The Cultural Context of Entrepreneurship

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MBAsem2013/2014

The Cultural Context of Entrepreneurship

1. Introductionto the Cultural Context of Entrepreneurship

Culture is defined as a set of shared values, beliefs, and expected behaviours (e.g. Herbig,

1994; Hofstede, 1980). Cultural values determine to what extent entrepreneurial behaviours

such as risk taking and independent thinking are desirable within a society. Entrepreneurial

cultures, that value and reward entrepreneurial behaviour and activity, have facilitated the

development and introduction of radical innovation and entrepreneurship that results in

economic development. The United States of America is one of the best known examples of

an entrepreneurial culture that has resulted in a strong economy driven by innovation.

However, culture in itself cannot be the sole determinant for the level of entrepreneurship

that is present within a society. This specific aspect of the role of culture in promotingentrepreneurship is highlighted by Hayton, George and Zahra (2002) who suggest a model

where national culture acts as a catalyst rather than a causal agent of entrepreneurial

outcomes. The model suggests that entrepreneurship is influenced by cultural

characteristics that transform and complement the institutional and economic contexts. This

places entrepreneurship and entrepreneurial thinking as influenced by the needs and

motives and the beliefs and behaviours that result in a variety of entrepreneurial initiatives,

such as new venture creation, small and micro business, self employment and corporate

venturing.

Figure 1

From: Hayton, George and Zahra (2002).

Topics covered within this lesson are:

o Types of Entrepreneurship

o Cultural Factors Influencing Entrepreneurship

o Entrepreneurship Examples from Around the World

o Influence of Culture and Environment on Entrepreneurship and the Entrepreneurial

Process

o Entrepreneurial Outcomes

o Entrepreneurship in the Wider Contexts of Culture, Economy and Institutions.

References

Herbig, P (1994). The Innovation Matrix: Culture and Structure prerequisites to innovation.

Westport, CT. Quorum

Hofstede, G (1980). Cultures consequences: international differences in work related

values. Beverly Hills, CA. Sage.


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Hayton, J. George, G. & Zahra, S (2002). National culture and entrepreneurship: a review of

behavioural research. Entrepreneurship Theory and Practice, 26 (4) 33-52.

2. Typesof Entrepreneurshipand the Entrepreneurial ProcessEntrepreneurship is based on a common set of principles, irrespective of where it happens,

whether in small businesses or within major corporations or in social ventures. Theseprinciples relate to the process of discovering an opportunity, evaluating it, acquiring

necessary resources to capitalise on the opportunity either by creating a new business

venture or expanding an existing venture.

Typesof Entrepreneurship

Entrepreneurship as a term is typically applied to creation of new ventures that are growth-

oriented, create new industries or expand existing ones that generates employment and

economic development. This type of entrepreneurship is also known as opportunity-based or

high-growth expectation entrepreneurship and is predominantly found in countries that are

classified as high-income. Countries in this group are Austria, Belgium, Denmark, Finland,France, Greece, Hong Kong, Iceland, Ireland, Israel, Italy, Japan, Netherlands, Norway,

Portugal, Puerto Rico, Slovenia, Spain, Sweden, Switzerland, United Arab Emirates, United

Kingdom, and the United States. [1]

However, entrepreneurship also encompasses creation of small businesses and micro-

enterprises that provide self-employment to the entrepreneur but not necessarily generate

employment for others. This form of entrepreneurship is termed as necessity based and is

predominantly found in countries that are classified as middle- and low-income. Countries in

this group are further subdivided into those from Europe and Asia, China, Croatia, Hungary,

India, Kazakhstan, Latvia, Romania, Russia, Serbia, Thailand, and Turkey, and those from

Latin-America and the Caribbean, Argentina, Brazil, Chile, Colombia, Dominican Republic,Peru, Uruguay, and Venezuela.

Entrepreneurship manifests within organisations in a variety of forms depending on the

nature of the organisation. In big companies, entrepreneurship takes the form of corporate

venturing through investments of financial and other resources and creation of spin-offs

based on new ideas developed within the organisation. In new ventures, re-formulation of

strategy to benefit from new opportunities and creating innovative approaches to establish

and sustain competitive advantage are some of the clearest indicators of entrepreneurship.

EntrepreneurialProcess

The entrepreneurial processinvolves all the functions, activities, and actions associated with

perceiving opportunities and creating organizations to pursue them (Bygrave, 2003). Others

such as Moore (1986) define the entrepreneurial process as consisting of Innovation,

Implementation and Growth.

The process of entrepreneurship starts with the discovery of an opportunity. This opportunity

could be to introduce innovations such as new products or services in an existing market,

introducing a new distribution channel for existing products and services or promoting

existing products and services using a new business model. The recognition of such an

opportunity is the spark that starts the entrepreneurial journey that then results in the

creation of a new venture.
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Once an opportunity is identified the next step in the entrepreneurial process is to create a

new business venture by acquiring financial and other resources and putting together a team

to capitalise on the opportunity. The role of the entrepreneur is to focus on the activities and

task necessary to make the venture a reality.

The discovery of new opportunities is a key driver of economic development as they helpidentify ways of creating value. The process of creating new ventures to capitalise on the

opportunity creates new jobs and economic dbanking system for small loans that has

unleashed an economic miracle in the evelopment. In developing economies, this is of even

higher significance as any new entrepreneurial opportunity can also have huge social

impact. Initiatives, such as Grameen Bank in Bangladesh that provides banking services for

the poor, amply illustrate this by developing a trust-based lives of the poor.

Jeffry Timmons (1990) suggests that there are three key components for creating a

successful new business. These are the opportunity, the entrepreneur and the resources

needed to start the company and make it grow.

Figure 2

Based on Jeffry Timmons (1990)

[1] Based on research from GEM project at London Business School,

2007.http://www.gemconsortium.org/docs/download/263

References

Bygrave, (2003). Portable MBA in entrepreneurship. Wiley.

Gartner (2001). Is there an elephant in entrepreneurship? In: Entrepreneurship Theory andPractice, Vol. 25, No. 4, 27-39

Timmons (1990) New Venture Creation. Richard D. Irwin, Homewood, IL

Moore (1986). Understanding Entrepreneurial Behaviour: A Definition and Model. Academy

of Management Proceedings, 1986, 66-70

Shane and Venkataraman, (2000). The Promise of Entrepreneurship as a field of research.

Academy of Management Review, Vol. 25, No. 1, 217-226

3. Cultural FactorsInfluencingEntrepreneurship

National culture reflects the norms and values held by its citizens.

A common model of culture (Hofstede, 2001), used in business research includes the

following five factors:

o Power distance the extent to which less powerful members expect and acceptunequal power distribution
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o Individualism the importance attached to individualistic versus the collective point

of view

o Masculinity the degree to which gender roles are assigned in a culture

o Uncertainty avoidance defines the extent to which a culture values predictability

o Long-term orientation to what extent the group is persevering and invests for the

future.

Of the above five factors, individualism and uncertainty avoidance are closely related to

entrepreneurial behaviour as they dictate to the extent to which an entrepreneur is willing to

take risks and think and independently to develop his/her business. Research performed on

this topic has highlighted that these two factors are significantly related to entrepreneurial

traits such as internal locus of control, risk taking, and innovativeness (Mueller & Thomas,

2000; Thomas & Mueller, 2000). These traits influence the way how entrepreneurs perceive

and discover opportunities.

Hofstede, (2001). Culture's Consequences, Comparing Values, Behaviors, Institutions, and

Organizations Across Nations Thousand Oaks CA: Sage Publications, 2001

Mueller, & Thomas (2000). Culture and entrepreneurial potential: a nine country study of

locus of control and innovativeness. Journal of Business Venturing, 16, 51-75.

Thomas, & Mueller, (2000). A case for comparative entrepreneurship: Assessing the

relevance of culture. Journal of International Business Studies, 31, 591-609.

See also www.geert-hofstede.com

4. EntrepreneurshipExamplesfromAroundthe World

Geography Company Type of Entrepreneurship

Business Idea

USA DELL High growth expectation Effectively usedInformation andCommunicationTechnologies to buildPCs based on customerorders, masscustomisation, and

deliver them directly

South Africa Little Rock Construction Economic growth and jobcreation

Construction industry -Turn crowded, single sexhostels cited by themining industry as afactor that contributes tothe spread of HIV/AIDS --into comfortable homesfor miners and theirfamilies.

India Aravind Eye Hospitals Social Entrepreneurship Pioneered low-cost eyetreatments for rural poor
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by using large volume,high quality services thatresult in low-cost andsustainability.

Argentina Agroindustrias RioTercero

Economic growth and jobcreation

Packaged fruit juices -pioneered a lightweightcontainer with strictproduction and qualitycontrol targeting the low-income market.

5. Influenceof Cultureand Environmenton Entrepreneurshipand the

Entrepreneurial ProcessThe influence of culture in shaping the social institutions, developmental financial institutions

and thereby the business environment is cyclical as these institutions reinforce cultural

values of the society in the long term.

Environment, financial, political and social drivers have a key role to play in the

entrepreneurial process by helping to create opportunities and other mechanisms such as a

strong legal framework, taxation and supportive economic and employment policies.

In the entrepreneurial process comprising, Innovation, Entrepreneurial decision/action,

Implementation and Growth, the influence of environment can be felt right from the

innovation stage, where the entrepreneur has identified an opportunity and come up with an

innovation that can capitalise on the opportunity.

For an innovation to emerge, the environment should provide ample opportunities, and

support creativity through promoting individualistic thinking. The personal characteristics of

the entrepreneur such as creativity, tolerance of ambiguity/uncertainty and information

seeking behaviour, in combination with the environmental factors, gives rise to innovations

that can be a source for entrepreneurship.

Figure 3

Adapted from Moore (1986)

Availability of support infrastructure such as incubators, organisational structure andentrepreneurial culture are essential for an entrepreneur to make a decision to create a new

venture to capitalise on an opportunity. Typically, at this stage, the entrepreneurs

awareness of the available support infrastructure is quite significant in making the decision

to embark on the journey of entrepreneurship.

Finally, during the implementation stage, i.e. the creation of a business venture, the

availability of incubators and conducive organisational structure mean that the venture can

operate in a supportive environment during the early stages of its life.

Moore (1986). Understanding Entrepreneurial Behaviour: A Definition and Model. Academy

of Management Proceedings, 1986, 66-70
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6. Entrepreneurial Outcomes- The Outcomesof Entrepreneurshipand the Impact

on Cultureand the EnvironmentEntrepreneurship is the source of many kinds of wealth generation and has been the focus

of governments interested in entrepreneurship as a driver of economic development.

Entrepreneurial activity leads to the creation of different forms of outcomes, such as

generating social capital, job creation, new knowledge and financial resources.

Entrepreneurial activity does not only result in creation of new businesses but also of new

ideas and commissioning new projects within context of existing organisations (LaVan and

Murphy, 2007).

The social outcomes of entrepreneurship are creation of human and social capital in the

form of entrepreneurial individuals and networks. This human and social capital can be the

foundation of further entrepreneurial activity and capacity building of skills and capabilities in

starting and running entrepreneurial ventures.

The economic outcomes of entrepreneurship are creation of new jobs, generating wealth for

the entrepreneurs, investors and employees, creation of financial resources that can be

deployed to foster entrepreneurship in the form of grant schemes, seed funds and venture

capital.

Cultural outcomes of entrepreneurship are creation of role models of successful

entrepreneurs who can inspire and influence future entrepreneurs, creation of a conducive

environment for entrepreneurship that supports and encourages entrepreneurship as a

viable economic pursuit, and improvements in the organisational framework that facilitate

entrepreneurial activity.

LaVan & Murphy (2007). Southeast Asian culture, human development and business

competitiveness. Journal of Asia Business Studies

7. Entrepreneurshipin the Wider Contextsof Culture, Economyand InstitutionsFor entrepreneurs, understanding their cultural context and how entrepreneurship fits within

their own culture is critical for success. The differences between the socio-cultural context of

different countries may influence the status of entrepreneurs within them because of

numerous factors, incidents, and national culture, across political, economic, social, legal

and ethnic dimensions (Mitchell, et al. 2000). While entrepreneurship may be highly

regarded in cultures that the entrepreneur aspires to emulate, within the local context the

choice of entrepreneurship as an economic pursuit may not be considered positively.

Cultural context influences entrepreneurship at four stages opportunity recognition,

innovation (i.e. acting on the opportunity identified), implementation and outcomes. The

entrepreneur needs to be alert to their environment in order to spot any new opportunities for

entrepreneurship. Once an opportunity is identified, they need to act on these signals and

utilise them to reach their entrepreneurial ambitions by creating a business venture.

The economic and institutional contexts that influence entrepreneurial activity include

industrial infrastructure, economic growth and capacity for innovation (Hayton, George and

Zahra (2002)). For an aspiring entrepreneur, awareness of the available industrial

infrastructure such as incubators, research facilities, potential suppliers and other service

providers, helps him or her to decide on the path of entrepreneurship. Once the decision is


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taken to create a new business venture, this knowledge can be used to plan the

implementation steps.

Hayton, George and Zahra, (2002). National culture and entrepreneurship: a review of

behavioural research. Entrepreneurship: Theory and Practice, 26 (4) 33-52

Mitchell, Smith, Seawright, & Morse, (2000). Cross-cultural cognitions and the venture

creation decision. Academy of Management Journal, 43, 974-933.

Class Discussion

Explore the examples provided within the table in the 'Entrepreneurship Examples from

Around the World' section of the lesson.

Discuss the following questions:

o What were the underlying drivers for entrepreneurial action?

o How have the external environment, including prevailing cultural norms and

practices influenced the entrepreneurs?

o What were the outcomes in terms of making a difference to the company's

stakeholders, industry, economy and entrepreneur's own life?

o Describe an entrepreneurial example from your own industry, answering the same

set of questions.

Entrepreneurshipwithinyour cultural context

You should start to reflect on what you have learned and how this might apply to your ownenterprise project. The assignment is due next week during class. Put all your thought in not

more than 1000 words. The format is font arial 11 double spacing. Think about the

following:

1. Ambition - How has your culture influenced your own entrepreneurial ambitions?

You may be following established role models within your society by pursuing

entrepreneurship, on the other hand your entrepreneurial ambitions may not be

natural within your culture. In such a situation, were you attracted to

entrepreneurship by role models from outside your culture?

2. Values What values do you hold on to from your culture? How might these

influence your vision and the way you realise it?


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3. Vision - How will your vision for your enterprise align with what is considered

valuable in your culture? Is it becoming successful and making money, or is it

influencing economic development by making a difference in society by creating

jobs, or is it by satisfying a local need with a product or service within the constraints

placed?

4. Finding Support - Identify the key institutions whose support your enterprise project

will need. Typically, government funding agencies and incubation centres are

involved in supporting early stage business ventures. However, beyond these

traditional organisations, other support structures might be available within, for

example, universities or regional development agencies.

The Cultural Context of Entrepreneurship

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