Institutional Perspectives on Entrepreneurial Behavior in Challenging Environments

By Welter, Friederike; Smallbone, David | Journal of Small Business Management, January 2011 | Go to article overview
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Institutional Perspectives on Entrepreneurial Behavior in Challenging Environments


Welter, Friederike, Smallbone, David, Journal of Small Business Management


This paper examines the institutional embeddedness of entrepreneurial behavior. The institutional context influences the nature, pace of development, and extent of entrepreneurship as well as the way entrepreneurs behave. This is particularly apparent in challenging environments such as emerging market and transition economies with an uncertain, ambiguous, and turbulent institutional framework. The paper develops suggestions as to how to extend the current institutional approach by emphasizing that institutions not only influence entrepreneurs but entrepreneurs may also influence institutional development by contributing to institutional change. This also includes acknowledging the heterogeneity of entrepreneurial responses to institutional conditions, depending on the situational configuration of institutional fit, enterprise characteristics, and entrepreneur's background, in which the role of trust as an influence on entrepreneurial behavior needs to be investigated. By focusing on these interrelationships, the paper aims to make a theoretical contribution to the field of entrepreneurship, illustrating how entrepreneurial behavior is linked to its social context.

Introduction

Most entrepreneurship research focuses on micro-level explanations for entrepreneurial behavior related to, for example, the role of cognition and emotions (e.g., Shepherd, Wiklund, and Haynie 2009; Katz and Shepherd 2003) or behavioral responses such as effectuation or bricolage (e.g., Baker and Nelson 2005; Baker, Miner, and Eesley 2003; Saras-vathy 2001). At the same time, there is growing recognition that entrepreneurial behavior needs to be interpreted in the context in which it occurs. This includes the institutional context that is composed of the economic, political, and cultural environment in which the entrepreneur operates (Shane 2003). The sociocultural and the politico-institutional environments influence entrepreneurial attitudes and motives, the resources that can be mobilized as well as the constraints and opportunities on/for starting and running a business (Martinelli 2004). As a consequence, the context has an impact on the nature, pace of development, and extent of entrepreneurship as well as the way entrepreneurs behave. This is particularly apparent in institutional environments characterized by a high level of ambiguity, uncertainty, and turbulence, such as in economies with a recent history of central planning, making them a fascinating laboratory for scholars interested in the interface between institutions and behavior. By focusing on this interrelationship, the paper aims to make a theoretical contribution to the field of entrepreneurship while drawing on empirical evidence from transition environments where the number of private businesses per capita, their behavioral characteristics, and their contribution to economic development is affected by the social context. Examples are mainly taken from research projects undertaken in former Soviet republics, which continue to constitute challenging environments for entrepreneurs as compared with Central European countries such as Poland or Hungary, which are now members of the European Union (EU).

Previous research has drawn attention to a number of distinctive features of entrepreneurship in such conditions. This includes variations in the pace of development of entrepreneurship over time following the initial explosion of entrepreneurial activity associated with reforms that made it legally possible for nonstate-owned enterprises to be established. As in mature market economies, significant regional variations in entrepreneurial activity are common, associated with spatial variations in the pace of restructuring as well as demand-related factors (Smallbone et al. 2001). Attention has also been drawn to the predominance of so-called "necessity-push" at start-up, reflecting the paucity of alternative ways of earning a living following the collapse of the Soviet system (Scase 2003, 1997).

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