Understanding and Encouraging Entrepreneurship Internationally
Peterson, Rein, Journal of Small Business Management
UNDERSTANDING AND ENCOURAGING ENTREPRENEURSHIP INTERNATIONALLY
Suddenly, all over the world, entrepreneurs are the good guys! Not the individuals who sit on their accumulated wealth, counting dividend checks, but those who create local jobs, commercialize technology, and build enterprises that become internationally competitive.
But entrepreneurship is proving to be as hard to transplant as its name is to spell. Even "true believers" debate about how to define it, understand it, and encourage it. As a result, in many countries, the encouragement of entrepreneurship is off to a sputtering start.(1) How much do we really understand about entrepreneurship internationally?
The Myth of Individual Action
Entrepreneurship's true believers often fail to appreciate the degree to which effective entrepreneurship is enmeshed with culture. United States ideology, which emphasizes individualism and a need for personal achievement, has dominated the conventional world view of what entrepreneurship is all about. But the cult of individualism is foreign to--and often unacceptable in--many countries of the world.
Gradually, it is becoming clear that each country/culture must develop its (1)See findings reported in Rein Peterson, Mari A. Peterson and Nancy B. Tieken, Encouraging Entrepreneurship Internationally (Dubuque, Iowa: Kendall/Hunt Publishing Co., 1988, forthcoming). Dr. Peterson is Director of Entrepreneurial Studies at York University, Toronto, Canada. This essay is based on two workshops he conducted as Paul T. Babson Professor (1985-1986) and as Senior Research Fellow, National Centre for Management Research and Development (1986-1987). own brand of entrepreneurship and raise its own champions to promote entrepreneurial behavior that fits the prevailing societal mores. Even more than national leaders and political change agents, entrepreneurs need to have a deep understanding of the socio-economic environment of which they are a part. Entrepreneurs act as boundary spanners and redefiners, and therefore need to be cultural specialists.
Much of what actually passes as U.S. individualism tends to be popular rhetoric. George C. Lodge describes two general ideological extremes--individualism and communitarianism.(2) He believes that each community and nation has over time arrived as an ideological balance that is a unique combination of the two opposing prototypes described below.
The First Prototype: Individualism . Individualism. The atomistic notion that the community is no more than the sum of the individuals in it. . Property rights. The best guarantee of individual rights lies in the sanctity of property rights. . Competition. The uses of property are best controlled by each individual proprietor competing in an open market to satisfy individual consumer decisions. (2)George C. Lodge, The New American Ideology (New York: Alfred Knopf, Inc., 1975). . Limited state. The less government the better. . Scientific specialization and fragmentation. If we attend to the parts, as experts and specialists, the whole will take care of itself.
The Second Prototype:
Communitarianism . Communitarianism. The community is more than the sum of the individuals in it; the community is organic, not atomistic. The survival and self-respect of individuals depends on the recognition of community needs. . Rights and duties of membership. These include the rights to survival, to income, to pensions, to health care. These rights supersede property rights--not only the fit have a right to survive. . Community needs. Clean air and water, safety, energy, jobs, competitive exports, etc., are more important than individual consumers' references. . Active state. An active, planning state is the arbiter of community needs. . Holism. Interdependence, as opposed to scientific specialization. The interrelatedness of all things is recognized.
Too many take the U.S. rhetoric of individualism literally, unaware that it is also tempered to a degree by communitarian values not made explicit until very recently.(3) Lodge argues that the first prototype, though deteriorating, retains great resilience in the U.S. If the second prototype"...might appear new in the United States, it is by no means new in the world...If we substitute the notion of hierarchy for equality of result, this ideology (also) resembles...the New England town meeting, and the farmers' cooperative movements of Wisconsin and Minnesota..." So at least in parts of the U.S., communitarian values are clearly present. (3)See Encouraging Entrepreneurship Internationally, pp. 54-59.
Much of the Western World is tending to recognize the existence of communitarianism in their value systems and are starting to deal with the individualism-communitarianism tension directly.(4) Actually, the two prototypes are not so much opposites as two sets of variables whose values must be determined from an interdependent, simultaneous equation system.
You Cannot Escape Who We Are
Ove Hjelmervik has pointed out that in Norway, blatant entrepreneurial behavior in the context of the first prototype is often received negatively. The general attitudes is, "If you succeed, you are a crook, and if you fail, you are stupid."(5) The importance of knowing your place in Norway was pointed out back in 1930, by Aksel Sandemose, who wrote about the rules of behavior in a fictitious city called Jante. The "Jante Laws" were immediately hailed as accurately describing the prevailing Norwegian mores (see figure 1). Many participants at the 1986 Babson College Workshop on Encouraging Entrepreneurship Internationally, upon hearing of the Jante Laws, gave examples of similar "laws" of acceptable behavior in Scandinavia, European and other Western countries. For example, in Australia the "mateship" frame of mind makes it unpopular to stick out in a crowd and to do something different.(6) Apparently, the Jante Laws are more universally applicable than Sandemose originally imagined.
The Jante Laws are a clear expression of the communitarian prototype. They represent one extreme of the individualism-communitaranism continuum. The (4)Robert B. Reich, "Entrepreneurship Reconsidered: The Team as Hero," Harvard Business Review (May-June 1987), pp. 77-83. (5)Encouraging Entrepreneurship Internationally, pp. 54-59. (6)John E. Bailey in Encouraging Entrepreneurship Internationally, pp. 93-95. struggle to find an acceptable balance between communitarianism and individualism apparently can lead to some interesting and creative cultural obfuscation.
In communist Hungary and China, relaxation of socialist dogma is taking place, allowing a newly sanctioned brand of entrepreneurship to flourish. Andrew Szonyi reported a joke making rounds in Hungary: "The owner of the dog explains that it really is a cat, it may look like a dog, it may eat dog food, it may bark, but nonetheless, it is a cat."(7) Capitalism and profit-seeking by individuals are still officially taboo in Hungary, yet individuals can promote "market socialism"--which really amounts to the same thing.
Some Examples of Culturally
The existence of some form of Jante Laws apparently does not prevent the emergence of entrepreneurs who learn to play by such rules. But we do need much more research to understand how entrepreneurship is carried out under such rules, as the following examples (7)Andrew Szonyi in Encouraging Entrepreneurship Internationally, pp. 168-174. illustrate. Some entrepreneurship research on "networking" is now emerging. Much of this research emphasizes building functional management teams that complement an entrepreneur's personal weaknesses. This type of "networking" research is too narrow and simplistic from an international, cultural point of view.
Bengt Johannisson contrasts the social entrepreneur in Sweden, who "...combines vision with action to create community-based ventures... [and] the independent entrepreneur who considers the community as a means for attaining personal goals...the social entrepreneur considers the development of the community as a main personal goal."(8) In all other ways, social entrepreneurs are similar to our classical conceptions of the entrepreneur: they start businesses, they create jobs, they work with limited resources, etc. But they are not motivated by making a lot of money for themselves per se.
Monika Aring claims that as a social entrepreneur she helped to revitalize (8)Bengt Johannisson in Encouraging Entrepreneurship Internationally, p. 129. two small New England town centers at Portsmouth and at Somersworth, New Hampshire. She attributed her success to being
...an outsider who had nothing to lose, and, most importantly, I had no preconceived ideas about what couldn't be done. [I convinced them that our] cause was big enough to motivate...the many existing networks in the community... The townspeople, like most New Englanders, had a strong sense of individualism...but were able to work together for a common goal.(9) She described her skill as being able to find the "hot buttons" in both communities that energized existing resources, networks, and leaders.
Dealing with entrepreneurial networks, rather than individuals, is illustrated in this example from Africa. In Uganda, as in other tribal societies,
...a loan is not a loan, it's a gift... many of the small business loans and credit extension programs...are suffering a 100 percent default rate... [but] once you understand that in fact a gift in tribal society is not a gift--it goes with strings attached, you can start to tie that into your infrastructure. The entrepreneur who has borrowed from you now has an obligation to the tribe, and the tribe has to make sure that money is repaid.(10)
Ken Loucks, who has helped encourage entrepreneurship in many less developed countries, used the above example to make the point that in creating an indigenous business class in countries that have been under colonial rule, you must tailor your approach. In North America and in developed countries in general, the need is for new venture creation programs. In less developed countries, the focus must be on the individuals and their support networks, and the need is for entrepreneur development programs. (9)Monika Aring in Encouraging Entrepreneurship Internationally, pp. 136-138. (10)Kenneth Loucks in Encouraging Entrepreneurship Internationally, pp. 13-14.
The foregoing examples suggest that encouraging entrepreneurship in any country should start with the identification of prevailing cultural norms. But the identification of acceptable norms along the individualism-communitarianism continuum can be a tough research challenge, as the next example illustrates. In Malaysia,
...60 percent of the people are the indigenous Bumiputera (Sons of the Soil), 30 percent are Chinese, 8.4 percent are Indian and 0.6 percent others... The Bumiputera had only 2.2 percent of equity ownership in the corporate structure. [It is conventionally accepted that the Bumiputera] have personal and social values that are not compatible with values of the business world: i.e., that of humility, cooperation, and sharing--not of profit-making, ambition, and competition.(11)
Empirical research conducted by Abdul Aziz Mahmud tried to identify these conventionally accepted differences between successful Chinese and Bumiputera entrepreneurs in Malaysia.
Contrary to popular belief, our study did not indicate significant differences in sociocultural values between Malay and Chinese entrepreneurs. We found no empirical evidence of the Malay businessman being low on individualism, activism, trust, and risk-taking and high on conservatism...We did find some significant differences with regard to management practices... We are fully aware that some [of the latter] differentials between Malay and Chinese entrepreneurs may not be due to the racial factor at all, but involve factors such as size of the business, type of the business, and perhaps even the age of the business....(12)
Cross-cultural research into entrepreneurship is a high priority, but it is also very difficult to conduct, as this Malaysian example clearly points out. It is possible that no sociocultural differences were found because both racial groups had adopted (or where well-schooled in) the sanctioned Malaysian cultural values and were able to answer (11)Fauziah Ismail in Encouraging Entrepreneurship Internationally, pp. 29-30. (12)Abdul Aziz Mahud, Malay Entrepreneurship: Problems in Development: A Comparative Empirical Analysis, Prime Minister's Department, Socio-Economic Research Unit, Kuala Lumpur, November, 1981, p. 141. the interviewer's questions accordingly. This would be the case if we accepted the premise that entrepreneurial individuals are cultural specialists. Also, at the same time, the two samples were not matched. The Malays were more recent entrants into the entrepreneurial sector, with smaller firms at an earlier stage of development. Apparently, entrepreneurship researchers need to develop their own skills and research designs to much higher levels of sophistication before attempting cross-cultural research.
Most researchers have misperceptions about entrepreneurship in other cultures that are based on conventional wisdom. Dennis Ray surprised most participants at the Babson Workshop when he described how Singapore was going through an agonizing reappraisal, focused around a report recently prepared by the country's Ministry of Trade and Industry, in response to an "economic crisis" that started in 1985.(13) The report set forth a major role for entrepreneurship as a way to solve the problems and identified five reasons for the lack of entrepreneurial activity: the government has been too omnipresent; Singapore has a low tolerance for failure; there are too many societal "safety nets"; the best people are drawn into public sector or professional jobs; and Singapore lacks a mechanism for financing new ventures. Many of us have used Singapore as an example of our ideal of an entrepreneurial society. Do we really understand what is going on there?
Ray concluded that the education sector will need to play an important role in transforming the Singapore economy, provided operational answers can be developed for the following questions: 1. How does a highly structured authoritarian society make the transition to innovation, creativity, and a high-tech knowledge base? (13)Dennis Ray in Encouraging Entrepreneurship Internationally, pp. 149-151. 2. How will the "best and the brightest" technocrats in government coexist with entrepreneurs, in particular, and the business community in general? 3. How can an economy heavily linked to the increasingly protectionist world maintain its own vitality and growth?
These questions echoed the concerns raised by speakers from many other countries, especially less developed countries with authoritarian regimes, which were represented at both the 1986 Babson Workshop on Encouraging Entrepreneurship Internationally and the 1987 NCMRD Entrepreneurship Research Workshop held in London, Canada.
If our understanding of entrepreneurship in these other cultures is as incomplete as the above examples suggest, can we really say that we know how to encourage entrepreneurship in our own cultures? The answer to such a question appears to be a qualified "no" at best.
The 1987 NCMRD Workshop participants agreed that entrepreneurship is a type of management behavior, prevalent in unstable, socioeconomic environments, that occurs commonly in new start-up ventures as well as in parts of organizations adapting to rapid change. It is characterized by the pursuit of opportunities in resource-poor situations where new wealth creation is a primary goal. It is different from traditional general management knowledge, which tends to focus on the allocation of resources in less resource-constrained situations and in more (14)This section describes the consensus that emerged at the Entrepreneurship Research Workshop held on April 2-3, 1987 at the National Centre located in London, Canada and reported in Rein Peterson and Kimble Ainsile, Understanding Entrepreneurship (Dubuque, Iowa: Kendall/Hunt Publishing Co., 1988, forthcoming). stable socioeconomic environments, where wealth preservation dominates wealth creation as a goal.
Research is needed on how entrepreneurial individuals have learned to take meaningful action within resource-poor organizational contexts. The organization may lack financial, human, and/or knowledge resources. Cultural norms, level of economic development, and reward/punishment incentive systems may also be constraining. To foster entrepreneurial behavior, we must learn how to design organizations and socioeconomic environments that do not unduly restrict individual initiative and self-interest.
The NCMRD consensus emphasized a paradigm based on what we shall call the Management Hypothesis, and assumed that the role of the state was based on a limited-environmental model. We shall make these terms clear by examining the prevailing assumptions of researchers. Entrepreneurship research is being carried out in roughly four groupings or schools:
The Entrepreneur Hypothesis. The emphasis is on studying entrepreneurs (or different types of entrepreneurs) as individuals with distinct psychological characteristics. Problems of starting new ventures and sustaining high-growth small business opportunities are examined. The ultimate goal is to be able to identify entrepreneurs and to develop prescriptions about how to undertake entrepreneurial acts.
The Management Hypothesis. The emphasis is on studying entrepreneurship as a part of general management. The term "entrepreneurship" is used to describe situational behaviors that are appropriate in pursuing opportunities. Entrepreneurship is believed to be present in small and large organizations independent of whether or not an individual is a founder or the general manager of a firm. The ultimate goal is to identify the appropriate behaviors and to develop an understanding of how they may be learned through training and practice.
The Invisible Hand Hypothesis. The emphasis is on creating a supportive environment in which entrepreneurship can flourish. Entrepreneurs or entrepreneurial individuals are not focused on, per se; it is assumed that they would emerge under appropriate environmental circumstances. The ultimate goal is to identify incentives and disincentives within the environment that are actionable.
New Hypotheses. Emphasis is on skills and knowledge developed in other related disciplines. Contribution is often methodological, or through the transfer of appropriate findings from research conducted in other contexts.
As we conduct more and more comparative entrepreneurship research internationally, it will become increasingly important to define our assumptions about the role of the state and the type of socioeconomic environment involved. We must deal explicitly with the communitarian-individualism continuum.
Public Policy Models
Three public policy models are emerging regarding entrepreneurism and the role of the state.(15) At one extreme, the laissez-faire approach is pursued by those who see government activity as essentially an impediment to spontaneous private, entrepreneurial development by individuals and firms. "Laissez-faire-ists" are quite content to allow the processes of entrepreneurial start-ups, survival, growth or decline in a market economy to develop in a "natural" way, without assistance or interference from government. Whatever happens in the rigors of the marketplace is part of the game. Those supporting a laissez-faire approach are not anxious about the apparently high failure rate of small venture start-ups (15)These models were originally put forward by Kimble Ainsile. after two or five years. For them, failure is part of the ebb and flow of business life cycles and economic change. And besides, they feel an equal or greater number of start-ups, potentially more long-lasting, will replace the failures. These models were originally put forward by Kimble Ainsile.
Moving along the continuum, we encounter the limited-environmental policy approach. Individuals who hold this view are less worried about government involvement than the former group. They hold that government participation in aid of new ventures and small business is a legitimate, and even a requisite function, but such participation should principally be limited to ensuring a proper tax climate and positively stimulating economic conditions. Optimal stewardship of the economy is promised by controlling price and wage inflation, keeping interest rates down and sustaining national economic stability. Thus, government participation should be limited to encouraging a good economic climate for new venture formation and small enterprise growth.
The remaining policy model on our continuum is one we have labeled the strategic interventionist approach. Those defending the vision are policy activists, indeed policy entrepreneurs, in favor of more and more recognition and support by government for entrepreneurism. They see government as protector and advocate for small business interests. They also support a favorable tax climate, deregulation, and educational training for entrepreneurs. However, except perhaps for educational enhancement, they operate on the assumption that basic economic infrastructure initiatives are in place or moving in the right direction, and therefore the next step is to assist small business through direct aid and intragovernment advocacy in the form of financial aid packages, counseling programs, procurement policies and programs; effective business advocacy programs to "educate" bureaucrats to the benefits of small business for the economy; etc.
Entrepreneurship is too often touted as a solution to all kinds of economic and social ailments in many parts of the world. Like the magical properties of snake-oil, governments and entrepreneurship advocates alike are increasingly experimenting with the entrepreneurship "cure." Often, they seem to proceed on faith alone. But, like allergy shots, which only work over time, one wonders if most politicans and advocates have the will and stamina to bring about long-term meaningful change in the underlying causes of problems they are trying to cure. Entrepreneurship, we have argued, is culture-bound, and cultural norms take a long time to change.
Those of us who advise government policy makers must be very careful in recommending the "brand" of entrepreneurship to be encouraged. Much of our research has not been longitudinal. Our understanding of the phenomenon, internationally, is incomplete. The four research hypotheses and three policy models outlined here make it clear that our past research has not covered the many ideological situations that exist in other countries.
Most of what we know about entreprenurial development is directly related to "capital" and "culture." Access to other people's resources and sustenance through culture are probably the key determinants of healthy entrepreneurial processes. How to keep the way clear to such resources, through culture, is becoming the central problem of economic development and international entrepreneurship research as we prepare for the 21st century.…
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Publication information: Article title: Understanding and Encouraging Entrepreneurship Internationally. Contributors: Peterson, Rein - Author. Journal title: Journal of Small Business Management. Volume: 26. Issue: 2 Publication date: April 1988. Page number: 1+. © 2002 Journal of Small Business Management. COPYRIGHT 1988 Gale Group.