How do you create a culture of entrepreneurship and enterprise development?

I have worked in enterprise development and support in a number of roles over the past 20 years.  One question that has always interested me is how can you create a culture that fosters entrepreneurship and enterprise development?  Having seen the Irish entrepreneurial culture develop, grow, bust and re-emerge and also by working with entrepreneurs from many cultures and consulting in countries like the Czech Republic, I have always been interested in the process of creating the culture behind the economic process.  This is a difficulty for many trained in economics as they have been inculcated in the neoclassical economic model which is underpinned by several assumptions such as culture, social interaction and motivations other than profit motive are isolated from the analysis, or ‘with all other factors being equal’.  However, culture does matter and very much affects how a society, country or region promotes a culture of entrepreneurship.  Some years ago I wrote a detailed literature review on enterprise and entrepreneurship and one of the areas I focused on was entrepreneurial culture.  So, this article will continue by setting the context in which this issue is being discussed with a literature review and will then move to a discussion on the practical policy implications.  In particular, I wish to emphasise that creating an entrepreneurial culture is best created by not trying to achieve a model of best practice or adopting someone else’s.  It is created by taking the broad free-market framework and adopting it to local circumstances.  It is created by accepting that one is engaging in a process that requires ongoing institutional and policy change as the city, region or country develops along the pathway to progress.  It is achieved by recognising that political leadership is important and a broad consensus of the path of development is necessary.  An independent and consistent legal system is a precursor to an entrepreneurial culture and creating a culture in which this process in enabled will take long-term policy commitment, and, in many cases, an evolution in the local culture as it changes to accept the culture of entrepreneurship within its traditional cultural norms.

Context

Can the US capitalist-market system be replicated in other cultures and can entrepreneurship have the same positive effect on developing and transitional countries as it does in the US and to a lesser extent Europe?  These are the questions that many policy makers have asked, especially since the fall of the Berlin Wall.  However, there are a number of questions that underpin this discussion.

What is culture, especially in relation to its effects on entrepreneurial culture?  According to George and Zahra (2002), ‘culture is used to refer to the enduring set of values of a nation, a region, or an organization.   Entrepreneurship is defined as the act and process by which societies, regions, organizations, or individuals identify and pursue business opportunities to create wealth’ (p5).  Thus, the manifestation of free-market economies are affected by the society and country/region in which it is embedded.  There have been 2 main frameworks developed for cross-cultural comparative studies; Hofstede’s four-dimensional model of culture and Kostova’s three-dimensional country institutional profile.  The most commonly cited framework for the analysis of culture is the four-dimensional model defined by Hofstede (1980, 1984).  Hofstede defined culture as ‘the collective mental programming of the people in an environment…it encompasses a number of people who were conditioned by the same education and life experiences…it is difficult to change; if it changes at all, it does so slowly’.  He further noted that ‘most counties inhabitants share a national characteristic that’s more clearly apparent to foreigners than to the nationals themselves; it represents the cultural mental programming that the nationals tend to have in common’ (2000, 43).  Hofstede defined four cultural dimensions to assist in analysing and comparing cultures; Power Distance, Uncertainty Avoidance, Individualism-Collectivism and Masculinity-Femininity.   

Power distance ‘is a measure of the interpersonal power or influence between [a boss and a subordinate] as perceived by the least powerful of the two, [the subordinate]’ (1984, 70-71).  Cultures with a high regard for authority and with a structured hierarchy are deemed to be ‘high power distance’ cultures (Japan, Korea), countries that are more democratic and meritocracies are deemed ‘low power distance’ cultures (United States, Ireland, New Zealand).

Uncertainty avoidance relates to how cultures address the inevitability of the uncertain future.  Some countries have a high tolerance for uncertainty like the United States and would have a ‘low uncertainty avoidance index’.  Other countries are very conservative and have a ‘high uncertainty avoidance index).

Individualism-Collectivism ‘describes the relationship between the individual and the collectivity which prevails in a given society…In some cultures, individualism is seen as a blessing and a source of well-being; in other, it is seen as alienating’ (1984, 148).  The United States has a highly individualistic culture and encourages the individual to excel.  Other countries have a more collectivist culture and encourage societal conformity (former Socialist countries and many Arab societies).

Masculinity-femininity refers to the balance of aggressiveness/nurturing in a society.  Hofstede noted that ‘anthropological, psychological and political science confirm the male assertiveness-female nurturance pattern [in society]’…male behaviour is associated with autonomy, aggression, exhibition and dominance; female behaviour with nurturance, affiliation, helpfulness, and humility’ (1984, 178).

An alternative analysis of cross-cultural entrepreneurship is the three-dimensional country institutional profile (Kostova, 1997).  The three dimensions are the regulatory dimension (laws, regulations and government policies), the cognitive dimension (knowledge and skills possessed by individuals within the country relating to establishing and operating a new business) and the normative dimension (whether a society admires and promotes entrepreneurship, wealth creation and innovation) (Busenitz, Gomez and Spencer, 2000).    It must be remembered when comparing different cultures that considerable care must be taken when interpreting comparative results.  Within every country or culture there is a wide variance in all these dimensions but they provide a framework for thinking about the application of concepts like democracy, free-market economics and capitalism in different countries and regions.  However, it does demonstrate that taking a concept like entrepreneurship from say North America and applying it in another region such as Africa or Central or Eastern Europe is not a straight forward process and must be localised in the society and region.

The next question that might logically arise is how can free-market economics be applied within a society?  It would seem reasonable that to create an entrepreneurial culture it is desirable to create a supportive environment for entrepreneurial orientation.  Mueller and Thomas (2000) noted that ‘our research suggests that it is equally important that there be a supportive culture to cultivate the mind and character of the potential entrepreneur.  To be motivated to act, potential entrepreneurs must perceive themselves as capable and psychologically equipped to face the challenges of a global competitive marketplace’ (p67).  However, creating a supportive environment is a holistic process and cannot be imposed on a society.  A number of specific factors have been identified as being associated with entrepreneurship and ‘some evidence exists that broad cultural characteristics are associated with national levels of entrepreneurship’ (Hayton, George and Zahra, 2002, 35).  Marino, Strandholm, Steensma and Weaver (2002) concluded that ‘acting entrepreneurially in an individualistic, masculine culture may be different from doing so in a collectivist, feminine society, and failure to account for this could result in mistakenly identifying one nation or culture as more “entrepreneurial” than another…which firm is the more innovative, proactive, and risk taking [is] relative to its national culture and social context’ (p157).  However, it must be remembered that culture and nation are not the same and there may be cultures that cross national boundaries and also that culture is itself a developing and ongoing process which is constantly changing.  ‘Several papers conclude that government policy aimed at promoting entrepreneurship or influencing relevant factors cannot be achieved in the short run, primarily because of cultural embeddings…In the short term policy should focus on information, skill development and opportunity recognition, which makes it easier for the entrepreneur himself to act…should focus on increasing human capital and upgrading technology.  This should be done with special attention to FDI and the promotion of enterprise development…it is important to start enterprise development policies with a long term mindset because…the main drivers are perceptual variables that are difficult to change’ (Acs and Szerb, 2007, 119-121).

Another question to ask is whether there is a difference between different types of economic activity?  There appears to be a clear difference on the level of economic growth between high-tech company formation and necessity-firm formation.  ‘High-tech, high-growth clusters in India, China, Taiwan, Ireland and Israel – to name a few – are powering economic growth far beyond these countries’ (Acs and Szerb, 2007, 116).  Agrawal (2001) did suggest that with regard to high-tech ventures and knowledge spillover from universities that ‘distance does matter, or at least region matters’ and citing his own previous research noted that the further in miles the distance between the university and the venture that there exists ‘a negative effect on the commercial success of licensed invention’ (p296).  Acs and Storey (2004) further discussed ‘the extent to which a geographical area is entrepreneurial.  Broadly, these factors were that urban areas where average firm size was small and which had experienced in-migration seemed more likely to have high rates of new firm formation…the so called “Melting Pot Index”  Thus, opportunity entrepreneurship tends to create economic growth and necessity entrepreneurship tends to employ people but not add significantly to economic growth.  However, in the search for policies to promote entrepreneurship, Acs and Szerb (2007) make the very important observation that ‘all of these approaches miss the essential point.  That ‘there is no such thing as “entrepreneurial policy” per se – only policy in an entrepreneurial economy’ (p112).

Finally, what role can institutions have in emerging economies?  Emerging economies are “low income, rapid-growth countries using economic liberalization as their primary engine of growth” (Zhu, Hitt and Tihanyi, 2006, 3; citing Hoskisson et al,2000).  ‘Governments in emerging economies often have considerable power in the resource allocation process.  As a result of the legacy of bureaucracy in planned economies, officials are likely to arbitrarily intervene in the markets to make specific resource allocations, thus creating unfair competition for firms.  Although these governments often try to emulate developed economies to establish market-supporting institutions, such institutions require time to develop…thus, during the transition periods, governments design, experiment, revise, and implement new policies as they gain feedback on the various economic and social institutions’ (Zhu, Hitt and Tihanyi, 2006, 5).  Thus, institutions have a role in creating a culture of entrepreneurship but it is very much affected by the quality of the institutions and the quality of the leadership within these institutions as to how smooth the influence is?

Policy implications

To come back to my original question on how can you create a culture that fosters entrepreneurship and enterprise development?  The first thing that comes to mind is an articles I read as an economics student back in the mid 1980’s and it was Dudley Seers (1967) discussion on the limitations of the special case.  Everybody looks at the success of the US model of free-market economics, innovation and capitalism and wants to replicate it.  Of course, the US system is the exception not the norm.  Its free-market institutions have taken over 200 years to develop, including its capital markets, stock markets and entrepreneurial culture.  An economic-policy fallacy has been to try and replicate an American institution in another culture and expect it to act and achieve in the same fashion.  How many people have tried to replicate Silicon Valley, ignoring the fact that Silicon Valley was created and has developed within a culture and set of institutional arrangements unique to the United States?  So here are a few observations on how you can work to create a more entrepreneurial culture:

• Culture matters: free markets, capitalism and even democracy are frameworks that get adopted and adapted by each culture.  Enterprises, markets and institutions are embedded in the societal, cultural, historical, legal and political roots of the society in which they operate.  Thus do not bring a model of entrepreneurship into a city, country or region but rather bring a framework that can be adopted and adapted into the local society and let a local model of entrepreneurship develop.
• Do not prejudge the outcomes.  Entrepreneurship and enterprise development is a process.  The following figure was taken from Acs (2010, 5) and outlines a stylised entrepreneurial development process.  The S-curve should be interpreted not as a single line but a series of points and the objective is to get from one point to the next.  Policy needs to constantly adapt and change as you move along the curve.
• Institutions also need to change and adapt as the process evolves.  Policy makers need to accept that as they move along the curve, the role, nature and actions of the agencies they run will need to constantly change.  Another key issue is the need to create confidence in the system by business and external investors
• Legal frameworks are critical.  One of the key underpinnings of free-market capitalism is the ability to have certainty in the process and the ability to legally enforce contracts.  An independent, properly constructed and consistent legal system is a precursor to creating an entrepreneurial culture and system
• Political leadership, vision and broad consensus is also critical to creating an entrepreneurial culture.  This requires a broad political agreement that this is where the majority of society wishes to move.  Changes in political parties should not change the direction of economic development although the path to achieve this may well change as different parties take different views on how to achieve the overall goal.  This requires political maturity and usually requires a significant leader to bring all sides together.  It also requires fiscal responsibility as the link between the size of the public sector and the ability of the economic system to raise the necessary level of taxation without overburdening the economic system will become more of an issue as the level of development increases.  Let us also be clear that government intervention is necessary but may change and reduce as economic development evolves
• People need to evolve their understanding of entrepreneurship and being in business.  There is a big difference between the idea of being self-employed and the reality of building a successful business.  People need to develop a more structured and informed thought process around enterprise.  This evolution has many contributors including national policy, the example set by private-sector and foreign-direct investors, the inculcation of entrepreneurship within the education system and not just at third-level but also the encouragement, attitudes and requirements of institutions and NGO’s working directly with entrepreneurs and nascent entrepreneurs.

I have a general contempt for models of best practice.  A model of best practice is created when someone with vision sees that the current system model is deficient, decides to ignore it, takes the resources at their disposal and develops a tailored solution to their circumstances, creates better outcomes and then the flock seeing the better outcomes adopt the new method as their new model of best practice.  I believe that creating an entrepreneurial culture is best created by not trying to achieve a model of best practice or adopting someone else’s.  It is created by taking the broad framework and adopting it to local circumstances.  It is created by accepting that one is engaging in a process that requires ongoing institutional and policy change as the city, region or country develops along the pathway to progress.  It is achieved by recognising that entrepreneurship is a personal process.  An entrepreneur is a person who can identify, assess, catalyse resources and execute a business model/plan.  Everybody will see the potential opportunities differently and creating a culture in which this process in enabled will take long-term policy commitment, and, in many cases, an evolution in the local culture as it changes to accept the culture of entrepreneurship within its traditional cultural norms.

References

Acs, Z,J (2010), ‘Entrepreneurship and economic development: the valley of backwardness’, ppXX-XX, ‘Annals of Innovation and  Entrepreneurship’, Vol. 1 (CoAction Publishing)

Acs Z,J & Storey, D,J (2004), ‘Introduction: entrepreneurship and economic development’, pp871-877, ‘Regional Studies’, Vol. 38, No. 8 (Carfax Publishing Company)

Acs, Z,j & Szerb, L (2007), ‘Entrepreneurship, economic growth and public policy’, pp109-122, Small Business Economics, Vol. 28 (Springer Science and Business Media BV)

Busenitz, L,W, Fomez, C, and Spencer, J.W (2000), ‘Country Institutional Profiles: unlocking entrepreneurial phenomena’, pp994-1003, Academy of Management Journal, Vol.43 No. 5 (Academy of Management)

George, G & Zahra, S,A (2002), ‘Culture and its consequences for entrepreneurship’, pp5-8, Entrepreneurship Theory and Practice, Summer 2002 Baylor University and Blackwell Publishing Limited)

Hayton, J,C, George, G & Zahra, S,A (2002), ‘National culture and entrepreneurship: a review of behavioural research’, pp33-52, Entrepreneurship Theory and Practice, Summer (Baylor University and Blackwell Publishing Limited)

Hofstede, G (1980), ‘Motivation, leadership, and organizations: do American theories apply abroad?’ pp42-63, Organizational Dynamics, Summer (Elsevier Science Publishing Company)

Hofstede, G (1984), ‘Cultures consequences, international differences in work-related values’ (Sage Publishing, California)

Kostova, T (1997), ‘Country institutional profiles: concept and measurement’ pp180,189, Academy of Management Best Paper Proceedings

Marino, L, Strandholm, K, Steensma, H,K & Weaver, K,M (2002), ‘The moderating effect of national culture on the relationship between entrepreneurial orientation and strategic alliance portfolio extensiveness’ pp145-160, Entrepreneurship Theory and Practice, Summer 2002, (Baylor University and Blackwell Publishing Inc.)

Mueller, S,L & Thomas, A,S (2000), ‘Culture and entrepreneurial potential: a nine country study of locus of control and innovativeness’, pp51-75, Journal of Business Venturing, Vol. 16 (Elsevier Scientific Inc, New York)

Seers. D (1967), ‘The limitations of the special case’ in Martin, K & Knapp, J, ‘Teaching of Development Economics’ (Frank Cass & Co, London)

Zhu, H, Hitt, M,A, Tihanyi, L (2006), ‘The internationalization of SMEs in emerging economies: institutional embeddedness and absorptive capacities’, pp1-26, Journal of Small Business Strategy, Vol. 17, No. 2

About Dr. Ken Germaine

Ken Germaine is a self-employed entrepreneur, management consultant, business advisor, trainer, academic and mentor.  Ken focuses on business planning and helps entrepreneurs and social entrepreneurs to assess the viability of, start and develop their new ventures.  He worked as an Enterprise Officer with a local development organisation in the late 1990’s and then spent 10 years as CEO of an Enterprise Centre.  He ran his own business when leaving college from 1991 to 1997 and has been a self-employed consultant since February 2010.  He has written books on business planning and selling for entrepreneurs and writes the start your own business blog (http://startyourownbusienssblog.wordpress.com).  Ken holds a B.A. (Hons) in politics and economics, as well as, an M.A. in political science from University College Dublin (UCD) and a PhD from Trinity College Dublin within economic geography.  He is a fellow and past President of the Institute of Management Consultants and Advisers (www.imca.ie) and is an associate lecturer in NUI Maynooth’s Business School.  More information can be gained from: http://kengermaine.wordpress.com