The Life-Cycle Growth and Development Approach to Analyzing Entrepreneurship in China

Article excerpt

It has been long recognised that a critical contributor to economic growth and development in a country is private sector entrepreneurial activity (Schumpeter 1934, McLelland 1961, Kilby 1971 and Kirchhoff 1991). Consequently, there has been a large and growing body of research into the nature and characteristics of entrepreneurs and into the social, economic and political environments that promote or hinder entrepreneurial activity.1 This paper contributes to this literature by analysing small and medium-sized entrepreneurs in China. Specifically the paper addresses three questions: firstly, what are the characteristics of Chinese entrepreneurs; secondly, what are the problems faced by Chinese entrepreneurs as their business ventures develop and grow; and thirdly, what competencies are important for these entrepreneurs to remain successful as their businesses grow?

Literature review

The analysis of the development and growth of Chinese entrepreneurs in this paper is based on two aspects of entrepreneurial research-stages of development models and theories of firm competence-that are outlined below.

Stages of development models

Several models have been advanced that attempt to label and explain the various stages of development of entrepreneurial firms (Cowan, 1990; Galbraith, 1982; Smith, et. al., 1985). Models of organizational life cycles and stages of development provide information on the types of problems encountered by firms over time, and suggest that each stage of development (start-up, growth, maturity) is associated with a unique set of problems (Ackoff, 1963; Zapalska, 1997; Kazanjian, 1988; Kuratko, et. al., 1989). Several authors proposed different categorisations of organisational problems encountered by emerging entrepreneurial firms. The start-up stage is more often associated with problems related to the creation and development of products and services and to external problems-for example securing financial resources. Sales, marketing and organisational system problems, however, are more common in the growth stage of entrepreneurial firms in a capitalist economy.

This paper uses Kazanjian's four-stage life cycle model on entrepreneurial growth and development (Table 1). The four-stage life cycle approach enables the examination of the growth and development of the Chinese entrepreneurial firms in the context of an economy reforming from a centralized to a more decentralized way of resource allocation. The model examines problems confronted by Chinese entrepreneurial firms at their different levels of growth and development and measures how those problems differ from those problems that are encountered by the firms that operate within a market system of resources allocation.

Models of firm competence

Firm competence plays an important role in strategic management and in the success of businesses in general. A firm's competence is understood in terms of how it matches the basic requirements for success arising from the firm's external business environment, with its own skills and capabilities. Therefore, competence represents entrepreneurial skills and capabilities that can be applied toward strategic performance. These include financial, managerial, functional, and organisational skills and capabilities.

According to Andrews (1987), distinctive competence arises from strengths and weaknesses of individuals in the firm, the degree to which an individual's capability is effectively applied to a common task, and the coordination of a group to a particular task. In order to provide a wider definition of competence, Kay (1995) refers to four types of general competence that a firm may possess: architecture; reputation; innovation; and control of strategic assets. These are outlined in Table 2.

According to Bruderl et al (1990), if an entrepreneurial firm has limited competence it indicates that the firm lacks important contacts, credibility with buyers and other industry-specific information, and that this may increase the likelihood of failure in the early stages of the firm's development. …