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SME Perspective

Future research directions for collective entrepreneurship in developing countries

Vanessa Ratten

International Journal of Entrepreneurship and Small Business, 2014, Vol.22, No2

 

 

Introduction    SMEs: Role and Challenges    Fostering Collaborative Entrepreneurship    Conclusions

 

3 Fostering collaborative entrepreneurship in developing countries

Both financial and non-financial restrictions that hamper entrepreneurship in developing countries can be fostered through a collaborative strategy. It is important that
entrepreneurs work as a community to develop and manage financial and human resources. Entrepreneurship provides a sustainable outcome for a community but can lead to destructive entrepreneurship when it is unproductive. The creative destruction from entrepreneurship with a negative side effect occurs when there is no added value to a community. This can be decreased when individuals in developing countries have
different cultural attitudes towards individualistic business growth that leads them into collectivist or group businesses. >>>

The role of collectivism in society is important in determining business activity in developing country environments. Individuals in developing countries may prefer a society that encourages collective entrepreneurship and discourages individual gain. Collective entrepreneurship occurs when individualís skills are integrated into a group so that the process of innovation is made easier (Dana and Dana, 2007). The collective ability of individuals and organisations is important in developing countries as it enables the use of the community as a way to focus on business opportunities. By harnessing community spirit in developing countries the groupís collective ability becomes more useful in accessing market resources than individual efforts. This ability to be cooperative allows people to join forces to highlight a common need. Cooperatives often serve as a form of community as they provide local employment and a sense of belonging. This sense of belonging is an important driver of new business ventures by individuals who use their initiative and are
self-motivation.

3.1 Individual entrepreneurship factors

As entrepreneurship requires individuals and communities to have self-discipline and initiative it may take time for developing countries to fully embrace risk taking and innovative business activity. Entrepreneurship is a major focus of interest for public policy planners and individuals because of its link to economic development. It is important to understand entrepreneurship in developing countries as the intention to start a business is often culturally bound. The existing research on attitudes toward entrepreneurship may be culturally orientated towards developed countries and less relevant to developing economies.

There is a need to conduct more research into entrepreneurial processes as it can help identify key factors relevant for entrepreneurs in developing regions. By doing this government agencies can give priority to certain factors that determine the success of new businesses. It would be helpful for research to focus on ways of discovering potential entrepreneurs in developing economies. As most research on identifying potential entrepreneurs has been obtained in developed countries extending research into developing countries is crucial for the advancement of the entrepreneurship field.

3.2 Culture

There is a different entrepreneurial culture in developing countries that may be based on historical events that have affected trust in businesses. Trust is an important part of business as it helps develop entrepreneurial activity (Welter, 2012). In order to achieve economic prosperity developing countries need to foster trust as part of increasing business efficiency and maintaining competitive market structures (Newton, 2001). Developing countries that have a low level of trust usually have historical traumatic events, which lead to the people and business still adjusting to economic conditions (Alesina and La Ferrara, 2002). Countries with a more trusting culture usually have more new business and economic opportunities (Guiso et al., 2006).

As countries develop it also becomes important that institutional support increases in order to keep up to date with international legislation and compliance requirements. Developing countries in West Africa including Ghana have benefited from infrastructure left behind by British colonists and European traders. However, Ghana has had to increase the level of economic and social development occurring in order to change the economy from being natural resource focused. Looking at how entrepreneurship can impact strategic development is important in developing countries wanting to sustain growth and increase investment income. More research is needed on how investment funds can be established by governments and stakeholders in developing countries in order to strengthen their financial sector. These funds can be used to provide support for businesses by educating and training entrepreneurs.

3.3 Government intervention

More research is needed on the interpersonal behaviour and communication between people in developing countries to see how the role of government intervention and education can benefit entrepreneurial activity. The attitudes people have towards entrepreneurship may be based on the media portrayal of being an entrepreneur in a developed country. Future research could look into attitudes towards entrepreneurship based on historical events that have taken place in developing countries. In order to promote entrepreneurship in geographically isolated cities, public policy can be used to encourage government intervention to help develop business.

Government intervention can take a variety of different forms depending on the country and type of business involved. In Egypt, it is difficult for entrepreneurs to access infrastructure, public services and start-up financing (Ghanem, 2013). These difficulties stem from government policies constraining business development because the weak institutional framework makes general business conditions hard. For entrepreneurs in countries like Egypt the political instability can be a hindrance that affects business performance and creates bureaucratically paperwork requirements (Dana, 2004). Bureaucracy can also be in the form of inflexible business systems that make starting of business ventures difficult without access to the right people. Some government officials may expect bribes and this creates a confusing business environment for entrepreneurs that do not play along with unwritten codes of conduct.

3.4 Informal or grey sector

The informal sector in developing countries may exceed formal sectors as assets and technology is controlled by government officials. This can lead to a dysfunctional competitive practices in industries that constrain business development in countries such as Ethiopia that are trying to encourage economic development (Amin, 2007). There can be impediments to entrepreneurship in developing countries in Africa including Uganda as there are increased taxes and investment (Ishengoma and Kappel, 2008). This can lead to business constraints in the form of limited access to markets. In developing countries like South Africa more business services in the form of managerial knowledge and start up acumen is needed to increase the rate of entrepreneurship occurring in the SME sector.

Part of the challenge of developing countries is the inefficient bureaucratic systems left from colonialism that have hampered businesses from using new technology and infrastructure that exists in developed countries. Dana (1993) highlighted how it can be hard for entrepreneurs to obtain loans in developing countries without bribes or business connections. This can make it frustrating to enterprising individuals who want to obtain financial capital.

In some developing countries, the grey market encourages informal entrepreneurship because they do not have to pay taxes. Due to necessity, entrepreneurs emerge in developing countries that drive informal business activity. The entrepreneurial mind-set is often found in the grey or informal economy that operates in developing countries that affects attitudes individuals have towards commerce. Unregistered business activity is a key part of some developing countries as they are part of the volatile and unstable business environment that exists in part from war, famine or political change.

3.5 Family business

As previous research has shown that family business experience influences entrepreneurial orientation (Krueger, 1993), more work is needed on how business exposure by parents in developing countries impacts childrenís decision to start a new business. More research should be conducted on how the personality of individuals in developing countries impacts their ability to start a business. This is because previous research has shown that there may be an association between exposure to business and personal intentions to start a business (Falck et al., 2012). In developing countries, people who have good experiences with businesses may aspire to have their own enterprise.

Individual personality characteristics such as being creative may influence the decision to start a business (Chlosta et al., 2012). Creativeness has been referred to as openness to new ideas and experiences, which can be used as a way to evaluate entrepreneurial intentions. The ability to be responsive to new ideas can help determined the likelihood of an individual starting a business based on their subjective norms (Chlosta et al., 2012). Individuals with original ideas can change their behaviour and actions to suit business environments (Krueger, 1993). In developing countries that are rapidly changing as a result of environment influences such as change of government, war or environmental catastrophe, the creativeness of individuals helps them to be entrepreneurial.

Entrepreneurship is crucial to the development of society as they shape innovation and change business thinking.

3.6 Historical development

More research should be conducted on how governments can intervene to encourage informal business activities to become formal and pay taxes. Kenya has benefited from the capitalist entrepreneurs who colonised the country and left behind an emerging entrepreneurial class (Dana, 1996). In contrast, Mozambique was colonised mostly by Portuguese farmers who were focused on farming (Dana, 1996). Future research should look at how research and development can be improved when bureaucratic procedures are reduced in order to encourage more flexible and innovative business practices.

Individuals need to develop their capabilities to become entrepreneurs through business planning and business accounting (Dana, 1996). The regulatory environment in developing countries can create problems from the procedures needed to deal with customs and import agreements. Given the absence of proper monitoring in countries like Mozambique it can make it hard for businesses to obtain and repay loans (Dana, 1996). In South Africa, the governmentís policy in major urban areas including Johannesburg has been to deregulate the market to promote informal entrepreneurship (Dana, 1996). More research is needed on different government policy to support micro-enterprises including street vendors as a way of developing entrepreneurial spirit.

3.7 Demographic differences

There are gender differences with regards to the demographic profile of entrepreneurs in developing countries that differ from those in developed countries. Due to gender stereotypes the business opportunities for women in developing countries may be limited. However, some research has indicated that women show more entrepreneurial activity in developing countries (Williams, 2008). A topic worthy of research is how to get more gender diversity in SMEs in developing country regions. As a small percentage of woman are managing directors of government controlled state enterprises in parts of Africa, future research should investigate why Kenyan and Ugandan woman are underrepresented in top management of SMEs and whether this is similar in large businesses. This is similar to the suggestions made by Dana (1996) about Mozambican woman needing to access more loans to start businesses. Dana (1996) also highlighted how woman in Bangladesh have successfully accessed funding through the solidarity group approach to finance pioneered by Grameen Bank. It is useful to encourage woman to apply for economic support loans to develop local industry that can then encourage other business development in both urban and rural areas of developing countries.

3.8 Technological innovation

The success of innovation in developing countries involves encouraging good ideas that are financially and socially viable. The policies of entrepreneurship differ in developing countries depending on their geographic location and political condition. China, India and Brazil have developed quickly in the past decade because of their ability to focus on capitalist international markets as part of their business activity. Other developing countries including smaller populated regions in the South Pacific including Fiji and the Solomon Islands have been less successful because of their focus on craft and tourism industries.

Technological advances in China and India have played an important role in the economic growth as they have focused on manufacturing as well as moving towards knowledge intensive industries. Other developing countries have not utilised technology innovations that have lead to them failing to innovate. These countries include Papua New Guinea and the Solomon Islands who have focused less on technology and more on natural resources.

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Introduction    SMEs: Role and Challenges    Fostering Collaborative Entrepreneurship    Conclusions