Explaining Individual Entrepreneurial Orientation: Conceptualization of a Cross-Cultural Research Framework PDF

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Explaining individual entrepreneurial orientation: Conceptualization of a cross-cultural research framework By Prof. Dr. Tobias Kollmann, University of Duisburg-Essen, Germany; Julia Christofor, University of Kiel, Germany; Dr. Andreas Kuckertz, University of Duisburg-Essen, Germany* *This paper has...

Description

Explaining

individual

entrepreneurial

orientation:

Conceptualization of a cross-cultural research framework

By

Prof. Dr. Tobias Kollmann, University of Duisburg-Essen, Germany; Julia Christofor, University of Kiel, Germany; Dr. Andreas Kuckertz, University of Duisburg-Essen, Germany*

*

This paper has significantly benefited from discussions with seminar participants at the Multimedia Campus Kiel, i.e. Emmanouil Papadakis, Kristaps Zeibarts, Li Tongjie, Matthias Haesel, and Xiyu Chen. Cite as T. Kollmann, J. Christofor & A. Kuckertz (2007): Explaining individual entrepreneurial orientation – conceptualization of a cross-cultural research framework. International Journal of Entrepreneurship and Small Business. 4 (3): 325–340.

Abstract The entrepreneur can be viewed as the source that implements his entrepreneurial capabilities to recognize, pursue and successfully exploit viable business opportunities. However, it is at the beginning of the entrepreneurial process, that the pre-nascent entrepreneur is confronted with various influences from his environment. Moreover, there is knowledge lacking as to what affects entrepreneurs in different environments or countries to what degrees. This paper aims at conceptualizing a research framework based on the Entrepreneurial Orientation (EO) construct and transferring this construct to the individual level. By this insights into influencing factors of entrepreneurial individuals operating in different countries become possible. The factors in the environment of a pre-nascent entrepreneur discussed are culture, politics/ law, macroeconomic and micro-economic influences.

Ke yw or ds:

I nt e r na t iona l

Ent r e pr e ne ur sh ip,

Ent r e pr e ne ur ia l

Or ie nt a t ion,

Pr e -

N a sce nt Ent r e pr e ne ur , Ent r e pr e ne ur ia l Envir onm e n t

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Explaining Entrepreneurial Orientation

“(E)ntrepreneurs and their firms vary widely; the actions they take or do not take and the environments they operate in and respond to are equally diverse - and all these elements form complex and unique combinations in the creation of each new venture.” (Gartner, 1985: 697)

I.

Introduction

As the global competitiveness of nations increases, new entrepreneurial ventures are viewed as a source of innovation and accelerator of national economic growth (Reynolds, 1997; Schumpeter, 1934). The reason for this is an increase in entrepreneurship, which can be closely linked to new employment opportunities, economic development and enhanced national competitiveness, mainly due to the abilities of new ventures to generate, apply and proliferate innovative ideas in turn creating new demand (Arzeni, 1998; Mitchell, Seawright and Morse, 2000). Several studies contest to accelerated economic growth in connection to reinforced entrepreneurial activities (Acs, 1992; Oviatt and McDougall, 1994; Storey, 1994; Busenitz, Gomez and Spencer, 2000). However, the rates of economic growth differ strongly - the impact of entrepreneurship in the United States and Great Britain (Casson, 1990; Storey, 1994) differs from that in planned economies (Chow and Fung, 1996). But researchers indicate that there is still limited knowledge about the reasons behind the varying entrepreneurship rates in different countries, and as to why certain types of new companies and ideas are more successful in some countries than in others (Busenitz, Gomez and Spencer, 2000). Widespread explanations for the influencing factors of entrepreneurial activity within cultures can be found in the fields of anthropology, economics, psychology and

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Explaining Entrepreneurial Orientation

sociology (Dana, Etemad and Wright, 1999; Shane, 1996) but few studies have taken a closer look at entrepreneurs across cultures (McDougall and Oviatt, 1997). We concentrate on the entrepreneur himself1, who is regarded as the actual source of innovation. His ability to see a viable business opportunity is what leads to the creation of a new venture which in turn influences the community s/he is active in (Kirzner, 1973). The make-up of the initial recognition, evaluation and development of successful opportunities is a key part in entrepreneurship research to better understand the new venture creation process (Ventkataraman, 1997; Stevenson, Roberts and Grousbeck, 1985). This paper focuses on the beginning of the entrepreneurial process, on the influencing factors that lead an entrepreneur to decide to become an entrepreneur. For this we transfer the entrepreneurial orientation (EO) construct from the firm level (Lumpkin and Dess, 1996) to the individual level of analysis. Based on the EO construct a conceptual model to measure the influences on the entrepreneur from a cultural, political/ legal, macro-economic and micro-economic perspective will be developed. This knowledge of the differences in EO can give valuable indications to policy makers but also to educators in schools and universities and to companies, wishing to stimulate entrepreneurial traits and behavior in their employees. Mitchell, Seawright and Morse (2000: 975) contest that “(a) clear understanding of factors affecting the venture creation

1

Throughout this paper we refer to the entrepreneur in the male form pertaining to an individual or human being and not solely to male entrepreneurs. 4

Explaining Entrepreneurial Orientation

decision across cultures would be important to policy makers (showing them what to encourage), to practitioners (what to do better) and to researchers (what to clarify).” In Germany, for example, 3.5 % of the adult population are nascent entrepreneursranked as 17th among 31 countries. The total entrepreneurial activity measures 5.2 %, implying that 5.2 % of the adult population has just or is planning to found a new venture. In addition, the majority of these founders in Germany are opportunity founders with a viable business idea rather than founders out of necessity. However, Germans are, in an international comparison, risk averse, have a rather pessimistic attitude towards founding opportunities and are afraid of failure (Sternberg et al., 2004). With these facts in mind, research on entrepreneurial orientation in Germany in comparison to other countries can add to insights on countermeasures and on how to improve the founding environments. Moreover, with regards to high expectation entrepreneurial activity, i.e. new ventures expected to employ at least 20 employees in the first five years, the highest rate is measured in the USA (1.6% of adult population), while Germany’s rate is about almost half at about 0.7% (Autio, 2005). In this case, it is also the task of policy makers to adjust the founding circumstances, which especially contribute to high growth ventures. The remainder of the paper is divided into the following sections. First, the concepts prevailing to pre-nascent entrepreneurs in connection to entrepreneurial opportunity recognition will be described. Following this, the EO construct is introduced and applied to the level of the individual. In the subsequent section, a conceptional framework of influencing factors on EO in the entrepreneurial environment is described. Finally, 5

Explaining Entrepreneurial Orientation

further research directions for the framework are discussed and a preliminary conclusion is presented.

II.

Background

Traditionally, entrepreneurship is defined as the founding of a new organization, however, over the years, several approaches to research in entrepreneurship emerged trying to explain the complex phenomenon from different perspectives. The creation of new ventures has been analyzed from an individual level (McClelland, 1976), from the perspective of the environment (Bloodgood, Sapienza and Carsrud, 1995) and, finally, also on the firm level itself (Covin and Slevin, 1991). However, researchers such as Gartner (1985) argue that entrepreneurship must be characterized in a multidimensional framework, as the influencing factors can only be sufficiently explained in accordance to other determinants. Gartner characterized entrepreneurship into four dimensions: the individual (the persons involved in starting the organization), the process (the actions undertaken by the individuals to start the new venture), the organization itself (the kind of firm started) and the environment in which the organization is active (the situation involving and influencing the new organization). With this framework Gartner joins other scholars such as Low and Macmillan (1988) in the contention that a) research in new venture creation is a highly heterogeneous field and therefore difficult to characterize without a classification scheme and b) to fully understand the complex venture creation process and its’ influencing factors multidimensional thinking is indispensable. The aim of this section is to give insight into research which is tangent to the entrepreneurial decision process, moreover, the 6

Explaining Entrepreneurial Orientation

opportunity recognition research stream. This includes research on the entrepreneur as an individual and also that of entrepreneurial attitude. Considering the definition of the venture creation process according to Bygrave and Hofer (1991), which involves all functions, activities and actions associated with the perception of opportunities and the creation of organizations to pursue these opportunities, the major role of the entrepreneur on an individual level becomes clear, as s/he is the one who recognizes the business opportunities and eventually decides to exploit a business opportunity. Moreover, the distinctions of an entrepreneurial individual from a non-entrepreneurial individual are also a focus when concentrating on the beginning of the entrepreneurial process. The main function of the entrepreneur is to act as an “agent of change in an otherwise repetitive social economy” (Dana, Etemad and Wright, 1999: 6). It is this aptitude of perception of identifying a disequilibrium, without the actual need of creating it, which is the source of opportunity recognition (Kirzner, 1973). It is a set of distinctive abilities, knowledge, but also attitudes that entrepreneurs versus non-entrepreneurs must posses to be able to see opportunities which others do not and to envision future gaps that others are not aware of. Early research in Entrepreneurship started by looking at the psychological traits to better understand the beginning or preliminary part of the entrepreneurial process. The “entrepreneurial personality” of successful founders was found to have characteristics such as high ambition drive, tolerance for uncertainty, risk orientation but also included demographic data such as birth order, gender, height, education, etc. (Aldrich, 1990; 7

Explaining Entrepreneurial Orientation

Carsrud and Johnson, 1989; McClelland, 1976; Johnson, 1990; Hisrich and Brush, 1986). However, the personality traits alone were not sufficient to explain the decision to found a business, as other influences, such as the environment or the type of organization started, were neglected. Furthermore, the stream of entrepreneurship research on an individual level was also criticized for its’ methodological weaknesses, lacking discriminant and convergent validity (Robinson et al., 1991; Gartner, 1988). However, other researchers tend to disagree. Gaglio and Katz (2001) do not see fundamental differences between entrepreneurs and non-entrepreneurs, criticizing consisting theories for their methodologies regarding opportunity identification, while Keh et al. (2002) attain that there is a fundamental difference in the cognitive thinking processes of entrepreneurs when evaluating the opportunity. Other researchers state, that the decision to exploit is a matter of entrepreneurial attitude of the individual. This means that entrepreneurs at the beginning of the entrepreneurial process can be distinguished from others based on a set of emotions, cognitions and a certain innate pattern of behaviour. Based on a line of entrepreneurial opportunity recognition scholars (Breckler, 1984; Epstein, 1984; Khandwalla, 1977; Miller and Friesen 1983) Robinson et al. (1991) developed a measure of “entrepreneurial attitude orientation” positioned in the field of social psychology. Here the attitude is composed of three factors: behaviour, belief and emotion. This implies the behavior of an individual towards a particular environmental stimulus, the way the person thinks about this same environmental stimulus and thirdly, what the individual thinks about the same environmental stimulus. The items Robinson et al. (1991) used to measure entrepreneurial attitude are achievement, perceived control, self-esteem and 8

Explaining Entrepreneurial Orientation

the degree of innovation of the opportunity (McCline, Bhat and Baj, 2000). However, although methodological validation was fulfilled by distinguishing between entrepreneurs and non-entrepreneurs, opportunity recognition and risk perception were omitted. Covin and Slevin (1989), on the other hand, included these two measures; however they operationalized the entrepreneurial process and concentrated on predicted behavior tendencies of the entrepreneurs and not so much on their attitude. Shane (2003) explains the difference between people who exploit opportunities and others who do not on an individual level. He argues that pure sociological research (Carroll and Hannan, 2000) is too one-sided and does not grasp the important influence of human side factors. According to Shane opportunity exploitation depends on nonindividual and individual factors. Mainly, these are on a non-individual level: the nature of the opportunity, the industry, institutional environment and, on an individual-level, psychological and non-psychological factors. His arguments for this division base on the fact that entrepreneurs and non-entrepreneurs are fundamentally different in sociological but also in psychological aspects. Non-Psychological characteristics are education, career experience, age and social position, income, unemployment and the family situation but also opportunity cost for an alternate use of time (Ventkataraman, 1997). Human motivation, core evaluation and cognition in opportunity discovery, willingness to exploit an opportunity, the process of resource acquisition and designing strategies and organizations are considered as psychological factors. Essentially, it is the value of the opportunity for an individual that is the determinant for the actual exploitation.

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Explaining Entrepreneurial Orientation

The global entrepreneurship monitor report on high-expectation entrepreneurship (Autio, 2005) states that it is especially high household income, high education level and opportunity motivation, which influence high-growth ventures. These factors can, under certain circumstances, have a greater influence than economic factors pertaining to the entrepreneurial decision.

III.

The Entrepreneurial Orientation Construct

This paper is motivated by a general epistemological interest in why people act and behave entrepreneurially. To approach the issue of why EO across different cultural settings seems to vary to such a large extent, we attempt to apply the construct of EO. This is a common construct utilized to measure the attitude towards entrepreneurship. EO is what drives entrepreneurial action which is typically modelled in form of processes (Bhave, 1994; Gartner, 1985). While there might in fact be a universal process (although there is still a widespread disagreement within the scientific community regarding such a theoretical meta-process), researchers in most cases split the entrepreneurial process for analytical reasons into several sub-processes. That is, for instance, the process of opportunity recognition (Timmons et al., 1987), the process of obtaining legitimacy for the venture, which has to be accomplished due to the liabilities of newness of the firm (Stinchcombe, 1965), or the process of acquiring resources, especially financial capital (Smith and Smith, 2004). Wiklund and Shepherd (2003) have, for exampled, analyzed the impact of EO as a positive force on the relationship of knowledge-based resources, which are needed for the discovery and exploitation of opportunities and firm performance. In other words, the 10

Explaining Entrepreneurial Orientation

authors argue that EO can determine the way a firm is organized, and therefore lead to higher performance because the knowledge-based resources can be implemented to further augment the competitive advantage. The empirical results of this study confirm that there is a moderating role of EO in enhancing firm performance. Consequently, there is a connection between a firm’s propensity to be innovative, proactive and risktaking and the deployment of knowledge-based resources leading to higher firm performance. Moreover, there might be such a connection on the individual level as well with regards to a human being exploiting his knowledge-based resources to make a successful decision to become an entrepreneur. Additionally, Blesa and Ripollés (2005) have proven that the personal networks of the entrepreneur, and, in particular, the information gained from these networks have a positive impact on EO and with this on new firm growth. Furthermore, Jantunen et al. (2005) have in their research determined that EO, along with dynamic capabilities of a firm, has a positive impact on international performance. This implies that entrepreneurial firms applying their resources and capabilities to seize opportunities abroad perform better than firms without EO attributes. They argue that it is EO, which also firms to reconfigure their existing assets and processes in order to exploit international activities. Originally developed in order to analyze entrepreneurial companies on the firm level and usually used in that manner, the construct has proven to be applicable to the societal level as well (Lee and Peterson, 2000). Herein, we aim at the application of this construct to the realm of the individual. The characteristic factors of entrepreneurial decision making within a firm and the hereto linked strategy decision to new market 11

Explaining Entrepreneurial Orientation

entry can, in our opinion, also be applied on an individual level. Hereby, the potential entrepreneur is attributed to have entrepreneurial behaviour characteristics and the strategic decision is aligned to the decision to become self-employed. As the discovery of entrepreneurial opportunity and the decision takes place on an individual level (Shane, 2003), we will further analyze the entrepreneur on an individual level. Furthermore, since the EO construct also considers the environment of an organization and therefore reflects on the culture, we, in the following section, aim to explain to what extent EO affects certain individuals in certain environments, countries and cultures to exploit opportunities while others do not. EO can be differentiated into five key aspects: First, it may be assumed that an individual striving for a high degree of autonomy in his life is more likely to act entrepreneurially. Second, an individual’s attitude towards innovation determines entrepreneurial behaviour as well, while third, the propensity towards risk is likely to affect EO. Rather than letting opportunities lie idle, entrepreneurs aim at exploiting business opportunities, which is why proactiveness constitutes the fourth aspect of EO. And last, competitive aggressiveness – an aspect which is to some extent comparable to McClelland’s (1976) well-known “need for achievement” – also influences an individual’s EO. Applying a theoretical construct to a field for which it has not been originally developed comes along with its own pitfalls. However, there ar...