The impact of personal and environmental factors on entrepreneurship

Table of Contents

Abstract

Table of Figures

1 Literature Review

2 Challenges of Defining Entrepreneurship
2.1 Different Approaches of Entrepreneurial Research
2.2 An Attempt to Define Entrepreneurship

3 The Impact of Personal Factors in the Venture Creation Process
3.1 Personal Traits of Entrepreneurship
3.2 Individual Situational Variables
3.3 The Role of Experience in the Venture Creation Process
3.4 The Role of Gender Differences in the Venture Creation Process

4 The Impact of Culture on the Individual in the Venture Creation Process
4.1 The Four Primary Cultural Dimensions of Hofstede
4.2 Application of Hofstede’s Cultural Dimensions in Entrepreneurial Research

5 The Meaning of Environmental Support
5.1 Six Sources of Environmental Support

6 The Venture Creation Process
6.1 Components of the Venture Creation Process
6.2 The Individual in the Venture Creation Process
6.3 The Role of Networking in the Venture Creation Process
6.4 The Impact of Culture on Environmental Support

7 Conclusion

Appendix A

Works cited

Table of Figures

Figure 1: Outline of the Structure for this Thesis Paper

Figure 2: Individual Dimensions of Entrepreneurship

Figure 3: The Impact of Culture on Entrepreneurial Traits

Figure 4: Correlation between Individual Situational Variables and Entrepreneurship

Figure 5: Cultural Influences on Personal Factors

Figure 6: Six Dimensions of Environmental Support

Figure 7: A Model of the Venture Creation Process

Figure 8: Self-Efficacy as the Result of Various Combinations of Personal Factors

1 Literature Review

In order to develop a conceptual framework aimed at explaining the venture creation process I first studied 300 abstracts from management journals including the International Small Business Journal, Entrepreneurship: Theory and Practice, the Journal of Management, the Journal of Small Business Management, Journal of Development Studies, the Academy of Management Journal, and the Journal of International Business Studies. These 300 abstracts were selected solely on the basis of entrepreneurial content. As my primary goal was to examine various factors that are of importance in the venture creation process, I selected pertinent journal articles to study the impact of individual and environmental factors on the creation of a new venture.

Some of these articles refer back to the works Hofstede (1980) who examined how values in the workplace are influenced by culture. In order to explain the role of culture in the venture creation process, I integrated the works of Hofstede (1980) in this thesis paper, too.

Appendix A includes a chart with a short description of the references cited in this thesis paper. When referring to one of these references I will briefly describe the research question and focus on those findings that are of relevance to the conceptual framework introduced in my thesis paper.

2 Challenges of Defining Entrepreneurship

This thesis paper is aimed at describing and evaluating the impact of various factors on entrepreneurship. However, before evaluating these factors the term entrepreneurship has to be defined in the first place. It is generally suggested that despite great interest and intensive research in the field of entrepreneurship, a common definition of entrepreneurship has not been reached (Davidsson, Low & Wright, 2001; Low, 2001). Davidsson et al. (2001) argue that research will remain vulnerable if entrepreneurial research continues to cover an extremely broad range of issues referred to as a “potpourri”. Also, knowledge about entrepreneurship will grow faster only if carried out within a clear and distinctive domain. The authors require that journal editors and conference organizers agree on a set of determined standards in order to avoid the misuse of the term entrepreneurship. Yet, given the current variety of professional journals and articles on entrepreneurship it is very unlikely to achieve agreement among journal editors on a single definition of entrepreneurship.

As no common definition has been reached yet, I now turn to a discussion by Low (2001), who approached the field of entrepreneurship from four different perspectives. I am referring to these four perspectives mainly for the following reason. In sum, these four perspectives portray the full range of entrepreneurship research allowing me to select a suitable definition of entrepreneurship for the purpose of this paper in a second step.

2.1 Different Approaches of Entrepreneurial Research

One approach, strongly influenced by the fact that Low (2001) is the founder of the Entrepreneurship Program at Columbia Business School, greatly emphasizes the fact that entrepreneurship research is primarily aimed at facilitating new ventures instead of explaining them. If entrepreneurship research is to facilitate new ventures then its major concern is to support potential entrepreneurship by providing “practical concepts, tools, and advice on important topics such as business plans, intellectual property, financing, human resources, networking, advisory boards, new technologies, etc.” (19). Educational institutions are to offer educational programs that help to develop skills necessary for starting a new venture.

The second approach of entrepreneurship research deals with the question of defining the field of entrepreneurship so that it becomes a distinctive domain. This approach complies with the demand of critics for a more narrow definition of entrepreneurship as mentioned earlier. Proponents of this approach believe that creating a distinctive domain would result in improved progress in research efforts. In order to become a distinctive domain, the field of entrepreneurship has to explain phenomena not explained by any other disciplines. However, given the current state of affairs where a clear definition has not been reached, this approach is not likely to be accomplished in the nearby future. With regard to the studies I examined for this thesis paper it does not seem appropriate to artificially narrow the definition given the variety and inconsistency within entrepreneurship research.

Low (2001) states, that currently, entrepreneurship research is not exclusively used for economic purpose. In this third approach, entrepreneurship research is considered to be a phenomenon that is of great interest to multiple disciplines. For instance, disciplines other than economics are attracted by entrepreneurship research. Evidence for this approach is provided by showing that entrepreneurship-oriented articles have been often published in non-entrepreneurial journals and that most of the authors of these articles have their primary roots in areas other than entrepreneurship. Clearly, this approach adds to the diversity of the subject which has been criticised due to its negative effects on the progress of research efforts. It offers a useful explanation as to why agreement on one definition has not been reached yet.

The final approach described by Low (2001) suggests that the boundaries of entrepreneurship research are vague. To prove this, Low (2001) and one of his graduate students evaluated 131 articles about entrepreneurship looking for both content related similarities and differences. This study was mainly aimed at categorizing these 131 articles and at obtaining further knowledge about the possible existence of a common definition on entrepreneurship. In sum, the study revealed, that in order to categorize all of these 131 articles on entrepreneurship, a matrix, consisting of 120 cells, was needed to portray all of the 131 articles thus providing evidence about the diverse nature of the field of entrepreneurship research.

As acknowledged by Low (2001), boundaries of entrepreneurial research are likely to remain vague and imprecise when following this approach. However, a major advantage appears to be that “perhaps not perfect, it creates an environment of freedom of academic expression and encourages the recruitment of new talent” (21).

To conclude, as the field of entrepreneurship research lacks a clear definition, it is appropriate to select a broad definition that best embraces this current trend and that is aimed at capturing the variety of issues that entrepreneurship research focuses on. The following section describes the definition of entrepreneurship that I have chosen for the purpose of this paper.

2.2 An Attempt to Define Entrepreneurship

As demonstrated above, Low’s (2001) four approaches provide a comprehensive view on entrepreneurship as a research field. Due to the fact that there is no agreement on one universal definition of entrepreneurship I will use and, for the purpose of this paper, modify a definition that best reflects the “catchall” trend in entrepreneurial research.

Low & MacMillan (1988) define entrepreneurship as the “creation of new enterprises” (141). This definition captures the current diversity of entrepreneurship research because it includes all types of new ventures regardless of the underlying business (innovative versus traditional, legal form, ownership, form of financing of the new venture etc.). Thus, despite the fact that this definition has been developed more than 15 years ago, it still reflects the diverse nature of modern entrepreneurial research. However, it is debatable what is meant by the term “new” in this definition. Any determination on the number of years that try to classify a company as being either “new”, “young” or “old” would be somewhat arbitrary. Besides, a definition of what is considered to be new would have to vary between fast moving industries such as information technology and slowly moving industries such as retail. Given the fact that there is no consensus on what classifies a “new” company, I will focus only on aspects that lead to a new enterprise. All aspects of managing a new venture once the company has been established are excluded and not covered by this thesis paper. In modification to the mentioned definition on entrepreneurship this paper focuses on the creation of a new venture from an individual’s point of view thus confining the suggested definition and excluding the creation of a new venture by an established company.

Thus, the major goal of this paper is to develop a theoretical framework including relevant personal and environmental factors that are believed to account for entrepreneurship as defined as the creation of new enterprises. As I studied about 300 abstracts with entrepreneurial content for the purpose of my paper, I identified and selected articles from the broad entrepreneurship literature that best support my variables of interest. From a review of these articles I created a theoretical framework showing the relations of these variables and outlining the venture creation decision in dependence of these variables.

3 The Impact of Personal Factors in the Venture Creation Process

In accordance with the definition of entrepreneurship as the creation of a new enterprise, this paper is aimed at examining various factors that are believed to influence the venture creation decision. As the individual plays the central role in the venture creation process I will first focus on personal factors. The reason for doing so is that eventually the individual might decide not to start a new business despite favorable conditions. In this chapter, I will describe three relevant dimensions of personal factors that are believed to impact the venture creation decisions. These three dimensions include traits, situation and experience as depicted by Figure 2.

Figure 2: Individual Dimensions of Entrepreneurship

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Note that the terms listed above are not to be meant exhaustive. The major purpose of Figure 2 is to show that when exploring the role of the individual in the venture creation process all three factors, traits, situation, and experience are to be examined. Hence, when evaluating the individual’s role in the venture creation process, a number of different aspects have to be explored. The first issue, traits, deals with personal characteristics of potential entrepreneurs. What are characteristics commonly associated with entrepreneurship? Are there any signs that these characteristics are shaped by one’s culture? Secondly, are there any individual situational variables of importance and, if so, what is their impact on the individual in the venture creation process? Finally, the role of education and experience will be exemplified. It will be acknowledged that the individual may obtain knowledge, skills and abilities necessary to start a new venture through various types of experience. Before analyzing the meaning of situational variables and the role of experience, I will first comment on personal traits that are commonly associated with entrepreneurship.

3.1 Personal Traits of Entrepreneurship

My goal for this chapter of my thesis paper is to cite empirical evidence about the existence of entrepreneurial traits. Secondly, as entrepreneurship always takes place within a cultural context, I will also discuss the influence of culture on entrepreneurial traits.

One of the most comprehensive studies about entrepreneurial traits and the impact of culture was conducted by Thomas & Mueller (2000). In this study, culture measures were derived from the work of Hofstede (1980) which will be discussed in detail in Chapter 4.1. The study by Thomas & Mueller (2000) describes the four entrepreneurial traits, innovation, risk-propensity, internal locus of control, and energy level, and the appearance of these traits on a multicultural perspective. There are two reasons why I selected this study over others to support my framework. First, despite the fact that these four traits do not represent a comprehensive list of entrepreneurial traits, they do “appear repeatedly in economics, psychology, sociology, and entrepreneurship research and are representative of the personal characteristics necessary to meet the tasks and challenges of new venture creation" (291). Secondly, as these four traits were systematically examined with regard to different countries, the study shows whether or not entrepreneurial attributes are independent from cultural influences.

Innovation is considered to be a trait that is aimed at exploiting market opportunities. As such, entrepreneurs are characterized by a need to explore the market for market niches. The second trait, risk propensity, deals with the fact that starting a new business always involves some kind of risk. There is no guarantee that resources that have been committed can be withdrawn or will necessarily generate desired profits. Another closely related concept to risk propensity is tolerance of ambiguity. Starting a new business, as opposed to employment for an established organization, is associated with a greater amount of personal financial risk. The third trait, internal locus of control, describes the degree to which individuals believe that their efforts have a direct and significant impact on the outcomes. In contrast, individuals having an external locus of control tend to believe that external factors are primarily responsible for the outcomes. A high energy level, the fourth and final trait, would indicate that entrepreneurs are working the long hours generally associated with the venture creation process.

A total of 1800 respondents provided data for this study. Those 1800 respondents were students either in the third or fourth year of college and thus likely to graduate in the near future. The students chosen for this study were studying business, economics, or engineering. These three subjects were chosen because potential entrepreneurs tend to select these majors in college. One reason to choose students instead of actual entrepreneurs was accessibility. Students were easily accessible through the institutions they were enrolled in. Entrepreneurs themselves would not have been as easily accessible since some countries do not even keep a record of business startups and, in some cases, entrepreneurs never register their newly started company. To choose potential entrepreneurs instead of actively practicing entrepreneurs is definitely a limitation of this study. However, due to the homogeneity of the participants in the study – only students with similar academic backgrounds were chosen – the results of the study suggest that observed differences among entrepreneurial traits are caused by different cultural values rather then differences in the composition of the participants. The countries studied included the United States of America, Singapore, Croatia, Slovenia, Canada, Ireland, Belgium, Germany, and China.

The results of the study indicate that the amount of innovativeness did not differ significantly across cultures. In other words, innovativeness did not vary systematically with cultural differences. With regard to the second trait, internal locus of control, the United States respondents scored the highest and, as cultural distance from the United States increased, locus of control decreased. One explanation is that individuals in more collectivistic countries may believe that the group, rather than the individual, is responsible for outcomes and, therefore, more likely to have an external locus of control. With regard to risk taking propensity the results varied across different countries, too. According to the authors this can be traced back to the uncertainty avoidance dimension of Hofstede (1980). Countries that score high on uncertainty avoidance are generally risk adverse. Furthermore, the final trait, energy level, decreased as cultural distance from the United States increased, too.

The study revealed three aspects that are of importance to the theoretical framework that I will introduce in Chapter 6. First of all, all four entrepreneurial traits were observed in the examined countries. Secondly, only innovation appeared not to be influenced by culture as innovation scores did not differ significantly in all studied countries. As defined earlier, innovation requires market opportunities to be exploited. With regard to this entrepreneurial trait no differences among potential entrepreneurs were found. Thus, the challenge to find and exploit market opportunities is faced by all people striving to create a new venture regardless of cultural settings. The other three traits, risk taking propensity, internal locus of control, and energy level scored lower in countries with a lower score on individualism and a higher score on uncertainty avoidance. Figure 3 shows the findings of the study by Thomas & Mueller (2000).

Figure 3: The Impact of Culture on Entrepreneurial Traits

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Further support about the existence of entrepreneurial traits was provided by Stewart, Carland, Carland, Watson, and Sweo (2003). Two countries, the United States of America and Russia, were examined in this study. A supplementary variable, entrepreneurial goal orientation was chosen to examine if goal orientation influences entrepreneurial traits. A survey involving business students from both countries was conducted leading to a total of 518 valid responses. Since the authors conducted their study in a similar way to Thomas & Mueller (2000), that is, only students were chosen to participate in the study, the results of both studies are comparable with regard to the effect of different cultural values on entrepreneurial traits. The results provide evidence that preferences for innovation did not differ between the United States and Russian respondents. Even differences in entrepreneurial goal orientation, whether one seeks high growth or strives for stability, had no influence on preferences for innovation. Again, this indicates that innovation appears to be a global entrepreneurial trait. Risk taking propensity was found to be particularly high among entrepreneurs from the United States of America. This is consistent with the findings of Thomas & Mueller (2000) in which risk taking propensity was positively related to a country’s score on individualism. Both studies imply that when assessing entrepreneurial traits, culture does play a crucial role in the venture creation process.

In sum, both studies suggest that entrepreneurial traits are at least partially dependent on cultural values. Consequently, the framework that I will be introducing in this thesis paper includes culture as a major component. However, as personal traits alone cannot account for the venture creation decision, another group of personal factors, individual situational variables, has to be included, too. I now turn to a discussion of these variables.

3.2 Individual Situational Variables

The two aforementioned studies focused on the effect of culture on personal traits. It is true that one’s personality is an important factor in the venture creation process. However, personality is only one factor contributing to one’s decision to start a new venture. For example, one may have a risk taking personality but if he or she lacks resources, the new venture will be thwarted. That is why a second group of personal factors, individual situational variables, has to be introduced. Individual situational variables are of importance in the venture creation process as they shape an individual’s perception of the attractiveness of a business start up. In this chapter I am going to refer to empirical evidence showing that the decision to become self- employed will be directly related to five individual situational variables. In preparation for this chapter of my thesis paper, I selected a study conducted by Eisenhauer (1995).

First it has to be noted that the author uses the terms self-employment and entrepreneurship interchangeably. His primary goal was to assess the impact of various situational variables on one’s decision to start a new venture. Therefore, the study conducted by Eisenhauer (1995) offers a useful explanation when determining the role of individual situational variables in the venture creation process for the purpose of my thesis paper. The study has one major advantage and one major disadvantage. The advantage is that data was collected over a period of 33 years, between 1959 through 1991, and thus enhances the explanatory power of the study. However, Eisenhauer (1995) conducted the survey only within the United States of America. No conclusion can be drawn as to whether or not culture acts as a moderator in the relationship between individual situational variables and the decision to start a new venture. All in all, the author assessed seven independent variables which were thought to have a direct impact on the decision to create one’s own venture:

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