A Lam Hos San Paper

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Paper to be presented at the EMNet -Conference on"Economics and Management of Franchising Networks"

Vienna, Austria, June 26 28, 2003www.univie.ac.at/EMNET

LINKING BETWEEN FRANCHISING NETWORKS FOR

ENTREPRENEURSHIP AND ECONOMICALDEVELOPMENT----- LOOKING FOR A NEW MODEL

Jahangir AlamAssociate Professor

Department of FinanceUniversity of Chittagong

BangladeshEmail: [email protected]

Phone: Office: 0088-031-726311-14Extension: 4234 (Auto)Fax: 0088-031-726310

Mohammad Akter HossanLecturer

Department of FinanceUniversity of Chittagong

BangladeshEmail: [email protected]: Office: 0088-031-726311-14Extension: 4234 (Auto)Fax: 0088-031-726310

AbstractEntrepreneurship is an outcome of complex balancing of opportunity initiatives, risks and rewards.

Entrepreneurship is as a process by which people pursue opportunities, fulfilling needs and wants throughinnovations, without regard to the resources they currently control. Entrepreneurial resource is vital ingredient of economic development whereas a key element of economic development is that the 'people of the country' must be
mailto:[email protected]:[email protected]


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I. Introduction

The concept of entrepreneurship is multifaceted and used in a wide variety of contexts.

At its heart are entrepreneurs, i.e. persons that are believed to have characteristic traits or behave

in some characteristic way. On the basis of these characteristic traits entrepreneurship is

described as an innovator who undertakes the new combinations of factors of production.

Innovation may occur in the form of: i) the introduction of a new goods, ii) the introduction of

new method of production, iii) the opening of a new market, iv) the conquest of a new source of

supply of factors of production and v) the reorganization of any industry. Entrepreneurs arespecially motivated and talented type of individuals who are to see potentially profitable

opportunities and tend to exploit them (Saha, 1989) . It is recognized that mere existence of

resources does not guarantee economic growth (Purhit and Rahman, 1995) . Experience shows

that progress is basically the human effort and it takes human agents to mobilize capital, to

exploit natural resources to create new markets and to carry on trade (Frederick and Myers).


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national economy and if a proper and equitable distribution policy can be formulated by the state

to suit the real development in the economy will take place (Saha, 1989).

Although entrepreneurship is a vital factor in the economic development process, in

practice it has to face the problem of adequate information regarding the potential opportunities

in environment, demand and choice of potential customers, sources of necessary resources for

that new goods, various aspects of the markets, market penetration strategies, existing and

probable competitors, suppliers of raw materials, required technology and expert personnel, etc.

As a result, if entrepreneurs want to collect this information by using the traditional methods then

it will cost more to the entrepreneurs and this cost also leads to increase in the production and as

a transaction cost too.

So, in the world of information technology, entrepreneurs can only be benefited by

gathering various information mentioned earlier, exchange views with the entrepreneurs at home

and abroad, share the experience with such foreign entrepreneurs even can take suggestions from

successful entrepreneurs for overcoming any difficulties through networking support provided by


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This paper tries to build a structural model linking between franchising network and

entrepreneurship development and to evaluate whether this model will be able to reduce the cost

or not.

II. Critical Evaluation of Existing Theories of Entrepreneurship

At present there are a number of entrepreneurship theories for the development of

entrepreneurship. So, in this section we have tried to identify the variables used in the existing

models, to find out the merits and demerits of present theories. We have also considered all these

factors while we have tried to provide a new model. All the existing entrepreneurship theories

are divided here into two major categories- psychological theories and sociological &

anthropological theories. These theories are discussed below-

A. Psychological Theories

The essence of psychological or personal theory is the difference in individuals attitude.

According to this theory the difference in attitude i.e. the internal attitude and ability to judge and

forecast the situation lead a man to become a successful entrepreneur. Some important theories


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greater amount of entrepreneurship in a society if the average level of need achievement in a

society is relatively high. Because having a high n Ach encourages an individual to sit

challenging goals, work hard to achieve the goals and uses the skills and abilities needed to

accomplish them (Islam 1989). Moreover, it is the inner drive of individuals that propels them to

work more and to achieve something for their own interest by taking personal risk (Islam and

Mamun, 2000) . Need for achievement then, reflects a strong goal orientation, an obsession with

job or task to be done. So, entrepreneurship becomes the link or intervening variable between

need achievement and economic growth. Consequently, McClelland advocates increasing level

of need-achievement in a society in order to stimulate entrepreneurship and economic growth

(Islam, 1989) . Finally, according to McClelland, entrepreneurs are activated by the high extent of

achievement motivation and he also stated a desire to do well, not so much for the sake of social

recognition or prestige, but for an inner feeling of personal accomplishment, induce people to be

an entrepreneur (Islam and Mamun, 2000). He also suggests that the n Ach level can be

increased in an individual through training and by creating appropriate culture.


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entrepreneurship. Because retreatism is characterized by psychological repression of the trauma

associated with the status loss. The suppressed rage resulting from the loss of status ultimately

results in a later generation is standards of achievement being held up by mothers within the

group to their sons. For this reason the sons becoming innovators is increased and

entrepreneurship becomes a feasible outlet for such tendencies (Islam, 1989) . This theory has

been criticized for two major reasons. First reason is that this theory is post hoc that means,

Hagen discovered instances of the withdrawal of status respect by looking first at situation in

which economic growth occurred and then by looking for status losses that might have preceded

that growth. Second criticism has centered on the long period of time- as much as five or more

generations are required for the withdrawal of status respect to result in the emergence of

entrepreneurship.

In motive-Acquisition theory which is a revised version of McClelland n Ach theory

expresses that the mentality, personality, thinking power, attitude etc. are not in-born but they are

flexible and changes with situation. So, this theory advocates in favor of frequent training and


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Internal-External Locus of Control theory introduced by professor J.D Rotter of Ohio

University highlights the self-confidence of a person, the dependency on fortune and external

environment for becoming an entrepreneur. According to this theory internal locus of control i.e.

self confidence, extreme belief over ones ability and power motivates individual of a society to

take initiatives for innovation which is very much helpful for individual side by side for society

too (Islam and Mamun, 2000) . On the other hand, Independence Motivation theory is the similar

to internal-external Locus of control theory, which also emphasizes on the independents thinking

of entrepreneurs. This theory expresses that people having independent thinking, self-confidence,

self-controlling ability can avoid social condemnation for becoming an entrepreneur.

Another psychological theory of entrepreneurship named Creativity or Innovation Theory

highlights the physical performance as the determinant to evaluate whether an individual is

creative or not, because creative individual use their talents, thinking ability to create new and

fundamental ideas or views and they also find out techniques to bring new ideas into practice. On

the contrary, Power Motivation Theory has given emphasis on the authority to do a certain task


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protestant values is ancient one. In this theory Weber argued that protestant or Calvinistic logic

or values were instrumental in promoting capitalist enterprise. These values included, first of all,

an emphasis on the inherent goodness of work itself. A persons work was regarded as a calling

in the very literal rendering of the concept of vocation. Moreover, the experience of financial

rewards from ones work was regarded as a manifestation that one was blessed by God, a

number of elect few predestined to share this grace. However, money created temptations to the

flesh, whose yearnings were to be suppressed. Protestant values called for self-restraint and

deferral of gratification. By investing ones earnings in the form of capital, one could practice

such self-denial. Over a period of many years, repeated investment of earnings created the capital

base for the take off of Western societies into the economic break-through of the industrial

revolution.

In another anthropological theory named Marginal and Tension theory introduced by

Robert Park in 1928 stated that a marginal man is one whose fate has condemned him to live in

two societies. The two societies are not merely different but antagonistic cultures like occidental


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marginality. All these variables found from existing prominent theories of entrepreneurship

These psychological and sociological variables are of qualitative type that play simulative role in

an individual for becoming an entrepreneur. These variables explain only the initial stage of

entrepreneurship development process, that means why and when an individual acts as an

entrepreneur. But these variables don't explain post initial stage of entrepreneurship development

process. As a result, we don't find any guidelines relating to how entrepreneurs use their

resources (capital, skill, risk taking ability, etc) and overcoming their barriers (coordination,

knowledge) from these models

III. Shifted Entrepreneurial Success factors

In this section we have tried to know what are the shifted success factors for

entrepreneurship development from the old factors with change of time. These factors can be

used for overcoming the shortcomings of psychological and sociological models and also

enhance their applicability. Anyway, the entrepreneurial success factors are broadly divided into

four categories (Ahmed, 1981) . These are a) psychological factors (need for achievement, risk


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entrepreneurs, of course according to the researchers this risk should be calculated and moderate

in nature. The second, third, fourth, and fifth important success factors are innovativeness and

well coordinated-flexible persistent actions that indicate the quest for something new, like

managerial capability, as well as adaptability; self awareness/self motivation for achievement;

self confidence and personal initiative; market knowledge relating to business environment like

market demand, competition, technology development, product development, social and political

issues etc. respectively. This chart also shows that the researchers before and after 90s tend to be

different in their focus regarding success factors of entrepreneurs. According to them, before

1990s personal and psychological factors i.e. risk taking ability of entrepreneurs, innovativeness,

and self-confidence, well coordinated flexible persistent managerial actions, personal initiative

and industriousness, dynamism and self motivation are the most success factors. On the other

hand after 1990s managerial and environmental factors of business i.e. market knowledge and

well coordinated flexible persistent managerial action factors followed by risk taking capability,

innovativeness, self motivation, moral attitudes and values, and business and other

environmental consciousness, are the most important success factors for the entrepreneurs. So, it


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Source :Islam and Nazrul

From the above diagram it is clear that before 90s, complexity in business was less, customer and

product sophistication, development of information systems and globalization of business were

low in degree. So, entrepreneurial successes were dependent on personal and psychological

factors of entrepreneurs. On the other hand, due to the increase in business complexity, customer

and product sophistication, development of information system, globalization of business after

1990, the entrepreneurial success focus has been changed towards managerial and environmental

factors. So, the shift in success factors from past to present reveals that present dominating

success factors are knowledge (information) and coordination.


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There are three components in this model- i) development entrepreneurship through

technology; ii) Networking support for knowledge (information) and coordination to increase

economic growth; ii) franchising of this network and linking it to entrepreneurship and economic

development. These three phases of the proposed model discussed below-

A. Development of Entrepreneurship through Technological development

From our earlier discussion it is clear that the present dominating success factors are

information and coordination. Based on these factors Islam and Mamun (2000) provided a model

that is shown in appendix, is the first phase of our proposed model. In this phase we have tried to

show the development of entrepreneurship through technological development. The different

integrating variables of this model are-

1) Primary review of the technological development

The effectiveness and efficiency in performance of technology depends on internal and

external environmental factors. Moreover, existing environmental concepts act as the guideline

in designing and implementing the technology development programs. For this reason in

selecting, transforming, adopting or developing the technology environmental factors have been


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availability and their capability, financial capability of the organs, present mode of operations in

comparison with competitors strength, status of information available in organization and

management capability, etc.

2) Initiating Strategies for Technology Development

Technology is a powerful tool for exploiting the competitive advantage in the

interdependent world (Sharif, 1995) . So, for the development of technology in-depth

deliberation, multi oriental consideration and combination of several important tasks (Islam and

Mamun, 2000) are required. In developing countries technological development requires two-

fold initiatives according to Islam and Mamun. These initiatives are - 1) technological

development by national efforts 2) technology transfer from developed countries and adopting it

to the local community by careful investigations (Islam and Mamun, 2000). On the other hand, to

develop technology within the indigenous structure research and development program is the

basic contributing factor. Especially commercial research inventions and innovations are

disseminated to the entrepreneurs for adoption in the industry and agriculture by preplanned

programs and injects the financial benefits to the total economy (APO 1985). This is why


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3) Total development in the technology

Technology is a complex combination of technoware, humanware, informer and

orgaware which are dynamically interrelated (Islam and Mamun, 2000) . Technological

development is further influenced by its life cycle in that passage. This life cycle of technology is

divided into four stages named innovation stage, syndication stage, diffusion stage, and

substitution stage. To face these four stages of technological development, entrepreneurs can use

technology leader, technology follower, and technology exploiter and technology extender

strategies. At the initial stage, entrepreneur comes in the market with innovative new products,

new ideas are generated by need-pull and knowledge-push concepts, (Islam and Haque, 1994)

and customers show interest to test revolutionary products. Entrepreneurial ventures gradually

march forward to the growth and maturity through occupation and expansion of market by initial

cost absorption, close contact with customers, solving problems in the new ways and learning by

doing methods. And finally technology gains its highest possible market, competition comes to

its highest peak, per unit margin on the product is minimized by auto-game between the

competitors in the total market. At the ending point extender take the opportunity to purchase the


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demands of the product. The method of innovation in this way is regarded as demand-pull

method. Thus, reinvestigations for further innovation by creative entrepreneurs is started in the

declining stage of old technology utilization. Development in technology is further affected by

the macro environmental settings (Islam and Mamun, 2000).

4) Mass Participation in Technological Innovation for Entrepreneurship

The successful implication of the technology depends on the commercialization, which

in the output of combined consideration of market demand and purposeful marketing strategy for

selling for the technology to its target markets. Other argued competent and dynamic industrial

partner, their techno-managerial capabilities for project execution commitment and interest is

also notable considering aspects in commercializing the technology to the ultimate entrepreneurs.

Thus, developing technology by taking care of market demand and planned publicity for

diffusion of technology to general mass increase the acceptability of technology to the target

clients. To keep this objective in view continuous coordination among the academic and research

institutions, research and development institutes, and engineering and production units with

assessment and reassessment of the production and commercialization results are essential (Islam


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The model discussed above doesnt base on the concept of Franchising Networks. But

from our earlier discussion, it is also found that such type of model is important in the era of

tremendous development of IT and people's perception of entrepreneurial development link to

economic development of a country or a nation. So, in the second phase of our model, the

relationship between networks and economic growth through entrepreneurship development

(Islam and Mamun, 2000). This relationship is shown below-

B. Development of Entrepreneurship through Networks

In this phase we have tried to show by the figure- in the appendix how the shifted

entrepreneurial success factors accelerate entrepreneurship development as well as how it

increases the economic growth through networks. In this figure networks may be established

between entrepreneurs to entrepreneurs and also between entrepreneurs to suppliers, customers,

markets, etc. First type of network may be used for horizontal coordination and second type of

the same may be used for vertical coordination. Moreover, from this networks entrepreneurs may

collect their necessary information related with the sources of raw materials, modern and

advanced production methods, potential customer's need, potential markets, competitive products


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networks can help a nation to accelerate its economic growth through entrepreneurship supported

by same.

C. Linking it between franchising network and entrepreneurship and economic

development:

It is the third phase of the proposed model, which is shown in the following figure. In this

section network company will collect all necessary information for the entrepreneurs. This

network company will give permission to the entrepreneurs to use their network facilities in the

form of franchise business where entrepreneurs have to pay royalties, franchise fees and other

required fees. This type of network facilities for knowledge (information) and coordination

estimates individual to act as an entrepreneur. That means such network facilities accelerate

entrepreneurship development side by side of economic growth. On the contrary, Franchise

Company can earn more profit by increasing the number of users, which also increase the

economic growth. Moreover, such type of company will assist entrepreneurs overcoming their

constraints like knowledge and coordination


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There are some shortcomings of this model. These are- (i) privacy of the information; (ii)

efficient personal having the ability to identify wrong information provided by the both network

company, suppliers, customers; (iii) this model requires competent and efficient personnel for

creating new ideas by analyzing the information provided by this networks etc.

V. Conclusion

In this paper we have tried firstly to show entrepreneurship is the essential and key factor

to explore various opportunities from the surrounding environment of a nation for economic

advancement. Secondly, we critically evaluated the existing theories of entrepreneurship


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development can be possible. After this phase it is shown that franchising network can help the

entrepreneurs to collect knowledge or information for generating new ideas with low cost. It also

helps the entrepreneurs to coordinate horizontally and vertically. Then with the help of this

network entrepreneurs can earn more profit by reducing cost of production, increasing

productivity and the volume of total sales, expanding market, etc. This profit also can increase

the investment, employment, etc for the economic growth of a nation. Similarly other

stakeholders of the model like network company, suppliers, customers, etc. can also increase

their profit by expanding the number of users, establishing supply chain with low cost,

purchasing goods with low cost respectively. As a result, they can contribute to the economic

growth of the same nation along with the entrepreneurs.

References

Ahmed, S.U, "Entrepreneurship and Management Practices Among Immigrants from Bangladesh in the United

Kingdom", unpublished Doctoral Thesis, Brunel University, London, 1981.

Asian Productivity Organization, Commercialization of Indigevous Technology. Compiled and Edited by


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Saha Kumar Saroj, "Entrepreneurship and Economic Development", Entrepreneurship, Edited by Rahman A.H.M.

Habibur, Published by , University Grand Commission of Bangladesh, (English version) 1989.

Sharif, M.N, " Itegrating Busness and technology Strategies in Development Countries", Technological Forecasting

and Scial Change. Vol. 45.


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Appendices Table-1: Shifted Entrepreneurial Success Factor

Continue to next page

Authors Success FactorsRisk Taking

(1) *

Innovativeness

(2)

Wellcoordinate,FlexiblePersistentActions

(2)

Self Awareness/self motivation(achievement)

(3)

Self-confidence

(4)

Personalinitiatives

(4)

Knowledge/information(marketissue)

(5)

Industriousness/dynamism

(6)

Moralattitudeandvalues/environment

(7)

Internalcontrol

(8)

Long-terminvolvement

(8)

Relation ship

(9)

Entrepreneur s personality

(9)

Socialization patternin child-hood

(9)

Futureorientation

(9)

Opportunityseeking

(9)

Perseverance anddetermination

(9)

CantillonR. (1755)

* * * *

Mill, J.S.(1884) * * *McClelland, D, (1961) * * * *

Timmos,J.A. (1978) * * * * * * *

Rahman,A.H. M. H.(1979) * *

*

Homaday,J.A. (1982)Meridith etal. (1982)


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Ahmed S.U.(1981)

Homaday,J.A. (1982)

Stanworth,J. (1989)

Kao, J. J.(1989)

Ray, D.D.(1993)

Sengupta,S.K;Debnath,S.K, (1994)

Osborne,R.L, (1995)

Krackhardl,D, (1995)

McKenna,S.D., (1996)Carrier, C.,(1996)

*

*

*

*

*

*

*

*

*

*

*

*

*

*

*

*

*

*

*

*

*

* *

*

*

*

*

*

*

*

*


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Continued from previous pageAuthors Success Factors

Risk Taking

(1) *

Innovativeness

(2)

Wellcoordinate,FlexiblePersistentActions

(2)

Self Awareness/self motivation(achievement)

(3)

Self -conf idence

(4)

Personalinitiatives

(4)

Knowledge/information(marketissue)(5)

Industriousness/dynamism

(6)

Moralattitudeandvalues/environment

(7)

Internalcontrol

(8)

Long-terminvolvement

(8)

Relation shipManagement

(9)

Entrepreneurs

personality

(9)

Socialization patternin child-hood

(9)

Futureorientation

(9)

Opportunityseeking

(9)

Perseveranceanddetermination

(9)

Brandstaller,H., (1997)

* * *

Frese, M.,Fay, D.,Hilburger, K.,Leng, T.,Tag, A., (1997)

* *

Enright, M.,McDonald, K.,(1997)

* *

Chen, C.C.,Greene, O. G.,Crick, A.,(1998)

Anderson, A.R.. (1998)

**

*

*

Van Horn,R.L., Harvey,M. G., (1998) * *

No. of researchessuggested

11 9 9 7 6 6 5 4 2 2 2 1 1 1 1 1 1

Source: Islam Nazrul and Mamun Z Mohammad, Entrepreneurship Development An Operational Approach, Published by The University Press Limited, Bangladesh, 2000


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Fig.-2 :Development of Entrepreneurship through Technology

Proposed Model for Promoting Entrepreneurship through Technological DevelopmentSource: Islam and Mamun

Investment in basic andapplied research in the

formal and informalsector for supportingtechnology developmentat the national level

Technological

development in theindigenous structure

* MassParticipation intechnologicalinnovation

* Planned publicity for disseminationof information

* Providingintegratedassistance

package totranslatetechnologicalinnovation intoentrepreneurial ventures

Entrepreneurial supply inthe greater society

Re-energizing the processafter reassessment Industrialization in the countryand multiplier impact of development

Deliberate government andentrepreneurs associations' efforts for graduation of the enterprises

Gradual increase in micro andsmall enterprises development

Multi disciplinary experts' participation from homeand abroad for conductinghigh technological feasibility study

Transformation of locally adaptive andenvironmentally suitabletechnology

Primary reviewof the existingtechnologicalenvironment byETOP and SAP

TO

Total development in thetechnology structure

Technowar e

Humanwae

Inforware

Orgaware


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Fig. 3:Development of Entrepreneurship through Networks

Old successfactors-

-Personal(familytradition,experience, birthorder, ageeducation)

Psychological (needfor achievement, risk taking,need for

power,motivation for autonomy,creativity )

Knowledge(Information)

New or changedFactors

Coordination

Between the entrepreneur andalso with the suppliers, customers,markets

Networks

Supplier,Customers, Markets

Supply chainwith low cost

Maximizing profitthat will increase ConsumptionReinvestmentEmployment

-Sources of raw materials-New markets

-Newinventionin production Methods

Entrepreneurs

Reduce the cost of transactions for entrepreneurs

Accelerate or encourage

Entrepreneurship

-Increase productivity-Capital formation

-Increase employment

IncreaseeconomicGrowth

For

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