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religions  that have dietary restrictions, providing opportunities for entrepreneurs and even for airlines catering to such religious needs of observers; this is what Aldrich and Weidenmayer (1993) have referred to as ‘demand side’ entrepreneurship. In Islam, some food is halal (meaning ‘permissible’ in Arabic), while some is prohibited.  All fish with scales (that the Bible approves of as kosher) are halal. The Qur’an specifically disallows the consumption of all blood, the carcass of an animal that died on its own or that was killed by another animal, donkey meat, fanged predators and pork. Furthermore, the Hanafi School of Islam does not approve of the eating of shellfish, including clams, crabs, lobster and shrimp; observers also refrain from eating frogs. According to Minkus-McKenna (2007), 70 per cent of Muslims worldwide follow halal food standards, translating into an opportunity worth an annual US$580 billion. Many McDonald’s outlets are serving halal food, in Australia, India, Indonesia, Malaysia, Pakistan, Singapore, South Africa and the UK. Others to serve halal food, at selected locations, include A&W, Burger King, Dunkin’ Donuts, KFC and Pizza Hut. The Judaeo-Christian Bible has even more sophisticated guidelines with regards to what may be eaten, and these are outlined in Genesis, and Leviticus and Deuteronomy. The King James Bible states, ‘Ye shall therefore put difference between clean beasts and unclean, and between unclean fowls and clean: and ye shall not make your souls abominable by beast, or by fowl, or by any manner of living thing that creepeth on the ground, which I have separated from you as unclean’ (Leviticus 20:25). Leviticus 3:17 prohibits observers from eating blood or fat. Leviticus 22:8 elaborates, ‘That which dieth of itself, or is torn with beasts, he shall not eat to defile himself therewith: I am the LORD’ (King James Bible). This is understood to mean that it is not kosher to eat food from animals that die themselves or that are killed by another animal. Leviticus also provides details as to what species the Bible allows observers to eat or not. It is not permitted to eat camel, ‘he is unclean onto you’ (Leviticus 11:4). The hare (Leviticus 11:6); pork (Leviticus 11:7); eagles (Leviticus 11:13); vultures (Leviticus 11:14); ravens (Leviticus 11:15); owls (Leviticus 11:16); cormorants (Leviticus 11:17); swans, pelican and eagles (Leviticus 11:18) are specified as not allowed. The same is true of the stork, the heron and the bat (Leviticus 11:19). Leviticus 11:29 states, ‘These also shall be unclean unto you among the creeping things that creep upon the earth; the weasel, and the mouse, and the tortoise after his kind’. Leviticus 11:30 adds, ‘And the ferret, and the chameleon, and the lizard, and the snail, and the mole’. It is not allowed to eat scavengers and predators; for this reason, observers refrain from eating catfish, clams, lobsters, oysters, and shrimp. The result of biblical commandments specifying food laws is a lucrative niche market providing kosher products. Rosen (2008) noted that in North America alone kosher products are a US$14 billion a year business; she quoted Chaim Goldberg saying, ‘There’s  no question that kosher is growing .  .  . As the world is getting more global, manufacturers . . . see kosher as a very easy way to market their product’ (Rosen, 2008: 105). Based in Fair Haven, Newfoundland, Neptune Sea Products is a kosher-sanctioned secondary fish-processing plant; it produces 200 different products, including Cajun cod and wasabi salmon. According to Rosen (2008), sales for the first year of this new venture were estimated to top $2 million. Rosen interviewed the entrepreneur behind Neptune Sea Products and he explained, ‘We only use fish that have fins and scales . . .The other main thing is, my employees can’t bring in ham sandwiches for lunch’ (Rosen, 2008: 106). Fifteen minutes down the road from Neptune Sea Products is the Rodrigues Winery,

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a family business in Markland. This is the first winery in Newfoundland and the first kosher and sulphite-free winery in Canada, producing wines from local blueberries, cloudberries, cranberries, raspberries and strawberries. Exports are shipped as far away as Japan. 6

Religious Beliefs May Hamper Entrepreneurial Spirit

Buddhism emphasizes the afterlife, and it has been suggested that Buddhists are not focused on entrepreneurial activity (Cousins, 1996). This especially so among Theravada Buddhists. Lewis wrote, ‘Where Theravada Buddhism is the backbone of social and cultural values . . . it may have a restraining effect on the accumulation of wealth and the rise of an entrepreneurial class’ (1955: 105). Over half a century later, Theravada monks are still highly influential in Lao society. As discussed by Dana (1995b), Theravada monks have traditionally had a great impact  on the educational system in Laos; in former times, the only schools were in wats,7 and they are still consulted on virtually all matters, thereby playing an important role in  a  diversity of spheres, ranging from private life to government policy. This is elaborated upon in detail in Dana (2007a). Central to Theravada beliefs is the ultimate goal to extinguish unsatisfied desires. Its doctrine focuses on aspects of existence, including dukkha (suffering from unsatisfied desire) and anicca (impermanence). Assuming that unsatisfied desires cause suffering, then suffering can be eliminated if its cause (desire) is eliminated. A respectable person, then, according to this ideology, should not work towards the satisfaction of materialistic desires, but should, rather, strive to eliminate the desire itself. A monk, for instance, is specifically prohibited by the religion, from tilling fields or raising animals. Lao folk tales reinforce the belief that a male monk should not labour for material wealth; yet, the same folklore conditions women to accept a heavy burden in exchange for honour, protection and security. Even the Lao currency portrays agricultural work being done by women. Numerous Lao families who farm during the wet season become self-employed gold-diggers during the dry season. Prospectors camp along the Mekong River, especially in the region of Luang Prabang. The women do the heaviest work, digging for dirt and panning it in wooden trays. The men weigh the gold, up to 1 gram per day. Writing about the former Kingdom of Moldavia, Dana (2005: 223) observed: Orthodoxy in this kingdom emphasized the respect of authority, along with the importance of  guilt. A good Moldavian was expected to obey the religion and work the land. A nonmercantile culture did nothing to encourage the development of entrepreneurship. In 1812, when the kingdom lost Bessarabia to Russia, the tsar’s feudal system continued to meet nonconformity with punishment.

Rafiq (1992) suggested that Islam constitutes a barrier to capital access, due to the religious prohibition on interest payments. Metcalf et al. (1996) concluded that Pakistanis were less successful than Indians in self-employment because they were Muslim. Finally, a religion may encourage entrepreneurship in the broad sense but limit the sectors in which entrepreneurship takes place. Jainism encourages entrepreneurship in trade, but does not allow self-emplyment in agriculture (Iyer, 2004; Nevaskar, 1971).

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Adherance to this religion thus limits avenues for self-employment, because of its strict pacifism (Iyer, 1999; Nevaskar, 1971). 7

Religions Have Built-in Mechanisms for the Perpetuation of Values

In Jain communities where business and family overlap, a merchant’s family and community status is linked to optimal marriage (Bayly, 1983). Marriage takes place among co-religionists and within boundaries, and values are propagated from one generation to the next. Dana noted co-religionist matchmaking that allowed the perpetuation of religious values: Travel was intrinsic to their livelihood and during business trips these frequent travellers would pray, and eat, with co-religionists, and sleep at their homes. The religious duty of allowing  animals to rest on the Sabbath (from sunset on Friday until dusk on Saturday) made it impossible to travel with livestock during this time of rest. Therefore, business trips were often extended due to religious obligations, and considerable time was spent with the families of other merchants. During this time, matchmaking was a common occurrence, as the son of a merchant fancied the daughter of another. The co-religionists shared the same language, holidays, belief system and dietary restrictions. All this, in turn, reinforced social networking among this ethnic minority. (2006: 589)

Likewise, in a study of Amish entrepreneurship, Dana noted how values – as well as skills – are passed on from one generation to the next: From a very young age, Amish children develop a close relationship with their parents. Parents spend almost all of their time with their children, teaching them Amish cultural values. It is not from formal education in school, but rather from their parents that children learn to become self-sufficient in life. Amish boys normally learn a variety of skills on their father’s farm. This typically includes cabinetry, carpentry, furniture-making and masonry .  .  . Most importantly for the Amish, each generation transmits cultural values to the next. This includes asceticism, frugality and thrift . . . Children thus become predisposed towards self-employment, as parents guide them along an almost pre-determined road in life. The young are not encouraged to explore such as to discover themselves, but rather to fit into Amish society, and to feel needed within it. Often, a son learns his trade from his father. Even when a son does not adopt the same profession as his father, it is practical to learn as many manual skills as possible. A son becomes the apprentice of his father at a very young age. Not only does a son learn how to work, but also more importantly according to Amish tradition, he is conditioned into accepting the Amish belief that work is healthy and enjoyable. (2007b: 148–9)

For the Amish – as is the case among some other religious groups – marrying outside the faith is shunned. ‘If an Amish woman wants to marry an outsider, she must leave the community, unless he joins Amish society. A deterrent to her leaving is that she is unprepared for secular society, while a stumbling block in the attempt to become Amish is the dialect’ (Dana, 2007b: 149). Likewise, but to different degrees, intermarriage is discouraged by other religions. In a study of comparing Indian entrepreneurs in Singapore and their counterparts in the UK, Hamilton et al. (2008) found that in both countries, most respondents would not allow their children to marry outside the faith.

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TOWARD THE FUTURE In a study of mixed marriages and separation, Monahan and Kephart (1954) showed that Jewish families broke up less than non-Jewish ones. Presumably this allowed values to be reinforced and to be passed on from one generation to the next. As society becomes increasingly tolerant of mixed marriages, what will happen to values in the future? Glazer and Moynihan (1963) found no evidence of convergence among different religions. Thus, a Jewish ethos and a Catholic ethos emerge: they are more strongly affected by a specific religious doctrine in the Catholic case than in the Jewish, but neither is purely the expression of the spirit of a religion . . . The important fact is that the differences in values and attitudes between the two groups do not, in general, become smaller with time. On the contrary: there is probably a wider gap between Jews and Catholics in New York today than in the days of Al Smith. (Glazer and Moynihan, 1963: 298–9)

Is this still true almost five decades later? Linking entrepreneurship to values offers endless possibilities for future research, whether or not these values are promoted by a religion. Some of Rokeach’s (1973) values may impact entrepreneurship, and empirical investigation of this could be present interesting research opportunities. Amish entrepreneurs value religion over prosperity, but might Rokeach’s terminal value of a prosperous life lead to an entrepreneurial start-up? Could it be hypothesized that one who values freedom (independence, free choice), as per Rokeach (1973), might choose to become an entrepreneur? Likewise, it could be empirically tested whether entrepreneurs exhibit some of Rokeach’s (1973) instrumental values. Might there be a relationship between Rokeach’s instrumental value of ambition (hard-working, aspiring) and successful entrepreneurship?  Does entrepreneurship involve being broadminded (open-minded), capable (competent, effective), or courageous? Examining Rokeach’s instrumental value of selfcontrol, might this be linked to Weber’s (1930) values of asceticism, frugality and thrift?

FINAL WORDS Sociologist Max Weber suggested that asceticism, frugality and thrift (Weber, 1930) were  values that encourage successful entrepreneurship; these are perhaps necessary but insufficient. I would add that context is important. Mennonites value asceticism, frugality and thrift, but Old Colony Mennonites have traditionally been opposed to the concept of private property. Hence, among Mennonites, individual entrepreneurs are not flagships of entrepreneurship; instead, entrepreneurial activities take a collective form, as described by Dana and Dana (2007). Indeed, different religions yield unlike patterns of entrepreneurship. This chapter discussed several observable patterns: (1) various religions value entrepreneurship to different degrees; (2) different religions yield unlike patterns of entrepreneurship, possibly due to value differences (such as asceticism, frugality and thrift) but also due to specialization (sometimes resulting in a monopoly) and networks; (3) specialization  along religious lines shapes entrepreneurship; (4) credit networks, employment

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networks, information networks, and supply networks of co-religionists affect entrepreneurship; (5) religions provide opportunities for entrepreneurship; (6) religious beliefs may hamper entrepreneurial spirit; and (7) religions have built-in mechanisms for the perpetuation of values. Learning about religions, it is evident that each has a set of values. Respect must be paid to the distinctiveness and differences of all.

POSTSCRIPT Since the above chapter was published in the first edition of this book, it has been widely cited and there has been an increase of research about religion and entrepreneurship. In particular, there has been interest in Islamic entrepreneurship and how Islamic banking affects entrepreneurs. Ramadani et al. (2015) explained Islamic entrepreneurship in great detail. Integrating academic literature and the Qur’an with Muhammad’s (SAW) Hadith (teachings and traditions), this study focused on innovativeness, risk-taking, financing, taqwa, halal, haram and related concepts. Several scholars contributed to Ramadani (2016), a collection of works about entrepreneurship and Islam.

NOTES * 1.

2. 3. 4.

5. 6. 7.

This paper is reprinted with permission from the International Journal of Entrepreneurship & Innovation, 10 (2), 2009, 87–99. The author thanks Professor Ivan H. Light (UCLA) for interesting discussions leading to this chapter. The author also thanks the following for comments on preliminary drafts: Dr Garth Cant (University of Canterbury); Dr Sarah Drakopoulou-Dodd (Athens Laboratory of Business Administration Graduate Business School and Robert Gordon University); Professor Gopalkrishnan R. Iyer (Florida Atlantic University); and Professor Richard W. Wright (UCLA). See Young (1991) and Young and Sloman (1986). This is based on Matthew 19:23–4. Rath and Kloosterman (2003) revisited this theme. They noted that ‘The arrival of Jews from the Iberian Peninsula in the sixteenth century and later from Eastern Europe, and of Roman Catholics from Westphalia throughout the nineteenth century, greatly influenced the Dutch economic landscape as their business acumen enhanced the nation’s economic and cultural wealth’ (ibid.: 123–4). Today, Grahams are manufactured by Nabisco and certified as Kosher by the Union of Orthodox Rabbis. Altinay (2008) distinguished among religious Muslims and secular Muslims. Other studies have treated Muslims as a homogenous group, and did not distinguish between religious and non-practising individuals (see Basu and Altinay, 2002; Dana and Dana, 2008; Metcalf et al., 1996; Rafiq, 1992). Wats are places of worship.

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62. Research methodology in entrepreneurship Edward Groenland

1.

INTRODUCTION

This edition of World Encyclopedia of Entrepreneurship accumulates knowledge and explains processes and behaviours of parties, companies and individuals regarding the wide theme of entrepreneurship in a broad and in-depth manner. This results in presenting and bringing together major theories, models, theoretical notions and other outcomes, and all of them state of the art. Both descriptive and explanatory contributions are here as valuable entities, since they provide academic insights and present keys to change, transforming the world in a beneficial manner. All of these outcomes are based on a specific form, or multiple forms of empirical research. Also, it can be noted that qualitative research approaches have the benefit of responding to the ‘how’ questions in new contexts of entrepreneurship; Dana and Dana (2005) focused on this and that work has been widely cited. For this volume, a chapter on basic forms of qualitative research methodology seems to be in order here. After all, the relevance of academic research outcomes predominantly depends on the right choice and the quality of the research methodology employed. The aim of this chapter is to provide short overviews of a small selection of highly relevant research methodologies that are available to the researcher in this area – that is, entrepreneurial behaviour – in order to inspire the researcher who is in the process of orientating himself or herself on the most suitable research approach. A guideline for the contents of this chapter forms the list of major qualitative research paradigms and research techniques as presented and explained by Groenland and Dana (2019). The interested reader is referred to this publication which presents full treatments of these research approaches, and contains the key references to the handbooks on these topics. In addition, their textbook addresses many more research methodologies applicable to the domain of entrepreneurship. The introductions in this chapter are based on Groenland and Dana’s (2019) textbook and may be regarded, qualitate qua, as basic citations from this source. For this chapter I have selected case study methodology, ethnographic methodology, and narrative inquiry methodology as research paradigms, and document analysis, and observation and participant observation as research techniques. The choice of these research methodologies indicates the type of research presented and discussed in this encyclopedia about entrepreneurship. More methodologies are available. In the following, the methodologies are introduced. More specifically, the following basic structure, when apt, will be employed to describe each of these methodologies: ● ● ●

introduction to the research method and typical features; type of information that can be obtained from the method; basic research steps: management problem and goal; 553

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World encyclopedia of entrepreneurship sample approach and type of data collection; type of analysis; and types of recommendations possible.

This information should guide the researcher as to the appropriateness of a specific research approach for his or her research project in this area.

2.

RESEARCH PARADIGMS: CASE STUDY METHODOLOGY

2.1

Introduction to the Research Method and Typical Features

A case study is a detailed investigation of a social unit, at times one entrepreneur or a firm. The research purpose of a case study is to describe one or more cases in depth and to address research questions and issues. A defining element is the focus on the dynamic interactions within the group. Note that a group can be a company as all of the employees cooperate in order to achieve a company goal. Often, a case study approach is taken when, owing to the inherent complexity of the phenomenon under study, a quantitative approach is not feasible. The case study approach is chosen when the type of question to be addressed is ‘What is the effect of the group dynamics on how group members interact?’, and when the type of problem to be addressed is ‘How can the broader context, in which a phenomenon takes place, describe this phenomenon?’ That is, a case study design may be chosen depending on the type of question, for example, ‘What is the effect of the group dynamics on how group members interact?’, or depending on the type of problem, for example, ‘How can the broader context, in which a phenomenon takes place, describe this phenomenon?’ 2.2

Type of Information that Can Be Obtained from the Method

Tsang (2013) focused on case study methodology, addressing causality, contextualisation and theorising. He proposes four methods of theorising in order to build theory as part of the case study approach. These four approaches are depicted as: ● ●

● ●

interpretive sense making – this involves seeking an in-depth understanding of human experience embedded in a rich, real-world context; contextualised explanation – a causal explanation in a single case is based upon a  theory structured in terms of what comprises a critical realist, causal explanation; empirical regularity – this intends to identify empirical regularities from case study findings, while the outcome may or may not lead to theory creation; and theory building and testing – this involves building or testing theories based on case study outcomes in order to provide an explanation.

Tsang (2013) adds that the four methods of theorising can be used sequentially when implementing a thorough case research programme.

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Basic Research Steps: Management Problem and Research Goal

The process starts with a preliminary problem analysis. This analysis addresses the background of the study. Questions to be answered include: ‘What is the cause of the study: which changes, or situation make(s) this research important (management problem)?’ and ‘What is the problem (research goal) that needs to be studied?’ Based on this information, the theoretic research or literature study can be carried out. See Groenland (2018a) for a systematic approach in this matter. 2.4

Sample Approach and Type of Data Collection

Here an informed choice has to be made: ‘Which (company) environment is to be selected?’ and ‘Which actors are involved?’ A general approach would involve the following. Distinguish groups on the basis of preliminary aprioristic assumptions regarding answering and reaction patterns of respondents on checklist. Examples within the context of a company are: ● ● ● ●

subordinate versus superior in the company employee hierarchy; special interest groups; groups based on formal power and responsibility; and groups based on informal power.

A starting point regarding the size of the sample may be four groups. However, this predominantly depends on the topic to be studied and the structure of the organisation under study. Remember that it must be possible to generalise the research results analytically. In general data collection is carried out by way of interviews, questionnaires (which are optional) and existing internal sources of information, such as annual reports, internal company documents and external sources, and the Internet. (Semi-structured) interviews may be based on (semi-structured) questionnaires and presented to various groups in multiple rounds. Observations may be based on an observation schedule in order to create a form of organisation of the various aspects to be observed. Also, document research may be carried out by collecting, for instance, internal memoranda, notes, and minutes of (company) meetings. Finally, questionnaires may be employed to enable using the results from a current round for the next round of data collection. 2.5

Type of Analysis

Broadly, the analysis strategy focuses on relationships between context factors and the phenomenon under investigation. These relationships are split up, and their contrasts brought out for distinct subgroups in the sample (see the sample design). When interview data have been collected on the basis of a semi-structured questionnaire (checklist), as based on an implicit or explicit conceptual model, the matrix method (Groenland, 2018b) is available to analyse the data. Yin (1981: 63–4) provides a structural element of the analysis of data in a case study when he proposes, ‘Whether the case-survey or case-comparison approach is used, the case study researcher must preserve a chain of evidence as each analytic step is conducted’.

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2.6

Types of Recommendations Possible

Applied recommendations formulate the actions to be taken by the client. When applying the Annabel approach (Groenland, 2014) for the problem analysis, the researcher may provide double anchorage for the recommendations. That is, the recommendations are based both on the conclusions of the study and the designated use of the research results, as specified at the start of the study. Finally, recommendations have to be checked against the criteria relevant in a business context; that is, feasibility, cost versus yield, speed of the result of implementation, and visibility – can the client ‘score points’ by carrying through these recommendations?

3.

RESEARCH PARADIGMS: ETHNOGRAPHIC METHODOLOGY

3.1

Introduction to the Research Method and Typical Features

Ethnography is a research methodology that aims to describe and understand social groups and their culture. During the process of describing these groups, insights and explanations regarding the perceptions of the members of the group of themselves, their co-members, their social views, their group and individual values, and their behaviours may, or even should, occur. In spite of this diversity, it is still possible to denote the common elements of ethnography. Ethnography is a systematic study about people and their culture from an insight perspective (as evolved primarily in the twentieth century). Ethnography is study by prolonged field experience, with the researcher immersed in the daily life of the observed. 3.2

Type of Information that Can Be Obtained from the Method

In the recent past, tribes and communities, such as villages and towns, have been studied in an effort to document and interpret their distinct way of life, and the beliefs and values integral to it. 3.3

Basic Research Steps: Management Problem and Research Goal

Originating in anthropology, the general purpose of ethnography is to describe the cultural characteristics of a group and to describe cultural scenes. Thus, human social life and culture may be studied in various different ways. 3.4

Sample Approach and Type of Data Collection

In order to collect the data, the researcher acts as a participant observer, making observations, talking to members of the group, collecting documents and collecting group artefacts which may shed light on the processes to be studied and to be understood. Thus, the researcher is the research instrument, not limited to survey or interview. As

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noted previously, the key to ethnography is for the researcher to become immersed in the everyday life of the observed. 3.5

Type of Analysis

The analysis constitutes a largely unstructured process of trying to think of and reflect on possible reasons why the group under study, and its members, hold the specific views, beliefs, perceptions and understandings, and exhibit certain behaviours that were observed. In this way, explanations, which may be of a cultural nature, are probed, reformulated and refined in order to derive meaning from the data. Where explanatory patterns occur, these patterns may be formulated as theoretical notions, and presented ultimately as formal theories. The basis of the analysis approach constitutes interpretation, since creating adequate, rich and insightful interpretations is a major prerequisite for a successful study as regards academic adequacy and societal impact. 3.6

Types of Recommendations Possible

According to Hammersley and Atkinson (2007), a major advantage of the ethnographic research approach is that of being part of the natural setting. External validity may be high owing to this method of working. Also, learning and appreciating the culture of the group, both from within and from an external angle, produces both inside and external knowledge. Therefore, when it comes to formulating recommendations, precise and to the point suggestions may be created which may be both effective and efficient in respect of its intended consequences.

4.

RESEARCH PARADIGMS: NARRATIVE INQUIRY METHODOLOGY

4.1

Introduction to the Research Method and Typical Features

Let us start with a definition of a narrative. Elliott (2005: 3) states: ‘a narrative can be understood to organize a sequence of events into a whole so that the significance of each event can be understood through its relation to that whole. In this way a narrative conveys the meaning of events’. Its philosophical background resides in a view where individuals, or individuals who are employed at a company, tell each other stories for specific purposes. These may include establishing their identity, or ordering their retrospective memories regarding important life events, or expressing their views about how things should be in life, in their company or in society. In this context, Geertz (1973: 452, original emphasis) poses the following: ‘The culture of a people is an ensemble of texts, themselves ensembles, which the anthropologist [studying narratives] strains to read over the shoulders of those to whom they properly belong’, and Fisher (1997: 314) states that ‘humans are essentially storytellers’.

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4.2

Type of Information that Can Be Obtained from the Method

Narrative inquiry is focused on the detailed stories or life experiences of a single event or a series of events for a small number of individuals (Creswell, 2007). More specifically, the aim of a narrative study is to describe in detail the understanding and meaning of the experiences from the participants perspective. Two varieties of narrative inquiry exist (Petty et al., 2012): narrative research may be (1) biographical following the life of individuals, while an (2) oral history explores the personal reflection of events from one or more individuals. 4.3

Basic Research Steps: Management Problem and Research Goal

Denzin (1989: 183–5) writes that the aim of narrative inquiry is to present the experiences and definitions held by one person, group or organisation and the way they interpret those experiences. When it is expected that these interpretations are at the core of a management problem (for instance, a dysfunctional group of an organisation) the goal of the study could be to gain knowledge and insights regarding the contents and nature of these interpretations. 4.4

Sample Approach and Type of Data Collection

Denzin (1989: 183–5) states that life history materials are collected that may include records or documents of any kind, such as autobiographies, letters, newspaper messages, court records, notes, film and pictures. Transcribed interviews (from key informants) may also be used for the purpose of the study. 4.5

Type of Analysis

Generally, the analysis is not carried out according to precise and objective instructions; instead, heuristics are applied in order to arrange the data and find meaning in them. Also, participants of a study may be allowed to provide feedback on the researcher’s interpretations. 4.6

Types of Recommendations Possible

An advantage of this research approach is that the researcher is easily able to connect to the social reality of the subjects, their language, their culture, their work settings and their life circumstances. Consequently, recommendations may be formulated in a more refined, precise and detailed manner.

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5.

RESEARCH TECHNIQUES: DOCUMENT ANALYSIS

5.1

Introduction to the Research Technique and Typical Features

559

Document analysis is aimed at a broad and thorough review of all kinds of documents, involving both its examination, reading, evaluation, and interpretation in an empirical research setting. Thematic analysis is directly aimed at finding patterns and themes in the documents. Netnography is a form of document analysis, however, now aimed at a broad review of documents, which are found online. 5.2

Type of Information that Can Be Obtained from the Research Technique

Braun and Clarke (2006: 83) provide the following description: ‘Thematic analysis is a method for identifying, analysing, and reporting patterns (themes) within data. It minimally organises and describes your data set in (rich) detail. However, it also often goes further than this, and interprets various aspects of the research topic.’ 5.3

Sample Approach and Type of Data Collection

Three types of documents can be classified, as follows (O’Leary, 2014): 1. 2. 3. 5.4

Public records (for example, newspapers, statements of purpose, annual reports, strategy manuals and handbooks). Personal records (for example, reflections or diaries, and Facebook posts). Physical evidence (for example, posters and agendas); these include published as well as unpublished documents. Type of Analysis

The analysis starts with the research question that has to be answered. This is the leading perspective for any analysis, thus also for the analysis of these types of data. Just reading or viewing or listening to the data is an unfocused act. Instead, the key analytic question is ‘How will these sources of information contribute to answering the research question?’ This is what Bowen (2009: 28) has to say regarding the analysis procedure: ‘The analytic procedure entails finding, selecting, appraising (making sense of), and synthesising data contained in documents. Document analysis yields data – excerpts, quotations, or entire passages – that are then organised into major themes, categories, and case examples specifically through content analysis’. 5.5

Types of Recommendations Possible

In all three types of analysis, documents, published in whichever form and on whatever medium, prevail as monuments that hold for ever the manifestations of the experience worlds of individuals who once existed. By considering place, time and context, for the engaged researcher, these documents may serve as ever-lasting tokens in an ever-changing

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social world of humankind and its individual members. The recommendations are based precisely on these tokens.

6.

RESEARCH TECHNIQUES: OBSERVATION AND PARTICIPANT OBSERVATION

6.1

Introduction to the Research Technique and Typical Features

Participant observation refers to the process of being part of a group or an organisation for a specific period of time while making systematic observations of, for instance, their ideas, values, convictions, perceptions, preferences, judgements and behaviour. Instead of simply observing, researcher(s) during the process of participant observation actively participate(s) in the firm or society being studied. The difference between observation and participant observation, however, is that in the case of participant observation the researcher(s) actively participate(s) in the firm or society being studied. 6.2

Type of Information that Can Be Obtained from the Technique

Mintzberg (1979: 585) notes in this context: we have always tried to go into organizations with a well-defined focus to collect specific kinds of data systematically. In one study we wanted to know who contacts the manager, how, for how long, and why; in the second we were interested in the sequence of steps used in making certain key decisions; in the third, we are after chronologies of decision in various strategic areas. Those are the ‘hard’ data of our research, and they have been crucial in all of our studies.

Mintzberg (1979: 587) goes on to propose that systematic data are to be supported by anecdotal data: For while systematic data create the foundation for our theories, it is the anecdotal data that enable us to do the building. Theory building seems to require rich description, the richness that comes from anecdote. We uncover all kinds of relationships in our ‘hard’ data, but it is only through the use of this ‘soft’ data that we are able to ‘explain’ them, and explanation is, or course, the purpose of research.

6.3

Sample Approach and Type of Data Collection

Symon and Cassell (2013: 246) discuss participant selection. They state that two principles must be adhered to. 1. 2.

Representativeness: some breadth and variation among interviewees belonging to a certain defined category provides a better coverage of this category of interviewees intended. Quality in the interview responses: not only selecting key informants who are able to express themselves at an excellent level in terms of intellectual, verbal, emotional and moral responses.

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In summary, a balance must be found in seeking both a breadth of representation and depth with respect to the choice of interviewees. Participant observation involves being with the observed individual (or group) who behaves in his or her (their) natural setting. This might, for instance, mean that the researcher starts to work as a dock worker, while living and being housed in the part of the city where they all work. Also, he or she would engage in their social lives and spend leisure time together. By learning more of the symbolic world those observed live in, he or she also learns about their culture, norms and values, habits, thoughts and behaviours. Participant observation is a research approach aimed at recording ‘the ongoing experiences of those observed, through their symbolic world’ (Denzin, 1989: 157). The observer may be either known to those observed, or not. An attempt is made to observe ‘the evolution and unfolding of social action through time and across situations’ while taking the perspective of those observed as a starting point (Denzin, 1989: 157). More specifically, people may be interviewed by asking open-ended questions, documents from the past are analysed, census data are collected, informants may be employed, and direct observations of ongoing events are made. 6.4

Type of Analysis

The observer systematically seeks out and organises data instead of focusing on achieving one situationally defined goal. It is a requirement to keep detailed records of what occurs, including those things taken for granted in other contexts. A brief sketch of the data analysis process, describing it in general terms and basic steps, is from Jorgensen (1989: 107–15). He describes the process of analysing the data and theorising on its outcomes in terms of principles and procedures. The coding process starts with coding and labelling field notes. Next, the analysis process focuses on spotting  ‘essential features, patterns, relationships, processes and sequences, comparing and contrasting, as well as formulating types and classes’ (Jorgensen 1989: 115). ‘[T]heory and theorizing take a variety of forms, including analytic induction, sensitizing concepts, grounded theory, existential theory, and hermeneutic theory’ (Jorgensen, 1989: 116).  

6.5

Types of Recommendations Possible

Jorgensen (1989: 13–14) defines this research methodology as comprising seven basic features. We present three of them here: ● ● ●

an interest in human meaning and interaction as viewed from the perspective from the people involved in the situation or setting under research; location in the here and now; and a form of theory or theorising stressing interpretation and understanding of human existence.

Based on these interpretations and understandings, suggestions to correct an undesirable situation can now be made by formulating suitable recommendations.

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CONCLUSION This chapter introduced and explained three qualitative research paradigms and two qualitative research techniques that are relevant for entrepreneurship studies. We hope that we have taken a stand for making a well-reasoned choice as to the most pertinent research methodology to be applied when carrying out an empirical qualitative study in the realm of entrepreneurship.

REFERENCES Bowen, G.A. (2009), ‘Document analysis as a qualitative research method’, Qualitative Research Journal, 9 (2), 27–40. Braun, V. and V. Clarke (2006), ‘Using thematic analysis in psychology’, Qualitative Research in Psychology, 3 (2), 77–101. Creswell, J.W. (2007), Qualitative Inquiry and Research Design: Choosing Among Five Approaches, 2nd edn, London: Sage. Dana, L.-P. and T.E. Dana (2005), ‘Expanding the scope of methodologies used in entrepreneurship research’, International Journal of Entrepreneurship and Small Business, 2 (1), 79–88. Denzin, N.K. (1989), The Research Act: A Theoretical Introduction to Sociological Methods, 3rd edn, Englewood Cliffs, NJ: Prentice Hall. Elliott, J. (2005), Using Narrative in Social Research: Qualitative and Quantitative Approaches, London: Sage. Fisher, W.R. (1997), ‘Narration, reason, and community’, in L.P. Hinchman and S.K. Hinchman (eds), Memory, Identity, Community: The Idea of Narrative in the Human Sciences, Albany, NY: State University of New York Press, pp. 307–27. Geertz, C. (1973), The Interpretation of Cultures: Selected Essays, New York: Basic Books. Groenland, E.A.G. (2014), ‘The problem analysis for empirical studies’, International Journal of Business and Globalisation, 12 (3), 249–63. Groenland, E.A.G. (2018a), ‘A review strategy for carrying out an academic literature analysis as part of the problem analysis for an empirical study’, International Journal of Business and Globalisation, 20 (4), 497–508. Groenland, E.A.G. (2018b), ‘Employing the matrix method as a tool for the analysis of qualitative research data in the business domain’, International Journal of Business and Globalisation, 21 (1), 119–34. Groenland, E. and L.-P. Dana (2019), Qualitative Methodologies and Data Collection Methods. Toward Increased Rigour in Management Research, Singapore: World Scientific. Hammersley, M. and P. Atkinson (2007), Ethnography: Principles in Practice, 3rd edn, London: Taylor & Francis. Jorgensen, D.L. (1989), Participant Observation: A Methodology for Human Studies, London: Sage. Mintzberg, H. (1979), ‘An emerging strategy of direct research’, Administrative Science Quarterly, 24 (4), 582–9. O’Leary, Z. (2014), The Essential Guide to Doing Your Research Project, 2nd edn, London: Sage. Petty, N.J., O.P. Thomson and G. Stew (2012), ‘Ready for a paradigm shift? Part 2: introducing qualitative research methodologies and methods’, Manual Therapy, 17 (5), 378–84. Symon, G. and C. Cassell (2013), Qualitative Organizational Research: Core Methods and Current Challenges, London: Sage. Tsang, E.W.K. (2013), ‘Case study methodology: causal explanation, contextualization, and theorizing’, Journal of International Management, 19 (2), 195–202. Yin, R.K. (1981), ‘The case study crisis: some answers’, Administrative Science Quarterly, 26 (1), 58–65.

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63. Rural entrepreneurship

Gerard McElwee and Andrew Atherton

This chapter defines the concept of a rural economy; it indicates what the drivers of success in a rural economy are and identifies the barriers confronting entrepreneurs in the rural environment and the strategies that can be used in order to overcome these barriers. It continues by considering some of the pressures on the rural environment in developed economies, before conceptualizing the rural entrepreneur and defining rural entrepreneurship. The problem of definition is not confined to entrepreneurship for there also are issues of conceptualization when terms such as ‘rural’ or ‘rurality’ are used. Furthermore, Beedell and Rehman (2000) suggest that to understand the phenomenon necessitates understanding rural entrepreneurs’ attitudes and motivation in an environmental/ conservation awareness context. For the purpose of this contribution rural businesses are defined as those occupied on a part or full time basis and engaged in a range of activities that are primarily dependent on the natural and physical resources of the rural environment as the main source of income and or utilize local labour to achieve business objectives. This definition includes tourism, food production and processing, for example (see Figure 63.1). It excludes those firms which do not contribute to a local economy and trade outside of the local(ized) area. The definition would also include social entrepreneurship (see separate entry in this volume). Corman and Lussier (1996), suggest that the importance of adopting community, ethical and social responsibilities as a way of doing business is becoming increasingly necessary to the success of the rural business. Bryant (1989) discusses the role and importance of farm and non-farm entrepreneurs in the rural environment. He suggests that the notion of entrepreneur is freely applied within the agricultural sector and the entrepreneurs themselves are argued to be key decision-makers in the political, social and economical environment. Farmers are, of course, particularly important as rural entrepreneurs as they attempt to construct sustainable rural livelihoods. This involves a shift away from agriculture’s traditional ‘core’ activities by means of diversification with new on-farm activities or ‘conversion’ to adding value within the production chain. This raises the question of how the role of those enterprises that fall into the vast category of ‘main-stream’ farms within the process of rural development (van der Ploeg, 2000) can be conceptualized. This entry explores the issue of how a rural economy can be analysed and, in particular, how an enterprising rural economy can be framed. The notion of an enterprising rural economy is important because entrepreneurship, as measured by indicators such as new firm formation rates, has been correlated with economic prosperity and growth. At a policy level, there is broad consensus that enterprise generates economic growth and  vitality within an economy, and is fundamental to coping with and responding to broader changes in the organization and dynamics of economic activity and interaction (Bolton, 1971; DTI, 2001; EC, 2003; OECD, 1996). 563

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Figure 63.1

Dry stone walling in North Yorkshire, England: a rural enterprise

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Increasing the entrepreneurial capacity and capability of rural areas has been identified as a means of addressing economic development constraints and under-performance in rural areas (McElwee et al., 2018; Jordaan et al., 2003; Laukkanen and Niittykangas, 2003). This has led the Department of the Environment, Food and Rural Affairs (DEFRA) in the UK to initiate strategies for economic development in less prosperous rural areas in England, through enterprise development as well as other forms of intervention, the intention being to: ‘reduce the gap in productivity between the least well performing quartile of rural areas and the English median by 2008, demonstrating progress by 2006, and improve the accessibility of services for people in rural areas’ (DEFRA, 2005b: 7). Similar initiatives, have occurred in many other economies. And yet there is little discussion of the notion of a rural enterprise economy, as a distinct concept and phenomenon. Although there have been broad descriptions and discussions of the ‘enterprise economy’ and an ‘enterprise culture’ as a whole (for example, Schram, 2004), these have typically taken the nation or region as the spatial unit of analysis, rather than differentiating between different types of geography, such as rural and urban. Where enterprise and entrepreneurship is explored in a rural context, studies have tended to focus on the dynamics and behaviours of individuals, often focusing on farmers, as entrepreneurs within a rural setting (for example, Carter, 1996; 1999; Kalantaridis and Bika, 2006a; 2006b; Kalantaridis and Labriandis, 2004; McElwee, 2006a; 2006b; 2008a; McElwee and Bosworth, 2010; Simmons and Kalantaridis, 1996).1 Carter (1998), Carter and Rosa (1998), McNally (2001) and Borsch and Forsman (2001), argue that the methods used to analyse business entrepreneurs in other sectors can be applied to rural businesses such as farmers. What appears to be missing from accounts of rural enterprise, therefore, is its spatial and socioeconomic context, that is, the locational characteristics and features of entrepreneurial activity within a rural context. This risks the emergence of a portrayal of rural enterprise as under-socialized because of a greater concern with individual agents than with the contextual structure within which entrepreneurs operate (Granovetter, 1985).

DRIVERS OF THE RURAL ENTERPRISE ECONOMY A number of drivers of development in a rural regional and local economy have been identified and discussed in the literature. These are shown in Table 63.1. The Organisation for Economic Co-operation and Development (OECD, 1996) suggests that less tangible factors are the reasons why rural areas with very similar characteristics, can exhibit differences in economic performance. According to DEFRA (2005a), rural areas can display significant strengths socially and economically. From this perspective, they are likely to have attractive housing, good labour relations, lower wages, lower rental and premises costs, and greater space for business expansion. The ‘quality of life associated with living and working in a rural environment can have a positive impact on competitiveness because these attributes attract entrepreneurial incomers who energise business, political and cultural life, leading to positive developmental changes’ (Agarwal et al., 2004: 6). As Maskell et al. suggest, ‘some geographical environments are endowed with a structure as well as a culture which seem to be well suited for

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Table 63.1

Drivers of rural success

Drivers

References

Employment and skills Investment Innovation Enterprise Competition Economic capital Human capital Social capital Cultural capital Environmental capital Mobility Travel time and peripherality

HM Treasury (2001), Boddy et al. (2005) HM Treasury (2001), Boddy et al. (2005) HM Treasury (2001) HM Treasury (2001), Kupiainen et al. (2000) HM Treasury (2001) Falconer (2000), Poot et al. (2006), Agarwal et al. (2004) McElwee (2008b), Agarwal et al. (2004) Agarwal et al. (2004), Lowe and Talbot (2000), McElwee (2004) Agarwal et al. (2004) Agarwal et al. (2004) Maskell et al. (1998), Boddy et al. (2005) Boddy et al. (2005)

dynamic and economically sound development of knowledge, while other environments can function as a barrier to entrepreneurship and change’ (1998: 181). Rural development, in summary, is influenced by multiple factors, and can be explained and analysed in different ways and from varying perspectives. Enterprise in the rural economy is clearly driven by rates of new venture formation, and there is a clear and well-established link between business start-up dynamics and local economic development. It is influenced by standard market factor inputs and dynamics, such as those used by HM Treasury to conceptualize and analyse economic growth and development; as stated in the Blue Book and Green Book frameworks for analysing the economy and assessing the impacts of intervention. However, rural enterprise, and hence the development of the rural economy, is also a function of the cultural values and norms that hold within an area, and so is based on the behaviours and predispositions of individuals towards, or against, enterprise within a locality (Atherton, 2004). The intangible dimensions of the rural economy, society and specific community within which exchange and interaction occur, therefore define, describe and determine localized levels of entrepreneurial activity and potential. It is these implicit, contextualized and yet critical ‘institutional’ dimensions of local development  and activity that determine localized patterns of enterprise, and broader socioeconomic, development.

BARRIERS TO ENTERPRISE IN THE RURAL ECONOMY This section identifies the barriers confronting entrepreneurs in the rural environment and  the strategies that can be used in order to overcome these barriers (for example, change of strategic business direction, diversification, specialization or other strategies such as merger). A barrier can be defined as a phenomenon – political, social, economic, technical or personal – that places a restriction, either permanently or temporarily, on the potential of the individual to develop the business (McElwee, 2004).

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Barriers to the development of the enterprise

Barriers

References

Access to distribution channels Capital requirements of entry Economies of scale

McElwee (2008b) Gasson (1998), Rantamäki-Lahtinen (2002) Kupiainen (2000), McElwee and Bosworth (2010) Maskell et al. (1998)

Geography and proximity to markets including labour markets Skills/education Inward investment Legislation and regulation Limited access to business support Poor management skills Position on the ‘experience curve’ Security Travel time and peripherality

OECD (1996) Falconer (2000), Poot et al. (2006), European Commission (1996) Lowe and Talbot (2000), McElwee (2004) McElwee and Bosworth (2010) McElwee (2006b) European Commission (1996) Maskell et al. (1998)

Specific potential barriers to the development of the enterprise include those shown in Table 63.2. Barriers will differ for different enterprises depending on the personal and business characteristics of the individual entrepreneur and enterprise.

THE RURAL BUSINESS ENVIRONMENT The rural business environment in developed economies is becoming increasingly complicated. The major trends described by McElwee (2006b) are: ● ● ● ● ● ● ● ●

globalization of the market and the enlargement of the EU Common Agricultural Policy (CAP)-reform, including the decrease of market regulation measures and price subsidies changing consumer demands changes in the supply chain: scale increase of retailers and supermarkets and a growing demand for quality control and quality assurance changing environment and growing pressure on the rural area growing demand for non-agricultural functions and services climate changes increasing energy prices.

Descriptions of entrepreneurship emphasize opportunity recognition and realization (Stevenson and Jarillo, 1990; Timmons, 1999; Shane and Venkataraman, 2000), the acceptance of risk and failure, innovation and the creation of something new, and the role of networks and cooperation, and strategic thinking (Dana, 2004).

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CONCEPTUALIZING THE RURAL ENTREPRENEUR There are difficulties associated with defining the entrepreneur; indeed, as noted by Palich and Bagby (1995: 426), ‘when tracing the development of this concept in the literature, it becomes clear that no one definition of the entrepreneur prevails’. Definitions have emphasized a broad range of activities the more well known of which include, uncertainty-bearing and the subcontractor who takes risks (Cantillon, 1755), coordination (Say, 1803), innovation (Schumpeter, 1934) and arbitrage. Defining rural entrepreneurs’ entrepreneurial activity is perhaps even more complex as these entrepreneurs do not operate in similar business activities characterized by their urban counterparts. Defining rural entrepreneurship is complex but in summary a rural entrepreneur is an individual who uses the resources of the regional economy; geographical, physical, topographical, labour, and so on in order to gain competitive advantage by trading in goods or services which ultimately generate social or economic capital for the rural environment in which the entrepreneur is located. This definition would exclude the entrepreneur who is located within a rural environment but who exclusively trades outside of the local economy, does not employ local labour or other resource nor utilize local business services nor contribute to regional rural value chains.

NOTE 1. See Niittykangas (1996), for a paper focusing on SMEs in a rural economic context as an exception to this tendency.

REFERENCES Agarwal, S., P. Courtney, A. Errington, M. Moseley and S. Rahman (2004), ‘Determinants of relative economic performance of rural areas’, final research report prepared for DEFRA, July, University of Plymouth and Countryside and Community Research Unit. Atherton, A. (2004), ‘Unbundling enterprise and entrepreneurship: from perceptions and preconceptions to concept and practice’, International Journal of Entrepreneurship and Innovation, 5 (2), 121–7. Atkinson J. and J. Hurtsfield (2004), ‘Small Business Service Annual Survey of small businesses: UK 2003’, London, Small Business Service, available at: http://www.sbs.gov.uk/content/analytical/sbsannualsme survey2003. Beedell, J. and T. Rehman (2000), ‘Using social-psychology models to understand rural entrepreneurs’ conservation behaviour’, Journal of Rural Studies, 16 (1), 117–27. Boddy, M., J. Hudson, A. Plumridge and D. Webber (2005), ‘Meeting the productivity challenge’, final report on a study carried out for the South West of England Development Agency, and summary report. Bolton, J. (1971), Small Firms – Report of the Committee of Inquiry on Small Firms, Cmnd 4811, London: HMSO. Borsch, G. and T. Forsman (2001), ‘The competitive tools and capabilities of micro firms in the Nordic food sector. The food sector in transition – Nordic Research’, proceedings of NJF seminar No. 313, June 2000 NILF, 2001 2. Bryant, C. (1989), ‘Entrepreneurs in the rural environment’, Journal of Rural Studies, 5 (4), 337–48. Cantillon, R. (1755) ‘Essai sur la Nature du Commerce en General’, available at: http://socserv.socsci.mcmaster ca/~econ/ugcm/3113/cantillon/essay1.txt (accessed 6 April 2004). Carter, S. (1996), ‘The indigenous rural enterprise: characteristics and change in the British farm sector’, Entrepreneurship and Regional Development, 8 (4), 345–58. Carter, S. (1998), ‘Portfolio entrepreneurship in the farm sector: indigenous growth in rural areas?’, Entrepreneurship and Regional Development, 10 (1), 17–32.

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Carter, S. (1999), ‘Multiple business ownership in the farm sector: assessing the enterprise and employment contributions of farmers in Cambridgeshire’, Journal of Rural Studies, 15 (4), 417–29. Carter, S. and P. Rosa (1998), ‘Indigenous rural firms: farm enterprises in the UK’, International Small Business Journal, 16 (4), 15–27. Corman, J. and R.N. Lussier (1996), Small Business Management, a Planning Approach, New York: Irwin/ McGraw-Hill. Dana, L.P. (2004), Handbook of Research on International Entrepreneurship, Cheltenham, UK and Northampton, MA, USA: Edward Elgar. Department for the Environment Food and Rural Affairs (DEFRA) (2005a), Productivity in Rural England, November, London: Rural Economics Unit, DEFRA. Department for the Environment Food and Rural Affairs (DEFRA) (2005b), ‘Agriculture in the United Kingdom’, London. Department of Trade and Industry (DTI) (2001), Opportunity for All in a World of Change, London: HMSO. European Commission (EC) (1996), ‘Introduction to electronic commerce’, DGIII/F/6, available at: www.ispo. cec.be/ecommerce/whatis.html (accessed 23 February 1996). European Commission (EC) (2003), Com Green Paper, Entrepreneurship in Europe, Brussels: European Commision. Falconer, K. (2000), ‘Farm-level constraints on agri-environmental scheme participation: a transactional perspective’, Journal of Rural Studies, 16 (3), 379–94. Gasson, R. (1998), ‘Educational qualifications of UK farmers: a review’, Journal of Rural Studies, 14 (4), 487–98. Granovetter, M. (1985), ‘Economic action and social structure: the problem of embeddedness’, American Journal of Sociology, 91, 481–93. HM Treasury (2001), Productivity in the United Kingdom: 3 – The Regional Dimension, London: HM Treasury. Jordaan, J., M. Alderson, I. Warren-Smith and M. Lehmann (2003), ‘Enterprise development in rural communities: experiences and preliminary results on the use of an integrated demonstration and training business incubator in South Africa’, 13th Global Conference on Internationalizing Entrepreneurship Education and Training, Grenoble, France, 8–10 September. Kalantaridis, C. and Z. Bika (2006a), ‘In-migrant entrepreneurship in rural England: beyond local embeddedness’, Entrepreneurship and Regional Development, 18 (2), 109–31. Kalantaridis, C. and Z. Bika (2006b), ‘Local embeddedness and rural entrepreneurship: case-study evidence from Cumbria, England’, Environment and Planning, 38 (8), 1561–79. Kalantaridis, C. and L. Labriandis (2004), ‘Rural entrepreneurs in Russia and the Ukraine: origins, motivations and institutional change’, Journal of Economic Issues, 38 (3), 659–81. Kupiainen, K. (2000), Maaseudun pienyritysten menestyminen (Performance of Small Rural Enterprise), Agricultural Economics Research Institute, research reports, 239. Laukkanen, M. and H. Niittykangas (2003), ‘Local developers as virtual entrepreneurs: do difficult surroundings need initiating interventions?’, Entrepreneurship and Regional Development, 15, 309–31. Lowe, P. and H. Talbot (2000), ‘Providing advice and information in support of rural microbusinesses’, Centre for Rural Economy Research Report, University of Newcastle, Newcastle upon Tyne. Maskell, P.H., I. Eskelinen, A. Hannibalsson, J. Malmberg and E. Vatne (1998), Competitiveness, Localised Learning and Regional Development. Specialization and Prosperity in Small Open Economies, London: Routledge. McElwee, G. (2004), ‘A segmentation framework for the farm sector’, 3rd Rural Entrepreneurship Conference, University of Paisley, 28–29 October. McElwee, G. (2006a), ‘The entrepreneurial farmer: a Pandora’s box’, Rural Enterprise and Management, 2 (2), 23–42. McElwee, G. (2006b), ‘Farmer’s as entrepreneurs: developing competitive skills’, Journal of Developmental Entrepreneurship, 11 (3) 187–206. McElwee, G. (2008a), ‘The rural entrepreneur: problems of definition’, International Journal of Entrepreneurship and Small Business, 6 (3), 320–21. McElwee, G. (2008b), ‘A taxonomy of entrepreneurial farmers’, International Journal of Entrepreneurship and Small Business, 6 (3), 465–78. McElwee, G. and G. Bosworth (2010), ‘Exploring the strategic skills of farmers across a typology of farm diversification approaches’, Journal of Farm Management, 13 (12), 819–38. McElwee, G., R. Smith and P. Somerville (2018), ‘Conceptualising animation in rural communities: the Village SOS case’, Entrepreneurship and Regional Development, 30 (1–2), 173–98. McNally, S. (2001), ‘Farm diversification in England and Wales – what can we learn from the farm business survey’, Journal of Rural Studies, 17 (2), 247–57. Niittykangas, H. (1996), ‘Enterprise development in different rural areas of Finland’, Entrepreneurship and Regional Development, 8 (3), 245–62.

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Organisation for Economic Co-operation and Development (OECD) (1996), Territorial Indicators of Rural Development and Employment, Paris: OECD. Palich, L. and D. Bagby (1995), ‘Using cognitive theory to explain entrepreneurial risk-taking: challenging conventional wisdom’, Journal of Business Venturing, 10, 425–38. Ploeg, J.D. van der (2000), ‘Revitalizing agriculture: farming economically as starting ground for rural development’, Sociologia Ruralis, 40, 497–511. Poot, E.H., A.J. Balk-Theuws, J.S. de Buck, C.J.M. Buurma, C.J. van der Lans and P.L. de Wolf (2006), ‘Voorlopers en voortrekkers, ondernemerschap in netwerken – case plant’, Netherlands: Wageningen University and Research Centre. Rantamäki-Lahtinen, L. (2002), ‘Finnish pluriactive farms – the common but unknown rural enterprises’, in H.W. Tanvig (ed.), Rurality, Rural Policy and Politics in a Nordic-Scottish Perspective, Working Paper 1/02, Esbjerg: Danish Centre for Rural Research and Development. Say, J.B. (1803), ‘A treatise on political economy, or the production, distribution and consumption of wealth’, available at: http://socserv.mcmaster.ca/econ/ugcm/3ll3/say/treatise.pdf (accessed 19 March 2006). Schram, S. (2004), ‘Building entrepreneurial economies’, Foreign Affairs, July/August, 104–15. Schumpeter, J. (1934), The Theory of Economic Development: An Inquiry into Profits, Capital, Credit, Interest and the Business Cycle, Cambridge, MA: Harvard University Press. Shane, S. and S. Venkataraman (2000), ‘The promise of entrepreneurship as a field of research’, Academy of Management Review, 25 (1), 217–26. Simmons C. and C. Kalantaridis (1996), ‘Making garments in Southern Europe: entrepreneurship and labour in rural Greece’, Journal of Rural Studies, 12 (2), 169–85. Stevenson, H.H. and J.C. Jarillo (1990), ‘A paradigm of entrepreneurship: entrepreneurial management’, Strategic Management Journal, 11, 17–27. Timmons, J.A. (1999), New Venture Creation; Entrepreneurship for the 21st Century, 5th edn, Boston, MA: McGraw-Hill.

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64. Schumpeter, creative destruction and entrepreneurship Dieter Bögenhold

Following many years in which the political and scientific debate was fixed on large and very large firms, which were regarded as the guarantors and drivers of economic prosperity, of technical progress and of secure and growing employment, the tide began to turn, slowly but surely, at the beginning of the 1980s, with the result that more interest arose in self-employment and in small and medium-sized enterprises. The transformation which entrepreneurship underwent in the eyes of the public, especially in more critical social and economic circles, can be described as a change from demons to demiurges, who in Greek mythology were regarded as a kind of innovative creators of worlds (Bögenhold and Staber, 1994). Since then, we have been able to observe a multicoloured political alliance in favor of entrepreneurship. At the same time when unemployment had climbed into comparatively high figures which were unknown for the decades before, smaller economic units were increasingly seen as beacons of hope for economic and labor market policies. Also, talking entrepreneurship has become very fashionable but the more one comes across the term the more one has to confess that no consensual understanding exists as to the meaning of the term. Entrepreneurship seems to be poorly defined and, furthermore, the concept is almost based on non-questioned assumptions. One has to differentiate what entrepreneurship is (and can be) and that the phenomenon is more complex in reality than public discourse sometimes suggests. Entrepreneurship has two sides at least (Boegenhold, 2004). In public debate and within the public policy arena, we find an example of this dilemma in a report by the Organisation for Economic Co-operation and Development (OECD) entitled Fostering Entrepreneurship: Measuring the amount of entrepreneurship taking place in a country is difficult to do, in part because there is no consensus about what would be a reliable and practical set of indicators. Some emphasize the number of new firms starting up, while others consider turnover in the number of firms to be more important. Some would focus on small and medium sized enterprises (SMEs) where the owner(s) and manager(s) are the same. But others concentrate on the performance of fast-growing firms, whether new or well-established. Some associate entrepreneurship with the development of ‘high-tech’ industries. None of these approaches is able to provide a complete picture of the state of entrepreneurship; each one takes only one aspect of it. Nonetheless, while many large and well-established firms can be very entrepreneurial, measures of small and especially new firm development are more often used as indicators of entrepreneurial activity. (OECD, 1998: 11–12)

The list as suggested in the quotation by the OECD book is far from being complete: one may add several further interpretative contexts which are used in in combination with the term entrepreneurship. ‘Female entrepreneurship’ (Hughes, 2005), ‘ethnic 571

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entrepreneurship’ (Light and Rosenstein, 1995) or ‘academic entrepreneurship’ (Shane, 2005) are some of them. Many dashed hopes are also on the agenda, and we find not always convincing the empirical and theoretical vision of how prosperity, innovative behavior, the dynamics of ventures and the dynamics of employment and the issue of entrepreneurial activities interact both positively and negatively on international comparisons. Many economic policy statements about supposed positive causalities between growth, prosperity and self-employment and business start-ups fail when operating with only a few variables at the level of national economies (Baumol et al., 2007). Economic life is too complex to think of only in terms of labor, capital and technologies without acknowledging further ‘soft dimensions’ such as regional cultures including belief systems, human relations, demographic patterns and different network forms (Audretsch, 2007). Looking at the subject of entrepreneurship, it is striking to see how arguments acquire a certain tenacity. Various interpretative issues surrounding the word ‘entrepreneurship’ are overlooked, and the use of the term is often based on selective associations. The nature of entrepreneurship has not only changed during the historical process of the last centuries (Baumol, 1990; Munro, 2006) but also the academic handling of entrepreneurship in the history of economic thought has been changed widely. Different approaches coexist and academic discussion on entrepreneurship is trying to develop typologies of different concepts. Already a brief look into selected pieces of the classics shows how disparate the contents of the meaning of entrepreneurship has been (Swedberg, 2000; Westhead and Wright, 2000; Shane, 2002). Scanning the history of economic thought in the area of entrepreneurship shows that the contents of what is captured by the term entrepreneurship has also been changing and is far from being universally shared, so that competing and changing conceptions can be found. However, Joseph A. Schumpeter is most associated with the term entrepreneurship, and vice versa: when involved in talk about entrepreneurship, Schumpeter is among the first economists who comes to mind. Like no other author Schumpeter’s work stands for the idea of an innovative entrepreneur so that the term entrepreneurship seems to serve very often only in a combination with Joseph A. Schumpeter. In fact, Schumpeter’s oeuvre was much broader than this (Stolper, 1951). The discussed relevance of Schumpeter shows his thematical and systematical variety so that one has to agree with Deutsch (1956) who summarized Schumpeter’s ‘intellectual stature, his broad learning, and his analytic power’: ‘There have been few men in any generation who had so much to say on so many vital topics, and who said it with such clarity and freshness’ (Deutsch, 1956: 41).

JOSEPH ALOIS SCHUMPETER Schumpeter (1883–1950) is regarded as one of the most prominent economists of the  twentieth century. Schumpeter was an Austrian economist who had professorships in  Austria and Germany before joining the faculty at Harvard University in the early 1930s where he spent the rest of his career. He was born in the same year as John Maynard Keynes, which was also the year of death of Karl Marx. Marx was for Schumpeter and for many of his contemporaries a very important provider of headwords

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to get verified or falsified in his own discussion. Schumpeter not only wrote on the ‘Communist Manifesto’ (Schumpeter, 1949) but also his famous Capitalism, Socialism, and Democracy (1942 [1947]) proved to be a very long and substantial critical dialog with Marx’s conception. Schumpeter and Keynes were both in their advanced scientific phases within the Department of Economics at Harvard University at the same time. Keynes is most associated with ideas of Keynesianism and many related works in the area of financial economics, whereas Schumpeter in broad circles of academic recognition is primarily identified with ideas of industrial dynamics and entrepreneurship, which comes up with elements of innovation. From a contemporary perspective Schumpeter was truly interdisciplinary and his many works span fields such as sociology, finance economics and politics (Harris, 1951), which is mirrored by the fact that many of his papers were distributed posthumously to separate academic subjects, for example, papers on economic theory (Schumpeter, 1952), papers on sociology (Schumpeter, 1953), papers on the history of economic thought and biographies (Schumpeter, 1954b), papers on economic policies (Schumpeter, 1985), articles on socioeconomics (Schumpeter, 1987), ‘political speeches’ (Schumpeter, 1992) and essays on daily politics (Schumpeter, 1993a). Over a time span of nearly 50 years Schumpeter published series of articles and books. While John Maynard Keynes was regarded for several decades as the most eminent economist of the twentieth century, during the past 20 or 25 years those statements increased which tried to rank Schumpeter at the same level as Keynes (Giersch, 1984). Nevertheless, Schumpeter has found a firm place as one of the most important economists of the twentieth century. His ideas remain in vogue and an international Joseph A. Schumpeter Society was founded in the 1980s. The interest in his work is highlighted best by a series of books and essays shedding light on different aspects of his writings (among them are Heertje, 2006; McCraw, 2007; Reisman, 2004; Shionoya, 1997; Swedberg, 1991). The originality of Schumpeter’s research is his truly interdisciplinary scientific approach, referring to lessons of history, sociology, psychology and further disciplines, and he can be regarded as pioneer of a research tradition which is commonly called socioeconomics. Schumpeter not only practiced such inter- or trans-disciplinary ‘putting together’ which, of course, was even more common in his time than it is today, but he also argued theoretically in this direction: the extensive preface of Schumpeter’s History of Economic Analysis (1954a) which was published four years after his death includes four separate chapters in which Schumpeter did systematic academic reflection on the nature and status of economics. When does theory gets the distinction of being ‘pure theory’? Why do we need studies in the history of economic thought? What are the intersections between theory, statistics, and economic history about? Where are borders and overlaps between economics, philosophy, psychology, political economy and economic sociology? Which are general principles of scientific processes? Treating those questions which fall into the area of a science or sciences marks Schumpeter as representative of an academic procedure which did not fit with ‘primitive economics’ (Schumpeter, 1954a: 26), which has no cooperation with other disciplines and which are steadily working apart. When Schumpeter argues, for example, that ‘we cannot afford . . . to neglect the developments of sociology’ (Schumpeter, 1954a: 25) and especially not the ‘fundamental field of economic sociology in which economists nor sociologists can get very far without treading on one another’s toes’ (Schumpeter, 1954a: 26) he demonstrates very

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well what he means by his so-called need for academic ‘cross-fertilization’. Spiethoff said,  that Schumpeter regarded himself as a ‘gourmet’ in issues of theory (Spiethoff, 1949–50: 291). Reading related chapters by Schumpeter shows that his type of thought matches with ideas of so-called old and new institutionalism in economics. Schumpeter argues not only in favor of economic history that renders service to economic theory but also ‘a sort of generalized or typified or stylized economic history’ (Schumpeter, 1954a: 20), which includes institutions like private property or free contracting or government regulation. While modern economic theory is going to turn increasing attention towards issues of human behavior and motivation (Ackerlof, 2007), we can already find the related methodological script within Schumpeter’s reflections: Economic analysis deals with the questions how people behave at any time and what the economic effects are they produce by so behaving; economic sociology deals with the question how they came to behave as they do. If we define human behavior widely enough so that it includes not only actions and motives and propensities but also the social institutions that are relevant to economic behavior. (Schumpeter, 1954a: 21)

We will be dealing with a much more real conceptualization of economic life.

CREATIVE DESTRUCTION Schumpeter is not only known worldwide as a theorist of entrepreneurship but also for his view of an evolutionary economy, which is often summarized as never-ending process  of  ‘creative destruction’ (Harris, 1951). Creative destruction refers to the economic processes by which old systems, technology and thinking is destroyed by the new. The Schumpeterian view of the economy is not static in which economy is regarded as being in equilibrium, but is always newly ‘in the making’. Economy is interpreted as a snapshot which balances developments of potential losses and new traits. Our lives have plenty of examples of such creative destruction where threats or deaths of traditional markets, firms or branches appear or, at least, where specific production lines lose their regional production ground, as for example wide parts of shipbuilding, coal mining or textile industries in Europe or North-America, whereas new fields of economic activities emerge simultaneously, such as tourism or leisure industries, microelectronic-related industries or biotechnology-driven production. Examples of creative destruction in the music industry would include the evolution from wax cylinders to vinyl records to compact discs and MP3 files. Schumpeter saw creative destruction as the essence and logical byproduct of capitalism. The ambiguous expression of ‘creative destruction’ was first used in Capitalism, Socialism, and Democracy (Schumpeter, 1942). The book has a substantial chapter entitled ‘Creative destruction’ which deals with the modus operandi of competition. In opposition to the predominant economic thought of equilibrium theory, Schumpeter conceptualized economy being permanently in an evolving process of economic and social change, which is the reason that he is regarded as one of the pioneers of ‘evolutionary economics’ (Metcalfe, 1998). Schumpeter frequently discussed parallels and divergences of his thought and

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Marxism:  he viewed capitalism as a ‘form or method of economic change’. Creative destruction is a contradictory expression which seeks to highlight the fact that completion and inherent processes towards monopolistic and oligopolistic competition are only one part of the overall economic game. Too often simultaneous processes of the creation of new firms, new ideas and even new business leaders elsewhere in an economy are neglected. Deaths and births – both of business enterprises and individuals – are two sides of the same coin, and Schumpeter dubbed creative destruction as an essential fact about capitalism. It was Schumpeter (1942 [1947]) who problematized this complicated interlocking ‘up’ and ‘down’ of economic development. As well as Marx, Schumpeter acknowledged the double-face of capitalism with its interplay of destruction and creativity, but Schumpeter stressed the dynamic process of industrial change much more than Marx ever did, and Schumpeter highlighted the open nature of the process: The essential point to grasp is that in dealing with capitalism we are dealing with an evolutionary process. It may seem strange that anyone can fail to see so obvious a fact which moreover was long ago emphasized by Karl Marx. Yet that fragmentary analysis which yields the bulk of our propositions about the functioning of modern capitalism persistently neglects it.  .  . . Capitalism . . . is by nature a form or method of economic change and not only never is but never can be stationary. And this evolutionary character of the capitalist process is not merely due to the fact that economic life goes on in a social and natural environment which changes and by its change alters the data of economic action. . . . This process of Creative Destruction is the essential fact about capitalism. It is what capitalism consists in and what every capitalist concern has got to live in. (Schumpeter, 1942 [1947]: 82–3)

Innovation is the steady new ‘fresh blood’ through new ideas and people who keep the ‘capitalist machine’ going. However, creativity is always combined with destruction elsewhere. When new products appear, consumer demands change, and existing production and related markets are rendered obsolete. In some cases entire communities are negatively impacted when the production of new products locates elsewhere. Labor historians and economists have long studied the fall-out from deindustrialization. There are, for example, cities and towns throughout European or American regions that are yet to recover from the economic decline associated with the closure of traditional industries.

INNOVATION AND ITS DYNAMICS Creative destruction has to be seen in a wider context of innovation and entrepreneurship for which Schumpeter is so well known. Schumpeter is obvious for his intermediate positions. Edgar Salin, Swiss economist and prestigious professor at Heidelberg, wrote in his introduction to the first German translation of Capitalism, Socialism, and Democracy that Schumpeter would not match with any school, political party or general interpretative scheme (Salin, 1950: 1). Salin described Schumpeter as socialist but he added that no socialist will find his or her socialism within Schumpeter. According to Salin, Schumpeter’s advantage is the clear pointing to failures and limitations of Marx’s contributions but also the highlighting of Marx’s strengthens and discoveries elsewhere. Capitalism could only be understood – according Marx and non-Marxist Schumpeter simultaneously – in its long-term development.

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The process of industrial change – in Schumpeter’s view – gives the basic crescendo which provides the music of the economy. However, the process has two faces. These two faces are, on the one hand, the achievements of capitalism, including the increases in  living standards which fascinated Schumpeter principally. But those advantages act,  on  the other hand, simultaneously with an increase of monopolistic structures as gravedigger of capitalism, since they minimize the dynamics of innovation. Schumpeter’s conclusion was clear but empirically wrong until now. He opened up the second part of Capitalism, Socialism, and Democracy with the rhetorical question ‘Can capitalism survive?’ and did not hesitate to answer ‘No, in my opinion not’ (Schumpeter, 1942 [1947]). So far, Schumpeter can be said to have underestimated the potential innovation sources of capitalism (Swedberg, 1992). Innovation and technical progress are not external factors but belong to the economic  system as internal factors. The crucial question is not what capitalism does with economic structures but how capitalism creates and destroys the structures. Basic assumption of its dynamics is the existence of competition for innovation: companies always compete for new ways of innovation. Innovation is regarded as introducing a new combination of things which did not exist before or which were not done in that way before. Implementation of a new combination is the successful test on the market. Innovations are commonly thought of as new inventions which will be further developed  to new products but in Schumpeterian thought this interpretation is just one out of several cases of an innovation.1 Producing means combining things, means or forces, innovative producing means to do it in a new way. Schumpeter spent some further detailed thought on the issues in his Theory of Economic Development which was Schumpeter’s first book and was published in German in 1912.2 The English version appeared only in 1934 (see here Schumpeter, 1963). He distinguished between five different matters of innovation: I.

The introduction of a new good – that is one with which consumers are not yet familiar – or a new quality of a good. II. The introduction of a new method of production, that is one not yet tested by experience in the branch of manufacture concerned, which needs by no means be founded upon a discovery scientifically new, and can also exist in a new way of handling a commodity commercially. III. The opening of a new market, that is a market into which the particular branch of manufacture of the country in question has not previously entered, whether or not this market has existed before. IV. The conquest of a new source of supply of raw materials or half-manufactured goods, again irrespective of whether this source already exists or whether it has first to be created. V. The carrying out of the new organization of any industry, like the creation of a monopoly (for example through trustification) or the breaking up of a monopoly position (Schumpeter, 1963: 66).

The strategically important question is who or what mechanism introduces the innovations into the business cycle? Schumpeter’s answer is that often young companies come up with innovations and that basically entrepreneurs play the central role in installing and implementing innovations.

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ENTREPRENEURS AND ENTREPRENEURSHIP Entrepreneurs are treated as agents to introduce new inputs into the economy. Schumpeter  defined an entrepreneur as a person who comes up with ‘new combinations’  (new goods, new methods of production, new markets, new sources of supply, new organizations of any industry or combinations between these items) which are commonly called innovation. The activity of entrepreneurs is fundamental for economic development. Entrepreneurship is regarded as an institution which has to provide innovations. According to Schumpeter the economic function of entrepreneurship is to initiate and to continue the process of creative destruction as the ‘permanent storm of capitalist development’. In this view entrepreneurs act as personifications of economically necessary functions of economic change. Schumpeter’s definition is remarkable since he considers only those economic actors to  be entrepreneurs who create ‘new combinations’, and who take risks with credited capital. In this sense, being entrepreneurial is ‘not a profession and as a rule not a lasting condition’ (Schumpeter, 1963: 78). Being an entrepreneur is ultimately linked to the status  of being innovative. It is not entrepreneural to continue to run a newly created enterprise in further routines and cycles. The Schumpeterian entrepreneur is portrayed by  the related dynamics. Being an entrepreneur means being innovative and dynamic. Non-dynamic economic actors who run their (small) firms just in the way to maintain a market position or to defend the existing earnings are excluded by Schumpeter’s definition since they are figures of a static economy. Those people in their economic and occupational routines do not take credit or accept risks at all and they are not concerned with creation of further ventures or an expansion of the company. A further interesting point of Schumpeter’s definition of entrepreneurship is that entrepreneurs are people being innovative independently, whether they are working on their own or being employed in companies and working for a salary or a wage.3 In times when stock market companies gain further importance and dominance former romanticism of business adventurers is declining. The most important criterion, according to Schumpeter, is that entrepreneurs ‘put things forward’ and keep capitalism going.

MOTIVATION OF ENTREPRENEURS Mainstream economics or ‘primitive economics’ (Schumpeter, 1954a: 26) is concerned only with economic functions of actors or institutions; it is not concerned with actors’ motives and their modes of origin. In contrast to that conventional practice, Schumpeter asked for the rationality of actors and – in this case – of entrepreneurs. Why do they do what they do? Schumpeter points to the necessity to employ sociological and psychological arguments in order to provide a more grounded perspective (Schumpeter, 1993b). In doing this, Schumpeter follows an interdisciplinary practice which was not common in his time and which is also currently not used much. Schumpeter worked explicitly on the relationship of economics and psychology in his final book History of Economic Analysis (1954a) as we have already discussed in this chapter. But he started his career treating the same questions. In The Theory of Economic Development (1963), which was his first

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book, Schumpeter pointed to entrepreneurs’ behavior: ‘We shall finally try to round off our picture of the entrepreneur in the same manner in which we always, in science as well as in practical life, try to understand human behavior, viz. by analyzing the characteristic motives of his conduct’ (Schumpeter, 1963: 90).4 Reading Schumpeter shows a principle criticism of the cultural system of capitalism, which is a kind of general civilization criticism and which is very similar to what we know already from Max Weber.5 However, Schumpeter’s point is not to leave the discussion at a level of dark diagnosis of recent cultural and economic times related to capitalism, but he tries to understand the sense of economic activities. When Schumpeter asks for the meaning of economic action, he discusses models of rationality. All his theorizing is against practices of utilitarianism and against basic assumptions of economic theorizing. In other words, Schumpeter proves to systematize arguments in favor of economics being oriented towards ‘real life’ which has now become popular under the flag of ‘heterodox economics’ (Lawson, 2006; Lee, 2004). Schumpeter discusses and distinguishes three different complexes of motives which lead entrepreneurial activities: 1.

2.

3.

‘First of all, there is the dream and the will to found a private kingdom, usually, though not necessarily, also a dynasty. The modern world really does not know any such positions, but what may be attained by industrial or commercial success is still the nearest approach to medieval lordship possible to modern man. Its fascination is specially strong for people who have no other chance of achieving social distinction.’ ‘Then there is the will to conquer: the impulse to fight, to prove oneself superior to others, to succeed for the sake, not for the fruits of success, but of success itself. From this aspect, economic action becomes akin to sport – there are financial races, or rather boxing-matches. The financial result is a secondary consideration, or, at all events, mainly valued as an index of success and as a symptom of victory, the displaying of which very often is more important as a motive of large expenditure than the wish for the consumers’ goods themselves.’ ‘Finally, there is the joy of creating, of getting things done, or simply of exercising one’s energy and ingenuity. This is akin to a ubiquitous motive, but nowhere else does it stand out as an independent factor of behavior with anything like the clearness with which it obtrudes itself in our case. Out type seeks out difficulties, changes in order to change, delights in ventures. This group of motives is the most distinctly anti-hedonist of the three’ (Schumpeter, 1963: 93–4).

Schumpeter provides not only very important elements for a psychology of entrepreneurial activity but also of economy-related behavior. He clearly insists that motives as need for achievement and success can also be found in regular professions and that the financial motive is always present but never dominant: Only with the first groups of motives is private property as the result of entrepreneurial activity an essential factor in making it operative. With the other two it is not. Pecuniary gain is indeed a very accurate expression of success, especially of relative success, and from the standpoint of the man who strives for it, it has the additional advantage of being an objective fact and largely independent of the opinion of others. (Schumpeter, 1963: 94)

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CONCLUSION Discussing entrepreneurship implies dealing with a variety of semantic associations. Entrepreneurship serves to be a key word for diverse contexts and motivations. Schumpeter whose name is connected with discussion of entrepreneurship possibly more than anyone else in academic circles has a very specific understanding of what entrepreneurship is. For Schumpeter entrepreneurship is less related to ownership but more to control over means. Schumpeter stresses the dynamics aspects which lead to innovation and which emphasize the state of the economy further. Capitalism exists always as a development with a fragile balance of ‘coming’ and ‘going’  of firms, entrepreneurs, goods, ideas, mentalities and ideologies. Although Schumpeter is often regarded as the academic hero of entrepreneurship and innovation, he was highly sceptical about the endogenous creativity of capitalism to achieve a balance between creativity and destruction over a longer period. So far, Schumpeter can be said to have underestimated the potential innovation sources of capitalism. And Schumpeter is cynical concerning the entrepreneur and the motivational background of related activities. The hero of capitalism loses a lot of the overwhelming sympathies he or she gains in conventional rhetorics. Schumpeter helps to understand the dynamics of capitalism very well, his contribution towards entrepreneurship is still of relevance and an important part of textbooks, as are his socioeconomic thought and methodological reflections.

NOTES 1. See Braunerhjelm and Svensson (2006) for a discussion the asymmetry between invention and innovations. 2. Specialists in the history of economic thought are still in debate if the first publication date was 1911 or 1912. What is much more important is that the first edition is widely unknown and only a few single copies are available in European libraries. Current scholars reading the Theory of Economic Development in German refer to a reprint of the second edition while English readers refer to a reprint of the revised English translation published first in 1934. The English version is not identical to the second German edition (1926) while the German first edition differs in many parts substantially from the German second edition. For example, the first German edition had a final seventh chapter (‘The holistic view on the economy’) which was largely based on sociological thought. 3. As Schumpeter wrote: ‘As it is the carrying out of new combinations that constitutes the entrepreneur, it is not necessary that he should be permanently connected with an individual firm; many ‘financiers’, ‘promoters’, and so forth are not, and still they may be entrepreneurs in our sense’ (Schumpeter, 1963: 75). 4. This point underlines very well Osterhammel’s thesis that Schumpeter had developed the ‘basic outlines’ of his thinking until 1920 (Osterhammel, 1987: 107). 5. For convergences between Weber and Schumpeter see MacDonald (1965), Osterhammel (1987) and Collins (1986: 117 ff.).

REFERENCES Ackerlof, George A. (2007), ‘The missing motivation in macroeconomics’, presidential address, prepared for the Conference of the American Economic Association, Chicago, 5–7 January. Audretsch, David B. (2007), The Entrepreneurial Society, Oxford: Oxford University Press. Baumol, William J. (1990), ‘Entrepreneurship: productive, unproductive, and destructive’, Journal of Political Economy, 98 (5), 893–921. Baumol, William J., R.E. Litan, C.J. Schramm (2007), Good Capitalism, Bad Capitalism and the Economics of Growth and Prosperity, New Haven, CT: Yale University Press.

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Bögenhold, Dieter (2004), ‘Entrepreneurship: multiple meanings and consequences’, International Journal of Entrepreneurship and Innovation Management, 4 (1), 3–10. Bögenhold, Dieter and Udo Staber (1994), Von Dämonen zu Demiurgen? Studien zur (Re-)Organisation des Unternehmertums in Marktwirtschaften, Berlin: Akademie-Verlag. Braunerhjelm, Pontus and Roger Svensson (2006), ‘The inventor’s role: was Schumpeter right?’, paper presented  at ‘The Oslo Research Workshop 2006 on Entrepreneurship, Innovation and Innovation Policy’, Norwegian School of Management, Oslo, 9–10 November. Collins, Randall (1986), Weberian Sociological Theory, Cambridge: Cambridge University Press. Deutsch, Karl W. (1956), ‘Joseph Schumpeter as an analyst of sociology and economic history’, Journal of Economic History, 16, 41–56. Giersch, Herbert (1984), ‘The age of Schumpeter’, American Economic Review, 74, 103–9. Harris, Seymour Edwin (ed.) (1951), Schumpeter: Social Scientist, Cambridge, MA: Harvard University Press. Heertje, Arnold (2006), Schumpeter on the Economics of Innovation and the Development of Capitalism, Cheltenham, UK and Northampton, MA, USA: Edward Elgar. Hughes, Karen D. (2005), Female Enterprise in the New Economy, Toronto: University of Toronto Press. Lawson, Tony (2006), ‘The nature of heterodox economics’, Cambridge Journal of Economics, 30 (4), 483–505. Lee, Frederic S. (2004), ‘To be a heterodox economist: the contested landscape of American economics, 1960s and 1970s’, Journal of Economic Issues, 38 (3), 747–63. Light, Ivan and Carolyn Rosenstein (1995), Race, Ethnicity, and Entrepreneurship in Urban America, Hawthorne, CA: Aldine de Gruyter. MacDonald, R. (1965), ‘Schumpeter and Max Weber – central visions and social theories’, Quarterly Journal of Economics, 80, 373–96. McCraw, Thomas K. (2007), Prophet of Innovation: Joseph Schumpeter and Creative Destruction, Cambridge, MA: Harvard University Press. Metcalfe, J. Stanley (1998), Evolutionary Economics and Creative Destruction, London: Routledge. Munro, John (2006), ‘Entrepreneurship in early-modern Europe (1450–1750): an exploration of some unfashionable themes in economic history’, University of Toronto, Institute for Policy Analysis, Working Paper No. 30. Organisation for Economic Co-operation and Development (OECD) (1998), Fostering Entrepreneurship, Paris: OECD. Osterhammel, Joachim (1987), ‘Varieties of social economics: Joseph A. Schumpeter and Max Weber’, in W. Mommsen and J. Osterhammel (eds), Max Weber and His Contemporaries, London: Allen and Unwin, pp. 106–20. Reisman, David (2004), Schumpeter’s Market. Enterprise and Evolution, Cheltenham, UK and Northampton, MA, USA: Edward Elgar. Salin, Edgar (1950), German Introduction to J.A. Schumpeter: Kapitalismus, Sozialismus und Demokratie, München: Lehnen. Schumpeter, Joseph A. (1942), Capitalism, Socialism, and Democracy, London: Allen and Unwin, 2nd edn 1947. Schumpeter, Joseph A. (1949), ‘The Communist Manifesto in economics and sociology’, Journal of Political Economy, 57 (3), 199–212. Schumpeter, Joseph A. (1952), Aufsätze zur ökonomischen Theorie, Tübingen: J.C.B. Mohr. Schumpeter, Joseph A. (1953), Aufsätze zur Soziologie, Tübingen: J.C.B. Mohr. Schumpeter, Joseph A. (1954a), History of Economic Analysis, Oxford and New York: Oxford University Press. Schumpeter, Joseph A. (1954b), Dogmenhistorische und biographische Aufsätze, Tübingen: J.C.B. Mohr. Schumpeter, Joseph A. (1963), The Theory of Economic Development, New York and Oxford: Oxford University Press. Schumpeter, Joseph A. (1985), Aufsätze zur Wirtschaftspolitik, eds W.F. Stolper and C. Seidl, Tübingen: J.C.B. Mohr. Schumpeter, Joseph A. (1987), Beiträge zur Sozialökonomik, Wien: Böhlau. Schumpeter, Joseph A. (1992), Politische Reden, eds C. Seidl and W.F. Stolper, Tübingen: J.C.B. Mohr. Schumpeter, Joseph A. (1993a), Aufsätze zur Tagespolitik: Ökonomie und Psychologie des Unternehmers, eds C. Seidl and W.F. Stolper, Tübingen: J.C.B. Mohr. Schumpeter, J.A. (1993b): Ökonomie und Psychologie des Unternehmers (orig 1929), in J.A. Schumpeter, Aufsätze zur Tagespolitik: Ökonomie und Psychologie des Unternehmers, eds C. Seidl and W.F. Stolper, Tübingen: J.C.B. Mohr, pp. 193–204. Shane, Scott (ed.) (2002), The Foundations of Entrepreneurship, 2 vols, Cheltenham, UK and Northampton, MA, USA: Edward Elgar. Shane, Scott (2005), Academic Entrepreneurship: University Spinoffs and Wealth Creation, Cheltenham, UK and Northampton, MA, USA: Edward Elgar.

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Shionoya, Yuichi (1997), Schumpeter and the Idea of Social Science: A Metatheoretical Study, Cambridge: Cambridge University Press. Spiethoff, A. (1949–50), ‘Joseph Schumpeter in memoriam’, Kyklos, 3–4, 289–93. Stolper, Wolfgang F. (1951), ‘Reflections on Schumpeter’s writings’, The Review of Economics and Statistics, 33 (2), 170–77. Swedberg, Richard (ed.) (1991), Joseph A. Schumpeter. The Economics and Sociology of Capitalism, Princeton, NJ: Princeton University Press. Swedberg, R. (1992a), ‘Can capitalism survive? Schumpeter’s answer and its relevance for new institutional economics’, Archive Europeene Sociologique, 33, 350–80. Swedberg, Richard (ed.) (2000), Entrepreneurship. The Social Science View, Oxford: Oxford University Press. Westhead, Paul and Mike Wright (eds) (2000), Advances in Entrepreneurship, vol. 1, Cheltenham, UK and Northampton, MA, USA: Edward Elgar.

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65. Science parks Paul Westhead

DEBATE Attention is focusing on the clustering of new firms (García-Lillo et al., 2018; Lehmann and Menter, 2018). Knowledge spillover (Acs et al., 2013) and spinoff theorists (Klepper, 2011) suggest that entrepreneurship is a key driver promoting cluster formation and growth (Feldman, 2014; Zhu et al., 2019). Knowledge- and technology-based firm formation and growth in Silicon Valley in the United States drew attention to the local economic benefits generated by the clustering of new technology-based firms (NTBFs) (Saxenian, 1994). The Silicon Valley cluster can be viewed as an entrepreneurial-led model (Bresnahan et al., 2001; Feldman and Francis, 2003). Innovation policy and practice has evolved from spatially-blind to place-based innovation (Magro and Wilson, 2019). The strategic management of place is widely regarded as a key device promoting local and national economic development (Audretsch, 2015; Lehmann and Menter, 2018). Following the spectacular economic contribution made by the Silicon Valley cluster, policy-makers and practitioners have intervened to facilitate the formation and development of NTBFs in other localities. Science technology parks (STPs) are placed-based infrastructures that support NTBF germination, incubation and/or consolidation. Initially, many property-based STPs primarily focused on firm incubation. The focus of STPs has evolved (Lecluyse et al., 2019), with some STPs focusing on facilitating NTBF growth instead of solely on NTBF incubation. New technology-based firms are assumed to face high technological and market uncertainty (Vásquez-Urriago et al., 2014), have high resource demands to develop, protect and exploit their technology, and they have to deal with intense competition (Yang et al., 2009). Science technology parks are assumed to enable NTBFs to circumvent potential market failures in gaining access to resources (Chan and Lau, 2005) required to address the liabilities of NTBF newness (Stinchcombe, 1965), smallness (Aldrich and Auster, 1986), and/or location in less developed (Albahari et al., 2018) peripheral regions (Mueller et al., 2012). The scale, nature and contributions of STPs is shaped by the selected STP definition (Link and Scott, 2006). The insightful Science Technology and Innovation Policy report published by United Nations Educational, Scientific and Cultural Organization (UNESCO, 2017) highlighted definitional diversity as follows: –

The official definition adopted by the International Association of Science Parks (IASP, 2017) in February 2002 goes as follows. A science park is an organization managed by specialised professionals, whose main aim is to increase the wealth of its community by promoting the culture of innovation and the competitiveness of its associated businesses and knowledge-based institutions. To enable these goals to be met, a science park stimulates and manages the flow of knowledge and technology amongst universities, R&D institutions, companies and markets; it facilitates the creation and growth of innovation-based companies through incubation and spin-off processes; and provides other value-added services together

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with high quality space and facilities. IASP’s definition also goes on to say that the expression ‘science park’ may be replaced in this definition by the expressions ‘technology park’, ‘technopole’ or ‘research park’. The American Association of University Research Parks defines research parks as propertybased ventures, yet its definition is more explicit about a number of features of its parks, and includes the following elements: They are master planned property and buildings designed primarily for private/public research and development facilities, high technology and science based companies, and support services.

There is: ● ● ●

A contractual, formal or operational relationship with one or more science/research institutions of higher education. A role in promoting the university’s research and development through industry partnerships, assisting in the growth of new ventures and promoting economic development. A role in promoting technology-led economic development for the community or region. (UNESCO, 2017)

The UNESCO (2017) review indicated that there is no universally agreed definition of STPs. Several studies, however, have utilized the following broad definition presented by UNESCO (2017): ‘any kind of high-tech cluster such as: technopolis, science park, science city, cyber park, high-tech (industrial) park, innovation centre, R&D park, university research park, research and technology park, science and technology park, science city, science town, technology park, technology incubator, technology park, technopark, technopole and technology business incubator’. The UNESCO (2017) report has suggested there are over 400 STPs, with 50 STPs located in the United States, 111 in Japan and 100 in China.

DIVERSITY Multiple actors can be involved in ‘place-based innovation policy’ (Magro and Wilson, 2019). Science technology parks can be privately owned by firms such as property corporations, private equity institutions, manufacturing corporations and/or private universities. In addition, STPs can be publicly owned by organizations such as local authorities, regional development agencies, agencies of government ministries, charities and/or public universities. Ownership differences can impact, in part, on their goals (that is, for-profit goals or not-for-profit goals), management, targeted entrepreneurs (that is, academic entrepreneurs) and firms (that is, engagement in certain industries), and the nature of resource provision. Change in ownership (that is, acquisitions by private equity firms, divestments by property companies of STPs investments at universities, and local authorities and universities buying out private investors) can impact on STP goals (that is, less emphasis on innovation and more on property management), management, tenants sought and services supplied. Ownership diversity can also impact on the type of STP. In relation to the degree of ownership and involvement of universities, Albahari et al. (2017) conceptualized the following four types of STPs: pure science parks (that is, wholly or partially owned and managed by a university), pure technology parks (that is, do not have

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formal links with a university), mixed parks (that is, university is a minority shareholder) and technology parks (that is, university is not a shareholder) with the university having some research facilities located on the STP. The following three types of STP management strategies have been identified in the UK (Carter, 1989). First, a university-led and university-funded strategy where a university or higher education institute (HEI) establishes an STP on its own, and continues to be responsible for its development and/or management. Second, a joint venture company strategy, with the STP being run by a separate legal entity. Third, a co-operative venture strategy that does not involve any separate legal company with partners working together within a flexible and informal framework (that is, a local authority or development agency usually leads the development depending on who provided the major financial input). A distinction has been made between managed and non-managed STPs in the UK. A managed STP generally has full-time management on site whose principal task is to manage the STP (Westhead and Batstone, 1999). On-site management can vary from a single STP manager to a full team of experts. Science technology park managers can be viewed as gatekeepers of knowledge and institutional entrepreneurs (Sotarauta and Pulkkinen, 2011). They can legitimize the activities of inexperienced entrepreneurs, support NTBFs to establish and develop networks with an array of external resource providers (Soetanto and Jack, 2013), and support entrepreneurs to enrich their knowledge bases (Lazaric et al., 2008). Three types of management agreements have been identified in the UK (Grayson, 1993). The first is an informal team management agreement that can be the cheapest and most flexible approach, where STP partners divide the management tasks between themselves, but there is no full-time, on-site management presence. The second type is a single on-site manager management agreement that facilitates the accumulation of expertise relating to the specific needs of STP tenants. The STP manager is chosen for his or her industrially related scientific skills to enable the informed selection of tenants, the promotion of technology transfer links, and the take-up of external resources by tenants. The third type is an on-site management company management agreement where the formal integrated management structure is assumed and will provide a more secure basis for long-term tenant development. Types of tenants selected can be influenced by the STP’s locality. In localities with declining heavy industries and no local innovative milieu, a key goal of the STP can be the incubation role to foster a local culture of new knowledge and technology-based enterprise. As a consequence, a less selective tenant strategy can be exhibited owing to the more limited flow of NTBF entrepreneurs. Conversely, in localities associated with resource munificence, an existing local culture of NTBFs and numerous individuals seeking to establish NTBFs, a more selective tenant strategy can be exhibited (Westhead and Batstone, 1999). Science technology parks provide short-, medium- and long-term accomodation for NTBFs, large firms and multinationals (IASP, 2017). Also, STPs can differ in the firms they attract from industrial sectors. Liberati et al. (2016) made a distinction between general STPs with firms from many sectors, mixed STPs with neither high or low sectors, and specialized STPs with a strong focus on a few sectors. Recently, Ng et al. (2019) made a distinction between three types of STPs relating to STP knowledge intensiveness, size, organization and location.

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Science technology park diversity can relate to the types of services supplied to tenants (Chan and Lau, 2005; Ratinho and Henriques, 2010; Motohashi, 2013). Service provision can be shaped by the following demands of entrepreneurs: desire for high specification and flexible premises; landscaped environments; links with a local university or HEI; and/ or cooperation with small firms and/or large organizations on and off STPs (Westhead and Batstone, 1998). Inexperienced entrepreneurs with no, or limited, commercial and/or prior business ownership experience may seek a supportive STP context to develop and commercialize their knowledge. Some entrepreneurs (and multinational organizations) may be prepared to pay a rent premium to obtain the resources provided by the STP (Monck et al., 1988). Physical infrastructure is a key STP element. Initial STP definitions focused on realestate provision, with HEIs leasing real estate, office space or research facilities to NTBFs (UNESCO, 2017). The management of a successful STP should go beyond tenant selection, lettings, rent collection and rent review negotiation. To ensure rental growth and minimize tenant closures, STPs generally provide a supportive sheltered environment. Science technology park managers can provide NTBFs with a range of soft support. The International Association of Science Parks (IASP) noted that 70 per cent of high-technology clusters offered management support services. Many STPs provide several services relating to research and development, entrepreneurship development, business incubation and technology transfer. The provision of jointly used services is assumed to help NTBFs to reduce their fixed overhead costs. Further, many STPs encourage links between tenants and the local centre of knowledge to facilitate the commercialization of tenants’ knowledge, or the transfer of technology from university or research centre to NTBFs. Some STPs provide a residential element for knowledge workers that can be used for offices and homes (UNESCO, 2017). Many STPs are located within university campuses or on land belonging to a university. Physical proximity between STP tenants and a university or a research centre can improve cooperation between both parties. Environmental infrastructure is an element of STP provision (UNESCO, 2017). Environmental quality (that is, size of the designated green area) can attract entrepreneurs and a well-educated and trained skilled workforce required to work in the firms. New technology-based firms need external finance to develop (Mueller et al., 2012). Numerous STPs offer management support services to tenants to develop links with the venture capital industry in order to obtain venture- or seed-capital funding (UNESCO, 2017). Science technology parks can provide a buffering function (that is, sheltering tenants against their resource deficiencies in order to encourage tenant firm survival), and/or a bridging function (that is, supporting tenants to network to enhance their legitimacy, and to obtain flows of external resources required for firm growth) relating to resource provision (Díez-Vial and Montoro-Sanchez, 2017). Mrkajic (2017) has suggested that STPs generally focus on the bridging function rather than the buffering function.

OUTCOMES Debate surrounds the beneficial outcomes associated with STPs (Monck et al., 1988; Westhead and Storey, 1994; Siegel et al., 2003a; Phan et al., 2005; Link and Scott, 2006; Link and Siegel, 2007; European Commission, 2014; Díez-Vial and Fernández-Olmos,

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2015; Díez-Vial and Montoro-Sanchez, 2016; Guadix et al., 2016; Lecluyse et al., 2019). Hobbs et al. (2017) have presented a summary of the results from micro-level STPs outcome studies. Micro-level studies highlight that there is no clear and consistent evidence suggesting that STP firms are always associated with superior beneficial outcomes. Some studies have detected that more STP firms reported superior outcome(s) than did off-park firms (Siegel et al., 2003b; Jongwanich et al., 2014), but numerous other studies have found no significant outcome(s) differences (Westhead, 1997; Chan and Lau, 2005; Liberati et al., 2016; Ramirez-Aleson and Fernandez-Olmos, 2018). Also, some studies have detected that STP firms reported superior beneficial outcomes relating to one or more outcomes, but no significant difference relating to one or more other outcomes (Westhead and Storey, 1994; Lamperti et al., 2017). Policy-makers and practitioners require a rigorous evidence base to guide their resource allocation decisions. The quality of STP evaluations has been questioned (Lehmann and Menter, 2018). Most evaluations have focused on the micro (that is, tenant, firm or entrepreneurial team) level rather than the meso (that is, STP) or macro (that is, city, regional, country) levels (Phan et al., 2005; Montoro-Sánchez et al., 2011; Vásquez-Urriago et al., 2014). Further, the outcomes monitored in micro-level tenant studies have not been exactly the same as those monitored in meso- and macro-level studies. Results from evaluations are difficult to compare, and concern arises relating to the robustness of presented findings. Differences between studies, in part, are caused by diversity in data collection and methodological issues (Hobbs et al., 2017; Wright and Westhead, 2019). Evaluations differ in relation to the beneficial outcomes monitored. Many studies have solely focused on one (or more) economic outcome instead of on a broad array of economic, financial, social and environmental outcomes. Moreover, relatively few studies have focused on locational choice benefits, and/or social and environmental outcomes. Findings from evaluations can be distorted by sample selection issues. Weaker (or stronger) NTBFs can self-select (Flynn, 1993) to locate on STPs or not (Vásquez-Urriago et al., 2014). The issue of firm selection bias (that is, advantageous selection with NTBFs selecting STPs because they have better technological capabilities prior to entry compared with adverse selection) has not been adequately considered in many evaluations (RamirezAleson and Fernandez-Olmos, 2018). Further, evidence from evaluations can be distorted by firm survivor bias and/or endogeneity bias. The latter issues have not been widely considered in evaluations (Siegel et al., 2003b; Vásquez-Urriago et al., 2014; Ubeda et al., 2019). Evaluations have usually explored cross-sectional instead of longitudinal data. Where longitudinal studies have been conducted, they have generally monitored outcomes over short time periods. Most studies have focused on association instead of causality as regards the monitored outcomes (Vásquez-Urriago et al., 2014; Hobbs et al., 2017). Early evaluations utilized bivariate rather than multivariate statistical techniques. Simple estimation techniques have generally been employed (Lamperti et al., 2017). Numerous studies have failed to test whether the presented results were sensitive to the estimation technique(s) employed (that is, technique sensitivity) (Siegel et al., 2003b), and/or whether the results were sensitive to the outcome(s) monitored (that is, dependent variable sensitivity). Non-linear relationships between being located on an STP and superior outcomes have generally not been considered (Ubeda et al., 2019). Relatively few studies have considered moderating variables (that is, micro-level STP mediators such as networking, legitimacy building and absorptive capacity) (Ramirez-Aleson and Fernandez-Olmos, 2018; Lecluyse

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et al., 2019; Ubeda et al., 2019). There is a dearth of cross-national studies that have considered the generalizability of outcome results in several developed and developing economies in relation to economic crisis and non-economic crisis time periods (Ramirez-Aleson and Fernandez-Olmos, 2018). Evaluations have generally not considered that the goals of STP firms may not be the same as those of off-park firms, and the goals of all STPs tenants may not be the same (that is, independent firms compared with subsidiary organizations). Scepticism surrounds the added value of sponsored infrastructure (Flynn, 1993). To guide the potentially substantial resource allocation decisions of policy-makers and practitioners towards investing in STPs, evidence is needed that accurately assesses the direct (and indirect) benefits and costs of STP infrastructure. While STPs have been established as solutions to the market failures faced by NTBFs, the STPs’ heterogeneity highlighted previously suggests that there is a need for additional qualitative and quantitative studies that consider STP diversity. Magro and Wilson (2019) have asserted that the following questions need to be considered in evaluations: why evaluate (that is, the purpose of the evaluation)? What to evaluate? How to evaluate? Who should be responsible for evaluation? Also, Wright and Westhead (2019) suggest that a policy evaluation should consider: what are the outcomes for actors at the macro, meso and macro levels? Future studies need to appreciate that the outcomes sought by STP tenants may not be the same as those sought by policy-makers and STP owners. Further, the needs of NTBFs located in ‘institutionally void environments’ (Mrkajic, 2017) may not be the same as those reported by NTBFs located in more institutionally supportive and resource munificent environments. Evaluations, therefore, need to monitor a diverse range of economic, financial, social and environmental outcomes relating to an array of STPs contexts. A proactive STP gatekeeper is assumed to foster a supportive and resource-rich environment for NTBFs. Notably, they are assumed to facilitate trust and resource accumulation and mobilization among STP tenants, the local HEI, and local and non-local off-park organizations. In addition, qualitative and quantitative evaluations are required to ascertain the effectiveness of intermediaries, such as STP managers, in relation to the NTBF commercialization and development processes. Qualitative studies, for example, are warranted because they can provide fresh insights relating to the where, when, who by, why, how and so what questions relating to the contributions made by different actors. This evaluation evidence may identify methods of STP manager best practice that could be disseminated to practitioners. The UNESCO (2017) definition suggests a broader perspective that includes a focus on technology incubators. The emergence of accelerators infrastructure as a new generation of incubators warrants additional research (Wright and Drori, 2018).

REFERENCES Acs, Z.J., D.B. Audretsch and E.E. Lehmann (2013), ‘The knowledge spillover theory of entrepreneurship’, Small Business Economics, 41 (4), 757–74. Albahari, A., A. Barge-Gil, S. Pérez-Canto and A. Modrego (2018), ‘The influence of science and technology park characteristics on firms’ innovation results’, Papers in Regional Science, 97 (2), 253–79. Albahari, A., S. Pérez-Canto, A. Barge-Gil and A. Modrego (2017), Technology parks versus science parks: does the university make the difference?’, Technological Forecasting & Social Change, 116 (C), 13–28. Aldrich, H. and E.R. Auster (1986), ‘Even dwarfs started small: liabilities of age and size and their strategic

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implications’, in B. Staw and L.L. Cummings (eds), Research in Organization Behavior, Vol. 8, Greenwich, CT: JAI Press, pp. 165–98. Audretsch, D.B. (2015), Everything in its Place: Entrepreneurship and the Strategic Management of Cities, Regions, and States, New York: Oxford University Press. Bresnahan, T., A. Gambardella and A.L. Saxenian (2001), ‘“Old economy” inputs for “new economy” outcomes: cluster formation in the new Silicon Valleys’, Industrial and Corporate Change, 10 (4), 835–60. Carter, N. (1989), Science Parks Development and Management, London: Estates Gazette. Chan, K.F. and T. Lau (2005), ‘Assessing technology incubator programs in the science park: the good, the bad, and the ugly’, Technovation, 25 (10), 1215–28. Díez-Vial, I. and M. Fernández-Olmos (2015), ‘Knowledge spillovers in science and technology parks: how can firms benefit most?’, Journal of Technology Transfer, 40 (1), 70–84. Díez-Vial, I. and A. 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entrepreneurs compensate for the spatial proximity benefits of “star universities”?’, Environment and Planning A, 44 (2), 281–96. Ng, W.K.B., R. Appel-Meulenbroek, M. Cloodt and T. Arentze (2019), ‘Towards a segmentation of science parks: a typology study on science parks in Europe’, Research Policy, 48 (3), 719–32. Phan, P., D. Siegel and M. Wright (2005), ‘Science parks and incubators: observations, synthesis and further research’, Journal of Business Venturing, 20 (2), 165–82. Ramirez-Aleson, M. and M. Fernandez-Olmos (2018), ‘Unravelling the effects of science parks on the innovation performance of NTBFs’, Journal of Technology Transfer, 43 (2), 482–505. Ratinho, T. and E. Henriques (2010), ‘The role of science parks and business incubators: in converging countries: evidence from Portugal’, Technovation, 30 (4), 278–90. Saxenian, A. (1994), Regional Advantage: Culture and Competition in Silicon Valley and Route 128, Cambridge, MA: Harvard University Press. Siegel, D., P. Westhead and M. Wright (2003a), ‘Science parks and the performance of new technology-based firms: a review of recent U.K. evidence and an agenda for future research’, Small Business Economics, 20 (2), 177–84. Siegel, D.S., P. Westhead and M. Wright (2003b), ‘Assessing the impact of university science parks on research productivity: exploratory firm-level evidence from the United Kingdom’, International Journal of Industrial Organization, 21 (9), 1357–69. Soetanto, D.P. and S.L. Jack (2013), ‘Business incubators and the networks of technology-based firms’, Journal of Technology Transfer, 38 (4), 432–53. Sotarauta, M. and R. Pulkkinen (2011), ‘Institutional entrepreneurship for knowledge regions: in search of a fresh set of questions for regional innovation studies’, Environment and Planning C, 29 (1), 96–112. Stinchcombe, A.L. (1965), ‘Social structure and organizations’, in J.G. March (ed.), Handbook of Organizations, Chicago, IL: Rand McNally, pp. 142–93. Ubeda, F., M. Ortiz-de-Urbina-Criado and E.-M. Mora-Valentín (2019), ‘Do firms located in science and technology parks enhance innovation performance? The effect of absorptive capacity’, Journal of Technology Transfer, 44 (1), 21–48. United Nations Educational, Scientific and Cultural Organization (UNESCO) (2017), Science, Technology and Capacity-Building, accessed 14 October 2020 at http://www.unesco.org/new/en/natural-sciences/science-tech nology/university-industry-partnerships/science-and-technology-park-governance/concept-and-definition/. Vásquez-Urriago, A.R., A. Barge-Gil, A. Modrego and E. Paraskevopoulou (2014), ‘The impact of science and technology parks on firms’ product innovation: empirical evidence from Spain’, Journal of Evolutionary Economics, 24 (4), 835–73. Westhead, P. (1997), ‘R & D “inputs” and “outputs” of technology-based firms located on and off science parks’, R & D Management, 27 (1), 45–62. Westhead, P. and S. Batstone (1998), ‘Independent technology-based firms: the perceived added value of a science park location’, Urban Studies, 35 (12), 2197–219. Westhead, P. and S. Batstone (1999), ‘Perceived benefits of a managed science park location for independent technology-based firms’, Entrepreneurship and Regional Development, 11 (2), 129–54. Westhead, P. and D.J. Storey (1994), An Assessment of Firms Located On and Off Science Parks in the United Kingdom, London: HMSO. Wright, M. and I. Drori (2018), Accelerators: Successful Venture Creation and Growth, Cheltenham, UK and Northampton, MA, USA: Edward Elgar. Wright, M. and P. Westhead (2019), ‘Science technology parks and close relations: heterogeneity, context and data’, in S. Amoroso, A. Link and M. Wright (eds), Science and Technology Parks and Regional Economic Development: An International Perspective, Cham, Switzerland: Springer Nature Switzerland AG, pp. 39–60. Yang, C.-H., K. Motohashi and J.-R. Chen (2009), ‘Are new technology-based firms located on science parks really innovative? Evidence from Taiwan’, Research Policy, 38 (1), 77–85. Zhu, X., Y. Liu, M. He, D. Luo and Y. Wu (2019), ‘Entrepreneurship and industrial clusters: evidence from China Industrial Census’, Small Business Economics, 52 (3), 595–616.

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66. Small island entrepreneurship* Godfrey Baldacchino

Most definitions of entrepreneurs tells us nothing about how difficult or easy it may be for such an entrepreneur to develop in a particular geographical, regional, socioeconomic or cultural context. Nor does it tell us whether the act of being an entrepreneur renders this activity exceptional, habitual or anywhere in between the members of a particular social group. Are entrepreneurial skills really scarce by definition? And can the experience, nature and overall challenges of entrepreneurship be somehow patterned in terms of geographical context?

DAUNTING CONTEXT Island entrepreneurship relates to the practice of ‘doing business’ on, and by, island societies. These communities have to contend with the various implications of their islandness: limited land area and finite resources; limited domestic markets and client bases; physical isolation; and local consumption patterns that prefer imports from the metropole to locally made commodities. A powerful local mercantile elite would also often  peddle low-risk mercantilism (meaning wholesale and retail trade with low local productive value added) or otherwise engage in service activities which do not suffer as badly from scale economies (Baldacchino, 1995; 1998). Even where island territories have good quality and competitive products, there may be difficulties in sourcing effective  research and development capability, skilled human resources, suitable terms for financing and/or appropriate technology. And there may be important differences even on one island (Baldacchino and Dana, 2006; Dana and Dana, 2000). A global knowledge economy context continues to raise the stakes. As the world heads inexorably towards becoming a network of prosperous city-regions (Ohmae, 2001), there is even less scope for places and firms to try and survive as ‘islands’ of productive activity. It therefore comes as no surprise that research on island entrepreneurs is often heavily laced with pessimism (Fairbairn, 1988; Saffu, 2003). Note that the above observations apply generally to all island societies, but more significantly so with decreasing size of the resident island population, and irrespective of whether these islands are listed as having developed or developing economies. Indeed, smaller size and geographic isolation are readily viewed as sources of economic vulnerability which adversely affect economic growth and firm performance (Bertram, 2004). Remoteness and peripherality are seen to compound the problems. The challenges claimed to be faced by entrepreneurs based in island territories are, to say the least, daunting. The size of the domestic market is small and, in the case of archipelagos, also fragmented and dispersed; there are high transport costs, especially handling, freight and insurance expenses, partly because of a tendency towards oligopoly and imperfect competition; there is an inability to achieve and exploit economies 590

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of scale in the local market: as a result, costs such as health, energy, education and public administration, tend to be higher per capita, thus requiring higher tax revenues per capita; with isolation, significant transport costs come into play in order to access distant alternative markets or to source raw material; there are often limited linkages to the local economy, which may tend to be signficantly dependent on, and biased towards, the production of a single crop, product or service (such as bananas, copra, sugar, tourism or offshore finance); there may be a lack of skilled labour power or expertise which, where available, is likely to move away in search of better returns on investment and larger markets; and there may be a dearth of effective and competitive support and infrastructural services, such as telecommunications and venture capital (Armstrong et al., 1993; Baker, 1992; Dolman, 1985; Doumenge, 1985; Encontre, 1999; Fisher and Encontre, 1998; Payne, 1987). Finally, the more common strategy and attitude among islanders appear to favour intrapreneurship, where individuals seek to become innovative  and creative within the confines and protection of an existing, public or private organization (Baldacchino and Fairbairn, 2006). Michael Porter has gone so far as to refer to an industry cluster which becomes gripped by complacency and an inward focus as insular, probably on the assumption that ‘islands are closed and inward looking systems’ (Porter, 1998: 171–2).

PROSPECTS What then are the prospects for fostering entrepreneurship and business development in (especially small) islands? One major theme in the literature is the importance of good economic management and the creation of an enabling policy and a sound institutional environment conducive to business investment and enterprise (Easterly and Kraay, 2000). The focus here is primarily macro and institutional, looking at what governments and arm’s-length supporting agencies (including banks, development corporations, vocational colleges, universities and non-governmental organizations) can do to generate  ‘capacity  building’ and ‘resilience’, facilitating a more business and entrepreneurfriendly environment (Briguglio et al., 2006). This strand seems to have taken over the more fatalistic assessment of the island condition as inherently and chronically vulnerable, particularly as it affects small island developing states (SIDS) (Commonwealth Consultative Group, 1985; Harden, 1985). Structural vulnerability would therefore only  be usefully addressed via concessionary, bilateral or multilateral arrangements struck mainly with metropolitan powers, rather than by any endogenous policy initiatives by island governments (Briguglio, 1995). The economic challenges facing islands are so widely acknowledged that a number of international and regional organizations – including the United Nations (via its SIDS programme), the European Union (which recognizes that ‘island regions’, among others, suffer from ‘structural handicaps’) and the  Commonwealth Secretariat (Atkins et al., 2000; Charles, 1997; Wignaraja et al., 2004) – remain in general agreement that small territories, especially small island regions, share a set of characteristics which pose specific development challenges. These characteristics are fairly similar to those borne by peripheral rural areas which lose out from agglomeration economics and demographics (Polèse and Shearmur, 2002) or by remote, land-locked or mountainous regions (Srinivasan, 1986).

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A MORE OPTIMISTIC TACK Regretfully, such mainstream economic wisdom discounts the strategic opportunism that characterizes many islanders the world over. This involves behaviour grounded in economies of scope (and not of scale); and the flexible and opportunist operation in monetized, non-monetized, public/formal and intermediate/informal economies, both local and foreign, for overall economic gain (Baldacchino, 2000). This typically involves both employment and self-employment. The life-histories of the inhabitants of small islands, where meticulously documented, reveal a complex juggling of such antinomies. Thus, both Isaac Caines, from the Caribbean island of St Kitts (profiled in Richardson, 1983) and Kawagl, from the Melanesian South Pacific (profiled in Brookfield, 1972), demonstrate an uncanny skill repertoire in the economies and temporalities of scope which include entrepreneurship, but also flexible specialization, public sector employment and stints abroad (see also Brookfield, 1975; Carnegie, 1987; Comitas, 1973). Island entrepreneurship remains surprisingly alive and well: in spite of the pessimistic scenario described earlier, even export-oriented, locally owned, technologically innovative firms can be found to operate in many small island territories. (Baldacchino, 2005a; 2005b; 2005c; Baldacchino and Fairbairn, 2006). Moreover, islands do offer specific advantages to competitive business platforms. These attractions include lower occupancy costs, a more stable and loyal workforce, and reduced labour costs (Greenwood and McCarthy, 2000).

RESEARCH INSIGHTS While there remains much to be learned about the nature of island entrepreneurship, a series of case studies, in both developed and developing economy contexts, provide some valuable insights. The wide-ranging population of island entrepreneurs is ambitious. They view their involvement in business as a means of providing cash income for themselves and their families, an opportunity to be in control of their own lives, acquire some prestige, extend influence and, even, as a means of winning political office. Interestingly, overall, the accumulation of wealth for its own sake did not figure prominently as a motivating factor. Most island entrepreneurs operating in traditional economic sectors (such as food or natural product processing) are mature individuals, typically over the age of 40, who were  widely respected in their community, with strong family ties and social responsibilities (Hailey, 1988). In contrast, those engaged in more technology or knowledge intensive products (such as computer software), tended to be young and generally well educated. Practically all had work experience overseas, had studied at a technical institution or university before returning home, or had been employed with an international company, thus bringing along with them savings, know-how, business and client contacts that would prove crucial to the motivation to start, and maintain, a successful business. Others had benefited from a period of paid employment locally, either in another business or government service. For others, informal trading has served as an entrepreneurial training ground and a means of maintaining traditional skills, as in the case of handicrafts (Dunlop, 1999; Finney, 1971; Punnett and Morisson, 2006). With a few

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exceptions, all had drawn upon financial and labour resources from their own savings and of their extended families to start, and eventually upgrade, their business. The few who source bank loans do so by securing them against personal guarantees. Many are ‘poor innovators but good imitators’ in the type of business established (Ritterbush, 1988). An example is the common tendency to copy those businesses, perceived to be successful, a practice that invariably led to overcrowding and business failure (for example, Prasad and Raj, 2006). Being small and based on a peripheral island does not appear to present disadvantages in exploiting the opportunities presented by the growth of modern information and communication technologies. The Internet has witnessed and spawned a completely new range of services and software. The latter are, in a sense, manufactures since they are tangible and can be bought and sold via operations that are distinct from those involving their actual production. Still their virtual nature, their relative weightlessness and high portability remove any disadvantages that firms on small islands might have to bear in relation to transportation costs. Indeed, managing to identify and maintain clients abroad is always a challenge, and all the more so to firms located in relatively remote island locations. This condition may oblige specific tactical measures. Working in cosmopolitan centres, and with multinational firms, helps one to connect with regional or global markets and to nurture and plug into useful contacts and cutting-edge technologies that can prove crucial for business survival. However, the lure of the island is strong. Central to the ‘quality of island life’ is its rich ‘social capital’, defined as ‘networks, together with shared norms, values and understandings that facilitate co-operation within and among groups’ (Baldacchino, 2005d: 24; Groome Wynne, 2007; Helliwell, 2003). This is in sharp contrast to the frenetic, stress-laden and competitive environment of the city and can be strong enough to draw would-be entrepreneurs back to their island, and to encourage others to immigrate. It is the ability to become ‘glocal’ (Robertson, 1995) – combining the desirability of the island milieu with the necessity to be globally competitive – that is a major, but not impossible, challenge. Both island roots and off-island routes need to be privileged. This detail cannot be stressed enough: many island-based entrepreneurs are convinced that they are likely to enjoy larger turnovers if their businesses had been located in metropolitan areas: but they remain determined to keep their firm located ‘on the island’ because of the ‘quality of life’ factor. Branding and customer loyalty are important considerations. Many small island firms trade products with substantial local raw material input and so can benefit handsomely by associating their product with what their home island stands for. It is vital for such small  firms to support, and ‘piggy back’ on, the branding exercise that their governments,  marketing agents and the advertising industry advance (Baldacchino, 2010). Here,  the ‘lure of the island’ has a captivating and enduring appeal, especially among consumers in the industrialized world, meaning that islands stand out as tourism destinations and tourists stand out as customers for island products (Baum, 1997; Lockhart, 1997; Royle, 2001). Moreover, the association means that any off-island competition for similar products is skilfully avoided: a pepper sauce from Trinidad is not just any pepper sauce; it is by definition protected from international competition. The same can be said for coconut soap from Fiji (Baldacchino, 1999), preserves from Prince Edward Island (Baldacchino, 2002) or bottled water from Iceland.

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The human resources required to develop and maintain up-market products cannot be short of professional. Many island firms explain that their employees (which include family members) while all ‘craft trained’ in-house, have been sourced mainly from suitable post-secondary institutions and include a number of graduates. Many have been trained or sent on work experiences off island. Many are bilingual or trilingual, with English recognized as a key international language. Some employees have benefited from apprenticeships with international firms. Above average salaries and lean hierarchies keep staff turnover at extremely low levels, reward staff investment in higher education and recognize the scarcity of skilled, specialized yet flexible labour in small, island-based, labour markets. Women have so far played a peripheral role in the business life of many island economies. Prevailing sociocultural norms may dictate that the women’s role is first and foremost concerned with the performance of domestic chores and child-rearing and, not uncommonly, that business activities are the domain of males (Fairbairn-Dunlop, 2001;  Hailey, 1988). Women may also be handicapped by the property rights systems prevailing in some countries which deprive them of the right to own assets that can be mortgaged to raise funds for business and other purposes (Novaczek and Stuart, 2006). Women have been most active in informal trading and in selected areas of the formal economy such as handicrafts, restaurants and dressmaking. Nonetheless, there are cases of women who have achieved outstanding success as entrepreneurs and who deserve to be showcased. The late Aggie Grey, of Samoa, is the founder of what is now the largest hotel/resort complex in Samoa (http://www.aggiegreys.com/). Wilma Malcolmson, who runs Shetland Designer, manages an operation with 30 outworkers that produce a wellbranded luxury garment line, based in the Shetland Islands of Scotland (www.shetlanddesigner.co.uk/). Katrin Olafsdottir, is the managing director of Lysi, a very successful fish-based, health product manufacturer in Iceland (www.lysi.is/is/english/; Baldacchino and Vella Bonnici, 2006). Islanders face, in varying degree, complex challenges in relation to entrepreneurship and business development, many of which are contoured by their idiosyncratic geographical predicament. However, the evidence speaks of success stories that provide hope and serve as encouraging examples to others. The entrepreneurial experiences of islanders the world over offer limited but tangible examples of business success, even if deductive, macro-driven, analyses may suggest that such is hardly possible to attain.

NOTE *

This chapter was originally published as Godfrey Baldacchino and Te’o I.J. Fairbairn (2006), ‘Entrepreneurship and small business development in small islands’, Journal of Small Business and Entrepreneurship, 19 (4), 331–40. Thanks to Bob Anderson for permission to reproduce.

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Encontre, P. (1999), ‘The vulnerability and resilience of small island developing states in the context of globalization’, Natural Resources Forum, 23 (2), 261–70. Fairbairn, T.I.J. (ed.) (1988), Island Entrepreneurs: Problems and Performances in the Pacific, Honolulu: The East-West Center, University of Hawaii Press. Fairbairn-Dunlop, P. (2001), ‘Women and the privatization of the coconut oil mill, Samoa’, Pacific Economic Bulletin, 16 (1), 64–75. Finney, B.R. (1971), Big-Men, Half-Men and Trader Chiefs: Entrepreneurial Styles in New Guinea and Polynesia,  Working Paper No. 12, Honolulu: Technology and Development Institute, The East-West Center. Fischer, G. and P. Encontre (1998), ‘The economic disadvantages of island developing countries: problems of smallness, remoteness and economies of scale’, in G. Baldacchino and R. Greenwood (eds), Competing Strategies of Economic Development for Small Islands, Charlottetown: Institute of Island Studies, University of Prince Edward Island, pp. 69–87. Greenwood, R. and S. McCarthy (2000) ‘Manufacturing development on the North Atlantic Rim’, in G. Baldacchino and D. Milne (eds), Lessons from the Political Economy of Small Islands: The Resourcefulness of Jurisdiction, Basingstoke: Macmillan, pp. 172–92. Groome Wynne, B. (2007), ‘Social capital and social economy in sub-national island jurisdictions’, Island Studies Journal, 2 (1), 115–32. Hailey, J.M. (1988), ‘Fijian entrepreneurs: indigenous business in Fiji’, in T.I.J. Fairbairn (ed.), Island Entrepreneurs: Problems and Performances in the Pacific, The East-West Center, University of Hawaii Press, Honolulu: pp. 35–53. Harden, S. (1985), Small is Dangerous: Microstates in a Macro World, London: Frances Pinter. Helliwell, J.L. (2003), ‘Maintaining social ties: social capital in the global information age’, Policy Options, 24 (8), 9–15. Lockhart, D.G. (1997), ‘Islands and tourism: an overview’, in D.G. Lockhart and D. Drakakis-Smith (eds), Island Tourism: Trends and Prospects, London: Pinter, pp. xiii–xv. Novaczek, I. and E.K. Stuart (2006), ‘The contribution of women entrepreneurs to the local economy in small  islands: sea-plant based micro-enterprise in Fiji and Vanuatu’, Journal of Small Business and Entrepreneurship, 19 (4), 367–80. Ohmae, K. (2001), The Invisible Continent: Four Strategic Imperatives of the New Economy, New York: Harper Business. Payne, T. (1987), ‘Economic issues’, in C. Clarke and T. Payne (eds), Politics, Security and Development in Small States, London: Allen and Unwin, pp. 50–62. Polèse, M. and R. Shearmur (2002), The Periphery in the Knowledge Economy, Montreal: INRS. Porter, M.E. (1998), The Competitive Advantage of Nations, New York: Free Press. Prasad, N. and S. Raj (2006), ‘The perils of unmanaged export growth: the case of Kava in Fiji’, Journal of Small Business and Entrepreneurship, 19 (4), 381–94. Punnett, B.J. and A. Morisson (2006), ‘Niche markets and small Caribbean producers: a match made in heaven?’, Journal of Small Business and Entrepreneurship, 19 (4), 341–54. Richardson, B.C. (1983), Caribbean Migrants: Environment and Human Survival on St Kitts and Nevis, Knoxville, TN: University of Tennessee Press. Ritterbush, S.D. (1988), ‘Entrepreneurship in an ascribed status society: the Kingdom of Tonga’, in T.I.J. Fairbairn (ed.), Island Entrepreneurs: Problems and Performances in the Pacific, Honolulu: The East-West Center, University of Hawaii Press, pp. 157–64. Robertson, R. (1995), ‘Glocalization: time-space and homogeneity-heterogeneity’, in M. Featherstone, S. Lash and R. Robertson (eds), Global Modernities, London: Sage, pp. 25–44. Royle, S.A. (2001), A Geography of Islands: Small Island Insularity, London: Routledge. Saffu, K. (2003), ‘The role and impact of culture on South Pacific Island entrepreneurs’, International Journal of Entrepreneurial Behaviour and Research, 9 (2), 55–73. Srinivasan, T.N. (1986), ‘The costs and benefits of being a small, remote, island, landlocked or ministate economy’, Research Observer, 1, 205–18. Wignaraja, G., M. Lezama and D. Joiner (2004), Small States in Transition: From Vulnerability to Competitiveness, London: Commonwealth Secretariat.

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67. Social entrepreneurship

Sarah C. Carraher, Shawn M. Carraher and Dianne H.B. Welsh

Social entrepreneurship is a segment within the entrepreneurial literature that focuses on entrepreneurs who use their entrepreneurial talents to achieve social and potentially financial gains to fund the social aspect from their endeavors. Researchers have characterized social entrepreneurship as a leadership position that requires an exceptional set of skills to produce innovative social results, which are difficult to measure from a market perspective (Dees, 1998). Owing to their creative process, these leaders may be able to find solutions to social problems which elude or confound typical experts in the respective social fields. They are not a replacement for current social endeavors by nonprofit organizations and government but are a critical complement which may be able to produce extraordinary results for the persons they seek to serve through the entrepreneurial process. Social entrepreneurs may also provide a critical balance to the dark side of entrepreneurial behavior which could produce negative effects for constituents through predatory or unethical behaviors in the pursuit of profit (Zahra and Wright, 2016). The personal mission of social entrepreneurs may stem from a need to make a difference in the world and to contribute to alleviating diverse issues such as hunger, poverty or other inequities in basic resources. A bibliometric analysis of research in social entrepreneurship showed that although the term came into being in 1964, it was only after 2003 that interest in studying this particular facet of entrepreneurship began to increase in popularity. Most of the research on this topic is found in western journals, but this could also be because not all non-English journals were included in the Web of Science (Rey-Marti et al., 2015). Quantitative research involving the global entrepreneurship model (GEM) studies found that countries with higher rates of entrepreneurship also had higher incidences of social entrepreneurship, and that countries with the highest rates of social entrepreneurship were also developed countries. This work confirmed that the social entrepreneur is a unique person with specialized skills and that, across countries and levels of economic development, social entrepreneurship may look different and be apparent in greater or lesser forms (Lepoutre et al., 2013). A theoretical framework for capturing aspects of the social entrepreneur has been developed over time and includes multiple dimensions. These dimensions have been proposed as expressing behavior aligned with core values or virtues that demonstrate consistent mission-orientated behavior while continuing to create social value in a proactive and innovative way. Social entrepreneurs also engage in creative marketing practices, and align themselves with current not-for-profit enterprises, create new not-for-profit enterprises or innovate within current structures. The emphasis is on creative risk taking and innovation to create superior social value for the clients or customers, whoever they may be (Mort et al., 2002). 597

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Qualitative research using the grounded theory method found that social entrepreneurship could be characterized as a multidimensional model involving the three dimensions of innovation, proactivity and risk management, but that this is a bounded model. The social entrepreneur operates in these dimensions within the limits of the environment, in a sustainable way that is consistent with the overall mission of the entrepreneurial endeavor (Weerawardena and Mort, 2006). Difficulty with quantitative measuring of social entrepreneurship led to the creation and testing of the social entrepreneurship scale, which can be used in future research to compare differences in personality, ethics, and cultural dimensions with how they interact with the level of social entrepreneurship (Carraher, 2012, 2013; Carraher et al., 2016). In summary, the field of research in social entrepreneurship is still in the generative stages and remains an area with rich possibilities for theoretical and quantitative development worldwide. Social entrepreneurship will continue to be important, as entrepreneurship in this area has the possibility to enhance and inform current non-social entrepreneurial business practices in their quest for a more holistic solution to serving their customers and investors. The ability of social entrepreneurs to solve social problems that may elude traditional types of aid make them a valuable asset worldwide, and their identification and propagation may be essential to global welfare. Research in this area may contribute to encouraging and sustaining these individuals in their quest for increasing the common good.

REFERENCES Carraher, S.M. (2012), ‘Social entrepreneurship: interviews, journal surveys, and measures’, Journal of Management History, 18 (4), 364–7. Carraher, S.M. (2013), ‘ISI, social entrepreneurship, and research’, Journal of Management History, 19 (1), doi:10.1108/jmh.2013.15819aaa.001. Carraher, S.M., D.H.B. Welsh and A. Svilokos (2016), ‘Validation of a measure of social entrepreneurship’, European Journal of International Management, 10 (4), 386–402, doi:10.1504/EJIM.2016.077421. Dees, G. (1998), The Meaning of Social Entrepreneurship, Kansas City, MO and Palo Alto, CA: Kauffman Foundation and Stanford University. Lepoutre, J., R. Justo, S. Terjesen and N. Bosma (2013), ‘Designing a global standardized methodology for measuring social entrepreneurship activity: the global entrepreneurship monitor social entrepreneurship study’, Small Business Economics, 40, 693–714. Mort, G.S., J. Weerawardena and K. Carnegie (2003), ‘Social entrepreneurship: towards conceptualization’, International Journal of Nonprofit and Voluntary Sector Marketing, 8 (1), 76–88. Rey-Marti, A., D. Ribeiro-Soriano and D. Palacios-Marques (2015), ‘A bibliometric analysis of social entrepreneurship’, Journal of Business Research, 69 (5), 1651–5. Shapero, A. and L. Sokol (1982), ‘The social dimension of entrepreneurship’, in K.H. Vesper, D.L. Sexton and C.A. Kent (eds), Encyclopedia of Entrepreneurship, Englewood Cliffs, NJ, Prentice-Hall, pp. 72–90. Weerawardena, J. and G.S Mort (2006), ‘Investigating social entrepreneurship: a multidimensional model’, Journal of World Business, 41 (1), 23–35. Zahra, S.A. and M. Write (2016), ‘Understanding the role of entrepreneurship’, Journal of Management, 53 (4), 610–29.

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68. Sports and entrepreneurship

Ben Hattink and Jennifer Wichers

Sport can be seen to be nothing more than another generic business enterprise subject, as some view, for example, the sport fitness industry. However, sport can also be viewed as a unique social, cultural and economic value-creating phenomenon. Sport is a phenomenon with which many people are associated and to which they assign meaning. It focuses attention on people who are engaged in sport, but not necessarily in a physical manner. It covers a combination of fans, coaches, board members and journalists, among others (Stokvis, 1989). The sporting world is a sector in which thousands of clubs, organizations, companies and foundations are active in organizing sport participation and events. It is a complex network of individuals, groups and organizations focusing on active or passive participation, realizing the facilities for that participation and using the different values (from social-cultural to economic-financial). Education, business, government and civil society parties played an instrumental role in the development, standardization and spread of sports. Sport is considered to be complicated by its existence in both commercial and not-forprofit forms similar to other services such as theatre, art, music, health care and education. However, sport also has special features. Sport and business share a common concern for value creation, branding, finding new sources of revenue, product innovation and market expansion. Most sport is significantly more concerned with beating rivals, winning trophies, sharing revenue, and sport is able to channel the passions of players (employees or business assets) and fans (customers) (Forster et al., 2006). Smith and Stewart (2010: 3) specified four interrelated dimensions of sport (in leagues and competitions) that they claimed impact upon its management: 1. Sport is a heterogeneous and ephemeral experience mired in the irrational passions of fans, commanding high levels of product and brand loyalty, optimism and vicarious identification. 2. Sport favours on-field winning over profit. 3. Sport is subject to variable quality, which in turn has implications for the management of competitive balance and anti-competitive behavior and 4. Sport has to manage a fixed supply schedule.

These dimensions led to the conclusion that sport has idiosyncratic features to justify a customized set of management, leadership and entrepreneurial practices. Demand for new types of sports with new values, for example extreme sports, urban sports and lifestyle sports, continues to grow (Loret, 1995; van Bottenburg and Salome, 2010). This development was one of the reasons that sport professionalized its management, leadership and entrepreneurship. The relationship between sport and business or entrepreneurship also became more intensive in another way, as the value of sport for companies received attention. For example, on the one hand, a link was made to health (vitality) and social cohesion between company employees and, on the other, the possibility of using sport as a marketing and communication tool emerged (Parkhouse, 1991). 599

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CATEGORIZATION OF SPORT ENTREPRENEURSHIP Both entrepreneurship and sport can be regarded as having developed along a particular course; however, this development has occurred in opposite directions. On the one hand, entrepreneurship as a field of research and education had its origins in the business and economic sciences, but is now a subject of interest in the social sciences as well. On the other hand, sport was originally studied as a social phenomenon, with its roots in the nonprofit and not-for-profit sector. Currently, it is moving away from the social sciences and capturing the attention of the business and economic sciences. To date, the term sport entrepreneurship has been a combination of several disciplines and can distinguish itself through this unique combination. This combination provides a breeding ground for multi-value creation and thus has the potential to provide substance to an interdisciplinary approach to sport entrepreneurship (Ratten, 2012). Based on a literature review (Hattink, 2019), it is possible to view sport through the various roles that it plays within the entrepreneurial process. A categorization of entrepreneurship in, with, for and through sport allows the domain of sport entrepreneurship to be more clearly framed. The categorization deals with the role of sport in relation to the core (entrepreneurial) process of an organization: ● ● ● ●

as a leading activity in the supply of product and services; as a supporting element in the supply of product and services; as an objective that is facilitated or optimized; and as a catalyst to support and make activities of entrepreneurs possible.

When sport is a leading activity as regards supply, the entrepreneurial process has a direct link with sporting consumers. The primary process of the entrepreneur or enterprise is concerned with customers or clients actively participating in sport (for example, tennis, outdoor sport, swimming and basketball). At an organizational level, examples of these types of organizations include fitness centers, sports clubs, commercial sports teams and golf academies. These types of businesses fall into the category of ‘entrepreneurship in sport’. Sport can also support the core process of an entrepreneur or enterprise, such as the marketing of products and/or services. The customer does not pay to actively participate in sport, but can be part of the sporting world in another way; for example, as a supporter or visitor at a sporting event. These types of businesses are grouped into the category of ‘entrepreneurship with sport’. This category applies to sports media, entrepreneurial organizations that use sport to market a city, organizations with a focus on sport tourism, or those who advise customers or clients on participating in sport for a positive health purpose (lifestyle advisors).This category also includes activities related to e-sports or the sport betting industry. The primary focus of the businesses in the third category is on the coordination of resources and facilities to make the sport possible: arranging accommodation and managing sporting materials, clothing or technology. Sport intermediators and sports agencies fall into this category, that is, ‘entrepreneurship for sport’. This category also includes entrepreneurial sport consultancies and sports research institutes, since these organizations create conditions to facilitate active sporting processes.

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Sports and entrepreneurship 601 The final category, ‘entrepreneurship through sport’, is related to the role of sport as a catalyst to connect entrepreneurial parties who wish to start businesses and new entrepreneurial processes. For example, this category could include a business club related to an elite sport organization that organizes business-to-business activities.

ROLE OF SPORT AS A VALUE CREATOR FOR ENTREPRENEURSHIP The last category is new and can be related to a shift from ego to eco (Scharmer and Kaufer, 2013). The prevailing economic theory is probably past the peak of its life cycle. However, the history of the modern economy can be reconstructed as the embodiment of an evolving human consciousness. The modern economy is based on the division of labor, which has led to significant leaps in productivity. The challenge is to coordinate all these individual activities into a coherent whole. Four stages of economic development are identified: 1. 2. 3. 4.

Organization around a centralized coordination mechanism – hierarchy and central planning are the main coordination mechanisms (me-world). Organization around a decentralized coordination mechanism – markets, competition, and transactions are the main coordination mechanisms (it-world). Organization around a coordination mechanism driven by special interest groups – stakeholder negotiations and dialogue, the social market economy, and networks are the main coordination mechanisms (you-world). Organization around commons – awareness-based collective action, co-creation, and the well-being of all are the main coordination mechanisms (our-world).

Until now most sport entrepreneurial processes have been active in the stages 1 and 2, although initiatives in stage 3 and 4 are visible in which multi-value creation should be the result of an entrepreneurial process with several parties. Around sport there are examples of an elite sport organization and its business partners working together with entrepreneurial start-ups cooperating within a sport entrepreneurial ecosystem (SEES) (Hattink, 2019). Within these ecosystems at the regional level, value creation can include productivity, income, employment and well-being (Stam, 2015). In relation to sport, other forms of value creation can be observed that are cultural, social and symbolic. Sport has become an industry that is internationally recognized to create value in relation to profit, people and the planet. In several countries, sport is represented by a separate ministry. Evaluation reports and impact studies are written on many sports events in which their sustainable social and economic value is assessed (Hover et al., 2016). The aim of multi-value creation is now relatively common. In a bottom-up process, the talents of entrepreneurs can be exploited and put to effective use, within an existing company, a new company or a network. In these processes which aim to create multi values, social capital can be seen as a starting motor (Ehlen et al., 2017). Collaboration is not about the individual actors; instead, they develop a structure of collaborative improvement based on actions and usage of

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Network of relationships

Social capital as an engine of innovation

Realization of goals

Source:

New knowledge and resources

Ehlen et al. (2017).

Figure 68.1

Model of social capital

the mechanisms in interaction with other actors. Social capital is regarded as a dynamic process with four dimensions, as can be seen in Figure 68.1, that are interrelated and that influence one another: construction (the structure of the network of relationships, the nature of the connections between the people, their positions and their intentions), relationship and emotion (includes not only all aspects such as respect, appreciation, integrity, trust and shared values, but also humor and conviviality), expertise (the knowledge resources that these relationships have to offer one another, such as subject expertise and innovation capacity, as well as influence, goodwill or finances) and action (the activities that are developed for a specific purpose, for mutual benefit and for individual benefit). The role of sports in these entrepreneurial processes is identified via the following functions: 1.

2.

3.

The experience function. Sports make connecting with people easier. By sharing sports experiences in conversations, it is easier to connect with people and to extend business. Even going to a professional sports venue makes it possible to make contact, for example, by asking for directions, or by discussing the athletes before the match or competition, and this continues during and after the match or competition. The experience function therefore supports the (motor) social capital. The identification function. By connecting performances of the elite athletes and the team with the people involved in the event, a sense of connection between these groups is created. By being part of all facets of an elite sports organization, people rapidly feel connected to that elite sports organization and they feel like-minded. This also supports the (motor) social element (feeling involved). The reference function. Organizations and people want to supply and cooperate with a professional or elite sport organization, which can boost the confidence of other external organizations. In particular, being a partner of the elite sports organization leads to others seeing these partners as relatively reliable. In marketing communication, business partners also refer to the sport organizations specifically by presenting themselves as suppliers, partners and sponsors of these organizations. That can make

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4.

a valued contribution to entrepreneurial processes of (combinations of) organizations, for example, opportunities, reputation, financial resources, transactions, sustainability and technology. The metaphor function. Sport is used as a metaphor for managing and operating a company or business in a general sense, which leads to recognition in, for example, processes and challenges, and which creates mutual understanding. This is well known and described by many former elite sports athletes in books, presentations, and so on. Entrepreneurs also often refer to sports when it comes to entrepreneurship and business. Inspiring and learning are common themes that are valued (Segane, 2000; Wichers, 2018).

On the basis of the above, these functions can be formulated as a mechanism that supports the entrepreneurial process of a diversity of domains interlinked with sports or a sports organization

IMPLICATIONS A tangible interpretation is given to the shift from ego to eco, whose objective is to set a context of reducing self-interest and goals, when thinking and acting in silos towards a coherent whole of individuals and organizations, each of which is able to go its own way but in joint balance, which ensures the continued existence of a desired context (development). In specific terms, role or function descriptions of sport have emerged in the valuecreating process. It is important for sports professionals, but also for business and entrepreneurial professionals, to know these roles or functions of sport in a described context in order to make good use of them in the near future to contribute to multiple values, with sport as a value creator. Maybe in the near future a similar role can be discussed for theatre, music, art, and so on. Sport organizations can themselves take the initiative to work on new entrepreneurial processes and play, for example, a major role in regional development. If the various business partners and start-up organizations play an active leading role in this, the initiative will not be merely short lived or stand-alone (sports) project(s), but instead will have a real (multi-valued) impact in the region with the cooperation of and input from, for example, education, research, government and civil society, and will ensure continuity, as would be expected of a regular ecosystem.

REFERENCES Bottenburg, M. van, and L.R. Salome (2010), ‘The indoorization of outdoor sports’, Leisure Studies, 29 (2), 143–60. Ehlen, C.G.J.M., M. van der Klink, J. Stoffers and H. Boshuizen (2017), ‘The co-creation wheel: a four dimensional model of collaborative, interorganizational innovation’, European Journal of Training and Development, 41 (7), 628–46. Forster, G., P. Greyser and B. Walsh (2006), The Business of Sport: Texts and Cases on Strategy and Management, New York: Thomson.

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Hattink, B.H. (2019), ‘Sport as a value creator’, PhD thesis, University of Twente, Enschede. Hover, P., B. Dijk, K. Breedveld, F.J.A. van Eekeren and H. Slender (2016), Creating Social Impact with Sport Events, Utrecht: Mulier Institute and Utrecht University. Loret, A. (1995), Generation glisse – dans l’eau, l’air, la neige . . . la révolution du sport des anneés fun, Paris: Editions autrement. Parkhouse, B.L. (1991), The Management of Sport, St Louis, MO: Mosby. Ratten, V. (2012), ‘Guest editor’s introduction: sports entrepreneurship: towards a conceptualisation’, International Journal of Entrepreneurial Venturing, 4 (1), 1–17. Scharmer, C.O. and K. Kaufer (2013), Leading from the Emerging Future, from Ego System to Eco System Economies, San Francisco, CA: Berett-Koehler. Segane, J.O. (2000), ‘The sports metaphor in American cultural discourse’, Sport in Society, 3 (1), 48–60. Stam, E. (2015), ‘Entrepreneurial ecosystems and regional policy: a sympathetic critique’, European Planning Studies, 23 (9), 1759–69. Smith, A.C.T. and B. Stewart (2010), ‘The special features of sport: a critical revisit’, Sport Management Review, 13 (1), 1–13. Stokvis, R. (1989), De sportwereld, Alphen aan de Rijn: Samsom. Wichers, J.B.F. (2018), ‘Judo as a supportive tool for business and entrepreneurship’, Quality in Sport, 2 (4), 74–88.

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69. Sustainable entrepreneurship Steffen Farny and Julia Binder

Sustainable entrepreneurship describes the nexus between sustainable development and entrepreneurship. Sustainable development has become a central concept for policy, society and business since the 1990s. It is most commonly defined as ‘meeting the needs of the present without compromising the ability of future generations to meet their own needs’ (WCED, 1987: 8). This definition highlights the concept of needs, particularly the essential needs of the world’s poor to which overriding priority should be given, and the idea of limitations imposed by the state of technology and social organization on the environment’s ability to meet present and future needs. Sustainable development thus has to maintain intra-generational equity and develop inter-generational equity, while recognizing the interdependence of the natural environment, societal welfare and economic performance. In its current state, business activity places an overly strong emphasis on meeting current needs while it disregards the limitations, the planetary boundaries, for sustainable development on Earth. In response to the urgency of the situation, in 2015, governments of 175 countries agreed to keep the rise in temperature to a maximum of 2 degrees Celsius compared to pre-industrial times. This requires zeroing greenhouse gas emissions until 2060, reflecting a need for radical transformation in all sectors of civil society, particularly changes in consumption and production patterns (World Resources Institute, 2005). Sustainable entrepreneurship aspires to create viable market solutions and to act as change agents who realize and exploit opportunities for sustainable development. To achieve such ambitious sustainable development gains, sustainability entrepreneurship offers market-orientated solutions to counteract environmental degradation and rectify social injustice and inequality (Belz and Binder, 2017; Binder, 2017; Farny, 2016). It reflects a recent change in management and organization research to take a more holistic perspective on the role of business in current society. In 1994, Elkington coined the term ‘triple bottom line’, referring to the combination of economic, social and ecological benefits as a win–win–win situation for business, society and the environment. Similarly, Hart and Milstein (1999: 25) referred to the concept of creative destruction as a precondition and the central force for the transition to a sustainable society, emphasizing that ‘innovators and entrepreneurs will view sustainable development as one of the biggest business opportunities in the history of commerce’. Yet, integrating sustainability into a company’s activities is marked by high complexity and uncertainty owing to the different and often competing demands and objectives, which require organizations to achieve simultaneously economic, social and environmental value (Farny et al., 2019; Muñoz and Cohen, 2018).

CONCEPT CLARIFICATION Unlike conventional entrepreneurship, which mainly focuses on economic profit maximization, sustainable entrepreneurship builds on the key premise that entrepreneurs have 605

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the potential to create economic, social and ecological value by means of their business activity (Belz and Binder, 2017; Muñoz and Cohen, 2018; Schaltegger and Wagner, 2011). The term captures the interactive relationship between entrepreneurs as economic actors, the society and natural environment. Shepherd and Patzelt (2011: 142) offer a prominent definition: ‘Sustainable entrepreneurship is focused on the preservation of nature, life support, and community in the pursuit of perceived opportunities to bring into existence future products, processes, and services for gain, where gain is broadly construed to include economic and non-economic gains to individuals, the economy, and society’. Instead of trying to minimize social and environmental harm, ideally entrepreneurship seeks to regenerate the environment and instil positive social change, beyond mere economic wealth generation (Markman et al., 2016; Muñoz and Dimov, 2015; Patzelt and Shepherd, 2011). Therefore, sustainable entrepreneurship postulates entrepreneurial activity as a potential solution to environmental degradation and social inequality (Cohen and Winn, 2007; Muñoz and Cohen, 2018; Shepherd and Patzelt, 2011). Currently, at least three views on sustainable entrepreneurship exist in the literature that differ in their conceptualization of the intersection of economic, social and environmental sustainability (Farny, 2016). The most prominent perspective is the adaptation of Elkington’s triple bottom line (TBL) model (Elkington, 1997) into sustainability entrepreneurship as a concept of intersection between the economy, society and the environment, applied widely in entrepreneurship research (for example, Cohen and Winn, 2007; Hockerts and Wüstenhagen, 2010; Schaltegger and Wagner, 2011). The TBL perspective assumes that the three sustainability dimensions are of equal value (there is no prioritizing) and can be addressed separately. Criticism has challenged the assumption that each dimension can be addressed separately, when in reality they are strongly intertwined, and has also questioned how to arbitrate between unavoidably conflicting objectives stemming from the three dimensions. In addition, Elkington affirms that the approach of balancing the needs of the environment, society and the economy has become an accounting exercise for most enterprises, not creating a sustainability transformation of the economy (Elkington, 2018). The second conceptualization of sustainability adopts Passet’s bioeconomy model (Passet, 1996) and results in sustainability entrepreneurship as a concept of embeddedness. The key argument is that owing to the detrimental effects of the past, entrepreneurship should be viewed as being embedded in, and thus limited by, the natural environment and society (Markman et al., 2016). Popular in systems approaches and climate science, the bioeconomy model views sustainability in three concentric circles, in which the economy is embedded in the wider society, and again embedded and constrained by its natural environment. While economic activities constitute the core of the model, they must be carried out without endangering social life nor sacrifice resources in the natural environment. Even though concentric circles in this ‘onion model’ of sustainability portray the dependency of economic activity on the other two dimensions, the model is open to the criticism that it does not clarify whether it prioritizes the economy (doing less harm) or the environment (doing good) as the reference point. Therefore, it has to be stressed that the environment comes first, since it is the ultimate foundation for all human activity, and society comes second, within which the economy is nested (Markman et al., 2016; Muñoz and Cohen, 2018). Another, albeit probably least recognized, perspective views sustainability entre-

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preneurship as a concept of integration, in which economically driven, socially driven and ecologically driven entrepreneurship jointly form sustainability entrepreneurship (Heikkurinen et al., 2019; Muñoz and Dimov, 2015; Schlange, 2009). The integration approach to sustainability recognizes that in the Anthropocene economic actors have a collective responsibility to organize in relation to ecological limits, which has profound implications on the relationship between humans and other organisms (Heikkurinen et al., 2019). This approach dismisses weak cases of sustainable entrepreneurship, for example, compliance-orientated business models, and includes only strong sustainability cases, that is, regenerative and co-evolutionary sustainability (Heikkurinen et al., 2019). Moreover, this perspective expands the notion of sustainability to include an ethical and, even, spiritual sphere (Schlange, 2009). This is consistent with common statements describing a form of entrepreneurship that is sustainable both in its goals and means of wealth creation, but also indicates that sustainable entrepreneurship, at least implicitly, assumes more dimensions are meaningful (for example, a moral dimension, a technological dimension and a political dimension). Figure 69.1 portrays the three approaches. The core idea that unites all three perspectives of sustainable entrepreneurship is that entrepreneurs’ activities in pursuit of financial gain must not adversely affect the natural and social environments in which they operate. The academic discourse has generated comparable yet distinct concepts emphasizing entrepreneurial activity as a potential solution to environmental degradation and social inequality: community-based entrepreneurship, ecopreneurship, environmental entrepreneurship, hybrid organizing, pro-social venturing, social entrepreneurship, societal entrepreneurship and sustainableethical  entrepreneurship. These labels conceptualize the dynamic relationship between entrepreneurship, society and the environment, yet differ in their market and profit orientation (Binder, 2017). For example, funding-dependent social enterprises that are mission driven and fully subsidized by external partners represent non-profit social entrepreneurship and are not dissimilar to non-governmental organizations. In contrast, self-funding social and eco/environmental businesses have a strong focus on social or environmental goals and are able to generate a profit, which is fully reinvested into the company. They emphasize the double-bottom line of either social-economic or environmental-economic values. Furthermore, Binder and Belz (2015) identified five elements commonly included in definitions on sustainability entrepreneurship. First and foremost, researchers share a process interest in how opportunities are recognized, developed and exploited. Second, the triadic relationship to balance economic, social and ecological consequences inherent in the definition of sustainable development is supported. Third, definitions include a reference to the transformative promise to create future goods and services. Fourth, definitions further include the source of opportunities; either resourceful entrepreneurs create them and/or an actor’s alertness uncovers a market failure that can be exploited. Finally, some researchers explicitly acknowledge who exploits opportunities (that is, the entrepreneurs). Since across definitions, scholars emphasize the assumption that sustainable entrepreneurship is a process, the chapter will present sustainable entrepreneurship in action, which is also informative for understanding the development of sustainable businesses in practice.

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Figure 69.1

Sustainable entrepreneurship as a concept of embeddedness

SUSTAINABLE ENTREPRENEURSHIP

Economic sustainability

Social sustainability

Three conceptualizations of sustainability entrepreneurship

Sustainable entrepreneurship as a concept of intersection

Economic sustainability

SUSTAINABLE ENTREPRENEURSHIP

Environmental sustainability

Environmental sustainability

Social sustainability

Sustainable entrepreneurship as a concept of integration

Environmental sustainability

Economic sustainability

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A PROCESS VIEW ON SUSTAINABLE ENTREPRENEURSHIP Recent sustainable entrepreneurship research, in common with most entrepreneurship scholarship, focuses on the entrepreneurial process (Belz and Binder, 2017; Kibler et al., 2015; Muñoz and Dimov, 2015). Despite the recurring focus on the process, few studies have empirically investigated the sustainable entrepreneurial process. In particular, McMullen and Dimov (2013) note the lack of process-orientated empirical studies. According to them, empirical research that adopts a process view on entrepreneurial phenomena has the potential to yield relevant insights for the entire scholarly field. The sustainable entrepreneurial process is typically triggered by entrepreneurs’ motivation of non-economic benefits and emotions: the compassion to support the well-being of others creates a shared vision between the founders, the enterprise and its members (Farny et al., 2019). The beginning of a sustainable entrepreneurship process can be found in the recognition of a specific ecological or social problem (Belz and Binder, 2017). Belz and Binder argue that resourceful entrepreneurs then recognize an opportunity in rectifying the socio-ecological problem and successively develop a TBL solution that can be introduced into the market. From an economic perspective, the opportunity could originate from natural-environment related market imperfections that provide a profit-opportunity for entrepreneurial action (Cohen and Winn, 2007). Individual entrepreneurs thus typically possess a pro-social motivation, a willingness to exercise a more compassionate, enterprising practice that may also render personal gain of profit (Shepherd and Patzelt, 2011). In sustainable entrepreneurship, entrepreneurs need to have both the ability and the motivation to increase communal or societal well-being (Muñoz and Cohen, 2018). A specific feature of sustainable entrepreneurship is that collective agency on the part of a larger community is integral to the venture development process. Sustainable entrepreneurship tends to be entrepreneurial and collaborative rather than opportunistic. A cooperative governance form emerges as a natural way of organizing because it allows for collaboration and collective decision-making at the governance level. This form makes it possible to articulate democratic business models and enables the involvement of different groups of community members in the business development process. Cooperatives or community-based enterprises can be seen as an ideal-type sustainable enterprise. In general, they are collectively owned, managed and governed by the people, rather than by a small group of entrepreneurs on their behalf. Similar to certain social movement activities, ideal-type sustainability enterprises are based on collective solidarity geared towards explicit social and ecological purposes, where the commitment to supporting each other outweighs personal costs (Farny et al., 2019). Sustainable entrepreneurship faces structural tensions resulting from maintaining multiple objectives that are likely to create internal conflicts (Binder, 2017). The conflicts mainly stem from the level of integration or separation of multiple objectives in organizational design and organizational activities, and of organizational actors (Battilana and Lee, 2014). Highly integrated sustainability enterprises need to manage an assemblage of organizational actors and different interests. The multiple objectives of communityorientated sustainability enterprises suppress the strict application of a market logic and, instead, in its workforce composition must incorporate a heterogeneous skillset with diverse backgrounds (Farny et al., 2019). This necessity is less an issue for enterprises that separate pro-social and economic activities, where the workforce is usually hired based

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on individual skills and organizational demand in order to avoid productive tensions (Battilana and Dorado, 2010). Furthermore, the organizational design, for example, governance structures, incentives and control systems, needs to address the community as an integrated notion, simultaneously being actor and place in a sustainable community logic (Battilana and Lee, 2014; Kibler et al., 2015). Organizational activities are thus based on place-based resources, to pursue a common good for the hosting community. The activities often partly rely on voluntary member involvement to compensate for lower efficiency levels and include selectively (de)coupling specific organizational features that do not risk the stability of a sustainability enterprise by making it either too financially orientated or insufficiently financially orientated (Farny et al., 2019). As regards the end of the sustainable entrepreneurship process, scholars have yet to determine what constitutes success of the journey. This is particularly difficult as entrepreneurial processes are highly idiosyncratic. Some argue that the conventional entrepreneurship process typically ends with the introduction of a new product into the market that generates a profit for the firm and/or economy. The framing of sustainability entrepreneurship as processes of ecological, social and economic value creation suggests defining (at least) three ends. An alternative view on the end of a sustainable entrepreneurship process is therefore that it is marked by a change in social arrangements (institutional change), which to varying degrees involves the marketplace, a community and the ecological environment (Farny, 2016). This would be in line with the overarching objective to develop a new safe operating space for humanity, foster inclusive growth and become a net contributor towards achieving the Sustainable Development Goals.

REFERENCES Battilana, J. and S. Dorado (2010), ‘Building sustainable hybrid organizations: the case of commercial microfinance organizations’, Academy of Management Journal, 53 (6), 1419–40. Battilana, J. and M. Lee (2014), ‘Advancing research on hybrid organizing – insights from the study of social enterprises’, Academy of Management Annals, 8 (1), 397–441. Belz, F.M. and J.K. Binder (2017), ‘Sustainable entrepreneurship: a convergent process model’, Business Strategy and the Environment, 26 (1), 1–17. Binder, J.K. (2017), Theorizing About Sustainable Entrepreneurship, Munich: Technische Universität München. Binder, J.K. and F.-M. Belz (2015), ‘Sustainable entrepreneurship: what it is’, in P. Kyrö (ed.), Handbook of Sustainable Entrepreneurship Research, Cheltenham, UK and Northampton, MA, USA: Edward Elgar, pp. 30–72. Cohen, B. and M.I. Winn (2007), ‘Market imperfections, opportunity and sustainable entrepreneurship’, Journal of Business Venturing, 22 (1), 29–49. Elkington, J. (1994), ‘Towards the sustainable corporation: win-win-win business strategies for sustainable development’, California Management Review, 36 (2), 90–100. Elkington, J. (2018), ‘25 years ago I coined the phrase “triple bottom line”. Here’s why it’s time to rethink it’, Harvard Business Review, 25 June, accessed 6 October 2020 at https://hbr.org/2018/06/25-years-ago-i-coinedthe-phrase-triple-bottom-line-heres-why-im-giving-up-on-it. Farny, S. (2016), Revisiting the Nexus of Entrepreneurship and Sustainability: Towards an Affective and Interactive Framework for the Sustainability Entrepreneurship Journey, Helsinki: Aalto University. Farny, S., E. Kibler, S. Hai and P. Landoni (2019), ‘Volunteer retention in prosocial venturing: the role of emotional connectivity’, Entrepreneurship Theory and Practice, 43 (6), 1094–123. Hart, S. and M. Milstein (1999), ‘Global sustainability and the creative destruction of industries’, Sloan Management Review, 41 (1), 23–33. Heikkurinen, P., S. Clegg, A.H. Pinnington, K. Nicolopoulou and J.M. Alcaraz (2019), ‘Managing the Anthropocene: relational agency and power to respect planetary boundaries’, Organization & Environment, 17 October, doi:10.1177/1086026619881145.

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Hockerts, K. and R. Wüstenhagen (2010), ‘Greening Goliaths versus emerging Davids: theorizing about the role of incumbents and new entrants in sustainable entrepreneurship’, Journal of Business Venturing, 25 (5), 481–92. Kibler, E., M. Fink, R. Lang and P. Muñoz (2015), ‘Place attachment and social legitimacy: revisiting the sustainable entrepreneurship journey’, Journal of Business Venturing Insights, 3 (July), 24–9. Markman, G.D., M. Russo, G.T. Lumpkin, P.D. Jennings and J. Mair (2016), ‘Entrepreneurship as a platform for pursuing multiple goals: a special issue on sustainability, ethics, and entrepreneurship’, Journal of Management Studies, 53 (5), 673–94. McMullen, J.S. and D. Dimov (2013), ‘Time and the entrepreneurial journey: the problems and promise of studying entrepreneurship as a process’, Journal of Management Studies, 50 (8), 1481–512. Muñoz, P. and B. Cohen (2018), ‘Sustainable entrepreneurship research: taking stock and looking ahead’, Business Strategy and the Environment, 27 (3), 300–322. Muñoz, P. and D. Dimov (2015), ‘The call of the whole in understanding the development of sustainable ventures’, Journal of Business Venturing, 30 (4), 632–54. Passet, R. (1996), L’Economique et le vivant, Paris: Payot. Patzelt, H. and D.A. Shepherd (2011), ‘Recognizing opportunities for sustainable development’, Entrepreneurship Theory and Practice, 35 (4), 631–52. Schaltegger, S. and M. Wagner (2011), ‘Sustainable entrepreneurship and sustainability innovation: categories and interactions’, Business Strategy and the Environment, 20 (4), 222–37. Schlange, L.E. (2009), ‘Stakeholder identification in sustainability entrepreneurship: the role of managerial and organisational cognition’, Greener Management International, 55 (Autumn), 13–32. Shepherd, D.A. and H. Patzelt (2011), ‘The new field of sustainable entrepreneurship: studying entrepreneurial action linking “what is to be sustained” with “what is to be developed”’, Entrepreneurship Theory and Practice, 35 (1), 137–63. World Commission on Environment and Development (WCED) (1987), Our Common Future, New York: Oxford University Press. World Resources Institute (2005), Ecosystems and Human Well-Being: Synthesis Report (Millennium Ecosystem Assessment), Washington, DC: Island Press.

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70. Teams

Leon Schjoedt, Sascha Kraus and Cyrine Ben-Hafaïedh

The concept of entrepreneurial teams has still not been adequately defined in the literature and this hampers the consolidated development of entrepreneurial teams research (Knight et al., 2020). The existing literature on entrepreneurial teams contains numerous different definitions which are generally built upon a triptych of criteria: founder, owner and (top) manager (Ben-Hafaïedh, 2017). One of the most recent definitions is the loosest as it does not require the founder status nor the ownership criterion. An entrepreneurial team is here akin to a new venture top management team: ‘the group of individuals that is chiefly responsible for the strategic decision making and ongoing operations of a new venture’ (Klotz et al., 2014: 227). Beyond the different combinations of these criteria and the way the terms are captured, most existing definitions, with one notable exception, disregard the difference between the concepts of groups and teams. The literature on groups shows that the concept of teams is different from the concept of groups (Katzenbach and Smith, 1993). The literature on top management teams also recognizes this difference between groups and teams. For example, Hambrick (1994) notes how the top management team is not a team per se, but a group of people with management responsibilities. To better define the entrepreneurial team, the concept of groups needs to be considered. A group is defined as ‘two or more individuals, interacting and interdependent, who have come together to achieve particular objectives’ (Robbins and Judge, 2008: 123). Furthermore, Cohen and Bailey (1997) note that a group also shares the outcomes. These researchers also note that for a group to be considered a group, the group members must see themselves as a social unit. This shows that teams are special groups in which members are more closely connected and support one another, and are characterized by engagement and commitment (Katzenbach and Smith, 1993). Thus, a team is more than a group. The entrepreneurial team is more than a group because it involves a shared commitment to the new venture, according to Cooper and Daily (1997) who stop short of defining what constitutes a shared commitment. Katzenbach and Smith (1993) propose that what must be shared by the entrepreneurial team is accountability. Kamm and Nurick (1993) note that the shared commitment of the entrepreneurial team is established when two or more people formally establish a new venture in which they share ownership. The shared commitment seems to be towards the entrepreneurial team as a whole and the performance of the new venture. Building on these perspectives, Schjoedt and Kraus (2009: 515) proposed the following definition: An entrepreneurial team consists of two or more persons who have an interest, both financial and otherwise, in and commitment to a venture’s future and success; whose work is interdependent in the pursuit of common goals and venture success; who are accountable to the entrepreneurial team and for the venture; who are considered to be at the executive level with executive responsibility in the early phases of the venture, including founding and prestart up; and who are seen as a social entity by themselves and by others.

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This definition notably stresses entitativity (Hogg et al., 2007; Knight et al., 2020), which should help determine whether early employees are part of the entrepreneurial team or not (Choi et al., 2019), knowing that there is less ambiguity regarding outside funders or external boards of investors (Cardon et al., 2017). Research has shown that teams start a significant number of new ventures, or a team is created within the first years of start-up (Aldrich et al., 2004; Kollmann et al., 2016; Watson et al., 1995). Researchers have established that there is a strong association between venture success and team-created ventures. Compared with new ventures founded by individuals, new ventures created by teams have more economic, cultural and social capital (Cooney, 2005). As a consequence, they are better equipped when starting and developing new ventures (Lechler, 2001; West, 2007). Also, research on top management teams shows the executive team has greater influence on organizational performance than an individual executive does (Hambrick and Mason, 1984; O’Reilly et al., 1993). In addition, in today’s economic environment – characterized by increasing complexity and uncertainty – an entrepreneurial team seems to be better suited to manage the uncertainties and vicissitudes associated with new venture creation (Chowdhury, 2005). Further, venture capital firms rarely consider venture proposals from individual entrepreneurs but favor proposals from entrepreneurial teams, since team-based ventures, overall, have a better performance record (Baum and Silverman, 2004; Kamm et al., 1990; Timmons and Spinelli, 2007). As this shows and as Cooper and Daily (1997: 144) phrase it, ‘entrepreneurial teams are at the heart of any new venture’. The literature now recognizes the importance of the entrepreneurial team and an increasing amount of research is devoted to it, including many recent review papers (for example, Ben-Hafaïedh, 2017; de Mol et al., 2015; Klotz et al., 2014; Knight et al., 2020; Lazar et al., 2020). A relationship between the entrepreneurial team and venture performance exists (Jin et al., 2017), but additional research on the determinants of entrepreneurial team performance is needed. This chapter contributes to the entrepreneurship literature by presenting a reformulated, literature-based definition of entrepreneurial teams and by modelling how factors influence entrepreneurial team performance and, in turn, venture performance. That is, this chapter is intended to stimulate future research to fill the gap in the literature on entrepreneurial teams.

FUNCTIONAL ENTREPRENEURIAL TEAMS The entrepreneurial team interprets and responds to the external environment, as well as managing the venture internally. Consequently, the entrepreneurial team has a dual and complex function. This complexity is further increased because venture creation is a novel and unstructured task (Amason et al., 2006; O’Reilly et al., 1993). These aspects mean that the entrepreneurial team needs heterogeneity in its human resources, for example, knowledge, skills, and abilities, as well as homogeneity to be able to function together and to be effective in managing the venture and in responding to the external environment. The external environment has a direct influence on venture performance (Birley and Stockley, 2000), and the effects of the founding environment grow rather than fade over time (Eisenhardt and Schoonhoven, 1990). The environment also indirectly affects venture performance via the entrepreneurial team (Hmieleski and Ensley, 2007). The type

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of external environment, stable or turbulent, influences venture performance indirectly through how the entrepreneurial team responds to the environment. In stable environments, a heterogeneous entrepreneurial team will experience lower venture performance, as the need for communication is greater in a heterogeneous entrepreneurial team, and fast responses in the stable environment are essential. In turbulent environments, a heterogeneous entrepreneurial team will have superior performance because the heterogeneous entrepreneurial team makes more comprehensive decisions by considering more options for action (Glick et al., 1993). Thus, for the entrepreneurial team to succeed, in the novel and unstructured task of venture creation and in its dual and complex function, heterogenetic knowledge, skills and abilities are required. Although the entrepreneurial team needs to be heterogeneous, it also needs to be homogeneous for it to function. Thus, heterogeneity and homogeneity of the entrepreneurial team affects how capable the entrepreneurial team is in responding to the environment, which, in turn, influence venture performance. That is, the environment influences venture performance directly and indirectly through the entrepreneurial team composition. The relationship between entrepreneurial team composition and performance is evidenced (Jin et al., 2017), but results on the various determinants are inconsistent (Klotz et al., 2014; Zhou and Rosini, 2015). One of the reasons for this is that the individual characteristics typically used in entrepreneurship research consist of surface-level (or demographic) characteristics, such as age, functional experience, educational background and race (Schjoedt and Kraus, 2009). Zhou and Rosini (2015) surveyed entrepreneurial team diversity and performance research, and argue that no conclusion can be drawn for all of these factors as results are inconsistent. Despite the entrepreneurial team research having focused, mainly, on surface-level characteristics, it is only a part of entrepreneurial team heterogeneity as illustrated by research which linked surface-level characteristics and organizational performance via less explored deep-level constructs, such as cognition and personality (de Mol et al., 2015; Klotz et al., 2014). This practice of assuming that surface-level characteristics are proxies for deep(er)-level constructs is unfortunate, as researchers have shown the effect of surface-level heterogeneity is reduced over time as the entrepreneurial team engages in problem-solving and decisionmaking (for example, Glick et al., 1993; Harrison et al., 1998, 2002); whereas the effect of heterogeneity based on deep-level characteristics (for example, personality, values and attitudes) is sustainable (Harrison et al., 1998., 2002). As surface-level heterogeneity is independent of deep-level heterogeneity, deep-level characteristics cannot be approximated from surface-level characteristics. Furthermore, scholars have suggested that deep-level characteristics have a stronger effect on entrepreneurial team performance (Harrison et al., 1998, 2002; Hollenbeck et al., 2004). The use of surface-level characteristics may have been based on ease of use and collection (Hambrick, 2007). Thus, deep-level characteristics need to be examined separately when exploring the black box of the entrepreneurial team. Over time as the entrepreneurial team engages in problem-solving and decisionmaking, the effect of heterogenic surface-level characteristics decreases. This may be beneficial to entrepreneurial team and venture performance as the entrepreneurial team develops and as tasks become routine which are handled more efficiently by a homogeneous entrepreneurial team. However, the need for a heterogeneous entrepreneurial team may still exist as the heterogeneous entrepreneurial team makes more effective decisions,

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since it considers more options in the decision-making process (for example, Eisenhardt and Schoonhoven, 1990). Thus, as time erases surface-level characteristics, the need for deep-level characteristics still exists. For that reason, changes in entrepreneurial team composition may be desired to maintain, both surface- and deep-level, heterogeneity and homogeneity for effective and efficient entrepreneurial team performance. Scholars suggest that there are two pitfalls of entrepreneurial teams: failure to consider the entrepreneurial team composition will change over time; and lack of mechanisms to adjust the entrepreneurial team to maintain an appropriate level of heterogeneity and homogeneity in order to stimulate constructive conflict while still being able to function (Kamm and Nurick, 1993; Timmons and Spinelli, 2007). Both constructive and destructive conflicts arise from heterogeneity. Ensley and colleagues (Ensley and Pearce, 2001; Ensley et al., 2002) find that cognitive conflict, task related, is positively associated with new venture performance and is depicted as a source of creativity, innovation and avoidance of groupthink (Janis, 1982). An entrepreneurial team that suffers from groupthink unknowingly limits the range of options considered and limits information processing. However, affective conflict, relational (that is personal attacks) is destructive and must thus be limited as well as power and politics, as these consume time and make the entrepreneurial team less effective and efficient (Schjoedt and Kraus, 2009). Moreover, too much cognitive conflict is not beneficial as it can augment the affective conflict (Foo, 2011). Continued communication that is rich in nature, such as face-to-face communication and open communication, leads to entrepreneurial team integration, more comprehensive decision-making, and facilitates coordination of interdependent tasks, which, in turn, results in better entrepreneurial team and venture performance (Foo et al., 2006). The need for communication to smooth the differences in perspectives of the world (paradigms), interpretations and expectations for the venture and entrepreneurial team participation depends on the degree of heterogeneity within the entrepreneurial team. For example, as it communicates and becomes a socially integrated unit that reacts faster and is more flexible, efficient and effective, the entrepreneurial team, through its developed problemsolving skills and communicated aspirations, may allocate time and energy to where it will have the most impact (Smith et al., 1994). Although entrepreneurial team homogeneity benefits the speed of decision-making, it comes at the cost of actions of lesser magnitude compared with a heterogeneous entrepreneurial team. This suggests that entrepreneurial team heterogeneity–homogeneity is a double-edged sword (Horwitz and Horwitz, 2007). Thus, entrepreneurial team composition is a key determinant of entrepreneurial team and venture performance but must be leveraged. It is not self-explanatory. Input–mediator–output–input (IMOI) is a recent heuristic model of team performance (Ilgen et al., 2005) that has been applied to entrepreneurial teams instead of the traditional input–process–output (IPO) framework (Ben-Hafaïedh, 2017; Knight et al., 2020). This more recent model notably argues that some mediating variables generally viewed as processes are in reality emergent states, that is ‘cognitive, motivational, and affective states of teams, as opposed to the nature of their member interaction’ (Marks et al., 2001: 357). Shared leadership is a mediator of this type that has received some attention in entrepreneurial team research. For example, Ensley et al. (2006) find shared leadership to be more significant than vertical leadership in accounting for new-venture performance, and other researchers further confirm the important impact of shared leadership (Hmieleski et al.,

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2012) and how task-related informational diversity is better leveraged when leadership is shared among entrepreneurial team members (Zhou, 2013). The purpose of this chapter was to contribute to the entrepreneurship literature (Ferreira et al., 2019) by stressing important elements generally overlooked in defining entrepreneurial teams, and to briefly depict a current picture of our understanding of why some entrepreneurial teams are more performant than others (for example, Covin et al., 2020). Balance needs to be found internally between heterogeneity and homogeneity in the surface- and deep-level characteristics of an entrepreneurial team. A distinction must also be made between the resources apparently available and the members’ possible tendency to withhold them, and thus not realize their (full) potential resource contribution (Yang et al., 2020). Balance also needs to be found externally as regards the environment (more or less turbulent in particular). This balance is all the more difficult to find as different developmental phases of entrepreneurial teams raise different needs and issues. Some researchers focus on dynamic stages or episodes of entrepreneurial teams, such as formation (Lazar et al., 2020) and team members’ exits (Gregori and Parastuty, 2020), but future research should embed the temporal aspect in its construction and investigate entrepreneurial teams dynamically over time even outside of formation and turnover topics. Finally, we encourage research on entrepreneurial teams to find its voice in organizational team research in general. It has considerably drawn from existing fields and theories such as, respectively, organizational behavior and upper echelons theory (Hambrick and Mason, 1984), but has much to contribute in return, in particular in contexts where teams can experience self-selection. It is also an opportunity to further introduce emerging theories in entrepreneurship to the conversation of a field traditionally dominated by management theories that often do not hold in the context of new ventures (for example, effectuation; Ben-Hafaïedh and Ratinho, 2019).

REFERENCES Aldrich, H.E., N.M. Carter and M. Ruef (2004), ‘Teams’, in W.B. Gartner, K.G. Shaver, N.M. Carter and P.D. Reynolds (eds), Handbook of Entrepreneurial Dynamics: The Process of Business Creation, Thousand Oaks, CA: Sage, pp. 299–310. Amason, A.C., R.C. Shrader and G.H. Tompson (2006), ‘Newness and novelty: relating top management team composition to new venture performance’, Journal of Business Venturing, 21 (1), 125–48. Baum, J.A. and B.S. Silverman (2004), ‘Picking winners or building them? Alliance, intellectual, and human capital as selection criteria in venture financing and performance of biotechnology startups’, Journal of Business Venturing, 19 (3), 411–36. Ben-Hafaïedh, C. (2017), ‘Entrepreneurial teams research in movement’, in C. Ben-Hafaïedh and T.M. Cooney (eds), Research Handbook on Entrepreneurial Teams: Theory and Practice, Cheltenham, UK and Northampton, MA, USA: Edward Elgar, pp. 11–44. Ben-Hafaïedh, C. and T. Ratinho (2019), ‘Entrepreneurial behaviour and effectuation: an examination of team formation processes’, in M. McAdam and J. Cunningham (eds), Entrepreneurial Behaviour: Individual, Contextual and Microfoundational Perspectives, London: Palgrave Macmillan, pp. 91–118. Birley, S. and S. Stockley (2000), ‘Entrepreneurial teams and venture growth’, in D.L. Sexton (ed.), The Blackwell Handbook of Entrepreneurship, Oxford: Blackwell Business, pp. 287–307. Cardon, M., C. Pos and W. Forster (2017), ‘Team entrepreneurial passion (tep): its emergence and influence in new venture teams’, Academy of Management Review, 42 (2), 283–305. Choi, J., N. Goldschlag, J. Haltiwange and J.D. Kim (2019), ‘Founding teams and startup performance’, Discussion Paper CES 19–32, US Census Bureau, Center for Economic Studies, Washington, DC. Chowdhury, S. (2005), ‘Demographic diversity for building an effective entrepreneurial team: Is it important?’, Journal of Business Venturing, 20 (6), 727–46.

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Cohen, S.G. and D.E. Bailey (1997), ‘What makes teams work: group effectiveness research from the shop floor to the executive suite’, Journal of Management, 23 (3), 239–90. Cooney, T.M. (2005), ‘Editorial: what is an entrepreneurial team?’, International Small Business Journal, 23 (3), 226–35. Cooper, A.C. and C.M. Daily (1997), ‘Entrepreneurial teams’, in D.L. Sexton and R.W. Smilor (eds), Entrepreneurship 2000, Chicago, IL: Upstart, pp. 127–50. Covin, J.G., J. Rigtering, M. Hughes, S. Kraus, C.-F. Cheng and R. Bouncken (2020), ‘Individual and team entrepreneurial orientation: scale development and configurations for success’, Journal of Business Research, 112 (May), 1–12. De Mol, E., S.N. Khapova and T. Elfring (2015), ‘Entrepreneurial team cognition: a review’, International Journal of Management Reviews, 17 (2), 232–55. Eisenhardt, K.M. and C.B. Schoonhoven (1990), ‘Organizational growth: linking founding team, strategy, environment, and growth among U.S. semiconductor ventures, 1978–1988’, Administrative Science Quarterly, 35 (3), 504–29. Ensley, M.D. and C.L. Pearce (2001), ‘Shared cognition in top management teams: implications for new venture performance’, Journal of Organizational Behavior, 22 (2), 145–60. Ensley, M.D., K.M. Hmieleski and C.L. Pearce (2006), ‘The importance of vertical and shared leadership within new venture top management teams: implications for the performance of startups’, Leadership Quarterly, 17 (3), 217–31. Ensley, M.D., A.W. Pearson and A.C. Amason (2002), ‘Understanding the dynamics of new venture top management teams: cohesion, conflict, and new venture performance’, Journal of Business Venturing, 17 (4), 365–86. Ferreira, J.J.M., C.I. Fernandes and S. Kraus (2019), ‘Entrepreneurship research: mapping intellectual structures and research trends’, Review of Managerial Science, 13 (1), 181–205. Foo, M.-D. (2011), ‘Teams developing business ideas: how member characteristics and conflict affect memberrated team effectiveness’, Small Business Economics, 36 (1), 33–46. Foo, M.-D., H.-P. Sin and L.-P. Yiong (2006), ‘Effects of team inputs and intrateam processes on perceptions of team viability and member satisfaction in nascent ventures’, Strategic Management Journal, 27 (4), 389–99. Glick, W.H., C.C. Miller and G.P. Huber (1993), ‘The impact of upper-echelon diversity on organizational performance’, in G.P. Huber and W.H. Glick (eds), Organizational Change and Redesign: Ideas and Insights for Improving Performance, New York: Oxford University Press, pp. 176–214. Gregori, P. and Z. Parastuty (2020), ‘Investigating the process of entrepreneurial team member exits: a systematic review and future research directions’, Review of Managerial Science, 25 January, doi:10.1007/ s11846-020-00377-1. Hambrick, D.C. (1994), ‘Top management groups: a conceptual integration and reconsideration of the “team” label’, Research in Organizational Behavior, 16, 171–213. Hambrick, D.C. (2007), ‘Upper echelons theory: an update’, Academy of Management Review, 32 (2), 334–43. Hambrick, D.C. and C. Mason (1984), ‘Upper echelons: the organization as a reflection of its top managers’, Academy of Management Review, 9 (2), 193–206. Harrison, D.A., K.H. Price and M.P. Bell (1998), ‘Beyond relational demography: time and the effects of surface- and deep-level diversity on work group cohesion’, Academy of Management Journal, 41 (1), 96–107. Harrison, D.A., K.H. Price, J.H. Gavin and A.T. Florey (2002), ‘Time, teams, and task performance: changing effects of surface-and deep-level diversity on group functioning’, Academy of Management Journal, 45 (5), 1029–45. Hmieleski, K.M., M.S. Cole and R.A. Baron (2012), ‘Shared authentic leadership and new venture performance’, Journal of Management, 38 (5), 1476–99. Hmieleski, K.M. and M.D. Ensley (2007), ‘A contextual examination of new venture performance: entrepreneur leadership behavior, top management team heterogeneity, and environmental dynamism’, Journal of Organizational Behavior, 28 (7), 865–89. Hogg, M.A., D.K. Sherman, J. Dierselhuis, A.T. Maitner and G. Moffitt (2007), ‘Uncertainty, entitativity, and group identification’, Journal of Experimental Social Psychology, 43 (1), 135–42. Hollenbeck, J.R., D.S. DeRue and R. Guzzo (2004), ‘Bridging the gap between I/O research and HR practice: improving team composition, team training, and team task design’, Human Resource Management, 43 (4), 353–66, doi:10.1002/hrm.20029. Horwitz, S.K. and I.B. Horwitz (2007), ‘The effects of team diversity on team outcomes: a meta-analytic review of team demography’, Journal of Management, 33 (6), 987–1015. Ilgen, D.R., J.R. Hollenbeck, M. Johnson and D. Jundt (2005), ‘Teams in organizations: from input–process– output models to IMOI models’, Annual Review of Psychology, 56 (1), 517–43. Janis, I.L. (1982), Groupthink, 2nd edn, Boston, MA: Houghton Mifflin. Jin, L., K. Madison, N.D. Kraiczy, F.W. Kellermanns, T.R. Crook and J. Xi (2017), ‘Entrepreneurial team

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composition characteristics and new venture performance: a meta-analysis’, Entrepreneurship Theory and Practice, 41 (5), 743–71. Kamm, J.B. and A.J. Nurick (1993), ‘The stages of team venture formation: a decision-making model’, Entrepreneurship: Theory & Practice, 17 (2), 17–27. Kamm, J.B., J.C. Shuman, J.A. Seeger and A.J. Nurick (1990), ‘Entrepreneurial teams in new venture creation: a research agenda’, Entrepreneurship: Theory & Practice, 14 (4), 7–17. Katzenbach, J.R. and D.K. Smith (1993), The Wisdom of Teams: Creating the High-Performance Organization, Boston, MA: Harvard Business School. Klotz, A.C., K.M. Hmieleski, B.H. Bradley and L.W. Busenitz (2014), ‘New venture teams: a review of the literature and roadmap for future research’, Journal of Management, 40 (1), 226–55. Knight, A., L.L. Greer and B. De Jong (2020), ‘Start-up teams: a multi-dimensional conceptualization, integrative review of past research, and future research agenda’, Academy of Management Annals, 14 (1), 231–66. Kollmann, T., C. Stöckmann, S. Hensellek and J. Kensbock (2016), European Startup Monitor 2016, Essen: University of Duisburg-Essen. Lazar, M., E. Miron-Spektor, R. Agarwal, M. Erez, B. Goldfarb and G. Chen (2020), ‘Entrepreneurial team formation’, Academy of Management Annals, 14 (1), 29–59. Lechler, T. (2001), ‘Social interaction: a determinant of entrepreneurial team venture success’, Small Business Economics, 16 (4), 263–78. Marks, M.A., J.E. Mathieu and S.J. Zaccaro (2001), ‘A temporally based framework and taxonomy of team processes’, Academy of Management Review, 26 (3), 356–76. O’Reilly, C.A., R.C. Snyder and J.N. Boothe (1993), ‘Effects of executive team demography on organizational change’, in G.P. Huber and W.H. Glick (eds), Organizational Change and Redesign: Ideas for Insights for Improving Performance, New York: Oxford University Press, pp. 147–75. Robbins, S.P. and J.A. Judge (2008), Essentials of Organizational Behavior, Upper Saddle River, NJ: Pearson. Schjoedt, L. and S. Kraus (2009), ‘Entrepreneurial teams: definition and performance factors’, Management Research News, 32 (6), 513–24. Smith, K.G., K.A. Smith, J.D. Olian, H.P. Sims, D.P. O’Bannon and J.A. Scully (1994), ‘Top management team demography and process: the role of social integration and communication’, Administrative Science Quarterly, 39 (3), 412–38. Timmons, J.A. and S. Spinelli (2007), New Venture Creation: Entrepreneurship for the 21st Century, 7th edn, New York: McGraw-Hill. Watson, W.E., L.D. Ponthieu and J.W. Critelli (1995), ‘Team interpersonal process effectiveness in venture partnerships and its connection to perceived success’, Journal of Business Venturing, 10 (5), 393–411. West, G.P. (2007), ‘Collective cognition: when entrepreneurial teams, not individuals, make decisions’, Entrepreneurship: Theory & Practice, 31 (1), 77–102. Yang, T., J. Bao and H. Aldrich (2020), ‘The paradox of resource provision in entrepreneurial teams: between self-interest and the collective enterprise’, Organization Science, 27 February, doi:10.1287/orsc.2019.1354. Zhou, W. (2013), ‘Is informational diversity really informational? An investigation of what and when in entrepreneurial teams’, Journal of Marketing Development and Competitiveness, 7 (3), 29–42. Zhou, W. and E. Rosini (2015), ‘Entrepreneurial team diversity and performance: toward an integrated model’, Entrepreneurship Research Journal, 5 (1), 31–60.

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71. Transnational entrepreneurship*

Israel Drori, Benson Honig and Mike Wright1

Our increasingly globalized world creates dynamics and paradoxes that lead to an abundance of entrepreneurial opportunities and patterns. Transnational entrepreneurship (TE) is a unique entrepreneurial model that considers the global and the local as its playing field, accordingly reshaping the entrepreneurial environment. Early research (for example, Light, 2007; Portes et al., 1999, 2002; Saxenian, 2002), identified emerging globalization as impacting and impacted by entrepreneurship, and accordingly depict immigrant entrepreneurship as a cultural and economic process of adaptation and embeddedness. This research typically focused on a host country, usually in North America or Europe. Examples include the Chinese and Taiwanese (Wong, 2003, 2004; Wong and Ng, 2002; Yeung, 1999, 2002), Korean (Yoo, 2000), Dominicans (Itzigsohn et al., 1999), Colombians and Salvadorans (Guarnizo, 1994). Furthermore, TE ventures were said to facilitate the rapid and global transfer of resources, such as capital, labor, technology and knowledge, which made them focal points in expanding transnationalism (Light, 2007; Zhou, 2004). For example, in the wake of critiques such as the ‘brain drain’ (Beine et al., 2001) lamenting the costs of losing high-quality human capital, a new phenomenon termed ‘brain circulation’ was introduced, whereby the migration of technologically educated entrepreneurs helped to develop high-technology industries in countries such as China, India, Taiwan, Ireland and Israel (Breznitz, 2007; Saxenian, 2006). Transnational entrepreneurship scholarship recognizes the prominence and uniqueness of entrepreneurship in the era of intense global transformation of technological and economic systems (Drori et al., 2009). Research continues to expand the study of immigrant and/or ethnic entrepreneurship by advancing our understanding on a variety of issues related to the role, scope and institutional and cultural contexts of transnationalism and entrepreneurship (for example, Drori et al., 2006; Elo and Freiling, 2015; Honig et al., 2010; Urbano et al., 2011). Accordingly, transnational entrepreneurs are defined as social actors who utilize multiple and tangible cross-border networks and resources for the purpose of developing business and other social entrepreneurial opportunities within numerous social fields and multiple locales to promote their entrepreneurial activities. Transnational entrepreneurs operate in the cross-border context of transnationalism, emerging in tandem with increasing globalization, while taking advantage of their immigrant perspective that leverages ingenuity, skills and abilities. In particular, Transnational entrepreneurs create ventures that span multiple locations, including home and host countries, embedding themselves in multiple, cross-border networks, institutional and market environments (Drori et al., 2009; Honig et al., 2010; Pruthi and Wright, 2019). The embeddedness in transnational networks of social and economic environments enables transnational entrepreneurs to generate accesses ‘that enhance their ability to creatively, dynamically, and logistically maximize their resource base’ (Drori et al., 2009: 1001). During 2010–20, TE research has continued to proliferate, expanding its disciplinary base, empirical scope and theoretical outreach (for example, Bailetti, 2018; Lunberg and 619

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Rehnfors, 2018; Urbano et al., 2011; Zapata-Barrero and Rezaei, 2020). One stream of TE research is based on empirical cases which depict the entrepreneurs as immigrants who develop entrepreneurial strategies that fit the nature of their multiple and sometimes contesting institutional environments. These studies (for example, Gurau et al., in press; Pruthi and Wright, 2019; Sequeira et al., 2009) propose theoretical models of transnational entrepreneurs’ emergence and ecosystem development that addresses their distinct characteristics. It focuses on issues such as resource acquisition, network building, market opportunities and venture, and the institutional environment. A second stream of research focuses primarily on micro-level processes of social construction that are embodied in actors’ daily practices (Bolzani et al., 2020; Chen and Tan, 2009; Terjesen and Elam, 2009). Furthermore, the extant research offer mixes embeddedness (Barberies and Solano, 2018; Kloosterman and Rath, 2001) and the theory of practice (Drori et al., 2010; Terjesen and Elam, 2009) approach to explore the interdependence between the transnational entrepreneur’s multiple contexts (home, host, economic and social) and the individual history and entrepreneurial strategies of action in creating opportunities for the TE venture. This research examines the wide array of resources (individual, social, economics and symbolic) the institutional environment (cultural, legal and market), and the transnational entrepreneur’s unique societal (individual) positions and identity, including the transnational entrepreneur’s motivation, capabilities and opportunities (Honig, 2020; Lundberg and Rehnfors, 2018; Sequiera et al., 2009). In particular, the extant literature recognizes the nature of TE as transcending unidirectional family and ethnic ties, and acknowledges the importance of multiple institutional contexts, such as access to knowledge and industry ties that link to prior work experience in entrepreneurial-related activities. The ‘cross-national context of TEs [transnational entrepreneurs] shows that where specific human capital, that is, prior experience, was gained, whether in the host or home country, also has a contingent influence on the interaction between human and social capital’ (Pruthi and Wright, 2019: 69). Furthermore, transnational entrepreneurs not only have to cultivate multiple ties as required by multiple institutional environments, but in founding their venture the individual entrepreneur has to consider his or her position, function and experience. Transnational entrepreneurs are thus social actors whose diverse characteristics and business undertakings must employ a flexible range of tools that enable them to adopt to two (or more) institutionally, socio-economic and geographically distinct spaces. Transnational entrepreneurs create new social and economic forms of seeking and exploiting opportunities and enhancing the advantages of their unique situation, while taking into account the problems associated with operating across different social fields. In light of these observations, we posit that the practices of transnational entrepreneurs are influenced by: (1) their degree of embeddedness in different social spaces; (2) their aptitude for exploring and exploiting business opportunities in these social spaces; (3) their ability to minimize or exploit geographical, social, cultural, economic and political disparities in these social spaces; and (4) the competitive forces that influence the nature of their venture. Thus, transnational entrepreneurs’ position in multiple environments, such as both home and host societies, is contingent on the sociocultural, political and economic resources at their disposal. Business strategies and chances of success are also associated with social and cultural preconditions that may accompany economic resources. The complex context of setting TE business, nevertheless, provides a distinct opportunity

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structure that enables those who found and maintain businesses to benefit from their multiple worlds as a survival mechanism, a way of breaking out and/or a competitive advantage. Thus, transnational entrepreneurs are uniquely positioned to apply and adapt their social structures to changing circumstances and contexts. Transnational entrepreneurship has become an increasingly influential vehicle of business globalization and an important source of new ideas in organization theory. Studying the creation of new businesses by transnational entrepreneurs requires an understanding of the dynamic relationships that span a cross-cultural actor’s multiple fields of entrepreneurial activity. We note that the dominant theoretical frameworks used to study international entrepreneurship that rely primarily on approaches based on internationalizing and globalized firms, including stage models, scale, borrowing resources, alternative governance structures and the born global models, are insufficient, failing to make adequate use of cultural and structural variations that result in new formulations, identities, and organizational practices and objectives. The classic theoretical perspectives on international entrepreneurship fail to account for strategies based on multiple ongoing dispositions and practices stemming from transnational experience. They are typically anchored in one dominant economic paradigm. Transnational entrepreneurs, by their disposition, locations and cultural embeddedness, overcome many of the constraints of structure when traversing different environments. These actors leverage the power of transnationalism to access additional resources, information and social capital (Bailetti, 2018). In summary, transnational entrepreneurs imply an entrepreneurial action guided by the individual as an agency and the structure and the institutional environments, either alien or supporting the venture. Transnational entrepreneurship implies a dialectical relationship between multiple institutional environments together with the individual dispositions, experience, norms and action that result in unique organizational opportunities. This complex set of relationships make TE a challenging endeavor both for academic research and founders of TE firms.

NOTES *

We dedicate this entry to Mike Wright, our esteemed colleague, who recently passed away. He was a wonderful colleague, and we will miss him greatly. 1. The authors contributed to the chapter equally.

REFERENCES Bailetti, E. (2018), ‘Transnational entrepreneurship: distinctive features and a new definition’, Technology Innovation Management Review, 8 (9), 28–38. Barberies, E. and G. Solano (2018), ‘Mixed embeddedness and migrant entrepreneurship: hints on past and future directions: an introduction’, Sociologica, 12 (2), 1–22. Beine, M., F. Docquier and H. Rapoport (2001), ‘Brain drain and economic growth: theory and evidence’, Journal of Development Economics, 64 (1), 275–89. Bolzani, D., S. Marabello and B. Honig (2020), ‘Exploring the multi-level processes of legitimacy in transnational social enterprises’, Journal of Business Venturing, 35 (3), 105941, doi:10.1016/j.jbusvent.2019.06.002. Breznitz, D. (2007), Innovation and the State: Political Choice and Strategies for Growth in Israel, Taiwan and Ireland, New Haven, CT: Yale University Press.

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Chen, W. and J. Tan (2009), ‘Understanding transnational entrepreneurship through a network lens: theoretical and methodological considerations’, Entrepreneurship Theory and Practice, 33 (5), 1079–91. Drori, I., B. Honig and A. Ginsberg (2006), ‘Transnational entrepreneurship: toward a unifying theoretical framework’, Academy of Management Annual Meeting Proceedings, 6 (1), Q1–Q6. Drori, I., B. Honig and A. Ginsberg (2010), ‘Researching transnational entrepreneurship: an approach based on the theory of practice’, in B. Honig, I. Drori and B.A. Carmichael (eds), Transnational and Immigrant Entrepreneurship in a Globalized World, Toronto, Canada: University of Toronto Press, pp. 3–30. Drori. I., B. Honig and M. Wright (2009), ‘Transnational entrepreneurship: an emergence field of study’, Entrepreneurship Theory and Practice, 33 (5), 1001–22. Elo, M. and J. Freiling (2015), ‘Transnational entrepreneurship: an introduction to the volume’, American Journal of Entrepreneurship, 8 (2), 1–9. Guarnizo, L.E. (1994), ‘Los-Dominicanyorks: the making of a binational society’, Annals of the American Academy of Political and Social Science, 533 (1), 70–86. Gurau, C., L.P. Dana and E. Katz-Volovelsky (in press), ‘Spanning transnational boundaries in industrial markets: a study of Israeli entrepreneurs in China’, Industrial Marketing Management. Honig, B. (2020), ‘Exploring the intersection of transnational, ethnic, and migration entrepreneurship’, Journal of Ethnic and Migration Studies, 46 (10), 1974–90. Honig, B., I. Drori and B.A. Carmichael (eds) (2010), Transnational and Immigrant Entrepreneurship in a Globalized World, Toronto: University of Toronto Press. Itzigsohn, J., C.D. Cabral, E.H. Medina and O. Vazquez (1999), ‘Mapping Dominican transnationalism: narrow and broad transnational practices’, Ethnic and Racial Studies, 22 (2), 316–39. Kloosterman, R. and J. Rath (2001), ‘Immigrant entrepreneurs in advanced economies: mixed embeddedness further explored’, Journal of Ethnic and Migration Studies, 27 (2), 189–201. Light, I. (2007), ‘Global entrepreneurship and transnationalism’, in L.-P. Dana (ed.), Handbook of Research on Ethnic Minority Entrepreneurship: A Co-Evolutionary View on Resource Management, Cheltenham, UK and Northampton, MA, USA: Edward Elgar, pp. 3–15. Lundberg, H. and A. Rehnfors (2018), ‘Transnational entrepreneurship: opportunity identification and venture creation’, Journal of International Entrepreneurship, 16 (2), 150–75, doi:10.1007/s10843-018-0228-5. Portes, A., L.E. Guarnizo and P. Landolt (1999), ‘The study of transnationalism: pitfalls and promise of an emergent research field’, Ethnic and Racial Studies, 22 (2), 217–37. Portes, A., L.E. Guarnizo and W.J. Haller (2002), ‘Transnational entrepreneurs: an alternative form of immigrant economic adaptation’, American Sociological Review, 67 (2), 278–98. Pruthi, S. and M. Wright (2019), ‘Social ties, prior experience, and venture creation by transnational entrepreneurs’, International Journal of Entrepreneurship and Small Business, 36 (1–2), 41–73. Saxenian, A. (2002), ‘Transnational communities and the evolution of global production networks: the cases of Taiwan, China and India’, Industry & Innovation, 9 (3), 183–202. Saxenian, A. (2006), The New Argonauts: Regional Advantage in a Global Economy, Cambridge, MA: Harvard University Press. Sequeira, J.F., J.C. Carr and A.A. Rasheed (2009), ‘Transnational entrepreneurship: determinants of firm type and owner attribution of success’, Entrepreneurship Theory and Practice, 33 (5), 1023–44. Terjesen, S. and A. Elam (2009), ‘Transnational entrepreneurs’ venture internationalization strategies: a practice theory approach’, Entrepreneurship Theory and Practice, 33 (5), 1093–120. Urbano. D., N. Toledano and D. Ribeiro-Soriano (2011), ‘Socio-cultural factors and transnational entrepreneurship: a multiple case study in Spain’, International Small Business Journal, 29 (2), 119–34. Wong, L.L. (2003), ‘Chinese business migration to Australia, Canada and the United States: state policy and the global immigration marketplace’, Asian and Pacific Migration Journal, 12 (3), 301–36. Wong, L.L. (2004), ‘Taiwanese immigrant entrepreneurs in Canada and transnational social space’, International Migration Review, 42 (2), 113–52. Wong, L.L. and M. Ng (2002), ‘The emergence of small transnational enterprise in Vancouver: the case of Chinese entrepreneur immigrants’, International Journal of Urban and Regional Research, 26 (3), 508–30. Yeung, H.W. (1999), ‘The internationalization of ethnic Chinese business firms from Southeast Asia: strategies, processes and competitive advantage’, International Journal of Urban and Regional Research, 23 (1), 88–102. Yeung, H.W. (2002), ‘Entrepreneurship in international business: an institutional perspective’, Asia Pacific Journal of Management, 19 (1), 29–61. Yoo, J.-K. (2000), ‘Utilization of social networks for immigrant entrepreneurship: a case study of Korean immigrants in the Atlanta area’, International Review of Sociology, 10 (3), 347–63. Zapata-Barrero, R. and S. Rezaei (2020), ‘Diaspora governance and transnational entrepreneurship: the rise of an emerging social global pattern in migration studies’, Journal of Ethnic and Migration Studies, 46 (10), 1959–73, doi:10.1080/1369183X.2018.1559990. Zhou, M. (2004), ‘Revisiting ethnic entrepreneurship: convergencies, controversies, and conceptual advancements’, International Migration Review, 38 (3), 1040–74.

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72. Trust and entrepreneurship Friederike Welter

INTRODUCING THE CONCEPT OF TRUST Trust has gained attention in entrepreneurship research over the past decade because of its influence on reducing transaction costs and risks involved with entrepreneurship. However, the concept has proved difficult to define. Most definitions build on the following elements: reciprocity, expectations and trustworthiness (Höhmann and Malieva, 2005). Reciprocity is required for trust as it signals to trustor and trustee that the trust they extend to each other will be given back. In this regard, trust is a result of expectations towards others. In other words, I expect an unknown person to act in my own interest or at least to take my interests into account although I cannot be sure about the final outcome of my decision; I just hope not to be disappointed, which can be based on my interpretation of signals sent by the other party. In this regard, trust involves a ‘leap of faith’ (Möllering, 2006) which is required to create familiarity between partners. It is here that trustworthiness comes in: individuals can signal that they are worthy of trust, thus reducing the initial ‘leap of faith’ and encouraging trusting behaviour. Trustworthiness is reflected in, for example, recommendations of other, trusted and known parties, reputations, previous behaviour and a general willingness not to cheat on others (Nooteboom, 2002).

UNDERSTANDING TRUST IN ENTREPRENEURSHIP Trust can be differentiated into personal and institutional trust. Trust has been shown to play a role in networks and for network emergence (Anderson and Jack, 2002; Neergaard and Ulhoi, 2006), for credit relations of small firms (Howorth and Moro, 2006), to help new entrepreneurs in gaining legitimacy (Aldrich, 2000; Jenssen, 2001) and to start their business (Liao and Welsch, 2005), and to generally assist in business relations and cooperation (Chadarova, 2007), in particular also across borders (Wallace et al., 1999; Welter and Smallbone, 2008). Most entrepreneurship research has focused on the role of personal trust for entrepreneurial behaviour, often studying trust indirectly (for a review see Welter et al., 2004a). Personal trust may arise from the characteristics of a group such as an ethnic or kinship group, but it also occurs in bilateral (business) relationships, often longstanding ones, where persons have got to know each other (Williamson, 1993). In both cases, they know or assume that the partner/friend will not behave in a way detrimental to the relationship, even without written rules. Such relationships are therefore governed by norms, values and codes of conduct inherent in a business environment and/ or wider society. Research has also focused on the role of institutional trust for entrepreneurship (Welter and Smallbone, 2006). Institutional trust reflects trust into institutions, drawing 623

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attention to the fact that only people can trust; things, technical systems and institutions cannot (Höhmann and Malieva, 2005). Where trust into institutions is high, individuals are confident that they can rely on binding rules, regulations, laws and norms, which assists them when setting up business relationships with unfamiliar business partners, as they are able to draw on a shared understanding of the rules governing their mutual behaviour. Moreover, in case a business partner cheats, entrepreneurs are able to make use of legal regulations and go to court. Here, institutional trust is based on legal safeguards and sanctions in case the relationship fails; and it is essential for the efficient operation of a market economy, as the scope of trust extends beyond the number of people that are known personally. In this regard, trust fulfils a role as a sanctioning mechanism, thus complementing the regulations and norms existing in economies and societies. Trust lowers transaction costs through providing information and a means to enforce contracts, so that the possibility of opportunistic behaviour diminishes. Moreover, personal trust complements institutional trust in those cases in which an individual does not want to rely merely on institutional arrangements (Granovetter, 1985). On the other hand, research on trust in hostile and turbulent environments points out the role of trust in substituting for a deficient business and societal environment, where norms, rules and values are either absent or no longer functioning (well). This applies, for example, to economies that are in the process of transformation from centrally planned to market-based systems. Here, formal institutions that are essential for largescale and sustainable development of private sector businesses are either non-existent or  inadequately focused on the needs of entrepreneurs. This results in institutional distrust (Raiser, 1999; Rose-Ackerman, 2001), which is re-enforced by ‘heritage’ from the socialist period when individuals had strong mutual ties with family and friends, but mistrusted public institutions (Raiser et al., 2001). In such a situation, personal trust is required and simultaneously substitutes for missing and deficient institutions such as weakly specified legal regulations and inadequate law enforcement. Examples refer to a heavy reliance on networking in order to mobilize resources, and to cope with highly bureaucratic structures (Ledeneva, 1998; Smallbone and Welter, 2001). However, relations between personal and institutional trust are complex: personal trust is context-bound, but to a lesser extent than institutional trust, which requires a functioning institutional structure of the society. Williamson (1993: 476) therefore stated that ‘transactions that are viable in an institutional environment that provides strong safeguards may be nonviable in institutional environments that are weak’. Trust is either strong or weak. If an individual (the trustor) assumes that most people are reliable and well intentioned, that in case of negative experiences laws and regulations will be available, and that active and extensive cooperation can bring considerable advantages, trust is strong (Höhmann and Malieva, 2005). In this regard, some research focusing on trust environments has attempted to identify low- and high-trust countries (Fukuyama, 1995), where trust is seen as fostering the economic development and general performance of economies. Trust also has dark sides. This is reflected in, for example, an over-embeddedness of entrepreneurial actions in social relations which in turn might restrict the development of entrepreneurship in the long run exactly because of its emphasis on personal trust in the form of strong ties for doing business (Zahra et al., 2006). Moreover, where institutional

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Trust and entrepreneurship 625 trust does not exist or is low, because rules are not implemented properly and leave room for discretionary decisions, individuals frequently are forced to resort to bribery in order to reduce risk and uncertainty in business relations (Möllering and Stache, 2010), which in turn contribute to a vicious circle as institutional trust cannot develop.

BUILDING TRUST Surprisingly few studies so far have concentrated on how trust in entrepreneurship is built (and destroyed). This might partly be due to the fact, that empirically it would need a longitudinal research approach. Trust, including institutional trust, is triggered on a personal level, by, for example, personal contacts or recommendations through ‘trusted’ (known and familiar) entrepreneurs and customers, the reputation of one partner, or positive experiences with partners over time as a result of repeated exchanges. Positive experiences enhance trust-building, while negative experiences with one partner could result in an overall mistrusting attitude towards new partners. Trust-building is facilitated, where entrepreneurs can draw on a common background or common experiences. For example, research on trust in entrepreneurship across Western and Eastern Europe has demonstrated that entrepreneurs mainly rely on either recommendations from trusted persons or previous business experiences when selecting new business partners; regardless of whether they operate in Western or Eastern Europe (Höhmann and Welter, 2005; Welter et al., 2004b). Where such a shared background is missing, individuals often revert to stereotyping in order to make the initial leap of faith, as stereotyping allows them to cope with unfamiliar situations and persons (Welter et al., 2012). Luhmann (2000: 95) refers to this process as ‘familiarity breeding unfamiliarity’, where symbols help to reintroduce the unfamiliar into an otherwise known and trusted world. Regional and sectoral factors additionally facilitate trust-building so entrepreneurs are able to draw on shared rules and conventions (Welter, 2005). Examples include the long-distance trade relations in medieval Europe where trust-based relationships between unknown partners were rendered possible through a variety of ‘pre-modern’ institutions, such as guilds or merchant courts (Greif, 1993). This so-called traders’ coalition relied on trust-based reputation mechanisms: agents gained reputations as honest persons based on  their past behaviour, while merchants rewarded this reputation through repeated business (Greif, 1989). Close mutual supervision and control, as well as community penalties and the benefits coming with the membership of this particular group played a major role in preventing agents from cheating, thus assisting in building trust (Greif, 1993). Similar mechanisms are also known from Italian districts (for example, Dei Ottati, 2005), where the local ‘code of fair behaviour’ creates a specific trust milieu within a region and for the firms settled in the district. Other modern examples of organizational commonalities refer to common sectoral ‘cultures’ in the banking industry, which are, for example, documented in a specific dress code. All these examples indicate a role for sector-specific influences in building trust. Nooteboom (2002) distinguishes three major stages of building trust: control in the absence of trust; assessing trustworthiness and developing tolerance levels of trust; and widenening these tolerance levels. In the control stage, partners either proceed step by step,

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or install safeguards based on their own interests, because there is no genuine basis for trust. In the second phase, knowledge and experience allow partners to assess their trustworthiness. By setting tolerance levels for trust, they create some scope for trusting each other, without giving up the control option. Tolerance levels are widened in the third stage, as a result of shared cognitive frames. These three stages may overlap and are not required to occur sequentially. The process of trust-building draws attention to the complex nature of the trust phenomenon, emphasizing its duality as pointed out by Möllering (2005: 283): ‘trust and control each assume the existence of the other, refer to each other and create each other, but remain irreducible to each other’. Research on cross-border entrepreneurship illustrates this, showing that during the process of building trust, personal relations can substitute for formal control mechanisms, but trust also develops simultaneously from controlling partners and starting to socialize with them, indicating the ‘daily life’ embeddedness of trust in entrepreneurial actions (Welter and Smallbone, 2008). Overall, trust-building is an upward spiral with self-reinforcing and recursive relationships between the different stages, and it is a time-consuming process. Negative experiences leave individuals disappointed. This results in or increases cognitive distance between partners, thus further impeding trust-building, because it hinders the ‘leap of faith’ required for trust-building.

OUTLOOK Trust is a conditional phenomenon, depending on contexts, situations and cognitions. Regarding the context- and process-dimensions of the trust phenomenon, this poses conceptual and empirical challenges for entrepreneurship research. Empirically, the operationalization of the various facets of trust poses a challenge, along with adequate methods for researching trust. Trust is very much socially constructed; it also is partly habitual behaviour. Both render ‘objective’ measurements difficult, especially in crosscultural studies, and this also poses the question of how to adequately ask for trust. Ideally, the phenomenon of trust-building needs to be studied longitudinally. Conceptually, the question remains as to whether it is genuine trust or more of a ‘calculated risk’ (Williamson, 1993) playing a role for entrepreneurship. As apparent in the dual nature of trust, it is both trust and control which are needed. For future research on trust and entrepreneurship research (Welter, 2012), it is therefore of interest to explore this duality and the consequences for entrepreneurial activities, in particular for their development potential, in more depth.

REFERENCES Aldrich, H. (2000), ‘Entrepreneurial strategies in new organizational populations’, in R. Swedberg (ed.), Entrepreneurship: The Social Science View, Oxford: University Press, pp. 211–28. Anderson, A.R. and S.L. Jack (2002), ‘The articulation of social capital in entrepreneurial networks: a glue or a lubricant?’, Entrepreneurship & Regional Development, 14, 193–210. Chadarova, T. (2007), ‘Business relations as trusting relations: the case of Bulgarian small businesses’, in K. Roth (ed.), Social Networks and Social Trust in the Transformation Countries, Freiburger Sozialanthropologische Studien 15, Münster: Lit, pp. 276–302.

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Trust and entrepreneurship 627 Dei Ottati, G. (2005), ‘Global competition and entrepreneurial behaviour in industrial districts: trust relations in an Italian industrial district’, in H.-H. Höhmann and F. Welter (eds), Trust and Entrepeneurship: A West– East Perspective, Cheltenham, UK and Northampton, MA, USA: Edward Elgar, pp. 255–71. Fukuyama, F. (1995), Trust – The Social Virtues and the Creation of Prosperity, New York: Free Press. Granovetter, M. (1985), ‘Economic action and social structure: the problem of embeddedness’, American Journal of Sociology, 28 (1), 1–22. Greif, A. (1989), ‘Reputation and coalitions in medieval trade: evidence on the Maghribi traders’, Journal of Economic History, 49 (4), 857–82. Greif, A. (1993), ‘Contract enforceability and economic institutions in early trade: the Maghribi traders’ coalition’, American Economic Review, 83 (3), 525–48. Höhmann, H.-H. and E.Malieva (2005), ‘The concept of trust: some notes on definitions, forms and sources’, in H.-H. Höhmann and F. Welter (eds), Trust and Entrepreneurship: An East–West Perspective, Cheltenham, UK and Northampton, MA, USA: Edward Elgar, pp. 7–23. Höhmann, H.-H., and F. Welter (eds) (2005), Trust and Entrepreneurship: A West–East Perspective, Cheltenham, UK and Northampton, MA, USA: Edward Elgar. Howorth, C. and A. Moro (2006), ‘Trust within entrepreneur bank relationships: insights from Italy’, Entrepreneurship Theory and Practice, 30 (4), 495–517. Jenssen, J.I. (2001), ‘Social networks, resources and entrepreneurship’, Entrepreneurship and Innovation, 2 (2), 103–9. Ledeneva, A.V. (1998), Russia’s Economy of Favours: Blat, Networking and Informal Exchange, Cambridge: Cambridge University Press. Liao, J. and H. Welsch (2005), ‘Roles of social capital in venture creation: key dimensions and research implications’, Journal of Small Business Management, 43 (4), 345–62. Luhmann, N. (2000), ‘Familiarity, confidence, trust: problems and alternatives’, in Gambetta, D. (ed.), Trust:  Making and Breaking Cooperative Relations, Department of Sociology, University of Oxford, pp. 94–107, available at: http://www.cogsci.ed.ac.uk/~rnp/papers/jcscw/trust/luhmann94-107.pdf (accessed 11 May 2008). Möllering, G. (2005), ‘The trust/control duality: an integrative perspective on positive expectations of others’, International Sociology, 20 (3), 283–305. Möllering, G. (2006), Trust: Reason, Routine, Reflexivity, Amsterdam: Elsevier. Möllering, G. and F. Stache (2010), ‘Trust development in German–Ukrainian business relationships: dealing with cultural differences in an uncertain institutional context’, in M. Saunders, D. Skinner, G. Dietz, N. Gillespie and R.J. Lewicki (eds), Organizational Trust: A Cultural Perspective, Cambridge: Cambridge University Press, pp. 205–36. Neergaard, H. and J.P. Ulhoi (2006), ‘Government agency and trust in the formation and transformation of interorganizational entrepreneurial networks’, Entrepreneurship Theory and Practice, 30 (4), 519–39. Nooteboom, B. (2002), Trust: Forms, Foundations, Functions, Failures and Figures, Cheltenham, UK Northampton, MA, USA: Edward Elgar. Raiser M. (1999), ‘Trust in transition’, EBRD Working Paper, 39, London: EBRD. Raiser, M., C. Haerpfer, T. Nowotny and C. Wallace (2001), ‘Social capital in transition: a first look at the evidence’, EBRD Working Paper, 61, London: EBRD. Rose-Ackerman, S. (2001), ‘Trust and honesty in post-socialist societies’, Kyklos, 54 (fasc. 2/3), 415–44. Smallbone, D. and F. Welter (2001), ‘The distinctiveness of entrepreneurship in transition economies’, Small Business Economics, 16 (4), 249–62. Wallace, C., in association with O. Shmulyar and V. Bedzir (1999), ‘Investing in social capital: the case of small-scale, cross-border traders in post-communist Central Europe’, International Journal of Urban and Regional Research, 23 (4), 751–70. Welter, F. (2005), ‘Culture versus branch? Looking at trust and entrepreneurial behaviour from a cultural and sectoral perspective’, in H.-H. Höhmann and F. Welter (eds), Trust and Entrepeneurship: A West–East Perspective, Cheltenham, UK and Northampton, MA, USA: Edward Elgar, pp. 24–38. Welter, F. (2012), ‘All you need is trust? A critical review of the trust and entrepreneurship literature’, International Small Business Journal, 30 (3), 193–212. Welter, F. and D. Smallbone (2006), ‘Exploring the role of trust in entrepreneurial activity’, Entrepreneurship Theory and Practice, 30 (4), 465–75. Welter, F. and D. Smallbone (2008), ‘Entrepreneurship in a cross border context: the example of transition countries’, paper presented to ICSB World Conference, Halifax, June. Welter, F., T. Kautonen and M. Stoycheva (2004a), ‘Trust in enterprise development, business relationships and business environment – a literature review’, in H.-H. Höhmann and F. Welter (eds), Entrepreneurial Strategies and Trust: Structure and Evolution of Entrepreneurial Behavioural Patterns in ‘Low Trust’ and ‘High Trust’ Environments of East and West Europe, Part 1: A Review, Arbeitspapiere und Materialien, 54, Bremen: Forschungsstelle Osteuropa, pp. 13–25.

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Welter, F., T. Kautonen, A. Chepurenko, E. Malieva and U. Venesaar (2004b), ‘Trust environments and entrepreneurial behavior – exploratory evidence from Estonia, Germany and Russia’, Journal of Enterprising Culture, 12 (4), 327–49. Welter, F., N. Alex and S. Kolb (2012), ‘Trust, learning and cross-border entrepreneurship’, in D. Smallbone, F. Welter and M. Xheneti (eds), Cross-Border Entrepreneurship and Economic Development in Europe’s Border Regions, Cheltenham, UK and Northampton, MA, USA: Edward Elgar, pp. 44–64. Williamson, O.E. (1993), ‘Calculativeness, trust and economic organization’, Journal of Law and Economics, 36, 453–86. Zahra, S., R.I. Yavuz and D. Ucbasaran (2006), ‘How much do you trust me? The dark side of relational trust in new business creation in established companies’, Entrepreneurship Theory and Practice, 30 (4), 541–59.

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73. Uncertainty in innovation Raphael H Cohen

There will always be uncertainty at the core of innovation. By definition, innovations involve the exploration of new and often uncharted territories. This automatically implies a good measure of uncertainty. If an innovator fully understands the different kinds of uncertainties, it helps him or her to take appropriate action, whatever that it is. Knight (1921) established the difference between risks and uncertainties. This distinction was further enhanced by Runde (1998, n. 2): Knight’s tripartite schema should be restated as follows: 1. 2. 3.

Classical or a priori probability. The ideal case in which numerical probabilities can be computed on general principles, namely where they are assigned to equally probable and mutually exclusive possible outcomes such as the six sides of a perfect die . . . Statistical probability. Situations in which frequencies may be derived on the basis of an empirical classification of outcomes obtained in classes of more or less homogeneous trials ... Estimates. Situations in which it is not possible to calculate a priori probabilities or where there are insufficient trials ‘like’ enough to form a reference class of even more or less homogeneous trials on the basis of which frequencies can be determined.

NON-CHANCE-RELATED UNCERTAINTIES All of the previously described situations contain an element of chance, and the nuances have to do with the ability to determine whether or not something is likely to happen, which is expressed by a probability. The problem with this use of the expression ‘uncertainty’ is that it ignores another part of its own definition. The Cambridge Dictionary defines uncertainty as ‘a situation in which something is not known, or something that is not known or certain’ (accessed 16 October 2020 at https://dictionary.cambridge.org/dic tionary/english/uncertainty). This includes the lack of certainty associated with chance, and thus the probability, but it also refers to a lack of knowledge (something that is not known). Knight’s and Runde’s approach concerns the knowledge or lack of knowledge of the statistical information required to identify the probability. However, lack of the knowledge needed in order to calculate a probability is not the only kind of lack of knowledge that generates lack of certainty. For instance, not being sure if the range of a Wi-Fi antenna will be sufficient to reach a receiver located in a garden is an uncertainty. One way to end the uncertainty is simply to test it. It has nothing to do with probabilities, only with lack of knowledge. Once the knowledge has been obtained, there is no longer any uncertainty or any lack of certainty. To explain the nuances, particularly for innovators and decision-makers who need practical approaches, we must first distinguish between: 629

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World encyclopedia of entrepreneurship unidentifiable uncertainties (those that are discovered along the way, which nobody has thought of yet. As soon as someone thinks of them, they become part of the second category); and identifiable uncertainties (those that can be listed in advance).

The first category could be split into different subcategories, but since such differentiation cannot trigger any action (as nobody knows about it), subcategories are not very relevant for innovators and decision-makers. For the second category, Table 73.1 shows different subcategories of identifiable uncertainties. These subcategories are important, because the actions each of them can trigger differ in their nature (italic items in Table 73.1 emphasize the differences). Columns A, B and C refer to Runde’s and Knight’s chance-related situations, while column D refers to a simple lack of knowledge, unrelated to chance. This last subcategory corresponds to information gaps or missing information. We chose to use the shorter expression ‘unknown’ to indicate this missing information or lack of knowledge. Subcategories A, B and C can be handled very effectively using risk management tools that are designed to deal with chance-related issues (whether the probability can or cannot be assessed). Since subcategory D, which has nothing to do with chance (except for the probability of obtaining the missing information that is not of the same nature as the probability of occurrence, as is the case for subcategories A, B and C), risk management tools are not suitable for dealing with unknowns. Subcategory D uncertainties (unknowns) require information-gathering tools. An innovation project usually contains a significant number of unknowns (subcategory D uncertainties). Sometimes the missing information cannot be obtained, and people accept having to live with the remaining uncertainty.

DIFFERENT CATEGORIES OF UNKNOWNS Unknowns ordinarily fall into seven categories, each with its own corresponding set of questions. 1.

Technological Unknowns ● ● ● ● ●

2.

Will the product perform consistently, as expected? Can you manufacture an industrial product economically? Will you be able to scale up production and delivery? What impact will the product or its production have on the environment? And so on.

Market-Related Unknowns ● ● ●

Who will benefit and who will buy? At what price? How many people would be prepared to pay an appropriate price as required by your definition of success?

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Identifiable uncertainties

Subcategory

A

B

C

D

Factor with history that cannot be influenced

Factor without history that cannot be influenced

Factor that can be influenced

Missing knowledge or information, or ‘unknown’

Not possible

Not possible

Possible

No occurrence (only lack of information)

Predictable because of existing reliable historical data (certainty about the probability) Raw material price fluctuation

Not predictable because of the lack of history (uncertainty about the probability) Fire that destroys supplier facilities

Not predictable

No probability

New regulatory requirement

Chance component

Yes

Yes

Sometimes

Nature

Risk (or opportunity) Mitigation = protection of the impact of occurrence (i.e. hedging to secure future price) Reducing the negative consequences of the factor (or exploiting it if it is a positive factor) Calculating the probability and/or assessing the impact of the occurrence

Risk (or opportunity) Mitigation = protection of the impact of occurrence (i.e. finding an alternative supplier) Reducing the negative consequences of the factor (or exploiting it if it is a positive factor) Assessing the impact of the occurrence

Risk (or opportunity) Mitigation = influencing decision-makers (i.e. lobbying)

How many ISO standards have already been published? None (except perhaps the possibility of finding the missing information) Missing information

Nature Characteristics Possibility of influencing the occurrence Probability of it happening

Example

What kind of action can be taken by the project team

Impact of the action

Benefit of gathering information

No mitigation, but only an attempt to obtain the missing information (i.e. review and count ISO list of publications)

Preventing the occurrence

Reducing the lack of knowledge

Finding ways to influence decision-makers

Obtaining the missing information (= reducing the lack of knowledge ➔ transforming an unknown into a known)

Note: ISO = International Organization for Standardization. ● ● ●

3.

How will the customers choose between the different offerings (the customer decision criteria)? How can you reach customers? And so on.

Stakeholders Unknowns ● ● ●

Do you know all of your stakeholders’ aspirations? Have you identified all of your stakeholders’ resistances? Have you cataloged each and every one of the constraints that are imposed by your stakeholders?

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4.

Are you sure of the decision-makers’ criteria for selecting a project? And so on.

Organizational Unknowns These particularly affect intrapreneurs. ● ● ●

5.

Resource Unknowns ● ● ● ● ● ●

6.

What resources do you need to reduce all the critical unknowns? What resources do you need to deliver the definition of success? Does the organization have the internal capabilities that your project needs? When will these skills be available? Can you obtain the necessary resources, and will they be available when you need them? And so on.

Regulatory Unknowns ● ● ● ● ●

7.

What kind of organization is required in order to exploit this opportunity? Will you be able to build your ‘dream team’? And so on.

Do you need a license to do what you intend to do? What are the conditions for obtaining such a license? In terms of intellectual property, do you have the freedom to operate? What are the regulatory constraints? And so on.

Network Unknowns ● ● ● ●

Do you have access to the network of experts that you need? Do you have access to influential government officials? Do you have a good enough rapport with the key players in the distribution sector? And so on.

Since there are so many types of unknowns, an individual will rarely have all the skills required to reduce the lack of knowledge for all of them. This is a field in which multidisciplinary teams tend to be more effective, and it is critical to put together a team that combines the relevant skills for reducing unknowns in the most cost-effective manner.

REDUCING UNKNOWNS The types of action needed to obtain the information for subcategory D uncertainties include:

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prototyping (including fast prototyping); design thinking; market research; testing; literature research; intellectual property search; database search; and discussion with experts.

These actions cannot always provide all the missing information (that is, eliminate all the unknowns), but they can usually reduce the unknowns to some degree. As decision-makers and investors do not all have the same level of tolerance to uncertainty, they should decide which unknowns they want to see reduced, and to what extent. This decision will have a very significant impact on the cost and duration the project.

THE PROCESS FOR MINIMIZING THE WASTE OF RESOURCES Some unknowns could possibly serve as go/no-go criteria. If you want to open a new restaurant, you must find a suitable building in the right neighborhood. The availability and cost of such a place would be typical unknowns. A no-go criterion might be a higher rent than you can afford or the lack of a suitable location. To reduce your level of ignorance, you would check the market conditions and the availability of an appropriate premises. These terminator criteria are the equivalent of a customized phase-gate or stage-gate1 process. The effort/resources required to reduce the critical unknowns represent the price you pay for peace of mind. If you want to be on the safe side, you should allocate the necessary resources, in order to reduce those unknowns before committing to the definitive launch of the project. If you prefer not to spend those resources, you have to choose between giving up the opportunity or trusting your intuition and letting fate decide. Skimping on the resources needed to reduce the number of critical unknowns increases the likelihood that your project will fail. The choice is a balancing act between allocating resources and remaining ignorant in the knowledge that accepting the ignorance may reduce the chances of success. Cataloguing this early-stage inventory of unknowns will allow you to create a customized plan for reducing these critical unknowns in the most cost-effective sequence. To properly assess the effort, money, skills and other resources required for a project, innovators should try to identify as many identifiable unknowns (subcategory D uncertainties) as possible as soon as possible. As shown in Figure 73.1, the most reasonable process, between the burgeoning of the idea and the green light, follows these steps. 1.

Opportunity analysis (Cohen, 2016, n. 3) which should enable you to identify: (a) the critical unknowns, those that are go/no-go criteria; (b) the tactical moves or actions that can be taken to reduce the critical unknowns and the necessary resources needed in order to do so; and (c) additional tactical moves for implementation.

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Think/write Act

Decision to allocate resources

Implementation of action plan to deliver the definition of success Updating opportunity case with action plan to deliver the definition of success Reduction of unknowns

Quick and dirty IpOp model analysis

Opportunity case to listing critical unknowns to obtain conditional IpOp model authorization to proceed analysis Time

Figure 73.1 2.

3.

4.

5.

Process from idea to launch

Drafting and presenting an opportunity case with three objectives: (a) to demonstrate the merits of the opportunity (why it should be seized); (b) to obtain what you want and/or need to deliver the outcome/definition of success (investment, authorizations, and so on), provided that you can reduce the critical unknowns that bother the decision-makers; and (c) to obtain the corresponding resources for reducing these critical unknowns. You should include a specific plan of action for the reduction of unknowns in your opportunity case. The purpose of presenting an opportunity case that includes a list of critical unknowns, is to obtain a conditional buy-in from investors or decision-makers, whereby the understanding is to go ahead once the critical unknowns have been reduced in a satisfactory manner (see steps 4 to 6 below). A further condition might be to also present a convincing implementation plan (step 5 below). Drafting and presenting the main implementation or action plan, which describes how the opportunity will eventually be implemented. This is basically the ‘to do’ list, which includes the tactical moves for implementation (identified in step 1(c), but also taking into account the feedback from decision-makers after step 2). Spending the resources (step 2(c)) in order to move into the action phase and making whatever tactical moves are necessary to reduce the critical unknowns. Collection of information should be a managed process, with real gates (go/no-go moments) in order to stop the project if necessary. These gates should be customized for each project, rather than being a one-size-fits-all model that is often the case with a standardized phase- or stage-gate approach. Revisit the opportunity (step 1) with the information obtained in step 4, in order to update:

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(a) the opportunity case (step 2); and (b) the main action plan (step 3), that may also include tactical moves, in order to reduce any remaining unknowns that are not critical. Final green light to launch the project, assuming that the critical unknowns have been sufficiently reduced, so that the decision-makers and investors are at ease, and are prepared to allocate the necessary resources and authorizations for you to proceed. The conditional buy-in obtained in step 2 above can now become the green light to implement your plan of action.

The biggest advantage of this process is that resources only start to be spent (step 4) after the key success factors have been identified (steps 1 to 3). This might counter the trend of lean innovation or early-stage rapid prototyping, which encourage entrepreneurs to move into action as quickly as possible. There are many advantages to jumping into action at an early stage, but the biggest drawback is that each action consumes resources (your time is also a resource). The second issue with early action is the opportunity cost: building a prototype or other early-stage tactical moves may prevent you from seizing better opportunities in future. For instance, why bother building a prototype if you find out later that market penetration is going to be too difficult, that the price is too high or that your project will antagonize influential people in your organization? It would be much wiser to first map all the parameters that can possibly be identified at the pre-project stage (that is, acceptability of the pricing level, access to distribution channels or resistance from internal stakeholders) and make a holistic judgment before jumping into costly action. This holistic assessment of the unknowns (step 2) could, for instance, demonstrate that before building an expensive prototype (which aims at reducing only one unknown), there are other unknowns that should be reduced or addressed. It is thus useless to start spending resources, only to find out at a later stage (or gate), that there are one or more parameters that could kill the opportunity. In many cases, those opportunity killers could have been identified much earlier.

WHAT IS THE DIFFERENCE WITH THE STAGE-GATE APPROACH As the underlying logic of the stage-gate approach is to manage the allocation of resources in a parsimonious manner, an upstream IpOp analysis makes it possible to optimize the stage gate, by customizing the sequence of reducing the unknowns. Stage-gate committees regularly stop projects at a later stage-gate phase because it becomes evident that they do not meet the expectations of that late stage. This means that the resources consumed during the previous stage-gate(s) were mostly wasted. The IpOp analysis thus allows you to start a customized stage gate, which has its own sequence, only when you have an overview of all the critical information gaps, and before you start spending the resources. When the critical unknowns have been reduced without any killer issues popping up, the project can be launched. Since the critical unknowns have been reduced through a well-controlled approach, the launch can be implemented on a solid foundation. With a process like this, that calibrates projects at a very early stage, the chances of overrunning

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your budget and time are also minimized. This implies that, by considerably improving the statistics mentioned by the Standish Group (30 percent of all projects are stopped before completion and only 12 percent are delivered on time and on budget) (The Standish Group, 1995), the amount of resources wasted is much lower. In conclusion, innovators and decision-makers who want to avoid the huge wastage of resources as a result of insufficient early-stage analysis of all their projects, should identify unknowns as early as possible. If necessary, they can use the IpOp model (Cohen, 2016) to help them draw up an inventory of these unknowns and dispense with projects that are unlikely to succeed at a very early stage. This improved governance leads to a better allocation of research and development resources and/or those dedicated to innovation.

NOTE 1. Phase-gate is the generic expression for what many people know as stage-gate®, which is a registered trademark.

REFERENCES Cohen, R.H. (2016), Concevoir et lancer un projet, 2nd edn, Paris: Editions Eyrolles. Knight, F.H. (1921), Risk, Uncertainty and Profit, Chicago: University of Chicago Press. Runde, J. (1998), ‘Clarifying Frank Knight’s discussion of the meaning of risk and uncertainty’, Cambridge Journal of Economics, 22 (5), 539–46. The Standish Group (1995), ‘Chaos’, report, The Standish Group International, Inc., accessed 16 October 2020 at https://www.csus.edu/indiv/r/rengstorffj/obe152-spring02/articles/standishchaos.pdf.

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74. University spin-offs Liudvika Leišytė

With the increasing policy push for the contribution of universities to the knowledge economies and the industry pull for early-stage high-risk endeavors to be outsourced, university spin-off companies have increasingly drawn scholarly attention within the field of entrepreneurship. Literature distinguishes between soft channels of knowledge transfer, such as, consultancy, industry training and the production of highly qualified graduates, and hard channels such as patenting, licensing and spin-off creation (Perkmann and Walsh, 2007). Spin-off creation as a form of knowledge commercialization has drawn a great deal of attention in the literature to date as spin-off firms are tangible and observable (Zomer, 2011). Even though the literature starting in the 1980s was scarce, it has experienced an exponential increase in studies across the globe on the processes and the economic performance of university spin-offs since late 2010 (Miranda et al., 2018). Spin-offs are defined in various ways in the literature with the main commonality, that is, these are new ventures created within the auspices of research organizations (such as universities). They are founded by academics based on the technology (usually patented intellectual property) originating from research within departments, laboratories or chairs at universities. Miranda et al. (2018: 1008) see spin-off creation as a ‘process by which a company is created from another pre-existing entity’ and its main purpose is to exploit the processes, services and products developed based on the knowledge created at a university’. Given that university spin-offs have been increasingly the beacon of the third mission and entrepreneurial character of universities in the context of the advances in technology, their performance has become central in extant research. The importance of spin-offs is underscored by the creation of jobs, generation of businesses and positive influence on innovation processes, and development of regional and national economies. Further, the need for good practices has been also fueled by the accountability demands of governments eager to see the knowledge transfer of the public research investments they have made (Mowery and Sampat, 2004; Benneworth and Charles, 2005; Geiger and Sá, 2008; Leišytė, 2011). Studies of university spin-offs cover a broad range of topics, ranging from entrepreneurial university and productivity of technology transfer offices, to determinants and consequences of new firm creation and development and environmental and institutional context (O’Shea et al., 2005; Mustar et al., 2006; Rothaermel et al., 2007; Miranda et al., 2018). In this chapter we concentrate on the key themes stemming from the literature on the spin-off creation process, spin-off performance and survival as central aspects to understand the characteristics and performance of these particular type of firms so central to the commercialization of university knowledge – university spin-offs (Clarysse et al., 2011). The antecedents of spin-off creation are multi-level. First, in terms of institutional context these include national policies and policy instruments, such as funding grants, and 637

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institutional support, such as policies supporting spin-off creation, and dedicated infrastructures, such as incubators, technology transfer offices or technology parks provided by universities to the founders (Nosella and Grimaldi, 2009; Leišytė, 2011; Perkmann et al., 2015). At the firm level, the factors influencing spin-off creation include management practices, entrepreneurial background, financing and innovation (Miranda et al., 2018). At the individual level, the antecedents include the characteristics of individual academics and their teams, such as their entrepreneurial intent, perceived control, self-identity and previous entrepreneurial experience (Siegel et al., 2003, 2007; Link and Scott, 2005; Lockett et al., 2005; Damsgaard and Thursby, 2013; Marchozzi et al., 2019). Studies have indicated that the outcome of spin-offs is also determined at multiple levels. At the institutional environment level the success of spin-offs is influenced by the impact academic entrepreneurship has on the economy and on the reputation of the university, although there are no conclusive results in this regard (Miranda et al., 2018). At the firm level, the amount of venture capital raised, probability of profits, organizational structures, networks, human capital and parent organization support, social benefit for the local communities and licensing, seem to be important. The university and departmental support for entrepreneurial academics has merited significant attention (Zomer et al., 2010; Rasmussen et al., 2014; Gubitta et al., 2016; Slavtchev and Göktepe-Hultén, 2016). At the individual level, outcomes include the income and networks of founders, scientific productivity and teaching quality (Miranda et al., 2018; Mathisen and Rasmussen, 2019). Even though there is traditionally a heroic storyline and optimism around spin-off success and the survival rate of spin-off companies is heralded especially in the US and other locations with top-performing higher education institutions (for example, an ETH Zurich study has shown an 85.7 percent survival rate), the spin-off failure has increasingly drawn attention. These failure rates, depending on the country, type of institution and industrial sector, can be around 50 percent if not less, depending on the stage of spin-off lifetime and on how failure is defined (Pinter, 2015). The literature is inconclusive as regards the reasons for spin-off failure, partly owing to their multifaceted nature, and partly to the variety and complexity of universities as parent organizations and the variety of entrepreneurial ecosystems. Studies tracing the processes of spin-off creation and longitudinal studies of monitoring the lifetime of spinoffs in this regard have been revealing. On the one hand, resources, such as human capital or financial resources, from a variety of stakeholders are important factors for venture survival, especially in technology-intensive sectors (Barney, 1991; Zahra and Nielsen, 2002; O’Shea et al., 2005; Rasmussen et al., 2011). As a recent UK-based spin-off study has shown (Prokop et al., 2019), the three stakeholders – investors, technology transfer offices and external entrepreneurs – are especially important. On the other hand, studies of spin-off failure have shown that poor market development, unbalanced shareholder structure and lack of a champion, as well as lack of marketing experience in the venture team are important factors leading to failure, and financial resources are not as central (De Cleyn et al., 2013). Moreover, more recent work has shown the importance of building legitimacy among the diverse stakeholder bases to avoid failure, even before the launch of the spin-off, to ensure that the resource base can be secured (Francois and Philippart, 2019). Studies of failure and spin-off survival have detailed the processes of spin-off creation,

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how they acquire resources and how they deal with multiple stakeholders and different institutional environments. Studies of institutional contexts revealed that despite the high policy interest and a range of funding schemes to support spin-off creation, they are not always a success. For example, a recent study of the German EXIST Business Start-up grant program-funded spin-offs (Ayoub et al., 2017) shows that the spin-offs supported by governmental business development grants are more likely to perform worse than spinoffs without this support in the first five years after foundation. These findings differ depending on the socio-political context, the extent of state control of the university sector in the country, and the availability of supporting entrepreneurship ecosystems and venture capital. Also studies have shown that the spin-off performance also depends on the type of university and its support mechanism variety, its location, and the entrepreneurial orientation of the departments and chairs (Kolb and Wagner, 2018; Greven et al., 2019). As epistemic cultures differ across disciplines and university departments, studies also have shown that the behavior as well as perceptions of academics regarding creating and running a spin-off company vary (Bekkers and Freitas, 2008; Abreu and Grinevich, 2013; Perkmann et al., 2013; Novotny, 2017; Leišytė and Sigl, 2018). The past decade of research on academic entrepreneurship (Rothamael et al., 2007) has expanded the understanding of the types of academic entrepreneurship and the different types of spin-off firms being created, depending on the preferences as well as the characteristics of particular stakeholders and founders (Siegel and Wright, 2015). There have been recent calls to broaden the scope of studies to include the study of entrepreneurial intensions among students, investigating various routes to creating spin-offs by students and alumni, and to account for a more nuanced variety of spin-off types created especially in relation to different missions of universities, such as teaching and research (Link et al., 2014; Bergmann et al., 2018; Marzocchi et al., 2019). Also, a deeper analysis of the knowledge cultures within spin-offs has been undertaken to understand how knowledge is produced compared with the knowledge-production processes at universities, thereby going beyond the focus only on the process, antecedents and outcomes of spin-off creation, and broadening the conceptual and theoretical understanding of the characteristics of the spin-offs (Fochler, 2016). The research has matured to date, building on insights from entrepreneurship, economics, strategy, sociology, psychology, science and technology studies, and higher education literature. Quantitative studies dominate, even though exploratory evidence has also been reported mainly through case studies (Miranda et al., 2018). While the studies of spin-offs in the US and the UK strongly dominate the academic entrepreneurship literature, Italian, Dutch, Scandinavian, Hungarian, German, Austrian and Swiss spin-off creation has also been scrutinized in more detail mainly through within-country studies with some notable exceptions in recent years (for example, Mustar and Wright, 2010; Soetanto and Jack, 2016). The exploration of spin-off creation and outcomes tends to be a screenshot of one point in time and concentrates on one level of analysis (for exceptions, see Rasmussen and Borch, 2010; Rasmussen et al., 2011). This suggests a need for multi-level and longitudinal studies (for example, Fini et al., 2017) as well as broader comparative studies linking antecedents and outcomes of spin-off creation and development in the future.

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REFERENCES Abreu, M. and V. Grinevich (2013), ‘The nature of academic entrepreneurship in the UK: widening the focus on entrepreneurial activities’, Research Policy, 42 (2), 408–22. Ayoub, M.R., S. Gottschalk and B. Müller (2017), ‘Impact of public seed-funding on academic spin-offs’, Journal of Technology Transfer, 42 (5), 1100–124. Barney, J.B. (1991), ‘Firm resources and sustained competitive advantage’, Journal of Management 17 (1), 99–120. Bekkers, R. and I.M.B. Freitas (2008), ‘Analysing knowledge transfer channels between universities and industry: to what degree do sectors also matter?’, Research Policy, 37 (10), 1837–53. Benneworth, P. and D. Charles (2005), ‘University spin-off policies and economic development in less successful regions: learning from two decades of policy practice’, European Planning Studies 13 (4), 537–57. Bergmann, H., M. Geissler, C. Hundt and B. Grave (2018), ‘The climate for entrepreneurship at higher education institutions’, Research Policy, 47, 700–716. Clarysse, B., M. Wright and E. Van de Velde (2011), ‘Entrepreneurial origin, technological knowledge, and the growth of spin-off companies’, Journal of Management Studies 48 (6), 1420–42. Damsgaard, E.F. and M. Thursby (2013), ‘University entrepreneurship and professor privilege’, Industrial and Corporate Change, 22 (1), 183–218. De Cleyn, S., J. Braet and M. Klofsten (2013), ‘What can we learn from academic spin-off failures? Insights from five case studies’, in R. Oakey, A. Groen, G. Cook and P. Van Der Sijde (eds), New Technology-Based Firms in the New Millennium, vol. 10, Bingley: Emerald Group, pp. 197–212. Fini, R., K. Fu and M.T. Mathisen (2017), ‘Institutional determinants of university spin-off quantity and quality: a longitudinal, multilevel, cross-country study’, Small Business Economics 48 (2), 361–91. Fochler, M. (2016), ‘Beyond and between academia and business: how Austrian biotechnology researchers describe high-tech startup companies as spaces of knowledge production’, Social Studies of Sciences, 46 (2), 259–81. Francois, V. and P. Philippart (2019), ‘A university spin-off launch failure: explanation by the legitimation process’, Journal of Technology Transfer, 44 (December) 1188–215. Geiger, R.L. and C.M. Sá (2008), Tapping the Riches of Science: Universities and the Promise of Economic Growth, Cambridge, MA: Harvard University Press. Greven, A., S. Strese and M. Brettel (2019), ‘Determining scientists’ academic engagement: perceptions of academic chairs’ entrepreneurial orientation and network capabilities’, Journal of Technology Transfer, 45 (August), 1–29. Gubitta, P., A. Tognazzo and F. Destro (2016), ‘Signaling in academic ventures: the role of technology transfer offices and university funds’, Journal of Technology Transfer, 41 (2), 368–93. Kolb, C. and M. Wagner (2018), ‘How university spin-offs differ in composition and interaction: a qualitative approach’, Journal of Technology Transfer, 43 (3), 734–59. Leišytė, L. (2011), ‘University commercialization policies and their implementation in the Netherlands and the United States’, Science and Public Policy, 38 (6), 437–48. Leišytė, L. and L. Sigl (2018), ‘Academic institutional entrepreneurs in Germany: navigating and shaping multilevel research commercialization governance’, Triple Helix, 5 (13), 1–23. Link, A.N., D.S. Siegel and M. Wright (eds) (2014), The Chicago Handbook of University Technology Transfer and Academic Entrepreneurship, Chicago, IL: University of Chicago Press. Link, A.N. and J.T. Scott (2005), ‘Opening the ivory tower’s door: an analysis of the determinants of the formation of US university spin-off companies’, Research Policy, 34 (7), 1106–12. Lockett, A., D. Siegel, M. Wright and M.D. Ensley (2005), ‘The creation of spin-off firms at public research institutions: managerial and policy implications’, Research Policy, 34 (7), 981–93. Marzocchi, C., F. Kitagawa and M. Sanchez-Barrioluengo (2019), ‘Evolving missions and university entrepreneurship: academic spin-offs and graduate start-ups in the entrepreneurial society’, Journal of Technology Transfer, 44 (1), 167–88. Mathisen, M.T. and E. Rasmussen (2019), ‘The development, growth, and performance of university spin-offs: a critical review’, Journal of Technology Transfer, 44 (6), 1891–938. Miranda, F.J., A. Chamorro and S. Rubio (2018), ‘Re-thinking university spin-off: a critical literature review and a research agenda’, Journal of Technology Transfer, 43 (4), 1007–38. Mowery, D.C. and B.N. Sampat (2004), ‘The Bayh–Dole Act of 1980 and university? Industry technology transfer: a model for other OECD governments?’, Journal of Technology Transfer, 30 (1–2), 115–27, doi:10.1007/ s10961-004-4361-z. Mustar, P. and M. Wright (2010), ‘Convergence or path dependency in policies to foster the creation of university spin-off firms? A comparison of France and the United Kingdom’, Journal of Technology Transfer, 35 (1), 42–65.

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Mustar, P., M. Renault, M.G. Colombo, E. Piva, M. Fontes, A. Lockett, et al. (2006), ‘Conceptualising the heterogeneity of research-based spin-offs: a multi-dimensional taxonomy’, Research Policy, 35 (2), 289–308. Nosella, A. and R. Grimaldi (2009), ‘University-level mechanisms supporting the creation of new companies: an analysis of Italian academic spin-offs’, Technology Analysis and Strategic Management, 21 (6), 679–98. Novotny, A. (2017), ‘The heterogeneity of the academic profession: the effect of occupation variables on university scientists’ participation in research commercialization’, Minerva, 55 (4), 485–508. O’Shea, R.P., T.J. Allen, A. Chevalier and F. Roche (2005), ‘Entrepreneurial orientation, technology transfer and spinoff performance of US universities’, Research Policy, 34 (7), 994–1009. Perkmann, M. and K. Walsh (2007), ‘University–industry relationships and open innovation: towards a research agenda’, International Journal of Management Reviews, 9 (4), 259–80. Perkmann, M. and K. Walsh (2009), ‘The two faces of collaboration: impacts of university–industry relations on public research’, Industrial and Corporate Change, 18 (6), 1033–65. Perkmann, M., R. Fini, J.M. Ross, A. Salter, C. Silvestri and V. Tartari (2015), ‘Accounting for universities’ impact: using augmented data to measure academic engagement and commercialization by academic scientists’, Research Evaluation, 24 (4), 380–91. Perkmann, M., V. Tartari, M. McKelvey, E. Autio, A. Broström, P. D’Este, et al. (2013), ‘Academic engagement and commercialisation: a review of the literature on university–industry relations’, Research Policy, 42 (2), 423–42. Pinter, V. (2015), Overview and Analysis of the Performance of Spin-Offs at the Swiss Federal Institute of Technology Zurich and their Effect on the Swiss Economy, Zurich: ETH Zurich. Prokop, D., R. Huggins and G. Bristow (2019), ‘The survival of academic spinoff companies: an empirical study of key determinants’, International Small Business Journal, 37 (5) 502–35. Rasmussen, E. and O.J. Borch (2010), ‘University capabilities in facilitating entrepreneurship: a longitudinal study of spin-off ventures at mid-range universities’, Research Policy, 39 (5), 602–12. Rasmussen, E., S. Mosey and M. Wright (2011), ‘The evolution of entrepreneurial competencies: a longitudinal study of university spin-off venture emergence’, Journal of Management Studies, 48 (6), 1314–45. Rasmussen, E., S. Mosey and M. Wright (2014), ‘The influence of university departments on the evolution of entrepreneurial competencies in spin-off ventures’, Research Policy, 43 (1), 92–106. Rothaermel, F.T., S.D. Agung and L. Jiang (2007), ‘University entrepreneurship: a taxonomy of the literature’, Industrial and Corporate Change, 16 (4), 691–791. Siegel, D.S. and M. Wright (2015), ‘Academic entrepreneurship: time for a rethink?’, British Journal of Management, 26 (4), 582–95. Siegel, D.S., D. Waldman and A. Link (2003), ‘Assessing the impact of organizational practices on the relative productivity of university technology transfer offices: an exploratory study’, Research Policy, 32 (1), 27–48. Siegel, D.S., M. Wright and A. Lockett (2007), ‘The rise of entrepreneurial activity at universities: organizational and societal implications’, Industrial and Corporate Change, 16 (4), 489–504. Slavtchev, V. and D. Göktepe-Hultén (2016), ‘Support for public research spin-offs by the parent organizations and the speed of commercialization’, Journal of Technology Transfer, 41 (6), 1507–25. Soetanto, D. and S. Jack (2016), ‘The impact of university-based incubation support on the innovation strategy of academic spin-offs’, Technovation, 50–51 (April–May), 25–40. Zahra, S.A. and A.P. Nielsen (2002), ‘Sources of capabilities, integration and technology commercialization’, Strategic Management Journal, 23 (5), 377–98. Zomer, A.H. (2011), ‘Do spin-off companies make academics’ heads spin?’, PhD dissertation, University of Twente, Enschede. Zomer, A.H., B.W. Jongbloed and J. Enders (2010), ‘Do spin-offs make the academics’ heads spin?’, Minerva, 48 (3), 331–53.

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75. Venture capital

Jeffrey M. Pollack and Thomas H. Hawver

Venture capital (VC) represents a financing option for entrepreneurs whereby funds are provided by an investor, to a recipient, as either seed money, start-up funds or expansion funding to start, or grow, a business (Jeng and Wells, 2000). Generally, a firm providing venture capital is a privately owned company representing the interests of multiple individual wealthy investors with the primary purpose of maximizing return on investment over time (Burton and Scherschmidt, 2004; de Bettignies and Brander, 2007). Though an award of VC funding is difficult to achieve, funds from venture capitalists are especially desirable for entrepreneurs due to the relative flexibility of the equity finance structure and available repayment options. We describe, briefly, the history of venture capital, the similarities and differences between alternative funding options, as well as the procurement process for entrepreneurs. Since 1977, bank lending has remained fairly constant while VC investments are 100 times larger in 2001 than they were in 1997 (Ueda, 2002). An organization called American Research and Development, founded in Massachusetts in 1946, is considered to be the first modern venture capital company, and since then VC firms have specialized in matching investment capital with ventures that are screened and deemed worthy of investment (Allen, 1969; Jeng and Wells, 2000). In general, the venture capital process is  described as having five main steps: (1) deal origination, (2) deal screening, (3) deal evaluation, (4) deal structuring and (5) post-investment activities (Tyebjee and Bruno, 1984). Due to the growth in VC funding, and the involved process of both receiving and utilizing VC funding, it is no surprise that academic interest in the domain of venture capitalism has grown considerably in recent years. The activities, investments, structure and impact of VC firms across countries, industries, as well as between firm stages is well documented within the literature on venture capital (for example, Jeng and Wells, 2000; Pintado et al., 2007; Rosenbusch et al., 2013; Sheu and Lin, 2007). Additionally, much empirical evidence examines the actual impact of VC funding by comparing, over time, firms that receive VC funding with firms that do not receive VC funding (for a review see Brau et al., 2004). Research exists to support, as well as to refute, the conclusion that the investment of VC funding improves financial viability and survival of a firm over time (Brau et al., 2004). Overall, metaanalytic evidence suggests that there is a small positive effect of VC investment on firm performance, but that effect disappears when controlling for industry (Rosenbusch et al., 2013). Business ventures have several financing options available to them when seeking capital. These options often include (1) family and friends, (2) bank loans, (3) angels, and (4) venture capital (Pintado et al., 2007; Van Auken, 2001). Venture capital is distinct from these alternative financing options in important ways. Personal funds, or funds from family and friends are often quite limited and are generally exhausted on business expenses during the early stages of the investment-seeking process. Bank loans provide 642

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an alternative to using personal, family or friends’ funds, but there are important differences between bank funding and VC funding. Similar to VC firms, banks do evaluate new ventures and the risks that are associated with supplying capital. However, bank loans can be very small and VC firm investments typically start at very large amounts (Gompers and Lerner, 2006). Additionally, banks are often viewed as passive investors who focus on the financial health of the venture and receive a fixed return on their investment. Venture capital firms, however, are active investors. Venture capital firms often gain a level of ownership of the venture through equity financing and they actively participate in the management of the venture in an attempt to earn a return greater than that of a fixed loan (Gompers et al., 1998). In this process VC firms generally provide guidance and expertise to the recipient of the capital investment. This large amount of capital, time and energy that VC firms invest, though appealing to new ventures endeavoring to grow, make VC funding more difficult to obtain than bank loans. ‘Angels’, wealthy individuals who funds start-ups out of their own funds, represent another alternative funding option for entrepreneurs (Gompers, 1994). The scope of ‘angel’ financing is limited by the wealth of these individuals and this option is not a readily available, or generally viable, source for large amounts of capital (Jeng and Wells, 2000). The process of procuring VC funding is an exhaustive endeavor with limited chances of success. First, the entrepreneur must have an idea or an existing venture that appeals to a VC firm. The entrepreneur has two options available to them when seeking VC capital (Schwienbacher, 2007). The first is to find a VC firm that is interested in the idea before a venture is created. This option alleviates the entrepreneur from wasting the effort on an idea that will not receive funding. The second option is to spend the time and effort on creating the venture and then seeking the investment of a VC firm to expand and grow. If interest has been gained from a VC firm in a new venture, the new venture will be vetted thoroughly by the VC firm while negotiations take place. When negotiating with a bank for a loan the entrepreneur may not be compelled to share all the pertinent information regarding the venture. When negotiating with a VC firm there is rarely a case of asymmetric information between the entrepreneur and VC firm (that is, transparency theory, signaling theory; Ueda, 2004). The VC firm will consider the attractiveness of the opportunity (for example market size, technology, competition), the top management team, and the terms of the investment contract (Kaplan and Stromberg, 2001) during their negotiations with the entrepreneur. If the VC firm determines that the criteria for investing in the new venture are satisfactory, capital will likely be provided to the new venture. As bank loans are provided with respective interest rates, VC financing comes with a price that some entrepreneurs may view as distasteful. If an entrepreneur attains financing from a VC firm, that entrepreneur is likely giving the VC firm a predetermined amount of ownership of the venture and, therefore, a portion of the control of the venture. Venture capital firms are sometimes allowed such rights as allocation of cash flow, voting, board and other control rights (Kaplan and Stromberg, 2001). However, while some control may be surrendered, VC financing can have benefits for a new venture as well. Venture capital firms will often provide assistance in fund-raising, strategic analysis and management recruiting (Gorman and Sahlman, 1989), all working for the goal of growing the venture.

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While attaining venture capital for an entrepreneur can be, and usually is, a challenging task, the growth of VC firms in the past 30 years shows the importance of venture capital as a potential source of new venture funding. Distinct from other sources of funding such  as banks and angel investors, venture capital financing provides entrepreneurs with an opportunity to develop their venture in ways that those other sources do not. However, as with most other sources of funding, there are risks and rewards associated with venture capital, for both the VC firm and the entrepreneur; control of the venture is surrendered for capital funding and strategic guidance. While the research related to the impact of VC funding is not conclusive, the growth of the firms indicates that it is a source of funding for entrepreneurial ventures that is likely to exist for years to come.

REFERENCES Allen, L. (1969), ‘Venture capital financing – an innovation’, Journal of Small Business Management, 7, 3–14. Brau, J.C., R.A. Brown and J.S. Osteryoung (2004), ‘Do venture capitalists add value to small manufacturing firms? An empirical analysis of venture and nonventure capital-backed initial public offerings’, Journal of Small Business Management, 42, 78–92. Burton, J. and R. Scherschmidt (2004), ‘First-time venture fund raising: challenges and best practices’, The Journal of Private Equity, 8, 9–21. De Bettignies, J.E. and J.A. Brander (2007), ‘Financing entrepreneurship: bank finance versus venture capital’, Journal of Business Venturing, 22, 808–32. Gompers, P.A. (1994), ‘The rise and fall of venture capital’, Business and Economic History, 23, 1–26. Gompers, P.A. and J. Lerner, (2006), The Venture Capital Cycle, Cambridge, MA: MIT Press. Gompers, P.A., J. Lerner, M.M. Blair and T. Hellmann (1998), ‘What drives venture capital fundraising?’, Brookings Papers on Economic Activity (Microeconomics), 149–204. Gorman, M. and W.A. Sahlman (1989), ‘What do venture capitalists do?’, Journal of Business Venturing, 4, 231–48. Jeng, L.A. and P.C. Wells (2000), ‘The determinants of venture capital funding: evidence across countries’, Journal of Corporate Finance, 6, 241–89. Kaplan, S.N. and P. Stromberg (2001), ‘Venture capitalists as pricipals: contracting, screening, and monitoring’, The American Economic Review, 91, 426–30. Pintado, T.R., D.G.P. de Lema and H.E. Van Auken (2007), ‘Venture capital in Spain by stage of development’, Journal of Small Business Management, 45, 68–88. Rosenbusch, N., J. Brinckmann and V. Müller, V. (2013), ‘Does acquiring venture capital pay off for the funded firms? A meta-analysis on the relationship between venture capital investment and funded firm financial performance’, Journal of Business Venturing, 28 (3), 335–53. Schwienbacher, A. (2007), ‘A theoretical analysis of optimal financing strategies for different types of capitalconstrained entrepreneurs’, Journal of Business Venturing, 22, 753–81. Sheu, D.F. and H.S. Lin (2007), ‘Impact of venture capital on board composition and ownership structure of companies: an empirical study’, International Journal of Management, 24, 573–620. Tyebjee, T.T. and A.V. Bruno (1984), ‘A model of venture capitalist investment activity’, Management Science, 30, 1051–66. Ueda, M. (2002), ‘Banks versus venture capital’, paper presented at the CEPR, June, Discussion Paper No. 3411, available at: http://ssrn.com/abstract=321068. Ueda, M. (2004), ‘Banks versus venture capital: project evaluation, screening, and expropriation’, The Journal of Finance, 59, 601–22. Van Auken, H.E. (2001), ‘Financing small technology-based companies: the relationship between familiarity with capital and the ability to price and negotiate investment’, Journal of Small Business Management, 39, 240–58.

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76. Walt Disney

Léo-Paul Dana

In February 1858, in Edinburgh, John Gray died of tuberculosis and was buried in Greyfriars Kirkyard; he was survived by his terrier Bobby (Figure 76.1), who is said to have stayed close to Gray’s grave, until he died in January 1872, at the age of 18. In 1884, King Ludwig II took residence in a Romanesque Revival palace, Neuschwanstein Castle in Bavaria. Meanwhile, in 1867, the Austria-Hungary monarchy was established and in subsequent years many Jews relocated to Vienna, among them Philipp Salzmann, the first man in his family to abandon a 300-year-old tradition of serving as a rabbi and instead becoming an engineer (Herzog, 2011). Philipp’s son Siegmund adopted the name Felix Salten,1 and wrote Der Hund von Florenz,2 as well as Bambi: Eine Lebensgeschichte aus dem Walde.3 The latter is considered to be among the first environmentalist novels. How is all this related? Walter (Walt) Elias Disney (1901–1966) was a visionary and serial entrepreneur who

Figure 76.1

1873 life-size bronze statue of Bobby paid for by Lady Angela BurdettCoutts; photograph by Léo-Paul Dana 645

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pushed the limit of technology to create entertainment magic. Among his many contributions, in 1942, Walt produced a full-length cartoon based on Salten’s Bambi. He conceived a novel type of vacation destination and in 1955 opened Disneyland, a theme park built around a castle inspired by a replica of Neuschwanstein Castle. In 1959, Walt released The Shaggy Dog based on Salten’s hound, and in 1961 Greyfriars Bobby about John Gray’s terrier. Walt understood the American psyche. Grosvenor (1963) described him as a genius of laughter and learning. Gabler (2011) wrote of Walt as a visionary with a desire for escape. Early in his career, Walt was an animator and later shifted his focus to storytelling. His forte was to combine storytelling with technology, as he innovated with mechanical animals. The creator of new cinematic art form, Walt won more Oscars from the Academy of Motion Picture Arts and Sciences than anyone before him. His success on the screen encouraged him to create a three-dimensional (3-D) interactive experience, and Disneyland allowed his audience to walk into his stories as passive entertainment became increasingly interactive. Towards the end of his career, Walt was very dedicated to his Florida project, Walt Disney World. An artist, he also thought like an engineer. Walt shaped twentieth-century entertainment with his love for nostalgia, technology and innovation.

THE BEGINNING Born in Chicago, Walt was 4 years old when his family moved to a farm at Marceline,4 Missouri, then a railroad town incorporated ‘in 1888 as a creature of the Santa Fe Railroad’ (Watts, 1997: 4). Watts elaborated that in Marceline, Walt fell in love with trains. Broggie (1997) focused on how Walt’s fascination with the railroad influenced him. In 1910, Walt’s father Elias got typhoid fever (Green, 2017) and this prompted relocation in 1911, this time to Kansas City where Elias bought a newspaper route and relied on his sons to service it. Rockefeller (2016) wrote that Walt delivered The Kansas City Star and also the Kansas City Times before school, and after school, The Star. Watts (1997: 12) quoted Walt as saying, ‘I never had any real play time’, and Warner (2016) suggested that since Walt never had time for a childhood, he spent his life trying to invent one. Working for Elias, Walt learned attention to details. Whereas other newsboys left newspapers on customers’ lawns, Elias instructed Walt to place each newspaper behind a screen door. Walt thus learned to be a perfectionist, even when it came to delivering newspapers. Gabler (2007) described Walt as a workaholic with iron determination and obsessive perfectionism, and Christiansen (2017) noted his high standards and expectations. Warner (2016) noted that Elias denied his children games, toys and sports equipment, prompting them to create their own modes of entertainment. She suggested that this might have led Walt to rely greatly on his imagination later in life. In 1917, Walt got a job selling cigarettes, drinks, fruit, newspapers, peanuts, popcorn, and sweets to passengers of the Santa Fe Railroad (Watts, 1997). He subsequently worked washing jelly jars, pulping apples and packing cartons for the O’Zell Company, in Chicago, and later at a post office. When the United States entered the Great War, Walt’s older brothers5 enlisted to serve, but at 16, Walt was too young. Everything had a solution and Walt modified the birth date

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on his passport application to read 1900 rather than 1901. Accepted to serve with the Red Cross Ambulance Corps (Warner, 2016), he was assigned to a training facility in Chicago, but caught the Spanish Flu.6 Walt therefore returned home, where his mother took care of him before he sailed to Europe, where he served in the Red Cross (see also, Lesjak, 2015). When, at the age of 17, Walt returned to the United States, his father Elias had a job waiting for him at the O’Zell Company; however, Walt instead headed to Kansas City where he lived with two of his brothers. Burnes et al. (2002) emphasised the importance of Walt’s network in Kansas City. Failing to get a job at The Kansas City Star, Walt took a position as an apprentice at the Pesmen-Rubin Commercial Art Studio. Susanin (2011) suggested that this experience would later help Walt with studios he would create. Walt enjoyed fine cigars and frequent evenings at movie theatres where he would watch animated previews; the motion picture industry was young, with no regulations, and no conformity to adhere to. When Walt and a co-worker, Ub Iwerks, were laid off, they created Iwerks-Disney Commercial Artists, but this enterprise was abandoned after Walt found employment with the Kansas City Slide Newspaper Company, soon to become the Kansas City Film Ad Company.

ENTREPRENEUR In 1922, 20-year-old Walt incorporated Laugh-O-gram Films, and innovated with a new cartoon experience, inserting a person in an animated sequence; based on Carroll (1865), Walt’s firm produced Alice in Cartoonland7 but by then the company was already headed for bankruptcy. What was his response to failure? In 1923, Walt sold his movie camera, purchased a first-class ticket to Los Angeles where his older brother Roy had begun selling vacuum cleaners door-to-door, and with Roy established Disney Brothers Cartoon Studio,8 the first animated cartoon studio in Hollywood. On a 1925 train journey between New York and California, newly wed Walt drew his first sketch of Mickey Mouse – originally conceived as Mortimer Mouse (de Roos, 1963). Mickey, whose name was suggested by Walt’s wife Lillian, was the first cartoon character to have a developed personality; yet, no distributor agreed to take a chance on Mickey shorts. In 1927, Warner Bros. released The Jazz Singer, the industry’s first talking picture. Impressed with the concept, Walt decided to produce a cartoon with synchronised sound, and Mickey starred in the high-risk but successful animated short Steamboat Willie, in which Walt was Mickey’s voice. Feild (1942: 40) noted, ‘Once sight and sound could be effectively synchronized, the action of the characters would have to depend on the rhythm of the music’. Walt’s first sound cartoon opened in November 1928 for a two-week run at the Colony Theater, now the Broadway Theater (Figure 76.2), in New York. This was the world’s first animated motion picture produced with sound (de Roos, 1963). Mickey Mouse – with an archetype of American can-do spirit – became a Hollywood celebrity, and Walt first licensed the image of Mickey Mouse in 1929. Licensing proved profitable across a range of consumer products. In Figure 76.3, a toddler is wearing a

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Figure 76.2

Broadway Theater, New York; photograph by Léo-Paul Dana

Mickey Mouse T-shirt while his sister wears a Snow White dress. Figure 76.4 shows a Donald Duck puppet holding a Goofy Pez dispenser. More than a million children joined the Mickey Mouse Club between 1929 and 1932. King George V was among the fans of Mickey Mouse. Driven and endowed with high energy and enthusiasm, ambitious Walt had vision and worked long hours. By the time he was 30 years old, ‘the father of Mickey’ was an international celebrity. Walt and Technicolor signed an exclusive deal for animation, and in 1932 Flowers and Trees was released. Produced by Walt, this was the first commercially released film produced using the full-colour, three-strip Technicolor process. For this, Walt received the first Academy Award for Best Animated Short Film. Originally known as Dippy Dawg, Goofy made his debut in 1932, in the animated short Mickey’s Revue. More success followed in 1934, when Walt’s character Donald Duck made his debut in The Wise Little Hen. As explained by Feild (1942: 17), in the early period of animation, ‘the limitations of the medium were such that each cartoon could say all it was possible to say in five minutes’. Walt, however, felt the urge to diversify, with a colour, full-length animated motion picture that emphasised personalities, he began working on the high-risk animated feature, Snow

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Wearing Disney creations; photograph by Léo-Paul Dana

White and the Seven Dwarfs, adapted from the Brothers Grimm fairy tale ‘Sneewittchen’ and published in 1812 in the first edition of their fairy tales. Produced by Walt Disney Productions (the new name of Disney Brothers Cartoon Studio), this was the world’s first feature-length, story-driven cartoon, and (unlike the book) its stars were characters whose names reflected their respective personality: Bashful was bashful, Dopey was dopey, and Happy was happy. Not sure what voice to give Dopey, Walt decided to make this character mute. Insisting that he could not be rushed and that this could not be done inexpensively, Walt was preoccupied with details to captivate his audience, but the Bank of America was worried. Production dragged into 1937 costing $1.5 million, but the result was very successful when released in 1937 by RKO Pictures; in 1938, this motion picture played for five weeks at Radio City Music Hall (Figure 76.5) – longer than any other film had achieved before. Entering the workforce at a young age, Walt had scant formal education,9 but in 1938 he received honorary degrees from Harvard, the University of Southern California (USC) and Yale (Krasniewicz, 2010). At the 1939 ceremonies of the Academy of Motion Picture Arts and Sciences, Shirley Temple presented Walt with a special award for Snow White and the Seven Dwarfs – an Oscar and seven miniature Oscars (de Roos, 1963). From the profits of this project, Walt built a state-of-the-art studio with a campus-like atmosphere,

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Figure 76.4

Puppet and candy dispenser; photograph by Léo-Paul Dana

in Burbank, and gradually shifted production there beginning in December 1939. He also offered drawing classes for employees.

THE WAR World War II put a damper on the financial success of subsequent animated films (Pinocchio and Fantasia10 both released in 1940, Dumbo in 1941, and Bambi in 1942).  In  some countries including Austria and Germany, Walt’s motion pictures could not be shown. While these films could be shown in the UK, profits were frozen there, owing to currency exchange controls, and could not be repatriated to the United States. Pinocchio was based on Collodi (1892), the English translation of Collodi (1883). This motion picture’s theme song was ‘When you wish upon a star’, symbolic of the American Dream and class mobility. Dumbo was based on a storyline by husband and wife team Helen Aberson and Harold Pearl. As World War II caused international sales to drop, Walt found himself low on cash. In 1941, Walt Disney Productions issued stock. Walt produced films for the military, but sold these at cost. As motion pictures lost money,

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Radio City Music Hall; photograph by Léo-Paul Dana

company stock dropped from $25 per share to $4. Nevertheless, by the time he was 40, Walt was hailed a genius. In 1936, well before the release of Snow White and the Seven Dwarfs, Walt began working on Bambi, based on Salten (1923a). This feature would have only animal stars. Learning from experience, Walt aimed to further improve skills so that animals in Bambi would be more realistic. In order for artists to gain an understanding of build and movements, animals were brought into the studio to be observed. A rabbit called Thumper was developed, to add comic relief to an otherwise sad story. As they had done for the deer, the artists gave Thumper a range of expressions and attitudes. Over a million drawings were used in Bambi, and frames were photographed one at a time, with multiple sheets of glass, creating an illusion of depth. When Bambi was released, in 1942, it was immediately recognised as a great work, entertaining and with an important social message. With scenes involving a fire made by reckless hunters, the film was a pioneer in environmental consciousness, encouraging social responsibility. World War II was blamed for the deficit of Bambi. Nevertheless, Bambi was used for fire prevention public service campaigns – a role held until the discovery of Smokey Bear in 1950.

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DIVERSIFICATION AFTER THE WAR Walt decided to diversify and in 1948 produced a documentary, Seal Island, which won an Oscar in 1949. He also decided to produce his first live-action motion picture and this would be overseas; as a response to post-war exchange controls in the UK, Walt went to England to do something with frozen funds that he had there, and he made the live-action motion picture Treasure Island, adapted from Stevenson (1883). Cinderella was an animated feature based on the fairy tale ‘Cendrillon ou la petite pantoufle de verre’ in Perrault (1697), this an adaptation of a story published in Abbatutis (1634). This was released in 1950, and it soon made almost $8 million. In 1951, Walt released his animated Alice in Wonderland, based on Carroll (1865). Another animation, Peter Pan, adapted from Barrie (1911), was released in 1953. Partly influenced by Greene (1945), Lady and the Tramp – also an animated motion picture – was released in June 1955. This gave rise to a new book: Armstrong (1954). Meanwhile, baby boomers were becoming the largest generation, with increasing disposable income, vacation time and more automobiles than ever before. When Walt took his daughters to ride a carousel, he felt there should be somewhere parents and children could have fun together. Americans could afford going to the place and they could drive there. Walt then conceived a unique theme park, which he originally referred to as Mickey Mouse Park (Krasniewicz, 2010). Being a nostalgic history buff, Walt made sure his theme park would include elements of the past, as well as fantasy and the world of tomorrow. He would blend an idealisation of the past coupled with hope of the future. Just as Walt inserted Alice in a cartoon, he would create a place where the public could enter a story. In December 1952, Walt created Walt Disney, Inc. (WDI), later renamed WED Enterprises, a design and development organisation that would help him create Disneyland. In 1953, he purchased 160 acres and construction began in 1954. Walt’s first fully storyboarded live-action motion picture was 20,000 Leagues Under the Sea. This 1954 release was based on Verne (1870) that was translated into English (Verne, 1873). To help fund Disneyland, Walt agreed to do television programming for the ABC network. For his show, Walt produced a mini-series, Davy Crockett.11 Given that television was in black and white, at the time, Walt was ridiculed for using colour film. A wise strategy, Walt made a compilation from this mini-series, and released it in cinemas in May 1955, as a live-action adventure film, in colour: Davy Crockett, King of the Wild Frontier. Although people had watched this story on television, they were willing to pay to watch it again, this time in colour. From ground breaking to the opening day on 17 July 1955, Disneyland12 was completed in 365 days, with Walt involved in every attraction; once it opened, he would get in line to listen to what people had to say. Among the rides at Disneyland was the monorail; although this was not Walt’s invention, he did give it a futuristic makeover. In 1959, Walt invited United States Vice-President Richard M. Nixon and his family to Disneyland, for the inauguration of the first operating monorail in the United States. Gabler (2011) described Disneyland as the world’s first modern theme park and Snow (2019) as the amusement Park that changed the world. Walt released the animated motion picture, Sleeping Beauty, in 1959. This was based on ‘La Belle au bois Dormant’, a fairy tale included in Perrault (1697). Later that year,

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Walt released his first live-action comedy, The Shaggy Dog, based on Salten (1923b) that was translated into English as Salten (1930). By 1960, Walt was at the helm of an empire. That year he released the live-action feature Kidnapped, based on Stevenson (1886). Also in 1960, Walt released Pollyanna, a live-action drama based on Porter (1913) and starring child actress Hayley Mills. The same actress starred in Walt’s The Parent Trap, a live-action motion picture based on Kästner (1949) and released in 1961. In this motion picture, Walt’s use of split screens and an optical printer to combine them by reshooting each frame, one at a time, resulted in ground-breaking visual effects, with one actress playing two roles and appearing as both characters in some scenes. Also in 1961, Walt released the live-action motion picture Greyfriars Bobby. Based on MacDonough and Chapin (1904), Babes in Toyland was Walt’s 1961 Christmas special, and his first live-action musical; Hazen’s 1961 book was based on this motion picture. Walt’s last two animated motion pictures were One Hundred and One Dalmatians, adapted from Smith (1956) and released in 1961, and The Sword in the Stone which was released in 1963. The latter was based on White (1938). By 1961, Walt was already creating rides for the 1964–65 New York World’s Fair in Flushing Meadows Corona Park, Queens. When Pepsi-Cola, sponsor of the fair’s United Nations Children’s Fund (UNICEF) pavilion, turned to Walt for their exhibit’s concept that would further the fair’s theme, ‘Peace Through Understanding’, the result was ‘It’s a Small World’. When the fair opened on 22 April 1964, Walt stunned audiences with a variety of audio-animatronics, including a robotic figure of Abraham Lincoln. When the fair closed in 1965, four attractions were transferred to Disneyland: ‘Great Moments with Mr Lincoln’, ‘It’s a Small World’, ‘Primeval World’ and ‘Progressland’ (Krasniewicz, 2010). Based on Travers (1934), Walt’s Mary Poppins13 combined actors, animation and special effects in an enormous fantasy. A live-action motion picture with animation, this feature was released in August 1964 and nominated for 13 Oscars at the Academy. By then, Walt had won more Academy Awards than any other film producer. The Ugly Dachshund was Walt’s live-action comedy based on Stern (1938). It was released in 1966. Meanwhile, in 1964, forward-thinking Walt began to anonymously purchase swampland in Florida, at $180 per acre. Eventually he would own 27 000 acres, an area of land larger than Manhattan. Walt’s plan was to establish an Experimental Prototype Community of Tomorrow (EPCOT) to be a company town that would be a blueprint of the future. After Walt’s death, the property was used for the Walt Disney World Resort that opened in 1971, and in 1982 a theme park opened, based on Walt’s idea. A creative entrepreneur, Walt was a futurist, who loved technology and innovated with sound techniques, colour, the multi-plain camera, 3-D effects, stereo sound (for viewers watching a television and listening to a radio simultaneously) and audio-animatronics – an innovation that he developed. He is also remembered for his dream of a better future for all peoples. As observed by de Roos (1963: 161), ‘It can be said that Walter Elias Disney, the man, and Mickey, the mouse, have made a lasting impact on mankind’.

NOTES 1. 2.

See also Wills (2011). The Hound of Florence, English translation Salten (1930).

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654 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13.

World encyclopedia of entrepreneurship Bambi, a Life in the Woods; English translation Salten (1929). Watts (1997) noted that Main Street, Disneyland, was an idealised replica of Marceline. Goldberg (2019) explained the special relationship that Walt had with his brothers. It is estimated that 25 million Americans suffered from the Spanish flu. This great influenza pandemic led to more than 50 million deaths, including 668 364 in the United States. Krasniewicz (2010) noted that in time, Walt would make 54 Alice films. Disney Brothers Cartoon Studio is the forerunner of The Walt Disney Company. Although Walt studied for a few months at the Art Institute of Chicago and took weekend art classes at Kansas City Art Institute (Watts, 1997), he was mostly self-taught, largely from Muybridge (1901). See also, Culhane (1999). While several of Walt’s other productions were based on books, in this case a book (Shapiro, 1955) was written based on the mini-series. Disneyland became the topic of children books, including Bedford (1955a) and (1955b). This motion picture led to the creation of a new book – Brightman (1964).

REFERENCES Abbatutis, G.A. (1634), Il Pentamerone: Lo cunto de li cunti, Naples: Ottavio Beltrano. Armstrong, S. (1954), Walt Disney’s Lady, New York: Simon & Schuster. Barrie, J.M. (1911), Peter and Wendy, London: Hodder & Stoughton, and New York: Charles Scribner’s Sons. Bedford, A.N. (1955a), Walt Disney’s Donald Duck in Disneyland, New York: Golden Press. Bedford, A.N. (1955b), Walt Disney’s Little Man of Disneyland, New York: Simon & Schuster. Brightman, H. (1964), Walt Disney’s Mary Poppins, Racine, WI: Whitman. Broggie, M. (1997), Walt Disney’s Railroad Story: The Small-Scale Fascination that Led to a Full-Scale Kingdom, Pasadena, CA: Pentrex. Burnes, B., R.W. Butler and D. Viets (2002), Walt Disney’s Missouri: The Roots of a Creative Genius, Kansas City, MO: Kansas City Star Books. Carroll, L. (1865), Alice’s Adventures in Wonderland, Oxford: Clarendon Press for Macmillan. Christiansen, A.A. (2017), Walt Disney: The Man Behind The Magic, independently published. Collodi, C. (1883), Le Avventure di Pinocchio: Storia di un Burattino, Florence: Felice Paggi. Collodi, C. (1892), The Story of a Puppet or the Adventures of Pinocchio, trans. M.A. Murray, London: T. Fisher Unwin. Culhane, J. (1999), Walt Disney’s Fantasia, New York: Harry N. Abrams. De Roos, R. (1963), ‘The magic worlds of Walt Disney’, National Geographic, 124 (2), 159–207. Feild, R.D. (1942), The Art of Disney, New York: Macmillan. Gabler, N. (2007), Walt Disney: The Triumph of the American Imagination, New York: Vintage Books. Gabler, N. (2011), Walt Disney: The Biography, London: Aurum. Goldberg, A.H. (2019), Meet the Disney Brothers, Philadelphia, PA: Quake Scribe. Green, M. (2017), The Amazing Life of Walt Disney, self-published. Greene, W. (1945), ‘Happy Dan, the cynical dog’, Cosmopolitan, February, 19–21. Grosvenor, M.B. (1963), ‘Walt Disney: genius of laughter and learning’, National Geographic, 124 (2), 157D. Hazen, B.S. (1961), Walt Disney’s Babes in Toyland, New York: Golden Press. Herzog, H.H. (2011), Vienna Is Different: Jewish Writers in Austria from the Fin-de-Siècle to the Present, New York: Berghahn. Kästner, E. (1949), Das doppelte Lottchen, Berlin: Verlag Cecilie Dressler, and Zurich: Atrium Verlag. Krasniewicz, L. (2010), Walt Disney: A Biography, Santa Barbara, CA: Greenwood. Lesjak, D. (2015), In the Service of the Red Cross: Walt Disney’s Early Adventures: 1918–1919, Winter Garden, FL: Theme Park Press. MacDonough, G. and A.A. Chapin (1904), Babes in Toyland, New York: Fox Duffield Company. Muybridge, E. (1901), The Human Figure in Motion: An Electro-Photographic Investigation of Consecutive Phases of Muscular Action, London: Chapman & Hall. Perrault, C. (1697), Histoires ou contes du temps passé, avec des moralités ou Contes de ma mère l’Oye, Contes de ma mere l’oye, Paris: Claude Barbin. Porter, E.H. (1913), Pollyanna, Boston, MA: L.C. Page and Company. Rockefeller, J. D. (2016), The Story of Walt Disney, self-published. Salten, F. (1923a), Bambi: Eine Lebensgeschichte aus dem Walde, Berlin: Ullstein Verlag. Salten, F. (1923b), Der Hund von Florenz, Vienna: Herz Verlag. Salten, F. (1929), Bambi: Life in the Woods, trans. W. Chambers, New York: Simon & Schuster.

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Salten, F. (1930), The Hound of Florence: Bambi’s Classic Animal Tales, trans. H. Paterson, New York: Simon & Schuster. Shapiro, I. (1955), Walt Disney’s Davy Crockett: King of the Wild Frontier, New York: Simon & Schuster. Smith, D. (1956), The One Hundred and One Dalmatians, London: Heinemann. Snow, R. (2019), Disney’s Land: Walt Disney and the Invention of the Amusement Park that Changed the World, New York: Scribner. Stern, G.B. (1938), The Ugly Dachshund, New York: Macmillan. Stevenson, R.L. (1883), Treasure Island, London: Cassell. Stevenson, R.L. (1886), Kidnapped, London: Cassell & Company. Susanin, T. (2011), Walt Before Mickey: Disney’s Early Years, 1919–1928, Jackson, MS: University Press of Mississippi. Travers, P.L. (1934), Mary Poppins, London: Gerald Howe. Verne, J. (1870), Vingt mille lieues sous les mers, Paris: Jules Hetzel and Company. Verne, J. (1873), Twenty Thousand Leagues Under the Seas, London: Sampson Low, Marston, Low & Searle. Warner, J. (2016), Young Walt Disney: A Biography of Walt Disney’s Younger Years, Anaheim, CA: Golgotha Press. Watts, S. (1997), The Magic Kingdom: Walt Disney and the American Way of Life, Boston, MA: Houghton Mifflin. White, T.H. (1938), The Sword in the Stone, London: Collins. Wills, J. (2011), ‘Felix Salten’s stories: the portrayal of nature in Bambi, Perri and The Shaggy Dog’, in K.M. Jackson and M.I. West (eds), Walt Disney, from Reader to Storyteller: Essays on the Literary Inspirations, Jefferson, NC: McFarland, pp. 45–61.

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Index 3D printing 211 Aboody, D. 298 academic entrepreneurship 639 accelerated internationalization model 439–40 access and control rights 300–301 accounting standards 298 Ackerman, C.W. 305, 306 acquisitions 327 Acs, Z. 430 action committing to 77 as competence 187 as element of entrepreneurship 76, 78, 187 action learning 147 ADHD, entrepreneurs with 109, 110, 325, 479 advertising, innovative (Benetton) 171 African-Americans 156, 528 Agarwal, S. 565, 566 age of firms, and level of entrepreneurship 132–3 agency and agency theory 89, 180, 181, 298, 299 agricultural sector 563, 567 agriculture and food processing biotechnology ventures 192 Airbus 319 356 airlines and aircraft industry 351–7 Albion (printing press) 206, 207 Allen, K.R. 265–6 Alserhan, A.B. 462–3 Amazon 93, 95, 98, 101 ‘American dream’ 262 Amish community 542, 543, 547 Andersen, Clas Nylandsted 134, 135 Anderson, E. 362 Anderson, R.B. 400 Angeon, V. 235 Anggadwita, G. 460, 462 Angulo-Ruiza, F. 409 anxiety 76 arbitrage 343 Ardichvili, A. 496, 498 Arndt, F. 106–8, 109 Asia-Pacific region, Chinese immigrant entrepreneurs in, see Chinese immigrant entrepreneurs assimilation 256, 310, 312

Astebro, Thomas 120–21 Audretsch, D.B. 214, 215, 216, 217, 218 Australia, Chinese immigrants in 4, 7, 8, 9–10, 12, 13–14, 15, 16 Autio, E. 440, 502–3, 504, 505 Autrement (magazine) 377 Badawi, A.A. 539 Balabanis, G.I. 130, 131, 132, 133, 136 Baldwin, C. 484 Bambi 645, 646, 650, 651 banks 299, 465, 642–3 Barth, F. 257–8 Baumol, W.J. 122, 124 bazaar 404 Bedouin, see pastoralism, as a form of entrepreneurship among Negev Bedouin Belhoste, N. 284–5 Belz, F.-M. 607, 609 benefit corporations 326, 330 Benetton 170–71 Bengtsson, M. 27–8 Bennet, Henry 359 Bible 545 bilingualism 311, 319 Binder, J.K. 607, 609 bioeconomy model 606 biotechnology entrepreneurship 190–93 bipolar disorder, entrepreneurs with 479 Bitcoin 184 blockchains 184–5 Boeing aircraft 351, 352 Bonacich, E. 7, 8–9, 11 bonding capital 230 born globals (BGs), and opportunities approach 493, 497–8, 500, 502, 505 Boschma, R. 231–2 Bourdieu, P. 229 Bourjois 168 branding 593 Brandstrup, Michelle 174 Bresnahan, T. 217 bribes 246 bridging capital 230 British entrepreneurial decline 347–9 Buddhists and Buddhism 539, 544–5, 546 built-in obsolescence 268 Burgelman, Robert A. 66

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Burrell, G. 72–3 Burt, R. 229–30 business angels 297, 643 business creation, French model of incubators and support systems for 376 examples 387–9 historical background 376–80 impacts and limitations of 380–87 business migrants 14–15 business planning 471–2 business strategy, and corporate venturing (CV) 65 Calmé, I. 395 Calvinist ethic 535 Cambodia, Chinese immigrants in 4, 14 cameras and film, development of 305–7, 308 Campbell, Andrew 65 Cantillon, Richard 74, 75, 118, 119, 262, 263, 264, 265, 335 capabilities, dynamic 511–12 capacity building 237 capital cultural 200, 202, 255, 408–9 from family 201, 297 forms of 199–200 human 199, 201–2, 277, 478 social 156–7, 199–200, 202, 229–30, 235, 311, 313, 314, 408–9, 486, 601–3 sources of 200–202 structure, innovative start-ups 299–300 venture capital and capitalists 297, 301–3, 326, 642–4 capitalism 244, 269–70 Capitalism, Socialism and Democracy (Schumpeter) 573, 574–6 Cardon, M. 278–9 Carteret, Sir George 358 case study methodology 554–6 Cassell, C. 560 Catholics and Catholicism 536, 538, 543, 544, 548 challenge-based model of entrepreneurship 106, 108 Chalmers University of Technology 179 Chandra, Y. 498–9, 500, 503, 504, 506 Chanel, Gabrielle ‘Coco’ 167–8 Chanel No. 5 167–8 change 60–61, 76 character 247 characteristics of entrepreneurs 77–8, 130–31 hubris 139–43 and mental health 479, 480–81 surface-level and deep-level (entrepreneurial teams) 614–15

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Cheetham, G. 186 Chinese diaspora 317 Chinese immigrant entrepreneurs 1–3, 156, 314 conclusion 16–17 contemporary middleman minorities 6–12 demographic profile of (in Asia-Pacific region) 3–5 identifying new typologies 12–16 typology of immigrant entrepreneurs 5–6 Chivers, G. 186 Chrisman, J.J. 290 Christians and Christianity 539, 545 Chua, J.H. 289, 290 civil economy 367 class resources 200–201, 202, 203, 315, 318 clusters 29–30, 96, 217, 218, 232–3, 414, 418, 582–7 co-ethnic dependence 255–6 Coetzer, A. 372 Coeurderoy, R. 115 cognition and cognitive development (sensemaking, sense-breaking and sensedemanding) 160–63 cognitive conflict 615 cognitive costs 299 cognitive embeddedness 227 cognitive proximity 231, 232 Coleman, J. 229 collaboration 300–301, 483, 485–7 collective action 237 Colleton, Sir Peter 358 commercialization 64, 216–17, 484 common good 261, 267–9, 270, 271–2 communication within teams 615 communism 270 community, emphasis on (indigenous people) 406–7 community cooperation 404–5 community development 235–7 community entrepreneurship 226 community social capital 156–7 company performance, and coopetition 28–9, 30–31, 32–3, 34, 35 comparative advantage 214–15, 216 compensatory entrepreneurship 22–4 competence 186–8, 341 competition, and coopetition 27–8, 29 complexity 338 conflict, teams 615 Confucianism 7 contacts 154, 343 context 224–6, 459 and digital platforms 95–8, 99, 100–101 and hubris 141 importance of 94–5

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Index contracts 344 control 76 and access rights 300–301 Convair 580 356 Convair 880 351, 355, 357 convertible bonds 302–3 Cooper, Anthony Ashley 358 cooperation 404–5 cooperatives 236, 388, 609 coopetition 26–7 and company performance 28–9, 30–31, 32–3, 34 conclusion and practitioner implications 35 directions for future research 33–5 key definitions and schools of thought 27–8 in wine industry 29–33 corporate entrepreneurship assessment instrument (CEAI) 42–3 corporate entrepreneurship (CE) 40, 49, 438 aspects of 58–61 compass model for understanding 52–4 concept of 40–42 definition of 57 focused versus dispersed status 51–2 framework for 57–8 gaps in understanding of 46 identifying managerial responsibilities 43–4 implementing 44–5 and open innovation 483, 485 organizational climate for 42–3 selecting a corporate entrepreneur and team 61 types of 50–51 corporate renewal (CR) 51 corporate social responsibility (CSR) 368 corporate venturing (CV) 41, 50–51, 57–8 aspects of corporate entrepreneurship (CE) 58–61 benefits of 67 corporate checklist for evaluating potential new ventures 62–4 future prospects 67–8 models of 61, 65–7 selecting a corporate entrepreneur and team 61 correspondence thesis 247 corruption 246, 326 COVID-19 pandemic 260–61, 267, 268 Coviello, N. 492–3, 496, 503 Covin, J.G. 41–2, 43 Craven, Sir William 358 Crawford, D. 406 creative destruction 75, 242, 329, 416, 574–5, 605 creativity 60, 76, 187, 270

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credit networks, co-religionist 543 Crick, D. 33, 283, 284, 285 Crick, J.M. 31–3 crime corruption 246, 326 fraud 330 illegal sector 195–6, 197, 198–9, 203, 242, 261, 314 and poverty 528, 529 critical incidents, learning from 146 cross-disciplinary entrepreneurship education 69–70 crowdfunding, crowdlending and crowdsourcing 296, 297, 396, 487, 488 cultural capital 200, 202, 255, 408–9 cultural embeddedness 227 cultural globalization 316 cultural heterogeneity 254 culture 224–5, 226 Chinese 7–8 and internationalization support 448 pluralism 257–8 see also indigenous entrepreneurship, as a function of cultural perceptions of opportunity; religion, as an explanatory variable for entrepreneurship Cutolo, D. 100 Czinkota, M.R. 283, 285 daigou shoppers 12–13 Dana, L.-P. 30, 94, 251, 257, 400, 401, 408–9, 506, 539–40, 540–41, 542, 543, 544, 546, 547, 553 Dana, T.E. 539–40, 542, 543 Daniel, K. 298–9 Davis, Kevin 221–2 Davy Crockett 652 decision-making 336–40 Islamic entrepreneurship 466 and mental health 477–8 teams 614–15 defining entrepreneurship and the entrepreneur 72–3, 79–80, 262–6, 416, 571 activities and characteristics 77–8 boundaries of entrepreneurship 261 common elements used in definitions 75–6, 78 common good and entrepreneurism 267–9 emphasis on profit 267 entrepreneurship as a competence 186–8 history of origin and meaning of terms 73–4, 118 international entrepreneurship 437–9 pioneers in field of entrepreneurship 74–5 rural entrepreneurs 568

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Schumpeter 577 stereotypical myth of entrepreneur 177–8 definitions, conditions required 274–5 Degen, A.A. 517–20 demand 344 demonstration externalities 218–19 Denzin, N.K. 558, 561 dependence, co-ethnic 255–6 DeTienne, D. 278–9 development theory, and entrepreneurship theory 237–8 diasporas 310, 311–12, 313, 317 Didi 15–16 digital ecosystems 87–8, 89–90 digital entrepreneurship 84 cascade of governance 89–90 entrepreneurial agency 89 entrepreneurial boundaries 88–9 future research 90–91 levels of ‘becoming digital’ 85–6 taxonomy of 86–8 digital open innovation 487–8 digital platforms 86, 87–8, 89–90, 93–4, 101 and context 95–8 new actors (platform entrepreneurs) 98–100 and open innovation 487 policy and context 100–101 sizes of 99 strategies 97–8 digital products and services 86–7 digital transformation 85 digitalization 85 digitization 85 DiMaggio, P. 227 Din, M.S.B.M. 462 Dior, Christian 168–9 disabled entrepreneurs 105–10, 385 discrimination 197–8 against immigrants 1, 2, 9 against middleman minorities 2, 8–9 Disney, Elias 646, 647 Disney, Walt 645–53 Disneyland 652 distribution of resources 270 document analysis 559–60 Doing, Using and Interacting (DUI) mode of learning 420 Donald Duck 648, 650 Douglas, Sir James 361 Douglas Aircraft 351, 353–4 Drakopoulou-Dodd, S. 536 Dubard Barbosa, S. 386–7 Dumbo 650 Dunning, J.H. 433 Duquenne, L. 386–7

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Durkheim, E. 537 Dusuki, W.A. 466 dynamic capabilities 511–12 dynamo of economic system, entrepreneur as 76 dyslexia, entrepreneurs with 479 earnings 120–21, 124, 525–7 EASI delivery 13–14 Eastman, Geo. Washington 305 Eastman, George 305–8 Eastman, Maria 305 economic development 565, 601 economic geography 413–14 economic growth 213–14 and entrepreneurship 217, 222 and knowledge 215–16 economics and COVID-19 pandemic 260–61 evolutionary models of economic change 417–18 innovation systems 412 of proximity 230–31 economics and entrepreneurship 118–19 empirical investigations of entrepreneurs 119–25 theories of entrepreneurs 335–6 see also evolution of entrepreneurship and its role in stewardship-based economics economies of scope 592 ecosystem venturing 65 ecosystems approach 412 digital 87–8, 89–90 entrepreneurial 157, 418–21, 601 see also internationalization support ecosystems education and educational attainment 122–3, 341 and poverty 527–8, 529 see also entrepreneurship education effectuation logic 497 egalitarianism 406–7 Elkington, J. 605, 606 embedding and embeddedness 225, 226–8, 232, 234, 606, 619, 620 emotional exposure 181 employee start-ups 127–8 employment and self-employment, ‘grey area’ between 452, 453–4 employment networks, co-religionist 543 empowerment 109 enclave economies 9–10, 13–14 English language dominance 316–18, 319

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Index enterprise culture 266, 267, 340, 349 EntreComp (Entrepreneurship Competence Framework) 187–8 ‘entrepreneurial’ conceptualizing 177 context for becoming 178–9 organizing framework for becoming 180–83 entrepreneurial agency 89 entrepreneurial culture 383 entrepreneurial ecosystems 157, 418–21, 601 entrepreneurial intensity 42 entrepreneurial learning 145, 148–9, 162 and dependency 256 EntreComp (Entrepreneurship Competence Framework) 187–8 how entrepreneurs learn 145–7 international entrepreneurship 501 organizing framework for becoming entrepreneurial 180, 182–3 trial-and-error learning (corporate venturing) 65–6 what entrepreneurs learn 147–8 see also entrepreneurship education entrepreneurial mindset 53 entrepreneurial orientation (EO) 41–2, 52, 254, 325, 367, 370, 371 entrepreneurial position/stance 131–2, 136 entrepreneurial strategic posture (ESP) 371, 372–3 entrepreneurism 266–9, 272 entrepreneurs attitudes and capabilities of 132 attributes of 262–4 characteristics of 77–8, 130–31, 139–43, 479, 480–81, 614–15 contractual position of 340 economic theories of 335–6 Galbraith on 213 and growth of firms 323–5, 328 market for 344 mobility of 345–6 motives of 336, 453, 530–31, 577–8, 609 personality traits of 324–5, 417 productive and unproductive 125, 348 reputation of 340–41 stereotypical myth of 177–8 types of 118–19 see also defining entrepreneurship and the entrepreneur entrepreneurship alternative forms of 238 as a competence 186–8 measuring and interpreting 571–2 origins of 339

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entrepreneurship and innovation systems research, see innovation systems and entrepreneurship research entrepreneurship education 22, 23–4 ‘becoming entrepreneurial’ 178–9 broadening approach to entrepreneurship 178 cross-disciplinary 69–70 and entrepreneurial learning 148–9 entrepreneurship as a competence 187 France 378–9 organizing framework for ‘becoming entrepreneurial’ 180–83 see also entrepreneurial learning entry and exit, as path-dependent processes 276–7 environment for entrepreneurship 224 conclusion 237–9 contextualization 224–6 embedding structures and social capital 226–30 and exit 277–8 localness and proximity dynamics 230–37 equity financing 296 ethics 242, 248–9, 369 classification 248 components 243–4 dualism framework 242–3 and social responsibility, Islam 466–7 spanning themes 246–8 topical themes 244–6 ethnic enclaves 9–10, 13–14, 254–5, 256 ethnic minority and immigrant entrepreneurship 251 developing model of 251–7 future research 258 implications 257–8 low-income entrepreneurship 526 and social structures 225 see also Chinese immigrant entrepreneurs; global entrepreneurship and transnationalism ethnic ownership economy, entrepreneurship in 195–7 capital resources 199–200 conclusion 203 individual differences 200 single and double disadvantage 197–9 sources of entrepreneurial capital 200–202 ethnicity, and social networks 155–6 ethno-cultural groups 201, 202 ethno-religious groups 201, 202 ethnographic methodology 556–7 European Commission 178, 186, 187–8 European Paradox 215–16

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European Union (EU) 213–14 Everett, J. 277–8 evolution of entrepreneurship and its role in stewardship-based economics 260–61 entrepreneurism 266–9 entrepreneurship, enterprising culture and evolution of entrepreneurial thought 265–6 stewardship-based economics 269–72 who is an entrepreneur? 262–4 evolutionary models of economic change 417–18 exit 274–5 and entry, as path-dependent processes 276–7 factors determining (environment or entrepreneur) 277–8 level of analysis and measurement of 275–6 outcomes of 279 rates over time 279 types of 278–9 experiential learning 145–7, 162, 501 exploitation and exploration 414 export intermediaries 430–32 export support services for SME internationalization 282–6 exporters, entrepreneurial 130–31 case study 133–6 conclusion 136–7 theoretical background 131–3 exporting, channel options 430 externalities 217–19 failure 22–3, 24, 274, 275, 277, 328, 339, 341, 348, 386, 638–9 failure externalities 218 Fama, E.F. 299–300 family Bedouin 516–17 capital from 201, 297 and immigrant and ethnic ventures 256 ties 153, 403 family firms 289–92 succession 346 unpaid family workers 195, 196 Farmer, R.N. 535, 538 Farny, S. 609, 610 fashion industry, entrepreneurs in 165 Benetton (innovative advertising) 170–71 Charles Worth (integration of textile sales and dressmaking) 165–7 Christian Dior (‘New Look’) 168–9 Coco Chanel (diversification) 167–8 conclusion 175 future of 172–3

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H&M and ZARA (affordable fashion and fast response to consumer needs) 171–2 Ralph Lauren (selling a lifestyle) 169–70 women’s fashion 173–4 fast-fashion 172 Fayolle, A. 459 feedback loops role of sense-making processes in 161–2 as socially situated mechanisms 162–3 Feldman, N. 458–9 Felzensztein, C. 30–31, 32 Fenn, John 359 finance and financial issues 295 Bedouin 520 France 383–4, 385 funding challenges 298–303 internationalization support 445, 446 Islamic entrepreneurship 465 in low-income entrepreneurship 527, 529, 530 sources of finance 296–7, 299–300, 341–2 start-up financing cycles 295–7 venture capital and capitalists 297, 301–3, 326, 642–4 financial capital 199, 201 Ford 94 foreign markets, early entry of new technologybased firms (NTBFs) 112–15, 234 fragmented pluralism 258 France, internationalization support ecosystem 443–7 France, model of incubators and support systems for business creation, see business creation, French model of incubators and support systems for Franklin, Benjamin and James 206 fraud 330 Freeman, R.E. 368 French, K.R. 299–300 functionalism 537 Gagelin 165–6 Galbraith, C.S. 536, 544 Galbraith, J.K. 213 Gambardella, A. 217 gangs 528, 529 Garud, R. 65 gender 141, 226 and exit 276, 279 and social networks 154–5 geographical mobility of entrepreneurs 345–6 geographical proximity 217, 218, 231, 232, 233, 486–7 George, G. 438–9 Ghoul, A.W. 458

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Index Giacomin, O. 69 Gibb, A.A. 266, 267 Gilson, R.J. 300 Gimeno, J. 278 Ginsberg, A. 57, 58 Glazer, N. 540, 542, 548 global entrepreneurship and transnationalism 310–12 conclusion 318–19 globalization and English language dominance 315–18 transnational entrepreneurs and entrepreneurship 156, 619–21 transnationalism and globalization 312–15 see also international entrepreneurship and internationalization global innovators 6, 15–16 globalization 131, 214, 216, 236 and English language dominance 315–18, 319 and transnationalism 312–15, 319 glocalization 233, 234, 236, 593 Gold, S. 197 Goodale, J.C. 45 Goofy 648, 650 Gordon, George Phineas 206 Gotsis, G. 536 Gould, D. 317, 318 governance structures, and internationalization 433–4 Govindarajan, V. 67–8 Granata, J. 31 Granovetter, M. 227, 228 greed 261, 270–71 Greyfriars Bobby 645, 646, 653 Griffith, Sir John 359 Groenland, E. 553 groups 612 groupthink 615 growth, economic, see economic growth growth of firms 323 antecedents of 323–6 consequences of 328 future research 329–30 how firms grow 326–8 rapid 328–9 guanxi 7–8, 10 Gutenberg, Johann 205–6 Guth, W. 57, 58 Hadith 457, 459, 460, 461–2, 463, 464, 465, 467 Harris, M. 402–3 harvest venturing 65 Hatak, I. 478 Hayek, Friedrich A. von 336

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Hayes, Sir James 358 Haynes, K.T. 139, 140, 141 Hayward, M.L. 140 Headd, B. 274, 278 health and health problems 528, 529 mental health 100, 105, 325, 328, 477–81, 530 healthcare, biotechnology ventures 191–2, 193 Heidelberg K press 211, 212 Heidelberg platen press 207, 210 Hell, Dr. Rudolph 208 Hellmann, T. 302–3 Helper, S. 300 Helsinki School of Economics (HSE) 471–2 Henry, E.Y. 409 Hess, M. 227–8, 234 high-growth firms (HGFs) 328–9 Hippel, E. von 483, 484 Hirst, P. 238 historical context of entrepreneurship applications of concept of entrepreneur 346–7 British entrepreneurial decline 347–9 complexity of decisions 338 contractual position of entrepreneur 340 economic theories of entrepreneur 335–6 enterprise culture 349 entrepreneurial strategy 343–4 financing entrepreneurship 341–2 geographical mobility of entrepreneurs 345–6 information synthesis 342–3 judgemental decision-making 336–8 market for entrepreneurs 344 reputation of entrepreneur 340–41 supply of good judgement 338–40 history dependence 499, 500 History of Economic Analysis (Schumpeter) 573–4 H&M 171–2 Hollander, Anne 173 honesty 340–41 Honig, B. 23 Hornsby, J.S. 42–3, 44, 53 host countries (of immigrant entrepreneurs) 252–4, 257–8 hubris, entrepreneurial 139–43 Hudson’s Bay Company change and diversification 362, 365 competition 360–61 entrepreneurship 359–60 expansion of 361 formation of 358–9 independence of 362 today 365

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Hughes, Howard, and air industry 351–7 Hughes, J.R.T. 347 human capital 199, 201–2, 277, 478 Human Poverty Index (HPI) 524 humane entrepreneurship 367 components and application of 371–3 social entrepreneurship 369–70 and wealth creation 368–9 hument model 367, 369, 370, 371, 372–3 Hungerford, Sir Edward 358 ideas 426 identity 148, 177 illegal sector 195–6, 197, 198–9, 203, 242, 261, 314 imagination 247 immigrant entrepreneurs and entrepreneurship, see Chinese immigrant entrepreneurs; ethnic minority and immigrant entrepreneurship; ethnic ownership economy, entrepreneurship in; global entrepreneurship and transnationalism incubators 392, 396–7 recent theoretical approach (strategic view) 394–6 traditional approach 393–4 see also business creation, French model of incubators and support systems for Indian entrepreneurs 540, 546, 547 indigenous entrepreneurship 225–6; see also pastoralism, as a form of entrepreneurship among Negev Bedouin indigenous entrepreneurship, as a function of cultural perceptions of opportunity 400, 506 conclusion 407–9 emphasis on community 406–7 external forces 406 heterogeneity among indigenous peoples 400–401 immediately available resources 402 incompatibility with assumptions of mainstream theories 401–2 kinship ties 403 markets and internal economic activity 403–4 need versus desire 406 opportunity recognition 405–6 propensity for cooperation 404–5 sustainability 402–3 indigenous people, and Hudson’s Bay Company 359–60, 361 inequality 24 informal sector 195–6, 197, 198–9, 252, 254, 404, 527, 531

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information advantage, manager-entrepreneurs 298–9, 299–300 asymmetry 9 and decision-making 336–8 networks, co-religionist 543–4 sense-demanding 162 synthesis 342–3 informational support 445, 446 inheritance 341 initial public offering (IPO) 297 innovation advertising 171 and corporate entrepreneurship (CE) 50, 59 distinction from invention 119 and entrepreneurship 74–5, 76, 78, 347 family firms 290 importance of large corporations 67–8, 213 Islamic entrepreneurship 464 open 483–8 policy, France 378 Schumpeter on 575–6 by small entrepreneurial firms 120 social 369–70 user 484 see also R&D; uncertainty in innovation innovation-driven enterprises (IDEs) 184 innovation systems and entrepreneurship research 411–12 conclusion 421 entrepreneurial ecosystems 418–21 entrepreneurship research 416–18 origin of innovation systems theory 412–15 innovation venturing 65 innovative behavior 426–8 innovative entrepreneurs 119 earnings of 120–21, 124 educational attainment of 122–3 innovators, global 6, 15–16 input–mediator–output–input (IMOI) model 615–16 institutional context 98 institutional hazards 113, 114–15 institutional proximity 232 institutional trust 623–5 institutions and entrepreneurship 345 and firm growth 326 and innovation systems 413, 417–18 Schumpeter on 574 social 125 integration approach to sustainability 606–7 intellectual property rights (IPR) 245 intention 246–7 interactive learning as localized process 232–3

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Index intermediated internationalization theory 430–34 international business (IB), and opportunities approach 492, 493–4, 496, 499–500, 504 international entrepreneurship and internationalization 437–41 and hubris 141 intermediated internationalization theory 430–34 international new ventures (INVs) 130–31, 285–6, 430–31, 433–4, 438 internationalization as dynamic, evolutionary process 492–4 internationalization at founding 233–4 models of internationalization 439–40 new technology-based firms (NTBFs) 112–15 small and medium-sized enterprises (SMEs) 233, 234, 282–6 see also exporters, entrepreneurial; global entrepreneurship and transnationalism; internationalization support ecosystems; opportunities approach to international entrepreneurship international/internationalization process theory (IPT) 439, 493–5, 495–6, 497–8, 500, 501, 502–3, 504, 505, 506 international new ventures (INVs) 130–31, 285–6, 430–31, 433–4, 438; see also opportunities approach to international entrepreneurship international trade 314–15, 316–18, 319 internationalization support ecosystems 443 current state and future directions 448, 450 effectiveness of support programs 447–8, 449 entrepreneurial ecosystem of internationalization support 443–5 support process 445–7 Internet-based Chinese innovation 15–16 internships 69 interpretivism 178 intrapreneurship 192–3 invention, distinction from innovation 119 investment 348 involuntary entrepreneurship 452–4 IpOp analysis 635–6 Ireland, R.D. 42 Islamic entrepreneurship 457–9, 467–8, 539, 543, 544–5, 546, 549 concept of 460–63 entrepreneurship aspects in the Qur’an and the Hadith 463–6 ethics and social responsibility 466–7 pillars of Islam 458

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principles related to modern business practices 460, 461–2 island entrepreneurship 590–94 Iyer, G.R. 540 Jahanshahi, A.A. 372 Jains and Jainism 538–9, 543, 544–5, 546–7 Japan, Chinese immigrants in 4, 10 Jews and Judaism 11, 203, 539, 540–41, 541–2, 543, 544–6, 548 Jobs, Steve 141–2 Johannisson, B. 225, 502 Johanson, J. 439, 494–5, 499–500, 504, 505 John, Daymond 532 Jones, E. 347 Jones, M.V. 492–3, 496, 503 Jorgensen, D.L. 561 Journal of Enterprising Culture 266 judgement 336–40 Kaplan, S.N. 302, 303 Katsikea, E.S. 130, 131, 132, 133, 136 Kautonen, T. 454 Kenney, M. 100 Kenton, W. 192 Keynes, John Maynard 572–3 Ki Chan, K. 371 Kilbourn, Maria 305 kinship ties 403 Kirke, Sir John 358 Kiron, D. 85 Kirzner, I.M. 336, 416, 417, 496, 504–5 Klischograph 208, 211 Kluckhohn, C.K. 537 Kluckhohn, F.R. 537–8 Knight, Frank 119, 335, 340, 417, 629, 630 knowledge 215 commercialization of 216–17 externalities 218 filter 215–16 and internationalization 494, 495, 498–9, 501, 503 Islamic entrepreneurship 464 and open innovation 483, 485 spillover 216–17, 218, 219, 220, 432 and uncertainty 629, 630, 631 Kock, S. 27–8 Kodak 306, 307, 308 Kraus, S. 612 Krog Iversen, Enrico 134–5 Kugler, M. 525, 526 Kuratko, D.F. 43–4 labor force disadvantage 197–9 landscape 415

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large firms/corporations importance in innovation 67–8, 213 and innovation systems 413 as policy focus 213, 216 laser printing 211 Latouche, S. 236 Lauren, Ralph 169–70 leadership 76, 427 learning experiential 145–7, 162, 501 localized 232–3, 234 models 420 sequences 147 see also entrepreneurial learning learning business planning (LBP) 471–2 less-developed countries (LDCs) 345–6 Lev, B. 298, 299 Lewis, J. 300 Lewis, W.A. 540, 546 life cycle 97–8, 327 Ligand Pharmaceuticals 300–301 Light, I.H. 195, 197, 317, 408–9 Lin, N. 229 Lindbergh, Charles 351, 352 Lindsay, N.J. 403 linking capital 230 literacy 528, 529 local open innovation 486–7 localized learning 232–3, 234 localness 230–31, 233–7 Lockheed aircraft 351, 354–5 locus of control 531 low-income entrepreneurship 525–7, 529, 530–31 loyalty 343–4 luck 339 Lukka, K. 471 Lundström, A. 220–21 Lundvall, B.Å. 412 Luo, X. 28 Madsen, T.K. 497–8 Mainela, T. 496–7, 498, 505 Majluf, N.S. 298 Malmberg, A. 232–3, 234 managed economy 214, 219 management and corporate entrepreneurship (CE) 51–2, 60 of corporate ventures 63 and firm growth 327–8, 329 humanistic 369, 371 manager-entrepreneurs, information advantage 298–9, 299–300 managers, and corporate entrepreneurship (CE) 43–4, 57–8

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Manutius, Aldus 206 market and digital platforms 97–8 for entrepreneurs 344 entry 124 environment 131–2 and indigenous entrepreneurship 403–4 order 416 system 270–71 viability 62 market failure 217–19, 244, 416 market-related unknowns 630–31 marriage 547–8 Marshall, Alfred 336 Marx, Karl 572–3, 575 Mary Poppins 653 Maskell, P. 232–3, 234, 565–6 Massey, D.S. 314 mature-age entrepreneurship 473–4, 475 McDougall, P.P. 430, 437, 438, 439–40, 495, 502 McElwee, G. 566–7 Mehta, S. 191 melting pot pluralism 257–8 Mennonites 539–40, 548 mental health 100, 105, 325, 328, 477–81, 530 mentoring 146 Mergenthaler, Ottmar 207 Methodists and Methodism 536, 541, 544 methodology, see research methodology Mickey Mouse 647–8, 649 middle class traders, Chinese immigrants as 7–8 middleman minorities 1–2, 5–6, 16–17, 195, 202, 203 contemporary 6–12 new typologies of 12–14 see also global entrepreneurship and transnationalism Miles, M.P. 41 Miller, D. 41, 42 Miller, L.B. 142 Millington, Francis 358 Mintzberg, H. 560 Mitchell, W. 277 Mitchelmore, S. 186–7 Mnejja, A. 299 mobility of entrepreneurs 345–6 Monck, Christopher 358 Moore, Gordon 221–2 moral progress 248 Morgan, G. 72–3 Morgan, M. 403, 408 Morris, H.S. 257 Morris, M.H. 42

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Index motives of entrepreneurs 336, 453, 530–31, 577–8, 609 movable type 205–6 Mowery, D. 214 Moynihan, D.P. 540, 542, 548 multinational enterprises (MNEs), intermediated internationalization theory 430, 431, 432–4 Murray, G. 115 Myers, S.C. 298 Nakamoto, S. 184 Nambisan, S. 84 narcissism 141, 324–5 narrative inquiry methodology 557–8 national innovation systems 412–13 needs and wants 261 Neele, Sir Paul 358 Negev Bedouin, see pastoralism, as a form of entrepreneurship among Negev Bedouin neo-middleman minorities 6, 12–14 neoclassical economics 412 network structure of social capital 229–30 networking strategy 343 networks 151, 225 blockchain 184–5 business creation, France 389 Chinese immigrant entrepreneurs 7–8 co-religionist 543–4 community social capital 156–7 and digital platforms 97 diversity of 151–2, 154 and embeddedness 227–8 ethnic 9, 10, 155–6, 254–6 externalities 217–18 and internationalization 497–9, 500, 501–2, 504 local 233–5 and open innovation 485–7 peer 146 social 7–8, 154–6, 199–200, 202, 225, 227, 324, 486 ties 151–4, 155, 156, 199, 228, 403 unknowns 632–3 women 154–5, 389 new technology-based firms (NTBFs) early foreign market entries of 112–15, 234 and science technology parks/clustering 582, 584, 585, 586, 587 new ventures creation of 76, 432 failure rate 277 growth of 323–30 international new ventures (INVs) 130–31, 285–6, 430–31, 433–4, 438

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new venture development (NVD) 51–2 resources 63 and teams 612–13 venture creation programs (VCPs) 179–83 see also business creation, French model of incubators and support systems for; incubators; start-ups New Zealand, Chinese immigrants in 4, 7, 8, 10, 13 Ng, W. 106–8, 109 niches 415 Nordhaus, W.D. 121 North West Company 360 novelty 180, 181–2 observation and participant observation 560–61 obsolescence, built-in 268 occupational mobility of entrepreneurs 346 Olurode, L. 401 online platforms, see digital platforms open innovation 483–4 digital 487–8 implementation challenges 484–5 local 486–7 role of intermediaries 485–6, 488 operating controls 45 operational support 445 Opler, T.C. 299 opportunities 437 concept of 496–7 definitions 498 existence of 432 Islamic entrepreneurship 463 and religion 544–6 and sustainable entrepreneurship 607 taking advantage of 437–8, 439–40 see also indigenous entrepreneurship, as a function of cultural perceptions of opportunity opportunities approach to international entrepreneurship 492 concept of opportunity 496–7, 498 conclusion 506–7 core themes 497–9, 500 developing core service offering 504 international new ventures (INVs) 495 international trajectory of firm 502–3 internationalization as dynamic, evolutionary process 492–4 internationalization process theory 494–5 learning 501 networks 501–2 path and history dependence 499 process of opportunity development 504–6 psychic distance (PD) 499–501

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opportunity analysis 633 opportunity-based view (OBV) 499, 500–501, 502, 504, 506 opportunity case 634, 635 opportunity recognition 76, 77, 78, 405–6, 417 optimism 121, 139 Organisation for Economic Co-operation and Development 571–2 organizational change 60–61 organizational climate, for corporate entrepreneurship (CE) 42–3 organizational culture 44–5, 59–60, 328 organizational processes, as foundations of dynamic capabilities 511–12 organizational proximity 231–2 organizational structure 133 organizational systems, and corporate entrepreneurship (CE) 52–4 organizational unknowns 632 organizations, innovative behavior 426, 427 organized proximity 231 Østergaard, Esben 133–4, 135 outcomes of entrepreneurial learning 147–8 following exit 279 immigrant and ethnic ventures 256–7 and mental health conditions 479 science technology parks (STPs) 585–7 outward orientation 187 overconfidence 140, 142 Oviatt, B.M. 430, 437, 438, 439–40, 495, 502 ownership and corporate entrepreneurship (CE) 59–60 nature of 269 see also ethnic ownership economy, entrepreneurship in ownership-based economics 270 Paisner, D. 532 Panda Credit 15, 16 paraplegic entrepreneurs 106–8 Parent Trap 653 Parker, S.C. 121, 122 Passet, R. 606 pastoralism, as a form of entrepreneurship among Negev Bedouin 514–16 conclusion 521 flock management 516–17 production and economic details 517–21 patents 120, 245, 343 path-dependency 276–7, 499, 500 Patzelt, H. 606 Pauwels, C. 396 peer networks 146 Penrose effect 327–8, 329

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personal attitude 187 Phan, P.H. 394 photography and photographic industry 305–7 Pinocchio 650 platen press 206, 207–8, 210 platform business model 184–5 platforms, digital, see digital platforms pluralism 257–8 policy 178, 213–14, 221–2 digital platforms 100–101 economic rationale underlying intervention for entrepreneurship 217–19 and firm growth 326 innovation, France 378 instruments 219–21 mandate for entrepreneurship policy 214–17 and small island entrepreneurship 591 political embeddedness 227 political regimes 345–6, 347 polluted sites, bioremediation and rehabilitation of 192 Portes, A. 314 Portman, John 358 positive affect 478, 479, 480 poverty 244–5, 248, 270–71 poverty and entrepreneurship in developed economies 523–4 conclusion 531–2 conditions of poverty 527–30 motives of low-income entrepreneurs 530–31 patterns in low-income entrepreneurship 525–7 understanding 524–5 precarious self-employment 452–4 Pretyman, William 359 price discrimination 124 Principle of Double Effect 246 printing sector, entrepreneurship in 205–6 German technology 207–8, 210 New World 206–7, 208, 209 post-war innovations 208, 211–12 Printomatic press 208, 210 private equity venturing 65 probability 629, 630, 631 process models/approach internal corporate venturing 66–7 international/internationalization process theory (IPT) 439, 493–5, 495–6, 497–8, 500, 501, 502–3, 504, 505, 506 sustainable entrepreneurship 609–10 processes, organizational 511–12 Prodi, Romano 213–14 profit distribution 263–4 emphasis on 267

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Index maximization, assumption of 368 as motivation 336 reinvesting 342 as reward for risk 335 projective and visionary thinking 76, 77 property rights 245, 300, 301, 303 Protestantism and Protestant work ethic 200, 535, 539, 541 proximity 230–31 geographical 217, 218, 231, 232, 233, 486–7 strength of localness 233–7 typologies 231–3 psychic distance (PD) 499–501 public attitudes 246 Putnam, R. 229, 230 Quaker entrepreneurs 541 quasi self-employment 453–4 Qur’an 457, 459, 460, 461, 462, 463, 464, 465, 466, 467, 545 Rajan, R.G. 301 Ramadani, V. 458, 549 Rasmussen, A. 187 Ratinho, T. 22 R&D biotechnology ventures 191–2, 193 collaborations 300–301 expenditure 298 financing of 299, 301–3 and firm growth 327 and firm size 120 industrial, George Eastman as pioneer of 305–8 and open innovation 485 and outsourcing 411 personnel, educational attainment of 122–3 and share dealings 298–9 rebellion 76 reciprocity 199–200, 255, 623 regimes 415, 420 political 345–6, 347 regional innovation systems 413–14, 486 regulatory unknowns 632 relationship conflict 291–2 religion, as an explanatory variable for entrepreneurship 535–7 beliefs and entrepreneurial spirit 546–7 conclusion 548–9 different religions’ patterns of entrepreneurship 540–41 different religions’ variance in valuing of entrepreneurship 538–40 findings 538–47 future 548

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networks 543–4 opportunities for entrepreneurship 544–6 perpetuation of values 547 specialization along religious lines 541–2 values and culture 537–8 see also ethnic ownership economy, entrepreneurship in; Islamic entrepreneurship Renshaw, J. 400, 401, 402, 403, 407 replicative entrepreneurs 118–19 reputation 340–41 research methodology 553–4 case study methodology 554–6 conclusion 562 document analysis 559–60 ethnographic methodology 556–7 narrative inquiry methodology 557–8 observation and participant observation 560–61 residual, concept of 263–4, 268–9 resource constraint theory 198 resource disadvantage 197–9 resource unknowns 632 resources availability to indigenous people 402 class resources 200–201, 202, 203, 315, 318 and definition of entrepreneur 76, 78 distribution of 270 as finite 271 and firm growth 325, 327 Islamic entrepreneurship 465 and local networks 233 minimizing waste of 633–6 and new ventures 63 retirement age 473–4 Reuber, A.R. 492, 493–4, 496, 501, 503 rewards, pecuniary and non-pecuniary 340 Richman, B.M. 535, 538 risk attitudes toward 121 aversion 386 characteristics of entrepreneurs 77 differences from uncertainty 629 as element of entrepreneurship 76, 78, 119, 262, 335 France 386–7 and hubris 140 Islamic entrepreneurship 466 management 630 Robinson, Sir John 358 Rokeach, M. 538, 548 role models 528, 529 Rosen, A. 545 Rowley, J. 186–7 Roxas, B. 372

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rules 528, 529 Runde, J. 629, 630 Rupert, Prince 358, 359 rural entrepreneurship 563–5 barriers to rural enterprise 566–7 business environment 567 conceptualizing rural entrepreneur 568 drivers of rural enterprise economy 565–6 Sahut, J.M. 299 Salin, E. 575 Salten, Felix 645, 646, 653 Sarasvathy, S. 497, 498 Savić, D. 85 saving 342 Saxenian, A. 431 Say, Jean-Baptiste 74, 75, 119 Schiller, N.G. 312 Schjoedt, L. 612 Schumpeter, Joseph Alois 74–5, 119, 124, 213, 265, 335–6, 347, 416–17, 505, 572–9 Science, Technology and Innovation (STI) mode of learning 420 science technology parks (STPs) 582–7 segregation 528, 529 self-efficacy 142, 531 self-employment, precarious, and involuntary entrepreneurship 452–4 Seligman, R.A. 306 sense-making, sense-breaking and sensedemanding 160–63 Servais, P. 497–8 servant leadership theory (SLT) 371 Seventh-day Adventists 541 shared commitment 612 shareholders 243–4, 299, 340, 368 shares 298–9, 303 Shari’ah 458–9, 460, 463, 466 Shepherd, D.A. 606 Shi, C. 299 Shi Zhengrong 16 shocks 344 Silicon Valley 217, 582 Simpsons 363, 365 Singapore, Chinese immigrants in 4 Slevin, D.P. 41–2, 43 Slivinski, S. 525, 526 slow-fashion 172–3 small and medium-sized enterprises (SMEs) biotechnology ventures 192–3 clusters 414 export support services for internationalization of 282–6 increasing interest in, from 1980s 571 internationalization of 233, 234

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internationalization support ecosystems 443, 447–50 and open innovation 484–6 specialization in innovation process 120 small business policy 219–21 small island developing states (SIDS) 591 small island entrepreneurship 590–94 Smith, A.C.T. 599 Smith, Adam 269–70 Snow White and the Seven Dwarfs 648–9 social capital 156–7, 199–200, 202, 229–30, 235, 311, 313, 314, 408–9, 486, 601–3 social context 97 social entrepreneurs and entrepreneurship 178, 226, 237, 369–70, 597–8 social hybrid firms 409 social innovation 369–70 social institutions 125 social media platforms 86 social model of disability 105–6, 108, 109 social networks 7–8, 154–6, 199–200, 202, 225, 227, 324, 486 social proximity 232 social regulation theory 238 social relations 227 social responsibility and ethics, Islam 466–7 social value 405 socially situated cognition (SSC) 160–61, 162–3 societal embeddedness 227 society 537 socio-emotional wealth (SEW) 291 sojourners 1, 2, 11–12 South Africa, entrepreneurship education 23–4 South Korea, Chinese immigrants in 4 Southam, William 206–7, 209 spatial dimension of context 96–7, 99 specialization along religious lines 541–2 in entrepreneurship 340 in innovation process, small and mediumsized enterprises (SMEs) 120 of production 431 speculation 343 spin-offs 127, 637–9 sports and entrepreneurship 599–603 spouses 155 stage-gate/phase-gate process 633–6 stakeholders 243–4, 325–6, 330, 368, 631–2 Stam, E. 419–20 Stanley, L.J. 290–91 start-ups among the poor 531–2 digital open innovation 487–8

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Index effect on poverty 527 employee 127–8 financial issues 295–303 theories of new venture creation 432 see also business creation, French model of incubators and support systems for; incubators; new technology-based firms (NTBFs); new ventures stereotyping 625 Stevenson, L. 220–21 stewardship-based economics, see evolution of entrepreneurship and its role in stewardship-based economics Stewart, B. 599 Steyaert, C. 238 strategic entrepreneurship 41 strategic renewal 57 Strodtbeck, F.L. 537–8 strong ties 152–3, 154, 155, 156, 199, 228 structural pluralism 258 students, Chinese overseas 8 subsistence 404 success, in Islamic entrepreneurship 466 Suntech 16 supply chains 430 supply networks, co-religionist 544 support for business creation, see business creation, French model of incubators and support systems for sustainability and firm growth 330 indigenous entrepreneurship 402–3 and innovation systems 414–15, 420–21 orientation 371–2 triple bottom line (TBL) model 368, 605, 606, 609 sustainable development 235, 236, 237, 605 sustainable entrepreneurship 370, 605–10 Swedish Paradox 215 Symon, G. 560 synthesis 247 systems innovation approach 420–21 Taft, W.H. 540 teams 61, 612–16 technical change, Galbraith on 213 technological unknowns 630 technological viability 62–3 technology biotechnology entrepreneurship 190–93 and innovation systems 413 in neoclassical economics 412 science technology parks (STPs) 582–7 and sustainability 414–15, 420–21 transfer 113–14

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see also digital entrepreneurship; digital platforms; new technology-based firms (NTBFs) Telfer, D.J. 30 Terjesen, S. 430 territorial embeddedness 228 Thatcher, Margaret 536 Theory of Economic Development (Schumpeter) 576, 577–8 Therenos 330 ties 151–4, 155, 156, 199, 228, 403 TikTok 15 time, lack of 527, 528, 529 Titman, S. 298–9 Torre, A. 231, 232 Toscani, Oliviero 171 training, and corporate entrepreneurship (CE) 45 Trans World Airlines (TWA) 351–2, 353, 354–5, 357 transaction costs 113–15, 317, 318, 344 Transcontinental & Western Air (TWA) 351 transmigrants 312, 313–14, 315, 316–17, 318, 319 transportation 528, 529 trial-and-error learning (corporate venturing) 65–6 triple bottom line (TBL) model 368, 605, 606, 609 Trippe, Juan T. 352 Trump, Donald 201, 260 trust 255, 623–6 Tsang, E.W.K. 554 uncertainty 215, 335, 337, 417 uncertainty in innovation 629 categories of unknowns 630–33 identifiable and unidentifiable uncertainties 630, 631 minimizing waste of resources/phase-gate or stage-gate process 633–6 non-chance-related uncertainties 629–30, 632 reducing unknowns 632–3 unemployment, and involuntary entrepreneurship 452–3 UNESCO, and science parks 582–3, 585 United States (US) ‘American dream’ 262 balance of payments deficit 319 economy 214 historical concept of entrepreneur 347 immigration and trade 317, 318 poverty 523, 524–6 Universal Robots 133–6

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universities and science technology parks (STPs) 583–4, 585 spin-offs 637–9 Unruh, G. 85 Uppsala Model 439, 493, 501, 502–3, 504 user innovation 484 usury 465 Vahlne, J.-E. 439, 494–5, 499–500, 502, 504, 505 value creation 76, 78, 368, 601–3 value for others 180, 182 value proposition 396 values 252, 400, 401–2, 405, 537–8; see also religion, as an explanatory variable for entrepreneurship Vanderstraeten, J. 395 Ven, Andrew van de 65, 419–20 venture capital and capitalists 297, 301–3, 326, 642–4 ventures, new, see new ventures Vérin, Hélène 73–4 Vicente, J. 232 Victorian entrepreneurship 346–7 virtue ethics 247 visually impaired entrepreneurs 106–8, 110 Vlaar, P.W.L. 161, 162 Vyner, Sir Robert 358 Walt Disney 645–53 Walt Disney World 653 Warner-Lambert 300

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Watson, J. 277–8 weak ties 153–4, 228 wealth creation 368–9 Weber, Max 200, 310, 538–9 Wennberg, K. 279 Wiklund, J. 279, 479, 480 Wilkinson, K. 235–6 wine industry, coopetition in 26, 29–33, 35 Winstone, K.E. 30 wisdom 247 women entrepreneurship 226 and exit 276, 279 and island entrepreneurship 594 networks 154–5, 389 Woodwards 362, 364, 365 work, attitudes toward 401 working conditions, platform economy 99–100, 101 World Bank 230 Worth, Charles 165–7 XY Company 360 Ye Wenjun 15, 16 Yu, W. 479 Zahra, S.A. 438–9, 440 ZARA 171–2 Zeitlin, J. 238 Zhou, H. 478 Zingales, L. 301, 539 Zukin, S. 227

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