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International Entrepreneurs and National Culture
Paul Herbig
Introduction
Entrepreneurship is not a new idea in the world. An argument can be made that every single enterprise in existence started out as an entrepreneurial dream. Without the entrepreneurial spirit, the world would remain stagnant. The recognition of the entrepreneurial spirit and the accompanying traits will allow the business owner or business leader the opportunity to tap into this source for their financial benefit.
Before one can identify the global traits of an entrepreneur, a concise definition must be formed. The entrepreneur is someone who specializes in taking judgmental decisions about the coordination of scarce resources. (Casson, 1982). The emphasis on someone stresses that an entrepreneur is an individual. Several entrepreneurs can come together to form a firm yet each must have an entrepreneurial spirit. Judgmental decisions are decisions that must be made without prior knowledge. An unprecedented situation arises and a decision must be made by using whatever information is available. Unprecedented situations require unorthodox decisions. This is the individualistic aspect of an entrepreneur.
Cultural Factors
Several factors influence entrepreneurship in a cultural context:
Several factors influence entrepreneurship in a cultural context:
••Competition - Entrepreneurship is extremely competitive. Entrepreneurs compete to discover potential innovations. If these innovations are successful then immense competition arises from imitators trying to capitalize on the original idea.
••Cooperation - Cooperation allows an entrepreneur the opportunity to form informal partnerships with other enterprises so that each may concentrate on their strengths rather than their weaknesses.
••Trust - Trust is paramount to the entrepreneur. An agreement that is dishonored is usually worse than no agreement at all. Therefore, honesty and trust are top priorities.
••Delegation An entrepreneur must be able to delegate quickly and efficiently. Many times the window of opportunity for a particular enterprise is short. Therefore the quicker and more efficiently an entrepreneur delegates decisions, then more profits can be made.
••Succession If the enterprise is successful, then the entrepreneur must have a future plan to continue the enterprise. Many entrepreneurial enterprises fail as the first generation tries to pass the enterprise to the second generation. Adequate planning for the future is a must.
••Innovation Innovation usually involves the entrepreneur in the active management of resources under his control. For example, a consumer product innovation may be based on the solution of a common household problem. The solution could be in the design of an ingenious durable good. The production and marketing of this good forms the basis of a profitable activity. Entrepreneurship is associated with these innovations which involve a major irreversible commitment of resources to a risky project.
••Religion An important trait of entrepreneurs is the belief in a form of high being. Religions that stress freedom of conscience and the subduing of nature are most likely to sustain entrepreneurship.
••Social Class Middle class attitudes that endorse social competitiveness, wealth accumulation, and upward mobility are more likely to encourage entrepreneurship than working class values of conformity and solidarity with fellow employees. Societies such as those in the Far East, China, Japan, etc. that do value the Individuals tend to have a much smaller entrepreneurial base than an individualistic country like the United States. This means that within a nation, entrepreneurs are likely to be recruited selectively from particular religious groups and social classes.
••Education Whether or not the opportunity to be an entrepreneur also reflects on educational background. Basic education increases t the supply of entrepreneurs by giving basic literacy. Yet, further education can be more ambiguous. It can help to mold the entrepreneurial judgement and increase the rewards of entrepreneurship. But it can also open up artistic and scientific careers that can take people away from business activities.
(Casson,1995).
Entry Barriers
One major entry barrier to the aspiring entrepreneur is capital requirements. Very few entrepreneurs have the financial base or cash flow to start a venture or capitalize on an idea. This can pose a serious “Catch-22" problem, for if the entrepreneur presents potential backers with persuasive evidence and enthusiasm, the potential backers might take the ideas themselves. Since they have the funds, and the entrepreneur does not, he may find that he will be cut of the deal. Therefore, the entrepreneur must withhold a certain amount of crucial information. This information should not jeopardize his presentation for funds, yet the information should be important. Another potential problem with outside financial backing is the requirement of the entrepreneur put some of his own wealth on the line. Many times this is not possible. Last, the potential backers might ask for some control of the enterprise in exchange for the funds. If the entrepreneur is highly independent, this loss of autonomy can cause the enterprise to fail.
Since most banks start offering credit lines at $25,000, an alternative for entrepreneurs looking for smaller loans has been started. These ‘micro-loans’ provide microentreprenuers the opportunity to start an enterprise that otherwise would not occur. “An Aspen Institute study of 405 randomly selected recipients of micro financing showed that:
An Aspen Institute study of 405 randomly selected recipients of micro financing showed that:
••83% are high-school graduates
83% are high-school graduates
••78% are women
78% are women
••62% are members of minority groups
62% are members of minority groups
••56% rely on the micro business as a primary source of income
56% rely on the micro business as a primary source of income
••78% of their businesses survived at least two years.”
(Mehta, 1997).
An alternative to outside financial backing is the entrepreneur’s family. This can be seen as borrowing against a future inheritance. Relatives tend to interfere less because they trust the entrepreneurs more than other people do. This route is traditionally how most entrepreneurs receive financing.
An anti-competitive economic environment proves to be unfavorable to the entrepreneur. Powerful vested interests (statutory monopolies, cartels, trade unions) can obstruct entry into certain industries unless an active competition policy is in force. In many nations this evident in industries that are important to national good.
The absence of patents discourages entrepreneurship in high-technological industries because of the vulnerability to imitation from competitors makes it difficult to recover the sunk costs. Many companies in the United States find themselves in this quandary around the world as they fall prey to counterfeiters. Countries like China do little to protect U.S. intellectual property or patents.
Another entry barrier to the entrepreneurial in many third world countries is the negative moral attitudes associated with profit seeking. Certain religious or cultural mores can prevent the aspiring entrepreneur from setting up a successful business. In countries with a strict religious governmental state, this can be especially true. Afghanistan, Libya, Iran are all examples of countries with Islamic controlled governments. The strict interpretation of Islamic law prevents entrepreneurs from making profits off fellow citizens. In countries with a strong Communistic government the same barrier holds true. But as the grasp of communism starts to wither away, countries like Cuba and China are slowly fostering entrepreneurial activity. The following quotation illustrates how entrepreneurs can react under all types of barriers in Cuba.
“The engine of capitalist, market-oriented development is individual entrepreneurship. Entrepreneurs enter and exit the market, accumulate capital, and create production and employment. Encumbered only by legal and institutional frameworks, entrepreneurs in market economies buy and sell, make resource allocation and production decisions, develop new products, and shape consumer tastes. Entrepreneurial behavior is anathema to central planning. Under the previous Cuban economic system, the creativity and ingenuity of men and women is suppressed: entrepreneurship is banned in the previous Cuban economic system and often prosecuted in the new Cuban economic system. State firms tend to be large and bureaucratized, lacking the flexibility to react quickly to changes in demand and make decisions.” (Perez-Lopez, 1995)
Supply and Demand of Entrepreneurs
A culture that promotes industrial progress though structural change will confer high status on its entrepreneurs. The United States provides us with a prime example. With a country with a high emphasis on individualism, entrepreneurs are looked as the ultimate risk takes. By risking everything to achieve the maximum reward, usually in the form of profits, entrepreneurs in the United States have a very high social status. Examples of entrepreneurs with high social status are Bill Gates, Sam Walton, and Ross Perot, to name a few.
Conversely, a culture that promotes stability maintained by formal authority will accord high status to politicians and bureaucrats not entrepreneurs. The former Soviet Union is a prime example of this behavior. Entrepreneurs were not generally given the chance to accept risk. Individual collectivism was not promoted. Large centralized planning from the government was the norm. The belief that only a few people of a certain type are well-informed tends to support centralized decision making by the state. Where as, the belief that potentially anyone may be well-informed tends to support the decentralization of a large economy through private enterprise.
Researchers have been able to come up with models of entrepreneurship that show the supply and demand of entrepreneurial activities. The main factor influencing the demand is the norms of the population. High norms generate problems that low norms do not. People with high norms tend to see problems or opportunities, while people with low norms are more satisfied with the status quo and are less likely to take advantage of an opportunity.
Structural change requires a redivision of resources from industries on the decline to industries in stages of high growth and generating substantial profit opportunities for the entrepreneur. Therefore, a population with high norms that perceives a far-reaching need for structural change provides the most intense demand for entrepreneurs. (Casson, 1995)
Some cultures will accept income inequality as the price that must be paid for market efficiency and others will not. Those that do will adopt a pro-competitive policy stance, while those who do not may tolerate those vested interests (cartels, monopolies, etc.) that oppose innovation on the grounds that they help to sustain a more desirable distribution of income. Keirutsus in Japan and chaebols in South Korea are an example of cartels in countries that do not have a pro-competitive policy. At the same time, the United States has the Federal Trade Commission which oversees mergers to make sure that the economic environment remains pro-competitive. By making the entry barriers large and prohibitive, protected industries can control nearly the entire market. When governmental change allows for entrepreneurs to compete against the industry giants, then you have the opportunity to provide better service and higher quality products for less.
The emigration of entrepreneurs can provide economic growth in some countries while at the same time causing an economic brain drain from the host country. An economy that has a good supply of entrepreneurs but serious inefficiencies in the domestic market for entrepreneurs, may find that entrepreneurs emigrate to exploit opportunities overseas. In addition, foreign capital may enter the country to employ the able entrepreneurs that domestic institutions are unwilling to support. The West Coast of the United States furnishes an example about the emigration of Asian immigrants. Asian immigrants are one of the most successful immigrant groups in terms of entrepreneurial activity. They are so successful that in some cases resentment from non-immigrants causes racial tensions.
The Life Cycle of the Entrepreneur
Ask anyone in their definition of an entrepreneur and chances are they will describe a rugged independent self-employed individual. This is largely a myth. The truth of the typical entrepreneur follows more of a recognized path along the entrepreneurs age and business skill.
When an entrepreneur is:
in their 20's - a fairly routine specialized role is the norm. The entrepreneurs is considered to be learning the business at this stage.
in their 30's - the entrepreneurs switches to a more responsible innovative role within the firm. At this point in the entrepreneur’s life they may decide to quit the company and try to start their own entrepreneurial enterprise.
in their 40's - the entrepreneur moves to a leadership role in the firm. This role is to showcase their talent at leading a firm to the achieve the most profits.
in their 60's - the entrepreneur maintains the leadership role into their 60's until they become increasingly symbolic rather than executively powerful.
(Casson, 1995)
By analyzing this the cultural factors and time line, those most likely to reach the top of a firm are people who are willing, not only to share responsibility with, but even to assist themselves to, others. These people also are willing to move geographically around production locations to learn the business from the ground floor and then transfer to a higher-level position.
Basically, the person who believes the most in a particular idea or principle and is the most flexible in the company, has a greater opportunity to become highly successful.
One study of 200 entrepreneurs from ages 18 to 35 show the energy and successfulness of their enterprises. The average number of enterprises started was 2.3. A business was defined as any income generating enterprise. Another surprising fact was that 66% started the enterprises out of their savings. 87% of those surveyed started their businesses from scratch, while 5% purchased existing businesses. Only 4% of the business owners had inherited their companies. The companies surveyed employed on average 18.5 full-time employees and 9.6 part-time employees. The average revenue reported was $742,000 up 27% from the previous years $589,000. Another underlying fact is that very few of the entrepreneurs are getting rich. 20% took out a salary of $15,000 or less. This young segment of the population is more inclined to self-employment because they want to avoid the hazards of corporate downsizing.
(Mehta, 1997).
Russian Entrepreneurial Women Cases
By looking at the former Soviet Union, Russia in particular, we can see how change in the government along with the transition to the free market has fostered the rise of an entrepreneurial environment. Women carrying their weight in the workplace is nothing new. Under the Soviets, they laid railroad tracks, drove cranes, and built roads. But very few climbed to the upper echelons of industry or government. This caused a “glass-ceiling” effect that is prevalent in the United States. Not too many jumped into private enterprise when cooperatives began to blossom in the 1980's. The Soviet culture was primarily dominated by men. Men had the connections needed to get ahead, women did not. Russian women have been particularly successful in starting entrepreneurial enterprises. Some facts on the Russian women’s economic conditions:
repreneurial enterprises. Some facts on the Russian women’s economic conditions:
••Women make up 75% of the country’s unemployed
Women make up 75% of the country’s unemployed
••Russian women are out pacing their male counterparts in Russia when it comes to entrepreneurial ventures.
Russian women are out pacing their male counterparts in Russia when it comes to entrepreneurial ventures.
••Most of the seed money for the ventures comes from a $ 300 million dollar revolving fund of the European Bank for Reconstruction and Development.
Most of the seed money for the ventures comes from a $ 300 million dollar revolving fund of the European Bank for Reconstruction and Development.
••As in many countries, especially in emerging economies, most ventures fail. Yet in Russia, it is especially hard. When not fighting bureaucracy or looking for ways to avoid taxes that can take up to 90% of proceeds, entrepreneurs fear for their lives where guns often speak louder than the law.
The first example is a woman named Tatyana Fyodorava. She is a 42-year-old woman who has become Russia’s newest fashion designer. Most of her pieces are priced for the upper class in Russia. She started her career sewing for the State in Soviet times. After the fall of communism, and the breakup of the Soviet Union, her job was eliminated. Tatyana pooled her savings together and started her won label in 1991. The enterprise has not been easy. $1000 in the red in 1995 and 1996's finances do not look much better. Also, economic instability within Russia prevents her from adequately planning the direction of her business.
Moscow’s Radio Nadezhda is another example. The station was launched by Tatyana Zelernaskaya and Irina Koroleva who were both former veterans for Soviet stated radio. They pioneered the concept of the call-in talk radio show and the use of U.S. music in Russia. The station is now the 8th largest in Russia with an estimated two million listeners. Problems that they incurred were the collapse of their bank taking all of the station’s savings, the prospect of high taxes eating all of the profits, and the lack of capital. The lack of capital is not a sexist issue in Russia, rather more of a cultural one. The lack of confidence in the small business concept can be directly contributed to the society’s dependence on the large government of the State providing everything for the Russian people. (Kishkovsky, 1997).
Russian Male Entrepreneurs
Another example of Russian entrepreneurship is the story of David Veitsman and Alexander Gordin. This is a case of a re-emigration back to a country where the economic opportunities lie for entrepreneurs. Both of the men were first generation Russian emigrants in the United States. Gordin was a leading salesman for Motorola’s cellular phone division while Veitsman was forging a successful career in retail. As the Communist state began to die, the pair saw opportunity in their former country. Russian governmental restrictions were eased. Neither man wanted to sell commodity items (beer, jeans, nor cigarettes) due to the stiff competition and low margins. Their first enterprise was to sell advertising in the Moscow subway system much along the same line that is found in New York City. This enterprise failed miserably. After this failure, the pair decided to refocus on their two primary strengths: 1. Fluency in the Russian language
2. Strong grasp of Russian business customs with their knowledge of American marketing strategies.
Their new venture named RCI, started to sell the full line of Motorola products throughout the former Soviet Union. What had started as two boyhood friends has now grown to a company with $10 million in annual sales, 40 employees, and nine offices in three different countries.
(Jacobson, 1996).
Through the above Russian examples, we can see how the tearing down of political barriers, the need for structural change, and the influx of financial backing has provided the climate for entrepreneurship. Entrepreneurship is one the most effective advantages a manager of a business or owner can use when determining the desire of employees. Though entrepreneurs exist all over the world, the same qualities and traits can be found commonly.
By continuing to strive for innovation, entrepreneurs will continue to lead the business community and the world to more efficient and effective ways of conducting business.
Bibliography
Casson, Mark. Entrepreneurship and Business Culture. 1995.
Jacobson, Gianna. Homeward Bounty. Success. March 1996. p.12.
Kishkovsky, Sophia and Elizabeth Williamson. Second-class Comrades No More: Women Stoke Russia’s Start Up Boom. The Wall Street Journal. January 30,1997. p.A12.
Mehta, Stephanie N. For Young Entrepreneurs, Energy Galore. The Wall Street Journal. March 5, 1997. p.B2.
Mehta, Stephanie N. Tiny Firms Find Growing Can Be As Hard As Surviving. The Wall Street Journal. March 25,1997. p.B2.
Perez-Lopez, Jorge F. Cuba’s Underground Economy. Cuban Communism 1959-1995. 1995. 8th
ed.