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WORLD ENCYCLOPEDIA OF ENTREPRENEURSHIP DANA (2nd edition) PRINT.indd 1 18/12/2020 11:32 Dedicated to Jake Theodore Dana DANA (2nd edition) PRINT.indd 2 18/12/2020 11:32 World Encyclopedia of Entrepreneurship Second Edition Edited by Léo-Paul Dana Professor, Dalhousie University, Canada and Montpellier Business School, France Cheltenham, UK • Northampton, MA, USA DANA (2nd edition) PRINT.indd 3 18/12/2020 11:32 © Léo-Paul Dana 2021 All rights reserved. No part of this publication may be reproduced, stored in a retrieval system or transmitted in any form or by any means, electronic, mechanical or photocopying, recording, or otherwise without the prior permission of the publisher. Published by Edward Elgar Publishing Limited The Lypiatts 15 Lansdown Road Cheltenham Glos GL50 2JA UK Edward Elgar Publishing, Inc. William Pratt House 9 Dewey Court Northampton Massachusetts 01060 USA A catalogue record for this book is available from the British Library Library of Congress Control Number: 2020950876 This book is available electronically in the Business subject collection http://dx.doi.org/10.4337/9781839104145 ISBN 978 1 83910 413 8 (cased) ISBN 978 1 83910 414 5 (eBook) 02 Typeset by Servis Filmsetting Ltd, Stockport, Cheshire DANA (2nd edition) PRINT.indd 4 18/12/2020 11:32 Contents xi xvii xix xxiii List of contributors Foreword by A. Roy Thurik Foreword by Hans Landström Preface 1 Chinese immigrant entrepreneurs Tenghao Zhang, Pi-Shen Seet, Janice Redmond, Jalleh Sharafizad and Wee-Liang Tan 1 2 Compensatory entrepreneurship Benson Honig 22 3 Coopetition as an entrepreneurial strategy: focus on the wine sector James M. Crick and David Crick 26 4 Corporate entrepreneurship Donald F. Kuratko, Michael H. Morris and Jeffrey G. Covin 40 5 Corporate entrepreneurship: new insights Olga Belousova, Aard Groen and Norris Krueger 49 6 Corporate venturing Garima Jha and Robert D. Hisrich 57 7 Cross-disciplinary entrepreneurship education Dianne H.B. Welsh 69 8 Defining the entrepreneur Louis Jacques Filion 72 9 Digital entrepreneurship Kerstin Wagner and Oliver Som 84 10 Digital platforms Donato Cutolo and Jan Vang 93 11 Disabled entrepreneurs Wilson Ng 105 12 Early foreign market entries of new technology-based firms Regis Coeurderoy and Gordon Murray 112 13 Economics and entrepreneurship William J. Baumol 118 14 Employee start-ups Andreas Koch 127 v DANA (2nd edition) PRINT.indd 5 18/12/2020 11:32 vi World encyclopedia of entrepreneurship 15 Entrepreneurial exporters Martin Hannibal and Tage Koed Madsen 130 16 Entrepreneurial hubris Vita Akstinaite and Eugene Sadler-Smith 139 17 Entrepreneurial learning Jennifer R. Carter, Claire Leitch and Valerie Stead 145 18 Entrepreneurial networks Howard E. Aldrich, Martin Ruef and Steven Lippmann 151 19 Entrepreneurial sense-making, sense-breaking and sense-demanding Gabi A. Kaffka and Norris Krueger 160 20 Entrepreneurs in the fashion industry Michelle Brandstrup 165 21 Entrepreneurs versus entrepreneurial Karen Williams-Middleton, Martin Lackéus and Mats Lundqvist 177 22 Entrepreneurship and blockchains Galia Kondova 184 23 Entrepreneurship as a competence Margherita Bacigalupo 186 24 Entrepreneurship in biotechnology Călin Gurău 190 25 Entrepreneurship in the ethnic ownership economy Ivan H. Light 195 26 Entrepreneurship in the printing sector Naomi J. Dana 205 27 Entrepreneurship policy David B. Audretsch 213 28 Environment for entrepreneurship Jean-Jacques Obrecht 224 29 Ethics and entrepreneurship Alan E. Singer 242 30 Ethnic minority entrepreneurship Léo-Paul Dana and Michael H. Morris 251 31 Evolution of entrepreneurship and its role in stewardship-based economics Raymond W.Y. Kao, Rowland R. Kao and Kenneth R. Kao 260 32 Exit Karl Wennberg 274 DANA (2nd edition) PRINT.indd 6 18/12/2020 11:32 Contents vii 33 Export support services for SME internationalization Nathalie Belhoste, Rachel Bocquet and Véronique Favre-Bonté 282 34 Family business Frederik J. Riar and Franz W. Kellermanns 289 35 Financial issues of entrepreneurship Jean-Michel Sahut and Eric Braune 295 36 George Eastman: pioneer of industrial R&D Léo-Paul Dana 305 37 Global entrepreneurship and transnationalism Ivan H. Light 310 38 Growth James Bort, Wei Yu and Johan Wiklund 323 39 Historical context of entrepreneurship Mark Casson 335 40 Howard Hughes Teresa E. Dana 351 41 The Hudson’s Bay Company Lynn Ferguson 358 42 Humane entrepreneurship Roberto Parente 367 43 Incubators and support systems for business creation: the French model Luc Duquenne 376 44 Incubators: how they adapt to a changing world Amandine Maus and Sylvie Sammut 392 45 Indigenous entrepreneurship as a function of cultural perceptions of opportunity Léo-Paul Dana and Robert Brent Anderson 46 Innovation systems and entrepreneurship research Jan Vang, Heidi Wiig and Léo-Paul Dana 411 47 Innovative behavior Yang Song 426 48 Intermediated internationalization theory Zoltan J. Acs and Siri Terjesen 430 49 International entrepreneurship Benjamin M. Oviatt, Vladislav R. Maksimov and Patricia P. McDougall 437 50 Internationalization support ecosystems Alexis Catanzaro and Karim Messeghem 443 DANA (2nd edition) PRINT.indd 7 400 18/12/2020 11:32 viii World encyclopedia of entrepreneurship 51 Involuntary entrepreneurship Teemu Kautonen, Simon Down, Friederike Welter, Kai Althoff, Jenni Palmroos, Susanne Kolb and Pekka Vainio 452 52 Islamic entrepreneurship Veland Ramadani 457 53 Learning business planning Paula Kyrö and M. Niemi 471 54 Mature-age entrepreneurship Paull C. Weber and Michael T. Schaper 473 55 Mental health in entrepreneurship Isabella Hatak 477 56 Open innovation and entrepreneurship Anja Leckel 483 57 Opportunities approach to international entrepreneurship Joe Schembri and Pavlos Dimitratos 492 58 Organizational processes as foundations of dynamic capabilities Shaker A. Zahra 511 59 Pastoralism as a form of entrepreneurship among Negev Bedouin A. Allan Degen 514 60 Poverty and entrepreneurship in developed economies Michael H. Morris 523 61 Religion as an explanatory variable for entrepreneurship Léo-Paul Dana 535 62 Research methodology in entrepreneurship Edward Groenland 553 63 Rural entrepreneurship Gerard McElwee and Andrew Atherton 563 64 Schumpeter, creative destruction and entrepreneurship Dieter Bögenhold 571 65 Science parks Paul Westhead 582 66 Small island entrepreneurship Godfrey Baldacchino 590 67 Social entrepreneurship Sarah C. Carraher, Shawn M. Carraher and Dianne H.B. Welsh 597 68 Sports and entrepreneurship Ben Hattink and Jennifer Wichers 599 DANA (2nd edition) PRINT.indd 8 18/12/2020 11:32 Contents ix 69 Sustainable entrepreneurship Steffen Farny and Julia Binder 605 70 Teams Leon Schjoedt, Sascha Kraus and Cyrine Ben-Hafaïedh 612 71 Transnational entrepreneurship Israel Drori, Benson Honig and Mike Wright 619 72 Trust and entrepreneurship Friederike Welter 623 73 Uncertainty in innovation Raphael H Cohen 629 74 University spin-offs Liudvika Leišytė 637 75 Venture capital Jeffrey M. Pollack and Thomas H. Hawver 642 76 Walt Disney Léo-Paul Dana 645 Index DANA (2nd edition) PRINT.indd 9 657 18/12/2020 11:32 DANA (2nd edition) PRINT.indd 10 18/12/2020 11:32 Contributors Zoltan J. Acs, George Mason University, USA Vita Akstinaite, Murdoch University, Australia Howard E. Aldrich, University of North Carolina, USA Kai Althoff, formerly at University of Siegen, Germany Robert Brent Anderson, University of Regina, Canada Andrew Atherton, University of Lincoln, UK David B. Audretsch, Indiana University, USA Margherita Bacigalupo, European Commission, Joint Research Centre, Spain Godfrey Baldacchino, University of Malta, Malta William J. Baumol, New York University and Princeton University, USA (deceased) Nathalie Belhoste, Grenoble Ecole de Management, France Olga Belousova, University of Groningen, The Netherlands Cyrine Ben-Hafaïedh, IESEG School of Management, France Julia Binder, École Polytechnique Fédérale de Lausanne, Switzerland Rachel Bocquet, Université Savoie Mont Blanc, France Dieter Bögenhold, Alpen-Adria University Klagenfurt, Austria James Bort, Syracuse University, USA Michelle Brandstrup, Design School Kolding, Denmark Eric Braune, INSEEC-U SBE Lyon, France Sarah C. Carraher, University of South Alabama, USA Shawn M. Carraher, University of Texas at Dallas, USA Jennifer R. Carter, Lancaster University, UK Mark Casson, University of Reading, UK Alexis Catanzaro, Université Jean Monnet, France Regis Coeurderoy, ESCP, France Raphael H Cohen, University of Geneva, Switzerland Jeffrey G. Covin, Indiana University, USA xi DANA (2nd edition) PRINT.indd 11 18/12/2020 11:32 xii World encyclopedia of entrepreneurship David Crick, University of Ottawa, Canada James M. Crick, Loughborough University, UK Donato Cutolo, Università di Bologna, Italy Léo-Paul Dana, Dalhousie University, Canada and Montpellier Business School, France Naomi J. Dana, St. Andrew’s College, New Zealand Teresa E. Dana, University of Canterbury, New Zealand A. Allan Degen, Ben Gurion University of the Negev, Israel Pavlos Dimitratos, University of Glasgow, UK Simon Down, University of Birmingham, UK Israel Drori, VU, Amsterdam, The Netherlands Luc Duquenne, I2ER, France Steffen Farny, Leuphana University Lüneburg, Germany Véronique Favre-Bonté, Université Savoie Mont Blanc, France Lynn Ferguson, Canada Louis Jacques Filion, HEC Montréal, Canada Aard Groen, University of Groningen, The Netherlands Edward Groenland, Nyenrode Business University, The Netherlands Călin Gurău, Montpellier Business School, France Martin Hannibal, University of Southern Denmark, Denmark Isabella Hatak, University of St. Gallen, Switzerland Ben Hattink, Hanze University of Applied Sciences Groningen and University of Groningen, The Netherlands Thomas H. Hawver, Virginia Commonwealth University, USA Robert D. Hisrich, Kent State University, USA Benson Honig, McMaster University, Canada Garima Jha, Kent State University, USA Gabi A. Kaffka, Utrecht University, The Netherlands Kenneth R. Kao, Memorial University of Newfoundland, Canada Raymond W.Y. Kao, Ryerson University, Canada (deceased) Rowland R. Kao, University of Edinburgh, UK Teemu Kautonen, Aalto University, Finland and Universidad del Desarrollo, Chile DANA (2nd edition) PRINT.indd 12 18/12/2020 11:32 Contributors xiii Franz W. Kellermanns, UNCC, USA and WHU, Germany Andreas Koch, Institute for Applied Economic Research, Germany Susanne Kolb, formerly at University of Siegen, Germany Galia Kondova, University of Applied Sciences and Arts, Switzerland Sascha Kraus, Free University of Bozen-Bolzano, Italy Norris Krueger, Entrepreneurship Northwest, USA Donald F. Kuratko, Indiana University, USA Paula Kyrö, Helsinki School of Economics, Finland Martin Lackéus, Chalmers University of Technology, Sweden Anja Leckel, RWTH Aachen University, Germany Liudvika Leišytė, TU Dortmund, Germany Claire Leitch, Lancaster University, UK Ivan H. Light, University of California, Los Angeles, USA Steven Lippmann, Miami University, USA Mats Lundqvist, Chalmers University of Technology, Sweden Tage Koed Madsen, University of Southern Denmark, Denmark Vladislav R. Maksimov, University of North Carolina at Greensboro, USA Amandine Maus, Aix-Marseille Université, France Patricia P. McDougall, Indiana University, USA Gerard McElwee, independent consultant, UK Karim Messeghem, Université de Montpellier, France Michael H. Morris, University of Notre Dame, USA Gordon Murray, University of Exeter, UK Wilson Ng, Regent’s University, UK M. Niemi, University of Tampere, Finland Jean-Jacques Obrecht, Université de Strasbourg, France Benjamin M. Oviatt, Georgia State University, USA Jenni Palmroos, University of Vaasa, Finland Roberto Parente, University of Salerno, Italy Jeffrey M. Pollack, North Carolina State University, USA Veland Ramadani, South East European University, North Macedonia DANA (2nd edition) PRINT.indd 13 18/12/2020 11:32 xiv World encyclopedia of entrepreneurship Janice Redmond, Edith Cowan University, Australia Frederik J. Riar, Karlsruhe Institute of Technology, Germany Martin Ruef, Duke University, USA Eugene Sadler-Smith, University of Surrey, UK Jean-Michel Sahut, IDRAC Business School, France Sylvie Sammut, Université de Montpellier, France Michael T. Schaper, Curtin University, Australia Joe Schembri, University of Malta and TradeMalta, Malta Leon Schjoedt, Babson College, USA Pi-Shen Seet, Edith Cowan University, Australia Jalleh Sharafizad, Edith Cowan University, Australia Alan E. Singer, Appalachian State University, USA Oliver Som, MCI Innsbruck, Austria Yang Song, Ben Gurion University of the Negev, Israel and Economics School of Jilin University, Changchun, China Valerie Stead, Lancaster University, UK Wee-Liang Tan, SMU, Singapore Siri Terjesen, Florida Atlantic University, USA and Norwegian School of Economics, Norway Pekka Vainio, University of Vaasa, Finland Jan Vang, University of Southern Denmark, Denmark Kerstin Wagner, FHGR, Switzerland Paull C. Weber, Curtin University, Australia Dianne H.B. Welsh, University of North Carolina-Greensboro, USA Friederike Welter, Institut für Mittelstandsforschung (IfM) Bonn and University of Siegen, Germany Karl Wennberg, Linköping University, Sweden Paul Westhead, Durham University, UK and Nord University, Norway Jennifer Wichers, Judo Your Business and Hanze University of Applied Sciences Groningen, The Netherlands Heidi Wiig, BI – Norwegian Business School, Norway Johan Wiklund, Syracuse University, USA DANA (2nd edition) PRINT.indd 14 18/12/2020 11:32 Contributors xv Karen Williams-Middleton, Chalmers University of Technology, Sweden Mike Wright, Imperial College Business School, UK (deceased) Wei Yu, NUS, Singapore Shaker A. Zahra, University of Minnesota, USA Tenghao Zhang, Edith Cowan University, Australia DANA (2nd edition) PRINT.indd 15 18/12/2020 11:32 DANA (2nd edition) PRINT.indd 16 18/12/2020 11:32 Foreword The arch-fathers of the social sciences saw entrepreneurship as an essential part of their views of how economic life functions – and then, amazingly, the entrepreneurship view disappeared for more than a century from scholarly texts. The world was simply too busy inventing large business to pay attention to entrepreneurship. There were notable exceptions including Knight (1921) and Schumpeter (1934); yet, it took the information and telecommunication technology (ICT) revolution and the fall of the Berlin Wall in the late 1980s to bring scholars and politicians alike to the realization that entrepreneurship not just matters, but is crucial. At the 1983 annual Babson meeting, Hoy and Carland differentiated between entrepreneurs and small-business owners; Carland et al. (1984) elaborated on this. Yet, throughout the 1980s and 1990s, the word ‘entrepreneurship’ was frequently interchanged with ‘small business’. The focus was on the role that small businesses played in a world dominated by their large counterparts. The more research was devoted to this role the more it was shown that small businesses did not just play a role complementing that of large businesses but that their role was fundamental, such as for innovation and employment. Wennekers and Thurik (1999) noted that the 1980s and 1990s saw a re-evaluation of the role of small firms and a renewed attention to entrepreneurship. Given that Schumpeterian (1934) innovators were relatively few, Dana wrote, ‘The flagships of entrepreneurship are small and medium enterprises’ (1999: 25). By the turn of the millennium, focus shifted from small businesses to start-ups and new ventures. Their potential to produce and nurture creativity, experimentation and learning was immense. However, what is a small new business without the persona causa – the entrepreneur? Again, the focus shifted from the business to the person. Then it appeared as though academia had invented the field of entrepreneurship. The field had long been there, but under different denominators. There is no better way to show the pervasiveness and the richness of the field of entrepreneurship as by this Encyclopedia. It shows two things simultaneously. Its pervasiveness: there is no subfield in the social sciences where the entrepreneurship view is absent. It is often central – without it there are gaps in scientific modeling and thinking – and dynamic – it is often both a cause and a consequence of other major phenomena. It is rich in that the entrepreneurship perspective contributes to theory development in subfields. At the beginning of the twenty-first century, entrepreneurship scholars used social sciences to explain the entrepreneurship view. More recently, social sciences use entrepreneurship to further develop their own subfields. I can think of no better illustration for both developments (the change from the business perspective to the person perspective and the change from the entrepreneur as the starting point to the subfields of the social sciences as the starting point) than this Encyclopedia. If ever the phrase ‘essential reading’ is applicable, it is concerning Léo-Paul Dana’s Encyclopedia. It is easy to predict that scores of young researchers will read this xvii DANA (2nd edition) PRINT.indd 17 18/12/2020 11:32 xviii World encyclopedia of entrepreneurship second edition practically cover to cover to find their way in the fascinating terrain of entrepreneurship research. Professor A. Roy Thurik Erasmus School of Economics in Rotterdam, The Netherlands and Montpellier Business School, France REFERENCES Carland, J.W., F. Hoy, W.R. Boulton and J.A.C. Carland (1984), ‘Differentiating entrepreneurs from small business owners: a conceptualization’, Academy of Management Review, 9 (2), 354–9. Dana, L.-P. (1999), Entrepreneurship in Pacific Asia: Past, Present & Future, Singapore, London and Hong Kong: World Scientific. Knight, F.H. (1921), Risk, Uncertainty and Profit, Boston, MA and New York: Houghton Mifflin; Chicago, IL: University of Chicago Press. Schumpeter, J.A. (1934), The Theory of Economic Development: An Inquiry into Profits, Capital, Credit, Interest, and the Business Cycle, trans. R. Opie, Cambridge, MA: Harvard University Press. Wennekers, S. and R. Thurik (1999), ‘Linking entrepreneurship and economic growth’, Small Business Economics, 13, 27–55. DANA (2nd edition) PRINT.indd 18 18/12/2020 11:32 Foreword Science is based on the assumption that knowledge is essentially cumulative, that is, new research is built on earlier knowledge (Kuhn, 1970). In all research fields, it is essential to obtain an up-to-date understanding of the accumulated knowledge, making it important to stop now and then to synthesize the knowledge within the field. This is particularly important in rapidly growing research fields, such as entrepreneurship. Over the past five decades, entrepreneurship as a scientific field has grown significantly – from a small emerging ‘venture’ in the 1970s to a global industry today, with thousands of scholars around the world who consider themselves entrepreneurship researchers and teachers (Landström, 2020). The field continues to grow. An extensive number of individuals are attracted by entrepreneurship: for example, Master’s students taking their degree in entrepreneurship, PhD students conducting their studies on different entrepreneurship issues and, not least, a large number of scholars from other fields who migrate into this field. Some characteristics can be identified in the growth of entrepreneurship as a scientific field that have important consequences for knowledge accumulation – in terms of an extensive diversity and changeability of the field. Entrepreneurship can be characterized as a diversified field of research and there are several reasons for this: ● ● The eclectic nature of the field makes it possible to include a large number of societal phenomena and incorporate concepts and theories from many different fields in the social sciences. Over the years, the number of prefixes and suffixes in entrepreneurship has increased, for example, social entrepreneurship, sustainable entrepreneurship and entrepreneurship education. The fragmentation of the field has created almost autonomous groups of scholars – or ‘tribes’ – who focus their attention on different topics within entrepreneurship and research using different methodological and paradigmatic approaches (Gartner et al., 2006; Landström and Harirchi, 2018). In addition, we have witnessed a significant globalization of entrepreneurship research. Scholars from around the world make contributions to entrepreneurship research by establishing a strong presence in international journals and at different meeting places. We can identify an increased international isomorphism (Aldrich, 2000), where knowledge, research themes and methods become similar across regions. However, having said that, we can assume that entrepreneurship is characterized by a strong ‘contextual heterogeneity’ (Welter, 2011), where entrepreneurship research reflects the contextual differences in entrepreneurial activities in different regions and countries, but also differences in research traditions in various countries. Entrepreneurship is also characterized as a changeable field of research (Landström et al., 2012) in which old topics fade quickly and new ones constantly emerge. The past xix DANA (2nd edition) PRINT.indd 19 18/12/2020 11:32 xx World encyclopedia of entrepreneurship decade has shown significant changes in society, such as new forms of communication (for example, Facebook), customization (for example, three-dimensional printing), online platforms (for example, crowdfunding) and new currencies (for example, Bitcoin and other cryptocurrencies), but also an increased interest in social and sustainable aspects of entrepreneurship – changes that will significantly influence entrepreneurial activities in society. Entrepreneurship scholars have not been slow in keeping up with these changes in society, which have also attracted the interest of scholars in other fields, for example, information systems, geography and finance. As a consequence, entrepreneurship as a scientific field is now characterized by an interesting balance between ‘continuation’ of already existing research themes and knowledge platforms and ‘novelty’ in identification of new research opportunities based on the changes in society. In this type of fast-growing, diversified and changeable field, there is always a risk that knowledge accumulation will be lost – new studies tend to rely more on the latest article than the accumulated knowledge within the field. However, I argue, in line with Wiklund (1998), that as in successful ventures in general, where favourable business opportunities tend to combine opportunity focus with resource orientation, it is not sufficient to identify new research opportunities unless they are securely rooted in previous knowledge. In this context, the second edition of the World Encyclopedia of Entrepreneurship is extremely important for the building of knowledge within the field that creates the basis for future research opportunities. The Encyclopedia illuminates the diversity of the field – it includes the large variety of topics and concepts that are central to the field as well as its international character, with contributions by scholars from around the world covering topics that attract scholars in different parts of the world. This second edition of the Encyclopedia mirrors the balance between the ‘continuation’ of existing, well-developed issues in entrepreneurship research and ‘novelty’ research issues in entrepreneurship. The changes in entrepreneurship that we have witnessed over the past decade become obvious – the number of chapters has increased from 55 in the first edition to 76 in the second – and in this respect the book elaborates on a large number of new aspects of entrepreneurship. I am honoured to provide this Foreword. In the second edition of the World Encyclopedia of Entrepreneurship, Léo-Paul Dana has managed to gather a large number of the leading entrepreneurship research scholars in the world and synthesized their knowledge in an impressive work. As the book ensures a stronger knowledge accumulation within the field, it is not only important for all scholars already working within the field, but especially for new entrants who are attracted by entrepreneurship. I sincerely hope that the Encyclopedia receives the attention it deserves and impacts on our thinking about entrepreneurship. Professor Hans Landström Sten K. Johnson Centre for Entrepreneurship Lund University, Sweden DANA (2nd edition) PRINT.indd 20 18/12/2020 11:32 Foreword xxi REFERENCES Aldrich, H.E. (2000), ‘Learning together: national differences in entrepreneurship research’, in D.L. Sexton and H. Landström (eds), The Blackwell Handbook of Entrepreneurship, Oxford: Blackwell Publishers, pp. 5–25. Gartner, W.B., P. Davidsson and S.A. Zahra (2006), ‘Are you talking to me? The nature of community in entrepreneurship scholars’, Entrepreneurship Theory and Practice, 30 (3), 321–31. Kuhn, T. (1970), The Structure of Scientific Revolutions, Chicago, IL: University of Chicago Press. Landström, H. (2020), ‘The evolution of entrepreneurship as a scholarly field’, Foundations and Trends in Entrepreneurship, 16 (2), 3–155. Landström, H. and G. Harirchi (2018), ‘The social structure of entrepreneurship as a scientific field’, Research Policy, 47 (3), 650–62. Landström, H., G. Harirchi and F. Åström (2012), ‘Entrepreneurship: exploring the knowledge base’, Research Policy, 41 (7), 1154–81. Welter, F. (2011), ‘Contextualizing entrepreneurship. Conceptual challenges and way forward’, Entrepreneurship Theory and Practice, 33 (1), 165–84. Wiklund, J. (1998), ‘Small firm growth and performance: entrepreneurship and beyond’, PhD thesis, Jönköping International Business School, Jönköping. DANA (2nd edition) PRINT.indd 21 18/12/2020 11:32 DANA (2nd edition) PRINT.indd 22 18/12/2020 11:32 Preface People develop preferences for different pastimes. When I was in grade school, I began reading encyclopedias for fun. I still do. Figure 0.1 shows an 1898 publication that I was recently reading – cover to cover. Figure 0.1 Pears’ Shilling Cyclopædia; photographed by the author xxiii DANA (2nd edition) PRINT.indd 23 18/12/2020 11:32 xxiv World encyclopedia of entrepreneurship Not surprisingly, I was elated when Edward Elgar Publishing’s commissioning editor Francine O’Sullivan invited me to assemble the first World Encyclopedia of Entrepreneurship. I was delighted with the popularity of that volume and again thrilled when approached to compile a second edition with new topics that have recently gained importance in our changing world. Thank you Francine! Baumol (1968: 64) described the entrepreneur as ‘one of the most intriguing and one of the most elusive characters in the cast that constitutes the subject of economic analysis’. That was published the year that Babson College offered the first undergraduate entrepreneurship concentration. By 1970, just over a dozen schools in the United States offered courses in entrepreneurship; in 1975, the number was 104 (Katz, 2003). This volume is the second edition of a project launched in 2005, reflecting that entrepreneurship is no longer at the margins but, instead, is a legitimate field of research. What has not changed is that the entrepreneur is still intriguing and elusive. I would like to thank friends and colleagues for their input making this a richer volume than the first edition; this includes contributors and the many who reviewed entries and provided constructive suggestions. As Vernon Howard told us, ‘Always walk through life as if you have something new to learn and you will’. Now let your fingers walk through these pages and enjoy a wonderful learning experience. Léo-Paul Dana Halifax, Canada REFERENCES Baumol, W.J. (1968), ‘Entrepreneurship in economic theory’, American Economic Review, 58 (2), 64–71. Katz, J.A. (2003), ‘The chronology and intellectual trajectory of American entrepreneurship education’, Journal of Business Venturing, 18 (2), 283–300. DANA (2nd edition) PRINT.indd 24 18/12/2020 11:32 1. Chinese immigrant entrepreneurs Tenghao Zhang, Pi-Shen Seet, Janice Redmond, Jalleh Sharafizad and Wee-Liang Tan Until the mid-twentieth century, Southeast Asia and North America were the predominant destinations for Chinese emigrants. Amid the Voyage to Nanyang exodus, the California Gold Rush and the Transcontinental Railroad construction, millions of Chinese migrants, overwhelmingly from Guangdong and Fujian provinces in southern China, ventured to Southeast Asia and North America for better opportunities (Godley, 2002). When these early Chinese immigrants first arrived in the host countries, they were in effect sojourners aiming to remit sums of money to their families in China (Dana, 2014: 259). They also intended to return to China in their old age to enjoy the fruits of their ‘arduous labours in exile’ (Willmott, 1966: 254). For example, Loewen (1971: 27) argues that the early Chinese people in Mississippi were not true immigrants, but were sojourners and planning to return to China when ‘their task was accomplished’. These Chinese immigrants were faced with different levels of hostility from local residents, who saw them as greedy individuals, exploiting their advantageous economic position (for example, Chinese in Thailand; Coughlin, 1960). Members of the Chinese community often were excluded from many formal occupations, which led them to focus on the trade and commerce sectors and act as intermediaries between customers and producers. For example, Willmott’s (1966) study found that 84 per cent of Chinese immigrants in Cambodia were engaged in the commercial sector, which is significantly higher than the Cambodian average of 6.5 per cent. Appleton (1960) found that in the Philippines, ethnic Chinese held 23 per cent of the total commercial investment and nearly 30 per cent of the total investment in retail and import–export trade, despite only making up 1 to 2 per cent of the national population. Loewen (1971) found that 97 per cent of the Chinese immigrants in Mississippi, USA, were operating grocery stores. These Chinese immigrants were distanced from the host country owing to their sojourner orientation and they experienced discrimination from within the host society. However, they managed to maintain and even raise their economic position in society owing to their entrepreneurial ventures. Consequently, they developed a strong sense of in-group solidarity or ethnic identity to distinguish themselves from the host country nationals (Aldrich and Waldinger, 1990). As a result, they were ‘essential outsiders’ within the host societies (Chirot and Reid, 1997; Nyíri, 2011). This distinct ‘essential outsiders’ status was invoked by Blalock (1967) and Bonacich (1973) in the development of the concept of the ‘middleman minority’, in which they used Chinese immigrants in Southeast Asia and North America as a common prototypical example of a middleman minority group. A number of subsequent middleman minority studies also cited the colonial and early post-colonial Chinese immigrant entrepreneurs as examples (for example, Aldrich and Waldinger, 1990; Cobas, 1987; Nyíri, 2007). 1 DANA (2nd edition) PRINT.indd 1 18/12/2020 11:32 2 World encyclopedia of entrepreneurship Although the definitions are not identical in these studies, a middleman minority generally refers to a minority population which has taken on a specific economic sector, in particular trade and commerce, and plays the role of middleman, linking producers and customers (Bonacich, 1973). These minority groups often face discrimination and even persecution from the locals (Grosfeld et al., 2020), which can lead to an ambivalent attitude towards the host society and in-group solidarity (Aldrich and Waldinger, 1990). They usually do not hold an extreme subordinate status (O’Brien and Fugita, 1982) in the host society, despite discrimination. They begin as sojourners and many of them originally do not intend to, or have not decided to, settle down permanently in the host country and therefore seek occupations with a higher preference for liquidity (Aldrich and Waldinger, 1990; Cherry, 1990). The original term ‘middleman minority’ does not encompass only entrepreneurs but can also refer to an entire entrepreneurial-orientated ethnic group. However, more recent immigrant entrepreneurship studies have applied the term exclusively to immigrant entrepreneurs (Aldrich and Waldinger, 1990; Nyíri, 2011; Waldinger, 1986). The middleman minority theory is not without its critics. Some scholars have questioned its limitations in the modern immigration context. Aldrich and Waldinger (1990), for example, argue that the sojourner orientation did not contribute to the performance of the ventures and they proposed the term ‘pseudo-middleman minorities’ to distinguish contemporary ethnic groups that specialize in trade and commerce (in the 1990s context) from the classic middleman of earlier periods. Other scholars, nevertheless, continue to adopt the original term as they see the generalizability of the theory as well as its extension into more modern contexts (for example, Grosfeld et al., 2020; Masry-Herzalla and Razin, 2014). Half a century has passed since the inception of the middleman minority theory, and notable changes have taken place in the demographic structure of Chinese immigrants and their destinations. For example, unlike the earlier periods of Cantonese- and Fujianesedominated emigration, more recent Chinese emigrants hail from various parts of China, and there is considerable cultural heterogeneity between different sub-groups of Chinese immigrants (Guo and DeVoretz, 2006). The newer Chinese immigrants are also organized differently from their predecessors, whose organizations were mainly based on locality and kinship (Liu, 2014). As regards immigrant entrepreneurship, the distinct middleman role that Chinese immigrants used to play in Southeast Asia and North America during earlier periods has been less frequently discussed in studies of contemporary Chinese immigrant entrepreneurs (for example, Kim, 2001; Nyíri, 2011). Unlike the early Chinese emigrants, the destinations for contemporary Chinese emigrants are also diversified across all six continents (Li and Li, 2013). This raises the question, with the passage of time: is the term ‘middleman minorities’ still applicable or valid to describe modern-day Chinese immigrant entrepreneurs? This chapter is therefore concerned with the following two research questions: 1. 2. Do contemporary Chinese immigrant entrepreneurs still play the middleman role in host countries? Are there any new features of contemporary Chinese immigrant entrepreneurs? It would not be possible to explore all the host countries or regions in one study. This chapter therefore chooses to focus on the Asia-Pacific region as it has long been a popular DANA (2nd edition) PRINT.indd 2 18/12/2020 11:32 Chinese immigrant entrepreneurs 3 destination for Chinese migrants owing to its geographical proximity and historical and cultural linkages with China. It is also a beneficial geographical area for conducting research on migrants owing to its cultural, ethnic, economic and political diversity (Castles and Miller, 2009). Therefore, such research with a focus on the Asia-Pacific region has the potential to be extrapolated to other host regions of the world. The delimitation of the research subject ‘contemporary Chinese immigrant entrepreneurs’ in this chapter is twofold. First, we primarily focus on the post-reform period (1978 to the present) first-generation immigrants from mainland China. Although there are other sizable Chinese diasporas in the Asia-Pacific, including those from Chinese populations in Hong Kong, Taiwan, Singapore and Malaysia, these groups exhibit very diverse cultural and social-economic profiles when compared with those from mainland China (Collins, 2002). Therefore, we treat these groups separately, with a focus on recent emigrants from mainland China. The reason for selecting 1978 as the starting point of the contemporary era is that this was the year when China started its economic reform and relaxed its strict controls on her people’s geographical mobility. In the three decades from 1949 to 1978, there were almost no emigrants from mainland China. Therefore, the contemporary Chinese immigrants and their predecessors represent two distinct groups. Second, this study adopts Brockhaus’s (1980: 510) well-established definition of an entrepreneur, who is ‘a major owner and manager of a business venture who is not employed elsewhere’. Hence, business owners, whether they are self-employed or employers, or joint venture partners, are all included. The primary methodology employed in this study is archival research, and we also present several examples and case studies that were observed from our own field research. The remainder of this chapter proceeds as follows. We begin with a section to summarize the demographic profile of contemporary Chinese immigrants in the Asia-Pacific region. Then, we classify these immigrants employing a typology of immigrant entrepreneurs we have developed. The subsequent two sections focus on entrepreneurs who fall into the middleman minorities category and those who do not and who fall into other new categories. Conclusions are drawn in the final section. DEMOGRAPHIC PROFILE OF CONTEMPORARY CHINESE IMMIGRANTS IN THE ASIA-PACIFIC Since its economy began opening up in 1978, China gradually relaxed its control over its citizens’ internal and international movements, and a vast number of mainland Chinese migrants started to relocate to different parts of the world (Wong, 1998). The United Nations (2019) reported that, by 2019, 10.7 million international migrants were born in mainland China, making it the third largest migrant-sending country in the world. Moreover, in the first two decades of the twenty-first century, China contributed over 7.4 million immigrants to the world, significantly ahead of any other country. The pace of movement accelerated with almost 70 per cent of the total mainland Chinese emigrants relocating from China during the past two decades. Table 1.1 provides a summary of Chinese immigrants’ demographic profile in major destination countries in the Asia-Pacific region. Despite varying statistical methods and data available in different countries, we can DANA (2nd edition) PRINT.indd 3 18/12/2020 11:32 4 DANA (2nd edition) PRINT.indd 4 18/12/2020 11:32 More than 764 000 Chinese nationals and an estimated 1 million ethnic Chinese (2018). Most arrived since the 1980s Over 1 million Chinese nationals, about two-thirds were Korean-Chinese (2017). Most arrived since the two countries established formal diplomatic relations in 1992 Between 700 000 and 800 000 of newly arrived immigrants came from mainland China (2016). Most arrived since the two countries established formal diplomatic relations in 1990 More than 526 000 were born in mainland China (2018). Most arrived since the 1980s. Over 1.2 million residents of Chinese ancestry About 133 000 were born in mainland China (2018). Most have arrived since the 1980s. Over 231 000 residents of Chinese ancestry Some 250 000 Chinese nationals (2018). Most arrived since the 2000s Japan Note: Chinese nationals refer to citizens of mainland China. Cambodia New Zealand Australia Singapore South Korea Description Cited in Ang (2018) Second largest group of foreign-born immigrants Cambodia Interior Ministry, reported in DW News (2019) Statistics New Zealand (2019) Australian Bureau of Statistics (2018) Song (2017) Largest group of foreign residents (50.6%) Largest ethnic group of nonEuropean descents and third largest group of foreign-born immigrants Largest Asian ethnic group and second largest group of foreign-born immigrants Largest group of foreign residents (over 60%) Japanese Bureau of Statistics (2019) Data source Largest group of foreign residents (28.5%) Demographic significance Overview of Chinese immigrants in major destination countries of the Asia-Pacific region Country Table 1.1 Chinese immigrant entrepreneurs 5 roughly estimate that, there are at least 4 million mainland China-born immigrants, of whom most arrived in their host countries after the 1978 Chinese economic reform, currently living in the Asia-Pacific region, accounting for over two-fifths of all China-born immigrants globally. This estimation does not include the millions of Southeast Asians of Chinese descent, nor the sizable number of Chinese migrants from Taiwan, Hong Kong and Macau. Nor does it consider the descendants of first-generation mainland China immigrants. Although the data shows that there is a heterogeneous group of Chinese who are migrants in the Asia-Pacific region but who were not born in mainland China, our chapter focuses on the most recent wave of Chinese migration since 1978. A TYPOLOGY OF IMMIGRANT ENTREPRENEURS Since middleman minorities mainly refer to minority groups of those who are concentrated in trade and commerce sectors, it does not encompass all types of immigrant entrepreneurs. For instance, an immigrant high-technology firm owner, would not normally fall within the scope of middleman minorities. Therefore, in order to proceed with our study, we developed a typology of immigrant entrepreneurs, based on theory, to explain the development of the phenomenon in recent times. In Figure 1.1, two dimensions of the coordinate plane are taken from the two distinct characteristics developed from the middleman minority literature (Aldrich and Waldinger, 1990; Bonacich, 1973; Portes and Zhou, 1992; Waldinger, 1986), namely: 1. Local–global dimension. Middleman minority immigrant entrepreneurs are normally clustered in the ethnic economy and prefer to do business locally, especially with their immigrant community. This means that they do not usually interact with the wider community and are not much involved in globalization opportunities; Innovator Neomiddleman minorities Global innovators Middleman minorities Transnational traders Trader Local Figure 1.1 Global A typology of immigrant entrepreneurs DANA (2nd edition) PRINT.indd 5 18/12/2020 11:32 6 World encyclopedia of entrepreneurship 2. Trader–innovator dimension. Middleman minority immigrant entrepreneurs are also mainly found in the trade and commerce sectors as trader-merchants. Following Kirzner (1973), they are in effect intermediaries and do not rely extensively on technology or business model innovation. The x-axis in the typology model represents for the local–global dimension, while the y-axis denotes the trader–innovator dimension. Figure 1.1 shows four typologies of Chinese immigrant entrepreneurs: ● ● ● ● Middleman minorities. The middleman minority perspective of Chinese immigrant entrepreneurs is represented by the first quadrant of a coordinate plane which sets a typical middleman minority entrepreneur operating in the trading and commerce sector within a localized ethnic enclave. However, there are other, more nuanced profiles of middleman minorities that are discussed subsequently in further detail. Neo-middleman minorities. These immigrant entrepreneurs are still confined within the ethnic economy but are more innovative in adopting new business models and new technology. For instance, this may be a developer of a smartphone-based food delivery application (app) created for Chinese restaurants in an overseas Chinatown locality. Transnational traders. These immigrant entrepreneurs regularly engage in cross-border trade activities and rely on them as their primary livelihood (Portes et al., 2002). They are transnational entrepreneurs but still confined to traditional business models with limited innovation. An example of this type of entrepreneur is a Chinese merchant who imports consumer goods from China and distributes them to local enterprises and stores. This category also includes immigrant entrepreneurs who conduct their transnational business with their main market in mainland China but have decided to migrate for non-entrepreneurial reasons (for example, better schooling and opportunities for children). They may also have homes in various host countries. Global innovators. These immigrant entrepreneurs differ from transnational entrepreneurs in that they are extensively engaged in innovation-orientated global businesses. For instance, this could be a Chinese immigrant who starts and grows a high-technology innovative venture that operates in different parts of the world. CONTEMPORARY MIDDLEMAN MINORITIES: ARE THEY LIKE THEIR PREDECESSORS? It is important in the study of immigrant entrepreneurs to also consider their cultural background. Despite being significantly different from the Chinese migrant entrepreneurs to Southeast Asia and North America in earlier periods, who were portrayed as typically middleman minorities, contemporary Chinese immigrant entrepreneurs still share the same ethnic identity and similar cultural practices with their predecessors. Although currently they may be diverging along different paths, it is unlikely that the entire group will jump into a whole new world in just a few decades. Therefore, we reason that there is still a large segment of contemporary Chinese immigrant entrepreneurs who can fall into the middleman minority category. This is illustrated next. DANA (2nd edition) PRINT.indd 6 18/12/2020 11:32 Chinese immigrant entrepreneurs 7 Being in the Middle: Middle-Class Traders There is a remarkable convergence between Chinese Confucianism and ancient Greek philosophy. When Confucius proposed the ethics of ‘Being in the middle’ (‘中庸之道’) in the fifth century BC, Aristotle echoed this with the philosophy of the golden mean a century later. In Chinese societies, being in the middle is a long-held tradition that translates to thinking and social interaction (Hwang, 2001; Shen, 2013). The Chinese believe that ‘the shot hits the bird that pokes its head out’,1 which means that they do not like to stand out against the majority, nor are they willing to sink to the bottom of the economic ladder as pariahs. They would prefer to maintain their petit-bourgeois status (Waldinger, 1986) and place themselves in the middle of social stratification. This type of middle mentality in Chinese culture resonates with the portrait of a typical middleman minority. According to Bonacich (1973), the middle position of middleman minorities takes two forms: first, they are mainly in middleman occupations, notably in trade and commerce sectors and, secondly, they occupy an intermediate position in host societies’ social strata. Chinese immigrants have had a long history of entrepreneurship (Ahlstrom et al., 2004; Mackie, 1992). As a minority ethnic group, Chinese immigrants are usually confronted with cultural and language barriers when they are seeking job opportunities in host countries’ labour markets. However, the relative disadvantages experienced by Chinese immigrants in the host society does not result in a high unemployment rate among them (Fullin and Reyneri, 2011). Instead, in order to circumvent employment or underemployment and to stick with their being-in-the-middle mentality, many of them turn to self-employment or start their own business as an alternative to wage labour (Beaujot et al., 1994), and this can result in a higher probability of entrepreneurial engagement. For example, Collins (2002) reports that China-born Australian entrepreneurs, whether male or female, have a significantly higher entrepreneurship rate than native-born Australians. In Mandalay, the second largest city of Myanmar, the Associated Press in 2018 reported that 60 per cent of Mandalay’s economy was created by Chinese entrepreneurs, with most of them arriving from southern China in recent decades. Middleman minorities not only have a high entrepreneurial engagement rate, but are also clustered in industries with high liquidity, and are normally absent from more fixed investments, such as industrial and agriculture sectors, or more upmarket industries, such as high-technology and professional sectors (Bonacich, 1973; Weber, 1993; Willmott, 1966). Chinese immigrant entrepreneurs are usually pushed rather than pulled into entrepreneurship as they are often excluded from their host countries’ labour market. Consequently, it is often difficult for them to move up the industrial value chain and to go beyond being in the middle. Therefore, they have largely remained in the trade and commerce industries. For example, Selvarajah et al. (2012) surveyed 132 first-generation Chinese entrepreneurs in Australia, among whom only 23 entrepreneurs were in professional sectors, while more than half (67) were in restaurant and retail sectors. Cain and Spoonley (2013) note that there is considerable occupation mobility towards self-employment and small business sectors among China-born immigrants in New Zealand. The large numbers of Chinese immigrant entrepreneurs in the trade and commerce industries may be explained more by their culture. In the Chinese culture, guanxi (interpersonal relationship) is the fundamental dynamic of social networks, and this is DANA (2nd edition) PRINT.indd 7 18/12/2020 11:32 8 World encyclopedia of entrepreneurship deeply rooted in Chinese social and cultural values (Farh et al., 1998; Park and Luo, 2001). Those typical middleman industries, such as catering and retail sectors, rely heavily on the entrepreneurs’ intra-group connections, which are Chinese immigrants’ strengths owing to the salient role of guanxi in their entrepreneurial activities (Luo, 2007). In contrast, industries such as manufacturing require entrepreneurs to have strong outgroup connections and local familiarity, which in turn are difficult to build quickly among newcomers in host countries and even more so among those who do not share many similarities of the host countries’ culture. For example, it is hard for an owner of a manufacturing plant with a minority background to only engage with his or her own ethnic community, because of the need for a whole production line engagement and coordination between multiple parties. Hence, Chinese immigrant entrepreneurs are more prone to be excluded from these industries. Cain and Spoonley (2013) conducted interviews in New Zealand with immigrant entrepreneurs from five countries, and they found that among the mainland China-born entrepreneurs they interviewed, all of them had at least one mainland Chinese supplier and some of them dealt exclusively with Chinese-speaking suppliers. Unsurprisingly, most of them were in service and retail sectors. One change in recent years is that while Chinese immigrant entrepreneurs were middlemen minorities largely because of their place in the value chain, currently the middlemen characteristic is more nuanced, with many of them also belonging to the middle class. While pre-mid-twentieth-century Chinese emigration waves were dominated by poorly educated and low-skilled labourers who had moved out from mainland China, contemporary Chinese immigrants come from relatively different class and economic backgrounds. Over the past four decades, and particularly since the 1990s, overseas students, professionals and business migration applicants make up the major part of Chinese immigration flow to other countries. Research has found that the more highly educated segments of the population in China are five times more likely to emigrate than the average Chinese person, while in Europe the corresponding comparison rate is only 1.3 (Xiang, 2016). Overseas Chinese students comprise a significant percentage of Chinese immigrants (Tharenou and Seet, 2014). China is currently the world’s largest source country of international students, with more than 5.85 million students from mainland China having studied overseas from 1978 to 2018 (Ministry of Education of China, 2019) and from 2013 onwards, about two-thirds of Chinese overseas students obtain employment and immigrant visas in host counties upon completion of their studies (Zhou and Liu, 2016). Most of these Chinese students come from middle- and upper-class families. Business migrations are another important source of Chinese immigrants. For instance, during the first two decades of the twenty-first century, four-fifths of business immigration to Australia originated from China (Colic-Peisker and Deng, 2019). After overseas Chinese students have completed their studies, or as a condition of their business migration visas, many will consider setting up entrepreneurial ventures in their host countries. Essential Outsiders: Embedded in the Enclave Middleman minorities are notable for keeping themselves apart from host societies. As Bonacich (1973) noticed, group solidarity is often the result of hostility and discrimination from the host society (Aldrich and Waldinger, 1990). Therefore, although middleman minorities may do well in gaining economic status, their integration into the host country DANA (2nd edition) PRINT.indd 8 18/12/2020 11:32 Chinese immigrant entrepreneurs 9 often lags behind. Chirot and Reid (1997) describe the Chinese in Southeast Asia and the Jews in Central Europe as ‘essential outsiders’ to reflect the juxtaposition of their economic position and the host country’s exclusion against them. Bonacich (1973) argues that discrimination against middleman minorities is caused by their middleman positions where they generate disproportionate profits as a result of information asymmetry between producers and customers. This is exacerbated by the middleman minorities’ antagonism against the majority group (Bonacich, 1972), and their low social assimilation. With the advance of globalization and the information revolution, it is no longer as easy to take advantage of information asymmetry as a minority intermediary, especially in advanced economies. However, discrimination and hostility against immigrants from mainland China is still apparent in many Asia-Pacific countries (for example, Fitzgerald, 2007; Seol and Skrentny, 2009). Even in Singapore and Hong Kong, where the ethnic Chinese predominate the population, discrimination against newly arrived Chinese immigrants is also common (for example, Ang, 2018; Ng et al., 2015). Meanwhile, with the fast-growing number of new Chinese immigrants in many Southeast Asia countries, there is also rising controversy and anti-Chinese sentiment in this region (for example, Pheakdey, 2012). As a consequence of discrimination, middleman minorities develop strong community or ethnic solidarity over time in order to resist assimilation, and this is typically evident in a number of characteristics, such as residential self-segregation, preference of endogamy, persistence with their heritage, language and culture (Bonacich, 1973). For middlemen immigrant entrepreneurs, a distinctive characteristic is that they are inextricably intertwined with their ethnic enclave economy. We argue that the connotation of enclave economy is twofold. First, it refers to middleman entrepreneurs being geographically concentrated in ethnic enclaves. Second, it suggests that they are heavily reliant on ethnic networks in doing business and they target co-ethnic customers as their niche market. In the typology model (Figure 1.1), we use the term ‘local’ to indicate middleman immigrant entrepreneurs’ scope of business, in that they predominantly focus on their ethnic economy, take advantage of their ethnic networks in doing business and do not usually interact nor get involved with the wider community and transnational businesses. That is, they are embedded in the host society’s enclave economy (Kloosterman and Rath, 2001; Kloosterman et al., 1999). Among Chinese immigrants who are middleman entrepreneurs, their geographical preference is to be in a Chinatown of their host countries. This is a typical type of ethnic enclave (Zhou, 2010), where a compact homogenous Chinese settlement with a core of Chinese businesses (Chen, 2018) can be seen in many countries and cities where Chinese immigrants are clustered. As in the past, there still appears to be considerable numbers of newly arrived Chinese immigrants, especially merchants, hawkers and investors, found mainly in Chinatowns, who use it as an initial launch pad to safely set up and expand their ethnic-based business. For example, Hurstville is a suburb situated within Sydney’s metropolitan area with a significant number of Chinese immigrants and is considered to be Sydney’s contemporary Chinese ethnoburb (Wang et al., 2018). In 2016, 49.4 per cent of the residents in Hurstville were of Chinese descent while over 40 per cent were born in China, and this has increased by about 10 per cent over the past decade (Australian Bureau of Statistics, 2016). Hundreds of Chinese-related businesses, including Chinese restaurants, Chinese grocery stores, immigration and education consulting firms, and DANA (2nd edition) PRINT.indd 9 18/12/2020 11:32 10 World encyclopedia of entrepreneurship Chinese language schools are clustered around the centre blocks of Hurstville, among which many are run by newly arrived mainland Chinese immigrants. This example is contrary to some studies which claim new immigrants no longer linger in ethnic enclaves (for example, Chen, 2018). Ethnic networks, which generate a powerful bounded solidarity (Portes and Landolt, 2000) are central to Chinese middleman entrepreneurs. Guanxi is crucial in determining Chinese immigrant entrepreneurs’ industrial choices but, more importantly, within the ethnic community, guanxi is of paramount importance to the way Chinese entrepreneurs do business. For example, many Chinese immigrant entrepreneurs secure personal loans from private lenders via their ethnic networks in order to start a business, a mechanism similar to the concept of the credit slip as delineated in Coleman’s (1988) social capital theory. Private lending is prevalent among overseas Chinese entrepreneurs as it is often hard to obtain loans from banks in host countries. Another example is that among the over 1 million Chinese immigrants in Japan, people from the Chinese Fujian province comprised a significant portion and many Chinese restaurants and grocery stores in Japan are operated by Fujianese immigrants. However, most of them do not have Japanese citizenship and many are undocumented immigrants (for example, Liu-Farrer, 2010). Hence, it is extremely difficult for them to borrow money from Japanese banks or use other regular channels. However, Fujianese immigrants are arguably one of the most kinship-orientated groups among the Chinese sub-groups (Brandtstädter and Santos, 2008). There are various Fujian hometown- and clan-based associations across Japan, many of which can act as an intermediary for Fujianese immigrants to access private lending and, in some cases, Fujian triad gangs charge exorbitant rates for these private loans (United Nations, 2002). As regards clans, see the entry by David Leong, in Dana (2011). Middleman entrepreneurs also prefer to hire employees of the same ethnicity or origin to lower costs, as the host society’s labour market may be segmented by ethnicity and immigrant employers (Bonacich, 1972, 1973). Consistently, many Chinese immigrant entrepreneurs also have a very pronounced preference for hiring co-ethnic employees. For example, in Japan, over half of the Kenshuusei (研修生 in Japanese), that is, foreign labours who entered Japan via a skills trainee programme, are Chinese nationals. In spite of its ‘skills’ title, this was a loophole for Japanese employers to recruit low-skilled and low-paid foreign labour (for example, Bélanger et al., 2011). Thousands of Chinese Kenshuusei ended up in Chinese restaurants or firms and factories owned by Chinese entrepreneurs. These Chinese employers preferred to hire Chinese employees partially because they wanted to reduce business costs, but also because these employers themselves were not fully integrated into Japanese society, therefore, hiring a co-ethnic employee would decrease coordination costs in doing business (Den Butter et al., 2007). Similarly, in Australia, in most Chinese restaurants or grocery stores in Sydney, Melbourne or Brisbane, employees are usually Chinese nationals on working-holiday visas, Chinese students, or the business owner’s relatives; you are less likely to see a non-Chinese native Australian working in these businesses. In New Zealand, Cain and Spoonley’s (2013) study reports that, Chinese business owners prefer to hire co-ethnic bilingual speakers as an important strategy to overcome their own difficulties in English language proficiency. DANA (2nd edition) PRINT.indd 10 18/12/2020 11:32 Chinese immigrant entrepreneurs 11 ‘Falling Leaves Return to Their Roots’: A Sentiment-Based Sojourner Orientation The sojourner orientation is central to Bonacich’s (1973) middleman minorities theory. Some scholars even refer to her theory as the sojourner theory. The sojourner orientation has been subjected to criticism as some scholars suggest that in the contemporary context, immigrant entrepreneurs are less likely to be sojourners and sojourner orientation did not contribute to business performance (Aldrich and Waldinger, 1990; Waldinger, 1986). Bonacich (1973) has argued that the sojourner orientation does not necessarily mean an imminent return by the immigrant to his or her home country. Although many immigrants wish to return to their home country, they believe they may not do as well in their homeland owing to various factors, such as reverse culture shock, lack of social networks or other political and economic reasons (Ho et al., 2018). Accordingly, they may relinquish the dream of becoming a ‘glory returnee’,2 and instead settle down while deeply burying inside the desire to return home. Bonacich (1973: 593) illustrated this by using the example of Jews and argued that the Chinese immigrants desire to return may appear to be symbolic as can be seen in the way Jews pray for ‘Next Year in Jerusalem’ to keep their attachment to their ancestral land. Traditional Chinese culture advocates ‘Falling leaves return to their roots’(落葉 歸根) (Mah, 1999), which signifies no matter how successful a person is in a foreign land or anywhere other than their hometown, he or she is a sojourner anyhow, and ought to return to their homeland when they are old. Furthermore, ‘To die in a foreign land’ (客死他鄉) is a major taboo in traditional Chinese custom. For example, Tan Kah Kee, a prominent China-born entrepreneur, migrated to Singapore at the age of 16 during the Voyage to Nanyang exodus and established extensive businesses in Southeast Asia, but returned to the then deprived and turbulent China in his old age during the 1950s, partly because of his homesickness and the belief in return to roots. However, in more recent times, return to roots does not mean that Chinese immigrants must permanently return to China. Instead, it is now perceived as more of an attachment to their origin that will shape and strengthen a person’s sojourner mindset and make it more difficult for the individual to integrate into the host country. While the notion of a sojourner mindset originated from earlier Chinese immigrants, it has been passed on to the recent Chinese immigrants and is reflected in many aspects of their life and language. For example, despite having lived in Southeast Asia for centuries, many ethnic Chinese still call the region Nanyang, which literately means south of the ocean. Similarly, some Chinese immigrants in Japan still refer to the country as Dongyang, a century-old alias of Japan among Chinese communities which translates to east of the ocean. In Chinese, huaqiao refers to expatriates who are Chinese nationals, in contrast to huayi, which refers to people of Chinese descent but who are not Chinese citizens. However, many Chinese immigrants still call themselves huaqiao instead of huayi, despite having lived in the host country for decades and renounced their Chinese citizenship (Seet, 2007). In various Chinese business associations across different host countries, the leader of an association is usually colloquially referred to as qiaoling, which translates to the leader of huaqiao, or expatriates’ leader, irrespective of their nationality. This Sino-centric viewpoint and the attachment to the homeland is deep rooted, constantly sculpting the Chinese immigrants’ sojourner mindset and strengthening their ethnic identity, which DANA (2nd edition) PRINT.indd 11 18/12/2020 11:32 12 World encyclopedia of entrepreneurship makes them more likely sojourners than many other immigrant groups. For example, a Chinese gift shop owner in Australia when interviewed said: In some major cities in Australia where Chinese immigrants are clustered, there are many gift and souvenir shops named ‘XX huiguo gift (or souvenir) shop’ run by recent Chinese immigrants, and they usually have the shop’s Chinese name printed on an eye-catching plaque hung in front of the store. Huiguo (回國) in Chinese means ‘go back to home country’. For many people, it is difficult to apprehend [sic] that except Chinese international students and tourists, most Chinese residents here should already call Australia home, and they are the most regular customers of these shops. Meanwhile, some non-Chinese customers will also occasionally go to these shops. So, this raises the question in their minds, why would the owners give such a controversial and bizarre shop name? We have brought this question to a Chinese shop owner in Perth, Western Australia, and she answered us that most first-generation Chinese immigrants that she has met, whether Australian citizens or not, all used to calling ‘go to China’ as huiguo, and so does she. Furthermore, many Australian-born second-generation immigrants also use this phrase because they learnt it from their parents. Hence, she named her shop after this common verbal phrase so that many customers will have intimate feelings/associations with the name and derive business for her. IDENTIFYING NEW TYPOLOGIES: WHO ARE THEY? The previous section discussed the traditional type of middleman entrepreneurs among contemporary Chinese immigrant entrepreneurs in the Asia-Pacific region. As illustrated in Figure 1.1, we argue that there are three major new types of Chinese immigrant entrepreneurs that have emerged in the contemporary era, with distinct features of business model, technology adoption, target market and business scope, when compared with traditional middleman immigrant entrepreneurs. In this section, we illustrate this phenomenon with examples and case studies. Neo-Middleman Minorities Following from Aldrich and Waldinger (1990) who employed the term ‘pseudomiddleman minorities’ to distinguish the new middleman traders from the earlier middleman traders, we propose the term ‘neo-middleman minorities’ to describe those immigrant entrepreneurs who are still confined within their ethnic economy, but are more innovative in adopting new business models and new technology. The following are two examples. Daigou shoppers Daigou, literally meaning buying on behalf of in Chinese, is a new type of e-commerce channel that has emerged in the past decade both in mainland China and many overseas Chinese communities (Xie, 2018). Daigou is a novel direct-to-consumer or daigou-toconsumer (D2C) business model and its core mechanism is to take advantage of resource asymmetry. Some products may be expensive and hard to find in China while being cheaper and easily accessed in another country, for example, cosmetic products in South Korea and nutraceuticals in Australia. Other products, though, may be scarce or expensive in other counties while cheaper and easier to find in China, for example, numerous madein-China consumer products. DANA (2nd edition) PRINT.indd 12 18/12/2020 11:32 Chinese immigrant entrepreneurs 13 Daigou shoppers are professional shoppers, who can be individuals or even entrepreneurs that set up a daigou service company. They buy products on behalf of consumers both in the home and host countries. Most daigou shoppers conduct their business via Chinese online business platforms, such as alibaba.com or WeChat. Some even run their own websites, such as daigousales.com. In New Zealand, for example, there were reportedly an estimated 350 Chinese daigou entity stores in 2017 (McDougall, 2017). If a customer in China wants to buy New Zealand infant formula, which is scarce but popular in China, he or she can directly place an order with a daigou agency in Auckland, which is normally established by an immigrant Chinese entrepreneur. The agency’s manager dispatches employees to purchase the infant formula from pharmacies in the city and deliver the product back to China via a Chinese-operated express delivery company, which usually is at a much lower cost than a New Zealander-run courier company. Meanwhile, if a Chinese immigrant in Auckland wants to buy some made-in-China consumer products, some daigou agencies can also provide daigou services by contacting their suppliers in China provided the business is lucrative. Although daigou shoppers are engaged in cross-border business, their business is almost exclusively focused on Chinese customers and they deal largely with other Chinese-run firms in the supply chain. Therefore, the daigou business is still embedded in the enclave economy. Given the large numbers of mainland Chinese migrants in many Asia-Pacific economies, some of these entrepreneurial ventures have experienced significant growth. For example, in 2017, daigou retailer AuMake International was able to list on the Australian Stock Exchange (Reuters, 2017). Meanwhile, the emerging daigou industry is sometimes considered by the host country as well as the Chinese authority as a grey market (Zheng, 2017), with some even involved in illegal activities, such as circumventing tariffs (Xie, 2018). Daigou shoppers are perceived as opportunistic traders by some locals (Marano, 2018), hence, similar to traditional middleman entrepreneurs, they are also likely to be discriminated against or resented by the host society. EASI delivery Founded by Chinese-Australian entrepreneur and innovator Shen Jie in 2014 in Melbourne, EASI has quickly become a popular Asian food delivery app in Australia. As of 2018, it boasted 200 000 downloads and delivers food from over 20 000 partnered restaurants across all the Australian major cities. EASI is a smartphone-based app that operates similarly to Uber Eats (they were founded in the same year). The app is highly user-friendly and both the English and Chinese language systems of the app are professionally elaborated (as is a recently added Japanese version). While being a novel and highly innovative entrepreneurial venture, ESAI, similar to daigou shoppers, is still confined within the ethnic economy. Its partnered restaurants are mainly Asian restaurants and particularly Chinese restaurants, and its target market also predominantly caters to ethnically Chinese customers. Owing to most of the EASI couriers delivering food by bicycle, their delivery services are mainly limited to Chinatowns and their peripheral suburbs. EASI’s pronounced ethnic market preference can be seen in their distinctive delivery bicycles or couriers’ yellow vest uniforms; all of them have noticeable Chinese characters. An EASI delivery bicycle in Sydney’s Chinatown has Chinese characters on it which translate to ‘Sydney food delivery’. This DANA (2nd edition) PRINT.indd 13 18/12/2020 11:32 14 World encyclopedia of entrepreneurship form of ethnic economy orientation is extremely rare among other ethnic businesses in most host countries. Transnational Traders Transnational traders are entrepreneurs who still are confined in traditional business models, but unlike the traditional middleman entrepreneurs, their businesses extend over the enclave economy and reach out to the wider cross-border community. We demonstrate this with two cases. Chinese investors in Cambodia Since the 2000s, there has been an influx of a large number of Chinese businesspersons and foreign direct investment (FDI) into Cambodia (Nyíri, 2012; O’Neill, 2014), especially in the past few years when the two counties decided to strengthen cooperation under China’s Belt and Road Initiative (BRI). In 2018, there were reportedly some 250 000 Chinese nationals living in Cambodia (DW News, 2019), and many them were operating businesses. Sihanoukville, a Cambodian port city, attracted large numbers of Chinese immigrants as it was declared a tax-free economic zone under an agreement between China and Cambodia. Online gambling was legalized in the city and thousands of Chinese immigrants invested in the lucrative peripheral industries such as hotels, restaurants, tourism and tourism-related manufacturing (Guardian, 2018). Cambodia is designated a least developed country (LDC) by the United Nations as its domestic consumption remains at a low level and it lacks a complete supply chain to sustain many industries. Therefore, as transnational traders, these Chinese investors are heavily dependent on China as their major source of labour, consumer products and capital. They fly frequently between the two countries and, to them, Cambodia is more of a marketplace than a host country, although many of them have been living there for almost two decades. Another reason they are transnational traders rather than traditional or neo-middleman entrepreneurs is owing to their range of customers. Although many of their customers are Chinese visitors or tourists from China, they also have a considerable number of customers from other Asian and Western countries, as well as local Cambodians. Therefore, these businesses cannot be defined as an enclave economy (Citrinot, 2019). A Chinese business migrant family in Australia In the past few decades, many advanced economies, such as Australia, New Zealand and Singapore, have introduced various business and investment migration programmes to attract wealthy and entrepreneurial migrants. These business migration programmes, generally require applicants to have had a successful entrepreneurial record in their home country. The applicants also have to establish one or more businesses in the host country in order to meet the visa requirements (Hoang, 2015). Consequently, many of these business migrants are engaged in cross-border businesses as they have business connections in both home and host countries. A number of studies apply the concept of dual embeddedness to delineate these transnational Chinese entrepreneurs, and argue that they are dually embedded in their host and home countries, hence, they maintain strong business and social links with both countries (Colic-Peisker and Deng, 2019; Dimitratos et al., 2016; Ren and Liu, 2015). DANA (2nd edition) PRINT.indd 14 18/12/2020 11:32 Chinese immigrant entrepreneurs 15 We interviewed a Chinese business migrant in Western Australia in 2019. The participant and his wife own a 20-employee import–export company in an eastern China city in the Yangtze Delta region. A few years ago, the couple applied for an Australian business innovation and investment visa (188A), which targets small to medium-sized enterprise (SME) owners. In order to meet the visa requirements and thereby obtain permanent resident (PR) status, they set up a small business, hired two employees and bought an apartment in Australia. However, since the couple were unfamiliar with the local environment and they had not established wide networks in such a short period of time, their Australian business underperformed, and struggled to reach the threshold required for their PR application. Therefore, they did not suspend their business in China because they were relying heavily on its profits. As a compromise, while sending their daughter to a local Australian school, the participant and his wife take turns to reside in Australia and China for six months at a time so that they can manage both businesses. Global Innovators Immigrant entrepreneurs who are global innovators are usually innovation orientated and draw on new technology and new business models to drive business growth as they take advantage of globalization to participate in cross-border business activities. Traditionally, Chinese immigrant entrepreneurs in the Asia-Pacific region have not been widely considered innovation driven, as high-technology Chinese immigrants overwhelmingly opt to operate from the United States in preference over other countries (for example, Hart and Acs, 2011; Saxenian, 2002). However, the landscape has changed rapidly in the past two decades. This is largely owing to China’s rapid economic development and its ambitious plans to transform itself from the world’s manufacturing hub to an intelligence-driven powerhouse, as envisioned in its ambitious ‘Made in China 2025’ plan. As a consequence, in recent years, there has emerged a burgeoning group of Chinese immigrant entrepreneurs who are global innovators in the region (Tharenou and Seet, 2014). We present the following two cases. Group case: Internet-based Chinese innovation going abroad In the early 2000s, the Internet model in China was mostly based on imitations from the United States. However, during the last decade, Internet-based innovation in China has not only caught up with many advanced economies but, in some cases, overtaken them. In areas like mobile payment, artificial intelligence, social media innovation, China is already recognized by some experts as a ‘global leader in technology’ (Waugh, 2018). This dramatic technology revolution not only spread domestically, but also spawned a growing number of Chinese entrepreneurs extending their business abroad, penetrating the global market as global innovators. For example, Panda Credit is a big-data-based financial services provider which predominantly focuses on the Southeast Asian and Indian market. Founded by a female overseas returnee entrepreneur Ye Wenjun in 2017, it soon reached 5 million users in less than three years. Similarly, TikTok, a video-sharing social-networking service launched by a young Chinese technician and entrepreneur Zhang Yiming in 2016, has become one of the most downloaded apps globally (Kumar and Prabha, 2019). In order to develop more customer-orientated business strategies, various offices and branches have been established by TikTok in Japan, Singapore, Australia and many other countries. Didi, DANA (2nd edition) PRINT.indd 15 18/12/2020 11:32 16 World encyclopedia of entrepreneurship an app-based ride-hailing company, founded in 2012, is currently administrated by chief executive officer (CEO) Liu Qing, a female overseas returnee and a Harvard graduate. Didi is considered a major global competitor of Uber, but it provides a wider range of services and a more customer-orientated business model (Liu and Kim, 2018). This helped Didi to successfully out-compete and eventually acquire Uber China in 2016. Since 2015, Didi has initiated its globalization strategy and it is now operating in several Asia-Pacific countries, such as Japan and Australia. Shi Zhengrong Shi Zhengrong, a Chinese-Australian entrepreneur and scientist, represents a typical Chinese immigrant global innovator. Shi obtained his doctorate in renewable energy engineering from the University of New South Wales in the early 1990s, and then worked as a researcher and set up a few high-technology businesses in Australia. Shi returned to China in the early 2000s after he acquired Australian citizenship, and later set up a solar power company – Suntech Power. Headquartered in China, Suntech also had businesses and representative offices in Australia and several other countries in the world. Suntech was the first Chinese private high-technology company to be listed on the New York Stock Exchange (Seet, 2010). Shi was also named China’s richest man in 2006 and the company was ranked among the top three in the world’s photovoltaics industry in 2013. Suntech filed for bankruptcy in 2013 owing to the company’s financial crisis. However, Shi’s innovation and entrepreneurship journey did not stop there. In 2019, it is reported that Shi returned to Australia, dubbed as the ‘Sun King’ and unveiled Australia’s largest lightweight solar set-up (Coote, 2019). One characteristic of the founders of these global businesses is that they are global talents that live, study and work in many countries (Ho et al., 2016). They capitalize on the developments of increasing global mobility, self-initiated expatriation and ‘boundaryless’ careers (Arthur and Rousseau, 1996; Cerdin and Selmer, 2014), especially in the context of international talent flow (Carr et al., 2005). For example, Ye Wenjun, studied in Dublin, Ireland and London, UK, before returning to China to work and establish Panda Credit in Beijing. She has been based in Southeast Asia since 2017 to focus on growing her market there. Similarly, Shi Zhengrong moved back to China after he had secured Australian citizenship to start Suntech Power. However, with the change in economic conditions, he has returned to Australia to pursue new opportunities. CONCLUSION The middleman minority theory forms an important body of scholarship in immigrant entrepreneurship research. Originating in the context of colonial and early post-colonial societies, a typical middleman was profiled as an immigrant of ethnic minority background who occupies an intermediary occupation, most likely a small business owner in trade and commerce sectors. Despite being discriminated against by the locals, he or she does not hold an extreme subordinate economic status and is often better off than an average native. He or she retains strong ethnic and cultural identity and prefers to do business with his or her own immigrant community. Most importantly, he or she holds an ambivalent attitude towards the host country and acts as a sojourner struggling to decide DANA (2nd edition) PRINT.indd 16 18/12/2020 11:32 Chinese immigrant entrepreneurs 17 whether to settle down permanently or to someday return to his or her home country (Blalock, 1967; Bonacich, 1973). Framed within the context of the contemporary era, we evaluated new (1978 to the present) immigrant entrepreneurs from mainland China in the Asia-Pacific region against the portrait of classic middleman minorities as their predecessors. Based on two dimensions of local–global and trader–innovator, we identified another three emerging types of Chinese immigrant entrepreneurs in addition to middleman minorities: neo-middleman minorities, transnational traders and global innovators. We conducted a review of the recent literature on contemporary Chinese immigrants by using archival research which was supplemented with cases drawn from secondary data and from our own field studies. We find that in general, the majority of Chinese immigrant entrepreneurs are still middleman minorities since they are mainly in trading, catering and retail industries, they are not fully integrated into the host country and they prefer to do business with their own Chinese community and hire Chinese employees. However, unlike their predecessors, newer Chinese immigrant middlemen entrepreneurs are more likely to be considered as middle class in host countries owing to their financial resources and educational levels. They are sojourner orientated, with many of them being more sentiment based towards China rather than anticipating an imminent or actual return to China. Meanwhile, we also find evidence for three new types of contemporary Chinese immigrant entrepreneurs. For each group, we illustrate with a group case and an individual case. From the cases, we notice that, while still in relatively small proportions, many of the Chinese immigrant entrepreneurs are gradually moving out of their enclave economies, moving up the value chain, and a few of them are becoming global innovators. Furthermore, we can see that female Chinese high-technology entrepreneurs are showing a noticeable presence in globalization and technology innovation, which are the major drivers that are propelling the transformation of contemporary Chinese immigrant entrepreneurs. We thus expect increasingly more immigrant entrepreneurs to break through the enclave economy and diverge into different entrepreneurial paths in the coming future. This study also faces some limitations that are likely to guide further research. First, there are some competing theories which may assist the understanding of our analysis. For example, the extension of the dual-embeddedness theory, namely, the mixed embeddedness theory was not used or discussed in detail but may have scope for better understanding the growing phenomenon of Chinese immigrant entrepreneurs who are global innovators (Ho et al., 2018). Second, this chapter focuses exclusively on the Asia-Pacific region, and we cannot generalize our findings to other contexts but this can be achieved through further research in other major host regions for mainland Chinese immigrant entrepreneurs (North America, Europe and certain parts of Africa). NOTES 1. The sentence is a literal translation of the Chinese proverb ‘槍打出頭鳥’. 2. The term ‘glory returnee’ is derived from the Chinese idiom ‘榮歸故里’, which means when a person succeeds in a host place or country, then he or she returns homeland with glory and respect from people of the homeland. 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Liu (2016), ‘Homeland engagement and host-society integration: a comparative study of new Chinese immigrants in the United States and Singapore’, International Journal of Comparative Sociology, 57 (1–2), 30–52. DANA (2nd edition) PRINT.indd 21 18/12/2020 11:32 2. Compensatory entrepreneurship Benson Honig Entrepreneurship has become a nearly universal synonym for proactive development and initiative worldwide, it generates considerable interest, thousands of professors teaching tens of thousands of classes worldwide, and generates a wealth of research (Aldrich, 2012) of which this encyclopedia is emblematic. For example, all the chapters are fundamentally encouraging and supportive of continuing and expanding entrepreneurship promotion and all its associated activities. Social media and entertainment are saturated with success stories of unicorns, that is, anomalies that fail to reflect the actual entrepreneurial environment (Aldrich and Ruef, 2018). However, from a purely social science perspective, no intervention is without weaknesses, and there are unanticipated consequences of nearly every attempt to advance one group over another (Doane, 2013; Koopmans, 2003; Levy, 2010). The discussion of entrepreneurial failure seems to have been swept under the proverbial rug, as we enthusiastically march on to promote solutions to problems often only poorly understood, such as inequality, lack of mobility and weak economic development. The field’s enthusiasm is effusive, as the noted scholar Don Kuratko (2005: 578) enthusiastically reports: ‘The revolution has begun in an economic sense, and the entrepreneurial perspective is the dominant force!’ Perhaps the most ubiquitous factor promoting entrepreneurship is the education sector, where interventions occur throughout the world, from kindergarten through postgraduate training and on to faculty and research scholars. Yet, despite the enthusiasm for training and preparing individuals, entrepreneurship support is a poorly understood and weakly researched domain. A recent systematic review reported that: Despite considerable enthusiasm in the public policy sphere, our review clearly demonstrates that research in the field provides only limited and highly idiosyncratic findings designed to help general and technology-based entrepreneurs to effectively succeed. Studies rarely utilize control populations and are based on weak theoretical backgrounds. They fail to incorporate state of the art methods and are typically cross sectional or of a case study nature. (Ratinho et al., 2020) The history of science has numerous dead ends, including fields as diverse as phrenology, eugenics, planetary epicycles and Lamarckism. What makes science evolve is both replication (poorly practiced in entrepreneurship research) and objective measurements and controls. Unfortunately, the field of entrepreneurship support is very weak regarding these important scientific foundational premises. Scholars of entrepreneurship, including the authors in this encyclopedia, have all to gain by the near universal link between entrepreneurship as an effective solution to solve public problems, including poverty, inequality, immigration integration and inefficient government services. However, as a field of study, there are severe limitations to what is in effect a phenomenological arena of study lacking a clear theoretical or definitional framework; what Sorenson and Stuart (2008) assert is a ‘field of dreams’. Unfortunately, only a very limited amount of research has examined entrepreneurship 22 DANA (2nd edition) PRINT.indd 22 18/12/2020 11:32 Compensatory entrepreneurship 23 failure, particularly as it relates to social and governmental policy. Instead, we are inundated with Shark Tank and Dragon’s Den television entertainment, which is frequently replicated in a local context as communities and universities attach themselves to the importance of developing entrepreneurial incubators, local competitions and elevator pitch contests with prizes and media attention. This enthusiasm has diffused widely into the research literature as well (Clark, 2008; Davis et al., 2017; Maxwell and Lévesque, 2014; Pollack et al., 2012; Smith and Viceisza, 2018). However, despite a few exceptions (Olaison and Sørensen, 2014; Shepherd, 2004), the subject of entrepreneurial failure has been largely overlooked. Thus, while entrepreneurship is celebrated and revered worldwide, only limited study has occurred regarding what negative consequences can arise from promoting this sociopolitical agenda at the expense of others. Media celebrates the rare cases of unicorns, which are businesses that reflect extremely rare examples that are highly successful but very difficult to predict, observe or learn from (Aldrich and Ruef, 2018). The new gig economy is celebrated as future opportunity (Smith and Viceisza, 2018), although for most participants it leaves much to be desired (Petriglieri et al., 2019). It is as though we promote lotteries to address economic and socio-political problems by celebrating the very few winners, and encouraging others to purchase their own tickets. COMPENSATORY ENTREPRENEURSHIP: A NEW PERSPECTIVE In two recent articles (Honig, 2017, 2018), I introduced a new term, ‘compensatory entrepreneurship’. I define compensatory entrepreneurship as ‘the political endorsement of entrepreneurial promotion activities, including training, incubation, and media dissemination, for the primary objective of maintaining political and/or economic control of one population over another’ (Honig, 2017: 457). As we observe growing global inequality (Piketty, 2017), compensatory entrepreneurship continues to gain a greater share of attention on the political stage. It is particularly vibrant where existing elites are unwilling to consider reorganizing access to positions of power through meritocracies or education, and favor instead the selling of dreams of success to the masses of disenfranchised. Given current demographics and economic inequalities, these somewhat cynical offerings are likely to prosper worldwide. Instead of offering valuable access to knowledge and highproductivity employment, leaders and governments will continue to find it expedient to offer entrepreneurship training in reply to those seeking entry into positions of authority and power. Examples abound. I observed a systematically run program in a South African township, poor shantytowns left over from the apartheid era. It is in these shantytowns (or adjacent to them) that scholars from the university engage in short 3- to 4-day training programs, ostensibly to promote the development of cooperatives and entrepreneurial activity in the shantytowns. Lacking basic infrastructure, such as water and electricity, groups of university faculty train hundreds of desperate young and unemployed persons on the nuances of opening a cooperative or an entrepreneurial venture. There is no real opportunity available, the participants are not prepared and have little or no capital or knowledge, and the most effective assistance I observed during these sessions was the DANA (2nd edition) PRINT.indd 23 18/12/2020 11:32 24 World encyclopedia of entrepreneurship provision of a free lunch each day, which was enthusiastically consumed. I was told that the mayor organized and paid for this program in order to support both the political promises made (jobs for everyone) and the political advantages of running a neoliberaloriented program – whether or not it provided any results. Other examples include my observations at entrepreneurship education in a number of African countries. Students are typically taught in very large classes, often over 100 students. They are taught about entrepreneurship, not how to do entrepreneurship, and are given examinations based on detailed minutia that evaluates their ability to memorize trivial information rather than engaging in entrepreneurial activities. When interviewed after they graduate, unemployed students frequently indicate that they are waiting for a government job, despite leveraging their time with various entrepreneurial business activities. Their reason is that culturally, a government job is high status and guaranteed employment, whereas entrepreneurial endeavors embody risk. As a consequence, few university graduates are willing to indicate that they hope to be entrepreneurs as this would amount to a social failure on their part. What is necessary to avoid the diffusion of compensatory entrepreneurship worldwide? Most importantly, we need to focus on careful and effective entrepreneurship education evaluation. We should be measuring the impact of our programs longitudinally, many years after they take place, to discern what works and what does not. This would require careful studies with control groups and effective monitoring of outcomes, such as startups, jobs created, firm growth and satisfaction of the entrepreneur. Unfortunately, many studies lack rigorous measures (Martin et al., 2013). Programs or research activities that incorporate the heterogeneity we now recognize as a normative component of entrepreneurship are rare (Honig and Martin, 2014; Zeng and Honig, 2016). ENTREPRENEURSHIP, INEQUALITY AND THE SEARCH FOR HOPE The notion of compensatory entrepreneurship represents a serious legitimacy challenge to the field of entrepreneurship. If professionals and advocates use public resources to promote particular activities, we have a responsibility to ensure that money is well invested. Supporting an ‘entrepreneurship solves all problems’ bubble risks marginalizing the field when, eventually, policymakers and citizens realize we have not delivered on the promised goods. Rising inequality is likely to make access to effective entrepreneurship even more important, but success is determined as much by the institutional environment as by any support or training provided. Entrepreneurship educators should make a more systematic effort to examine issues related to failure, and introduce the subject of failure widely through our curriculum. Holding the carrot of unicorn status is both unreasonable and unprofessional. Scholars should begin the process of identifying how and when they are participating in valid programs with positive outcomes, versus programs that sell hope to desperate people but yield little more than a free lunch or two. As bottom-of-thepyramid social entrepreneurship continues to gain a greater foothold, we require a more accurate and honest assessment of our entrepreneurship promotion activities. The alternative is that we entrepreneurship scholars will be added to the dustbins of phrenologists, eugenicists and Lamarckists of earlier eras. DANA (2nd edition) PRINT.indd 24 18/12/2020 11:32 Compensatory entrepreneurship 25 REFERENCES Aldrich, H. and M. Ruef (2018), ‘Unicorns, gazelles, and other distractions on the way to understanding real entrepreneurship in the United States’, Academy of Management Perspectives, 32 (4), 458–72. Aldrich, H.E. (2012), ‘The emergence of entrepreneurship as an academic field: A personal essay on institutional entrepreneurship’, Research Policy, 41 (7), 1240–48. Clark, C. (2008), ‘The impact of entrepreneurs’ oral “pitch” presentation skills on business angels’ initial screening investment decisions’, Venture Capital, 10 (3), 257–79. Davis, B.C., K.M. Hmieleski, J.W. Webb and J.E. Coombs (2017), ‘Funders’ positive affective reactions to entrepreneurs’ crowdfunding pitches: the influence of perceived product creativity and entrepreneurial passion’, Journal of Business Venturing, 32 (1), 90–106. Doane, D. (2013), ‘Good intentions–bad outcomes? The broken promise of CSR reporting’, in A. Henriques and J. Richardson (eds), The Triple Bottom Line, London: Routledge, pp. 103–10. Honig, B. (2017), ‘Compensatory entrepreneurship: avoiding the pitfalls of global isomorphic entrepreneurship research and activities’, Iberoamerican Journal of Entrepreneurship and Small Business, 6 (3), 452–65. Honig, B. (2018), ‘Entrepreneurship as a political tool: the implications of compensatory entrepreneurship’, in C. Mathers and E. Ligouri (eds), Annals of Entrepreneurship Education and Pedagogy, 3rd edn, Cheltenham, UK and Northampton, MA: Edward Elgar, pp. 203–17. Honig, B. and B. Martin (2014), ‘Entrepreneurship education’, in A. Fayolle (ed.), Handbook of Research on Entrepreneurship, Cheltenham, UK and Northampton, MA: Edward Elgar, pp. 127–46. Koopmans, R. (2003), ‘Good intentions sometimes make bad policy: a comparison of Dutch and German integration policies’, in R. Cuperus, K.A. Duffek and J. Kandel (eds), The Challenge of Diversity: European Social Democracy Facing Migration, Integration, and Multiculturalism, Innsbruck: Studien Verlag, pp. 163–8. Kuratko, D.F. (2005), ‘The emergence of entrepreneurship education: development, trends, and challenges’, Entrepreneurship Theory and Practice, 29 (5), 577–98. Levy, S. (2010), Good Intentions, Bad Outcomes: Social Policy, Informality, and Economic Growth in Mexico, Washington, DC: Brookings Institution Press. Martin, B.C., J.J. McNally and M.J. Kay (2013), ‘Examining the formation of human capital in entrepreneurship: a meta-analysis of entrepreneurship education outcomes’, Journal of Business Venturing, 28 (2), 211–24. Maxwell, A.L. and M. Lévesque (2014), ‘Trustworthiness: a critical ingredient for entrepreneurs seeking investors’, Entrepreneurship Theory and Practice, 38 (5), 1057–80. Olaison, L. and B.M. Sørensen (2014), ‘The abject of entrepreneurship: failure, fiasco, fraud’, International Journal of Entrepreneurial Behavior & Research, 20 (2), 193–211. Petriglieri, G., S.J. Ashford and A. Wrzesniewski (2019), ‘Agony and ecstasy in the gig economy: cultivating holding environments for precarious and personalized work identities’, Administrative Science Quarterly, 64 (1), 124–70. Piketty, T. (2017), Capital in the Twenty-First Century, Cambridge, MA: Harvard University Press. Pollack, J.M., M.W. Rutherford and B.G. Nagy (2012), ‘Preparedness and cognitive legitimacy as antecedents of new venture funding in televised business pitches’, Entrepreneurship Theory and Practice, 36 (5), 915–39. Ratinho, T., A. Amezcua, B. Honig and Z. Zeng (2020), ‘Supporting entrepreneurs: a systematic review of literature and an agenda for research’, Technological Forecasting and Technical Change, 154 (C), doi:10.1016/j. techfore.2020.119956. Shepherd, D.A. (2004), ‘Educating entrepreneurship students about emotion and learning from failure’, Academy of Management Learning & Education, 3 (3), 274–87. Smith, B. and A. Viceisza (2018), ‘Bite me! ABC’s Shark Tank as a path to entrepreneurship’, Small Business Economics, 50 (3), 463–79. Sorenson, O. and T.E. Stuart (2008), ‘12 Entrepreneurship: a field of dreams?’, Academy of Management Annals, 2 (1), 517–43. Zeng, Z. and B. Honig (2016), ‘How should entrepreneurship be taught to students with diverse experience? A set of conceptual models of entrepreneurship education’, in J. Katz and A. Corbett (eds), Advances in Entrepreneurship, Firm Emergence and Growth, Bingley: Emerald, pp. 237–82. DANA (2nd edition) PRINT.indd 25 18/12/2020 11:32 3. Coopetition as an entrepreneurial strategy: focus on the wine sector James M. Crick and David Crick Coopetition is a fundamental entrepreneurial marketing strategy (Bouncken and Kraus, 2013; Bengtsson and Johansson, 2014; Granata et al., 2018; Crick, 2020a; Crick and Crick, 2020). It is the interplay between cooperation and competition, whereby competing firms share resources (for example, equipment and hardware) and capabilities (such as knowledge and experience) for mutually beneficial outcomes (Ritala and HurmelinnaLaukkanen, 2013; Bengtsson and Raza-Ullah, 2016; Hannah and Eisenhardt, 2018). Since coopetition strategies are intended to provide companies with new resources, capabilities and opportunities that would not exist under individualistic business models, it is not surprising that an existing body of research surrounds the link between coopetition and company performance (Ang, 2008; Ritala, 2012; Gnyawali and Charleton, 2018; Crick, 2019a). A common theme throughout the broader cross-disciplinary literature is that higher-levels of coopetition lead to increased company performance (Bengtsson and Kock, 2014; Shu et al., 2017; Hoffmann et al., 2018; Crick et al., 2020a). Coopetition has been examined in various empirical contexts; for example, automotive manufacturers (Akpinar and Vincze, 2016), high-technology firms (Gnyawali and Park, 2011), airline carriers (Czakon and Dana, 2013), tourism service providers (Czakon and Czernek, 2016), agricultural markets (Felzensztein and Deans, 2013), craft breweries (Mathias et al., 2018) and sporting organisations (Crick and Crick, 2016a). However, entrepreneurs owning wine-producing businesses within various countries have been active in implementing coopetition strategies. Specifically, various countries’ wine sectors host high degrees of cooperativeness and competitiveness – ideal forces (industry dynamics) for studying coopetition (see, for example, Telfer, 2001; Dana and Winstone, 2008; Dana et al., 2013; Crick, 2018a; Felzensztein et al., 2019; Granata et al., 2019). Consequently, the purpose of this chapter is to highlight the benefits and drawbacks of coopetition strategies by utilising published work from the global wine industry. This is important, so that scholarly and practical recommendations can follow regarding the effective implementation of coopetition strategies by owner-managers in competitive business environments. In addition, this investigation emphasises certain under-researched issues that academics can pursue to strengthen the existing body of knowledge.1 Importantly, this entry draws upon the wine industry as an empirical context used to explore coopetition, but conceptualisations to apply to other contextual settings. According to Jones and Rowley (2011), context is important in entrepreneurial marketing research, whereby, to advance theoretical knowledge, academics must study constructs or topics in relevant environments (such as industries or countries) that build upon or challenge earlier work. In this chapter, the global wine industry features as an empirical context that can enhance scholars’ current understanding of the facets, antecedents and consequences of the coopetition construct. To achieve the purpose of this chapter, the 26 DANA (2nd edition) PRINT.indd 26 18/12/2020 11:32 Coopetition as an entrepreneurial strategy 27 remaining sections are as follows. First, some key definitions and schools of thought pertaining to coopetition are examined. Second, the nature of the link between coopetition and company performance is conceptualised. Third, the extant literature examining coopetition in a wine-industry context is explored. Fourth, some future research directions are outlined. Fifth, the chapter is concluded, together with some practitioner implications. KEY DEFINITIONS AND SCHOOLS OF THOUGHT The coopetition construct originated from the business-to-business marketing literature in the 1990s. During this time, there were two schools of thought pertaining to how companies collaborate with their competitors. On the one hand, Brandenburger and Nalebuff (1996) argued that coopetition is an organisation-wide mind-set pertaining to managers and functional-level employees believing that company performance is maximised through working with industry rivals for mutually beneficial outcomes. On the other hand, Bengtsson and Kock (1999) investigated coopetition as a set of firm-level behaviours surrounding managers and function-level members of staff collaborating with their competitors via resource and capability-sharing activities. Over time, the behavioural view of coopetition has been the more popular school of thought. That is, scholars who have strengthened the coopetition literature have typically leaned towards conceptualising, operationalising and empirically evaluating coopetition as a set of firm-level behaviours (see Luo et al., 2007; Rusko, 2011; Dana et al., 2013; Czakon and Czernek, 2016; Hannah and Eisenhardt, 2018; Crick et al., 2020a). Hereafter in this chapter, coopetition is examined as an entrepreneurial marketing strategy, in which the behavioural lens is considered. The organisation-wide mind-set view of the coopetition construct is accounted for as a potential future research direction. Under a behavioural view, Bengtsson and Kock (2000: 411) defined coopetition as ‘a dynamic and paradoxical relationship, which arises when two companies cooperate in some areas (such as strategic alliances), but simultaneously compete in other areas’. While this definition was a good start at formally conceptualising how coopetition might occur, it contained the major flaw of being restricted to simultaneous collaboration and competition between two organisations. That is, there might be circumstances where more than two rival firms share resources and capabilities, and not least in a business cluster (see Luo et al., 2007; Dana and Winstone, 2008; Ritala and Hurmelinna-Laukkanen, 2013; Bengtsson and Johansson, 2014; Crick, 2018a; Felzensztein et al., 2019). Therefore, in their later work, Bengtsson and Kock (2014: 180) re-defined coopetition as ‘a paradoxical relationship between two or more actors, regardless of whether they are in horizontal or vertical relationships, simultaneously involved in cooperative and competitive interactions’. The latter definition not only provided scope for coopetition strategies to apply to multiple rival organisations, but also, indicated that coopetition could exist in vertical or horizontal channels. In this chapter, horizontal coopetition strategies are the core focus, rather than vertical forms of coopetition, in terms of supply chain networks. There have been several special issues dedicated to the interplay between cooperation and competition (see Bengtsson and Kock, 2014; Hoffmann et al., 2018). For example, Bengtsson and Kock (2014) guest edited a special issue of Industrial Marketing DANA (2nd edition) PRINT.indd 27 18/12/2020 11:32 28 World encyclopedia of entrepreneurship Management which covered several issues surrounding the benefits and drawbacks of coopetition strategies. As mentioned previously, Bengtsson and Kock (2014) re-defined the coopetition construct to apply to multiple rival entities, as well as covering vertical and horizontal forms of these activities (building upon Bengtsson and Kock, 2000). Furthermore, this special issue covered some of the dark sides of coopetition strategies, such as the potential for inter-firm tensions (for example, conflict, power imbalances and opportunistic behaviours) when the coopetition paradox is unhinged (Park et al., 2014; Raza-Ullah et al., 2014; Tidstrom, 2014). More recently, the Strategic Management Journal published a special issue on coopetition (guest edited by Hoffmann et al. in 2018). These articles unpacked the complexities of the relationship between coopetition and company performance, including the advantages and disadvantages of collaborating with competitors (Arslan, 2018; Cui et al., 2018; Hannah and Eisenhardt, 2018; Mathias et al., 2018). In summary, although coopetition strategies are widely studied throughout the existing body of cross-disciplinary knowledge, there are research gaps that academics are continuing to investigate. The link between coopetition and company performance follows in the next section. COOPETITION AND COMPANY PERFORMANCE Following an earlier point, the relationship between coopetition and company performance has been recognised in previous research (Ang, 2008; Bengtsson and Kock, 2014; Shu et al., 2017; Hoffmann et al., 2018; Crick et al., 2020a). Upon closer inspection, this link has been evaluated in several capacities, that is, in linear, non-linear (inverted U-shaped) and moderating effects (see Luo et al., 2007; Ritala, 2012; Crick, 2019a). Regarding the linear association between coopetition and company performance, some scholars have suggested that by collaborating with competitors, firms can obtain new resources, capabilities and opportunities that would not exist under individualistic business models (where coopetition does not exist) (Bengtsson and Kock, 1999; Ritala, 2012; Bengtsson and Johansson, 2014; Bengtsson and Raza-Ullah, 2016; Hannah and Eisenhardt, 2018; Crick et al., 2020c). That is, these findings suggest that higher-levels of coopetition lead to improved company performance. While this may be true, an alternative point of view signifies that coopetition is not always a performance-driving entrepreneurial marketing strategy. Specifically, some academics have indicated that there is a diminishing-returns effect when firms share resources and capabilities with industry rivals (see Luo et al., 2007; Ang, 2008; Hoffmann et al., 2018; Crick, 2019b). For example, cooperation with competitors needs to be carefully considered and judiciously executed because an over-reliance on highly-intensive competitor alliances may be just as harmful as under-using such alliances. Excessive cooperation may lead to free-riding and opportunistic exploitation, a potential loss of proprietary, technological, and marketing capabilities, and a possible dulling of a firm’s incentives to stay customer-focused. (Luo et al., 2007: 81) With ‘too little’ coopetition, organisations might struggle to survive within their markets, as they are unlikely to possess enough resources and capabilities needed to satisfy their customers’ wants and needs (Rusko, 2011; Bouncken and Kraus, 2013; Bengtsson and DANA (2nd edition) PRINT.indd 28 18/12/2020 11:32 Coopetition as an entrepreneurial strategy 29 Raza-Ullah, 2016; Crick, 2018a; Gnyawali and Charleton, 2018). However, although cooperating with competitors may lead to improved company performance, these outcomes are unlikely to be unlimited. With ‘too much’ coopetition, businesses might experience certain negative consequences: for example, lost intellectual property, inter-firm tensions (such as conflict, power imbalances, and opportunistic behaviours) and diluted competitive advantages (Luo et al., 2007; Ang, 2008; Ritala and Hurmelinna-Laukkanen, 2013; Raza-Ullah et al., 2014; Tidstrom, 2014; Bouncken et al., 2018; Cui et al., 2018). Thus, firms have the difficult task of engaging in an optimal level of coopetition to avoid these harmful effects on their performance (see Crick, 2020a). An emerging body of knowledge pertains to the moderators that might affect the relationship between coopetition and company performance (Park et al., 2014; Bengtsson et al., 2016; Crick, 2019a). Hoffmann et al. (2018) argued that this link is highly likely to be affected by contingencies that might help or hinder the performance outcomes of these strategies. For instance, the competitive business environment has been evaluated as a moderator that can affect the coopetition–company performance relationship in different capacities (Ang, 2008; Ritala, 2012; Shu et al., 2017). One viewpoint is that the competitive business environment can create more opportunities for organisations to engage in performance-driving forms of coopetition, since they can be selective as to which rivals they share resources and capabilities with, in relation to complementary product-markets (Felzensztein and Deans, 2013; Felzensztein et al., 2018; Crick, 2019b). Another argument is that the competitive business environment can enhance the dark sides of collaborating with competitors owing to the risk to inter-firm tensions, lost intellectual property and diluted competitive advantages (Luo et al., 2007; Crick and Crick, 2020). In this current entry it is appreciated that the coopetition–company performance relationship is complex, with scope for linear, non-linear (inverted U-shaped) and moderating effects. Nonetheless, later sections of this chapter revisit the moderating role of the competitive business environment in greater depth. Coopetition in a wine-industry context is discussed in the next section. COOPETITION IN THE WINE INDUSTRY Coopetition has been explored in a range of industry settings within numerous countries (Gnyawali and Park, 2011; Crick and Crick, 2016a; Czakon and Dana, 2013; Czakon and Czernek, 2016; Felzensztein and Deans, 2013; Akpinar and Vincze, 2016; Mathias et al., 2018; Kraus et al., 2019). When studying coopetition, it is important to select a sector (or sectors) that hosts a high degree of cooperativeness and competitiveness (Bengtsson and Johansson, 2014; Bengtsson and Raza-Ullah, 2016; Hannah and Eisenhardt, 2018). The reason for this is that coopetition is the interplay between cooperation and competition, and to fully understand the coopetition construct (as well as its antecedents and consequences), scholars must conduct research in an industry that is highly cooperative and highly competitive (Bengtsson and Kock, 2000; Rusko, 2011; Bouncken and Kraus, 2013; Felzensztein et al., 2014; Geldes et al., 2017; Granata et al., 2019). According to Crick (2018b), wine-producing countries across the world are suitable for studying coopetition, since these markets manage competitive rivalry alongside cooperative behaviours. Clusters have been studied in various industry contexts.2 Regarding cooperativeness, DANA (2nd edition) PRINT.indd 29 18/12/2020 11:32 30 World encyclopedia of entrepreneurship vineyards and wineries have been found to actively share equipment and experience with rivals within their own clusters (and between wine regions) for mutually beneficial outcomes (see Dana and Winstone, 2008; Dana et al., 2013; Granata et al., 2018; Felzensztein et al., 2019; Crick et al., 2020c). However, irrespective of the extent to which vineyards and wineries collaborate with their industry counterparts, the firms involved are still competitors. That is, the global wine industry is very competitive, in the extent to which organisations compete for the same domestic and international product-markets (Felzensztein et al., 2014; Crick, 2015; Crick et al., 2020a). Consequently, in any sector, but with the wine industry being a prime example, even in the most cooperative forms of coopetition, there will always be a degree of rivalry involved (Bengtsson and Kock, 1999; Luo et al., 2007; Ritala, 2012; Arslan, 2018; Bouncken et al., 2018; Crick, 2019a). The following ten studies provide some strong theoretical and practical contributions to the entrepreneurship (and entrepreneurial marketing) literature. Their connection is that they have explored coopetition strategies using empirical data from a wine industry context (in various countries). First, Telfer (2001) undertook a qualitative investigation of coopetition in the Niagara wine region of Canada. The findings revealed that coopetition can occur informally or formally, in which vineyards and wineries can establish contractual strategic alliances or cooperate in ways that are not legally binding, such as sharing resources and capabilities. Telfer (2001) suggested that coopetition might lead to regional growth, such as promoting wine tourism to local visitors and tourists from further afield. However, Telfer (2001) focused on formal types of coopetition (for example, strategic alliances), and how they benefit the companies involved. Second, Dana and Winstone (2008) examined coopetition strategies within the Waipara wine region in the South Island of New Zealand. They emphasised that coopetition is vital for enhancing the national-level and international-level reputation of relatively boutique wine regions. Dana and Winstone (2008) suggested that coopetition strategies allow vineyards and wineries to access new resources and capabilities to produce highquality wine, as well as ways to assist them to enter new and existing export markets. In turn, coopetition can help vineyards and wineries to increase their performance, especially their sales in international product-markets. Third, continuing with work conducted in the Waipara wine region, Dana et al. (2013) found that coopetition can evolve owing to a range of cluster-level and industry-level factors. For example, as the New Zealand wine industry expands its relationships with stakeholders (such as universities, regional institutions and marketing boards), individual vineyards and wineries might be motivated to collaborate with their competitors to capitalise on opportunities pertaining to the growth of the sector. Also, Dana et al. (2013) suggested that coopetition can help vineyards and wineries to improve their performance, but these outcomes are potentially influenced by the growth of the sector, suggesting that particular environmental-level conditions can positively impact the coopetition–company performance link. Recent work has addressed Dana et al.’s (2013) assertions by examining how the competitive business environment might moderate the coopetition–company performance relationship (see Park et al., 2014; Shu et al., 2017; Hoffmann et al., 2018; Crick and Crick, 2020). Fourth, Felzensztein et al. (2014) examined the dynamics of coopetition strategies in four wine-producing countries in the Southern Hemisphere, namely, Argentina, Australia, DANA (2nd edition) PRINT.indd 30 18/12/2020 11:32 Coopetition as an entrepreneurial strategy 31 New Zealand and Chile. They found that coopetition is a beneficial entrepreneurial marketing strategy, in relation to the likely positive association with company performance in export markets. That is, if vineyards and wineries were to compete under an individualistic business model, their brand equity and export sales might be low since it is difficult for such entities to successfully perform in an international arena. Felzensztein et al. (2014) indicated that coopetition allows vineyards and wineries to pool resources and capabilities (such as cash, equipment, hardware, production facilities, knowledge and experience) to create value for customers in export markets, but also lowers their operating costs in these arenas. Felzensztein et al. (2014) highlighted that while coopetition strategies are best implemented when the organisations involved are prepared to be cooperative, there will always be a rivalry element to these activities, encouraging the businesses involved to exercise caution. Nonetheless, Felzensztein et al.’s (2014) study contributed to a growing body of knowledge surrounding the positive relationship that exists between coopetition and company performance (see also, Bengtsson and Kock, 2000; Rusko, 2011; Ritala, 2012; Bouncken and Kraus, 2013; Crick, 2018a). They also extended the relatively limited volume of research associated with coopetition strategies for internationalised firms (see also, Dana and Winstone, 2008; Granata et al., 2018; Felzensztein et al., 2019; Crick and Crick, 2020). This was an important issue, since implementation of coopetition strategies might take place differently in international product-markets compared with domestic arenas (Etemad et al., 2001; Luo, 2005; Luo and Tung, 2007). That is, international competitive business environments are affected by volatile dynamics, such as varied customers’ wants and needs, complex supply chains, new technologies and different national-level cultures3 (Dana, 2001; Acs et al., 2003; Wright and Dana, 2003; Young et al., 2003; Ratten et al., 2007; Dana and Wright, 2009; Dana et al., 2009; Etemad et al., 2010; Crick and Crick, 2014; Ratten and Dana, 2015; Saridakis et al., 2019; Dabic et al., 2020). Fifth, Granata et al. (2018) examined coopetition strategies in the Pic Saint Loup region of France. They found that coopetition is a prominent entrepreneurial marketing strategy adopted by micro-firms, in which these entities have formal arrangements when collaborating with industry rivals. However, to separate the potential paradoxical forces of cooperativeness and competitiveness, very small vineyards and wineries require assistance from an industry-level governing body. Hence, Granata et al. (2018) recommended that regional-level and national-level policies should be used to help organisations to manage coopetition strategies, as well as to distinguish between how these businesses cooperate vis-à-vis compete. Granata et al.’s (2018) study supplemented other (including recent) work related to the management of coopetition strategies to reduce the damage from poorly organising the paradoxical forces of cooperativeness and competitiveness (see Luo et al., 2007; Ang, 2008; Raza-Ullah et al., 2014; Tidstrom, 2014; Czakon and Czernek, 2016; Cui et al., 2018). Sixth, Crick (2018a) used multi-source qualitative data from vineyards and wineries in New Zealand to evaluate a conceptual framework pertaining to the facets, antecedents and consequences of coopetition. Crick (2018a) found that coopetition-orientated behaviours are driven by an organisation-wide coopetition-orientated mind-set and firms having access to their competitors’ resources and capabilities. Specifically, coopetition strategies cannot occur if the rival entities involved do not believe in the performance-enhancing value of collaborating with competing businesses. In addition, coopetition requires companies being able to borrow their rivals’ assets for mutually beneficial outcomes, such DANA (2nd edition) PRINT.indd 31 18/12/2020 11:32 32 World encyclopedia of entrepreneurship as higher levels of financial performance, regional growth and customer satisfaction. Crick’s (2018a) study is among the limited number of studies to develop a conceptual framework depicting the dimensions, drivers and outcomes of the coopetition construct (see Gnyawali and Park, 2011; Gnyawali and Charleton, 2018; Hoffmann et al., 2018). Seventh, Felzensztein et al. (2019) explored small firm internationalisation using qualitative data from wine producers in Argentina, Chile and New Zealand. The key findings revealed that firm size and firm age are not key drivers of an ability to export wine, but an existence of an independent industry-level governing body can enhance their internationalisation capabilities. This can be achieved through facilitating coopetition strategies and networks between vineyards and wineries within particular wine clusters, as well as between regions. Thus, although Felzensztein et al.’s (2019) study indirectly investigated coopetition strategies, it contributed to the scarce, but growing, work on the interplay between cooperation and competition in an international arena (for example, Luo, 2005; Luo and Tung, 2007; Dana and Winstone, 2008; Granata et al., 2018; Crick and Crick, 2020). Eighth, Crick et al. (2020a) utilised qualitative data from the New Zealand wine industry to examine the potential dark sides of coopetition strategies. They found that coopetition is a multi-level construct, in which a strategy-as-practice perspective helped to explain how managers engage in a different form of coopetition compared with functional-level employees. While managers might perceive that they manage the interplay between cooperation and competition in an effective manner (balancing the paradoxical forces of cooperativeness and competitiveness), functional-level employees might distort this natural balance by behaving in a rivalrous capacity. Crick et al.’s (2020a) study contributed to an emerging strand of knowledge concerning the multiple-levels of the coopetition construct and how they help or hinder company performance (see Raza-Ullah et al., 2014; Bengtsson and Raza-Ullah, 2016). Similarly, Crick et al. (2020a) extended the growing body of literature linked to the dark side of coopetition (see Tidstrom, 2014; Czakon and Czernek, 2016; Bouncken et al., 2018; Cui et al., 2018). Ninth, Crick (2020a) examined other aspects of the dark sides of coopetition strategies using survey data from the New Zealand wine industry. Although earlier work has found that coopetition positively affects various assessments of company performance, such as sales, profitability and customer satisfaction (Luo et al., 2007; Ritala, 2012; Bouncken and Kraus, 2013; Bengtsson and Kock, 2014; Hannah and Eisenhardt, 2018), limited research surrounds the potential for a non-linear (inverted U-shaped) relationship (Luo et al., 2007; Ang, 2008; Crick, 2019b). Crick (2020a) conceptualised and tested the relationship between coopetition and three measures of company performance, namely, customer satisfaction performance, market performance and financial performance. This was important because entrepreneurs measure their success vis-à-vis failure in various ways (Dana, 1995; Hills et al., 2008; Dana et al., 2014; O’Cass and Morrish, 2016; Crick, 2018c; Crick and Crick, 2018b; Crick et al., 2018). That is, some entrepreneurs are growth orientated and seek to turn high profits, whereas, other owner-managers are lifestyle orientated and compete to yield a particular work–life balance (Crick and Crick, 2016d; Crick et al., 2016; Crick, 2020c). Previous research has found that vineyard and winery owner-managers can be growth orientated or lifestyle orientated (see Crick and Crick, 2015). In all three instances, Crick (2020a) found non-linear (inverted U-shaped) effects, suggesting that too little and too much coopetition is harmful for company performance, DANA (2nd edition) PRINT.indd 32 18/12/2020 11:32 Coopetition as an entrepreneurial strategy 33 whereby, vineyards and wineries must engage in an optimal-level of coopetition to maximise their performance and to mitigate the negative effects that collaborating with competing businesses might entail. While this might be difficult to implement in practice, Crick’s (2020a) study (extending those of Luo et al., 2007; Ang, 2008; Crick, 2019b) uncovered new evidence about what performance outcomes different coopetition strategies are most likely to positively and negatively affect. Tenth, Crick and Crick (2020) used a mixed methods research design to evaluate the nature of the relationship between coopetition and market performance. Using survey and follow-up interview data from New Zealand vineyards and wineries, they found that coopetition activities have a non-linear (inverted U-shaped) link with market performance. More interestingly, they hypothesised that competitive intensity is likely to positively moderate this association, as higher levels of industry rivals can facilitate more effective (performance-driving) forms of coopetition, so that businesses can be more selective in their choice of coopetition partners, relating to complementary productmarkets (Felzensztein and Deans, 2013; Felzensztein et al., 2018; Crick, 2019b). Yet, their results suggested that competitive intensity negatively moderates the non-linear (inverted U-shaped) relationship between coopetition activities and market performance (Luo et al., 2007; Park et al., 2014). Their follow-up qualitative evidence indicated that competitive rivalry can distort the delicate balance between the paradoxical forces of cooperativeness and competitiveness, and yield dark sides, such as inter-firm tensions, lost intellectual property and diluted competitive advantages (Ritala and HurmelinnaLaukkanen, 2013; Tidstrom, 2014; Bouncken et al., 2018). Thus, Crick and Crick (2020) found that there is a complex link between coopetition and company performance (building upon Luo et al., 2007; Ang, 2008; Shu et al., 2017; Hoffmann et al., 2018). In addition, they addressed implementation issues regarding the paradoxical forces of cooperativeness and competitiveness, namely, to avoid particular harmful effects on firms’ performance (extending Tidstrom, 2014; Czakon and Czernek, 2016; Bouncken et al., 2018; Cui et al., 2018; Granata et al., 2018; Gnyawali and Charleton, 2018). Suggested directions for future research follow in the next section. DIRECTIONS FOR FUTURE RESEARCH While coopetition strategies have been widely studied throughout the broader entrepreneurial marketing literature (Bengtsson and Kock, 2000; Luo, 2005; Dana and Winstone, 2008; Rusko, 2011; Ritala, 2012; Bouncken and Kraus, 2013; Bengtsson et al., 2016; Mathias et al., 2018; Granata et al., 2019), there are some major gaps that offer directions for future research. First, most coopetition-based research has examined the dimensions and consequences of these strategies, with only a handful of studies focusing on the drivers of coopetition (see Bengtsson and Kock, 1999; Dana et al., 2013; Crick, 2018a; Granata et al., 2018; Felzensztein et al., 2019). Future research should investigate the factors that motivate entrepreneurs to collaborate with their competitors, as well as the resources and capabilities that facilitate these strategies. For instance, scholars could focus on the nature and shape of the relationship between a coopetition-orientated mind-set and coopetition-orientated behaviours (building upon Brandenburger and Nalebuff, 1996; Gnyawali and Park, 2011; Gnyawali and Charleton, 2018; Crick and Crick, 2019). DANA (2nd edition) PRINT.indd 33 18/12/2020 11:32 34 World encyclopedia of entrepreneurship Second, an emerging body of knowledge pertains to the complexities of the coopetition– company performance relationship, such as the potential for non-linear (inverted U-shaped) and moderating effects, together with simple linear associations (see Luo et al., 2007; Ang, 2008; Ritala and Hurmelinna-Laukkanen, 2013; Crick, 2019a; Crick et al., 2020a). Therefore, in future research, academics are encouraged to explore the underlying mechanisms of the relationship between coopetition and company performance, including the potential for dark-side practices. This could involve moderators that might explain the variance of the potential non-linear (inverted U-shaped) effect (extending Luo et al., 2007; Ang, 2008; Crick and Crick, 2020). Furthermore, future research could evaluate whether there are any mediating factors in the coopetition–company performance relationship (also responding to Hoffmann et al., 2018). As an illustration, it might be that while there is a direct link between collaborating with competitors and company performance (as per Bengtsson and Kock, 1999; Gnyawali and Park, 2011; Ritala, 2012; Bouncken and Kraus, 2013; Granata et al., 2018; Kraus et al., 2019), there are intermediating variables at play. For example, without effective management of inter-firm relationships, coopetition might yield tensions (such as conflict, power imbalances and opportunistic behaviours), which in turn, negatively impact company performance (extending Raza-Ullah et al., 2014; Tidstrom, 2014; Czakon and Czernek, 2016; Bouncken et al., 2018). These issues, together with other mediators, offer future research opportunities. Third, a large proportion of the extant literature has concentrated on coopetition in domestic settings, whereby firms collaborate with their competitors within the same country (Rusko, 2011; Bengtsson and Johansson, 2014; Bengtsson et al., 2016; Czakon and Czernek, 2016). In contrast, research pertaining to coopetition in an international arena remains relatively under-researched (see Dana and Winstone, 2008; Shu et al., 2017; Granata et al., 2018; Felzensztein et al., 2019; Crick and Crick, 2020). Should scholars pursue this strand of literature, they ought to focus on how coopetition is implemented differently by firms competing in domestic arenas vis-à-vis international product-markets. Similarly, future research should consider the antecedents and consequences of international-level coopetition, as they might differ in comparison to the strategies in domestic settings. Fourth, theory needs to underpin any conceptualisations of the dimensions, drivers and outcomes of coopetition strategies (Bengtsson and Kock, 2014; Bengtsson and Raza-Ullah, 2016; Hoffmann et al., 2018). Popular theoretical lenses for investigating coopetition include resource-based theory, the relational view and stakeholder theory, as they help to explain the cooperative and competitive aspects of these strategies (Akpinar and Vincze, 2016; Gnyawali and Charleton, 2018; Hannah and Eisenhardt, 2018; Crick, 2019a; Crick et al., 2020a). Utilisation of a variety of theoretical lenses offer opportunities in future research. Fifth, many coopetition studies have been conceptual or qualitative (see Bengtsson and Kock, 2000; Luo, 2005; Rusko, 2011; Bengtsson and Raza-Ullah, 2016; Crick and Crick, 2016a; Hoffmann et al., 2018; Crick et al., 2020a), for which very few quantitative investigations exist (see Luo et al., 2007; Ang, 2008; Bouncken and Kraus, 2013; Crick and Crick, 2019; Crick, 2020a). Some measures of coopetition have been flawed, such as being uni-dimensional and employing single-item proxies (as per Ritala, 2012; Bouncken et al., 2018; Cui et al., 2018). Thus, future research should establish stronger measures of the coopetition construct. A strong methodology is needed to advance these DANA (2nd edition) PRINT.indd 34 18/12/2020 11:32 Coopetition as an entrepreneurial strategy 35 aspects of the broader entrepreneurial marketing literature, including suitable checks for credible research methods (Dana and Dana, 2005). Considering the appropriateness of the global wine industry for studying coopetition (Telfer, 2001; Dana et al., 2013; Crick, 2015; Felzensztein et al., 2019; Granata et al., 2019), these under-researched areas could be explored in this empirical context. Conclusions and practitioner implications follow in the next section. CONCLUSIONS AND PRACTITIONER IMPLICATIONS Our objective was to highlight the benefits and drawbacks of coopetition strategies by utilising published work from the global wine industry. This purpose was achieved through reviewing earlier work pertaining to the facets, antecedents and consequences of the coopetition construct. Then, drawing upon several articles that have examined coopetition strategies in particular wine-producing countries, this entry uncovered widely studied and under-researched issues that yield the following conclusions and practitioner implications. Importantly, although the global wine industry is a suitable empirical context for studying coopetition, it is merely one sector that has been employed to advance scholarly knowledge. However, the conceptualisations and empirical assertions related to vineyards and wineries, in this chapter, are likely to be transferrable to other industries that manage the paradoxical forces of cooperativeness and competitiveness. First, we conclude that while coopetition strategies might yield higher levels of company performance, this link is more likely to be complex, in which it is probably nonlinear (inverted U-shaped). Therefore, entrepreneurs should be careful not to engage in too little or too much coopetition, as there can be harmful effects on their performance. Second, we also conclude that the coopetition–company performance association is likely to be affected by moderating factors, such as the competitive business environment. Consequently, entrepreneurs must appreciate the competitive dynamics within their markets, as these forces could help or hinder the performance outcomes of coopetition strategies. Third, we finally conclude that there are various under-researched areas pertaining to coopetition. These include the antecedents of these strategies, the complexities of the link with company performance (the underlying mechanisms), coopetition in an international arena, particular theoretical lenses that can be applied to the interplay between cooperation and competition, and the measurement of the coopetition construct. Together, these gaps within the existing body of knowledge provide an interesting set of future research directions that can benefit academics and practitioners. NOTES 1. Since coopetition emerged from the business-to-business marketing literature (Brandenburger and Nalebuff, 1996; Bengtsson and Kock, 1999) and extended to other cross-disciplinary domains, positioning of this entry features at the marketing/entrepreneurship interface (also known as entrepreneurial marketing). Entrepreneurial marketing refers to the innovative, proactive and risk-taking behaviours that firms use to create value for their customers (Morris et al., 2002; Hills et al., 2008; Shi and Dana, 2013; Crick and Crick, 2016b; O’Cass and Morrish, 2016; Sadiku-Dushi et al., 2019; Crick, 2020b; Crick et al., 2020b). Coopetition has been related to the marketing/entrepreneurship interface in earlier work (see Crick and Crick, 2016a; DANA (2nd edition) PRINT.indd 35 18/12/2020 11:32 36 World encyclopedia of entrepreneurship Crick, 2018a), meaning that the entrepreneurial marketing perspective was an appropriate lens. Henceforth, key literature was retrieved primarily from marketing and entrepreneurship journals (but also alongside other management disciplines) to contribute to the entrepreneurial marketing literature. 2. Examples of how firms operate within their clusters have been explored in particular capacities that include ethnic enclaves (Chaudhry and Crick, 2004; Crick et al., 2016), wine regions (Felzensztein et al., 2018; Crick et al., 2020c) and the tourism sector (Crick, 2011). 3. 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Ramadani (2019), ‘Entrepreneurial marketing dimensions and SMEs performance’, Journal of Business Research, 100 (1), 86–99. Saridakis, G., B. Idris, J.M. Hansen and L.-P. Dana (2019), ‘SMEs’ internationalisation: when does innovation matter?’, Journal of Business Research, 96 (1), 250–63. Shi, H.X. and L.-P. Dana (2013), ‘Market orientation and entrepreneurship in Chinese family business: a socialisation view’, International Journal of Entrepreneurship and Small Business, 20 (1), 1–16. Shu, C., J.L. Jin and K.Z. Zhou (2017), ‘A contingent view of partner coopetition in international joint ventures’, Journal of International Marketing, 25 (3), 42–60. Spence, M.M. and D. Crick (2001), ‘An investigation into UK firms’ use of trade missions’, Marketing Intelligence & Planning, 19 (7), 464–74. Telfer, D.J. (2001), ‘Strategic alliances along the Niagara wine route’, Tourism Management, 22 (1), 21–30. Tidstrom, A. (2014), ‘Managing tensions in coopetition’, Industrial Marketing Management, 43 (2), 261–71. Wright, R.W. and L.-P. Dana (2003), ‘Changing paradigms of international entrepreneurship strategy’, Journal of International Entrepreneurship, 1 (1), 135–52. Young, S., P. Dimitratos and L.-P. Dana (2003), ‘International entrepreneurship research: what scope for international business theories?’, Journal of International Entrepreneurship, 1 (1), 31–42. DANA (2nd edition) PRINT.indd 39 18/12/2020 11:32 4. Corporate entrepreneurship Donald F. Kuratko, Michael H. Morris and Jeffrey G. Covin Large firms, especially those in maturing industries, must continually restructure and reinvent themselves, learning to become more innovative, if they hope to sustain themselves for the future (Kuratko et al., 2019). As innovation has emerged as a key contributor to sustainable advantage, corporate entrepreneurship (CE) is being embraced by executives as a focal point for organizational success (Ireland et al., 2009). Firms that are more entrepreneurial (that is, more adaptable, flexible, aggressive and innovative) are better positioned to not only respond to a dynamic, threatening and complex external environment, but create change in that environment. They do not take the external environment as a given, instead defining themselves as agents of change, leading customers instead of following them, creating new markets and rewriting the rules of the competitive game. However, despite the espoused and observed positive effects of CE, theoretical and empirical knowledge about the domain of CE and the entrepreneurial behavior on which it is based are key areas warranting greater attention (Hornsby et al., 2002; Dess et al., 2003; Hornsby et al., 2009). A fundamental ambiguity exists in the literature concerning what it means to have CE as a corporate strategy (Meyer and Heppard, 2000). Further, much is unknown about how CE is enacted in organizational settings. UNDERSTANDING THE CONCEPT OF CE The concept of CE has evolved over the past 45 years. Research in the 1970s focused on venture teams and how the concept of entrepreneurship could be applied inside existing organizations (Hill and Hlavacek, 1972; Peterson and Berger, 1972; Hanan, 1976). In the 1980s, researchers conceptualized CE as innovative behaviors involving organizational sanctions and resource commitments for the purpose of developing types of value-creating innovations, and as a process of organizational renewal (Alterowitz, 1988; Burgelman, 1983a, 1983b; Pinchott, 1985; Kanter, 1985; Schollhammer, 1982; Sathe, 1989; Sykes and Block, 1989). By the 1990s researchers had adjusted their focus to reenergizing and enhancing the firm’s ability to develop skills through which innovations could be created (Jennings and Young, 1990; Merrifield, 1993; Zahra, 1991; Birkinshaw, 1997; Borch et al., 1999; Barringer and Bluedorn, 1999). More comprehensive approaches also began to take shape during the 1990s, such as the distinction drawn by Guth and Ginsberg (1990) between new-venture creation within existing organizations and the transformation of ongoing organizations. Zahra (1991: 261) observed that CE can include ‘formal or informal activities aimed at creating new businesses in established companies through product and process innovations and market developments. These activities may take place at the corporate, division (business), functional or 40 DANA (2nd edition) PRINT.indd 40 18/12/2020 11:32 Corporate entrepreneurship 41 project levels, with the unifying objective of improving a company’s competitive position and financial performance’. A synthesis emerged by the end of the decade, approaching CE as ‘the process whereby an individual or a group of individuals, in association with an existing organization, create a new organization or instigate renewal or innovation within that organization’ (Sharma and Chrisman, 1999: 18). Based on these definitional perspectives, it becomes important to distinguish the various forms taken by CE within an organization. Four key concepts come into play: corporate venturing, strategic renewal, entrepreneurial orientation, and CE strategy. Corporate venturing is concerned with creation of a new venture, which occurs through two main activities. With internal corporate venturing, new businesses are created and owned by the corporation, and typically reside within the current corporate structure (Covin et al., 2015). External corporate venturing involves new businesses that are created outside the corporation and subsequently invested in or acquired by the corporation (Keil, 2004; Schildt et al., 2005; Markham et al., 2005). Miles and Covin (2002) reported that firms pursue corporate venturing in order to: (1) build an innovative capability as the basis for making the overall firm more entrepreneurial and accepting of change, (2) appropriate greater value from current organizational competencies or expand the firm’s scope of operations and knowledge into areas of possible strategic importance, and/or (3) generate quick financial returns. Strategic-entrepreneurship approaches refer to a broad array of significant entrepreneurial activities or innovations that are adopted in the firm’s pursuit of competitive advantage which usually do not result in new businesses for the corporation. Strategic entrepreneurship can take one of five forms: strategic renewal (adoption of a new strategy), sustained regeneration (introduction of a new product into an existing category), domain redefinition (reconfiguration of existing product or market categories), organizational rejuvenation (internally focused innovation for strategy improvement) and business model reconstruction (redesign of existing business model) (Covin and Miles, 1999; Hitt et al., 2001; Ireland et al., 2003; Ireland and Webb, 2007; Ketchen et al., 2007). Here, innovations are occurring with the firm’s strategy, product offerings, served markets, internal organization (that is, structure, processes and capabilities) or business model (Kuratko and Audretsch, 2009). There are two possible reference points that can be considered when a firm exhibits strategic entrepreneurship: (1) how much the firm is transforming itself relative to where it was before and (2) how much the firm is transforming itself relative to industry conventions or standards. The concept of a firm’s overall entrepreneurial orientation (EO) was initially proposed by Miller (1983) and further developed by Covin and Slevin (1989, 1991). The behavioral proclivities of firms are said to range from more conservative to more entrepreneurial, with the entrepreneurial end of the spectrum evidenced by innovativeness (introduction of new products, processes and business models), proactiveness (an action orientation that preempts competitors) and risk-taking (a willingness to contribute resources to projects with uncertain outcomes). Sustaining entrepreneurial behaviors is a necessary condition. Covin and Slevin (1991: 8) explain that ‘organizations with an entrepreneurial posture are those in which particular behavioral patterns are recurring’. A considerable volume of research has examined the performance implications of EO (for example, Lumpkin et al., 2009; Rauch et al., 2009). While there have been some disagreements regarding the underlying dimensionality of EO (for example, Lumpkin and Dess, 1996), as noted in DANA (2nd edition) PRINT.indd 41 18/12/2020 11:32 42 World encyclopedia of entrepreneurship two recent meta-analyses, the Miller/Covin and Slevin conceptualization is the dominant perspective of EO in the relevant literature (Rosenbusch et al., 2013). Morris et al. (2011) took the EO concept a step further by distinguishing the degree and frequency of entrepreneurial behavior in firms. The degree of entrepreneurial action refers to the extent to which the initiatives pursued by the firm are incrementally innovative, risky and proactive, or represent bold advances. The frequency of entrepreneurial actions refers to the number of initiatives pursued by an organization over a given period of time. It may vary from those companies that produce a steady stream of new products, services or processes, to other companies that rarely introduce something new. By considering both degree and frequency we can assess the entrepreneurial intensity of a company. Morris et al. (2011) have created a two-dimensional matrix (entrepreneurial grid) with the frequency (number of entrepreneurial events) on the vertical axis, and the degree (extent of innovativeness, risk and proactiveness) on the horizontal axis. The firm’s entrepreneurial intensity provides some measure of an organization’s entrepreneurial activity at any given time that could then form the basis for what constitutes a CE strategy. Specifically defined, a CE strategy is ‘a vision-directed, organization-wide reliance on entrepreneurial behavior that purposefully and continuously rejuvenates the organization and shapes the scope of its operations through the recognition and exploitation of entrepreneurial opportunity’ (Ireland et al., 2009: 21). From a strategic standpoint, CE requires considerable time and investment, and there must be continual reinforcement. By their nature, organizations impose constraints on entrepreneurial behavior. To be sustainable, the entrepreneurial spirit must be integrated into the mission, goals, strategies, structure, processes and values of the organization. Leadership must adopt an opportunity-driven mindset, where actions are never constrained by resources currently controlled (Morris et al., 2011). AN ORGANIZATIONAL CLIMATE FOR CORPORATE ENTREPRENEURIAL ACTIVITY The internal work environment determines the perceived costs and benefits associated with taking personal risks and whether the ambiguity and stress that entrepreneurial behavior can create is acceptable. The challenge is to develop an ‘innovation friendly’ internal environment. Toward this end, a considerable amount of CE research has explored the antecedents of entrepreneurial behavior. Aspects of the firm’s structure, planning and control systems, human resource management practices, and culture have been investigated (Ireland et al., 2006a, 2006b; Hornsby et al., 2002; Hornsby et al., 2009; Morris and Jones, 1993). In a comprehensive study, Kuratko et al. (1990) stress the importance top management support, reward and resource availability, and organizational structures and boundaries. Hornsby et al. (2002) have introduced the corporate entrepreneurship assessment instrument (CEAI) as an instrument for analyzing employee perceptions of an organizational climate conducive to entrepreneurial activity. Their results supported five stable antecedents of entrepreneurial behavior: (1) management support (willingness of senior managers to facilitate and promote entrepreneurial behavior, champion innovative ideas and provide resources people require to behave entrepreneurially), (2) work discretion/ DANA (2nd edition) PRINT.indd 42 18/12/2020 11:32 Corporate entrepreneurship 43 autonomy (managerial commitment to tolerate failure, provide decision-making latitude and freedom from excessive oversight, and delegate authority and responsibility to middle- and lower-level managers), (3) rewards/reinforcement (developing and using systems that reinforce entrepreneurial behavior, highlight achievements and encourage pursuit of challenging work), (4) time availability (ensuring that individuals and groups have the time needed to pursue innovations and their jobs are structured in ways that support efforts to achieve short- and long-term organizational goals), and (5) organizational boundaries (precise explanations of outcomes expected from organizational work and development of mechanisms for evaluating, selecting and using innovations). For the full instrument see Kuratko et al. (2014). IDENTIFYING MANAGERIAL RESPONSIBILITIES Managers at all organizational levels have critical strategic roles to fulfill as part of a CE strategy (Ireland et al., 2002). Senior-level managers are responsible for the articulation of an entrepreneurial strategic vision and the emergence of an organizational climate conducive to entrepreneurial activity. Burgelman (1984) contends they are responsible for retroactively rationalizing particular new businesses into the firm’s portfolio and its approach to strategy based on their evaluations of those businesses’ prospects as desirable, value-creating components of the firm. Further, they must structure the organization in ways that accommodate and reinforce the business ventures embraced. Separately, Ling et al. (2008) demonstrate that chief executive officers (CEOs) must shape top management teams around behavioral integration of entrepreneurship, encouragement of risk-taking propensity, decentralization of responsibilities and longer-term compensation. Covin and Slevin (2002) conclude that effective strategic leaders are those who (1) nourish an entrepreneurial capability, (2) protect innovations that threaten the current business model, (3) make opportunities make sense for the organization, (4) question the dominant logic, (5) revisit the deceptively simple questions and (6) link entrepreneurship and strategic management. Middle-level managers are the hub through which most organizational knowledge flows (Floyd and Wooldridge, 1992; King et al., 2001). To interact effectively with firstlevel managers, middle-level managers must possess the technical competence required to understand the firm’s core competencies. Simultaneously, in interacting with seniorlevel executives, they must understand the firm’s strategic intent and goals. Through these interactions, those operating in the middle of an organization’s structure influence and shape their firms’ entrepreneurial strategies. Kuratko et al. (2005) argue that middle-level managers’ work as change agents and promoters of innovation is facilitated by their position in the organization hierarchy. They contend these managers evaluate entrepreneurial initiatives emerging from lower organizational levels and endorse some of these to top management. They also endorse the top-level initiatives and sell their value-creating potential to the primary implementers – first-level managers. In addition, middle-level managers are molding the entrepreneurial opportunity into an opportunity that makes sense for the organization. They champion and guide the initiatives to assure that those originating at lower-organizational levels are not abandoned once their continued development requires higher-level support. They are instrumental in identifying DANA (2nd edition) PRINT.indd 43 18/12/2020 11:32 44 World encyclopedia of entrepreneurship and deploying necessary resources to convert entrepreneurial initiatives into a business reality as these initiatives evolve in scope, content and focus (McGrath and MacMillan, 1995). This includes redirecting resources away from existing operations and deploying them in entrepreneurial initiatives appearing to have greater strategic value for the firm (Burgelman, 1984). First-level managers have roles in initiating and experimenting with new ideas. They adjust these innovative concepts in response to anticipated and unplanned entrepreneurial challenges. In addition, they play a conforming role in adapting new initiatives to reflect operating policies, procedures and norms of the organization. Hornsby et al. (2009) found the relationship between perceived internal antecedents and corporate entrepreneurial actions (measured by the number of new ideas implemented) differed depending on managerial level. Specifically, the relationship between managerial support and entrepreneurial action was more positive for seniorand middle-level managers than it was for first-level managers, as was the relationship between work discretion and entrepreneurial action. While the few studies that have explored management levels have tended to emphasize the role of first-level managers in a bottom-up process of CE, the Hornsby et al. (2009) study provides support for the notion that senior managers have greater structural ability to take advantage of organizational conditions and thus implement more entrepreneurial ideas than do first-level managers. Finally, Brundin et al. (2008) provide evidence that employee willingness to act entrepreneurially increased when managers displayed confidence and satisfaction about an entrepreneurial project, and decreased when managers displayed frustration, worry or bewilderment. IMPLEMENTING ENTREPRENEURSHIP IN THE CORPORATE SETTING Five major elements must be addressed if CE is to become a reality in organizations. These include: 1. 2. Clearly delineating what the organization is looking for. Any discussion of CE must first clarify what employees are being asked to do. When it comes to innovation, we can distinguish types and trajectories. The basic types of innovation include product/ service innovation – changes to the products or services being sold – and process innovation – changes to the operational processes or ways of doing things. The basic trajectory for innovation may be discontinuous, dynamically continuous, continuous (incremental) or imitation. Another distinction examines how disruptive the innovation is in transforming business practice and rewriting the rules of an industry. Companies may have different expectations for types and trajectories of innovations being sought at different levels and within different divisions, functional areas or departments of the firm. Creating the culture. In addition to ensuring coordination across levels of management, for CE to run deep within organizations it must be embedded in the company culture (Hornsby et al., 2009). Important aspects of this include developing a language and integrating symbols of entrepreneurship, identification of entrepreneurial DANA (2nd edition) PRINT.indd 44 18/12/2020 11:32 Corporate entrepreneurship 45 3. 4. 5. role models, dissemination of company myths and stories tied to entrepreneurial actions, and establishment of customs that celebrate successes and failures by individuals and teams. It is a culture that reinforces values tied to opportunity alertness, challenging the status quo, proactiveness, tenacity, bootstrapping, calculated risktaking, guerrilla behavior, embracing change and tolerance of failure. Effective use of operating controls. Without proper operating control mechanisms, corporate entrepreneurial activity may ‘tend to generate an incoherent mass of interesting but unrelated opportunities that may have profit potential, but that don’t move [those] firms toward a desirable future’ (Getz and Tuttle, 2001: 277). Therefore, successful CE activity is contingent upon a firm’s ability to align innovative initiatives with control processes that balance formality and discretion (Morris et al., 2006). In a study of 177 firms operating in a wide variety of industries, Goodale et al. (2011) found the effects of management support, work discretion/autonomy, rewards/reinforcements, time availability and organizational boundaries on innovation performance was moderated by one or more control variables. These findings are consistent with control systems having simultaneous loose (slack, discretion or flexibility) and tight (systematic, exacting or accountable) properties. Proper employee training and preparation. Those within established companies are often ill-prepared to engage in entrepreneurial activity. Management must nurture and develop the entrepreneurial potential of employees. Arguably, the most critical element in this regard is the development of an entrepreneurial mindset (for example, McGrath and Macmillan, 2000; Ireland et al., 2003) in a manner that reflects the corporate context (for example, the employee is not acting independently, while the organization is assuming the risks, owns the innovation, and imposes constraints and limits on individual behavior). It is also important that training programs focus on development of particular entrepreneurial competencies, such as opportunity recognition and assessment, risk mitigation and resource leveraging. This training can be augmented by company mentoring programs, apprenticeships, internships, job shadowing and related initiatives where employees participate in or observe innovation projects as they unfold. Managing expectations and outcomes. Entrepreneurial initiatives within companies are messy, chaotic and unpredictable, and emerge in a non-linear manner. They demonstrate failure rates of approximately 50 percent (Castellion and Markham, 2013). These characteristics will also vary based on the types and trajectories of innovation. Therefore, it is important that organizations manage expectations surround CE activity and set realistic timetables and targets for success. It is about recognizing that innovation will typically disturb the status quo and failure will be more frequent, and hence creating a greater organizational tolerance, but also devoting more attention to how outcomes are approached. Management must consider the impact of unexpected outcomes on employees involved with a particular innovative project, subsequent entrepreneurial behaviors of other employees, selection and management of future projects, and how much the organization learns. Beyond the need to eliminate any negative stigma associated with product failure, particularly as it relates to career advancement of those involved with a project, it is important to honor failures and their rich contributions to improving the company. DANA (2nd edition) PRINT.indd 45 18/12/2020 11:32 46 World encyclopedia of entrepreneurship CONCLUSION: GAPS IN OUR UNDERSTANDING OF CE Four decades after the concept of CE was first introduced, many vexing questions concerning CE remain unanswered, and its potential within most organizations is not being realized. Corporate entrepreneurship is acknowledged as a core contributor to the ability of companies to compete effectively in the dynamic environments of the twenty-first century. It is a process that takes many forms, broadly categorized into corporate venturing and strategic renewal. Yet, these forms are not well understood, particularly the managerial approaches and organizational architectures that are most conducive to facilitating a given form of CE. We know that large, established companies, in the natural way they tend to evolve, develop numerous obstacles and sources of resistance to entrepreneurship. As a consequence, these companies may be able to periodically undertake innovations, but struggle to sustain entrepreneurial activity on an ongoing basis. To this end, an array of external and internal antecedents to entrepreneurial activity have been identified by scholars, and we have discussed some of the more important of these. However, we have only begun to understand the dynamics of how these antecedents operate, and how forces that work against entrepreneurial behavior can be overcome without compromising organizational viability. 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(1983), ‘The correlates of entrepreneurship in three types of firms’, Management Science, 29 (7), 770–91. Morris, M.H. and F.F. Jones (1993), ‘Human resource management practices and corporate entrepreneurship: An empirical assessment from the USA’, International Journal of Human Resource Management, 4 (4), 873–96. Morris, M.H., D.F. Kuratko and J.G. Covin (2011), Corporate Entrepreneurship & Innovation, 3rd edn, Mason, OH: South-Western/Thomson. Morris, M.H., J. Allen, M. Schindehutte and R. Avila (2006), ‘Balanced management control systems as a mechanism for achieving corporate entrepreneurship’, Journal of Managerial Issues, 18 (4), 468–93. Peterson, R. and D. Berger (1972), ‘Entrepreneurship in organizations’, Administrative Science Quarterly, 16 (1), 97–106. Pinchott, G. (1985), Intrapreneurship, New York: Harper & Row. Rauch, A., J. Wiklund, G.T. Lumpkin and M. Frese (2009), ‘Entrepreneurial orientation and business performance’, Entrepreneurship Theory and Practice, 33, 761–87. Rosenbusch N., A. Rauch and A. Bausch (2013), ‘The mediating role of entrepreneurial orientation in the task environment–performance relationship’, Journal of Management, 39 (3), 633–59. Sathe, V. (1989), ‘Fostering entrepreneurship in large diversified firm’, Organizational Dynamics, 18 (1), 20–32. Schildt, H.A., M.V.J. Maula and T. Keil (2005), ‘Explorative and exploitative learning from external corporate ventures’, Entrepreneurship Theory and Practice, 29 (4), 493–515. Schollhammer, H. (1982), ‘Internal corporate entrepreneurship’, in C. Kent, D. Sexton and K. Vesper (eds), Encyclopedia of Entrepreneurship, Englewood Cliffs, NJ: Prentice-Hall. Sharma, P. and J.J. Chrisman (1999), ‘Toward a reconciliation of the definitional issues in the field of corporate entrepreneurship’, Entrepreneurship Theory & Practice, 23 (3), 11–28. Sykes, H.B. and Z. Block (1989), ‘Corporate venturing obstacles: sources and solutions’, Journal of Business Venturing, 4 (3), 159–67. Zahra, S.A. (1991), ‘Predictors and financial outcomes of corporate entrepreneurship: an exploratory study’, Journal of Business Venturing, 6 (4), 259–86. DANA (2nd edition) PRINT.indd 48 18/12/2020 11:32 5. Corporate entrepreneurship: new insights Olga Belousova, Aard Groen and Norris Krueger Corporate entrepreneurship (CE) is commonly understood as a process that allows established companies to extend and reorient profiles of their activities, entering new markets and creating new businesses. One of the most seminal definitions of CE describes it as a process whereby an individual or a group of individuals, in association with an existing organization, create a new organization or instigate renewal or innovation within that organization (Sharma and Chrisman, 1999). The CE process is believed to possess the following specific properties. First, CE is based on new resource combinations and extension of the existing competencies (Birkinshaw, 1997; Burgelman, 1983a; Covin and Miles, 1999). Second, it often requires a departure from the existing practices and the ability of a firm to acquire innovative skills and capabilities (Birkinshaw, 1997; Burgelman, 1983a; Covin and Slevin, 1991; Floyd and Wooldridge, 1999; Hornsby et al., 2002). Finally, while Vesper (1984), Carrier (1996) and Birkinshaw (1997) draw our attention to the role of employee’s initiative, Pinchot (1985) further introduces the notion of responsibility, and Chung and Gibbons (1997) suggest that CE activity is a collective action. Hence, the main characteristics of the process of CE are the use of internal resources (slack, saved or generated), enlargement of the competencies base of the company into new business areas, acquisition of new knowledge and skills to enter these areas, and the initiative of employees (individually or in group) who take responsibility for the project. More than 30 years of research have proved that CE is important for firms’ vitality (Dess et al., 2003) and the benefits associated with CE can be significant: it may allow organic growth and constant learning (Biggadike, 1979), or stimulate continuous innovation (Dougherty and Hardy, 1996; Tidd et al., 2005) thus leading to portfolio/risk diversification (Birkinshaw and Hill, 2003). Eventually, it may improve organizational performance and/or enhance its strategic value (Bierwerth et al., 2015; Birkinshaw and Hill, 2003; Hornsby et al., 2002; Ireland et al., 2006). Moreover, the need to obtain and develop entrepreneurial skills in addition to the skills of maintaining the existing businesses was stressed in the numerous works on ambidextrous organizations (for example, O’Reilly III and Tushman, 2008; Tushman and O’Reilly III, 1996). These studies suggest that firms may not only want to, but need to, set up and stimulate CE initiatives. Hence, the understanding of CE as a valid and effective area of research has real and tangible benefits for scholarly pursuit, as this work will have significant impact on an important organizational strategy (Kuratko, 2010). However, important ambiguities exist regarding the meaning of the construct: what does it mean to have a CE strategy and to practice CE? We argue that to resolve them, it is necessary to determine the type and status of CE in the organization. The topic has been plagued by inconsistent definitions and operationalizations as it embraces a variety of overlapping concepts. Let us take a look. 49 DANA (2nd edition) PRINT.indd 49 18/12/2020 11:32 50 World encyclopedia of entrepreneurship Corporate entrepreneurship Innovative Purposeful Innovation Corporate renewal Internal corporate venturing Business model Product/service Process Figure 5.1 External corporate venturing Reorganization Types of CE DIFFERENT TYPES OF CE Corporate entrepreneurship is a very broad concept including various processes and activities (see Figure 5.1). Hence, a first question in many discussions is, what exactly does belong within the definition of CE? Very broadly, CE can rely on two main mechanisms that determine its scope and the process of how it unfolds. The first mechanism comprises purposefully rejuvenating or redefining organizations, markets and industries to create or sustain a position of competitive superiority. This stream includes CE activities such as renewal of the company or its business model and external corporate venturing. The second is rejuvenating and redefining organizations based on innovation as the premier mechanism. It includes developing new product lines for the company, new production processes and new structurally separated lines of business through internal corporate venturing. More specifically, different types of CE activities can be described as follows. 1. 2. Innovation is creating and introducing new products, production processes and organizational systems (Zahra and Covin, 1995), as well as services and administrative techniques, often with an emphasis on the development of technology (Antoncic and Hisrich, 2001). It is important to stress the radical nature of the innovation. Thus, if a company is active in plastics and develops a new type of polymer, this should not be considered as CE. Instead, to be considered entrepreneurial, this company could develop a new product out of this polymer, hence entering a new market (product rather than raw material) and developing new competencies in production, assembly and marketing. Corporate-venturing activities refer to the creation of new business activities (new product lines and new markets) within firms using new structures, resources and opportunities that fall outside the purview of a company’s base businesses (Verbeke et al., 2007). More precisely, corporate venturing (CV) deals with the creation of formally autonomous or semi-autonomous business units or incubators or corporate start-ups (Antoncic and Hisrich, 2001). The focus of venture strategy can take two DANA (2nd edition) PRINT.indd 50 18/12/2020 11:32 Corporate entrepreneurship: new insights 51 3. principal orientations: internal and external (Williams and Lee, 2009). Internally orientated CV is formed around existing organizational structures and resources. Externally orientated CV occurs where the focus for investment and return is outside the firm’s existing asset base. This includes modes such as mergers, acquisitions, joint ventures and alliances, corporate venture capital and disposals (Maula et al., 2009). Corporate renewal (CR) has many facets, including the redefinition of the business concept (for example, a print newspaper decides to enter the online space), reorganization (a company sells one part of its business to reinvest and reinforce another) and the introduction of system-wide changes for innovation (for example, creating a new venture development, NVD, department) (Zahra, 1993). Corporate entrepreneurship thus leads to a major, complex and urgent change of the organization (Stopford and Baden-Fuller, 1994; Volberda et al., 2001). Corporate renewal processes mainly focus on corporate change rather than individual behaviors aimed at developing new products, processes and businesses for the established firm. Furthermore, they mostly occur following the purposeful decisions of management. An exception to this is could be a change in a business model induced by an innovation developed within the company. Hence, there are different ways to be an entrepreneurial organization, and there are different types of CE activities an organization could engage in. How to engage in them is another heavily debated aspect of CE. FOCUSED VERSUS DISPERSED CE STATUS The status of the CE activity within the organization is also an issue resulting in much debate: should CE be enclosed in a specialized department or should entrepreneurial initiatives be allowed throughout the organization (Gibson and Birkinshaw, 2004; Heller, 1999)? Being an activity that goes beyond the mainstream business and traditional job descriptions, CE is often approached as informal or even illegal (consider, for example, bootlegging, skunk-working, bending the rules and ‘it is better to ask for forgiveness than permission’ principles) (Marvel et al., 2007; Pinchot, 1985). However, some believe that CE processes can be induced by higher management and aligned with formal procedures established within the organization (Birkinshaw, 2003; Schollhammer, 1982). Some scholars suggest that we embrace CE as a combination of both formal and informal activities (Zahra, 1991). The following distinction between dispersed and focused CE configurations may be relevant to this discussion. The focused approach works on the premise that entrepreneurship and management are fundamentally different processes that require different modes of organization to occur effectively. This is typified by an NVD, whose mandate is to identify and nurture new business opportunities for the firm, typically characterized by a semi-autonomous entity with little formal structure, integration across traditional functional areas, availability of patient money, and management support for risk-taking and creativity (Birkinshaw, 1997). The mandate of an NVD is fundamentally broader and more ambiguous than that of a research and development (R&D) group, where the set of tasks and responsibilities can be narrowly defined (Birkinshaw, 1997). The focused approach to CE also assumes a relative structural autonomy of the process. As a consequence of the structural DANA (2nd edition) PRINT.indd 51 18/12/2020 11:32 52 World encyclopedia of entrepreneurship detachment, higher visibility and specified mandates from the management, the process of new venture development in a focused setting may appear to be overly prescribed and structured, with a higher level of corporate control (Miles and Covin, 2002). Also, being structurally detached from the everyday life challenges and opportunities of the business may result in a strategic drift of the NVD department from the innovation needs of the parent company (Heller, 1999). The dispersed approach to CE rests on the premise that ‘every individual in the company has the capacity for both managerial and entrepreneurial behavior more or less simultaneously’ (Birkinshaw, 1997: 209, original emphasis). Dispersed CE therefore assumes a latent dual role for every employee, consisting of (1) the management of ongoing activities and (2) the identification and pursuit of new opportunities. The advantage of this approach over the focused approach is that a greater diversity of opportunities will be sensed because the entrepreneurial capability is dispersed throughout the organization, rather than restricted to an NVD (Belousova and Gailly, 2013; Williams and Lee, 2011). The major disadvantage of this approach is that managerial responsibilities typically drive out less clearly defined entrepreneurial responsibilities and have more immediate rewards. Hence, the dispersed approach is potentially more promising in relation to quantity and richness (diversity) of the ideas for new businesses, but it is also riskier than the focused setting. Unless it is well managed, the dispersed approach can inhibit entrepreneurship (Birkinshaw, 1997; Elfring, 2005). COMPASS MODEL FOR UNDERSTANDING CE Based on the previous discussion, we argue that type (innovation, CV or CR) and status (focused or dispersed) of CE should be aligned with different strategies and arrangements of organizational systems that a company may employ to support the process and employees adequately. Consider Figure 5.2. The type and status of CE are at the core of the organizational vision for CE, and align with top-management beliefs and behaviors regarding entrepreneurship (firm level entrepreneurial posture), its organizational arrangements for CE, expected process models of how CE projects unfold over time, and employee motivations, behaviors and mindsets that trigger and fuel these CE projects. Top-management beliefs and behaviors regarding the supported form and configuration for entrepreneurship will be reflected in the firm level entrepreneurial posture, more commonly known as entrepreneurial orientation (EO) (Covin and Slevin, 1989; Lumpkin and Dess, 1996; Miller, 1983; Wales, 2016). Lumpkin and Dess (1996) argued that two firms may be equally entrepreneurial despite having different profiles for dimensions of their EO: while one firm will be stronger on the dimensions of innovativeness and proactiveness, another may employ a more risk-taking and competitively aggressive strategy. Wales et al. (2011) argued that, within an organization, EO may vary across different managerial levels and different departments or business units. This can also be explained by the different possibilities of these departments to engage in CE; organically through innovation or internal CV, or through acquisitions and joint ventures, and their different personnel arrangements and motivation systems put in place to stimulate their respective CE activities. Similar argument can be made for the organizational systems. A great deal of work DANA (2nd edition) PRINT.indd 52 18/12/2020 11:32 Corporate entrepreneurship: new insights 53 1) Innovativeness 2) Risk-taking 3) Proactiveness 4) Competitive aggressiveness 5) Autonomy 2. Top management 1) Idea discovery 2) Idea development 3) Promoting, championing 4) Production and bringing to the market Figure 5.2 3. Organizational mechanisms 1. Corporate entrepreneurship 1) Management support 2) Administrative systems 3) Resources 4) Rewards and reinforcements 5) Work discretion 4. Employees Type, status 5. Process Entrepreneurial mindset 1) Willingness, intentions 2) Cognition 3) Skills at individual and team levels Compass model for CE regarding factors stimulating CE has been undertaken by Hornsby and colleagues (Hornsby et al., 1993, 2002, 2008, 2013), who have identified a number of factors that stimulate employees to suggest and implement new business ideas for their organizations. However, it is easy to imagine that innovation, CV and CR activities require different managerial support, rewards, work design and scope of allocated resources. Furthermore, design of these organizational arrangements will also determine whether all employees of the organization are expected to be entrepreneurial, or only some of them. Since there is a reciprocal connection between cognition, environment and behavior of individual and teams of employees in CE (Blanka, 2019; Krueger, 2007; Shepherd and Krueger, 2002; Wakkee et al., 2010), whether initiative for CE is expected from a specialized core crew of an NVD department or from any employee throughout the organization would require different approaches to recruitment and development of employee human capital, such as employee competences (Hayton and Kelley, 2006). That is, the entrepreneurial potential of a firm, requires potential entrepreneurs (Krueger and Brazeal, 1994). The entrepreneurial mindset – willingness, cognition and skills (Hattenberg et al., in press) – of managers and employees is critical for successful CE outcomes (Belousova and Gailly, 2013; Belousova et al., in press; Shepherd and Krueger, 2002; Shepherd et al., 2010). Hence, the nature of the internal setup for CE will deeply influence employee intentions, mindset and behavior for CE (Mustafa et al., 2018), but employee mindset and behaviors will also influence the organization they are embedded in (Belousova and Gailly, 2012; Shepherd et al., 2010). Hence, the entrepreneurial mindset and entrepreneurial skills are essential for success. Finally, these different setups for CE will be reflected in the process of bringing an idea to the market: informal assembly of a project by employees dispersed throughout the DANA (2nd edition) PRINT.indd 53 18/12/2020 11:32 54 World encyclopedia of entrepreneurship organization (Belousova and Gailly, 2013) will differ greatly from a focused and formalized process of internal (Burgelman, 1983b; Miles and Covin, 2002) or external (Schildt et al., 2005) CV. Whether the employee activity is taking place within a specialized structure or in a normal organizational environment will also require various championing strategies and behaviors from the employees who decide to engage in CE (Day, 1994; Howell and Higgins, 1990; Markham and Griffin, 1998). Hence, although CE is (only) one of the scholarly communities within the broader field of entrepreneurship (Schildt et al., 2006), it still is diverse and requires further contextualization (Zahra, 2007) of both building theory and practice. We hope that with this compass model we can guide emerging scholars in their understanding of the knowledge body that has been built in the past three decades, and that we help promote relevant and constructive dialogue to advance the field of CE. REFERENCES Antoncic, B. and R.D. Hisrich (2001), ‘Intrapreneurship: construct refinement and cross-cultural validation’, Journal of Business Venturing, 16, (5), 495–527. Belousova, O. and B. 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Lane (2003), ‘Emerging issues in corporate entrepreneurship’, Journal of Management, 29 (3), 351–78. DANA (2nd edition) PRINT.indd 54 18/12/2020 11:32 Corporate entrepreneurship: new insights 55 Dougherty, D. and C. Hardy (1996), ‘Sustained product innovation in large, mature organizations: overcoming innovation-to-organization problems’, Academy of Management Journal, 39 (5), 1120–53. Elfring, T. (2005), ‘Dispersed and focused corporate entrepreneurship: ways to balance exploitation and exploration’, in T. Elfring (ed.), Corporate Entrepreneurship and Venturing, New York: Springer US, pp. 1–21. Floyd, S.W. and B. Wooldridge (1999), ‘Knowledge creation and social networks in corporate entrepreneurship: the renewal of organizational capability’, Entrepreneurship Theory and Practice, 23 (3), 123–43. Gibson, C.B. and J. Birkinshaw (2004), ‘The antecedents, consequences, and mediating role of organizational ambidexterity’, Academy of Management Journal, 47 (2), 209–26. 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Kuratko, D.T. Holt and W.J. Wales (2013), ‘Assessing a measurement of organizational preparedness for corporate entrepreneurship’, Journal of Product Innovation Management, 30 (5), 937–55. Hornsby, J.S., D.W. Naffziger, D.F. Kuratko and R.V. Montagno (1993), ‘An interactive model of the corporate entrepreneurship process’, Entrepreneurship Theory and Practice, 17 (2), 29–37. Howell, J.M. and C.A. Higgins (1990), ‘Champions of change: identifying, understanding, and supporting champions of technological innovations’, Organizational Dynamics, 19 (1), 40–55. Ireland, R.D., D.F. Kuratko and M.H. Morris (2006), ‘A health audit for corporate entrepreneurship: innovation at all levels: part I’, Journal of Business Strategy, 27 (1), 10–17. Krueger, N.F. (2007), ‘What lies beneath? The experiential essence of entrepreneurial thinking’, Entrepreneurship Theory and Practice, 31 (1), 123–38. Krueger, N.F. and D.V. Brazeal (1994), ‘Entrepreneurial potential and potential entrepreneurs’, Entrepreneurship Theory and Practice, 18 (3), 91–104. Kuratko, D.F. (2010), ‘Corporate entrepreneurship: an introduction and research review’, in Z.J. Acs and D.B. Audretsch (eds), Handbook of Entrepreneurship Research: An Interdisciplinary Survey and Introduction, New York: Springer, pp. 129–63. Lumpkin, G.T. and G.G. Dess (1996), ‘Clarifying the entrepreneurial orientation construct and linking it to performance’, Academy of Management Review, 21 (1), 135–72. Markham, S.K. and A. Griffin (1998), ‘The breakfast of champions: Associations between champions and product development environments, practices, and performance’, Journal of Product Innovation Management, 15 (5), 436–54. Marvel, M.R., A. Griffin, J. Hebda and B. Vojak (2007), ‘Examining the technical corporate entrepreneurs’ motivation: voices from the field’, Entrepreneurship Theory and Practice, 31 (5), 753–68. Maula, M.V.J., E. Autio and G.C. Murray (2009), ‘Corporate venture capital and the balance of risks and rewards for portfolio companies’, Journal of Business Venturing, 24 (3), 274–86. Miles, M.P. and J.G. Covin (2002), ‘Exploring the practice of corporate venturing: some common forms and their organizational implications’, Entrepreneurship Theory and Practice, 26 (3), 21–40. Miller, D. (1983), ‘The correlates of entrepreneurship in three types of firms’, Management Science, 29, 770–91. Mustafa, M., F. Gavin and M. Hughes (2018), ‘Contextual determinants of employee entrepreneurial behavior in support of corporate entrepreneurship: a systematic review and research agenda’, Journal of Enterprising Culture, 26 (3), 285–326. O’Reilly III, C.A. and M.L. Tushman (2008), ‘Ambidexterity as a dynamic capability: resolving the innovator’s dilemma’, Research in Organizational Behavior, 28 (1), 185–206. Pinchot, G.H. (1985), Intrapreneuring: Why You Don’t Have to Leave the Corporation to Become an Entrepreneur, New York: Harper & Row. Schildt, H.A., M.V.J. Maula and T. Keil (2005), ‘Explorative and exploitative learning from external corporate ventures’, Entrepreneurship Theory and Practice, 29 (4), 493–515. Schildt, H.A., S.A. Zahra and A. Sillanpaa (2006), ‘Scholarly communities in entrepreneurship research: a co-citation analysis’, Entrepreneurship Theory and Practice, 30 (3), 399–415. Schollhammer, H. (1982), ‘Internal corporate entrepreneurship’, in C.A. Kent, D.L. Sexton and K.H. Vesper (eds), Encyclopedia of Entrepreneurship, Englewood Cliffs, NJ: Prentice Hall, pp. 209–23. Sharma, P. and J.J. Chrisman (1999), ‘Toward a reconciliation of the definitional issues in the field of corporate entrepreneurship’, Entrepreneurship Theory and Practice, 23 (3), 11–27. DANA (2nd edition) PRINT.indd 55 18/12/2020 11:32 56 World encyclopedia of entrepreneurship Shepherd, D.A. and N.F. Krueger (2002), ‘An intentions-based model of entrepreneurial teams’ social cognition’, Entrepreneurship Theory and Practice, 27 (2), 167–85. Shepherd, D.A., H. Patzelt and J.M. Haynie (2010), ‘Entrepreneurial spirals: deviation-amplifying loops of an entrepreneurial mindset and organizational culture’, Entrepreneurship Theory and Practice, 34 (1), 59–82. Stopford, J.M. and C.W.F. Baden-Fulle (1994), ‘Creating corporate entrepreneurship’, Strategic Management Journal, 15 (1), 521–36. Tidd, J., J. Bessant and K. Pavitt (2005), Managing Innovation: Integrating Technological, Market And Organizational Change, 3rd edn, Chichester: John Wiley & Sons. Tushman, M.L. and C.A. O’Reilly III (1996), ‘Ambidextrous organizations: managing evolutionary and revolutionary change’, California Management Review, 38 (4), 8–30. Verbeke, A., J.J. Chrisman and W. Yuan (2007), ‘A note on strategic renewal and corporate venturing in the subsidiaries of multinational enterprises’, Entrepreneurship Theory and Practice, 31 (4), 585–600. Vesper, K.H. (1984), ‘Three faces of corporate entrepreneurship: a pilot study’, in J.A. Hornaday, F.J. Tarpley, J.A. Timmons and K.H. Vesper (eds), Frontiers of Entrepreneurship Research, Wellesley, MA: Babson College, pp. 294–326. Volberda, H.W., C. Baden-Fuller and F.A.J. Van Den Bosch (2001), ‘Mastering strategic renewal: mobilising renewal journeys in multi-unit firms’, Long Range Planning, 34 (2), 159–78. Wakkee, I., T. Elfring and S. Monaghan (2010), ‘Creating entrepreneurial employees in traditional service sectors’, International Entrepreneurship and Management Journal, 6 (1), 1–21. Wales, W.J. (2016), ‘Entrepreneurial orientation: a review and synthesis of promising research directions’, International Small Business Journal, 34 (1), 3–15. Wales, W.J., E. Monsen and A. McKelvie (2011), ‘The organizational pervasiveness of entrepreneurial orientation’, Entrepreneurship Theory and Practice, 35 (5), 895–923. Williams, C. and S.H. Lee (2009), ‘Exploring the internal and external venturing of large R&D-intensive firms’, R&D Management, 39 (3), 231–46. Williams, C. and S.H. Lee (2011), ‘Political heterarchy and dispersed entrepreneurship in the MNC’, Journal of Management Studies, 48 (6), 1243–68. Zahra, S.A. (1991), ‘Predictors and financial outcomes of corporate entrepreneurship: an exploratory study’, Journal of Business Venturing, 6 (4), 259–85. Zahra, S.A. (1993), ‘A conceptual model of entrepreneurship as firm behavior: a critique and extension’, Entrepreneurship Theory and Practice, 17 (4), 5–21. Zahra, S.A. (2007), ‘Contextualizing theory building in entrepreneurship research’, Journal of Business Venturing, 22 (3), 443–52. Zahra, S.A. and J.G. Covin (1995), ‘Contextual influences on the corporate entrepreneurship-performance relationship: a longitudinal analysis’, Journal of Business Venturing, 10 (1), 43–58. DANA (2nd edition) PRINT.indd 56 18/12/2020 11:32 6. Corporate venturing Garima Jha and Robert D. Hisrich Starting and operating a new business even under a corporate umbrella includes considerable risks and effort to overcome the inertia of creating something new of value to the organization as well as to the market and the individuals. In creating and growing a new corporate venture the corporate entrepreneur assumes the responsibility and risks for its development and survival. The term ‘entrepreneurship’ means different things to different individuals. Here are several questions that are often asked: who is an entrepreneur? What is an entrepreneur? What is corporate entrepreneurship? What are corporate and social entrepreneurship? What is the entrepreneurial process? These frequently asked questions reflect the increased national and international interest in entrepreneurship by individuals, businesses, people, academics, students and government officials. The challenge facing organizations today is recognizing the creativity and innovative capability of their internal members and allowing these individuals to have the ability to utilize their potential. Corporate entrepreneurship, sometimes referred to as intrapreneurship, or corporate venturing or organizational entrepreneurship, is the process by which individuals in organizations pursue opportunities independent of the resources they currently control; this usually involves doing new things and departing from the customary to pursue opportunities. The spirit of entrepreneurship within an existing organization results in the creation of a new organization, or in the development of innovation within that organization. Corporate entrepreneurship requires engendering entrepreneurial behaviors within an established organization. This enables individuals to use creative processes for applying and inventing technologies as well as new ways of doing things. A broad definition of corporate entrepreneurship was proposed by Ginsberg and Guth (1990: 5–6) who stressed that corporate entrepreneurship encompasses two major phenomena: new venture creation within existing organizations and the transformation of organizations through strategic renewal. This renewal involves either formal or informal activities aimed at creating new businesses or processes in established companies at the corporate, division (business), functional or project level. The ultimate aim of the renewal is to improve the company’s competitive position and financial performance. Renewal is achieved through the redefinition of an organization’s mission by the creative redeployment of resources, leading to new combinations of products and technologies. A FRAMEWORK FOR CORPORATE ENTREPRENEURSHIP Like many entrepreneurs who find it difficult to manage and expand the venture created, many managers find it difficult to allow employees to innovate and engage in venturing activities. In order to develop and grow the organization, managers need to be more 57 DANA (2nd edition) PRINT.indd 57 18/12/2020 11:32 58 World encyclopedia of entrepreneurship Environment Competitive Technological Social Political Organization conduct/form Organization performance Characteristics Strategy Effectiveness Values/benefits Structure Efficiency Behavior Process Stakeholder satisfaction Core values/ beliefs Innovation/venturing within established corporations Figure 6.1 Strategic leaders Corporate entrepreneurship Strategic renewal of established corporations Framework of corporate entrepreneurship entrepreneurial by building and developing an organization that encourages corporate entrepreneurial behavior and rewards employees for taking creative risks. Ginsberg and Guth (1990) have discussed a model to fit corporate entrepreneurship into strategic management (Figure 6.1). They present the various factors influencing corporate entrepreneurship and how the process of corporate entrepreneurship affects the performance of the firm (Ginsberg and Guth, 1990: 7). Never before has there been such a need for corporate entrepreneurship as organizations face increased, almost hyper, competition from globalization and rapid technology. Since customers now have access to most product and service substitutes, a firm’s competition can be anywhere in the world. There is a pressing need for organizations to stay competitive by becoming more innovative and engaging in more corporateventuring activities. Leading international corporate entrepreneurship companies include 3M, Lucent Technologies, Nokia, Siemens, Nixdorf, DuPont and Apple Computers. ASPECTS OF CORPORATE ENTREPRENEURSHIP While the specific aspects of corporate entrepreneurship vary from organization to organization, four common aspects are indicated in this formula: L 5 I 1 O 1 Cr 1 Ch DANA (2nd edition) PRINT.indd 58 18/12/2020 11:32 Corporate venturing 59 where L 5 level of entrepreneurship, I 5 innovation, O 5 ownership, Cr 5 creativity and Ch 5 change. Each of these four aspects – innovation, ownership, creativity and change – are discussed in turn. Innovation While innovation is highly valued and a central aspect of most organizations, few organizations are satisfied with the return on their spending. According to a survey on corporate innovation by the Boston Consulting Group, which drew responses from about 3000 global executives, innovation is at or near the top of the company’s agenda, with 43 percent of the respondents considering it one of their three most important strategic priorities and 23 percent considering it their top priority. Despite its priority, satisfaction with the return on innovation spending continues to decrease. Ownership Ownership is also an important aspect of corporate entrepreneurship reflecting the overall organizational environment or culture. Ownership refers to owning and feeling responsible for your job and having the desire to perform the job in the most efficient and effective manner possible; indicated in individuals being keen to go to work. The overall characteristics of a good corporate entrepreneurial environment encourages ownership. First, since research and development is a key source for successful ideas, the firm needs to operate on the cutting edge of the industry’s technology. New ideas need to be encouraged and supported, and not always required to have a rapid return on investment and a high sales volume. Second, trial-and-error experimentation needs to be encouraged. Successful new products or services rarely just appear fully developed; instead they evolve, requiring time, effort, company support and money. It took time and some product failures before the first marketable computer appeared. A company wanting to establish a corporate entrepreneurial spirit has to establish an environment that allows mistakes and failures in developing new and innovative products or services. These failures need to be viewed as an indirect investment for creating the successful innovative products. Third, the organization needs to make sure there are no initial opportunity parameters inhibiting creativity in the new product development process employed. Frequently in an organization, territories are protected, frustrating attempts by potential corporate entrepreneurs to establish new ventures. In one Fortune 500 company, an attempt to establish a corporate entrepreneurial environment eventually failed when the potential corporate entrepreneurs were informed that a proposed new product and venture was not possible because it was in the domain of another division. Fourth, the resources of the firm need to be available and accessible, supporting the corporate entrepreneurship process. As one corporate entrepreneur stated, ‘if my company really wants me to take the time, effort and career risks to establish a new venture, then it needs to put resources on the line’ (Bhide, 1996). Often, insufficient funds are allocated not in creating something new but in solving problems that have an immediate effect on the bottom line. Some companies, for example, Xerox, 3M, Apple and Intel, have recognized this problem and established separate venture capital areas for funding new internal DANA (2nd edition) PRINT.indd 59 18/12/2020 11:32 60 World encyclopedia of entrepreneurship as well as external ventures. In addition to encouraging teamwork, a long-time horizon for evaluating the success of the overall program as well as the success of each individual venture needs to be established. This patient attitude is similar to the investment–return expectation of venture capitalists and others when they invest in an entrepreneurial effort. The fifth characteristic establishes a volunteer (not forced) process and an appropriate reward system. The corporate entrepreneur needs to be appropriately rewarded for all the energy, effort and risk taking expended in the creation of the new venture. Finally, and perhaps most importantly, the corporate entrepreneurial activity must be wholeheartedly supported and embraced by members of top management, by their physical presence and by their making sure that the personnel and financial resources are available. Sponsors and champions need to exist throughout the organization. Without top management support, a successful environment cannot be created. Creativity and Creative Problem-solving The third aspect of successful corporate entrepreneurship is creativity. Creativity – the ability to bring into being from your imagination something unique and original – is very important and yet often lacking in many organizations. Unfortunately, creativity tends to decline with age, education, lack of use and bureaucracy. Creativity generally declines in stages, beginning when a person starts school. It continues to deteriorate through the teens and to progressively decrease through ages 30, 40, and 50. Also, the latent creative potential of an employee can be stifled by perceptual, cultural, emotional and organizational factors. Creativity generally can be unlocked, and creative ideas and innovations generated by using creative problem-solving techniques. Change In order for corporate entrepreneurship to thrive in an organization, the final C of the formula, change, needs to be continuously allowed and encouraged. Organizational change should ideally be allowed and encouraged. Organizational change is often the result of an accumulation of smaller steps (changes) taken over time. Adam Smith (1759: 88–9), in The Theory of Moral Sentiments, referred to this as gradual greatness. People tend to be more accepting of change if they can see the steps and experience them slowly. New technologies, strategies, structures and/or rapid business expansion originate from smaller experimental steps and reflects the transference of knowledge and continual practice in the organization. The idea that change in an organization should occur incrementally and collectively rather than suddenly suggests that an entrepreneurial organization should be continually experimenting and modifying around the edges of its core business. Change, discovery and renewal are fundamental aspects of this type of organization. As this becomes more apparent, managers are encouraged to develop creative, individualistic approaches and unexpected solutions to problems. This leads to charismatic individual leadership and inventive, creative decision making. It might be necessary, in order to start this process, to let go some of the existing managers who neither possess the skills nor want to develop them. It is important for changes to occur and be implemented to first establish a sense of urgency and form a strong guiding coalition. Since an organization is focused on DANA (2nd edition) PRINT.indd 60 18/12/2020 11:32 Corporate venturing 61 short-term results without establishing the need for change owing to the external environment and competitive landscape, the appropriate timeframe will not be established. Also, if a group is not established that has enough power and credibility, nothing will be implemented. The group needs to establish a vision and strategic plan and communicate this throughout the organization by every means possible. Following the identification and selection of a champion, limit the obstacles, establish the appropriate new system and reward all creative thinking. The next step is to ensure to the extent possible that the first initiatives are successful with visible performance improvements. This will make failures easier to handle when they occur, which they will. It is easier to be successful at smaller rather than larger changes. Eventually, the new changes need to be consolidated; producing still more changes and allowing the change approach and change attitude to be institutionalized in the organization. SELECTING A CORPORATE ENTREPRENEUR AND A TEAM The single most important factor in the success of a corporate entrepreneurial activity is having a leader and a team with the ability and passion to transform ideas into reality. While selecting and retaining the right talent can be difficult, with the right incentives this can be accomplished. Jack Welch, former chief executive officer (CEO) of General Electric (GE), spent the final years of his tenure developing policies and practices that would enable GE to recruit, select and retain entrepreneurial individuals and develop the entrepreneurial potential needed among existing employees. Since usually no single individual possesses the wide variety of skills necessary to develop a corporate venture, the composition of the right team is needed. At Xerox New Enterprises, a division that commercializes novel technologies, the lead corporate entrepreneur of each new company is almost always recruited externally. The role of the corporate entrepreneur needs to be diverse. He or she must identify entrepreneurial opportunities and transform them into action. Corporate entrepreneurs need to constantly seek new venture opportunities. The corporate entrepreneur can monitor change and compete in a dynamic environment by using a corporate management checklist for evaluating the potential of creating a successful new corporate venture within the existing organization (see Table 6.1). MODELS OF CORPORATE VENTURING Corporate venturing is one strategy for improving corporate performance. Internal corporate venturing occurs when the new process or new business is created within the company’s organizational domain. External corporate venturing involves strategic investments outside the company’s organizational domain. Joint corporate venturing is a form of external corporate venturing that involves a co-investment with another parent organization to create a new organization, with both parent organizations continuing to exist. There are five general business models of corporate venturing. DANA (2nd edition) PRINT.indd 61 18/12/2020 11:32 62 DANA (2nd edition) PRINT.indd 62 18/12/2020 11:32 1. Assess the feasibility and viability of technological development and achieving the specified goals and objectives. Evaluate the technological viability in relation to the following criteria: Technological viability 1. Evaluate the potential of a viable and credible market opportunity. 2. Assess the market approach including strategies for managing: ● customers ● suppliers ● competitors ● other external factors. 3. Evaluate the ability to create a successful business, while at the same time protecting the parent organization. Evaluate the market viability in relation to the following criteria: Market viability 1. Has a business plan been developed? 2. Is the business idea or concept feasible? 3. Have financial statements and projections been prepared and discussed with the financial manager? 4. Are there adequate financial resources available? 5. Is the time required to reach positive cash flow realistic? 6. Are the required human resources with the necessary skills and abilities available? 7. Do the financial needs for the new venture match the capacity of the existing organization? Evaluate the venture potential in relation to the following criteria: Inadequate Inadequate No Similar to competitors Similar to competitors Better than competitors Better than competitors Uncertain Excellent Excellent Uncertain Uncertain Yes Corporate checklist for evaluating the potential of creating a successful corporate entrepreneurial activity within the existing organization Evaluation criteria Table 6.1 63 DANA (2nd edition) PRINT.indd 63 18/12/2020 11:32 3. 2. 1. Evaluate the adequacy of the organization’s budget in the context of the potential new venture. Evaluate the possibility of raising additional funds to carry out the project, as well as the potential sources of funding available for the new venture. Evaluate the adequacy of the facilities required in relation to the availability of space for the new venture. Evaluate resources in relation to the following criteria: Resources 1. Is there at least one member of the venture management team qualified to lead the team to undertake the necessary work? 2. Is there an appropriate management team to undertake the work that has to be done? 3. Is there an opportunity to bring in additional management either from the parent organization or outside directors? 4. Is there an appropriate group of professionals in the existing organization or outside advisors? 5. Does the venture management team have the ability and expertise to leverage scarce resources? Evaluate the venture management potential in relation to the following criteria: Venture management criteria 2. Compare the proposed development program with existing technologies (or with possible competing and future technologies). 3. Evaluate the organization’s existing technological achievements. Inadequate No Similar to competitors Better than competitors Uncertain Excellent Uncertain Yes 64 DANA (2nd edition) PRINT.indd 64 18/12/2020 11:32 (continued) Evaluate the proposed commercialization schedule in relation to: a. R&D b. Proprietary protection c. Human resources d. Marketing e. Manufacturing f. Potential regulatory requirements. 2. Assess the organization’s ability to successfully compete in the market. 3. Assess the organization’s channels of distribution. 4. Assess the organization’s customer service philosophy. 5. Assess the organization’s capabilities in terms of: ● financial control ● management ● strategic planning 6. Assess the feasibility of the organization’s commercialization. 1. Evaluate the commercialization in relation to the following criteria: Commercialization Table 6.1 Inadequate Similar to competitors Better than competitors Excellent Uncertain Corporate venturing 65 Model 1 Model 1, according to Andrew Campbell, highlights four different types of corporate entrepreneurial business ventures: (1) ecosystem venturing; (2) innovation venturing; (3) harvest venturing; and (4) private equity venturing (Campbell et al., 2003). Ecosystem venturing refers to promoting the vivacity of the business network (customers, suppliers, distributors and franchisees). Ecosystem venturing supports entrepreneurs in the specific business community through venture capital to improve the prospects of existing businesses (Park and Campbell, 2005: 10–32). Value is created through minority stakes in the invested firms. The second type of venturing, innovation venturing, is the implementation of venture capital methods into existing functions, such as research and development (R&D). This model is used to help stimulate activity by rewarding people based on the value created within an existing function. The third type of business model is harvest venturing. This model seeks to generate cash from excess corporate resources through licensing or the sale of assets. New businesses often are created to fully utilize the excess resources. Corporate private equity venturing, the fourth type, relates to company units that function as independent private equity groups to obtain financial returns. Model 2 This model identifies five types of linkages between corporate venturing and business strategy to explain how companies are venturing in ways to strategically benefit the existing company: (1) corporate venturing and business strategy are poorly linked or unrelated; (2) business strategy drives corporate venturing; (3) corporate venturing drives business strategy; (4) corporate venturing and business strategy are interdependent; and (5) corporate venturing as the business strategy (Covin and Miles, 2007). Corporate venturing can be internal corporate venturing whereby a new business is created within the domain of the existing company. A second type is external corporate venturing where the company is involved in creating a new business or growing a business outside the parent company’s domain. Joint corporate venturing is the third category and refers to an external corporate venturing established by the existing business and another parent organization. Model 3 Garud and Van de Ven’s (1992) model for internal corporate venturing is trial-and-error learning. This model is based on the observation that the internal corporate entrepreneurial process is filled with uncertainty and ambiguity. Uncertainty is defined as the incomplete information of the underlying relationship between means and ends. The assumption is that corporate entrepreneurs will continue with the plan when the associated outcomes are positive, and when the outcomes are negative they will stop or change their course of action. This model argues that when the level of ambiguity is high and excess resources are available, corporate entrepreneurs are more likely to persist with a course of action despite negative consequences. DANA (2nd edition) PRINT.indd 65 18/12/2020 11:32 66 World encyclopedia of entrepreneurship Innovative companies are less likely to penalize entrepreneurs in the early stages of the development process. It is more beneficial for the company to provide support through a trial-and-error process whereby the entrepreneur makes decisions based on what he or she believes will yield successful outcomes. Alternatively, ambiguity implies incomplete information about which outcomes to pursue. When ambiguity comes into play and excess resources are available, entrepreneurs are likely to continue with a course of action despite facing negative outcomes. Model 4 Since a company’s foundation is its current business activities, corporate venturing is the introduction of a business model that is new to the company (Buckland, 2003). In the company’s operating core, where profits are generated in existing business activities, there is a lower risk. In the business extension for growth, there is low to medium risk. Here, the company introduces new products or moves into new markets. Core ventures for renewal involve existing business activities, but the risk increases slightly from low to medium. As newness increases, so does the risk; therefore, the non-core venturing quadrant carries the most risk. Based on the strategic pair analysis, the business activity and the business model, businesses should maintain core-venturing capabilities as a defense against disruptive change. Instead of non-core ventures, it is important and practical for companies to focus on corporate venturing inside the existing business structure. Model 5 Robert A. Burgelman (1983) lays out a process model for internal corporate venturing in large diversified firms. In the process model for internal corporate venturing, there are three main elements: (1) definition and impetus; (2) strategic and structural context; and (3) managerial activities. As the core processes of internal corporate venturing, definition and impetus are the first step in the model process. The definition process includes the conceptualization and pre-venture stages of the development process. Moreover, the model involves expressing the technical and economic qualities of an internal corporate venturing project so that a project develops into an embryonic business organization. The linking processes are important in demonstrating that the newly developed concept is coupled to a market need. Product championing takes the linking process further and pushes it to the impetus process. Support within the organization is then obtained through the impetus process because market interest is created, and resources are mobilized. In the impetus process, a project transforms from a venture idea into its own business. Strategic forcing is the commercialization of the new product, which needs to be combined with efforts from strategic building. In this way, both a broader strategy and the implementation of the strategy are developed for the new business. The second element of the internal corporate venturing process encompasses strategic context and structural context. Strategic context determination is the political process whereby managers of the corporate entrepreneurial business persuade corporate managers to alter the existing concept of strategy to include the new venture. The goal is to gain support from upper corporate management by showing them how the DANA (2nd edition) PRINT.indd 66 18/12/2020 11:32 Corporate venturing 67 corporate entrepreneurial activity fits into the current strategy and has strategic benefits. Delineation is also an important factor that helps outline the new arenas into which the business development will lead the existing company. Structural context refers to the internal selection environment whereby corporate managers exert control over the internal corporate venturing process. The third element of the internal corporate venturing process addresses the vital role middle-level management plays. The process is a bottom-up approach, and managers must foster support and secure resources for new venturing strategically. Management championing the new corporate entrepreneurial activity must be adept at linking the new business venture with the corporate strategy. BENEFITS OF A CORPORATE ENTREPRENEURSHIP PROGRAM The benefits of establishing and implementing a corporate venturing program are discussed in relation to benefits to the company and benefits to the employees. The principal benefits of corporate venturing to the company are indicated below. One of the most important benefits is the increase in morale through the establishment of a new corporate culture. Employees will ‘own their jobs’ and want to make their positions operate in the best possible, most efficient ways. The new culture will make it fun for employees to come to work. Benefits of corporate venturing to the company: ● ● ● ● ● ● ● ● establishing a new culture, better morale; reduction in employee turnover; motivated workforce; new business concepts; new ways of doing things; more flexible organizational structure; organizational learning; and positive impact on revenues and profits. FUTURE PROSPECTS To close with more on the entrepreneurial–intrapreneurial balance, Govindarajan et al. (2019) offer three business reasons why large corporations will become increasingly important to innovation in the future. First, large corporations have competitive advantages owing to brand recognition and staying power, whereas startups increasingly encounter rivals owing to shorter product-development cycles and an abundance of financing. That is, owning to their newness, startups do not enjoy the same entrenchment as large corporations and can more easily be disrupted. Second, large corporations are more openly embracing innovation and nimbleness to stay competitive. Finally, a great deal of innovation in recent years has involved innovative business models, which play to large corporations’ strengths better than innovative product technologies. Also, corporate DANA (2nd edition) PRINT.indd 67 18/12/2020 11:32 68 World encyclopedia of entrepreneurship entrepreneurship is the most important way to keep these corporations going in the long run. REFERENCES Bhide, A. (1996), ‘The questions every entrepreneur must answer’, Harvard Business Review, 74 (6), 120–30. Buckland, W. (2003), ‘Defining what corporate venturing actually is and what firms should do about it’, Strategic Direction, 19 (9), 2–4. Burgelman, R.A. (193), ‘A process model of internal corporate venturing in the diversified major firm’, Administrative Quarterly, 28 (2), 223–44. Campbell, A., J. Bradshaw, A. Morrison and R. van Basten Batenburg (2003), ‘The future of corporate venturing’, MIT Sloan Management Review, 45 (1), 30–37. Covin, J.G. and M.P. Miles (2007), ‘Strategic use of corporate venturing’, Entrepreneurship: Theory and Practice, 31 (2), 183–207. Garud, R. and A.H. van de Ven (1992), ‘An empirical evaluation of the internal corporate venturing process’, Strategic Management Journal, 13 (Summer) special issue, 93–109. Ginsberg, A. and W. Guth (1990), ‘Guest editors’ introduction: corporate entrepreneurship’, Strategic Management Journal, 11 (Summer), 5–15. Govindarajan, V., B. Lev, A. Srivastava and L. Enache (2019), ‘The gap between large and small companies is growing. Why?’, Harvard Business Review, 16 August, accessed 11 October 2020 at https://hbr.org/2019/08/ the-gap-between-large-and-small-companies-is-growing-why. Park, R. and A. Campbell (2005), The Growth Gamble, London: Nicholas Brealey International. Smith, A. (1759), The Theory of Moral Sentiments, London: Printed for A. Millar, and A. Kincaid and J. Bell. DANA (2nd edition) PRINT.indd 68 18/12/2020 11:32 7. Cross-disciplinary entrepreneurship education Dianne H.B. Welsh Since the dawn of the millennium, cross-disciplinary entrepreneurship education has taken hold in primarily US universities, colleges and even in two-year community colleges. It has evolved from being solely in business schools (Dana, 1992, 1993; Gorman et al., 1997). There are also a few examples of universities globally that have adopted this model. Crossdisciplinary entrepreneurship education, for the purposes of our study, refers to courses outside the discipline of entrepreneurship, almost solely located in business schools that have two or more learning objectives (goals) in entrepreneurship together with disciplinespecific learning objectives which are carried through in the assignments and exercises in the class and then measured (Welsh, 2014). Entrepreneurship is woven or blended in the subject and applied for better understanding and application to the discipline (Welsh, 2014). The role of faculty buy-in and participation cannot be over-emphasized when it comes to the success of cross-disciplinary programs (Schneider, 2015). Hynes (1996) developed an early model to integrate entrepreneurship education across campus, focusing on process based on the needs of different groups of students. Engineering has been the predominant discipline in which entrepreneurship has been integrated and achieved early on, but now entrepreneurship education has been integrated in all disciplines, from the arts to the sciences. Experiential education is a popular component of entrepreneurship curricula and is included as a vital component of cross-campus entrepreneurship programs. Internships often are included as either required or elective courses in entrepreneurship programs and may be in multiple departments across campus. Internships give students one-onone experience in entrepreneurial businesses, start-ups, and often include a modeling or shadowing component with an entrepreneur. Internships add experience to the résumé of students before graduating. Internships provide a reality check for students. Giacomin et al. (2016: 938), in a study comparing optimism and overconfidence in students from the US, Spain and India, concluded that ‘students may be unaware of the reality of being an entrepreneur, such as long hours, heavy work load, stress, financial risks, less job security, few benefits, greater vulnerability to market shifts and microeconomic downturns, challenges in balancing work and family, and . . . failure’. Despite cross-disciplinary entrepreneurship’s growing popularity and reach, there has been little measurement of its effectiveness, with the exception of Canziani and Welsh (2019). Many scholars see research on entrepreneurship education as a whole as still in its infancy stages (Brazeal and Herbert, 1999; Gorman et al., 1997; Graevenitz et al., 2010; Souitaris et al., 2007) and theory is sorely needed (Fayolle, 2013; Fiet, 2012). Evidence is mixed as to whether entrepreneurship education increases the motivation to engage in entrepreneurial activities. Some studies show a positive effect (for example, Fenton and Barry, 2014; Iglesias-Sánchez et al., 2016; Lee et al., 2005; Peterman and Kennedy, 2003; Souitaris et al., 2007; Zhang et al., 2013), while other researchers contend that the results are not conclusive and additional research is needed (Joensuu et al., 2015; Krueger and 69 DANA (2nd edition) PRINT.indd 69 18/12/2020 11:32 70 World encyclopedia of entrepreneurship Brazeal, 1994; Matlay, 2006) and still others found results that are contradictory (Colette and Treanor, 2012; Farhangmehr and Goncalves, 2016; Fayolle, 2013). A recent study looked at the cognitive development of college students enrolled in entrepreneurship education classes (Tullar and Welsh, 2020, in press) and the impact, if any, on motivation, although scholars have long called for these studies (Krueger, 2007; Krueger and Day, 2010; Krueger et al., 2000). REFERENCES Brazeal, D.V. and T.T. Herbert (1999), ‘The genesis of entrepreneurship’, Entrepreneurship Theory and Practice, 23 (3), 29–45. Canziani, B.F. and D.H.B. Welsh (2019), ‘How entrepreneurship influences other disciplines: an examination of learning goals’, International Journal of Management Education, in press, doi:10.1016/j.ijme.2019.01.003. Colette, H. and L. Treanor (2012), ‘Exploring entrepreneurship education within veterinary medicine: can it be taught?’, Journal of Small Business and Enterprise Development, 19 (3), 484–99. Dana, L.P. (1992), ‘Entrepreneurial education in Europe’, Journal of Education for Business, 68 (2), 74–8. Dana, L.P. (1993) ‘An international survey of entrepreneurship education’, Journal of Enterprising Culture, 1 (1), 67–92. Farhangmehr, M. and P. Goncalves (2016), ‘Predicting entrepreneurial motivation among university students’, Education + Training, 58 (7–8), 861–81. Fayolle, A. (2013), ‘Personal views on the future of entrepreneurship education’, Entrepreneurship & Regional Development. An International Journal, 25 (7–8), 692–701. Fenton, M. and A. Barry (2014), ‘Breathing space – graduate entrepreneurs’ perspectives of entrepreneurship education in higher education’, Education + Training, 56 (8–9), 733–44. Fiet, J.O. (2012), ‘The theoretical side of teaching entrepreneurship’, Journal of Business Venturing, 16 (1), 1–24. Giacomin, O., F. Janssen and R.S. Shinnar (2016), ‘Student entrepreneurial optimism and overconfidence across cultures’, International Small Business Journal, 34 (7), 925–47. Gorman, G., D. Hanlon and W. King (1997), ‘Some research perspectives on entrepreneurship education, enterprise education and education for small business management: a ten-year literature review’, International Small Business Journal, 15 (3), 56–77. Graevenitz, G.D., D. Harhoff and R. Weber (2010), ‘The effects of entrepreneurship education’, Journal of Economic Behavior and Organization, 76 (1), 90–112. Hynes, B. (1996), ‘Entrepreneurship education and training-introducing entrepreneurship into non-business disciplines’, Journal of European Industrial Training, 20 (8), 10–17. Iglesias-Sánchez, P.P., J.M. Carmen, P.V. Antonio and K. Husam (2016), ‘Impact of entrepreneurship programs on university students’, Education + Training, 58 (2), 209–28. Joensuu., S., E. Varamäki and A. Viljamaa (2015), ‘Beyond intentions – what makes a student start a firm?’, Education + Training, 57 (8–9), 853–73. Krueger, N.F. (2007), ‘What lies beneath? The experiential essence of entrepreneurial thinking’, Entrepreneurship Theory and Practice, 31 (1), 123–38. Krueger, N.F. and D.V. Brazeal (1994), ‘Entrepreneurial potential and potential entrepreneurs’, Entrepreneurship Theory and Practice, 18 (3) 91–104. Krueger, N.F. and M. Day (2010), ‘Looking forward, looking backward: from entrepreneurial cognition to neuroentrepreneurship’, in Z.J. Acs and D.B. Audretsch (eds), Handbook of Entrepreneurship Research, New York: Springer, pp. 321–57. Krueger N.F., M. Reilly and A.L. Carsrud (2000), ‘Competing models of entrepreneurial intentions’, Journal of Business Venturing, 15 (5/6), 411–532. Lee, S.M., D. Chang and S.B. Lim (2005), ‘Impact of entrepreneurship education: a comparative study of the U. S. and Korea’, International Entrepreneurship and Management Journal, 1 (1), 27–43. Matlay, H. (2006), ‘Researching entrepreneurship and education: Part 2: what is entrepreneurship education, and does it matter?’, Education + Training, 48 (8–9), 704–18. Peterman, N. and J. Kennedy (2003), ‘Enterprise education: influencing students’ perceptions of entrepreneurship’, Entrepreneurship Theory and Practice, 28 (2), 129–44. Schneider, M. (2015), ‘Kauffman campuses initiative: a study that explores the phenomenon of cross-campus entrepreneurship’, PhD dissertation, University of Pennsylvania, Philadelphia, PA. Souitaris, V., S. Zerbinati and A. Al-Laham (2007), ‘Do entrepreneurship programs raise entrepreneurial DANA (2nd edition) PRINT.indd 70 18/12/2020 11:32 Cross-disciplinary entrepreneurship education 71 intention of science and engineering students? The effect of learning, inspiration and resources’, Journal of Business Venturing, 22 (4), 566–91. Tullar, W. and D.H.B. Welsh (2019), ‘Reality check: changes in business students’ psychological resources as they move toward graduation’, International Entrepreneurship and Small Business, in press. Welsh, D.H.B. (2014), Creative Cross-Disciplinary Entrepreneurship: A Practical Guide for a Campus-Wide Program, New York: Palgrave Macmillan. Zhang, Y., G. Duysters and M. Cloodt (2013), ‘The role of entrepreneurship education as a predictor of university students’ entrepreneurial intention’, International Entrepreneurship and Management Journal, 9 (1), 1–19. DANA (2nd edition) PRINT.indd 71 18/12/2020 11:32 8. Defining the entrepreneur Louis Jacques Filion INTRODUCTION This chapter reflects on the notion of defining the entrepreneur. After presenting some background information on the various meanings associated with the term ‘entrepreneur’, we introduce the three main pioneers who dealt with this subject: Cantillon, Say and Schumpeter. Fifteen of the most frequently mentioned elements from definitions found in the literature were retained, along with 12 of the activities that best characterize what entrepreneurs do. Six main components are proposed for inclusion in a definition of the entrepreneur: (1) innovation, (2) opportunity recognition, (3) risk management, (4) action, (5) use of resources and (6) added value. Some sample definitions are proposed, and the conclusion suggests that there are different levels of innovation and of entrepreneurial expression. What is an entrepreneur? What characterizes entrepreneurs and distinguishes them from other organizational and social actors? How can the entrepreneur be defined? These are typical questions that most new entrepreneurship researchers ask, and to which a variety of answers can be found in the literature. As for why there is such a broad range of perspectives, the answer is far from simple. First, the range of entrepreneurial roles is increasing steadily, and now includes venture creators, technopreneurs, intrapreneurs, extrapreneurs, social entrepreneurs, the self-employed and many others. In this chapter, the term ‘entrepreneur’ is used to refer to all these entrepreneurial actors. Observation reveals that entrepreneurship is a complex phenomenon involving a set of activities with technical, human, managerial and entrepreneurial characteristics, the performance of which requires a diverse set of skills. Generally, entrepreneurial actors play additional roles (mainly managerial) when they carry their entrepreneurial activities, and this, too, must be taken into account. Clearly, the range of roles begs the question as to what constitutes the common core activities for all these actors and what sets the entrepreneurial aspect of their activities apart from the other aspects. Given the many different categories and types of entrepreneurs, it is reasonable to wonder whether there can possibly be elements that are common to them all. Why are there so many definitions of the entrepreneur? In fact, there are several reasons, including the range of disciplines, research fields and paradigms through which actors and situations can be studied. The humanities differ from physics and the other ‘hard’ sciences, in that specialists can study and define phenomena from widely different standpoints. In our own graduate research courses in entrepreneurship, we discuss and define the entrepreneur using several different analysis grids, including that devised by Burrell and Morgan (1979), based on two vectors: subjectivist-objectivist and radical-regulation. The grid can be used to classify the humanities literature into four categories: 72 DANA (2nd edition) PRINT.indd 72 18/12/2020 11:32 Defining the entrepreneur 1. 2. 3. 4. 73 Functionalist: objective view of reality and a regulatory view of society. Interpretativist: subjective view of reality and a regulatory view of society. Radical structuralist: objective view of reality and focus on radical change. Radical humanist: subjective view of reality and focus on radical change (Burrell and Morgan, 1979; Howorth et al., 2005). Definitions of the entrepreneur will obviously differ according to the authors’ paradigms. Other entrepreneurship researchers have also proposed the Burrell and Morgan grid as a means of understanding the different standpoints for definitions of the term entrepreneur (Howorth et al., 2005). There are many reasons for the broad range of perspectives, but one in particular stands out, namely, the prism through which the author of the definition observes and understands reality. This is the first element that should be considered in any definition. Morgan (1997) also suggested nine metaphors for looking at organizational life. They also offer rich perspectives for examining entrepreneurship. Researchers have always been interested in defining the entrepreneur, but the literature on the subject was most abundant in the 1970s, 1980s and 1990s. This was the time when growing numbers of researchers from a host of different disciplines, including many emerging disciplines in the humanities and administrative sciences, began to take an interest in entrepreneurs: Kilby (1971); Wortman (1987); Low and MacMillan (1988); Bygrave (1989; 1993); Gartner (1990); Cunningham and Lischeron (1991); Reynold (1991); Bull and Willard (1993); Brazeal and Herbert (1999) and Sharma and Chrisman (1999). Even after the 1990s the subject remained a real concern for researchers: Davidsson et al. (2001); Busenitz et al. (2003); Sarasvathy (2004); Gartner et al. (2006); Grégoire et al. (2006); and Ireland and Webb (2007). A BRIEF HISTORY OF THE ORIGIN AND MEANING OF THE TERM ‘ENTREPRENEUR’ The term ‘entrepreneur’ is a French word derived from the verb ‘entreprendre’, which means to do or to undertake. It can be divided into two parts, ‘entre’, meaning ‘between’, and ‘preneur’ meaning ‘taker’. Literally, then, an entre-preneur is a ‘between-taker’, or ‘go-between’. The term ‘entrepreneur’ first appeared in the literature in 1253, when it was used in different forms (for example, ‘empreneur’). It appears to have taken on its present, definitive spelling in 1433 (Rey, 1994: 700). We know it was used commonly in the 1500s and 1600s. For example, Champlain, speaking of his first voyage to explore the St Lawrence River in 1603, wrote that he had been invited to make the trip ‘to see the country and what entrepreneurs would do there’ (Champlain, 1632, in Giguère, 1973, vol. 2: 702, free translation from the French). Hélène Vérin (1982) wrote a doctoral thesis in literature in which she discusses the shades of meaning of the terms ‘entrepreneur’ and ‘enterprise’ through history. She notes that the ancestor of the term ‘enterprise’ – ‘emprise’ (from the Latin imprisia) – referred to something bold, firm and daring (Vérin, 1982: 31–3). She also examined variations in meaning over the centuries, and especially between the thirteenth and eighteenth DANA (2nd edition) PRINT.indd 73 18/12/2020 11:32 74 World encyclopedia of entrepreneurship centuries. The current meaning that also refers to an enterprise leader first appeared in the early nineteenth century (Rey, 1994: 700). THREE PIONEERS IN THE FIELD OF ENTREPRENEURSHIP Three authors in particular were among the first to reflect extensively on what entrepreneurs do. The concept of entrepreneur can be understood more easily through the writings of these main pioneers. Richard Cantillon The first, Cantillon, was what we would now call a venture capitalist looking for investment opportunities with better than average yields. His perspective as an investor meant that the element of risk was a core aspect of how he viewed entrepreneurial projects and defined what he considered to be an entrepreneur (Cantillon, 1755). As Schumpeter pointed out: ‘Cantillon had a clear conception of the function of the entrepreneur . . . This, of course, is scholastic doctrine. But nobody before Cantillon had formulated it so fully. And it may be due to him that French economists . . . never lost sight of the entrepreneurial function and its central importance’ (1954: 222). Cantillon described the entrepreneur as a person who purchases a raw material at a known price in order to sell it at an unknown price (Cantillon, 1755). In Cantillon’s definition, an entrepreneur’s role lies between that of two or more other actors. He or she is an intermediary (or gobetween) who instigates a transformation. Jean-Baptiste Say After Cantillon, the author who had the greatest impact on the field of entrepreneurship as it is today was Jean-Baptiste Say, nearly a century later. Say was himself an entrepreneur, and came from an entrepreneurial family. He was also a prolific writer, and wrote from the standpoint of someone preparing others to become entrepreneurs and hoping to convince them of the importance of entrepreneurs in economic development. He identified the element of innovation as being most characteristic of the entrepreneur; in other words, he regarded entrepreneurs as being people who could do new things, people who could do more with less, and people who would obtain more by doing something in a new or different way (Say, 1815; 1996). Therefore, Say saw the entrepreneur as an economic actor whose activities generated an added value. In his monumental work on the history of economics, Schumpeter pointed out that Say was the first to draw a clear distinction between the role of the entrepreneur and the role of the capitalist (Schumpeter, 1954: 555). Joseph Alois Schumpeter Joseph Alois Schumpeter is the author to whom the association between entrepreneurs and innovation is most often attributed by experts. In fact, as Schumpeter himself pointed out, he simply took over the definition presented by Jean-Baptiste Say (Schumpeter, 1954). He went further, however, postulating that ‘the essence of entrepreneurship lies in DANA (2nd edition) PRINT.indd 74 18/12/2020 11:32 Defining the entrepreneur 75 the perception and exploitation of new opportunities’ (Schumpeter, 1928). When he went into politics in an Austrian-Hungarian empire that needed to become more dynamic, Schumpeter identified entrepreneurs as being the people most needed to revitalize the economy and the organizations. Writing one century after Say, his thinking appears to be more complex and more complete. He associated innovation by entrepreneurs with five elements: 1. 2. 3. 4. 5. The introduction of a new good. The introduction of a new method of production. The opening of a new market. The conquest of a new source of supply of raw material. The carrying out of the new organization of any industry (Schumpeter, 1934: 66). It is interesting to note that none of the combinations proposed by Schumpeter to define innovation included new venture creation as such. In his writings, Schumpeter often mentioned the concept of creative destruction to refer to the contribution of innovation by entrepreneurs (Schumpeter, 1954). It is to remember that he used the term entrepreneur to refer, to what we now call intrapreneurs as well, since the term was not coined during Schumpeter’s lifetime. Clearly, then, the standpoint from which an author approaches the concept of entrepreneurship influences the key elements he or she will use to define that concept. The humanities involve a certain amount of subjectivity, in that there is not necessarily a clear-cut answer to a question as is the case in the hard sciences. Definitions depend on the original standpoint – often the disciplinary field – that determines the prism through which human beings see and understand reality, and express their subjectivity. An interesting element to consider here is the database on which the three pioneers, Richard Cantillon, Jean-Baptiste Say and Joseph Alois Schumpeter, based their reflections on entrepreneurs, their characteristics and their roles. Today, many authors and publications ascribe a great deal of importance to the samples used, in order to classify the research as being reliable and valid, and therefore in compliance with scientific criteria. However, the three pioneers in the field of entrepreneurship were not researchers as we understand the term today. Their point of reference, far from being a ‘representative sample’, was in fact composed simply of people they knew who had played entrepreneurial roles. In the case of Say and Schumpeter, these were more socially oriented roles that they wished to develop. THE MOST COMMON ELEMENTS USED IN DEFINITIONS OF THE ENTREPRENEUR There are many ways to define an entrepreneur. For most people, an entrepreneur is a person who owns and leads a business. However, specialists increasingly use a larger number of elements in their definitions of and references to entrepreneurs (Julien, 1998). Ultimately, virtually every author has a different definition of the term, depending on the specific entrepreneurs or entrepreneurial category studied. We have identified 15 elements (Table 8.1) mentioned most frequently in the definitions from the entrepreneurship DANA (2nd edition) PRINT.indd 75 18/12/2020 11:32 76 World encyclopedia of entrepreneurship Table 8.1 The elements mentioned most frequently in definitions of the term ‘entrepreneur’ Elements defining the entrepreneur Authors 1. Innovation 2. Risk 3. 4. Coordination of resources for production; organizing factor of production or of the management of resources Value creation Schumpeter (1947); Cochran (1968); Drucker (1985); Julien (1989; 1998) Cantillon (1755); Knight (1921); Palmer (1971); Reuters Ltd (1982); Rosenberg (1983) Ely and Hess (1893); Cole (1942; and in Aitken 1965); Belshaw (1955); Chandler (1962); Leibenstein (1968); Wilken (1979); Pearce (1981); Casson (1982) 5. 6. 7. 8. Projective and visionary thinking Focus on action Leadership Dynamo of the economic system 9. Venture creation 10. Opportunity recognition 11. 12. 13. 14. 15. Creativity Anxiety Control Introduction of change Rebellion/delinquency Say (1815; 1996); Bruyat and Julien (2001); Fayolle (2008) Longenecker and Schoen (1975); Filion (1991; 2004) Baty (1981) Hornaday and Aboud (1971) Weber (1947); Baumol (1968); Storey (1982); Moffat (1983) Collins et al. (1964); Smith (1967); Collins and Moore (1970); Brereton (1974); Komives (1974); Mancuso (1979); Schwartz (1982); Carland et al. (1984); Vesper (1990) Smith (1967); Meredith et al. (1982); Kirzner (1983); Stevenson and Gumpert (1985); Timmons (1989); Dana (1995); Shane and Venkataraman (2000); Bygrave and Zacharakis (2004); Timmons and Spinelli (2004) Zaleznik and Kets de Vries (1976); Pinchot (1985) Lynn (1969); Kets de Vries (1977; 1985) McClelland (1961) Mintzberg (1973); Shapero (1975) Hagen (1960) literature that we believe are most relevant (Filion, 1987; 1988). Many authors include different elements in their definitions, or present different definitions during their careers. In such cases we have selected the concept the author in question appears to regard as being most important. We chose a selection of authors dealing with the subject over the centuries, and especially over recent decades because the use of the recent literature alone does not provide a true overview of the different perspectives from which the subject was examined in the shaping of what is in the process of becoming the field of study of entrepreneurship. Table 8.1 does not present the shades of meaning that authors included in their definitions of the entrepreneur. For instance, Dana (1995) found that people of unlike cultural origins relate to opportunity in different ways, and argued that entrepreneurship should therefore not be viewed simply as a function of opportunity recognition, but rather as a function of cultural perceptions of opportunity. DANA (2nd edition) PRINT.indd 76 18/12/2020 11:32 Defining the entrepreneur 77 TOWARDS A DEFINITION OF THE ENTREPRENEUR To define what entrepreneurs are, we can first look at what they do – that is, at their activity systems. We have observed entrepreneurs repeatedly, in the course of many research projects, and one aspect that stands out is their ability to act independently. Therefore, we can say that one of the primary characteristics of an entrepreneur is the ability to conceive and implement an activity system. In other words, entrepreneurs are people who are able to translate thoughts into action; they are dreamers and thinkers who do. Our observations have also shown that entrepreneurs are people who engage in activities they themselves have designed. But not just any activity – these are activities that were defined as a result of recognizing an entrepreneurial opportunity (Table 8.2). In many cases, the opportunity involved doing something differently and therefore adding value to what existed previously. Generally speaking, entrepreneurs initiate, implement and develop their projects trying to use a limited number of resources in order to generate surpluses and profits which can then be reinvested to achieve further development. Their motivation is to innovate or introduce something new while minimizing the risk. We will not comment in detail on every element of Table 8.2. What we will say, however, is that it is not possible to define the entrepreneur based solely on the Table 8.2 Activities and characteristics often attributed to entrepreneurs Activities Characteristics 1. Learning 2. Choosing a sector 3. 4. 5. Identifying a niche Recognizing and developing an entrepreneurial opportunity Visualizing projectively 6. Managing risk 7. 8. Designing (products, services, organizations) Committing to action Experience of a sector; memorized information; use of feedback Interest; motivation; assessment of potential added value for the future Care; analytical capacities; precision; target Originality; differentiation; creativity; intuition; initiative; culture that values innovation Ability to dream realistically; conceptual skills; systemic thinking; anticipation; foresight; ability to set goals and objectives; visioning Thriftiness; security; conservatism; moderate risktaker; ability to tolerate uncertainty and ambiguity; independence Imagination; problem-solving skills 9. 10. Using resources Building relations systems 11. Managing – sales; negotiations; people – and delegating Developing 12. DANA (2nd edition) PRINT.indd 77 Self-confidence related to clearly defined identity; long-term commitment; hard worker; energy; result orientation; decision-making; passion; locus-of-control; determination; perseverance; tenacity Resourcefulness; coordination; control Networking skills; flexibility; empathy; listening and communication skills; use of mentors; vision Versatility; adaptability; capacity to design tasks; ability to trust Leadership; seeks challenges 18/12/2020 11:32 78 World encyclopedia of entrepreneurship Opportunity recognition Innovation Risk Use of resources ACTION Added value Figure 8.1 Main elements used to define the term ‘entrepreneur’ characteristics of people who play entrepreneurial roles. Characteristics can be used to refine and clarify certain aspects of a definition, but cannot be regarded as constituting its core. Table 8.2 presents the activities mentioned most frequently in the entrepreneurship literature, which we felt were most relevant in achieving a definition (left-hand column). However, it is important to establish the relative importance of each activity. It can be useful to consider activities when defining a research subject or structuring a research project. Activities are easily identifiable and can be delimited. Some can even be measured. Nevertheless, care is needed when observing the activities of entrepreneurs, because many are management activities that complement or add to entrepreneurial activities, rather than purely entrepreneurial activities as such. This is the case, for example, of the management activities listed under point 11 of Table 8.2. It is our contention that there are levels in entrepreneurial expression, meaning that the elements used to define the entrepreneur can be ranked in importance. A distinction must be drawn between ‘essential’ elements, that is, those that entrepreneurs perform when doing what they do as entrepreneurs, and other elements that, although partly explaining the entrepreneur’s success, are more managerial in nature. For a definition of the entrepreneur, we therefore suggest focusing on the ‘essential’ entrepreneurial act, in the sense of that which constitutes the essence of the entrepreneur’s activity, that is, the act of recognizing and developing entrepreneurial opportunities. The definition should also include at least the six components set out in Figure 8.1. Therefore, a definition of entrepreneurs should include at least these six elements: an entrepreneur is an actor who innovates by recognizing opportunities; he or she makes moderately risky decisions that lead into actions requiring the efficient use of resources and contributing an added value. DANA (2nd edition) PRINT.indd 78 18/12/2020 11:32 Defining the entrepreneur 79 BOX 8.1 SOME SHORT DEFINITIONS OF THE ENTREPRENEUR An entrepreneur is an actor: ● ● ● ● ● ● ● ● ● ● who learns continually in order to recognize opportunities with potential for innovation; who makes innovations that add value; who is able to recognize opportunities for development; who conceives and implements visions with elements of differentiation; who is able to conceive an organizational project or enterprise based on the recognition and development of a risky opportunity with potential for innovation; who takes moderate risks in order to innovate; who is innovative and able to take action by exploiting an opportunity to develop a product or service; who uses resources economically in order to design innovative products or services with a competitive edge based on differentiation; who is focused on the recognition of risky opportunities with a potential for innovation in order to fulfil a social or market need; who is imaginative and able to move away from the beaten track by carrying out innovative activities with added value. In our view, however, there is no single, absolute definition of what an entrepreneur is and does, just like there is no ‘one best way’ (Taylor, 1947). Everything depends on the standpoint or perspective of the person creating the definition, and the aspects and elements on which that person decides to focus in his or her research. Some definitions of entrepreneurs can be very short; examples would include: ‘Entrepreneurs are dreamers who do’ or ‘Entrepreneurs are doers who get results’. Box 8.1 suggests some simple definitions of the entrepreneur. All these definitions present at least one aspect of what an entrepreneur is and does. The next step is to devise a definition that reflects the six main elements and additional dimensions of the entrepreneur’s activity system. Box 8.2 lists some more complete suggested definitions of what an entrepreneur is and does. Entrepreneurship is the field that studies entrepreneurs, entrepreneurial actors and entrepreneurial environments. CONCLUSION We share the opinion of Mark Casson, who wrote that ‘The most difficult part of studying entrepreneurship is to define who and what an entrepreneur is’ (Casson, 1982: 1). There are many dimensions that can be considered in a definition of what an entrepreneur is, based on what entrepreneurs do. An important dimension to remember is that there are different levels of entrepreneurial expression. Ultimately, each discipline could have its own definition of the entrepreneur. However, every definition must reflect the contingency elements on which it is based. Questions concerning the definition of the entrepreneur will continue as long as researchers devise new disciplinary sets and metaphors to explore the different facets of human behaviour. Fully integrated, more DANA (2nd edition) PRINT.indd 79 18/12/2020 11:32 80 World encyclopedia of entrepreneurship BOX 8.2 SAMPLE DEFINITIONS An entrepreneur is: ● ● ● ● An imaginative actor who recognizes entrepreneurial opportunities, makes moderately risky decisions with a view to innovating, and takes action by using resources to implement a differentiated vision that contributes an added value. An intuitive, resourceful, tenacious actor who is able to recognize and develop risky opportunities with potential for innovation, and who adds value to what already exists by setting up activities that involve a scarce use of resources. A results-oriented designer of innovations who is able to develop risky opportunities, who learns to be creative and resourceful, takes action by making practical use of limited resources and a network of contacts, and who is able to structure organizational activities to form a client satisfaction system that contributes an added value. A results-oriented actor who maintains a high level of sensitivity in order to recognize and develop entrepreneurial opportunities. This actor makes moderately risky decisions and is discerning in the use of resources. As long as this actor continues to take action by designing and implementing value-added innovations, he or she will continue to play an entrepreneurial role that contributes development. complete definitions of the entrepreneur will become possible once a science of action has been developed. Even then, it may well be that entrepreneurs will continue to be misunderstood not only by others, but by themselves as well. REFERENCES Aitken, H.G.J. (1965), Explorations in Enterprise, Cambridge, MA: Harvard University Press. Baty, G. (1981), Entrepreneurship in the Eighties, Reston, VA: Reston Publishing. Baumol, W.J. (1968), ‘Entrepreneurship in economic theory’, The American Economic Review, 58 (2), 64–71. Belshaw, C.S. 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Chrisman (1999), ‘Toward a reconciliation of the definitional issues in the field of corporate entrepreneurship’, Entrepreneurship Theory and Practice, 23 (3), 11–27. Smith, N.R. (1967), The Entrepreneur and His Firm: The Relationship Between Type of Man and Type Of Company, East Lansing, MI: Bureau of Business Research, Michigan State University. Stevenson, H.H. and D.E. Gumpert (1985), ‘The heart of entrepreneurship’, Harvard Business Review, Mar.– Apr., 85–94. Storey, D. (1982), The New Firm, New York: Praeger. Taylor, F.W. (1947), Scientific Management. Comprising: Shop Management; The Principles of Scientific Management; Testimony Before the Special House Committee, New York and London: Harper & Brothers. Timmons, J.A. (1989), The Entrepreneurial Mind, Andover, MA: Brick House. Timmons, J.A. and S. Spinelli (2004), New Venture Creation, 6th edn, New York: Irwin/McGraw-Hill. Vérin, H. (1982), Entrepreneurs, entreprise: histoire d’une idée, Paris: Presses Universitaires de France. DANA (2nd edition) PRINT.indd 82 18/12/2020 11:32 Defining the entrepreneur 83 Vesper, K.H. (1990), New venture strategies, 2nd edn, Englewood Cliffs, NJ: Prentice Hall. Weber, M. (1947), The Theory of Social and Economic Organization, New York: Free Press. Wilken, P.H. (1979), Entrepreneurship: A Comparative and Historical Study, Norwood, NJ: Ablex Publications. Wortman, M. (1987), ‘Entrepreneurship: an integrating typology and evaluation of empirical research in the field’, Journal of Management, 13 (2), 259–79. Zaleznik, A. and M.F.R. Kets de Vries (1976), ‘What makes entrepreneurs entrepreneurial?’, Business and Society Review, 17, 18–23. DANA (2nd edition) PRINT.indd 83 18/12/2020 11:32 9. Digital entrepreneurship Kerstin Wagner and Oliver Som The long tradition of entrepreneurship research has mainly focused on ‘how, by whom and with what consequences opportunities to produce future goods and services are discovered, evaluated and exploited’ (Shane and Venkataraman, 2000: 218). In addition to the ongoing digital transformation of economies driven by the diffusion of digital technologies, a multitude of new entrepreneurial opportunities is emerging. Owing to new requirements for work in a digital economy, work values have evolved to constitute a greater appreciation of teamwork and connectedness. This entails new cognitive (for example, knowledge of digital technologies, and digital literacy) and behavioural capabilities of working in and with digital platforms (for example, co-creation, information seeking and sharing, tackling problems and seeing new opportunities, and managing virtual teams). Furthermore, accessibility to social capital (such as networks, business partners and mentors) and to formal and informal networks, the exploitation novel funding opportunities (for example, crowdfunding) and the unlocking of tacit knowledge (for example, online technical assistance, technical databases, and communities of users and experts) are gaining increasing relevance (Smith et al., 2017; Li et al., 2018). General management literature reveals findings on how digitalization affects the demand for new workplace skills (Sousa and Rocha, 2019) and competencies (Lobo and Whyte, 2017). However, little is known about how the characteristic context of digital transformation influences the nature of entrepreneurship. The field of research in digital entrepreneurship is still fuzzy and relatively unexplored. Nambisan (2017) has presented one of the most important and differentiated conceptual approaches to digital entrepreneurship to date. Based on two main implications of digital technologies, less bounded entrepreneurial processes and outcomes and fewer predefined loci of entrepreneurial agency, he advances a future research agenda on entrepreneurship that calls for the explicit theorizing of concepts related to digital technologies. However, his argumentation remains on the descriptive level and thereby misses the opportunity to synthesize its findings into a typology of different phenotypes of digital entrepreneurship. We contribute to advance Nambisan’s conceptual considerations by presenting a taxonomy of how entrepreneurs take advantage and exploit digital technologies for value creation. This taxonomy aims to show how entrepreneurs partly to fully integrate or utilize digital technologies and thus, depending on the stage of technological integration, influence how other entrepreneurs use digital technologies. The goal pursued with the taxonomy is to better structure the empirical heterogeneity of entrepreneurship in the digital age, thereby providing a more systematic starting point for identifying future demands for progressing theory and empirical analysis in entrepreneurship research. 84 DANA (2nd edition) PRINT.indd 84 18/12/2020 11:32 Digital entrepreneurship 85 THREE LEVELS OF BECOMING DIGITAL To develop the perspectives on digital entrepreneurship, it is necessary to distinguish between the three different dimensions of digital proposed by Savić (2019) and Unruh and Kiron (2017): (1) digitization, (2) digitalization, and (3) digital transformation. First, the digitization perspective describes the conversion of previously analogue information, processes and activities into their digital version. This first occurred with sectors such as publishing, music and finance, mostly because their products were just information to begin with. Hence, the information which historically had been captured in a physical analogue format was migrated to digital. However, digitization is not solely about the conversion of information. It also includes the conversion from manual business and manufacturing processes into digital mediated processes and workflows, such as using digitally programmed automation technologies. Examples include the use of e-commerce tools or computer-aided design and computer-aided manufacturing (CAD-CAM) linkages in production. The overall goal of digitization is to achieve higher effectiveness and efficiency of business activities owing to the use of digital technologies by converting previously analogue/physical documents and processes into their digital counterparts. Secondly, the level of digitalization shifts the focus from single information or single processes to the entire process of value creation and the business model. While in the case of digitization the underlying business model remains unaffected, digitalization means that value proposition no longer solely depends on the physical product characteristics. Digitalization of business processes offers a completely new type of customer value based on data and information processing provided by individually configurable software applications. The physical product thus remains as the carrier of the user interface to the software application(s). Several examples for these cyber-physical systems can be found in the field of the Internet of things (IoT), where physical products (for example, cameras and smart speakers) serve as an interface to access a larger virtual network. In consequence, the digitalization of products and value renders existing business models and industry incumbents obsolete. The proud legacy assets of former market giants can quickly turn into core rigidities (Leonhard-Barton, 1992). As societies and economies evolve, by people integrating new technologies into their lives, the third level of digital transformation describes the process of restructuring the economy on a large scale and reshaping the behaviour, habits, value orientation, beliefs and preferences of society. Examples of similar revolutionizing transformations in history are the steam engine, electricity, the telephone and the automobile. Every one of these technologies has altered the way in which people produce, consume and structure their lives, resulting in institutional and social change. Comparably to these historical breakthrough technologies, research assumes that digital technologies will continue transforming our societies holistically from communication to work, and perhaps even the human genome by entirely reconfiguring social behaviour and information processing. A major characteristic of the digital transformation is the importance of network effects by quickly assembling a high number of users or members to unfold the exponentially growing, real-time exchange of knowledge and data. These digital ecosystems drive the emergence and diffusion of new forms of value creation and social interaction. To achieve and profit from these digital ecosystems, firms aim for digital leadership, that is, to be involved in establishing the new standards and governance instead of being driven by it. DANA (2nd edition) PRINT.indd 85 18/12/2020 11:32 86 World encyclopedia of entrepreneurship These three dimensions differentiate between three different quality levels of ‘digital’. Hence, they provide a solid basis from which to discuss the empirical phenomenon of digital entrepreneurship on each of these levels in this chapter. Subsequently, these qualitative dimensions of digital serve as a basis for distilling conceptual stereotypes of digital entrepreneurship comprehending new types of activities, routines, beliefs, goals and interaction. A TAXONOMY OF DIGITAL ENTREPRENEURSHIP Entrepreneurs starting a business frequently use digital technologies as an advantage for their internal and external operations, aiming to create better or even new ways of capturing value. The taxonomy presented in this chapter shows different ways and options by which digital technologies are likely to shape entrepreneurial activities for value creation. It incorporates considerations by Nambisan (2017), who distinguishes between three distinct types of digital elements created by entrepreneurs, and we extend this according to our understanding of digital entrepreneurship. Entrepreneurs Using Digital Technologies/Digital Support First, entrepreneurs can exploit digital technologies by making use of digital technologies that support or even leverage their core business activities (Beier and Wagner, 2016). Examples of the integration of specific technologies are project management software or e-commerce functionalities. Examples of external applications are, for instance, social media and crowdfunding platforms. These technologies enable entrepreneurs to increase the effectiveness and the efficiency of their core and supporting processes. The purposes for why digital technologies are used are different: ● ● ● ● ● ● sourcing innovation and improving the ideation process through crowdsourcing platforms; obtaining access to finance via crowdfunding platforms; prototyping and testing new products via social media or crowdfunding platforms; reaching new markets via social media platforms; selling products directly via online shop; and building customer relationships via social media platforms. While entrepreneurs can extend the boundaries by these activities beyond their traditional networks, peer groups, supporters and customers, the scope remains narrow. Digital technologies in this case are configured to support or improve existing core business processes instead of to transform them. Entrepreneurs Creating Single Digital Products and Service Second, growing number of independent entrepreneurs recognize a large variety of opportunities in different industries. They create and offer websites, applications (apps) or custom software in relation to digital products and services that can be either stand-alone software or hardware, or even be a part of a digital platform or a larger digital ecosystem. Most of DANA (2nd edition) PRINT.indd 86 18/12/2020 11:32 Digital entrepreneurship 87 these digital products and services run on smartphones or other personal information technology (IT) devices. Usually, they offer one or more specific functionalities and values to their end users, such as smartphone apps, databased services, three-dimensional (3D) animation, or computer games. Entrepreneurial agency and purpose of these products and services are mostly predefined, and the boundaries of entrepreneurial activities are static with a predefined product and outcome, and open depending on the data interfaces (application programmer interfaces, API) and open-source activities. Entrepreneurs Creating Digital Platforms Third, entrepreneurs create a technology, product or service that operates as a digital platform. A platform is an intermediary and facilitates transactions between different types of individuals and organizations that would otherwise have difficulty finding each other. The platform consists of an operating system, data, networks, infrastructure and a user base. Creators of digital platforms not only develop new digital technologies, they even more frequently compose an architecture and governance structure that ultimately influences the way their customers – often other entrepreneurs – make use of their platform (Beier and Wagner, 2017). Prominent examples are Uber, AirBnB, eBay, Amazon Marketplace, but also crowdfunding platforms (for example, Kickstarter) or any other platform that brings together demand and supply sides for a specific purpose (for example, Tinder). These two-sided or multi-sided platforms offer their services on a national, international or global level (Rochet and Tirole, 2003). Digital platforms have the potential to disrupt other traditional models since they are substituting existing services from the outside (for example, banking, transport, hotel and travel industries). Digital platforms take advantage of the scalability software engines may offer and the potential reachability to millions of potential users (Evans et al., 2006). Scalability goes hand in hand with the presence of direct and indirect network effects. Users attract more users, and even more users from one side attract more users from the other side of a platform and that dynamic triggers a self-reinforcing cycle of growth (Evans and Gawer, 2016). Entrepreneurs Building Digital Ecosystems Fourth, entrepreneurs build digital innovation platforms that not only match supply and demand sides but also enable innovation activity and new value creation on their platform. These platforms consist of technological building blocks. The building blocks are used as a foundation on top of which many entrepreneurs and innovators (loosely organized) can develop complementary products or services (Evans and Gawer, 2016). They open their infrastructure to third-party applications. Contributions can come from anywhere in the world, and together they form a digital ecosystem around the platform. A dynamic digital ecosystem is an interrelated network of organizations, people and/or entities that interact and collaborate for value co-creation. A prominent example is iPhone which may host hundreds of applications on their iOS operation system. Entrepreneurs or innovators develop these applications and use Apple technology for distribution purposes. Apple makes their technology available through their APIs. The same applies to Google’s Android platform. These digital ecosystems are reshaping the global landscape. Being a platform leader of an innovation ecosystem also DANA (2nd edition) PRINT.indd 87 18/12/2020 11:32 88 World encyclopedia of entrepreneurship entails being responsible for the governance of a whole ecosystem of partners and peer groups. Their actions strongly influence technology affordance of their users and customers, platform governance and architecture of participation on the platform, but also in the whole digital ecosystem (Gawer and Cusumano, 2014; Nambisan, 2017). A TAXONOMY OF DIGITAL ENTREPRENEURSHIP BASED ON ENTREPRENEURIAL AGENCY AND BOUNDARIES Departing from the two major lines of reasoning on digital entrepreneurship outlined in the seminal contribution by Nambisan (2017), the four types of digital activities and phenotypes of digital entrepreneurship can be synthesized into the taxonomy visualization in Figure 9.1. ENTREPRENEURIAL BOUNDARIES The dimension ‘Boundaries’ in Figure 9.1 refers to the reasoning that most traditional models in entrepreneurship research assume relatively stable and fixed boundaries of entrepreneurial outcomes. This includes a well-defined range of business opportunities Undefined Cas cad eo fg o ce an rn e v Entrepreneurs in digital ecosystems Agency/goals Entrepreneurs in digital platforms Entrepreneurs as developers of digital products & services Entrepreneurs using digital technologies Defined Static/narrow Source: Boundaries Fluid/broad Authors’ illustration. Figure 9.1 DANA (2nd edition) PRINT.indd 88 Four stereotypes of digital entrepreneurship 18/12/2020 11:32 Digital entrepreneurship 89 and fixed or discrete sets of possible product or service outcomes. With the increasing integration of digital technologies, however, these boundaries are continuously becoming more open and fluid because the scope, features and value of product or service offerings continue to evolve even after the idea has evolved and been implemented. New management approaches such as the ‘Lean Start Up’ method (Ries, 2011) or the focus on the development of new business models (instead of predefined business plans) has led to a more open approaches of creating a new product or service (Maurya, 2012). New core functionalities of a digital product are tested as a minimum viable product on the market and early feedback from users are integrated in the further product development. Most digital product designs remain somewhat incomplete and in a state of flux where both the scale and scope of the innovation can change (Lyytinen et al., 2016). Opportunity creation is emergent (social interactions between actors are included), thus making the ideation process iterative and changing. The way new digital platforms – both transaction and innovation platforms – and complete new digital ecosystems are created allows experimentation, modification and changing the focus of the product, service or technology (pivoting). Digital platform entrepreneurs can recombine elements and continuously assemble, extend and redistribute functionalities over time (Yoo et al., 2010; Zittrain, 2006). ENTREPRENEURIAL AGENCY The second dimension in Figure 9.1, ‘Agency/goals’, addresses the variety of actors involved in the entrepreneurial process. Traditional entrepreneurship research has focused on the role of a predefined founder (or team) who drives the entrepreneurial idea to implementation in the market (Nambisan, 2017). With the use of digital technologies, entrepreneurial agency has become more open and more distributed, with a dynamic and unexpected collection of actors engaging in entrepreneurial initiatives. In contrast to the traditional supply chain, digital entrepreneurs acting within a digital ecosystem do not know in advance who or where the external entrepreneurs or innovators might be or come from. These external entrepreneurs or innovators seek and find the platform and, depending on the degree of openness and the architecture of participation, this will encourage complementary innovation within the digital ecosystem. Actors opt in and out based on their individual goals and motivations (Nambisan, 2017). CASCADE OF GOVERNANCE Every platform ecosystem needs governance. Those entrepreneurs creating and running an innovation platform have to take responsibility and show leadership. They decide who has access to the platform, how the resource contribution and the benefits of the platform are distributed between the ecosystem members, and how conflicts between them can be resolved in instances of diverging goals and interests. They need to create policies while also ensuring participation, value creation and high-quality participation on the platform (Evans and Gawer, 2016). Being a platform leader of an innovation ecosystem influences the technology affordance, the platform governance and the architecture of participation DANA (2nd edition) PRINT.indd 89 18/12/2020 11:32 90 World encyclopedia of entrepreneurship on their platform and within the whole digital ecosystem. For instance, when Android adds new capabilities into its operating platform, it produces ‘ripple effects’ (Nambisan, 2017: 1034) which lead to the transformation and/or development of radically new opportunities of entrepreneurial activities. As a consequence, these dynamics are also likely to extend the boundaries of the associated opportunity and actor space in turn. Entrepreneurial-activities based digital technologies can leverage completely new ecosystems, paving the way for future entrepreneurial activities by setting the agenda in relation to basic mechanism, scope of possible functionalities or digital services for doing business (for example, PayPal). In contrast, traditional types of analogue entrepreneurship are based on a well-defined agenda and boundaries which, in most cases, are directly linked to the physical product (for example, product-related services such as maintenance) or variations of service delivery (for example, standardized versus customized). FIVE THESES ABOUT FUTURE RESEARCH ON DIGITAL ENTREPRENEURSHIP There are many research topics and gaps for future research on digital entrepreneurship. The following highlights five aspects of a future research agenda where theoretical enrichment and methodological progress is required to advance the understanding of digital entrepreneurship. First, the development of technology trajectories predominantly builds on a technology perspective. This is in line with a discussion of the downsides of this narrow view exclusively on technology. The use and diffusion of digital technologies by entrepreneurs, however, stand in strong relationships to specific social-psychological dispositions of the entrepreneur. An entrepreneur with a high-risk propensity might be more likely to develop a digital platform financed via business angels and venture capital. In contrast, the shoe designer with a solid business case relies on the technology of an online shop and sells shoes directly online. Finally, the app developer always sees himself or herself as a problem solver and usually develops customized software solutions and consultancy services tailored to the specific needs of his or her customers. Second, personal characteristics are antecedents why entrepreneurs choose specific levels of digital activity. Future research should focus on the question of whether and how the diffusion of digital technologies across different types of digital entrepreneurship affects and shapes individual characteristics of entrepreneurs (commitment, determination and perseverance, risk-taking and risk-seeking, drive to achieve and grow, opportunity and goal orientation, and persistent problem solving). Third, digital technologies are likely to affect both the boundaries (scope) and the nature of agency of entrepreneurial activities. A question arising for further research would be how these changes in the nature of entrepreneurial activities correlate with reconfigurations of individual dispositions and mind-sets of entrepreneurs (Frederick et al., 2007). For instance, in settings where both boundaries and agency are fluid and undefined, calculated risk-taking is hardly possible owing to exponentially higher complexity. How do entrepreneurs deal with these ill-defined situations in terms of decision-making? Fourth, Nambisan (2017) argues that new forms of digital entrepreneurship constitute themselves by the categories of ‘boundaries’ and ‘agency/goals’, the building blocks of the DANA (2nd edition) PRINT.indd 90 18/12/2020 11:32 Digital entrepreneurship 91 taxonomy suggested in this chapter. However, the transition from static to fluid boundaries or predefined to undefined agencies and goals is not yet measurable. Hardly anything is known about how entrepreneurs move along these axes and how they manifest in their appearance. This calls for the development of novel measurement approaches to assess different levels of boundaries, agencies and governance. Fifth, and finally, some types of digital entrepreneurship extend the traditional scope and borders of activities and goals. A question that needs to be addressed for further research is whether these dynamics result in broader settings of entrepreneurial groups or communities (Oh and Reeves, 2014) and/or increased opportunities for minority entrepreneurship (Gupta et al., 2014). REFERENCES Beier, M. and K. Wagner (2016), ‘Social media adoption: barriers to the strategic use of social media in SMEs’, Proceedings of the European Conference on Information Systems (ECIS), Istanbul, 15 June. Beier, M. and K. Wagner (2017), ‘What determines the growth expectations of early-stage entrepreneurs? Evidence from crowdfunding’, International Journal of Entrepreneurship and Small Business, 31 (1), 12–31. Evans, D.S., A. Hagiu and R. Schmalensee (2006), Invisible Engines: How Software Platforms Drive Innovation and Transform Industries, Cambridge, MA: MIT Press. Evans, P.C. and A. Gawer (2016), ‘The rise of the platform enterprise: a global survey’, The Center for Global Enterprise, New York. Frederick, H.F., D.F. Kuratko and R.M. Hodgetts (2007), Entrepreneurship: Theory, Process and Practice, South Melbourne: Nelson. Gawer, A. and M. Cusumano (2014), ‘Industry platforms and ecosystem innovation’, Journal of Product Innovation Management, 31 (3), 417–33. Gupta, V.K., A. Banu Goktan and G. Gunay (2014), ‘Gender differences in evaluation of new business opportunity: a stereotype threat perspective’, Journal of Business Venturing, 29 (2), 273–88, doi:10.1016/j. jbusvent.2013.02.002. Leonhard-Barton, D. (1992), ‘Core capabilities and core rigidities: a paradox in managing new product development’, Strategic Management Journal, 13 (S1), 111–25. Li, L., F. Su, W. Zhang and J.-Y. Mao. (2018), ‘Digital transformation by SME entrepreneurs: a capability perspective’, Information Systems Journal, 28 (6), 1129–57. Lobo, S. and J. Whyte (2017), ‘Aligning and Reconciling: building project capabilities for digital delivery’, Research Policy, 46 (1), 93–107. Lyytinen, K., Y. Yoo and R.J. Boland (2016), ‘Digital product innovation within four classes of innovation networks’, Information Systems Journal, 26 (1), 47–75, doi:10.1111/isj.12093. Maurya, A. (2012), Running Lean: Iterate from Plan A to a Plan That Works, Boston, MA: O’Reilly and Associates. Nambisan, S. (2017), ‘Digital entrepreneurship: toward a digital technology perspective of entrepreneurship’, Entrepreneurship Theory and Practice, 41 (6), 1029–55. Oh, E. and T.C. Reeves (2014), ‘Generational differences and the integration of technology in learning, instruction, and performance’, in J.M. Spector, M.D. Merrill, J. Elen, and M.J. Bishop (eds), Handbook of Research on Educational Communications and Technology, 4th edn, New York: Springer, pp. 819–28. Ries, E. (2011), The Lean Startup: How Today’s Entrepreneurs Use Continuous Innovation to Create Radically Successful Businesses, New York: Crown Business. Rochet, J.-C. and J. Tirole (2003), ‘Platform competition in two-sided markets’, Journal of the European Economic Association, 1 (4), 990–1029. Savić, D. (2019), ‘From digitization, through digitalization, to digital transformation’, Working Paper No. 43/2019, International Atomic Energy Agency, pp. 36–9. Shane, S. and S. Venkataraman (2000) ‘The promise of entrepreneurship as a field of research’, Academy of Management Review, 25 (1), 217–26. Smith, C., J. Brock Smith and E. Shaw (2017), ‘Embracing digital networks: entrepreneurs’ social capital online’, Journal of Business Venturing, 32 (1), 18–34. Sousa, M.J. and Á. Rocha (2019), ‘Skills for disruptive digital business’, Journal of Business Research, 94 (January), 257–63. DANA (2nd edition) PRINT.indd 91 18/12/2020 11:32 92 World encyclopedia of entrepreneurship Unruh, G. and D. Kiron (2017), ‘Digital transformation on purpose’, MIT Sloan Management Review, 6 November, accessed 21 September 2020 at https://sloanreview.mit.edu/article/digital-transformation-on-purpose/. Yoo, Y., O. Henfridsson and K. Lyytinen (2010), ‘The new organization logic of digital innovation: an agenda for information systems research’, Information System Research, 2 (4), 724–35, doi:10.1287/isre.1100.0322. Zittrain, J.L. (2006), ‘The generative Internet’, Harvard Law Review,119, 1974–2040, doi:10.1145/1435417.1435426. DANA (2nd edition) PRINT.indd 92 18/12/2020 11:32 10. Digital platforms Donato Cutolo and Jan Vang Digital platforms have changed the conditions influencing entrepreneurship across the globe. Research has shown that context is critical in understanding how these platforms impact entrepreneurial endeavors. This chapter illustrates how context is critical in understanding and analyzing how digital platforms influence entrepreneurial opportunities. It suggests that digital platforms represent a new type of intersection between the global and the local, where global forces promote conditions of dependent entrepreneurship. In contrast, local forces shape entrepreneurs’ agency in relation to the global processes. We suggest that, to ensure fair competition and just working conditions for platform entrepreneurs and employees within the industry, there is a need for policies not being steered by techno-skeptical or techno-optimistic frameworks but by a balanced approach. Since Joseph Schumpeter at least, it has been recognized that entrepreneurs discover and create opportunities and build new independent firms (Alvarez and Barney, 2007; Audretsch, 2007). More recently, scholars such as Brynjolffson and McAfee (2016) have hailed entrepreneurship as a vital response to the increasing concerns about digitization’s impact on entrepreneurship and the future of work. The impact of digital platforms on entrepreneurship has emerged simultaneously with a recognition of the importance of context in generic entrepreneurship research. Researching context in relation to digital platforms provides a particular challenge to researchers owing to their simultaneous global and localized nature; the interplay between the global and the local is more complex than in most other industries given the high digital interconnectivity and limited footlessness for many types of transactions and activities. A request on, for example, Innocentive, the world’s leading problem-solving digital platform, can be promoted to potential problem-solvers across the globe at the same time. Digital platforms such as Amazon, eBay, Etsy, Apple, Instagram and YouTube make it easier than ever for entrepreneurs to build a business and generate income. To illustrate their strength, the revenue generated by applications (apps) on Google and Apple, together, is projected to reach $188.9 billion by 2020. Data show that more than a million US-based small and medium-sized businesses operate on Amazon marketplace, generating hundreds of thousands of jobs across the US (Amazon, 2019). According to Etsy, in 2008, its sellers had an economic impact of $5.37 billion, with more than 1.52 million jobs created in the US economy (Etsy and GfK, 2019). These numbers reflect a combination of entrepreneurship by choice (for example, pursuing super-normal rents) and entrepreneurship by force (for example, precarious working conditions). Those with opportunities to generate new platform ideas that are economically sustainable can generate superior rents, while those working as entrepreneurs on the platforms are often exposed to hard competition and meagre returns on their investments. Moreover, many of the contributors to the platforms are not even receiving any compensation. LinkedIn, for example, have a considerable number of voluntary contributors not receiving payment for their uploads. 93 DANA (2nd edition) PRINT.indd 93 18/12/2020 11:32 94 World encyclopedia of entrepreneurship The economic centrality of platforms heralds a new reality for entrepreneurs. Launching a business on a digital platform is not just about access to commercial opportunities that would not otherwise be available, but embodies new and concrete forms of entrepreneurship. Extant literature has produced significant insights into how platforms’ technological dimensions operate to redefine entrepreneurial opportunities, processes and outcomes (Nambisa, 2017; Nambisan et al., 2019; Von Briel et al., 2018). Moreover, as many scholars argue, platforms represent a novel and different context for entrepreneurial activities (Eckhardt et al., 2018; McIntyre and Srinivasan, 2017). However, the context is also highly diverse across activities. Local commercial digital platforms in developing countries differ significantly from hobby gaming digital platforms originated in developed countries; thus, there is a need to unpack the importance of context. While recognizing the tremendous new business opportunities created by online platforms, scholars have identified several threats that directly stem from platforms (Cutolo and Kenney, 2020; Nambisan and Baron, 2019; Wang and Miller, 2020; Wen and Zhu, 2019), but these findings have not incorporated a theoretical perspective of context. Our objective is, therefore, to elucidate and discuss the features of platform entrepreneurship and the role of context. The chapter is organized as follows. The first section introduces the importance of the context in entrepreneurial research and discusses the peculiar nature of digital platforms as a new context for entrepreneurship. The following section focuses on the new actors involved, where actors are understood as embedded in a dual context, being the local and global. The third section looks into how this focus on digital platforms as a new context carries important policy implications. Finally, we emphasize areas for future research concerned with the role of context in digital platform research. A NEW CONTEXT FOR ENTREPRENEURSHIP The Importance of the Context in Entrepreneurship Not long ago, financial capital and ownership were central tenants of entrepreneurship. In his day, Henry Ford gained an economy of scale through ownership and centralized control, but currently, even Ford has decentralized operations into a multi-polar structure; the factory where 100 000 employees produced 1200 cars a day, dropped to 3000 employees making 800 cars a day, and this brings us to a new paradigm (Wright and Dana, 2003 [2007]). Iron ore no longer enters a plant at one end, and automobiles drive out the other. At a time when the psychology of entrepreneurs was being investigated and ethnocentric generalizations were made from Western samples, going against the accepted view, Dana (1995 [2002], 1996) noted that the opportunity for entrepreneurship was influenced by context and it was wrong to assume that an opportunity for one person was necessarily an opportunity for another. These studies pioneered the concept that context had an impact on shaping entrepreneurship as Dana demonstrated that the perception of entrepreneurial opportunities is influenced by factors such as cultural capital that may discourage (Light and Dana, 2013) or facilitate the emergence of entrepreneurship (Dana et al., 2020). DANA (2nd edition) PRINT.indd 94 18/12/2020 11:32 Digital platforms 95 Similarly, digital platforms facilitate and simultaneously shape the emergence of novel entrepreneurial opportunities. When conceptualizing the emergence of entrepreneurial opportunity, it is important to consider the role of contextual elements or enablers, such as ‘single, distinct, external circumstances, which – by affecting supply, demand, costs, prices or payoff structures – can play an essential role in eliciting and/or enabling a variety of venture development attempts’ (Davidsson, 2015: 684). Although contextual elements operate at the environmental level and can be actor-independent, particular actors often influence or even have a central role as external enablers (Davidsson, 2015). By orchestrating entire ecosystems of value creation and exchange (Nambisan, 2017) and by providing resources for various stages of the entrepreneurial process (von Briel et al., 2018), digital platforms are not only external enablers but also open new spaces where entrepreneurs can create new firms.1 They, as a matter of fact, become a new context for entrepreneurial activity. Analyzing the context in which entrepreneurship takes place is of the utmost importance in the advancement of entrepreneurial research (Welter, 2011), since the character of entrepreneurship, as well as the actions and the outcomes of any entrepreneurial effort, depending on the rules, threats and opportunities deriving from the context (Autio et al., 2014). Although there is a tendency to treat contextual features as error variance (Bamberger, 2008) or control variables (Zahra et al., 2014), a deep understanding of entrepreneurial context serves multiple purposes from a theoretical standpoint. A deep understanding of context enables us to delineate the phenomena and the relationships under study (Bamberger, 2008) and the nature and sources of risks and uncertainty that may influence the behaviors of the entrepreneurs (Nambisan and Baron, 2019). In addition to market rules, which are a common factor regulating economic dynamics, new and established business must face multiple forces that arise from the context of their activities (Zahra et al., 2014). This covers, for instance, the presence of local venture capital, legal structures (e.g. non-complete agreements (Marx et al., 2015)). These and other factors set the boundaries for entrepreneurs’ actions and can facilitate, hinder or have contradictory impacts on entrepreneurial success. The critical role that context plays in explaining entrepreneurial actions and outcomes is gaining momentum in the literature but, thus far, limited attention has been devoted to how the context of digital platforms shape entrepreneurial opportunities, actions and outcomes (Nambisan, 2017). The dearth of research on how digital platforms influence the nature of entrepreneurship is even more problematic considering that practically a significant part of current entrepreneurship is predicated upon being in a platform ecosystem. For example, the sale of consumer goods has been transformed by Amazon. Amazon and other digital platforms are where consumers learn about and search for goods. The growing centrality of platforms is evidenced by the need for even the most powerful established brands to establish a presence on Amazon: Nike and Apple had resisted selling through Amazon in part out of fear of undercutting their existing vendors, but in 2018, they capitulated and began selling on Amazon. DANA (2nd edition) PRINT.indd 95 18/12/2020 11:32 96 World encyclopedia of entrepreneurship The Multifaceted Nature of the Context There is a broad consensus about manifold facets of context (Autio et al., 2014; Welter, 2011; Zahra et al., 2014). Context is both an enabling and constraining factor in understanding digital entrepreneurship. However, as documented by the entrepreneurship ecosystems literature, the context has to be enacted to be transformed from being a passive site to becoming a valuable resource. This transformation process depends on entrepreneurs and entrepreneurial activities; therefore there is a need to link actors and context better than has previously been achieved in the literature. That is, to fully appreciate the impact of the platform economy on entrepreneurship, it is crucial to explore how the context can be conceptualized and operationalized within the digital economy. Technological Dimension of Digital Platforms: Beyond Spatial and Social Context Entrepreneurship research recently has started to acknowledge the central role that the digital nature of platforms play in shaping the context for entrepreneurs (Nambisan, 2017; Nambisan et al., 2018, 2019; Sussan and Acs, 2017). The spatial dimension of the context refers to the geographical environment, the physical setting or location where entrepreneurial actions take place (Zahra and Wright, 2011). The relevance of spatial mechanisms in fostering and regulating entrepreneurial and innovation activities has a long research tradition in economic geography (Kenney, 1999). Spatial proximity fuels new-firm creation and growth as it enables the generation of positive externalities, such as access to knowledge and social capital, and economies of scale and scope (Delgado et al., 2010). For example, location represents an essential asset in the process of international expansion by new ventures, since clusters of new firms offer several tangible and intangible resources that can be leveraged to internationalize operations (Fernhaber et al., 2014). The reason is that the spatial dimension of the context ‘serves as a proxy for several important variables that determine the vigor of entrepreneurial activities’ (Zahra et al., 2014: 488). The integration of existing frameworks and theories from digital technology literature with existing concepts in entrepreneurship illustrates that, within the context of digital platforms, the spatial boundaries of entrepreneurial actions and outcomes have been drastically redefined (Nambisan, 2017; Nambisan et al., 2019). Online platforms are built upon a set of digital technology tools and systems, a digital infrastructure (Tilson et al., 2010) that allows entrepreneurs to access many of the benefits that originate from spatial proximity without requiring the creation of physical clusters. As a consequence, geographical location changes importance since digital platforms are specifically designed to connect previously unconnected and dispersed entities (Brunn et al., 2002; Henten and Windekilde, 2016). For example, crowdfunding platforms such as Kickstarter and Indiegogo enable entrepreneurial ventures to interact with potential customers and attract financial resources on a global scale. However, this does not imply that space is unimportant because, for example, crowdfunding is known to be discriminative against entrepreneurs from developing countries. That is, the digital nature of online platforms contributes to making the spatial boundaries of entrepreneurial processes and outcomes more fluid, with significant consequences also for the interaction among the actors involved (Nambisan, 2017). The DANA (2nd edition) PRINT.indd 96 18/12/2020 11:32 Digital platforms 97 spatial dimension of the context place entrepreneurs in a social network of actors that influences the likelihood of entrepreneurial emergence and success (Autio et al., 2014). The interactions and exchanges between groups of heterogeneous actors are a rich source of knowledge, resources and access to markets (and actors’ actions are influenced by the spatial context they are embedded in). Consequently, these spatially embedded yet spatially dynamic networks represent a vital factor for the creation, growth and success of new ventures. In this regard, the social and spatial dimension of the context is ultimately intertwined in exerting a substantial influence over individual agency and entrepreneurial outcomes (Zahra et al., 2014). Platforms such as Amazon, Alibaba, Etsy or eBay drastically reduced the costs of economic interactions with investors, partners, suppliers and customers distributed worldwide, supporting entrepreneurial growth and expansion. Initially, digital platforms deploy several technological tools to favor the interaction between the members of their networks. For instance, in platform markets, algorithmic and recommendation systems operate to reduce discovery and transaction costs, and reputation and review systems are essential features of many digital platforms because they function as mechanisms to foster trust (Jøsang et al., 2007; Luca and Zervas, 2016; Tadelis, 2016). As a direct consequence of the latter aspect, entrepreneurs can more easily (and at lower cost) benefit from market information about the value of their business proposition, and identify the most promising opportunities (Eckhardt et al., 2018). Also, digital platforms support and promote the development of digital spaces where entrepreneurs can easily communicate and interact with one another. These online communities generate fruitful exchanges that ultimately influence the emergence and the success of entrepreneurial opportunities. For example, Kuhn and Galloway (2015) offer insights on how digital communities of peer entrepreneurs become a useful source of support and strategic advice. The technological dimension of digital platforms goes beyond the influence of spatial and social context as it creates increasing opportunities for a more distributed entrepreneurial agency (Nambisan, 2017). Digital platforms allow a set of otherwise disconnected actors to participate in a shared creation of value, directly contributing with resources, feedback, social and human capital. Digital Platform Strategies: In Between Market and Institutional Context In shifting the focus on the context, great attention has been devoted to market factors that affect entrepreneurial actions, processes and outcomes. Market or industry life cycle has been shown to exert significant influence on the emergence of entrepreneurial activities, with entrepreneurial entry mostly concentrated in the early stage of an industry life cycle and entrepreneurial innovations encountered during later phases (Autio et al., 2014). Together with the industry life cycle, other market dynamics have been called into question; for instance, the level of competition in the market (Welter, 2011). Competitive and evolutionary dynamics in digital platform markets are unique in being intrinsically tied to the strategic decisions of the platform firms (Cennamo, 2019; Cusumano et al., 2019). In the early stage of their life cycle, owing to the fierce competition between platforms that typically follows the emergence of a new opportunity, platforms need to attract entrepreneurs in the attempt to gain market traction. As a DANA (2nd edition) PRINT.indd 97 18/12/2020 11:32 98 World encyclopedia of entrepreneurship consequence, several boundary resources are provided to support entrepreneurs in starting, managing and scaling their businesses, such as application programming interfaces, software development kits, payment, logistic systems and, even, mentoring initiatives, which dramatically ease market entry and growth (Ghazawneh and Henfridsson, 2013). Resources acquisition is a critical challenge for all new ventures, since nascent entrepreneurs typically require a variety of resources and competencies to overcome the liability of newness (Stinchcombe, 1965), in relation to which, inter-platform competitive dynamics open novel opportunities for entrepreneurs by lowering entry barriers. When a platform market matures owing to network effects and winner-take-most dynamics (Cennamo and Santalo, 2013; Gawer and Cusumano, 2014), the strategies of the platform firms change and, with them, the contextual dynamics that entrepreneurs face. For example, although positioning themselves as direct competitors to the entrepreneurs that populate their market may hinder the long-term equilibrium of a platform ecosystem, in the quest for profit maximization platform owners may seek to capture more value at the expense of the ecosystem’s actors. To illustrate, Zhu and Liu (2018) found Amazon entry patterns into market segments created by independent entrepreneurs in the Amazon marketplace are the result of pure competitive actions aimed solely at increasing the platform’s profit by appropriating the most successful space in its marketplace. That is, running a business on a platform entails the implicit acceptance of the rules and general value proposition set by the platform owner (Nambisan and Baron, 2013). Digital platforms’ strategy is a novel dimension of the context that lies in between markets and institution. This is because digital platforms act as private regulators of their markets, setting the rules for engagement and the terms of participation for all the actors involved. The institutional context refers to the role that formal and informal institutions play by setting the ‘rules of the game’ (Welter, 2011: 172). Regulation changes represents a decisive factor for the emergence and occurrence of new business opportunities (Autio et al., 2014; Shane, 2003). For instance, the Bayh–Dole Act of 1980 in the US has been a fundamental initiative to stimulate academic engagement with the commercialization of their research (Grimaldi et al., 2011). Regulation of digital market spaces is a priority for the platform to protect both customers and entrepreneurs from fraudulent and opportunistic behaviors (Evans, 2012). As a direct consequence, running a business on a platform entails the implicit acceptance of the rules and general value proposition set by the platform owner (Nambisan and Baron, 2013). That is, platforms are masters of life and death within the market since they own the digital spaces and they can change the terms of participation, raising fees or altering the earning structure, and their powers extend to excluding entrepreneurs from the market at any moment (Cutolo and Kenney, 2020). NEW ACTORS: DESCRIBING PLATFORM ENTREPRENEURS Platform-based entrepreneurs may deviate from the stereotypical Silicon Valley highgrowth startups and often take a more mundane form (for example, entrepreneurs by force) (Barley et al., 2017). These enterprises have great variety: opening a knitwear shop on Etsy, or eBay, creating a YouTube channel, writing apps, creating a reselling business on Amazon and starting a business based on Google advertisement referrals are only a DANA (2nd edition) PRINT.indd 98 18/12/2020 11:32 Digital platforms Table 10.1 99 Platforms and their sizes Platform Number of entrepreneurs Source and year Apple iOS/App Store Amazon* eBay 20 million developers 2.5 million merchants 25 million sellers Taobab YouTube 8 million merchants 31 million channels Twitch 180 000 streamers generating revenues 2.1 million merchants 800 000 of businesses 25 million business profiles TechCrunch, 2018 Marketplacepulse, 2019 https://www.oberlo.com/blog/ebaystatistics#:~:text=That%20makes%20 seven%20million%20US,eBay%20 sellers%20around%20the%20globe Alibaba, 2019 https://www.tubics.com/blog/ number-of-youtube-channels/ TechCrunch, 2018 Etsy Shopify Instagram Etsy, 2019 Shopify, 2019 Instagram, 2019 few of the types of businesses that can be established on a digital platform (Haefliger et al., 2010; Kuhn and Galloway, 2015). This enormous population of entrepreneurs is largely unstudied as scholars have focused on the platforms. This omission is notable considering the sheer number of these entrepreneurs. See Table 10.1 for the number of entrepreneurs operating on the major platforms. The preponderance of existing research on entrepreneurship focuses on extraordinary firms that are described as gazelles and unicorns, instead of studying the far more common, ordinary entrepreneurs (Aldrich and Ruef, 2018). The dearth of research on entrepreneurs on digital platforms is even more problematic considering that participation in a platform’s ecosystem has become vital for businesses’ existence and growth (Kenney and Zysman, 2016; Parker et al., 2016). Digital platforms have been theorized around a normative axis concerned with whether digital platforms are inherently harmful for mundane entrepreneurs or entail new job opportunities. The literature has incorporated context in that a new digital platform economy has emerged but has not incorporated context as a spatial dimension. That is, it has not looked at how the local and national context impacts the mundane entrepreneurs’ opportunities. It is implicitly assumed that opportunities are equal, independent of the context. Entrepreneurs in Myanmar and Uganda are thereby subsumed to the same logic as are entrepreneurs located in Milan or Paris. Often overlooked in the literature are the people with conventional jobs within the platform economy, that is, non-entrepreneurs. What is still not researched, for example, is the working conditions of employees of the large platforms in general, and in particular in developing countries, or of those working for subcontractors to the large platforms. Anecdotal evidence suggests that they experience terrible working conditions and pronounced effects of their work. They undertake routine work under conditions of limited resources (especially time), limited autonomy and support, and limited knowledge of the DANA (2nd edition) PRINT.indd 99 18/12/2020 11:32 100 World encyclopedia of entrepreneurship impact of their activities on the users (for example, use-value). Moreover, the work they do is, under some circumstances, having a significantly negative impact on their mental well-being. This is most articulated among workers censoring uploads where they have to deal with, for example, child pornography. The Washington Times (2019) summarizes it this way (in the context of Filipino workers): [W]orkers in offices around Manila evaluate images, videos and posts from all over the world. The work places enormous burdens on them to understand foreign cultures and to moderate content in up to 10 languages that they don’t speak, while making several hundred decisions a day about what can remain online. In interviews with The Washington Post, 14 current and former moderators in Manila described a workplace where nightmares, paranoia and obsessive ruminations were common consequences of the job. Several described seeing colleagues suffer mental breakdowns at their desks. One of them said he attempted suicide as a result of the trauma. This suggests that they face degrading working conditions. However, as research in conventional manufacturing has shown, companies facing the same conditions as suppliers have been able to offer significantly different working conditions to their employees. Locke, for example, studied similar suppliers to Nike from Mexico. He found that the suppliers varied dramatically in their job design. There is thus a need to be cautious about generalizing from one geographical context to the next. POLICY AND CONTEXT Aligned with the contextual perspective is the need to develop new policy tools and instruments incorporating a nuanced understanding of how context operates and how the global and local unfolds differently in different contexts. Policy discourses have tended to be either techno-optimistic or techno-skeptical. The purpose of incorporating context is to indicate how context encapsulates both idiosyncratic (local) and universal (global) dynamics and that actors located in a different context will both experience the opportunities differently and have access to different resources. The starting point for policy development is, therefore, to place context at the core of the analysis and policy formulations. The universalizing dimensions of the platform are captured well by Cutolo and Kenney (2020), who suggest that entrepreneurs are best conceptualized as being embedded in a system that creates space mainly for dependent entrepreneurship. Their model thus suggests that policies need to be developed to address the dependency of entrepreneurs. The policies can entail legal as well as non-legal dimensions. The legal dimensions are typically related to conditions of competition to ensure that market positions are not exploited while the non-legal policies entail policies for creating niches where local experiments can be cultivated without being exposed to destructive selection mechanisms; that is, selection mechanisms based on the power and positions of the platform incumbents. Moreover, policies are needed to destabilize the industries where the platforms dominate. Public initiatives can support the development of new business models and promote collaboration with new smaller platforms guaranteeing that value is not disproportionally captured by large established platforms. Also, it is necessary to ensure that promising networks are brought together with the aim of co-developing activities that increase their bargaining power with the large DANA (2nd edition) PRINT.indd 100 18/12/2020 11:32 Digital platforms 101 platforms. This may include a commitment from governments concerning their purchasing policies. It may be naive to assume that public procurement can eradicate all issues related to poor working conditions among employees affiliated directly or indirectly with the platforms. However, public procurement should make it mandatory that working conditions are respected and enforced among their suppliers. This could create some changes in the industries. Finally, in the context of developing countries, experiences from, for example, China, show that building local platforms can be achieved successfully, but this requires policy measures suspending the traditional market dynamics (however, this is sensitive because it can also be abused and lead to political censoring, control, and so on). These ideas are indicative only and are put forward to illustrate the intersections in need of contextual analysis. CONCLUSIONS The growing centrality of platforms for entrepreneurship is evidenced by the need for even the most powerful established brands to be present on Amazon: Nike and Apple had resisted selling through Amazon in part out of fear of undercutting their existing vendors, but in 2018 they capitulated and began selling on Amazon (Galloway, 2018; Kelley, 2018). We have discussed how digital platforms have become a new context in which entrepreneurship takes place and have become critical in influencing the process and outcomes of entrepreneurial actions. We have shown that the contextual perspective sheds new light on a significant research gap and provides an essential alternative to the dominant policy discourses. Inspired by the work of Cutolo and Kenney (2020) we suggest the dependency propensities of the current platform economy can be used as a platform for developing policies, but also that this perspective can benefit from incorporating insights concerning context. The chapter, however, does not assume quick-fix policies. Finally, we argued for paying more attention to the role of non-entrepreneurs, who often face poor working conditions in the platform economy. Platform entrepreneurship should satisfy customers, owners and employees, not just the two first two of these. Future research should elaborate on how the dependency perspective can better be incorporated with the contextual perspective and engage in empirical studies of how universalizing or globalizing mechanisms interact with local(izing) mechanisms in different places. There is a need to be open to understanding the motivational issues of many new platform contributors, such as YouTubers or lane builders to computer games, as this makes possible new insights concerning working conditions, network building and how different actors in different contexts deal with the dependency challenge. NOTE 1. Joseph Schumpeter first theorized that new technologies or other market changes could open new economics spaces to be occupied by entrepreneurs who construct new business models capable of exploiting the opportunities. DANA (2nd edition) PRINT.indd 101 18/12/2020 11:32 102 World encyclopedia of entrepreneurship REFERENCES Aldrich, H.E. and M. 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Zhu (2019), ‘Threat of platform-owner entry and complementor responses: evidence from the mobile app market’, Strategic Management Journal, 40 (9), 1336–67, doi:10.1002/smj.3031. Wright, R.W. and L. Dana (2003), ‘Changing paradigms of international entrepreneurship strategy’, Journal of International Entrepreneurship, 1 (1), 135–52, repr. 2007 in B.M. Oviatt and P. Phillips McDougall (eds), International Entrepreneurship, Cheltenham, UK and Northampton, MA, USA: Edward Elgar, pp. 131–48. DANA (2nd edition) PRINT.indd 103 18/12/2020 11:32 104 World encyclopedia of entrepreneurship Zahra, S.A. and M. Wright (2011), ‘Entrepreneurship’s next act’, Academy of Management Perspectives, 25 (4), 67–83, doi:10.5465/amp.2010.0149. Zahra, S.A., M. Wright and S.G. Abdelgawad (2014), ‘Contextualization and the advancement of entrepreneurship research’, International Small Business Journal: Researching Entrepreneurship, 32 (5), 479–500, doi:10.1177/0266242613519807. Zhu, F. and Q. Liu (2018), ‘Competing with complementors: an empirical look at Amazon.com’, Strategic Management Journal, 39 (10), 2618–42. doi:10.1002/smj.2932. DANA (2nd edition) PRINT.indd 104 18/12/2020 11:32 11. Disabled entrepreneurs Wilson Ng At a time when datasets typically reflected characteristics of able, white, male entrepreneurs, Dana (1995 [2002]) observed that the identification of opportunities for entrepreneurship was a function of context and he explained occupational clustering accordingly. That study showed that Alaska Natives had a strikingly different approach to entrepreneurship than did mainstream Americans. Along similar lines, there has been little research on how extreme challenges may have initiated or produced successful ventures. Extreme challenges include sociocultural and economic barriers arising from life-changing physical and mental disabilities1 (Miller and Le Breton-Miller, 2017). Apart from a few studies on entrepreneurs with paraplegia, sight loss and attention deficit hyperactive disorder (ADHD), there has been little research on severely disabled entrepreneurs who appear to have overcome their challenges in creating successful ventures. What may be learned from these entrepreneurs and their ventures? Moreover, researchers in and beyond entrepreneurship have voiced the need to explore the social and organizational impact of visible (physical) disabilities and invisible (mental health) conditions (see, for example, Santuzzi et al., 2014). This is because of the rising costs of workplace inefficiencies from employees who pick up impairments, commonly mental conditions such as depression. The negative effects of mental conditions are magnified in a typically high-pressure workplace culture that compels employees to keep their disabilities hidden from employers in order to avoid demotion, or worse (Jack, 2019). For the study of entrepreneurship, this social tendency to disregard people with disabilities has contributed to the paucity of knowledge about the millions of disabled people worldwide who create ventures, often out of necessity (Jones and Latreille, 2011; Block et al., 2015). Relatedly, we also know little about the possible contribution to enterprise of people with positive, entrepreneurial traits (Wiklund et al., 2017) and adaptive skills (Ng and Arndt, 2019) who are labelled, pejoratively, as ‘disabled’.2 There are several guiding perspectives on the phenomenon of venture creation among disabled entrepreneurs. A major perspective that is based on employment studies of disability is the social model of disability. This model adopts a social constructivist view of the nature of disabled enterprise. In this view, disability is a socially constructed phenomenon founded on ableist (able-bodied) perceptions of impaired people’s disabilities (Williams and Patterson, 2019). Deviating from normative behavior can then produce oppressive consequences, including emotional trauma from social exclusion, which the social model has made explicit in lived accounts of these experiences (French, 1998; French and Swain, 2006). A principal implication of the social model is that knowledge about disabled entrepreneurs is viewed in terms of their environmental, structural and social-attitudinal barriers (cf. French, 2001, 2003). As these barriers impede their ordinary activities, where possible they should be designed out of, or removed from, structures (cf. French and Swain, 1997). Knowledge about all disabled people is sourced primarily from their presentations of 105 DANA (2nd edition) PRINT.indd 105 18/12/2020 11:32 106 World encyclopedia of entrepreneurship their own experiences (Oliver et al., 2012). First-hand narratives of typical barriers in the lives of impaired people have therefore underpinned the social model’s influence on disability research and practice (Williams and Mavin, 2012). The model, however, has been criticized for its non-disabled ontology that reflects ‘normative expectation[s] of western, white, middle-class, non-disabled, hetero-sexual male[s]’ (Williams and Mavin, 2012: 164). Relatedly, the challenge-based view (Miller and Le Breton-Miller, 2017) may also be criticized for assuming that its socially constructed ontology is a workable setting for the activities of disabled entrepreneurs. The challenge-based view suggests that disabled entrepreneurs may develop a propensity for envisaging adaptive requirements of their particular challenges. These challenges can be physical, social and/or cognitive. Challenged entrepreneurs draw on their challenges as resources in shaping adaptive requirements. These requirements, such as, for example, ‘the need to do things differently’ (Miller and Le Breton-Miller, 2017: 9, original emphasis), then motivate the development of outcomes that meet particular requirements, such as where creativity satisfies the need to do things differently. To date, few studies in any field have drawn on the social model of disability. However, recent studies in entrepreneurship have begun to explore the activities of disabled entrepreneurs in liberal sociocultural (western) environments with a socially constructed basis of ableism as a given social context in which the sampled entrepreneurs live and work. These entrepreneurs in the USA and the European Union are either visibly disabled, namely, visually or otherwise physically impaired (Ng, 2018, 2020; Ng and Arndt, 2019), or invisibly impaired with mental conditions such as ADHD (Wiklund et al., 2016, 2017, 2018; Lerner et al., 2019). In these western contexts, research has drawn on the adaptive mechanisms of the challenge-based model of entrepreneurship (Ng and Arndt, 2019; Ng, 2020) and the person-fit environment literature to explore how particular personality traits (Wiklund et al., 2017) and personal challenges (Ng and Arndt, 2019) of disabled entrepreneurs may relate to entrepreneurial intention and positive outcomes of entrepreneurial activities. A number of insights have been produced by this research. For example, the most striking finding of Ng and Arndt’s (2019) research on visually impaired (blind) entrepreneurs was that their venture creation process was not driven by a self-employment motive. Instead, the persistent way in which the sampled entrepreneurs sought opportunities out of the ordinary requirements of a sighted world exposed a determination to produce impactful ideas that attained clearly defined goals, consequent upon their blindness (Table 11.1). The debilitating nature of the entrepreneurs’ condition was drawn upon as a motivating resource for venture creation. Visual impairment then became a basis for generating new opportunities, and the desire of blind entrepreneurs for creating impactful ventures drove the identification of simple ideas that would connect mainly with large western businesses. Their entrepreneurial motivation seemed to originate from, and draw on, the suddenness of the disabilities that spurred the entrepreneurs to create ventures, for example, the paraplegia of one of the entrepreneurs (who was also blind) and the late-onset blindness of another entrepreneur. The latter’s declaration that she ‘never needed eyes to see’ then became a powerful mantra for engaging with disabled people who also possess often overlooked attributes, for example, to see in ways that sighted people cannot. By contrast, the paraplegic entrepreneur in Ng and Arndt (2019) pursued physical DANA (2nd edition) PRINT.indd 106 18/12/2020 11:32 107 DANA (2nd edition) PRINT.indd 107 18/12/2020 11:32 Source: Paraplegic: Financially driven outlook Blind: Social-welfaredriven outlook Paraplegic and blind: Desire to interact with public audiences sympathetic to disability Paraplegic: Urge to reverse paralysis. Refusal to accept immobility and change of lifestyle following paraplegia Blind: Sense of liberation from constraints as employee Paraplegic: Personal sense of disability from paralysis. Urge to cure paralysis, but not sight loss Blind: Self-driven pressure to achieve social goals following sight loss Drawn from Ng and Arndt (2019). PHYSICAL AND EMOTIONAL Paraplegic: Loss of mobility from paraplegia and consequent trauma. Personal sense of ‘disability’ Blind: Sense of exhilaration and anxiety from life-changing sight loss ECONOMIC Paraplegic entrepreneur: Limited career prospects Blind entrepreneur: Enforced change of career SOCIOCULTURAL Paraplegic and blind: New social perception of ‘disability’ following UK Equality Act (2010) COGNITIVE Paraplegic: Nagging sense of physical inadequacy following paraplegia Blind: Sudden sight loss enabled entrepreneurial development Possible drivers of venture creation Paraplegic Commercial fund-raising events for research to cure paralysis from paraplegia Development of exoskeleton bodysuit to enable temporary (paralyzed) limb movement Stem cell research to reverse paraplegia Cross-disciplinary medical and psychology research of adaptive sensory capabilities of physically impaired people Paid motivational and problem-solving talks to business organizations Blind Business sponsorship to increase employment across industries of physically impaired workers with generic and special skills Social fund-raising for skills development among physically impaired people Research and dissemination of capabilities of visually impaired employees for organizations Scientific research on problem-solving capabilities of employees with different physical and mental impairments Public motivation and educational talks New-venture opportunities (not related exclusively to any specific challenges) Possible process of opportunity formation among disabled entrepreneurs Personal challenges Table 11.1 ‘I never needed eyes to see’ (Blind): Ability to assess and accept high-risk activities despite sight loss (adventure lifestyle – paraplegic entrepreneur), and because of sight loss (new public candor, following her sight loss, to speak to an international audience on behalf of disabled people unfettered by social expectations of her limited capabilities as a sight-impaired individual – blind entrepreneur) Outcomes driven – more materialistic attitude (focused on financial goals because of passion to cure his paraplegia – paraplegic) Process driven – less materialistic attitude (focused on social welfare goals because of poor employment opportunities for disabled – blind) Passion for continuing venture creation. Adapted employment skills from longterm sight loss (paraplegic) High self-belief in own skills and capabilities (blind) Empathetic relationship with nondisabled audiences to leverage social perception of disability for profit (paraplegic) and social welfare (blind) Commercial exploitation of nondisability views of blindness by developing blind skills for the nondisabled (paraplegic) Ability to build distinctive public identity by leveraging social trends for equality and diversity (blind) Special attributes of paraplegic and blind entrepreneurs’ ventures 108 World encyclopedia of entrepreneurship adventures that defied his early sight loss, and his most ambitious ventures were motivated by the physical burden of paralyzed limbs. While his blindness was incurable, his paraplegia from an accident that resulted from his blindness was more likely to secure a treatment for recovery during his lifetime. Thus, following his paraplegia, this entrepreneur focused his energies on finding a cure for paralysis that he viewed as a temporary constraint on his adventure lifestyle. Notably, this entrepreneur found motivation for venture creation only when he experienced physical impairments that compelled a change of lifestyle. Yet there was a notable difference in the connection between their respective impairment(s) and entrepreneurial activity: Whereas the paraplegic entrepreneur did not accept the permanence of the paraplegia and sought to reverse it, the sight loss of the blind entrepreneur inspired them to pursue radically new activities. It seemed therefore to follow that were the paraplegic entrepreneur to successfully reverse his paraplegia, then his entrepreneurial passion would decline. For the blind entrepreneur however, her blindness liberated a new, passionate social calling on behalf of the world’s disabled. Here, potentially, it also seemed to follow that scholars and managers in and beyond entrepreneurship have more to learn from the foresight of the blind entrepreneur than the personal interests of the paraplegic entrepreneur, which focused merely on repairing their paraplegia. That foresight potentially links creative outcomes of opportunity formation, for example, in the identification of little-known networks and skills of disabled people (Miller and Le Breton-Miller, 2017: 9; Table 11.1, col. 4) that may be drawn on, by employing organizations, as capabilities. Findings from Ng (2018) and Ng and Arndt (2019) have a number of theoretical implications, principally for the challenge-based view. This view represents a major stride toward classifying different challenges, while bringing together several hitherto unconnected research streams. Chiefly, the respective conditions of the sampled entrepreneurs inspired expansive entrepreneurial endeavor that paid little attention to social norms of disabled people, such as their traditional employment in low-paid, menial work. Instead, this research on disabled entrepreneurs yielded insights on processes of opportunity formation based on the adapted skills of the two entrepreneurs in exploiting, as opposed to passively reacting to, their personal challenges (Table 11.1, cols 1 and 2). The subsequent, market-orientated ventures of the sampled entrepreneurs suggest that their activities can throw light on processes in which valuable goods and services are produced for targeted end-users, specifically for physically challenged people who entrepreneurship scholars know little about, but also for non-disabled entrepreneurs who typically face challenges. The suggestion here is how different drivers for a severely challenged form of entrepreneurship may produce different types of ventures with personal goals that satisfy the sponsoring entrepreneur (Table 11.1, cols 2 and 3). Accordingly, by understanding and enabling drivers of venture creation, it may prove possible for disabled and non-disabled entrepreneurs to develop suitable attributes for producing successful outcomes of forprofit and social ventures. As regards opportunity formation, the challenges faced by the entrepreneurs in Ng and Arndt (2019) proved to be a vital resource that they returned to for venture funding and networks, initially in launching their ventures and then in sustaining their public impact. This insight offers a fresh perspective of the social model that locates the source of disability in public perceptions. The suggestion here is that the popular, punitive weakness of disability in a non-disabled world became a lucrative source for the access to funding and networks that were critical for the disabled entrepreneurs’ venture success. DANA (2nd edition) PRINT.indd 108 18/12/2020 11:32 Disabled entrepreneurs 109 The nascent studies of physically and mentally disabled entrepreneurs also have implications in practice in the ways that the entrepreneurs leveraged their physical and mental conditions to discover and/or exploit novel opportunities. For example, the necessity-based literature has contributed to understanding the empowerment of disabled people. This empowerment may be experienced where disabled people in impoverished settlements develop entrepreneurial skills as a means of addressing their multiple challenges. Community leaders then empower the entrepreneurs by portraying their skills as a special endeavor (Lorenzo et al., 2007). In contrast, a recent, large-scale study of entrepreneurs with ADHD has demonstrated a strong positive correlation between the clinical condition of ADHD and entrepreneurial intention and action. This finding suggests that entrepreneurs with ADHD are more likely to choose business venturing, rather than doing so out of necessity, and to self-select entrepreneurial activities (Lerner et al., 2019). Consequently, it may be possible to identify and develop suitable skills to capture high-potential opportunities for venture creation, regardless of the severity of any challenges (Miller and Le Breton-Miller, 2017). This is owing to physically impaired people having acquired, through daily experience, a close understanding of the nondisabled world in which they must live. The opposite is not the case, unless able-bodied people develop late-onset impairments. Hence the persistence of a socially constructed, bourgeois view of disability. In this view, since the socially constructed view reflects psychological and emotional beliefs (Williams and Mavin, 2012), it may be possible for most, if not all, disabled people to develop special attributes in venture creation and development. FURTHER RESEARCH The pioneering studies on physically and mentally disabled entrepreneurs suggest opportunities for further research of venture creation and development in a number of areas in new-venture creation and development. For example, following Ng and Arndt (2019), further research may: (1) shed light on generic processes of skills adaptation and development; (2) illuminate possible origins and sources of entrepreneurial motivation; (3) help to empower disadvantaged people; (4) offer new areas of study in entrepreneurial education; and (5) provide examples of how effective strategies are created, without disabled entrepreneurship serving merely as an example of social diversity and tolerance. Disabled entrepreneurship may involve an identifiable, homogenous process of skills adaptation and development. Ng and Arndt (2019) and Wiklund et al.’s work (2017, 2018) have suggested how this process can shed light on possible ways in which game-changing ideas among disabled entrepreneurs may be systematically created (Ng and Arndt, 2019) and related with entrepreneurial success (Wiklund et al., 2017). To achieve this goal, process studies of disabled entrepreneurship may be conducted by exploring possible drivers and adapted skills of opportunity-driven behavior among disabled entrepreneurs. Those drivers and skills can then be drawn on in developing special attributes, perhaps most influentially in the empathetic relationship between disabled entrepreneurs and their non-disabled audiences that enabled the entrepreneurs to leverage their challenges for personal goals. Here, research may be conducted to compare the behavior of entrepreneurs with congenital impairments and those with late-onset impairments. This work could DANA (2nd edition) PRINT.indd 109 18/12/2020 11:32 110 World encyclopedia of entrepreneurship expose the important issue of the relationship between impairments and entrepreneurial endeavor, and ultimately of success. Learning of the ways that sudden sight loss may motivate a change in priorities resonates with a number of fields including entrepreneurship education. Here, knowledge of potentially different approaches to new-venture creation among disabled entrepreneurs may run deep among entrepreneurship students who are trained to develop and launch innovative ventures (Kuratko, 2005). Entrepreneurship scholars now know that entrepreneurship education can have a significant, measurable impact in creating more and better entrepreneurs (Martin et al., 2013). Accordingly, the innovativeness and motivation of disabled entrepreneurs in Ng and Arndt (2019) may form an important part, for example, of a psychology-driven framework of attributes that can predict future success in newventure creation (Kickul and Gundry, 2002). Processes in which blind entrepreneurs build entrepreneurial skills, such as in creative thinking and use of technology (Kuratko, 2005), as tools in a sighted world could therefore become core components of entrepreneurship education. A further important field of research in disabled enterprise is in the relationship between behavioral traits of invisible disabilities and entrepreneurial activities. In the current climate of growing business concern over the costs of invisible disabilities, research is needed in exploring how employees with normally invisible disabilities such as ADHD and Asperger’s Syndrome may in fact draw positively from their impairments for their own as well as for their employers’ benefit. For example, Wiklund et al. (2017) suggest that future research might examine how individuals with ADHD gather resources and organize teams when starting ventures. As venture founders with ADHD symptoms tend to move quickly to gather financial and human resources, this may prove to be advantageous in securing funding without delay for venture creation, and in capturing the attention of venture capitalists in a crowded field of new-venture proposals. NOTES 1. We refer to disability and disabled entrepreneurs in this chapter purely as a shorthand. The accurate term for disability is impairment, either physical or mental. This is because most disabled people are not incapable of work, as the term ‘disability’ suggests. Disabled-impaired entrepreneurs may possess important advantages in new-venture creation based on personality traits and/or adaptive capabilities that are particularly suited for successful enterprise activities, as outlined in this chapter. 2. ‘Disability’ is an English word that is unique among most, if not all, languages in being pejorative. To call someone disabled can therefore be extremely insulting. It follows that ‘disability’ carries a wholly negative meaning. REFERENCES Block, J., K. Kohn, D. Miller and K. Ullrich (2015), ‘Necessity entrepreneurship and competitive strategy’, Small Business Economics, 44 (1), 37–54. Dana, L.-P. (1995), ‘Entrepreneurship in a remote sub-Arctic community: Nome, Alaska’, Entrepreneurship Theory and Practice, 20 (1), 55–72, repr. 2002 in N. Krueger (ed.), Entrepreneurship: Critical Perspectives on Business and Management, vol. 4, London: Routledge, pp. 255–75. French, S. (1993), ‘Disability, impairment or something in between?’, in J. Swain, V. Finklestein and M. Oliver (eds) Disabling Barriers – Enabling Environments, London: Sage, pp. 17–25. DANA (2nd edition) PRINT.indd 110 18/12/2020 11:32 Disabled entrepreneurs 111 French, S. (1998), ‘Surviving the institution: working as a visually disabled lecturer in higher education’, in D. Malina and S. Maslin-Prothero (eds), Surviving the Academy. Feminist Perspectives, London: Falmer, pp. 31–41. French, S. (2001), Disabled People and Employment. A Study of the Working Lives of Visually Impaired Physiotherapists, Aldershot: Ashgate. French, S. and J. Swain (1997), From a Different Viewpoint: The Lives and Experiences of Visually Impaired People, London: Jessica Kingsley and the Royal National Institute for the Blind. French, S. and J. Swain (2006), ‘Telling stories for a politics of hope’, Disability & Society, 21 (5), 383–96. Jack, A. (2019), ‘Survey data highlight need for health interventions’, Financial Times, 21 November, accessed 16 September 2020 at https://www.ft.com/content/5eea0cdc-d940-11e9-9c26-419d783e10e8. Jones, M. and P. Latreille (2011), ‘Disability and self-employment: evidence from the UK’, Applied Economics, 43 (27), 4161–78. Kickul, J. and L. Gundry (2002), ‘Prospecting for strategic advantage: the proactive entrepreneurial personality and small firm innovation’, Journal of Small Business Management, 40 (2), 85–97. Kuratko, D. (2005), ‘The emergence of entrepreneurship education: development, trends, and challenges’, Entrepreneurship Theory and Practice, 29 (5), 577–97. Lerner, D., I. Verheul and R. Thurik (2019), ‘Entrepreneurship and attention deficit/hyperactivity disorder: a large-scale study involving the clinical condition of ADHD’, Small Business Economics, 53 (2), 381–92. Lorenzo, T., L. Van Niekerk and P. Mdlokolo (2007), ‘Economic empowerment and black disabled entrepreneurs: negotiating partnerships in Cape Town, South Africa’, Disability and Rehabilitation, 29 (5), 429–36. Martin, B., J. McNally and M. Kay (2013), ‘Examining the formation of human capital in entrepreneurship: a meta-analysis of entrepreneurship education outcomes’, Journal of Business Venturing, 28 (2), 221–4. Miller, D. and I. Le Breton-Miller (2017), ‘Underdog entrepreneurs: a model of challenge-based entrepreneurship’, Entrepreneurship Theory and Practice, 41 (1), 7–17, accessed 11 October 2020 at https://journals.sagep ub.com/doi/10.1111/etap.12253. Ng, W. (2018), ‘Underdog’ entrepreneurs? Processes of opportunity creation among visually-impaired founders of new ventures’, paper presented at the British Academy of Management Annual Conference, Entrepreneurship Track, Bristol Business School, University of the West of England, Bristol, 6 September. Ng, W. (2020), ‘“I never needed eyes to see.” Lessons from visually-impaired founders of new ventures’, in S. Yousafzai, W. Ng, T. Coogan and S. Sheikh (eds), Exploring the Intersectionality between Disability and Entrepreneurship, Cheltenham, UK and Northampton, MA, USA: Edward Elgar, forthcoming. Ng, W. and F. Arndt (2019), ‘I never needed eyes to see: leveraging extreme challenges for successful venture creation’, Journal of Business Venturing Insights, 11 (June), 1–10, doi10.1016/j.jbvi.2019.e00125. Oliver, M., B. Sapey and P. Thomas (2012), Social Work with Disabled People. Practical Social Work Series, 4th edn, London: Palgrave Macmillan. Santuzzi, A., A. Waltz, L. Finkelstein and D. Rupp (2014), ‘Invisible disabilities. Unique challenges for employees and organizations’, Industrial and Organizational Psychology, 7 (2), 204–19. Wiklund, J., I. Hatak., H. Patzelt and D. Shepherd (2018), ‘Mental disorders in the entrepreneurship context: when being different can be an advantage’, Academy of Management Perspectives, 23 (2), 182–206. Wiklund, J., H. Patzelt and D. Dimov (2016), ‘Entrepreneurship and psychological disorders: how ADHD can be productively harnessed’, Journal of Business Venturing Insights, 6 (December), 14–20. Wiklund, J., W. Yu, R. Tucker and L. Marino (2017), ‘ADHD, impulsivity and entrepreneurship’, Journal of Business Venturing, 32 (6), 627–56. Williams, J. and S. Mavin (2012), ‘Disability as constructed difference: a literature review and research agenda for management and organization studies’, International Journal of Management Reviews, 14 (2), 159–79. Williams, J. and N. Patterson (2019), ‘New directions for entrepreneurship through a gender and disability lens’, International Journal of Entrepreneurial Behavior and Research, 25 (8), 1706–26. DANA (2nd edition) PRINT.indd 111 18/12/2020 11:32 12. Early foreign market entries of new technology-based firms Regis Coeurderoy and Gordon Murray Studies devoted to the international activities of high-technology start-ups have become of increasing importance for academic researchers (Bollinger et al., 1983; McDougall et al., 1994; Storey and Tether, 1998; Burgel and Murray, 2000; McDougall and Oviatt, 2000; Zahra et al., 2000; Cavusgil and Knight, 2015; Terjesen et al., 2016). For those firms internationalizing rapidly in their early years, or even at the time of their formation, that is, born global firms, key strategic issues regarding internationalization choices have necessarily to be addressed rapidly (Oviatt and McDougall, 1995; Madsen and Servais, 1997; Burgel et al., 2004; Verbeke and Ciravegna, 2018). These young firms face several forms of resource constraint; they commonly lack money (tangible assets) and experience (tacit assets). Accordingly, the act of internationalization, while a potentially valuable economic opportunity, may also increase the vulnerability of the young firm to additional competitive threats. To add a further challenge, such an internationalizing firm must also put aside or revise behavioral rules and heuristics learned from competing successfully in its domestic market. It now must identify and adapt to the different rules of the game that pertain in foreign markets (North, 1990). This adaptation to changing international environments raises a unique challenge to new ventures. As explained by Oviatt and McDougall (1994), the development of these firms cannot follow the sequential and linear, step-by-step process described by the stage theory derived from traditional industries (Johanson and Vahlne, 1977, 1990, 2009). International new ventures frequently do not wait for the accumulation of internal resources. They have limited market knowledge and time to go to market, and must operate in highly volatile environments which may well limit learning opportunities (Oviatt and McDougall, 1994). KEY STRATEGIC CHALLENGES FOR INTERNATIONALIZING NEW TECHNOLOGY-BASED FIRMS In the specific case of new technology-based firms (NTBFs), key strategic issues regarding internationalization choices have often to be faced very early in the firm’s life cycle (Oviatt and McDougall, 1995; Madsen and Servais, 1997; Zahra et al., 2000; Knight and Cavusgil, 2004; Hashai, 2011; Jones et al., 2011). There are a range of competing arguments explaining why NTBFs seek to internationalize so quickly (Hennart, 2014; Zhou and Wu, 2014). It has been suggested that this phenomenon may be a result of insufficient, aggregate home demand for highly specialized, that is, niche products and services (Madsen and Servais, 1997); or conversely that overseas sales are the individual firm’s response to excessive domestic competition (Shrader, 2001). These arguments are in effect a description of defensive actions by firms pushed out or beyond home markets. 112 DANA (2nd edition) PRINT.indd 112 18/12/2020 11:32 Early foreign market entries of new technology-based firms 113 A more optimistic interpretation is that internationalization is a proactive response to additional sale opportunities for a product or service enjoying a competitive advantage beyond domestic borders (Hymer, 1976). Regardless of the strategic logic of internationalization, in contrast to firms in traditional industries (Root, 1987), NTBFs frequently have to assume very quickly the complex risks of technology transfers when entering into unknown or quasi-unknown foreign countries. The impact of host-country features on the costs of international technology transfers has been studied in a long tradition in international business research (Stopford and Wells, 1972; Buckley and Casson, 1976; Rugman, 1981; Hennart, 1982; Dunning and Lundan, 2008) and has enabled the specific features of international transactions to be identified and modeled. Extant theory enables a distinction to be made between two kinds of hazards and their related costs. First, the transaction costs of contractual hazards relate to the specific features of the technology transferred (Henisz, 2000). Authors have identified several sources of hazards: opportunistic behavior as a result of asset specificity (Gatignon and Anderson, 1988; Oxley, 1997); appropriability or technological leakage (Davidson and McFetridge, 1985; Oxley, 1999); and free riding on brand name and reputation (Anderson and Coughlan, 1987; Delios and Beamish, 1999). The second hazard is institutional and derives from the specific features of the countries entered. Three main sources of institutional hazards are generally identified (Henisz, 2003): the regulatory framework (La Porta et al., 1999; Oxley, 1999); the political risk (Henisz, 2000); and the role of culture (Steensma et al., 2000; Hofstede, 2001). These hazards have both absolute and relative dimensions. In absolute terms, a new institutional environment can generate hazards when the public decision-makers of the host country fail to create the conditions for political and social stability suitable for the successful development of new business (Henisz, 2000; Shrader et al., 2000). In relative terms, a new institutional environment can still produce hazards for a firm if it has widely different practices from those operating in the exporting firm’s domestic environment. The greater the disparity between the institutional environments of the home market and the host- or target-country market, the greater the potential risks. In managerial studies of internationalization, this gap or disparity has commonly been conceived and analyzed in the more social or anthropological concepts of cultural distance (Kogut and Singh, 1988; Shane, 1994; Hofstede, 2001), psychic distance (Benito and Gripsrud, 1992; O’Grady and Lane, 1996), regulatory differences (Coeurderoy and Murray, 2014) or institutional distance (Kostova, 1999; Xu and Shenkar, 2002). These concepts are widely used in international business research and are considered to be important drivers of actions and performance. Host countries’ specificities represent a large part of the ‘liability of foreigness’ (Zaheer, 1995) that new ventures experience at the beginning of the internationalization process. Equibus paribus, every company will incur substantial additional transaction costs when setting up international operations. For example, on entering a new country market, the as yet inexperienced firm will likely discover that it is harder (1) to find good and reliable local sales agents – an increase in search costs; (2) to negotiate (or perhaps even recognize) favorable contractual arrangements – an increase in ex ante negotiation cost; or (3) to monitor effectively the concluded deal – an increase in ex post compliance and enforcement costs (Teece, 1986). Yet, these problems may be further exacerbated in the specific case of NTBFs embarking on the internationalization process.1 The transfer of novel technologies raises DANA (2nd edition) PRINT.indd 113 18/12/2020 11:32 114 World encyclopedia of entrepreneurship potential problems of appropriation (Autio et al., 2000; Zahra et al., 2000). The complexity and intangibility of this technological component of the product or service by its very ambiguity exacerbates the contractual hazard for NTBFs (Knight and Cavusgil, 2004). Since these contractual hazards are specific to the imitability of the technology being transferred, the start-up has little choice other than to accept, and attempt to mitigate, the increase risks of international trading. CHOICES OF ENTRY AS RESPONSES BY NEW TECHNOLOGYBASED FIRMS Given that transaction costs are endemic to the process and cannot be completely removed, the firm’s flexibility is reduced to determining the level of costs that it can bear. By determining the location of the first foreign entry, the firm is in effect choosing the level of institutional hazards it is prepared or able to assume. Following a transaction-cost reasoning (Williamson, 1985; Martin and Salomon, 2003), we suggest the cost minimization principle as a rule for decision making. For the young firm, the market acceptance of their new technology-enabled products will be the first and biggest commercial challenge. Accordingly, it will strive to avoid any additional costs and uncertainties in the choice of internationalization path. Consequently, the role of the institutional environment in the choice criteria of the NTBFs is one important means by which the hazards and thus costs of new country markets are made manageable. This specific appraisal of institutional environments in the determination of the ordering of foreign market entry furthers our overall understanding of market entry behaviors. The specific role of institutional environments on location decisions thus needs to be differentiated from established internationalization arguments based on profit-seeking, entry-mode choices or stages of development arguments. The traditional profit maximization logic of internationalization supported by imperfect competition models (Hymer, 1976) treats the transaction as part of a set of credits and debits. A firm may be prepared to accept higher transaction costs in a new country if greater profits can be secured. Trade-offs between risks and rewards face all firms, but this type of approach implies that transaction costs are merely another set of operating costs to accommodate in the computation of overall costs. We suggest that the true import of transaction costs is overlooked. The main problem is not that the firm’s total costs are increased but that the possibility of firm failure is made materially higher by the circumstances that generate these new costs (Hennart, 1986). It is not just risk that has increased but also the overall uncertainty facing the young and still vulnerable firm. In the case of a rapidly growing and internationalizing NTBF, failure to develop a new market can have a considerably greater impact than economic losses alone. The reputation of the firm including its products or services, and the integrity and ownership of intellectual assets as its critical source of competitive advantage may well be prejudiced with severe ramifications for the firm’s future value. The technical and commercial credibility of NTBFs with little track record is extremely fragile. Hence, the survival of internationalizing NTBFs significantly depends upon their capability to develop absorptive capability (Coeurderoy et al., 2012). It could also be argued that impact of institutional hazards are better managed by NTBFs through their choice of entry mode rather than location. Here, the minimization DANA (2nd edition) PRINT.indd 114 18/12/2020 11:32 Early foreign market entries of new technology-based firms 115 of transaction costs is interpreted as a governance issue (Martin and Salomon, 2003). The importance of mode may be correct but this can only be appraised once the location choice is made (Teece, 1986). At this later stage, the level of institutional hazards is no longer a decision variable but is a given. The firm has now to craft the most efficient entry mode into the selected foreign market from the choices available (Williamson, 1985). Questions of location and governance can be treated independently of each other. In a conceptual paper on the impacts of knowledge transfer capacity on foreign entry modes, Martin and Salomon (2003: 369) explain that ‘while examining location factors is certainly relevant, particularly in studies with multiple host countries, such country effects do not change our predictions’. However, the inverse of this argument may also be employed and tested, that is, while examining entry modes is certainly relevant, particularly in studies with multiple entry modes, these governance effects do not change (location) predictions. Thus, the question becomes the direction of causation of the identified factors. Based upon recent theoretical advances in the institutional analysis of countries (North, 1990; La Porta et al., 1999; Henisz, 2000), Coeurderoy and Murray (2014) explore how differences of institutional environments across countries impact on the location choices of NTBFs embarking on the internationalization process. They confirm that institutional environment generating appropriability risks for start-ups will be entered later owing to excessive transaction costs in the early stage. By ordering choices in this way, management mainly seeks to reduce risks from regulatory sources, and the associated transaction and time costs (Anderson and Gatignon, 1986). In relation to country of origin, the research shows that German and UK start-ups, formed prior to 2000, and studied in the sample, may consequently harbor very different attitudes as to the risk characteristics of a third country based on distance with its culture, and polity and legal systems. We can therefore infer that the risks and uncertainties that are endemic to the young firm are reflected in the risk-reducing heuristics that their managers employ, as evidenced by different orderings of first market entries between German and UK NTBFs. CONCLUSION We can aver that an understanding of the early foreign market entries by NTBFs is not exclusively an argument about firm-specific cultural or psychic-distance parameters (Oviatt and McDougall, 1994). Some important decision variables are exogenously determined, for example, the level of political risk in the target country (Leonidou and Samiee, 2012). Thus, opportunities to minimize the total costs of internationalization are complex and more heterogeneous than merely the search for cultural similarity. Transaction-cost reasoning is complementary rather than contradictory to the stage model, albeit based on different intellectual logic (Delios and Henisz, 2003). It is cost driven (on a minimization basis) and not knowledge driven. NOTE 1. This is complement to Storey and Tether’s (1998) argument that NTBFs are a special case worthy of government assistance when considering the peculiar information asymmetry barriers to the formation. DANA (2nd edition) PRINT.indd 115 18/12/2020 11:32 116 World encyclopedia of entrepreneurship REFERENCES Anderson, E. and A. Coughlan (1987), ‘International market entry and expansion via independent or integrated channels of distribution’, Journal of Marketing, 51 (1), 71–82. Anderson, E. and H. Gatignon (1986), ‘Modes of foreign market entry: a transaction cost analysis and propositions’, Journal of International Business Studies, 17 (3), 1–26. Autio, E., H. Sapienza and J. Almeida (2000), ‘Effects of age at entry, knowledge intensity, and imitability on international growth’, Academy of Management Journal, 43 (5), 909–24. Benito, G.R. and G. 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Martin, X. and R. Salomon (2003), ‘Knowledge transfer capacity and its implications for the theory of the multinational corporation’, Journal of International Business Studies, 34 (4), 356–73. McDougall, P. and B. Oviatt (2000), ‘International entrepreneurship: the intersection of two research paths’, Academy of Management Journal, 43 (5), 902–6. McDougall, P.P., S. Shane and B.M. Oviatt (1994), ‘Explaining the formation of international new ventures: the limits of theories from international business research’, Journal of Business Venturing, 9, 469–88. North, D. (1990), Institutions, Institutional Change and Economic Performance, Cambridge: Cambridge University Press. O’Grady, S. and H.W. Lane (1996), ‘The psychic distance paradox’, Journal of International Business Studies, 27 (2), 309–33. Oviatt, B. and P. McDougall (1994), ‘Toward a theory of international new ventures’, Journal of International Business Studies, 25 (1), 45–64. Oviatt, B. and P. McDougall (1995), ‘Global start-ups: entrepreneurs on a worldwide stage’, Academy of Management Executive, 9 (2), 30–44. Oxley, J. (1997), ‘Appropriability hazards and governance in strategic alliances: a transaction cost approach’, Journal of Law, Economics and Organization, 13 (2), 387–409. Oxley, J. (1999), ‘Institutional environment and the mechanisms of governance: the impact of intellectual property protection on the structure of inter-firm alliances’, Journal of Economic Behavior and Organization, 38 (3), 283–309. Root, F.R. (1987), Entry Strategies for International Markets, Lexington, MA: D.C. Heath. Rugman, A.M. (1981), Inside the Multinationals. The Economics of Internal Markets, New York: Columbia University Press. Shane, S. (1994), ‘The effect of national culture on the choice between licensing and direct foreign investment’, Strategic Management Journal, 15 (8), 627–42. Shrader, R. (2001), ‘Collaboration and performance in foreign markets: the case of young high-technology manufacturing firms’, Academy of Management Journal, 44 (1), 45–60. Shrader, R., B. Oviatt and P. McDougall (2000), ‘How new ventures exploit trade-offs among international risk factors: lessons from the accelerated internationalization of the 21st century’, Academy of Management Journal, 43 (6), 1227–47. Steensma, H.K., L. Marino, K.M. Weaver and P.H. Dickson (2000), ‘The influence of national culture on the formation of technology alliances by entrepreneurial firms’, Academy of Management Journal, 43 (5), 951–73. Stopford, J.M. and L.T. Wells Jr (1972), Managing the Multinational Enterprise: Organization of the Firm and Ownership of the Subsidiary, New York: Basic Books. Storey, D.J. and B.S. Tether (1998), ‘New technology-based firms in the European Union: an introduction’, Research Policy, 26 (9), 933–46. Teece, D. (1986), ‘Transaction cost economics and the multinational enterprise’, Journal of Economic Behavior and Organization, 7, 21–45. Terjesen, S., J. Hessels and D. Li (2016). ‘Comparative international entrepreneurship: a review and research agenda’, Journal of Management, 42 (1), 299–344. Williamson O.E. (1985), The Economic Institutions of Capitalism, New York: Free Press. Xu, D. and O. Shenkar (2002), ‘Institutional distance and the multinational enterprise’, Academy of Management Review, 27 (4), 608–18. Verbeke, A. and L. Ciravegna (2018), ‘International entrepreneurship research versus international business research: a false dichotomy?’, Journal of International Business Studies, 49 (4), 387–94. Zaheer, S. (1995), ‘Overcoming the liability of foreignness’, Academy of Management Journal, 38 (2), 341–63. Zahra, S., R. Ireland and M. Hitt (2000), ‘International expansion by new venture firms: international diversity, mode of market entry, technological learning, and performance’, Academy of Management Journal, 43 (5), 925–50. Zhou, L. and A. Wu (2014), ‘Earliness of internationalization and performance outcomes: exploring the moderating effects of venture age and international commitment’, Journal of World Business, 49 (1), 132–42. DANA (2nd edition) PRINT.indd 117 18/12/2020 11:32 13. Economics and entrepreneurship William J. Baumol Economists first began writing on the subject of entrepreneurship in the eighteenth century. The entrepreneur is most often defined to be an individual who founds and organizes a new business firm, though both narrower and broader interpretations have been employed, with significant implications (see below). The term is often ascribed to the Anglo-Irish writer, Richard Cantillon (1730), though any contemporary copy of his book, which was written in English, has survived only in French translation that he may or may not have carried out himself. The manuscript was lost in the fire set by a servant who first robbed and murdered the author. Before that, and for a considerable time after his death, the terms in usage in the English literature were ‘adventurer’ (as in merchant adventurer) or ‘undertaker’ (a direct translation of the French term or its German counterpart: unternehmer). The place of this topic in the economic literature is curious. There is widespread acknowledgement of its importance, notably for economic growth, accompanied by its virtual absence from the writings of most economists for more than half a century. Many textbooks write of four ‘factors of production’: labour, land, capital and entrepreneurship, and provide at least one chapter for each of the first three, while the fourth, often acknowledged as the leader of the activities of the others, is confined to a few brief remarks or even nothing beyond its initial listing. This has begun to change. There is now a rich empirical literature on topics such as the personal characteristics of the entrepreneurs, their activities, their financial needs, their psychological propensities and their earnings. However, they are still all but absent from formal theory, for reasons that will be discussed presently, along with a description of some recent theoretical excursions at the microeconomic level. 1 A BIT OF CLASSIFICATION Before delving into the literature it is useful to point out several lines along which entrepreneurship can be studied. First, there is diversity in the connotation that is assigned to the term. From its beginnings in the work of Richard Cantillon, many of the writings referred to anyone who organized and launched a firm as an entrepreneur. This individual’s task was to bring together the requisite quantities and qualities of land, labour and capital, to assign a role to each of them and ensure that it was carried out efficiently. This entrepreneur, then, was captain of the ship. But the firm organized in the process could well be just another one of the thousands that had been founded earlier, offering the same products as its predecessors and providing those outputs in the traditional way. Such a replicative entrepreneur clearly plays a significant role in the economy, as creator of many of the enterprises that underlie its activities. Entrepreneurship of this sort is important also as an attractive route for exit from poverty, because when unemployment 118 DANA (2nd edition) PRINT.indd 118 18/12/2020 11:32 Economics and entrepreneurship 119 is rife the only way to acquire an income may be as the founder of a tiny enterprise, for example, as no more than an itinerant peddler, with no employees. And the number of such firms in which the entrepreneur hires no one is impressive. ‘Census Bureau figures indicate that there are over 18 million nonemployer firms in the United States – roughly three times the number of employer firms’ (National Research Council, Committee on National Statistics, 2007: 78). But the data suggest that there is little correlation between the number of such replicative firms and the rate of growth of the economy. Indeed, it is plausible that a relatively stagnant economy will drive more people into this sort of occupation, and the data seem to support this hypothesis. Growth, rather, is to be expected from the other type of entrepreneur, the innovative entrepreneur, whose firms are characterized by the supply of new products, the employment of new production methods, the discovery and exploitation of promising new market opportunities and the creation of novel forms of organization. This is the type of entrepreneur upon whom J.-B Say (1819) focused his discussion and who was the central character in the writings of Joseph Schumpeter. There seems to be little evidence indicating their number, but it seems clear that this number is far smaller than that of the replicative entrepreneurs. Moreover, as will be discussed presently, there seems to be little statistical evidence indicating the magnitude of the contribution of the innovative entrepreneurs to the growth of their economy, though there is a good deal of historical evidence suggesting strongly that this contribution is substantial and may well be critical. Besides distinguishing between replicative and innovative entrepreneurs, the literature differentiates ‘innovation’ from invention. The former term is used to represent the entire process from the emergence of a novelty (invention) to its improvement to a state sufficient to make it marketable, its introduction into the producing firm and its entry into the marketplace. Though the inventor may or not be an entrepreneur, the innovation process generally requires entrepreneurial activity to bring the novelty out from the drawing boards and into the workings of the economy. The literature also proceeds in two directions in its position on the risk entailed in entrepreneurship. Both Cantillon and Frank Knight (1921) took the position that a primary role of the entrepreneur is that of risk-bearer or, even more extreme, of uncertainty, defined as subjection to prospects so unpredictable that they even preclude any evaluation in terms of probabilities. In contrast, Schumpeter (1911) held the position that the entrepreneurs, in their role as entrepreneurs, undertake no risk at all, because they work with other people’s money – that of the investing capitalists. It will be argued below that neither of these positions is quite right, and that while, in reality, entrepreneurs are subject to risks that are far from negligible, there is a great deal more to their activity than risk-bearing alone. 2 SOME EMPIRICAL INVESTIGATIONS OF THE ENTREPRENEUR As noted, there is now a profusion of careful and illuminating empirical investigations of entrepreneurship, much of it contributed by sociologists and psychologists as well as economists. Here only the work of the last of these will be considered. The writings on several significant topics will be discussed. DANA (2nd edition) PRINT.indd 119 18/12/2020 11:32 120 World encyclopedia of entrepreneurship Specialization of Small Entrepreneurial Firms in the Innovation Process Albeit unsystematic, there is an abundance of suggestive evidence indicating that there is a division of labour between small and large enterprises, with the former responsible for a disproportionate share of the revolutionary breakthroughs, such as the electric light, the aeroplane, the internal combustion engine, while the giant corporations (which account for the bulk of private research and development expenditure) focus on cumulative incremental improvements, such as are entailed in the evolution of the Wright brothers’ flying machine to the Boeing 777. Research and development (R&D) in the large business enterprise tends characteristically to be bureaucratically organized, with management deciding the R&D budget, staffing and even the projects to which the R&D division should be devoting its efforts. The inherent conservatism of the process naturally leads to the expectation that these firms will tend to specialize in the incremental improvements and tend to avoid the risks of the unknown that the revolutionary breakthrough entails. The latter, rather, is left most often to small or newly founded enterprises, guided by their enterprising creators. The US Small Business Administration has prepared a chart listing breakthrough innovations of the twentieth century for which small firms are responsible and its menu of inventions literally spans the range from A to Z, from the aeroplane to the zipper. This remarkable list includes a strikingly substantial share of the technical breakthroughs of the twentieth century. For example, it lists FM radio, the helicopter, the personal computer, and the pacemaker, among a host of others, many of enormous significance for our economy (US Small Business Administration, 1995). A more recent study, also sponsored by the US Small Business Administration (2003), provides systematic evidence with similar implications.1 Perhaps most notably, the study finds that ‘a small firm patent is more likely than a large firm patent to be among the top 1 percent of most frequently cited patents’. Among other conclusions, in the words of its authors, this study also reports that ‘Small firms represent one-third of the most prolific patenting companies that have 15 or more U.S. patents . . . Small patenting firms are roughly 13 times more innovative per employee than large patenting firms’ (ibid.: 2). This leads to the conjecture that most of the revolutionary new ideas of the past two centuries have been, and are likely to continue to be, provided more heavily by independent innovative entrepreneurs who operate small business enterprises. These small entrepreneurial firms appear to have come close to monopolizing the portion of R&D activity that is engaged in the search for revolutionary breakthroughs. Earnings It is clear that the most successful and most noted of entrepreneurs are rewarded handsomely. Indeed, this group includes the world’s wealthiest person. But, on average, the compensation of this activity is remarkably low. Freeman (1978) and Benz and Frey (2004) show that the average earnings of self-employed individuals are significantly lower than those of employees with similar qualifications, and the same is presumably true, in particular, of the self-employed innovative entrepreneurs. There are at least two studies that support this hypothesis for innovative entrepreneurs. Thomas Astebro (2003) reports on the basis of a sample of 1091 inventions that: DANA (2nd edition) PRINT.indd 120 18/12/2020 11:32 Economics and entrepreneurship 121 The average IRR [internal rate of return] on a portfolio investment in these inventions is 11.4 percent. This is higher than the risk-free rate but lower than the long-run return on high-risk securities and the long-run return on early-stage venture capital funds . . . the distribution of return is skew; only between 7–9 percent reach the market. Of the 75 inventions that did, six received returns above 1400 percent, 60 percent obtained negative returns and the median was negative. (Astebro, 2003: 226) Perhaps even more striking is the recent work of Nordhaus (2004), whose calculations show how little of the efficiency rent goes to the innovator: Using data from the U.S. non-farm business section, I estimate that innovators are able to capture about 2.2 percent of the total surplus from innovation. This number results from a low rate of initial appropriability (estimated to be around 7 percent) along with a high rate of depreciation of Schumpeterian profits (judged to be around 20 percent per year) . . . the rate of profit on the replacement cost of capital over the 1948–2001 period is estimated to be 0.19 percent per year. (Nordhaus, 2004: 34) Attitudes toward Risk There are a number of studies investigating whether entrepreneurs tend to be more willing than the general population to undertake risks. Parker (2006) provides an admirable summary of the findings from which the following is excerpted: The available evidence certainly supports the notion that entrepreneurs are unrealistically optimistic. 68% of respondents to Cooper et al.’s (1988) survey of American entrepreneurs thought the odds of their business succeeding were better than for others in the same sector while only 5% thought that they were worse . . . Arabsheibani et al (2000) compare expectations of future prosperity with actual outcomes using British panel data, and find that while employees and self-employed Britons both held systematically over-optimistic expectations about future incomes, the self-employed are consistently and substantially the most over-optimistic. . . . optimism . . . is the enemy of the rational [input] buyer . . . optimistic entrepreneurs will drive out realistic entrepreneurs from product markets [by bidding input prices to excessive levels]. Realists would make positive profits in the absence of the over-optimists, but may be unable to do so when optimists are present because optimists produce excess output that reduces prices below the break even price in the industry. On the other hand, optimism can convey some advantages. [for example] Bernardo and Welch (2001) claim that over-optimistic entrepreneurs are less likely to imitate their peers and are more likely to explore their environment. This generates valuable informational benefits to the entrepreneurial group, enabling it to thrive in spite of the costs incurred by the particular group members who obtained the information. (See Parker, 2006: 3–7 for the full discussion.) In short, there is an abundance of evidence that entrepreneurs, as a group are characterized by a markedly excessive view of their prospects. This may help to account for their willingness to enter an occupation whose earnings prospects are significantly lower than what they could have earned by accepting a position in an established firm. But it also helps to explain their relative propensity to undertake innovations that are radical breakthroughs. For that reason, society may be heavily indebted to this group. For they seem to be the contributors, on a disproportionate scale, of the effective adoption of those breakthrough inventions that arguably underlie the unprecedented growth rates of per capita gross domestic product (GDP) in the world’s most successful economies of recent centuries. DANA (2nd edition) PRINT.indd 121 18/12/2020 11:32 122 World encyclopedia of entrepreneurship Education and Innovative Entrepreneurship It is again convenient to return to Parker (2006) for a clear summary of the current state of the discussion of the education of entrepreneurs. As a group, are they highly educated or is the opposite true? It is commonly observed that some of the most successful entrepreneurs have relatively low levels of education. For example, Bill Gates and Michael Dell dropped out of Harvard and the University of Texas respectively, while Richard Branson dropped out of school. Bhide (2000) claims that informal skills, especially the ability to satisfy customers’ fuzzy wants, is more important for promoting entrepreneurial success than human capital. Pursuing this theme, Orzach and Tauman (2005) suggest that gifted entrepreneurs may optimally acquire less education than wage and salary workers if this conveys a signal of strength about their own innate abilities in entrepreneurship. Thus if ability in entrepreneurship matters more for business success than formal education does, financiers will reward the more able by offering them favourable credit contracts; other individuals will not find it in their interests to emulate the gifted individuals because with their lower entrepreneurial abilities they benefit more by taking more schooling. The prediction that entrepreneurs are on average more educated than employees also accords with recent evidence from several countries, including the USA (Flota and Mora, 2001; Lofstrom, 2002), Great Britain (Cowling et al., 2004; Henley, 2004), the Netherlands (Bosma et al., 2004) and Sweden (Davidsson and Honig, 2003). When using years of schooling as a measure of education, Garcia-Mainar and Montuenga-Gomez (2005) report a higher return to education in paid employment than in self-employment. This finding has not been observed in other countries, however. For example, Van der Sluis et al. (2004) apply instrumental variable (IV) methods to US National Longitudinal Survey of Youth (NLSY) data and estimate a higher rate of return to education for entrepreneurs (14 per cent) than for employees (10 per cent) (see Parker, 2006: 14–17). The data assembled in a recent study of a large sample of noted inventors and entrepreneurs, by Baumol et al. (2009), as compiled from a substantial set of published lists, indicate that inventors are better educated than entrepreneurs in terms of the share who earned a college degree. The differential holds in all three time periods into which the data were divided, before 1800, 1800–1899, and 1900–1985. But the results indicate that, in the USA at least, both inventors and entrepreneurs are better educated than the set of all adults. The difference is particularly striking for those with a college degree, and the difference widens over time. In 1950, only 7 per cent of the US adult population had graduated from college, compared with 67 per cent of US inventors born between 1900 and 1910 and 44 per cent of US entrepreneurs. According to our data, 100 per cent of US inventors and 75 per cent of US entrepreneurs born between 1951 and 1985 graduated from college, compared with 25 per cent of the corresponding US population. The educational attainment of inventors and entrepreneurs can also be compared with that of R&D personnel generally, using data from the National Science Foundation’s Science and Engineering Indicators (National Science Board, 2006), and the US Bureau of Labor Statistics (BLS). The NSF data describe individuals who report R&D as a major work activity. Of this group, 59 per cent hold a bachelor’s degree as their highest degree, with 28 per cent holding master’s degrees, 4 per cent holding professional degrees DANA (2nd edition) PRINT.indd 122 18/12/2020 11:32 Economics and entrepreneurship 123 and 9 per cent holding doctorates. The results indicate that inventors are far more likely to have an advanced degree than the average person working in R&D, but that entrepreneurs have similar levels of education to R&D workers. Disappearance of the Entrepreneur from Modern Mainstream Economics Societies with a record of non-military invention that is respectable or even extraordinary have repeatedly failed to put those inventions to substantial use. This is strikingly true of ancient Rome, with its working steam engine created by Heron of Alexandria, of medieval China with its innovative printing press, great ships, its clocks, its umbrella and its spinning wheel, as well as the Soviet Union with the many contributions of its well-educated scientists and engineers. It is at least plausible that a significant part of the explanation was the absence of a cadre of innovative entrepreneurs who could improve their status in society by promotion of such useful products. And with the absence of such entrepreneurs the growth of these societies was severely handicapped. Given the acknowledged importance of the entrepreneur’s role, it might be expected that modern theoretical investigation would have produced an extensive entrepreneurship analysis. Instead, the entrepreneurs virtually vanished from mainstream theory and, along with that, they were virtually banished from the textbooks. This is probably not the result of a distaste for the subject or scepticism about its significance, but a consequence of the absence of an obvious way to capture entrepreneurial activity in the way the literature has produced its analyses of land, labour and capital. There are at least two reasons for this. First, the most advanced and powerful microeconomic models predominately are designed to study timeless static equilibria. But, for the entrepreneur, the intertemporal transition process is the heart of the story. Schumpeter (1911) shows the entrepreneur as destroyer of equilibria by constant innovation, while Israel Kirzner (1979) tells how the alert entrepreneur seeks out the arbitrage opportunities presented by disequilibria, thereby moving the economy back toward equilibrium. Such a relentless attack upon both equilibria and disequilibria does not fit a stationary model from which firm creation and invention are excluded. The second reason for the entrepreneur’s disappearance from mainstream theory is the indispensably essential attribute of an invention: it necessarily is something that was never available before. It follows that invention must be the ultimate heterogeneous product. This impedes the optimality analysis that underlies most microeconomic theory. An optimality calculation entails at least an implicit comparison among the available choices for the decision at issue, while the innovating entrepreneurs normally deal with no set of well-defined substitutes among which they may choose on the basis of their attributes that are quantifiable and comparable. In contrast, standard firm theory analyses well-defined choices of management among comparable options in fully operational enterprises where the entrepreneur has already completed his job and left to create other firms. Thus, neoclassical theory is justified in excluding the entrepreneurs, because it deals with subjects for which they are irrelevant. That does not mean that no theory of entrepreneurship is needed, or that such a theory is lacking, but it means that a theory of entrepreneurship must be sought elsewhere than in static mainstream microeconomics, and that is what Schumpeter succeeded in doing. DANA (2nd edition) PRINT.indd 123 18/12/2020 11:32 124 World encyclopedia of entrepreneurship Schumpeter’s Model and Beyond: Supply and Earnings of Entrepreneurial Activity The basic Schumpeterian model (1911) asserts that the successful innovative entrepreneur’s reward is profit that temporarily exceeds what is obtainable under a regime of perfect competition. This attracts rivals, who seek to share those profits by imitating the innovation, and thereby erode its super-competitive earnings. To prevent termination of these rewards, the entrepreneur can never desist from further innovation and cannot rest on his laurels. In this way, the Schumpeterian analysis shows how the entrepreneur is driven to work without let-up in promotion of economic growth. Thus, it clearly reveals the tight association between innovative entrepreneurship and growth. This work should also serve as the foundation for further theoretical analysis, and there are, indeed, some beginnings of efforts in that direction, a good deal of it the work of the present author (see, for example Baumol, 2002). The first of these deviations stems from the empirical work that finds the rewards of entrepreneurs as a group to fall short of the earnings of employees with similar education and experience. In standard economic terms this means that the average entrepreneur receives negative economic profits, that is, she loses out by earning less than she could by accepting employment in an established enterprise. This is in conflict with Schumpeter’s premise that the innovative entrepreneur earns positive monopoly profits soon after the initial introduction of an invention, profits that are gradually driven down to the competitive level, thus yielding a surplus over the entire life cycle of the product. But if entry into the innovation process is unrestricted, and if over-optimism leads entrepreneurs to embark on enterprises that are not really promising, then standard theory of entry into markets and its effects on prices easily enables us to understand why in reality the innovative entrepreneurs’ average economic profits are negative. But can we say more about the resulting prices and earnings, as imposed by market forces? The answer is that this can easily be done, using the standard model of the determination of discriminatory prices, that is, prices for identical products that differ from one customer to another, or even from one sale to another (Baumol, 2007). A moment’s thought indicates that this is exactly what happens in Schumpeter’s story but in which the prices differ not between customers but between time periods. That is, there is intertemporal price discrimination. Moreover, the formulas that determine the discriminatory prices in the two cases are identical. So, if we are informed about costs, supply and demand, we can determine exactly what those prices will be because the competition of rival entrepreneurs will drive those prices down to the sub-competitive level that is just sufficient to induce entry. For if prices were any higher than this, more entry would be induced and the expanded production would force those prices down, while the reverse would occur if prices were below those levels. Thus, the standard and well-explored microanalysis of discriminatory prices enables us to determine to exactly what levels the prices and rewards of the entrepreneur’s products will be driven by competitive market forces, depending on the state of competition and the resulting demand elasticities in the different pertinent periods. So a micro-theoretic model of the entrepreneur can now be claimed to exist, on a par with the theories of land, labour and capital. DANA (2nd edition) PRINT.indd 124 18/12/2020 11:32 Economics and entrepreneurship 125 Social Institutions and Allocation of Entrepreneurial Activity The rest of the story contains material on the supply and allocation of entrepreneurship among its available uses, and the key role here is played by evolving institutions. This part of the story is of critical importance for growth and the general welfare, because both of these depend on the activities upon which entrepreneurs choose to focus. For example, do they choose to promote a new source of energy or, instead, a new type of military equipment? In the economic growth literature, it has often been asserted that an expanded supply of entrepreneurs effectively stimulates growth, while shrinkage in the supply undermines it. But an explanation of the entrepreneurs’ appearance and disappearance is shrouded in mystery, with hints about cultural developments and vague psychological and sociological changes. The historical evidence suggests a more mundane explanation – that entrepreneurs are always present but, as institutions and the associated structure of rewards in the economy change, entrepreneurs switch their activities, moving where pay-offs become more attractive. In doing so, they move in and out of the activities usually recognized as entrepreneurial, exchanging them for other activities that also require enterprising talent but are often distant from production of goods and services. The generals of ancient Rome, the Mandarins of the Tang, Sung, and Ming Chinese empires, the captains of late medieval private and mercenary armies, the rent-seeking contemporary lawyers, and the Mafia dons – all are clearly enterprising and often successful. And when institutions have changed so as to modify profoundly the relative payoffs offered by the different enterprising activities, the supply of entrepreneurs shifts accordingly. We may divide entrepreneurs into two categories, the productive and the unproductive, with the latter, in turn, divided into subgroups such as rent-seeking entrepreneurs and destructive entrepreneurs, including the organizers of private armies or criminal groups. Once there is a pertinent change in the institutions that govern the relative rewards, the entrepreneurs will shift their activities between productive and unproductive occupations, so the set of productive entrepreneurs will appear to expand or contract autonomously. For example, when institutional change prevents the formation of private armies, entrepreneurs are forced to look elsewhere to realize their financial ambitions. If, simultaneously, rules against confiscation of private property and for patent protection of inventions are adopted, entrepreneurial talent will shift into productive, innovative directions. NOTE 1. Quoting the press release describing the study, ‘A total of 1,071 firms with 15 or more patents issued between 1996 and 2000 were examined. A total of 193,976 patents were analyzed. CHI [the firm that carried out the study] created a data-base of these firms and their patents. This list excluded foreign-owned firms, universities, government laboratories and nonprofit institutions’ (US Small Business Administration, 2003: 2). This report examines technical change through patenting and it defines small firms as ‘businesses with fewer than 500 employees’. DANA (2nd edition) PRINT.indd 125 18/12/2020 11:32 126 World encyclopedia of entrepreneurship REFERENCES Arabsheibani, G., D. De Meza, J. Maloney and B. Pearson (2000), ‘And a vision appeared unto them of a great profit: evidence of self-deception among the self-employed’, Economics Letters, 67, 35–41. Astebro, T. (2003), ‘The return to independent invention: evidence of unrealistic optimism, risk seeking or skewness loving’, Economic Journal, 113, 226–38. Baumol, W.J. (2002), The Free-Market Innovation Machine: Analyzing the Growth Miracle of Capitalism, Princeton, NJ: Princeton University Press. Baumol, W.J. (2007), ‘Entrepreneurship and innovation: the (micro) theory of price and profit’, paper presented at the American Economic Association annual conference 2008, available at: http://www.aeaweb.org/ annual_mtg_papers/2008/2008_345.pdf. Baumol, W.J., M. Schilling and E. Wolff (2009), ‘The superstar inventors and entrepreneurs: how were they educated?’, Journal of Economics and Management Strategy, 18 (3), 711–28. Benz, M. and B. Frey, (2004), ‘Being independent raises happiness at work’, Swedish Economic Policy Review, 11, 95–134. Bernardo, A.E. and I. Welch (2001), ‘On the evolution of overconfidence and entrepreneurs’, Journal of Economics & Management Strategy, 10, 301–30. Bhide, A.V. (2000), The Origin and Evolution of New Businesses, Oxford: Oxford University Press. Bosma, N., M. van Praag, R. Thurik and G. de Wit (2004), ‘The value of human and social capital investments for the business performance of startups’, Small Business Economics, 23, 227–36. Cantillon, R. (1730), Essai Sur la Nature de Commerce en Général, trans. H. Higgs, London: Macmillan, 1931 edn. Cooper, A.C., C.Y. Woo and W.C. Dunkelberg (1988), ‘Entrepreneurs perceived chances for success’, Journal of Business Venturing, 3, 97–108. Cowling, M., P. Mitchell and M. Taylor (2004), ‘Job creators’, Manchester School, 72, 601–17. Davidsson, P. and B. Honig (2003), ‘The role of social and human capital among nascent entrepreneurs’, Journal of Business Venturing, 18, 301–33. Flota, C. and M.T. Mora (2001), ‘The earnings of self-employed Mexican-Americans along the US–Mexico border’, Annals of Regional Science, 35, 483–99. Freeman, R. (1978), ‘Job satisfaction as an economic variable’, American Economic Review, 68, 135–41. Garcia-Mainar, I. and V.M. Montuenga-Gomez (2005), ‘Education returns of wage earners and self-employed workers: Portugal vs. Spain’, Economics of Education Review, 24, 161–70. Henley, A. (2004), ‘Self-employment status: the role of state dependence and initial circumstances’, Small Business Economics, 22, 67–82. Kirzner, I. (1979), Perception, Opportunity and Profit, Chicago, IL: University of Chicago Press. Knight, F. (1921), Risk, Uncertainty and Profit, Boston, MA and New York: Houghton Mifflin. Lofstrom, M. (2002), ‘Labour market assimilation and the self-employment decision of immigrant entrepreneurs’, Journal of Population Economics, 15, 83–114. National Research Council, Committee on National Statistics (2007), Understanding Business Dynamics: An Integrated Data System for America’s Future, Washington, DC: National Academies Press. National Science Board (2006), Science and Engineering Indicators 2006, 2 vols, Arlington, VA: National Science Foundation (volume 1, NSB 06-01; volume 2, NSB 06-01A). Nordhaus, W.D. (2004), ‘Schumpeterian profits in the American economy: theory and measurement’, National Bureau of Economics Research Working Paper No. 10433. Orzach, R. and Y. Tauman (2005), ‘Strategic dropouts’, Games & Economic Behaviour, 50, 79–88. Parker, S.C. (2006), ‘New agendas in the economics of entrepreneurship: optimism, education, wealth and entrepreneurship’, paper presented at the American Economic Association Special Session on Entrepreneurship, Boston, MA, 8 January. Say, J.-B. (1819), Traite d’économie politique, 4th edn, trans. C. Prinsep, Boston, MA: Wells and Lilly, 1821 edn. Schumpeter, J. (1911), The Theory of Economic Development, trans. R. Opie, Cambridge, MA: Harvard University Press, 1934 edn. US Small Business Administration (1995), The State of Small Business: A Report of the President, 1994, Washington, DC: US Government Printing Office. US Small Business Administration (2003), Small Serial Innovators: The Small Firm Contribution to Technical Change, CHI Research Inc. for SBA Office of Advocacy, 27 February, Contract no. SBAHQ-01-C-0149. Van der Sluis, J., M. van Praag and A. van Witteloostuijn (2004), ‘Comparing the returns to education for entrepreneurs and employees’, mimeo, University of Amsterdam. DANA (2nd edition) PRINT.indd 126 18/12/2020 11:32 14. Employee start-ups Andreas Koch Generally, an employee start-up is defined as a new firm founded by an individual which has been employed by another private firm within the same industry prior to the foundation. With respect to the terminology, there has been some fuzziness in the past years which mainly results from the usage of the term ‘spin-off’.1 In some contexts, this term is used synonymously to what we call an ‘employee start-up’ (for example, by Erikson and Kuhn, 2006; Klepper, 2001). However, this can be misleading and provoke misunderstandings, as the term ‘spin-off’ is also used in management, financial and jurisprudential research. In these contexts, the term does not refer to (independent) start-ups, but mostly to divestments (corporate venturing) as a strategy of existing firms, which remain under the control of the divesting firm (also called ‘corporate spin-offs’, for example Cusatis et al., 1994; Parhankangas, 1999; Schnee et al., 1998). Some authors also have used the term ‘spin-out’ (Agarwal et al., 2004; Koster, 2006; for an overview and discussions of terminology see, for example, Parhankangas and Arenius, 2003; Koster, 2006; Tübke et al., 2004). Due to this ambiguous use of the term ‘spin-off’, more authors have recently begun to use the term ‘employee start-ups’ (for example Franco, 2005; Klepper, 2001; Shah et al., 2006), which I would strongly endorse in order to avoid further misunderstanding. To get back to the subject, an employee start-up combines the transfer of an individual with the transfer of some kind of industry-specific knowledge, experience – or, in some cases, even existing products, services or technologies – from an existing firm to a new firm (see Figure 14.1). This implies that routines are embodied in the individual moving from dependent employment to self-employment which may have an impact on the structure and the dynamics of the start-ups. This transfer of routines, sometimes also described as ‘heritage’ or in so-called ‘parenting models’ (Agarwal et al., 2004; Dahl and Reichstein, 2006; Klepper, 2001; Portugal Ferreira et al., 2006) is a central element and motivation for research on employee start-ups, as it is of crucial interest how existing knowledge and experience can be employed for further development of new competences and Incumbent firm Start-up Employee + Idea/Technology/ Product Figure 14.1 Transfer Basic elements of employee start-ups 127 DANA (2nd edition) PRINT.indd 127 18/12/2020 11:32 128 World encyclopedia of entrepreneurship innovations. In an evolutionary view, the existing structure (knowledge, products, firms, and so on) forms the base for what can be developed in the future. Research on employee start-ups can be a very promising field in order to further understand the mechanisms of evolutionary technological and economic change. NOTE 1. The term ‘spin-offs’ originated in the USA in the 1940s when it was increasingly recognized that – particularly in large-scale governmental research programmes (for example, space technology, defence industry) – there were a series of by-products that had the potential to be exploited for themselves (for example, Danilov, 1969; Olken, 1966). These by-products or unintended inventions were frequently exploited in new firms founded by former employees of the research programmes or bigger firms (famous examples for spin-offs are TEFLON®, a material first explored in space technology, or, on the firm side, the German SAP GmbH, founded by IBM employees, or several spin-offs from Fairchild Semiconductors, also referred to as ‘Fairchildren’ (Martin, 1984). Further examples can be found in Klepper (2001) or Hellmann (2004). REFERENCES Agarwal, Rajshree, Raj Echambadi, April M. Franco and M.B. Sarkar (2004), ‘Knowledge transfer through congenital learning. Spin-out generation, development and survival’, Academy of Management Journal, 47 (4), 501–22. Cusatis, Patrick J., James A. Miles and J. Randall Woolridge (1994), ‘Some new evidence that corporate spinoffs create value’, Journal of Applied Corporate Finance, 7 (1), 100–107. Dahl, Michael S. and Toke Reichstein (2006), ‘Heritage and survival of spin-offs: quality of parents and parent-tenure of founders’, paper presented at the Academy of Management Annual Meeting, Atlanta, 12–16 August. Danilov, Victor J. (1969), ‘The spin-off-phenomenon’, Industrial Research, 11 (5), 54–8. Eriksson, Tor and Johan M. Kuhn (2006), ‘Firm spin-offs in Denmark 1981–2000 – patterns of entry and exit’, International Journal of Industrial Organization, 24, 1021–40. Franco, April M. (2005), ‘Employee entrepreneurship: recent research and future directions’, in Sharon A. Alvarez, Rajshree Agarwal and Olav Sorenson (eds), Handbook of Entrepreneurship, Vol. 1: Interdisciplinary Perspectives, International Handbook Series on Entrepreneurship, New York: Springer, pp. 81– 96. Hellmann, Thomas (2004), ‘When do employees become entrepreneurs?’, working paper 1770, Stanford Graduate School of Business. Klepper, Steven (2001), ‘Employee startups in high-tech industries’, Industrial and Corporate Change, 10 (3), 639–74. Koster, Sierdjan (2006), ‘Whose child? How existing firms foster new firm formation: individual start-ups, spinouts and spin-offs’, dissertation, Groningen University. Martin, Michael J.C. (1984), Managing Technological Innovation & Entrepreneurship, Reston, VA: Reston Publishing. Olken, Hyman (1966), ‘Spin-offs, a business pay-off’, California Management Review, 9 (2), 17–24. Parhankangas, Annaleena (1999), Disintegration of Technological Competencies: An Empirical Study of Divestments through Spin-off Arrangements, Acta Polytecnica Scandinavica. Mathematics, Computing and Management in Engineering Series 99, Espoo: Finnish Academy of Technology. Parhankangas, Annaleena and Pia Arenius (2003), ‘From a corporate venture to an independent company: a base for a taxonomy for corporate spin-off firms’, Research Policy, 32 (3), 463–81. Portugal Ferreira, Manuel, Ana T. Tavares, William Hesterly and Sungu Armagan (2006), ‘Network and firm antecedents of spin-offs: motherhooding spin-offs’, FEP working papers no. 201, February, University of Porto. Schnee, Edward J., Lee G. Knight and Ray A. Knight (1998), ‘Corporate spin-offs’, Journal of Accountancy, 185 (6), 47–54. Shah, Sonali K., Rajshree Agarwal and David B. Audretsch (2006), ‘The knowledge context & the DANA (2nd edition) PRINT.indd 128 18/12/2020 11:32 Employee start-ups 129 entrepreneurial process: academic, user & employee entrepreneurship’, University of Illinois working paper no. 06-0118, University of Illinois, Urbana Champaign. Tübke, Alexander, Pablo Á. de Toledo Saavedra and José-Luis Galán Gonzalez (2004), ‘Towards a first spinoff typology and a new concept for corporate spin-off research’, International Journal of Technology Transfer and Commercialisation, 3 (3), 263–90. DANA (2nd edition) PRINT.indd 129 18/12/2020 11:32 15. Entrepreneurial exporters Martin Hannibal and Tage Koed Madsen The literatures on entrepreneurship and international business used to be separate fields and their respective researchers had little, if any, contact (Dana et al., 1999a). Together with the increasing globalization of markets and societies, however, a joint field on international entrepreneurship started to grow during the 1990s (Dana et al., 1999b). Researchers looking at the internationalization of firms used to find that firms would typically grow internationally in a slow and incremental manner, mainly by exporting their products to neighbouring countries (Johanson and Vahlne, 1977), but they now find that an increasing number of new firms initiate international activities (at first often through exporting) very early on after inception. Similarly, entrepreneurship researchers found that an increasing number of entrepreneurs have an international outlook. Dating back to seminal articles by Oviatt and McDougall (1994), Knight and Cavusgil (1996) and Madsen and Servais (1997), scholars have tried to understand the phenomenon of these international new ventures/born globals (INVs/BGs). Many scholars have examined whether these firms have specific founder characteristics, for example, whether they have a global mindset through education or experience working in foreign cultures. For instance, Acedo and Jones (2007) linked the notion of human capital to the ability of founders to identify opportunities in foreign markets, and thereby improve the performance of INVs, while Sharma and Blomstermo (2003) demonstrate how acquiring access to embedded network resources may enhance INV value creation on foreign markets. Another stream of literature looks at how founders may be able to leverage the knowledge and resources from contacts in prior work settings to speed up internationalization (for example, Young et al., 2003). Other scholars have placed emphasis on changing market conditions and industry structure which are conducive to spurring internationalization. These areas of focus are demonstrated in an early review by Rialp et al. (2005) as well as in later reviews by Keupp and Gassmann (2009) and Cesinger et al. (2012). The study of early and rapidly internationalizing ventures is a subset of research in international entrepreneurship (IE) which has been defined as ‘a combination of innovative, proactive, and risk-seeking behavior that crosses national borders and is intended to create value in organizations’ (McDougall and Oviatt, 2000: 903). As demonstrated in thorough reviews of empirical findings (for example, Aspelund et al., 2007; Cesinger et al., 2012; Keupp and Gassmann, 2009; Rialp et al., 2005), it is emphasized that comparisons across studies are extremely difficult because definitions of the phenomenon of early and rapidly internationalizing firms are very different (see Madsen, 2013 for a thorough discussion). Most INVs initiate their international activities by exporting their products and services. Balabanis and Katsikea (2003) label the most successful among these INVs as entrepreneurial exporters, defined as firms that are characterized by higher innovativeness, proactiveness and risk-taking in comparison with similar start-ups. A large-scale study among more than 1000 Danish manufacturing firms reports the same finding, that 130 DANA (2nd edition) PRINT.indd 130 18/12/2020 11:32 Entrepreneurial exporters 131 the founders of INVs exhibit much higher market aggressiveness, risk-taking and innovativeness than other exporters and particularly locally orientated firms (Madsen and Rasmussen, 2005). This chapter discusses entrepreneurial exporters in more depth and provides a case study that illustrates their decision-making process and strategies. THEORETICAL BACKGROUND During past decades researchers presented evidence of a variety of drivers to, and the associated timing of, internationalization (for example, Kuivalainen et al., 2012) and provided strong evidence of the importance of managers and entrepreneurs and their roles as catalysts for internationalization. Ciravegna et al. (2019) suggest a typology of exporters/international firms involving a distinction between entrepreneurial, serendipitous and strategic internationalization to describe three specific types of internationalization. Serendipitous exporters exhibit behaviour which is similar to the traditional stages models of international development (Johanson and Vahlne, 1977). Many are reactive and spread into international markets in an unstructured manner. Development in market conditions has made it more difficult to pursue this type of internationalization. Entrepreneurial and strategic typologies both respond more favourably to current market conditions; the former by having founders and managers with international attitudes, vision, aggressiveness, innovativeness and commitment to exploring and exploiting opportunities in foreign markets, often in neighbouring countries. The latter are characterized by strategic objectives and conscious planning of international activities which may unfold in more distant country markets. Balabanis and Katsikea (2003) find that an entrepreneurial stance does have a positive impact on the export performance of firms. Several arguments for this association may be emphasized, many of them pertaining to external market conditions. Some of these conditions have pushed exporters into a more entrepreneurial mode of operation, others have pulled entrepreneurs into international markets. One pull effect is the increased globalization of commerce and innovations in information and communication technologies, which has provided many opportunities as well as challenges to early internationalizing and exporting firms (Haar and Ortiz-Buonafina, 2002). In this context it has been indicated that entrepreneurship has become the key to (re-)vitalizing economic growth through job creation and so on. In addition, seminal researchers (McDougall and Oviatt, 2000) have argued that the complex nature of the globalizing markets has necessitated, and thus pushed, early internationalizing firms to adopt an entrepreneurial stance (Covin and Slevin, 1989) to survive in the often hostile, dynamic and diverse market context. The concept of an entrepreneurial position reflects management’s risk-taking with regard to strategic action and investment decisions (Mostafa et al., 2005). Accordingly, the concept is associated with the organization’s propensity and frequency to innovate to achieve technological leadership (Balabanis and Katsikea, 2003). This involves market-driving behaviour to differentiate the firm from export competitors by proactive and aggressive introduction of innovative products or services (Boso et al., 2012) while calculating the risk in relation to obstacles such as liabilities of foreignness and outsidership. The extent to which an organization adopts an entrepreneurial stance is affected by both internal and external factors. The market often influences a firm’s strategy and how DANA (2nd edition) PRINT.indd 131 18/12/2020 11:32 132 World encyclopedia of entrepreneurship it relates to competitors. The main external factor affecting the entrepreneurial position involves the level of hostility, dynamism and diversity of the market environment (Dess and Beard, 1984). In the literature, hostile environments are defined as markets with intense competition and precarious industry settings (Covin and Slevin, 1989). Dynamic market environments describe a fast and frequently changing context as a consequence of technological progresses, industrial developments and so on. The literature indicates that heterogenic market environment characterized by cultural and economic dissimilarity as well as physical distance of the export markets will influence the extent to which managers adopt an entrepreneurial stance. Research thus indicates that the more market environments are characterized by high levels of hostility, dynamism and heterogeneity the greater the extent to which managers of an internationalizing firm/exporter will adopt an entrepreneurial stance and act like an entrepreneurial exporter (Balabanis and Katsikea, 2003). The internal antecedents to the entrepreneurial stance of exporting firms include the attitude of the entrepreneur/founder as well as the firm’s immediate size, its organization structure and age. Entrepreneurial attitude may have the consequence that exporting becomes an entrepreneurial act defined as ‘the process by which individuals either on their own or inside organizations pursue export market opportunities without regard to the resources which they currently control or environmental disincentives which they face’ (Mostafa et al., 2005: 292). Literature posits the entrepreneur (manager) as the key actor for the development of firms, their trajectory and capabilities (Helfat et al., 2007). This research emphasizes that to understand firm dynamics, research needs to include the individuals driving it, what they do and how they do it (Felin and Foss, 2005; Hannibal, 2017; Sarasvathy, 2004). It is not only the resources and the partner constellations that matter. Continuing these thoughts (Andersson and Florén, 2011) finds that managers in small internationalizing firms hold capabilities distinguishing them from managers in other firms. This difference is supported by other authors providing strong indications that the behaviour of managers in small internationalizing firms are a great deal more proactive in relation to their international activities (Evers et al., 2012; Hannibal, 2017). Research indicates that as firms grow, they have a propensity to become less entrepreneurial. Larger organizations need more formal systems to coordinate, whereby new ideas need to go through more layers of administration to get approval. Accordingly, inherently larger organizations provide fewer incentives to managers to remain entrepreneurial. However, although large firms are less likely to provide the proactive, responsive and risk-taking atmosphere, it has been argued that larger organizations have more resources to pour into innovative activities, which is an important component in accumulating more skills and resources required for the entrepreneurial stance (Balabanis and Katsikea, 2003). They become strategic internationalizers (Ciravegna et al., 2019). Given this, literature suggests that size of firm is indeed related to the extent to which it will adopt an entrepreneurial posture but there is a lack of agreement as to the direction of this relationship. A firm’s history and age is another internal factor which provides the basis for development of routines and values which will act as guides for the current as well as future orientations (Helfat et al., 2007). Newer firms will not be constrained by well-established norms and path dependencies. This will provide more freedom to taking risk and making decisions. Accordingly, there is a consensus in the literature that ageing firms will exhibit a decreasing entrepreneurial stance as they continue down the proven DANA (2nd edition) PRINT.indd 132 18/12/2020 11:32 Entrepreneurial exporters 133 strategic paths. As shown by Bell et al. (2001), however, an old firm may be acquired by an entrepreneurial owner and thus become a born-global firm through a revitalization of the business model. The firm’s organizational structure also impacts the entrepreneurial stance. The literature describes organizational structure through horizontal, vertical and spatial differentiation, and posits that informal and open communication coupled with participative decision-making has a positive impact on the firm’s entrepreneurial stance (Balabanis and Katsikea, 2003) that will be the base of entrepreneurial export activities. Entrepreneurial exporters may develop for many external and internal reasons. Their entrepreneurial activity may relate to different aspects of successful leadership and management: the creation of unique customer value, the identification of a viable business model, the decision-making related to basic market strategy, and the implementation of such a strategy. In any case, Balabanis and Katsikea (2003) conclude that being entrepreneurial is very important for exporters and international firms. They also write: ‘Thus, the adoption of an entrepreneurial posture is something that profit-maximising firms have to consider and pursue actively for their export operations regardless the conditions of their markets’ (Balabanis and Katsikea, 2003: 246). We end this chapter by presenting a case study of a very successful, entrepreneurial exporter as an illustration of how an entrepreneurial stance impacts on various aspects of decision-making and implementation of strategic decisions. AN ILLUSTRATIVE CASE: UNIVERSAL ROBOTS Universal Robots (UR)1 became a world leader in the collaborative robot market in only a few years. This position was obtained entirely through exporting. The illustrative case is based on archival material as well as interviews with the pre-2015 top management of UR. Three founders of UR, Esben Østergaard, Kasper Støy and Kristian Kassow, met at the University of Southern Denmark (SDU) in Odense. Together, they researched specific requirements for robots in the food industry, and through the close interaction with the industry, they identified a unique business opportunity: potential demand for a small, flexible and inexpensive industrial robot. The robot industry was at that time dominated by large and inflexible robots that were too expensive for small and medium-sized enterprises. They founded UR in 2005. The Entrepreneurial Creation of Unique Customer Value The UR robot arm consists of six rotary joints, where each joint increases the degree of movement. It is a force-limited robot, that is, it has built-in force torque sensors and is programmed automatically to stop operation when it detects abnormal impact. This design makes it a collaborative robot (cobot) that can be installed and work side by side with humans without being fenced. It represents a radical innovation on the robotics market, developed in close interaction with initial customers. In many ways, the collaborative UR robot revolutionized the market of industrial robots, and currently UR has a global market share of more than 50 per cent in the very fast growing cobot segment of the robotics market. Esben Østergaard explains that the competitive advantage of UR rests on three pillars. DANA (2nd edition) PRINT.indd 133 18/12/2020 11:32 134 World encyclopedia of entrepreneurship First, the flexible and inexpensive robot arm that can be easily moved to solve different tasks in the production hall. The founders identified this as a strong opportunity compared with the large, expensive and inflexible robots being available at the time. Also, the UR robot can be installed without any fence around it, which was unheard of at the time it was created. As a consequence, the robot/cobot can be working right next to a human being. Second, it is effortless to program the robot, which can be undertaken by employees at the floor level. In contrast, existing robots could only be programmed by specialists. Universal Robots’s unique knowledge of how to integrate electronic, mechanical and software elements form the foundation for these two advantages, and their position as a market leader enables UR to purchase all modules at comparatively low costs. Third, the very detailed insight UR has into customer needs and wants so that an UR robot arm can deliver customer value for individual customers in many industries. It is very difficult to imitate UR’s knowledge of how the robot arm can be adapted to the needs of individual firms and production processes, how it can be programmed and thus converted into alternative processes by those who work in the production, and how it can easily be moved around in the production hall. In the early years of the firm’s life the entrepreneurial stance was clearly dominating. The Entrepreneurial Development of a Focused Business Model and Strategy When the development of the cobot arm was complete, the firm’s financial resources were exhausted. Despite all the entrepreneurial efforts, a ready-to-market product had not been developed fast enough. In 2008, the firm struggled to survive, and the Danish State Investment Fund (Vækstfonden) joined the company through an investment. According to Esben Østergaard, this capital injection saved UR from bankruptcy, but it also came with demands for a more strategic approach to developing the business further. As part of the investment agreement, the Danish State Investment Fund insisted on appointing a chief executive officer (CEO) with more business experience than the three founders. They chose Enrico Krog Iversen, who had previously been the CEO of a medium-sized firm in a completely different industry. He also became a co-investor in UR. Clas Nylandsted Andersen, a very experienced business leader, acted as the chairman of the board. A UR robot arm is assembled from almost 1000 components. In the early days of the company, the founders had the ambition to develop and manufacture critical components, such as, for example, the gears, in-house. Krog Iversen disagreed with this strategic direction. He argued that this would put limits on the scalability and growth-potential of UR. Instead, he proposed to outsource production of all components as well as marketing and distribution through partnerships with key suppliers and independent distributors. This strategy would imply that UR developed and assembled the collaborative robot arm and nothing else. All components were to be sourced from suppliers, and a network of independent system integrators/distributors would then take responsibility to contact individual customers and develop a total system for them, including the sourcing of end-effectors from other suppliers and the final installation of the system. Clas Nylandsted Andersen saw opportunities in both strategies, but Krog Iversen’s strategic direction was chosen. In a way, the strategic approach became more dominating, which was necessary owing to the very dynamic market conditions. DANA (2nd edition) PRINT.indd 134 18/12/2020 11:32 Entrepreneurial exporters 135 The Implementation and Fine-Tuning of Exports and Internationalization When Krog Iversen became the CEO in 2008, no sales had been realized, but he immediately started canvassing to capture customer and partners. He remembers how he carried this out in a very entrepreneurial trial-and-error manner: ‘The first two years I always had a robot in the luggage room of my car so that I could make a demo wherever I was.’ He was canvassing and looking for business opportunities not only with end-customers but also with possible distributors. He would offer them one-year contracts and then rely on their sales efforts based on the assumption that the good distributors would achieve high sales and stay as distributors, whereas those that were not so good could be dropped. This entrepreneurial effectuation approach led to changing around 30 per cent of the distributors every year in the beginning. However, as Krog Iversen states, this entrepreneurial approach was necessary: ‘Being a new company like UR, it is not a question of being able to find the optimal portfolio of distributors right away. It is a question of loving those you can get rather than getting those that you love.’ Later, the identification of and collaboration with distributors became much more structured. In 2008, the first UR cobots were sold through distributors in Denmark and Germany and, by 2010, UR had expanded their business to all of Europe. Between 2011 and 2015, the company established four sales subsidiaries in New York, USA, Shanghai, China, Barcelona, Spain, and Singapore to oversee foreign operations, while also expanding their distributor network in South America and Oceania. UR started to win prices and became very visible at trade fairs. Universal Robots became the world market leader for collaborative robots, and statistics from 2015 put UR’s global market share at 71 per cent. The management’s assessment of the business strategy would prove to be successful, as UR’s annual turnover would increase manifold in the coming years from only a few million Danish krone (DKK) in 2008 to over 403 million DKK in 2015. Observing the success of UR, multiple competitors soon arrived, not least competitors from China. This put pressure on UR, as expressed by Clas Nylandsted Andersen: ‘We felt being under immense time pressure. Because of the expected competition, we had to develop a strategy so that we were able to enter the world market very quickly through distributors. Speed was essential, it was a question of being the first mover.’ The importance of detailed knowledge about how to create value for end-customers in different industries is a crucial part of UR’s competitive advantage. The strategic decision to use distributors in the downstream relationships required decisions about how to maintain and further develop this knowledge. Even after the strategic decision to limit UR to become a developer and assembler of robot arms, a close connection to distributors and end-customers remained very important. Therefore, UR still engages heavily in building downstream relationships. Østergaard says: ‘When the distributors installed the first robot arms, we joined them and visited the customers. In that way, I got a lot of insight into their way of thinking as well as the challenges. I think that those insights have made UR such great success.’ Later, UR established a competence centre with several application teams who regularly follow downstream activities in order to stay competitive in relation to delivering customer value in different industries. DANA (2nd edition) PRINT.indd 135 18/12/2020 11:32 136 World encyclopedia of entrepreneurship Acquisition by a US Multinational Company By 2015, UR was an established success, a worldwide leader in the extremely fast-growing market for collaborative robots. However, to scale up further, the firm needed additional financial and managerial resources as well as more efficient channels to customers around the world in an increasingly hostile market environment. Recently, several challenges have emerged to emphasize the importance of securing additional resources. First, one of the owners, the Danish Investment Foundation (Vækstfonden), which had invested in the firm in the early days, had clearly expressed a preference for an exit. Second, despite the position as market leader, the company’s competitors, especially in Asia, were either attempting to copy UR’s robotic arm or to develop competing products. China represents a vast market, but also a considerable challenge. The Made-In-China 2025 was being decided according to which China aims to be a leading country in manufacturing of collaborative robots. Therefore, the task of the owners and the top management team of UR was to find a multinational company that through acquisition could provide the necessary conditions for the company’s future growth. Several firms interested in acquiring UR approached them, and they decided to implement a structured process to evaluate interested buyers in order to decide how to secure the future success of UR best. In 2015 US multinational, Teradyne, acquired UR for US$285 million plus a further earn-out of US$65 million if specific financial targets were met in the following years. Teradyne was positioned as a leading supplier of automatic test equipment. The acquisition of UR was the first step in the continuation of a strategic decision from Teradyne to establish a new position in the growing segment of industrial automation and especially collaborative robots with UR as the headquarters. CONCLUDING REMARKS Balabanis and Katsikea (2003) conclude that any internationalizing firm should adopt an entrepreneurial posture and thus become entrepreneurial exporters since this will increase the firm’s profitability. Dynamic, diverse and hostile markets foster more entrepreneurial exporters, as illustrated by the UR case. The entrepreneurial stance may encompass not only the market entry phase, but also permeate the product development phase and the decision-making concerning the firm’s business model. As demonstrated, UR shows clear signs of an entrepreneurial stance in acting both proactively, taking on risk and having high levels of innovativeness to fit the category of a true entrepreneurial exporter. It remains to be seen if the buyout and subsequent influence on the internal factors in UR, such as change of size, structure and the evident ageing of the organization, will impact UR to decrease the manager’s entrepreneurial stance to the extent that we will see a more strategic approach to UR’s internationalization. This relates to some fundamental questions: can a firm remain an entrepreneurial exporter? Is it necessary to remain an entrepreneurial exporter? The literature is not conclusive concerning these questions. Balabanis and Katsikea (2003) do not discuss the issue, and elsewhere it is indicated ‘that while entrepreneurial exporters outperform conservative exporters in turbulent environments, the reverse is true in benign environments’ (Boso et al., 2012: 668). So, future research should enlighten us and attempt to address questions, DANA (2nd edition) PRINT.indd 136 18/12/2020 11:32 Entrepreneurial exporters 137 including the best timing of a shift in the approach to internationalization activities from entrepreneurial to more strategic, as mentioned by Ciravegna et al. (2019). NOTE 1. For more information, please refer to a teaching case about Universal Robots prepared by Kristina Vaarst Andersen, Tage Koed Madsen and Erik Stavnsager Rasmussen in 2019 (available upon request). REFERENCES Acedo, F.J. and M.V. Jones (2007), ‘Speed of internationalization and entrepreneurial cognition: insights and a comparison between international new ventures, exporters and domestic firms’, Journal of World Business, 42 (3), 236–52, doi:10.1016/j.jwb.2007.04.012. Andersson, S. and H. Florén (2011), ‘Differences in managerial behavior between small international and noninternational firms’, Journal of International Entrepreneurship, 9 (3), 233–58. Aspelund, A., T. Koed Madsen and Ø. Moen (2007), ‘A review of the foundation, international marketing strategies, and performance of international new ventures’, European Journal of Marketing, 41 (11–12), 1423–48. Balabanis, G.I. and E.S. Katsikea (2003), ‘Being an entrepreneurial exporter: does it pay?’, International Business Review, 12 (2), 233–52. Bell, J., R. McNaughton and S. Young (2001), ‘“Born-again global” firms: an extension to the “born global” phenomenon’, Journal of International Management, 7 (3), 173–89. Boso, N., J.W. Cadogan and V.M. Story (2012), ‘Complementary effect of entrepreneurial and market orientations on export new product success under differing levels of competitive intensity and financial capital’, International Business Review, 21 (4), 667–81. Cesinger, B., M. Fink, T.K. Madsen and S. Kraus (2012), ‘Rapidly internationalizing ventures: how definitions can bridge the gap across contexts’, Management Decision, 50 (10), 1816–42. Ciravegna, L., S. Kundu, O. Kuivalainen and L. Lopez (2019), ‘The timing of internationalization – drivers and outcomes’, Journal of Business Research, 105 (December), 322–32. Covin, J.G. and D.P. Slevin (1989), ‘Strategic management of small firms in hostile and benign environments’, Strategic Management Journal, 10 (1), 75–87. Dana, L.-P., H.E. Etemad and R.W. Wright (1999a), ‘The impact of globalization on SMEs’, Global Focus, 11 (4), 93–106. Dana, L.-P., H.E. Etemad and R.W. Wright (1999b), ‘Theoretical foundations of international entrepreneurship’, in R.W. Wright (ed.), International Entrepreneurship: Globalization of Emerging Businesses, Stanford, CT: JAI Press, pp. 3–22. Dess, G.G. and D.W. Beard (1984), ‘Dimensions of organizational task environments’, Administrative Science Quarterly, 29 (1), 52–73. Evers, N., S. Andersson and M. Hannibal (2012), ‘Stakeholders and marketing capabilities in international new ventures: evidence from Ireland, Sweden, and Denmark’, Journal of International Marketing, 20 (4), 46–71. Felin, T. and N.J. Foss (2005), ‘Strategic organization: a field in search of micro-foundations’, Strategic Organization, 3 (4), 441–55. Haar, J. and M. Ortiz-Buonafina (2002), ‘Entrepreneurial exporters: the Canadian experience’, International Trade Journal, 16 (1), 33–71. Hannibal, M. (2017), ‘Enacted identities in the university spin-off process – bridging an imaginative gap’, Journal of International Entrepreneurship’, 15 (3), 239–65. Helfat, C.E., S. Finkelstein, W. Mitchell, M.A. Peteraf, H. Singh, D. Teece, et al. (2007), Dynamic Capabilities: Understanding Strategic Change in Organizations, Oxford: Blackwell. Johanson, J. and J.E. Vahlne (1977), ‘The internationalization process of the firm – a model of knowledge development and increasing foreign market commitments’, Journal of International Business Studies, 8 (March), 23–32. Keupp, M.M. and O. Gassmann (2009), ‘The past and the future of international entrepreneurship: a review and suggestions for developing the field’, Journal of Management, 35 (3), 600–633. Knight, G. and S.T. Cavusgil (1996), ‘The born global firm: a challenge to traditional internationalization theory’, in T.K. Madsen and S.T. Cavusgil (eds), Advances in International Marketing, vol. 8, Greenwich, CT: JAI Press, pp. 11–26. DANA (2nd edition) PRINT.indd 137 18/12/2020 11:32 138 World encyclopedia of entrepreneurship Kuivalainen, O., S. Saarenketo and K. Puumalainen (2012), ‘Start-up patterns of internationalization: a framework and its application in the context of knowledge-intensive SMEs’, European Management Journal, 30 (4), 372–85, doi:10.1016/j.emj.2012.01.001. Madsen, T.K. (2013), ‘Early and rapidly internationalizing ventures: similarities and differences between classifications based on the original international new venture and born global literatures’, Journal of International Entrepreneurship, 11 (1), 65–79. Madsen, T.K. and Rasmussen E.S. (2005), ‘Iværksætternes betydning for internationalisering af en virksomhed’, in Danske iværksættere i den globale økonomi, Copenhagen: Børsens Forlag, pp. 17–30. Madsen, T.K. and P. Servais (1997), ‘The internationalization of born globals: an evolutionary process?’, International Business Review, 6 (6), 561–83, doi:10.1016/S0969-5931(97)00032-2. McDougall, P.P. and B.M. Oviatt (2000), ‘International entrepreneurship: the intersection of two research paths’, Academy of Management Journal, 43 (5), 902–6. Mostafa, R.H., C. Wheeler and M.V. Jones (2005), ‘Entrepreneurial orientation, commitment to the Internet and export performance in small and medium sized exporting firms’, Journal of international Entrepreneurship, 3 (4), 291–302. Oviatt, B.M. and P.P. McDougall (1994), ‘Toward a Theory of international new ventures’, Journal of International Business Studies, 25 (1), 45–64. Rialp, A., J. Rialp and G.A. Knight (2005), ‘The phenomenon of early internationalizing firms: what do we know after a decade (1993–2003) of scientific inquiry?’, International Business Review, 14 (2), 147–66. Sarasvathy, S.D. (2004), ‘Making It happen: beyond theories of the firm to theories of firm design’, Entrepreneurship, Theory and Practice, 28 (6), 519–32. Sharma, D.D. and A. Blomstermo (2003), ‘The internationalization process of born globals: a network view’, International Business Review, 12 (6), 739–53. Young, S., P. Dimitratos and L.-P. Dana (2003), ‘International entrepreneurship research: what scope for international business theories?’, Journal of International Entrepreneurship, 1 (1), 31–42. DANA (2nd edition) PRINT.indd 138 18/12/2020 11:32 16. Entrepreneurial hubris Vita Akstinaite and Eugene Sadler-Smith INTRODUCTION Hubris is an extreme manifestation of confidence and ambition that is characterized by preoccupations with success, feelings of excessive pride and self-importance, arrogance, contempt for advice and criticism, and an imperviousness to learning. It belongs to the same nomological net as overconfidence and hyper core self-evaluation (Haynes et al., 2015) but is distinct from narcissism (Asad and Sadler-Smith, 2020). The origins of hubris research in business and management can be traced back to the foundational work in behavioural finance in the ‘hubris hypothesis’ of mergers and acquisitions (Roll, 1986) which explained the negative consequences of chief executive officer (CEO) overconfidence. Hubris research has branched out subsequently into areas that include strategic management (for example, Hiller and Hambrick, 2005), leadership (for example, Akstinaite et al., 2019) and entrepreneurship (for example, Hayward et al., 2010). Research suggests that hubris is far from uncommon in entrepreneurs (Haynes et al., 2015) and in this chapter we examine the characteristics, causes and consequences, both positive and negative, of entrepreneurial hubris. CHARACTERISTICS OF ENTREPRENEURIAL HUBRIS Examples of entrepreneurial hubris abound in both the business-venturing and corporate entrepreneurship literatures. For example, in the corporate world, business leaders such as Steve Jobs of Apple, Larry Page of Google and Carly Fiorina at Hewlett Packard, embodied strong entrepreneurial orientations and gravitated towards bold, and sometimes extreme, strategic choices through their innovativeness, proactiveness and risktaking behaviours. However, the downside of their entrepreneurialism was that they inclined towards overconfidence, over-ambition, unpredictability and, even, recklessness (Chatterjee and Hambrick, 2007; Wales et al., 2013). Hubris is typically associated with destructive leadership and unintended negative consequences (Sadler-Smith, 2019). In the business-venturing arena in the UK, it is estimated that more than half of new businesses fail to survive for longer than five years. The picture is little different in the USA (Headd, 2003). For example, in Cooper et al.’s (1988) study of 3000 entrepreneurs in which respondents were asked to rate their chances of success, 81 per cent of business venturers saw their odds of success as seven out of 10 or better, and a third saw their odds of success of 10 out of 10. Hence there is ample empirical evidence to suggest that business venturers categorize opportunities overly positively to the extent that they display behaviours bordering on the euphoric at the start-up of a firm and show clear manifestations of a warped perception of risk (Vecchio, 2003). In entrepreneurship hubris manifests in particular as: (1) errors of judgement of the 139 DANA (2nd edition) PRINT.indd 139 18/12/2020 11:32 140 World encyclopedia of entrepreneurship resources needed for success; (2) severe over-estimation of the entrepreneur’s own business venturing, leadership and managerial abilities; (3) hiring of employees with lower levels of requisite human capital for the venture; (4) underestimations of the need for social capital to support venture viability, survival and growth; (5) distortions of entrepreneur’s perception of reality thereby impeding proper assessment of the resources needed at critical stages in the business growth cycle (Haynes et al., 2015: 486). Based on the above, entrepreneurial hubris is defined as exaggerated self-confidence, ambition and pride, contempt for advice and criticism from others, and an imperviousness to learning, which is fuelled by prior business-venturing successes and results in flawed decision-making that invites unintended negative consequences in the form of venture failure. CAUSES OF ENTREPRENEURIAL HUBRIS Entrepreneurs must take significant risks to be successful and therefore must have high levels of confidence in the decisions they take. Building on earlier work in strategic management research, Hayward et al. (2006) developed a ‘hubris theory of entrepreneurship’ which models both how overconfident entrepreneurs are more likely to initiate business ventures and how these ventures are more likely to fail. Hayward et al.’s theory seeks to answer the question of why entrepreneurs start their ventures in the first place when the objective chances of success are so discouraging (Haynes et al., 2015). Overconfident entrepreneurs often not only ignore base rates, but also choose to (1) overlook the failure rate of competitors who have sought similar opportunities in the past, and (2) underestimate the strength of competitors for focal opportunities (Hayward et al. 2006). They do so in the firm belief that with their abilities and talents, perhaps with assistance of a ‘lucky hunch’ (Shane and Venkataraman, 2000: 220), they will beat the odds. This overconfidence stems from three sources: (1) overconfidence in knowledge of the domain; (2) overconfidence in prediction of outcomes; and (3) overconfidence in their personal abilities (Hayward et al., 2006). A surfeit of confidence can lead business venturers to categorize business situations over-positively and as a result they are inclined to overestimate the probability of their judgement being right and their venturing decisions turning out well, but they consequently underestimate the chances of being wrong and things turning out badly (Hmieleski and Baron, 2008; Palich and Bagby, 1995). Moreover, hubristic entrepreneurs’ experiences and prior successes in previous ventures only makes them more likely to be confident of success in focal ventures irrespective of whether or not the focal venture relies on relevant experience and expertise gained in prior ventures. These hubristic entrepreneurs assume that their entrepreneurial abilities are domain general (Hayward et al., 2006) rather than, and contrary to theories of expertise, domain specific (Kahneman and Klein, 2009). As regards entrepreneurial abilities and outcomes, Townsend et al. (2010) distinguish between expectations of abilities versus expectations of outcomes. Their study of startups in the USA suggested that entrepreneurs’ beliefs in their abilities were a stronger driver of business-venturing behaviours than their beliefs about the outcome. This suggests that entrepreneurial hubris (for example, as elevated self-evaluation) can lead business venturers to trust their abilities first and assume that successful outcomes will follow. DANA (2nd edition) PRINT.indd 140 18/12/2020 11:32 Entrepreneurial hubris 141 The cognitive biases that are associated with entrepreneurial hubris result in systematic errors of judgement and stem from illusions of control and the use of limited information (Hmieleski and Baron, 2008). Internationalization can also compound the hazards of entrepreneurial hubris. Moving into the international environment is often complex, ambiguous and uncertain, and may pose a significant risk of overreach for hubristic entrepreneurs. The move into international markets has been described as presenting a liminal transition (laying ‘betwixt and between’), and the ambiguous and transitory nature of this transitional zone has the potential to increase the odds for fatal missteps (for example, entering a high-cost market without sufficient resources) so that misjudgements threaten the survival of international new ventures (Prashantham and Floyd, 2019). Narcissism and gender may also play a role. When entrepreneurs have narcissistic tendencies (for example, need for control, desire for approval or propensity for action) and associated difficulties in regulating self-esteem, they may be predisposed to overconfident and overambitious (that is, hubristic) business-venturing decisions (Kets de Vries, 1996). Regarding gender, more males are inclined to become entrepreneurs than females, and men tend to be more confident in their ability to perform at high levels in the tasks of entrepreneurship (Hmieleski and Baron, 2008). In addition, research outside the entrepreneurial domain has studied the effects of hormones on the decision-making behaviours of traders and has found that higher levels of testosterone are associated with irrational exuberance and recklessness (Coates, 2012). Finally, context can also be an important factor that affects the ways in which hubris manifests in entrepreneurship. Hubris can manifest through different mechanisms in different entrepreneurial settings. For example, Haynes et al. (2015) propose that: (1) in young start-ups entrepreneurial hubris gives rise to underestimations of human and social capital necessary for venture success; (2) in family firms excessive pursuit of socioemotional wealth by a hubristic leader causes overestimation of available social and human capital necessary for success; and (3) in corporate ventures the discretion to engage in risky decision-making by hubristic executives brings about the misuse and erosion of social capital necessary for success. CONSEQUENCES The Bright Side (Positive Consequences) of Entrepreneurial Hubris Hubris, as often is the case with extreme behavioural conditions, has a dark and a bright side. A small amount of hubris helps individuals to be bold, to strive for more and, ultimately, to dare to set up entrepreneurial ventures, even after experiencing failure. A high level of confidence is beneficial in persuading others to be enthusiastic about and join a business-venturing project, and confidence inspires, motivates and assures employees and other stakeholders (Busenitz and Barney, 1997). In addition, hubristic entrepreneurial leaders encourage creativity and entrepreneurship owing to their excessive risk-taking and confidence in their most radical ideas (Zeitoun et al., 2019). Steve Jobs is an example of a hubristic leader who was arrogant, and sometimes undermining, but who created a number of radically innovative products. DANA (2nd edition) PRINT.indd 141 18/12/2020 11:32 142 World encyclopedia of entrepreneurship To be part of such breakthroughs might be an intrinsically motivating experience for followers of hubristic leaders (Zeitoun et al., 2019). It is long established that efficacy beliefs influence how individuals ‘feel, think, motivate themselves and behave’ (Bandura, 1993: 118). Hubris has a direct link with self-efficacy, which is often extremely high in hubristic individuals (cf. hyper core self-evaluation, Hiller and Hambrick, 2005). Favourable efficacy beliefs have positive effects, and it is well known that individuals high in self-efficacy set challenging goals which they persistently strive towards even when the odds are stacked against them, moreover they recover quickly from failure, even under adverse conditions (Bandura, 1993). Entrepreneurs have to be able to, of necessity, work towards challenging goals, be comfortable with risk and persist against the odds, and be resolute in the face of failure. Entrepreneurial self-efficacy is the degree to which an entrepreneur perceives himself or herself as having the ability to successfully perform the various roles and tasks of entrepreneurship, including intentions to start a new business and the related tasks of marketing, innovation management and financial control (Hmieleski and Baron, 2008). High entrepreneurial self-efficacy is associated with a variety of positive effects, including business performance outcomes and work satisfaction (Baum and Locke, 2004; Bradley and Roberts, 2004). The ‘Dark Side’ (Negative Consequences) of Entrepreneurial Hubris As to the dark side of entrepreneurial hubris, Miller in his book The Icarus Paradox argued that the entrepreneurial personality may in some respects be Janus-like in that positive attributes (for example, energy, confidence, ambition, need for achievement and independence) can morph into negative attributes (for example, aggressiveness, ruthlessness, immodesty, irresponsibility and recklessness) (Miller, 1992). This general phenomenon has been labelled a strengths-into-weaknesses paradox (Sadler-Smith, 2019) and displays a classic inverted U-shaped pattern (DeNisi, 2015) with optimum levels of outcome related to the tipping point between too much or too little of a required attribute (cf. Yerkes Dodson law; Yerkes and Dodson, 1908). For example, Steve Jobs’s confidence, power, and authority in difficult situations was likely to be inspiring to his followers. However, the same traits made him difficult to deal with and work for. One reason for this is because hubristic confidence and risk-taking makes hubristic leaders ignore the needs of others (Akstinaite et al., 2019). For instance, Steve Jobs is notoriously known for publicly denouncing and yelling at his employees. Being led by such hubristic leaders is likely to be a stressful work experience for followers. Also, excessive confidence in their own abilities is a strong driving force and hence a significant hazard in business start-ups, which can cause individuals to proceed and persist with concomitant escalations of commitment in spite of the odds being stacked against them. This, in turn, might affect not only the leader, but also the business venture and people who work for it, leading to impaired decision-making and flawed leadership behaviours. For example, it might lead entrepreneurs to make miscalculated resourceallocation decisions that ultimately deplete the venture’s chances of success and increase the likelihood of venture failure (Hayward et al., 2006). In addition, unrealistic optimism fuelled by hubris could cause entrepreneurs to take extreme risks and have a narrow and single-minded focus on business (Nicholson, 1998). Owing to this, entrepreneurial leader DANA (2nd edition) PRINT.indd 142 18/12/2020 11:32 Entrepreneurial hubris 143 hubris often causes a decrease in human and social capital for the venture, which, in turn, has a negative effect on the success of the newly established entrepreneurial venture. CONCLUSIONS Analysing hubris in the entrepreneurial context is particularly interesting as business decisions and actions are being taken in a public space where the outcomes of these decisions, such as failed start-ups, can be observed and analysed by others. In most cases, an individual’s entrepreneurial actions stem from the behaviours that have proved to be useful in the past (that is, taking huge financial risks). As a consequence, as the entrepreneur relies on these behaviours to achieve prospective business successes, these behaviours become more reinforced over time. Future research should explore ways to identify early warning signals, such as linguistic makers, of entrepreneurial hubris and extend existing work on analysis and identification of hubris to the entrepreneurship domain (Akstinaite et al., 2019). Inevitably, the overuse of a particular strength can cause it to become a weakness. If overused, entrepreneurial ambitiousness and self-confidence can lead to self-absorption and unwillingness to accept mistakes made; a strong and independent personality can turn into an aloof and unapproachable character; traits of expressiveness and extraversion can lead to attention seeking. For this reason it is important to identify and understand the tipping point from which an entrepreneurial strengths, such as confidence and risk-taking, become hubristic weaknesses, such as overconfidence, recklessness and other dysfunctional behaviours. The competitive world of entrepreneurship in the twenty-first century seems to call for people who exhibit behavioural traits that can also be attributed to hubris. Perhaps, as has been suggested in previous research, a degree of hubris is inevitable and even necessary in order to become a successful and well-known entrepreneur. 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Yerkes, R.M. and J.D. Dodson (1908), ‘The relation of strength of stimulus to rapidity of habit-formation’, Journal of Comparative Neurology and Psychology, 18 (5), 459–82, accessed 11 October 2020 at https:// onlinelibrary.wiley.com/doi/abs/10.1002/cne.920180503. Zeitoun, H., D. Nordberg and F. Homberg (2019), ‘The dark and bright sides of hubris: Conceptual implications for leadership and governance research’, Leadership, 15 (6), 647–72. DANA (2nd edition) PRINT.indd 144 18/12/2020 11:32 17. Entrepreneurial learning Jennifer R. Carter, Claire Leitch and Valerie Stead Over the past decade, entrepreneurship has seen an increase in the scholarly interest of entrepreneurial learning (Jones et al., 2014; Soetanto, 2017; Wang and Chugh, 2014), transforming it from one of the most neglected areas (Harrison and Leitch, 2005) to an accepted and integral aspect of entrepreneurship (McKeown, 2015; Tseng, 2013). Entrepreneurial learning is characterised by definitional inconsistency (Soetanto, 2017) as its theorisation is drawn from a range of disciplinary backgrounds with different philosophical underpinnings. This has led to diverse and fragmented understandings (Wang and Chugh, 2014). Based on a consideration of the multiple definitions and understanding of entrepreneurial learning that have been advanced already, entrepreneurial learning is defined here as the creation, acquisition and/or development of the skills, knowledge and abilities necessary for entrepreneurial activity. Entrepreneurial activity refers to the exploitation of opportunities by entrepreneurial individuals or teams in the creation and development of business ventures. Entrepreneurial learning has been shown to have a positive effect on the success and achievement of entrepreneurs and their businesses (Keith et al., 2016; Rae and Carswell, 2001; Soetanto, 2017; Wing Yan Man, 2012). Owing to the chaotic and unpredictable context of entrepreneurship (Holcomb et al., 2009), entrepreneurs need to be flexible and adaptable (Lans et al., 2008). Businesses face external pressures – for example, uncertainty (Bergh et al., 2011), rapid change (Holcomb et al., 2009; van Gelderen et al., 2005), technological development, increased customer demands and growing competition (Keith et al., 2016) – as well as internal challenges – for example, liabilities of newness, smallness and inexperience (Dada and Fogg, 2016). Therefore, entrepreneurial learning is important in enabling entrepreneurs to handle and overcome the ambiguous and ever-evolving issues they face, and is imperative for business survival and growth. This chapter reviews understandings of entrepreneurial learning by considering how entrepreneurs learn and what entrepreneurs learn. By drawing together current understandings, this review argues for a holistic approach which more fully captures the nature of entrepreneurial learning. Integrating understandings allows reflection of the complexity, multiplicity and dynamic nature of entrepreneurial learning and entrepreneurial practice. HOW ENTREPRENEURS LEARN Understandings of entrepreneurial learning tend to be underpinned by experiential learning theory (Zheng et al., 2017), which assumes that learning is a result of engaging in and reflecting on practice. Entrepreneurs are often characterised as action orientated (Agbim et al., 2013; Cope, 2005; Morris et al., 2012; Pittaway et al., 2015), that is, they are better suited to learning through experience in a way that is active and practice based (Cope, 2011; Corbett, 2005; Deakins and Freel, 1998; Jones et al., 2014; Pittaway et al., 145 DANA (2nd edition) PRINT.indd 145 18/12/2020 11:32 146 World encyclopedia of entrepreneurship 2015; Politis, 2005; Rae and Carswell, 2001; Wing Yan Man, 2012; Zhang and Hamilton, 2009). Furthermore, entrepreneurial learning is largely viewed as informal (Brett et al., 2012; Coetzer et al., 2017; Keith et al., 2016) and incidental, occurring through everyday practice (Cope and Watts, 2000). The experiential nature of entrepreneurial learning is broadly categorised in three ways: practice experiential, cognitive experiential and social experiential (Zheng et al., 2017). Practice-experiential approaches focus on how action and practice contribute to an entrepreneur’s learning. These are closely aligned with traditional experiential learning theories, such as Kolb (1984), where reflection is a core learning mechanism to make sense of experience (Löbler, 2006; Wing Yan Man, 2012) and to transform experience into knowledge (Politis, 2005). Examples include Cope’s (2005) and Deakins and Wyper’s (2010) research of critical incidents. Cope’s (2005) study observed how entrepreneurs learn through critical, non-routine and often unexpected events that force them to question their assumptions and reflect on their situation. Deakins and Wyper (2010) propose a four-stage cycle to show how reflective learning from critical events enables entrepreneurs to engage in deeper, higher-level learning: (1) trigger event, (2) reflection and assimilation, (3) review of entrepreneurial strategies and resources, and (4) implementation and observation. Through this learning, entrepreneurs are better able to adapt and develop on a strategic level. Cognitive-experiential approaches are an evolution of experiential learning theory and differ by focusing upon how experiences change an entrepreneur’s individual mental models. They consider the ways in which an entrepreneur cognitively processes an experience for the purpose of learning. One example of a cognitive-experiential approach is Minniti and Bygrave’s (2001) algorithm of action choice, which considers how knowledge and experience influence entrepreneurial choice, with successful actions being repeated and unsuccessful actions rejected. Another is Petkova’s (2009) error-based learning model, which places emphasis on the role of cognitive functions in the detection and correction of errors. Social-experiential approaches shift attention from the individual, highlighting that learning is a social and interactive process, involving multiple actors (Wing Yan Man, 2012). Learning in this way is a process of co-participation (Taylor and Thorpe, 2004), demonstrated through Zhang and Hamilton’s (2009) research of formalised peer networks. Their process model of learning in peer networks shows how entrepreneurs learn by sharing experiences and problems, and then engaging in reflection to question their understanding and behaviours. Another example of a social-experiential approach is St-Jean and Audet’s (2012) research on mentoring. Their research showed that a more bespoke and personalised approach, such as entrepreneurs working with mentors who have had similar experiences to them, leads to an enhanced learning experience, including the acquisition of business management skills. While most research fits within one of these categories, there are studies that span two or three experiential learning approaches. These studies integrate learning mechanisms from the different experiential approaches, indicating the value of a more holistic view of learning. The studies that span multiple categories also draw attention to how entrepreneurial learning is both formal (facilitated as part of an official and structured programme), and informal (learner directed, and occurring in everyday situations with little structure). An example of formal entrepreneurial learning that spans more than one experiential DANA (2nd edition) PRINT.indd 146 18/12/2020 11:32 Entrepreneurial learning 147 learning category is action learning. Research on action learning in the entrepreneurial learning context focuses on learning as a social and iterative process of action, reflection and dialogue (Ram and Trehan, 2010; Revans, 2011; Stead, 2014). Involving engagement both in practice and with others within a formally structured process, action learning can be characterised as both practice experiential and social experiential. This demonstrates a shift away from the individualised practice-experiential approaches, while still maintaining a focus on practical experience. An example of informal entrepreneurial learning that spans more than one experiential learning category is the concept of learning sequences (Bingham and Davis, 2012). Learning sequences draw attention to the order in which informal learning processes occur (Bingham and Davis, 2012). These processes are either direct, involving active engagement in first-hand experience, or indirect, which involve learning from the experiences of others. This research shows that indirect learning processes, such as observation, can be used as a precursor to direct learning experiences (Hoover et al., 2012), such as trial and error, experimentation or improvisation, in a sequence termed seeding (Bingham and Davis, 2012). Alternatively, direct learning experiences can be used in a sequence with other direct learning experiences, which is termed soloing (Bingham and Davis, 2012). Direct learning processes are related to cognitive-experiential and practice-experiential approaches with an emphasis on the individual and making sense of his or her own experiences. Indirect processes, are connected to social-experiential approaches as emphasis is on the role of other people and learning vicariously from the experiences of others. This highlights an integration between the three experiential learning categories of entrepreneurial learning. Viewing learning in this way, where multiple experiential approaches come together, shifts from a view of entrepreneurial learning as tied to discrete types that work in isolation to a more dynamic, complex understanding where different forms of learning combine. This perspective better reflects entrepreneurial practice and portrays a richer overall learning experience. By combining the different forms of learning, entrepreneurs can draw from a wider range of experiences, making them better prepared to meet the challenges they face in running and growing their businesses. WHAT ENTREPRENEURS LEARN Entrepreneurial learning has a variety of outcomes that contribute to entrepreneurial competency, knowledge and success. The outcomes are typically divided into three categories: cognitive (Cope, 2005; Lefebvre et al., 2015; St-Jean et al., 2018), affective (Lefebvre et al., 2015; St-Jean et al., 2018) and relational (Cope, 2005). Cognitive outcomes are those which influence thinking and acting, such as gaining knowledge of business strategies (Lefebvre et al., 2015), clarifying business vision (St-Jean et al., 2018) and understanding internal business needs (Cope, 2005). Affective outcomes are those that have an impact on feelings, with examples such as reduced feelings of isolation (Lefebvre et al., 2015; St-Jean et al., 2018) and increased confidence (Lefebvre et al., 2015). Relational outcomes refer to those that have an effect on personal and professional relationships, for example, entrepreneurs developing competencies to manage internal and external relationships (Cope, 2005). DANA (2nd edition) PRINT.indd 147 18/12/2020 11:32 148 World encyclopedia of entrepreneurship An important outcome of entrepreneurial learning is shaping an entrepreneur’s identity and, thus, that of their business. The entrepreneurial identity literature draws attention to how entrepreneurs find it difficult to separate themselves from their businesses (Navis and Glynn, 2011). Identity is multi-level (Leitch and Harrison, 2016; Navis and Glynn, 2011), encompassing ‘the founder (individual level), the proposed new venture (organizational level), and the focal institutional sector (market level)’ (Navis and Glynn, 2011: 481). The venture can be thought of as an extension of the entrepreneur, showing he or she is interwoven in the entrepreneurial identity. For the entrepreneur, this close integration with his or her business is compounded by a great sense of responsibility and a high level of risk and pressure (Bell et al., 2018). Examining the outcomes of entrepreneurial learning also demonstrates the interwoven relationship between the entrepreneur and his or her business. Learning has an effect at multiple levels; (1) the entrepreneur personally; (2) the venture strategically; and (3) the venture operationally. Although entrepreneurial learning outcomes may typically have one level of direct impact, they can also indirectly have an impact simultaneously on other levels. For example, the cognitive outcomes of gaining knowledge of business strategies can have a direct impact at the strategic level. It will also affect the entrepreneur on the personal level by adding to their stocks of knowledge and potentially changing their thought processes and mental models. Viewing learning outcomes as intertwined between the personal and the organisational levels is important for understanding entrepreneurial learning, since it demonstrates its complexity, and highlights the interconnectivity between the entrepreneur and his or her venture. Significantly, learning contributes to identity development as it impacts the entrepreneur personally. In turn, identity influences how entrepreneurs engage in practice through their actions and behaviours, their decision-making and, consequently, their learning. This demonstrates how entrepreneurial learning is an iterative, continual and dynamic process. CONCLUSION Reviewing the literature reveals the complexity and multiplicity of entrepreneurial learning. It illustrates that entrepreneurs learn in multiple connected learning processes that include a variety of types of learning. Thus, the processes by which entrepreneurs learn cannot be considered in isolation from one another, and understanding entrepreneurial learning more comprehensively requires an integrated approach. This review also shows that the outcomes of learning are complex as they are intertwined between the entrepreneur and their venture, with implications for both. In doing so, the review reinforces how identity and learning are interconnected in the entrepreneurial context. A holistic approach, examining how and what entrepreneurs learn, may therefore better capture the complex, continual and dynamic nature of entrepreneurial learning. This enables a shift in focus from static and individual understandings that are bound by particular categories, to more social, integrative and fluid approaches that reflect more clearly entrepreneurial context and practice. Not only is this significant for theoretical developments and generating a fuller picture of entrepreneurial learning, it is also valuable for practice. Specifically, it can inform and enhance entrepreneurial education and formal entrepreneurial learning programmes in both content and design. For example, DANA (2nd edition) PRINT.indd 148 18/12/2020 11:32 Entrepreneurial learning 149 educators could facilitate peer discussions in which challenging questions are asked that require the entrepreneurs to think and reflect. Alternatively, educators could arrange for guest speakers to share their experiences, and then facilitate individual reflection activities for the entrepreneurs to learn from both their own direct experiences and the experiences of the guest speaker. An important aspect in both of these examples is for the facilitator/educator to make explicit the forms of learning engaged in by participants, and so connect the different ways by which the entrepreneurs can learn. By making explicit the connections between different forms of learning, programmes can help entrepreneurs to gain insight into how they can learn from both their own experiences and the experiences of others. An increased awareness can provide entrepreneurs with new learning tools for their development and for overcoming problems they face in their everyday practice. REFERENCES Agbim, K.C., Z.B. Owutuamor and G.O. 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Holmes Jr and M.A. Hitt (2009), ‘Architecture of entrepreneurial learning: exploring the link among heuristics, knowledge, and action’, Entrepreneurship Theory and Practice, 33 (1), 167–92. Hoover, J.D., R.C. Giambatista and L.Y. Belkin (2012), ‘Eyes on, hands on: vicarious observational learning as an enhancement of direct experience’, Academy of Management Learning & Education, 11 (4), 591–608. Jones, K., S.A. Sambrook, L. Pittaway, A. Henley and H. Norbury (2014), ‘Action learning: how learning transfers from entrepreneurs to small firms’, Action Learning: Research and Practice, 11 (2), 131–66. Keith, N., J.M. Unger, A. Rauch and M. Frese (2016), ‘Informal learning and entrepreneurial success: a longitudinal study of deliberate practice among small business owners: informal learning in entrepreneurs’, Applied Psychology, 65 (3), 515–40. DANA (2nd edition) PRINT.indd 149 18/12/2020 11:32 150 World encyclopedia of entrepreneurship Kolb, D.A. (1984), Experiential Learning: Experience as a Source of Learning and Development, Englewood Cliffs, NJ: Prentice-Hall. Lans, T., H. Biemans, J. Verstegen and M. Mulder (2008), ‘The influence of the work environment on entrepreneurial learning of small-business owners’, Management Learning, 39 (5), 597–613. Lefebvre, V., M. Radu Lefebvre and E. Simon (2015), ‘Formal entrepreneurial networks as communities of practice: a longitudinal case study’, Entrepreneurship & Regional Development, 27 (7–8), 500–525. Leitch, C.M. and R.T. Harrison (2016), ‘Identity, identity formation and identity work in entrepreneurship: conceptual developments and empirical applications’, Entrepreneurship & Regional Development, 28 (3–4), 177–90. Löbler, H. (2006), ‘Learning entrepreneurship from a constructivist perspective’, Technology Analysis & Strategic Management, 18 (1), 19–38. McKeown, I. (2015), ‘Entrepreneurial learning in small firm management teams’, in D. Rae and C. Wang (eds), Entrepreneurial Learning: New Perspectives in Research, Education and Practice, Abingdon and New York: Routledge, pp. 178–93. Minniti, M. and W.D. Bygrave (2001), ‘A dynamic model of entrepreneurial learning’, Entrepreneurship Theory and Practice, 25 (3), 5–17. Morris, M.H., D.F. Kuratko, M. Schindehutte and A.J. Spivack (2012), ‘Framing the entrepreneurial experience’, Entrepreneurship Theory and Practice, 36 (1), 11–40. Navis, C. and M.A. Glynn (2011), ‘Legitimate distinctiveness and the entrepreneurial identity: influence on investor judgments of new venture plausibility’, Academy of Management Review, 36 (3), 479–99. Petkova, A.P. (2009), ‘A theory of entrepreneurial learning from performance errors’, International Entrepreneurship and Management Journal, 5 (4), 345–67. Pittaway, L.A., J. Gazzard, A. Shore and T. Williamson (2015), ‘Student clubs: experiences in entrepreneurial learning’, Entrepreneurship & Regional Development, 27 (3–4), 127–53. Politis, D. (2005), ‘The process of entrepreneurial learning: a conceptual framework’, Entrepreneurship Theory and Practice, 29 (4), 399–424. Rae, D. and M. Carswell (2001), ‘Towards a conceptual understanding of entrepreneurial learning’, Journal of Small Business and Enterprise Development, 8 (2), 150–58. Ram, M. and K. Trehan (2010), ‘Critical action learning, policy learning and small firms: an inquiry’, Management Learning, 41 (4), 415–28. Revans, R.W. (2011), ‘Action learning: its origins and nature’, in M.J. Pedler (ed.), Action Learning in Practice, Farnham and Burlington, VT: Gower, pp. 5–13. Soetanto, D. (2017), ‘Networks and entrepreneurial learning: coping with difficulties’, International Journal of Entrepreneurial Behavior & Research, 23 (3), 547–65. St-Jean, E. and Audet, J. (2012), ‘The role of mentoring in the learning development of the novice entrepreneur’, International Entrepreneurship and Management Journal, 8 (1), 119–40. St-Jean, E., M. Radu-Lefebvre and C. Mathieu (2018), ‘Can less be more? Mentoring functions, learning goal orientation, and novice entrepreneurs’ self-efficacy’, International Journal of Entrepreneurial Behavior & Research, 24 (1), 2–21. Stead, V. (2014), ‘The gendered power relations of action learning: a critical analysis of women’s reflections on a leadership development programme’, Human Resource Development International, 17 (4), 416–37. Taylor, D.W. and R. Thorpe (2004), ‘Entrepreneurial learning: a process of coparticipation’, Journal of Small Business and Enterprise Development, 11 (2), 203–11. Tseng, C. (2013), ‘Connecting self-directed learning with entrepreneurial learning to entrepreneurial performance’, International Journal of Entrepreneurial Behavior & Research, 19 (4), 425–46. Van Gelderen, M., L. van der Sluis and P. Jansen (2005), ‘Learning opportunities and learning behaviours of small business starters: relations with goal achievement, skill development and satisfaction’, Small Business Economics, 25 (1) 97–108. Wang, C.L. and H. Chugh (2014), ‘Entrepreneurial learning: past research and future challenges: advancing entrepreneurial learning research’, International Journal of Management Reviews, 16 (1), 24–61. Wing Yan Man, T. (2012), ‘Developing a behaviour-centred model of entrepreneurial learning’, Journal of Small Business and Enterprise Development, 19 (3), 549–66. Zhang, J. and E. Hamilton (2009), ‘A process model of small business owner-managers’ learning in peer networks’, Education + Training, 51 (8–9), 607–23. Zheng, W., M. Xu, X. Chen and Y. Dong (2017), ‘Who is shaping entrepreneurial experience? A multiple case study of Chinese entrepreneurial learning’, Management Decision, 55 (7), 1394–409. DANA (2nd edition) PRINT.indd 150 18/12/2020 11:32 18. Entrepreneurial networks Howard E. Aldrich, Martin Ruef and Steven Lippmann Social networks play a significant role in many facets of organizational emergence. Indeed, the larger network structure in which entrepreneurs are embedded constitutes a sizeable portion of their opportunity structure. Entrepreneurs’ personal networks – the set of persons to whom they are directly linked – affect their access to social, emotional and material support. It is commonly accepted that many efforts to initiate new startups are heavily reliant on networks and teams, rather than being based on true, solo entrepreneurs. For instance, more than half of American entrepreneurs share ownership with others in their business startups. Fully 95 percent of the individuals who are trying to start a business either have involved others to help in some significant capacity or intend to do so soon (Ruef, 2010). Network analysts distinguish between two complementary dimensions of someone’s social relations: (1) their diversity or heterogeneity, and (2) their affective or emotional strength. The usefulness of any relationship is context dependent. In the context of entrepreneurial networks, people need access to information and other resources. Thus, multiple diverse contacts are important, no matter what their strength. Regardless of their personal networking abilities, entrepreneurs who occupy impoverished social locations may find themselves cut off from valuable knowledge and critical resources. We first explain why diversity in social relations may convey advantages to entrepreneurs, and then consider the contribution of relational strength to entrepreneurial action. THE IMPORTANCE OF DIVERSITY Diversity in network ties is crucial for entrepreneurs because diversity increases access to a wider circle of information about potential markets, new business locations, innovations, sources of capital, and potential investors. By diversity we mean ties to persons of differing social locations and characteristics, along a variety of dimensions: gender, age, occupation, industry, ethnicity and so on. Diversity depends on the range of sectors through which an entrepreneur moves. Ties can be bridges between sectors where an entrepreneur currently has no direct ties (Granovetter, 1973). Social ties that connect entrepreneurs to novel resources or information contribute to network diversity. Diversity also depends on the number of structural holes in an entrepreneur’s network. Structural holes exist when persons to whom entrepreneurs are linked are not themselves connected to one another (Burt, 1992). For example, an entrepreneur may have direct ties to a banker in the financial sector and an accountant in the professional services sector, neither of whom knows the other. A network made up of homogenous ties may be of limited value to an entrepreneur. In homogeneous networks, information known to one person is rapidly diffused to others and interpreted in similar ways. Two forces promote homogeneity in personal 151 DANA (2nd edition) PRINT.indd 151 18/12/2020 11:32 152 World encyclopedia of entrepreneurship networks. First, people tend to associate with others who have similar social characteristics (McPherson et al., 2001), a process termed homophily. Second, people tend toward emotional and personal balance across their social relationships (Rawlings and Friedkin, 2017). For example, an entrepreneur’s strong friendship with someone increases the likelihood of that person becoming friendly with other persons strongly linked to the entrepreneur. Thus, if an entrepreneur has a lawyer as a close friend, and that lawyer has a bank loan officer as close friend, then the entrepreneur is also likely to become friendly with the loan officer. As ties to the same types of people accumulate, the marginal value of each successive tie drops. Ties to more than one person with similar characteristics or in similar social locations are redundant and thus of questionable value in providing additional information. An entrepreneur gains little additional information from talking to more than one person, if all of them are in nearly identical social locations or share many characteristics in common. For this reason, Burt (1992) argued when it comes to the flow of information, the strength of ties is less important than whether they are non-redundant with other ties. For example, using a sample of Chinese entrepreneurs, Burt (2019a, 2019b) found that those with relatively open networks achieved higher performance than those with relatively closed networks. THE IMPORTANCE OF TIE STRENGTH The types of relationships that make up a person’s total set of relationships can be classified according to the strength of the relationship: strong, weak and indeterminate or fluctuating (dealing with complete strangers). A network’s level of diversity depends, in part, upon the mix of strong and weak ties. Models of entrepreneurship and business life cycles emphasize the context-dependent nature of the three types of relation. For entrepreneurs seeking to mobilize resources in the initial stages of business development, strong and weak ties may be more important than contacts with strangers. Later, when a newly founded organization has achieved some stability, arm’s-length transactions and contacts with strangers assume more importance. The most reliable relationships in a personal network are strong ties, which are usually of long duration. People rely on strong ties for advice, assistance and support in all areas of their lives, such as asking for help in dealing with an ethical dilemma at work or asking someone to watch their children at short notice. They are long-term, two-way relationships, not governed by short-term calculations of self-interest. Many contain an implicit principle of reciprocal obligations. Consequently, strong ties are typically more reliable than other ties and involve a strong degree of trust and emotional closeness (Granovetter, 1993). Individuals tend to make heavy investments in this type of relationship, requiring frequent direct contacts with the other person. However, a large-scale project using multiple datasets from a diverse set of nations suggested that indirect ties involving long path distances could still support strong relationships between people (Park et al., 2018). Owing to the effort involved in creating and sustaining a strong tie, scholars have estimated that most people only have a few strong ties in their personal networks, though there has been a great deal of debate about potential declines in core discussion networks (McPherson et al., 2006; Fischer, 2009). Researchers have found that the exact number of DANA (2nd edition) PRINT.indd 152 18/12/2020 11:32 Entrepreneurial networks 153 strong ties reported is sensitive to how people are asked to think about their relationships (Bearman and Parigi, 2004). In research on entrepreneurial networks, investigators typically find that most business owners report three to 10 strong ties, for example, Aldrich et al. (1989). Results from studies inside organizations have produced similar figures (Hmieleski et al., 2015). Attempting to manage large numbers of ties may produce role strain, though gains from extensive ties with others may outweigh the costs. A business owner’s strong tie network usually consists of a majority of close business associates, a few friends and one or two family members (Elfring and Hulsink, 2007). For example, a sample of Swedish family businesses found that the children of entrepreneurs were the most prevalent form of familial relationship within these firms between 2002 and 2012 (Adjei et al., 2019), embedding the firm within strong tie relationships. Strong ties provide a sheltered sector within which entrepreneurs can avoid the opportunism and uncertainty otherwise possible in market-mediated transactions. In social situations where people expect to deal with each other over an extended period, strong ties yield three benefits: trust, predictability and voice. Trust tells founders whom they can count on in demanding situations, and it substantially enhances predictability in relations. Predictability refers to how the other party will behave if situations change. Finally, using voice in a relationship means the persons involved will make their complaints known and negotiate over them, instead of silently sneaking away. Taken together, these characteristics of strong ties allow entrepreneurs to think through ideas, express concerns and regrets, and plan with others over longer periods of time. Long-term relationships enhance these benefits, increasing the likelihood of further interaction. Increased frequency of contact, in turn, carries many benefits. Through frequent contacts, strong bonds develop, tacit knowledge is transferred and each party develops more informal control over the other (Llerena and Ozman, 2013). Strong ties with family members often do not translate into financial support from them. Nationally representative data as well as community studies show that, with the possible exception of spouses, only founders from a handful of ethnic minority groups can count on much financial support from family members (Ruef, 2010). Family members, as strong ties, provide emotional support for entrepreneurs, but often they are not able to supply capital. Indeed, too great a reliance on family members may put entrepreneurs at a disadvantage (Renzulli, 1998). A panel study in the Research Triangle Area of North Carolina found that the greater the proportion of kin members in an entrepreneur’s business discussion network, the lower the odds of that person starting a business (Renzulli et al., 2000). Institutional and organizational contexts may also affect the salience of family ties. In Turkey, larger families are more beneficial to female entrepreneurs, as they are in a better position to pass along financial and social capital (Cetindamar et al., 2012). In late imperial Russia (1869–1913), Hillmann and Aven (2011) found that strong ties were more beneficial for small firms in local markets, as they helped to foster positive reputations. However, for larger firms targeting national markets, a more diverse mix of weak ties led to better performance. In 2004, the Swedish government abolished inheritance and gift tax, making it easier to pass businesses on to the next generation, thus indirectly enhancing the strength of intergenerational ties (Adjei et al., 2019). Whereas strong ties are based on trust, weak ties are superficial or casual and normally involve little emotional investment. Weak-tie relationships are typically of shorter duration DANA (2nd edition) PRINT.indd 153 18/12/2020 11:32 154 World encyclopedia of entrepreneurship and involve lower frequency of contact. They are also less reliable and more uncertain than strong ties, and often fade into dormancy, although they can be revived when assistance is required. They can be thought of as arm’s-length relationships, involving persons whose handshake we seek but whose full support we cannot count on. Entrepreneurs’ sets of weak ties are less likely to be homogeneous than their sets of strong ties. Individuals have more weak ties than strong ties. Examples of weak ties include relationships with customers or clients who are known on a first-name basis but with whom interactions are still business-like. In contrast to strong ties, weak ties are more likely to be characterized by opportunism, uncertainty and exit. Opportunism is potentially present in typical market-like transactions that are driven by self-interest and involve little or no room for trust. Uncertainty in a tie stems from difficulty in predicting a partner’s actions. Exit is often the route taken by people faced with opportunism and uncertainty. Going elsewhere to complete a transaction involving a weak tie is easier than struggling in negotiations for a better deal (Hirschman, 1970). However, conditions of high transactionspecific investments inhibit exit. A third type of network relationship can better be described as contacts rather than ties. These types of network relations are created for pragmatic purposes with strangers or individuals with whom entrepreneurs have no prior relations. Contacts with strangers are typically fleeting in duration and require little or no emotional involvement. An example of a contact with a stranger would be buying a piece of equipment from a person who advertised in a trade publication. The Association between Diversity and Tie Strength In contrast to strong ties, people are less concerned with balance in their large circle of weak ties. The persons with whom we have weak ties, such as casual acquaintances, are less likely to know each other than are those with whom we have strong ties, such as close friends. Heterogeneity is both more likely and more tolerated among our weak ties. Contacts with casual acquaintances that are different from the entrepreneur can be links to diverse others, each of whom has a close circle of persons unknown to the entrepreneur. If these strangers have information or resources of value, then entrepreneurs can gain access to them indirectly through the diversity of their weak ties. They could also accomplish the same goal by diversifying their strong ties, but that requires very intense and often unsettling maneuvering (Burt, 1992). We would thus expect successful entrepreneurs to emerge from positions that are connected to diverse information sources, as well as from positions benefiting from a reliable set of strong ties. Indeed, Ruef (2002) found that network diversity – a mix of strong ties, weak ties and contacts – tended to promote innovation in a sample of entrepreneurs who had graduated from a US business school. SOCIAL NETWORKS AND GENDER The historical under-representation of women in ownership is clearly linked to their exclusion from men’s business discussion networks (Carter, 1994). If women do not occupy key posts in banks, investment firms and other financially significant positions, then the odds of men encountering them in daily business relationships are reduced. In the Panel Study DANA (2nd edition) PRINT.indd 154 18/12/2020 11:32 Entrepreneurial networks 155 of Entrepreneurial Dynamics II (PSED II) sample, women were only about 60 percent as likely as men to be entrepreneurs (Ruef, 2010). Founding rates for women-owned businesses in Western Europe are also substantially lower than the rates for those that are men owned. In 2012, about 29 percent of entrepreneurs in Europe were women, varying from a low of about 20 percent in Ireland to about 38 percent in Portugal. Men’s inclusion of mostly other men in their networks reflects the societal distribution of power and ownership positions, as well as the tendency of men to choose others like themselves (Kanter, 1977). For example, research in the 1980s and 1990s in the US, Canada, Italy, Northern Ireland, Japan, Sweden and Norway found that male business owners seldom had women in their strong tie circles (Aldrich et al., 1989; Aldrich and Sakano, 1998), with spouses constituting one notable exception (Ruef et al., 2003). Moreover, when women co-found businesses with their husbands, they have a lower likelihood of occupying a leadership position in the venture, as gendered roles and expectations spill over from family life into startup team dynamics (Yang and Aldrich, 2014). In the past, a lower labor force participation rate, combined with occupational sex segregation, kept women out of many high-paying jobs (Rosenfeld, 1992). As employment opportunities improved, women have founded businesses at a far higher rate than in earlier generations, raising the likelihood that men’s business discussion networks will change. Businesses that were majority owned by women grew from less than 5 percent in 1970 to almost 39 percent by 2012 (Danti, 2014). If firms owned equally by men and women are included, the percentage jumped to about 45 percent in 2012. The growth of voluntary associations dedicated to business networking among women has also substantially raised the visibility of women owners in the business community (Davis et al., 2006). SOCIAL NETWORKS AND ETHNICITY Rates of entrepreneurship vary substantially across ethnic groups, as members of dissimilar demographic groups occupy vastly different structural positions, including their social network context (Aldrich and Waldinger, 1990; Ram et al., 2017). A group’s representation among entrepreneurs may be highly dependent upon the era in which they emigrate to a host society and on the reception they receive. For example, in the late nineteenthand early twentieth-century US, some socially marginal ethnic or religious groups, such as Japanese or Jewish immigrants, represented a far greater proportion of the entrepreneurial population than of the general population. These groups immigrated during eras when economic opportunities were expanding, but found their paths blocked in nearly all directions except for small-business ownership. Those barriers may also be reflected in the link between human capital and immigrant entrepreneurship. Asian immigrants to the US in the 1970s and 1980s experienced a positive relationship between education and self-employment, but that relationship became negative for Asian immigrants after 1990, when they faced fewer disadvantages in the mainstream labor market (Min and Kim, 2018). Ethnic solidarity and networking capacity have facilitated business ownership for many immigrant groups (Light, 2005). Groups have benefited from a strong internal market for finding business opportunities and raising capital. For example, in Zimmer and Aldrich’s (1987) study of businesses in three English cities, only about half of the owners relied DANA (2nd edition) PRINT.indd 155 18/12/2020 11:32 156 World encyclopedia of entrepreneurship upon formal channels for information about the site they eventually chose for their business. Regarding capital, Asians drew on family and friends to a far greater extent than whites in raising funds for their business. With multiple sources of capital available, Asians appeared less isolated in their social networks than whites. Given trends in globalization, immigrant social networks now develop transnationally, as well as locally. Transnational entrepreneurs are individuals who often travel abroad for their enterprises and believe that the success of those enterprises depends on regular ties with foreign countries (Drori et al., 2009). In their study of transnational entrepreneurs in Italy, Brzozowski et al. (2017) found that immigrants in Italy with stronger ties to co-ethnics were more likely to be entrepreneurs. In addition, those with stronger ties to their home country were more persistent in their efforts. In their comparative analysis of immigrant groups in the US, Zhou and Liu (2015) argued that rapid growth in Chinese immigration to the US promoted deeper localization among immigrants and created more opportunities for Chinese entrepreneurs compared with other Asian immigrant groups. In contrast to many immigrant groups, African Americans in the US have faced more systematic barriers to business ownership, including severe residential segregation (Romero and Valdez, 2016). African Americans are not themselves a traditional immigrant group, given the conditions under which they were brought to the US. However, the great northward migration of African Americans, starting at the end of World War I, created conditions at their destinations that resembled those of European and Asian groups. Even after African-American owners established a foothold in some economic niches, many thriving business networks were disrupted and ultimately broken up by foreign immigration and white hostility. For example, attacks by white mobs and law enforcement officials destroyed the black business districts of Wilmington, North Carolina in 1898 and Tulsa, Oklahoma in 1921. Since then, African-American owners have made some gains, but their self-employment levels are still below those for many groups that have immigrated to the US since the 1960s (Lofstrom and Bates, 2013). COMMUNITY SOCIAL CAPITAL Most research on social capital considers the benefits that accrue to individual entrepreneurs by analyzing how individuals and teams benefit from the people with whom they have social ties. However, a growing body of research considers social capital at the community level. These studies focus on the overall level of social cohesion and integration in various social and geographic groups, and consider how connections between members affect social outcomes. Connections between members serve two purposes: bonding, or a strengthening of trust between people with similar social characteristics, and bridging, or creating relationships and trust between people from different groups (Ruef and Kwon, 2016). Social capital at the community level can lead to a variety of positive outcomes, including better health, lower crime, collective action and economic development (Kwon and Adler, 2014). One important source of this economic development is entrepreneurship. High levels of social capital, which are facilitated by social or generalized trust, help entrepreneurs in two ways (Kwon et al., 2013). The first is by facilitating the free flow of information and DANA (2nd edition) PRINT.indd 156 18/12/2020 11:32 Entrepreneurial networks 157 resources among individuals without direct social ties. The second is through fostering reputation and legitimacy in new organizations (Aldrich and Fiol, 1994). Social capital can also reduce the level of risk, which makes financing easier for entrepreneurs. For example, Samila and Sorenson (2017) found that communities with higher levels of racial integration generated more novel ideas and inventions and, as a consequence, attracted more venture capital dollars. Community-level social capital is an important part of ‘entrepreneurial ecosystems’, the social, cultural, institutional and economic features of local environments that foster entrepreneurship (Pitelis, 2012). The presence of entrepreneurs, venture capitalists, mentors and a deep pool of talented labor characterizes entrepreneurial ecosystems. Dense social networks facilitate the flow of these people and resources to create regions vibrant with entrepreneurship (Lippmann and Aldrich, 2016). Several comparative case studies have revealed how networks play an important part in entrepreneurial outcomes at the regional level, including Saxenian’s (1994) study of innovation in Silicon Valley and the Route 128 corridor near Boston, and Spigel’s (2017) analysis of Waterloo, Ontario and Calgary, Alberta. Social networks affect organizational emergence by structuring the context in which entrepreneurs must act. Disadvantaged network circumstances limit entrepreneurial possibilities for many people. Entrepreneurs who occupy advantageous social locations have access to emerging opportunities and critical resources, whereas those in impoverished locations must rely far more on their personal networking abilities. Regardless of their structural positions, the use of brokers and other networking strategies enables some founders to increase their access to resources and opportunities. Initial access only allows entrepreneurs to begin the founding process, however. They must also obtain knowledge and find ways to turn it into a promising venture. REFERENCES Adjei, E.K., R.H. Eriksson, U. Lindgren and E. Holm (2019), ‘Familial relationships and firm performance: the impact of entrepreneurial family relationships’, Entrepreneurship and Regional Development, 31 (5–6), 357–77. Aldrich, H.E., P.R. Reese and P. Dubini (1989), ‘Women on the verge of a breakthrough: networking among entrepreneurs in the United States and Italy’, Entrepreneurship & Regional Development, 1 (4), 339–56. Aldrich, H.E. and C.M. Fiol (1994), ‘Fools rush in? The institutional context of industry creation’, Academy of Management Review, 19 (4), 645–70. Aldrich, H.E. and T. Sakano (1998), ‘Unbroken ties: how the personal networks of japanese business owners compare to those in other nations’, in M. Fruin (ed.), Networks and Markets: Pacific Rim Investigations, New York: Oxford University Press, pp. 32–52. Aldrich, H.E. and R. Waldinger (1990), ‘Ethnicity and entrepreneurship’, Annual Review of Sociology, 16 (1), 111–35. Bearman, P. and P. Parigi (2004), ‘Cloning headless frogs and other important matters: conversation topics and network structure’, Social Forces, 83 (2), 535–57. Brzozowski, J., M. Cucculelli and A. Surdej (2017), ‘The determinants of transnational entrepreneurship and transnational ties’ dynamics among immigrant entrepreneurs in ICT sector in Italy’, International Migration, 55 (3), 105–25. Burt, R.S. (1992), Structural Holes: The Social Structure of Competition, Cambridge, MA: Harvard University Press. Burt, R.S. (2019a), ‘Network disadvantaged entrepreneurs: density, hierarchy, and success in China and the West.’ Entrepreneurship Theory and Practice, 43 (1), 19–50. Burt, R.S. (2019b), ‘The Networks and success of female entrepreneurs in China.’ Social Networks, 58 (July), 37–49. DANA (2nd edition) PRINT.indd 157 18/12/2020 11:32 158 World encyclopedia of entrepreneurship Carter, N.M. (1994), ‘Reducing barriers between genders: differences in new firm start-ups’, paper presented at the Annual Meeting of the Academy of Management Dallas, TX, 14–17 August. Cetindamar, D., V.K. Gupta, E.E. Karadeniz and N. Egrican (2012), ‘What the numbers tell: the impact of human, family and financial capital on women and men’s entry into entrepreneurship in Turkey’, Entrepreneurship & Regional Development, 24 (1–2), 29–51. Danti, A. (2014), Statistical Data on Women Entrepreneurs in Europe, Brussels: European Commission. Davis, A.E., L.A. Renzulli and H.E. Aldrich (2006), ‘Mixing or matching? The influence of voluntary associations on the occupational diversity and density of small business owners’ networks’, Work and Occupations, 33 (1), 42–72. Drori, I., B. Honig and M. Wright (2009), ‘Transnational entrepreneurship: an emergent field of study’, Entrepreneurship Theory and Practice, 33 (5), 1001–22. Elfring, T. and W. Hulsink (2007), ‘Networking by entrepreneurs: patterns of tie-formation in emerging organizations’, Organization Studies, 28 (12), 1849–72. Fischer, C.S. (2009), ‘The 2004 GSS finding of shrunken social networks: an artifact?’, American Sociological Review, 74 (4), 657–69. Granovetter, M. (1993), ‘The Nature of Economic Relationships’, in R. Swedberg (ed.), Explorations in Economic Sociology, New York: Russell Sage Foundation, pp. 3–41. Granovetter, M.S. (1973), ‘The strength of weak ties’, American Journal of Sociology, 78 (6), 1360–80. Hillmann, H. and B. L. Aven (2011), ‘Fragmented networks and entrepreneurship in late imperial Russia’, American Journal of Sociology, 117 (2), 484–538. Hirschman, A.O. (1970), Exit, Voice, and Loyalty: Responses to Decline in Firms, Organizations, and States, Cambridge, MA: Harvard University Press. Hmieleski, K.M., J.C. Carr and R.A. Baron (2015), ‘Integrating discovery and creation perspectives of entrepreneurial action: the relative roles of founding CEO human capital, social capital, and psychological capital in contexts of risk versus uncertainty’, Strategic Entrepreneurship Journal, 9 (4), 289–312. Kanter, R.M. (1977), Men and Women of the Corporation, New York: Basic Books. Kwon, S.-W. and P.S. Adler (2014), ‘Social capital: maturation of a field of research’, Academy of Management Review, 39 (4), 412–22. Kwon, S.-W., C. Heflin and M. Ruef (2013), ‘Community social capital and entrepreneurship’, American Sociological Review, 78 (6), 980–1008. Light, I. (2005), ‘The ethnic economy’, in N.J. Smelser and R. Swedberg (eds), Handbook of Economic Sociology, Princeton, NJ: Princeton University Press, pp. 650–77. Lippmann, S. and H.E. Aldrich (2016), ‘A rolling stone gathers momentum: generational units, collective memory, and entrepreneurship’, Academy of Management Review, 41 (4), 658–75. Llerena, P. and M. Ozman (2013), ‘Networks, irreversibility and knowledge creation.’ Journal of Evolutionary Economics, 23 (2), 431–53. Lofstrom, M. and T. Bates (2013), ‘African Americans’ pursuit of self-employment’, Small Business Economics, 40 (1), 73–86. McPherson, M., L. Smith-Lovin and M.E. Brashears (2006), ‘Social isolation in America: changes in core discussion networks over two decades’, American Sociological Review, 71 (3), 353–75. McPherson, M., L. Smith-Lovin and J.M. Cook (2001), ‘Birds of a feather: homophily in social networks’, Annual Review of Sociology 27 (1), 415–44. Min, P.G. and C. Kim (2018), ‘The changing effect of education on Asian immigrants’ self-employment’, Sociological Inquiry, 88 (3), 435–66. Park, P.S., J.E. Blumenstock and M.W. Macy (2018), ‘The strength of long-range ties in population-scale social networks’, Science, 362 (6421), 1410–13. Pitelis, C. (2012), ‘Clusters, entrepreneurial ecosystem co-creation, and appropriability: a conceptual framework’, Industrial and Corporate Change, 21 (6), 1359–88. Ram, M., T. Jones and M. Villares-Varela (2017), ‘Migrant entrepreneurship: reflections on research and practice’, International Small Business Journal, 35 (1), 3–18. Rawlings, C.M. and N.E. Friedkin (2017), ‘The structural balance theory of sentiment networks: elaboration and test’, American Journal of Sociology, 123 (2), 510–48. Renzulli, L.A. (1998), ‘Small business owners, their networks, and the process of resource acquisition’, PhD dissertation, Sociology Department, University of North Carolina at Chapel Hill, NC. Renzulli, L.A., H. Aldrich and J. Moody (2000), ‘Family matters: gender, networks, and entrepreneurial outcomes’, Social Forces, 79 (2), 523–46. Romero, M. and Z. Valdez (2016), ‘Introduction to the special issue: intersectionality and entrepreneurship’, Ethnic and Racial Studies, 39 (9), 1553–65. Rosenfeld, R.A. (1992), ‘Job mobility and career processes’, Annual Review of Sociology, 18 (1), 39–61. Ruef, M. (2002), ‘Strong ties, weak ties and islands: structural and cultural predictors of organizational innovation’, Industrial & Corporate Change, 11 (3), 427–49. DANA (2nd edition) PRINT.indd 158 18/12/2020 11:32 Entrepreneurial networks 159 Ruef, M. (2010), The Entrepreneurial Group: Social Identities, Relations, and Collective Action, Princeton, NJ: Princeton University Press. Ruef, M. and S.-W. Kwon (2016), ‘Neighborhood associations and social capital’, Social Forces, 95 (1), 159–90. Ruef, M., H.E. Aldrich and N.M. Carter (2003), ‘The structure of founding teams: homophily, strong ties, and isolation among U.S. entrepreneurs’, American Sociological Review, 68 (2), 195–222. Samila, S. and O. Sorenson (2017), ‘Community and capital in entrepreneurship and economic growth’, American Sociological Review, 82 (4), 770–95. Saxenian, A. (1994), Regional Advantage: Culture and Competition in Silicon Valley and Route 128, Cambridge, MA: Harvard University Press. Spigel, B. (2017), ‘The relational organization of entrepreneurial ecosystems’, Entrepreneurship Theory and Practice, 41 (1), 49–72. Yang, T. and H.E. Aldrich (2014), ‘Who’s the boss? Explaining gender inequality in entrepreneurial teams’, American Sociological Review, 79 (2), 303–27. Zhou, M. and H. Liu (2015), ‘Transnational entrepreneurship and immigrant integration: new Chinese immigrants in Singapore and the United States’, in J.A. Vallejo (ed.), Immigration and Work, Bingley: Emerald Group, pp. 169–201. Zimmer, C. and H. Aldrich (1987), ‘Resource mobilization through ethnic networks’, Sociological Perspectives, 30 (4), 422–45. DANA (2nd edition) PRINT.indd 159 18/12/2020 11:32 19. Entrepreneurial sense-making, sense-breaking and sense-demanding Gabi A. Kaffka and Norris Krueger Cognitive differences at the individual level may determine how entrepreneurs execute entrepreneurial tasks (Forbes, 2005). Extant studies have focused mainly on the consequences of entrepreneurs possessing and leveraging particular cognitive abilities (Grégoire et al., 2011). Meanwhile, the mere performance of entrepreneurial action has an effect on an entrepreneur’s cognition, whether it be decision-making under uncertainty, pattern recognition or prototype building (Baron and Ensley, 2006; McMullen and Shepherd, 2006; McKelvie et al., 2011), drawing attention to the cause of entrepreneurial cognitive development. This cause versus consequence focus is described as an enduring conundrum within the entrepreneurial cognition literature (Grégoire et al., 2011). To address this conundrum researchers have called for more attention to be paid to dynamic processes related to entrepreneurial cognition (Mitchell et al., 2011), such as the role of third parties as these affect the development of entrepreneurial cognition (Ozgen and Baron, 2007). SOCIALLY SITUATED COGNITION AND SENSE-MAKING Recognizant of the role of the social context in entrepreneurial cognition, Mitchell et al. (2011) conceptualized entrepreneurial cognition as socially situated. Socially situated cognition (SSC) sees cognition as action-orientated, embodied, situated and distributed. Socially situated cognition emphasizes the distributed nature of cognitive development, namely, other actors as sources of information and knowledge who can be leveraged in respect of that (Haynie et al., 2010; Dew et al., 2015). The enactive perspective in cognitive science states that cognition is grounded in the sense-making of actors (Thompson, 2007; Thompson and Stapleton, 2009). The distributed nature of cognitive development is characteristic of what Weick (1995) described as the sense-making perspective of human (inter)action. Sense-making organizes the flux of impressions and perceptions from sensory input. Sense-making assumes the existence of a socially constructed reality while recognizing individual interpretative processes (Maitlis and Christianson, 2014). Similarly to SSC, ‘[s]ensemaking is about the interplay of action and interpretation . . . When action is the central focus, interpretation . . . is the central phenomenon’ (Weick et al., 2005: 409). In the sense-making perspective, interpretation involves noticing, bracketing and labelling of specific sensory input (Weick, 1995). The sense-making perspective as well as SSC share a concern for the interactive nature of entrepreneurial cognition; for example, the enactment of reality and the embedding of concepts in dominant stories of the organization recognized by internal or external stakeholders. Both perspectives assume that cognition is not developed in isolation but through 160 DANA (2nd edition) PRINT.indd 160 18/12/2020 11:32 Entrepreneurial sense-making 161 the interaction of the entrepreneurs with (market) actors, as illustrated, for example, by Ozgen and Baron (2007) and Lim et al. (2013). THE ROLE OF SENSE-MAKING PROCESSES IN FEEDBACK LOOPS Third parties are important to entrepreneurial activities because they provide knowledge that is relevant to business opportunity development. To obtain this knowledge, entrepreneurs engage in feedback loops with relevant stakeholders, for example, investors, informal network or first customers (Santos and Eisenhardt, 2005; Ozgen and Baron, 2007; Zott and Huy, 2007; Cornelissen and Clarke, 2010; Clarke and Cornelissen, 2011). The sense-making perspective offers a valuable conceptualization of entrepreneurial cognitive development, particularly through the analysis of feedback loops that entrepreneurs engage in with third parties. Three elements help explain mechanisms by which feedback loops affect entrepreneurial sense-making and ultimately cognitive development: sense-giving, sense-demanding and sense-breaking. We address each element in turn. Sense-giving Sense-giving has been a broadly recognized and researched concept in organizational and entrepreneurship studies (Hill and Levenhagen, 1995; Weick, 2005; Cornelissen et al., 2012). [It] consists of acts by which individuals attempt to alter and influence the way others think and act; . . . frame and disseminate visions and beliefs to others so as to increase their understanding and support; may include offering descriptions and explanations, providing signals, constructing credible and consistent narratives, and projecting images through stories, slogans, metaphors, and artifacts, (Vlaar et al., 2008: 240) and meetings to explain key initiatives and hypothetical scenario presentations (Vlaar et al., 2008). Sense-giving is associated with communicating that representation of reality to others in order to gain their support (Hill and Levenhagen, 1995). The concept of sense-giving is associated with an individual’s reaction to broken-down logics in a social context and with ways of fixing those breakdowns. However, it does not offer explanations as to how that breaking down occurs initially. Sense-breaking Sense-breaking involves the creation of a meaning void that must be filled (Pratt, 2000). It is a process in which someone’s understanding is disrupted by contradictory evidence or values provided by others in the process of sense-making (Pratt, 2000; Vlaar et al., 2008). Sense-breaking, according to Vlaar et al. (2008: 241) is a process ‘used to question existing understandings of others’ and involves ‘the reframing of previously held conceptions and redirecting . . . attention and search for solutions’. Sense-breaking pertains to negative or critical feedback from other parties about the DANA (2nd edition) PRINT.indd 161 18/12/2020 11:32 162 World encyclopedia of entrepreneurship entrepreneurial idea. This feedback is geared towards change or improvement of that idea. In this way, sense-breaking facilitates the adding of new or different dots when ‘connecting the dots’ (Baron, 2004; Baron and Ensley, 2006) for the realization of a viable business opportunity. Sense-demanding Sense-demanding involves efforts by individuals to acquire and process information, in order to establish a manageable level of uncertainty (Vlaar et al., 2008). This is particularly relevant in the context of entrepreneurial action characterized by uncertainty about the outcomes of that particular action. To reduce uncertainty and improve the quality of information upon which they base their decisions, individuals seek as much relevant information as possible. Sense-demanding pertains to asking questions, performing inquiries and cross-checking their own perceptions and interpretations with other individuals, for example, participants of other organizations (Vlaar et al., 2008). FEEDBACK LOOPS AS SOCIALLY SITUATED MECHANISMS Acts of sense-giving, sense-breaking and sense-demanding contribute to the process of sense-making. All three elements involve intersubjective, empirically distinctive phenomena that feedback loops consist of. It is well known that various stakeholders affect entrepreneurial cognitive development, such as investors, informal networks or first customers (Ozgen and Baron, 2007; Clarke and Cornelissen, 2014). All these parties are potential targets of sense-demanding or sources of sense-breaking and sense-giving. For example, the development of what is called entrepreneurial meta-cognition (Haynie et al., 2010) or deeper beliefs (Krueger, 2007) is shown to be positively affected by sense-breaking acts during opportunity development (Kaffka and Krueger, 2018; Kaffka et al., 2020). The importance of feedback engagement in entrepreneurial cognitive development is underlined by recent educational models for entrepreneurship education which emphasize the importance of learning by doing or experiential learning. Experiential learning typically entails engagement in feedback loops as that type of learning requires interaction with others; whether with team members, (potential) customers or other stakeholders. Nabi et al. (2017) found that programmes stimulating experiential learning appear to have a higher chance of leading to the realization of new ventures. Nabi et al.’s (2017) finding fits with the role we propose SSC mechanisms play in feedback loops – namely, stimulating the development entrepreneurial cognition – and ultimately in the inclination to realize a new venture. The concept of socially situated mechanisms facilitates the analysis of how feedback loops affect entrepreneurial cognitive development as part of experiential learning in entrepreneurship education. The three sense-making elements of sense-giving, sense-breaking and sense-demanding help us understand how and why feedback from third parties affects entrepreneurial cognition. They represent socially situated mechanisms that enable (room for novel) sensemaking processes when entrepreneurs engage in feedback activities, and thus ultimately shape entrepreneurial cognition. The concept of SSC mechanisms thus offers a tool for more fine-grained analysis of third-party involvement in entrepreneurial cognitive DANA (2nd edition) PRINT.indd 162 18/12/2020 11:32 Entrepreneurial sense-making 163 development. Practically, a better understanding of how feedback loops stimulate entrepreneurial cognitive development helps to increase the effectiveness of entrepreneurship education or training. CONCLUSION The concept of socially situated cognition draws on the premise that third-party interaction shapes entrepreneurial cognition. We employ the sense-making perspective to present three distinct SSC mechanisms that affect entrepreneurial cognitive development in feedback loops. Finally, we propose that these mechanisms help explain how and why entrepreneurial cognitive development is affected by third-party involvement. REFERENCES Baron, R.A. (2004), ‘The cognitive perspective: a valuable tool for answering entrepreneurship’s basic “why” questions’, Journal of Business Venturing, 19 (2), 221–39. Baron, R.A. and M.D. Ensley (2006), ‘Opportunity recognition as the detection of meaningful patterns: evidence from comparisons of novice and experienced entrepreneurs’, Management Science, 52 (9), 1331–44. Clarke, J. and J. Cornelissen (2011), ‘Language, communication, and socially situated cognition in entrepreneurship’, Academy of Management Review, 36 (4), 776–8. 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(2005), ‘Are some entrepreneurs more overconfident than others?’, Journal of Business Venturing, 20 (5), 623–40. Grégoire, D.A., A.C. Corbett and J.S. McMullen (2011), ‘The cognitive perspective in entrepreneurship: an agenda for future research’, Journal of Management Studies, 48 (6), 1443–77. Haynie, J.M., D. Shepherd, E. Mosakowski and P.C. Earley (2010), ‘A situated metacognitive model of the entrepreneurial mindset’, Journal of Business Venturing, 25 (2), 217–29. Hill, R.C. and M. Levenhagen (1995), ‘Metaphors and mental models: sensemaking and sensegiving in innovative and entrepreneurial activities’, Journal of Management, 21 (6), 1057–74. Kaffka, G.A. and N. Krueger (2018), ‘The entrepreneurial “mindset”: entrepreneurial intentions from the entrepreneurial event to neuroentrepreneurship’, Foundational Research in Entrepreneurship Studies, Cham: Palgrave Macmillan, pp. 203–24. Kaffka, G.A., R. Singaram and J. 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(2000), ‘The good, the bad, and the ambivalent: managing identification among Amway distributors’ Administrative Science Quarterly, 45 (3), 456–93. Santos, F.M. and K.M. Eisenhardt (2005), ‘Organizational boundaries and theories of organization’, Organization Science, 16 (5), 491–508. Thompson, E. (2007), Mind in Life: Biology, Phenomenology, and the Sciences of Mind, Cambridge, MA: Harvard University Press. Thompson, E. and M. Stapleton (2009), ‘Making sense of sense-making: reflections on enactive and extended mind theories’, Topoi, 28 (1), 23–30. Vlaar, P.W.L, P.C. van Fenema and V. Tiwari (2008), ‘Cocreating understanding and value in distributed work: how members of onsite and offshore vendor teams give, make, demand, and break sense’, MIS Quarterly, 32 (2), 227–55. Weick, K.E. (1995), Sensemaking in Organizations, Thousand Oaks, CA: Sage. Weick, K.E. and K.M. Sutcliffe and D. Obstfeld (2005), ‘Organizing and the process of sensemaking’, Organization Science, 16 (4), 409–21. Zott, C. and Q.N. Huy (2007), ‘How entrepreneurs use symbolic management to acquire resources’, Administrative Science Quarterly, 52 (1), 70–105. DANA (2nd edition) PRINT.indd 164 18/12/2020 11:32 20. Entrepreneurs in the fashion industry Michelle Brandstrup With a constantly changing industry, throughout history the role of the fashion entrepreneur has changed as well. The role of the fashion designer as we know it today was only introduced in the late nineteenth century. Before that, people in this position were known as dressmakers or tailors, and they would design the garments, construct the patterns, make prototypes and then sew the final garments together. Fashion at this time was mainly dictated by the aristocracy. Models were more standardized, but the choice of fabrics was of great importance, so the textiles were often the main priority in the design effort (Palmer, 2010). In the late nineteenth century, the dressmaker evolved to become a fashion designer, similar to an artist, who then took the position of dictating fashion, instead of it being dictated by the aristocracy. In the late twentieth century, greater importance was given to the consumer, and a fast response to consumer needs was economically very profitable. Also, in the twenty-first century, sustainability and social responsibility have been two important focus points, and consumers now have ethical demands, not known previously in the industry. For this reason, consumers currently have a greater voice with which to influence fashion. With a constantly changing world, you could argue that a successful fashion entrepreneur is one who can respond to the changing demands of the world, and understand the time he or she is part of. CHARLES WORTH’S INTEGRATION OF TEXTILE SALES AND DRESSMAKING Charles Worth (1825–1895) has often been referred to as the ‘father of haute couture’ (Chantal, 2017; De Marly, 1990). Although he was not the first fashion designer, he has become the image of an industry change, in which the role of a dressmaker evolved from being a craftsperson who produced garments, to more of an artist with a creative imagination. Being a male, he also challenged the field of dressmaking which, at the time, was generally a female’s domain (De Marly, 1990). Charles Worth was born in Lincolnshire, England. In 1836, his father, William Worth, went bankrupt and left the family. Mrs Worth sent her 11-year-old son Charles to work at a printer’s shop (De Marly, 1990). Already Worth had a dream to become a couturier, but his mother did not think of that as an appropriate profession for a man. However, she agreed to send Worth to London, where at the age of 12 he would start working for the department store Swan & Edgar selling textiles. After his training, he moved to the exclusive silk mercers Lewis & Allenby, at the age of 19. At this time, London was at the forefront of menswear and tailoring, with Savile Row being the centre of this (Breward, 2010), but when it came to dressmaking and womenswear, Worth realized Paris was the place to be (De Marly, 1990). He moved to Paris at the age of 20, and eventually, with a good reference from Lewis & Allenby, he started working for silk mercers Gagelin, where 165 DANA (2nd edition) PRINT.indd 165 18/12/2020 11:32 166 World encyclopedia of entrepreneurship he would stay for the next 11 years. Here they were using live girls to model shawls, mantles and cloaks in front of customers. Worth realized that the dresses the models were wearing took too much attention from the garments they were trying to sell, and therefore he started to produce more simple dresses for the models. Costumers then started to show interest in his elegant, simple and well-fitted designs. He therefore went to the owners, and eventually convinced them to open a dressmaking department he would manage (De Marly, 1990). Usually, at that time, a textile mercer would be one place, and the dressmaker another. It was innovative that both services could be offered at the same place. Together with Worth’s design and great fit, this concept became very successful. However Worth’s work at Gagelin was never recognized as much as he might have wished, even though Gagelin had won international prizes for his designs and the department was economically profitable. It is most likely that what made him start his own couture house was the lack of recognition for his work at Gagelin. In 1858 he and Otto Bobergh opened their own couture house, Worth et Bobergh (De Marly, 1990). For his creations, throughout his career, he took much inspiration from paintings in art museums. He was very concerned with women’s comfort and mobility. Since it was the time of the crinoline, he noticed how women had trouble sitting down, and accessing their children. He therefore introduced the flat fronted crinoline, which was flat in front, so women better could access things with their hands. During this period, women began to express a need for more practical clothes for walking and sports, and Worth provided that. He raised the hemline, which had been ground length for 30 years, and in 1868 he introduced a skirt without crinoline, so then the silhouette would be in line with the body’s natural shape (De Marly, 1990). What really made Worth stand out was his ability to attract important clients from the nobility across Europe (Coleman, 2010; De Marly, 1990). It was his wife Marie Worth’s suggestion that he should show his portfolio to Princess Pauline von Metternich, who ordered two gowns, one of which she wore for the Salle des Maréchaux state ball at the Palais des Tuilleries, which then got the attention of Empress Eugénie (Mendes and De La Haye, 2014). The empress became a regular client, and continued to be so throughout the Second Empire (Coleman, 2010). Getting his designs into the circles of the imperial court, Worth did not need to advertise much; he received publicity from the aristocracy and the social press (De Marly, 1990). Whereas most dressmakers would often go to their clients for orders and fittings, Worth’s customers would come to him. He thought of himself as an artist, and in 1892 he started to dress like one, and wore a velvet beret, which was very common for artists at that time. He saw the act of sewing labels in his designs as that of an artist signing his name on his artwork, although he was not the first couturier to do so (De Marly, 1990). Women knew that he would have the answers how to dress them well, better than they could alone. They did not just come to him to have a dress made, but also for a consultation. The role of today’s designer was beginning to develop. Worth’s son, Jean-Phillippe, described his father as: ‘a potentate, adored by his family and his employees, and his slightest word heeded by all women, from queens to commoners’ (De Marly, 1990: 187). With live models and his unique combination of selling material and having a dress made at the same address, he laid the foundations for how most fashion houses would be run for years to come, and to some extent still are today. Also, in 1868, he founded the DANA (2nd edition) PRINT.indd 166 18/12/2020 11:32 Entrepreneurs in the fashion industry 167 federation Chambre Syndicale de la Confection et de la Couture Pour Dames et Fillettes with the purpose of protecting designs from being copied. The federation has evolved over time, and today promotes French fashion (Palmer, 2010). After Worth’s death in 1895, the couture house remained owned and operated by his family for three more generations (De Marly, 1990). CHANEL AND DIVERSIFICATION BEYOND CLOTHES Born in Saumur, in the Loire Valley, it has been said about Gabrielle ‘Coco’ Chanel (1883–1971), that she was a great fashion designer, but also a great business woman (Bond, 1994). Money was not her primary motivation for choosing entrepreneurship as a career; rather her goal was to achieve economic independence (De La Haye and Tobin, 1994). When her father felt incapable of raising five children on his own after his wife’s death, he sent 12-year-old Coco and her sisters to an orphanage. In her early years she wanted to sing on stage, rather than to become a couturière. She got a job as a poseuse at the café La Rotonde where, despite her weak voice, her performance of the song ‘Qui qu’a vu Coco’, became a popular routine, and it is believed that this is how she acquired her nickname Coco (Madsen, 1990). Here, she met the wealthy textile heir, Etienne Balsam, who became her lover, and she eventually moved in with him. Later (circa 1908–09), she borrowed his apartment in Paris and set up her business as a milliner (De La Haye and Tobin, 1994). Their relationship came to an end when she met Arthur ‘Boy’ Capel, with whom she moved in, and from then on he financed her. Capel also financed her shop at 21 rue Cambon, which she opened in 1910. Her business became a success, and in 1913 she achieved financial independence. There was another dressmaker in the house at 21 rue Cambon, and therefore at first she was not allowed to sell clothing. In 1913 she opened a shop in a popular holiday seaside town, Deauville (De La Haye and Tobin, 1994). In contrast to many businesses that were challenged during World War I, Chanel managed to understand and accommodate women’s changing needs for clothing. With her jersey suits and original designs, she combined practical wear with elegance, and during the 1920s she made an important contribution to the garçonne look, which was a reaction to a time of corsets and crinolines. She was very concerned with comfort and ease of movement in clothing, in the material as well as the shape (De La Haye and Tobin, 1994). At the end of World War I, Chanel observed how American soldiers would buy French perfumes as gifts. While at the same time being sad to have missed the business, it also inspired her; in 1921, Chanel innovated by diversification as she launched a perfume with her name, Chanel No. 5 (Mazzeo, 2010). Coco Chanel was not the first couturière to launch a perfume, but was the first to have her own name on the bottle (Canadeo, 1992). Other than the important sales it gave Chanel, the perfume also resulted in an iconic status, making the name Chanel famous around the world (Mazzeo, 2010). In close collaboration with Chanel herself, Chanel No. 5 was developed by the perfumer, Ernest Beaux. The use of natural flavours such as jasmine and rose, among others, together with the newly discovered synthetic molecules, aldehydes, which had an effect of intensifying and lifting the flavour, is part of what make the scent of Chanel No. 5 special. DANA (2nd edition) PRINT.indd 167 18/12/2020 11:32 168 World encyclopedia of entrepreneurship She wanted the perfume to represent the style of the house of Chanel in a scent, and the name was inspired by her lucky number (Mazzeo, 2010). Although originally sold only from her shop in Paris, with the word spreading mouth to mouth, the perfume quickly became a success. She saw the potential for greater success, and in 1924 sold the licence rights of Chanel No. 5 to Pierre and Paul Wertheimer, owners of the fragrance company Bourjois (Mazzeo, 2010). That firm would then be in charge of manufacturing, distribution and promotion, and Chanel would receive 10 percent of the profits, while the production and marketing would be off her mind. However she was later unsatisfied with their management of the perfume, and claimed that her name was the reason for its success. For many years she fought for getting back the rights, and at one point she even tried to damage its reputation. Fearing that, and a lawsuit, which might also could draw attention to Chanel’s affair with a Nazi lover and affect sales, Bourjois agreed to renegotiate the contract. Over time, perfume sales contributed greatly to Chanel’s wealth (Mazzeo, 2010). Sales numbers reveal it was a product which managed to keep its popularity and adapt from time to time. For example, during the Depression Chanel No. 5 was sold in tiny bottles, so that these were affordable. Despite the possibility of losing its exclusive status, it was sold through the army during World War II, and it became a symbol of a surviving luxury (Mazzeo, 2010). Making good profits, while at the same time keeping a product’s exclusivity, is a difficult, well-known balance for luxury fashion brands, and Chanel No. 5, has through its lifetime faced those issues. When Andy Warhol made his silk screen prints, in the 1980s, of mass culture icons, it was a comment that Chanel No. 5 had become too common. However, Warhol also helped Chanel No. 5 achieve its iconic status (Mazzeo, 2010). In the 1950s Marilyn Monroe’s response, when asked what she would wear to bed, was ‘Nothing but a few drops of Chanel No. 5’ (Mazzeo, 2010: 190), which made its popularity continue. In the 1970s marketing designer, Jean Helleu, wanted to renew its association with glamour and Hollywood movies. His advertisements also took the bottle’s iconic silhouette as a focus point, to reinforce Chanel No. 5’s iconic status (Mazzeo, 2010). Although facing challenging, as well as successful, times through its long life span of almost 100 years, the popularity of Chanel No. 5 still continues, and has played a huge part in making the name of Chanel world famous. CHRISTIAN DIOR INTRODUCING THE ‘NEW LOOK’ IN 1947 Christian Dior (1905–1957), captivated the world of fashion in 1947 with his first collection for Christian Dior Limited. Harper’s Bazaar editor-in-chief, Carmel Snow, described it as the ‘New Look’, and the style of the 1947 collection rapidly became known by that name. With help from others, Dior managed to use his successful beginning to build a successful company, and he played an important part in rebuilding Paris’s reputation as a centre of fashion after World War II (Pocha, 2008). Dior was born in 1905 in Granville, Normandy (Genty, 1994). He grew up in a wealthy family, and shared his mother’s interest in flowers and gardens. As a child he was described as a dreamer, lively and affectionate, with a great imagination (Pocha, 2008). He showed an early interest in art, and he wanted to enrol at the Académie des beaux arts in Paris. However this was not what his parents had in mind for their son, and to please them he DANA (2nd edition) PRINT.indd 168 18/12/2020 11:32 Entrepreneurs in the fashion industry 169 enrolled at the faculty of political science. Coming to Paris, in a time of cubism and surrealism, only sparked his interest in art and, in 1927, with his parents’ approval, he opened a gallery with Jacques Bonjean, although his mother did not allow him to use the Dior name, so the gallery was called Galerie Jacques Bonjean (Pocha, 2008). In 1931 his father went bankrupt, and this resulted in financial hard times for Dior in the years to come. A poor, unhealthy life in Paris might have caused his tuberculosis in 1934, and he took a year to recover. However he returned to Paris with new energy, where he worked as a fashion illustrator for a period and then, in 1938, he began working for Robert Piquet, as a modéliste (Pocha, 2008). Later Dior was offered a job by the couturier, Lucien Lelong. It was here he met Pierre Balmain, who eventually inspired Dior to start his own brand (Pocha, 2008; Pujalet-Plaà, 2010). It has been suggested that Dior’s motivation for starting on his own was to gain creative freedom (Pocha, 2008). In 1946, the entrepreneur, Marcel Boussac, invested 6 million francs in Dior to set up his couture house. Dior’s father, however, was not pleased as, having lost the family business in 1931, he preferred his son to have a stable job (Pocha, 2008). Dior’s first collection, in 1947, referred to as the ‘New Look’, became a huge success. It introduced a feminine style, with a voluminous use of fabric. Emphasizing the curves of the female body, it had references to clothes dating from before wartime. Not only was Carmel Snow impressed with the collection, but it received broad publicity throughout the world of fashion, and it has been suggested that this 1947 collection regained Paris its position as an international fashion centre (Somerville et al., 2017). Dior himself said: ‘The New Look was a success only because it reflected the mood of the time – a mood that sought refuge from the mechanical and impersonal in a return to tradition and enduring values’ (Somerville et al., 2017: 8). Little more than a week after the show, the financial goals for the whole year had been achieved (Somerville et al., 2017), and the company grew rapidly after that. In 1947 its turnover was 1.2 million francs, the equivalent of US$800 000 now. It reached a turnover of 3.6 million francs in 1948 and 12.7 million francs in 1949 (Pocha, 2008). Owing to his popularity in the USA, Dior entered the American market and opened a store in New York in 1948, selling ready-to-wear clothes (Pocha, 2008). He expanded later to other countries, such as England, Australia, Mexico and Chile. From 1949 several licensing agreements were made over a number of years for hosiery manufacture, perfume, ties, furs and so on, which grew the Dior name as well as making profits. In 1955 the company employed 1000 people, and was responsible for 50 percent of France’s exports of couture (Pujalet-Plaà, 2010). RALPH LAUREN GOES BEYOND MERCHANDISE AND SELLS A LIFESTYLE Ralph Lauren (1939–) is known as the fashion designer selling a lifestyle, not just clothing and fashion. His brand grew from designing men’s ties, into menswear, womenswear, children’s wear, perfume, cosmetics and home decor, among others (Canadeo, 1992). Ralph was born in the Bronx, New York, into a Jewish family of Russian immigrants and the family often struggled financially in his childhood. He spent much of his DANA (2nd edition) PRINT.indd 169 18/12/2020 11:32 170 World encyclopedia of entrepreneurship childhood playing sports, which most likely had an influence later on his design DNA, although it was not always his dream to become a fashion designer. When he graduated from DeWitt Clinton High School in 1957, he wrote: ‘Millionaire’ as his ambition for the future in the yearbook (Canadeo, 1992; Weatherly, 2009). After high school he enrolled at the City College of New York to study business, but the pressure of also working part-time to pay for the tuition made him leave after just two years. In 1964 he got a job at the Boston tie company, A. Rivetz & Company. He had observed the trend of wide ties in Europe, and was eager to design new ties for the company. At this time not much effort was put into the design of ties since most manufacturers would choose from a limited selection of already designed fabrics from fabric houses. However, he convinced Rivetz to design a few, but they were not a success, and Ralph realized it was time for him to move on (Canadeo, 1992). In 1967 Ralph met Ned Brower, president of the tie company, Beau Brummel. Brower was thrilled with Ralph’s ideas, and made Ralph head of a new division to design, manufacture and sell his ties. The ties became successful, but Brower did not always agree on Ralph’s way of handling the business, and Ralph later left Brummel and took the trademark Polo Fashions with him. Later, together with the men’s suit maker, Norman Hilton, he expanded into menswear. His first menswear collection for Polo Fashions was in 1969, and in 1970 he won the Coty award for best menswear designer. His first womenswear collection was introduced in 1971, and was very much inspired by his approach to designing menswear. Ralph believed that women wanted to wear tailored menswear, which was fitted to the female body (Canadeo, 1992). Ralph gave much importance to how he would sell his clothes, and how he kept its exclusive status. He claimed he was selling an entire image, and therefore convinced Bloomingdale’s to display his products together, like a shop within the shop. ‘I’m promoting a level of taste, a total feeling’ (Canadeo, 1992: 20) he said to the Daily News Record. In his advertisements he presented a way of life (McDowell, 2003), which often had an upper-class feel to it. He compared his advertisements with movies people could relate to, and made people dream. He would often use a backdrop of American landscapes or the English countryside (Lauren, 2007). He understood the importance of brand identification, the importance of what surrounds the product, as much as the product itself. Photographer Bruce Weber helped him achieve this (Gross, 2010). With the fast growing success, and the struggle to meet demand, Ralph realized he needed somebody to take care of the business side of the company, and formed a partnership with Peter Strom in 1984, selling him 10 percent of the business. As did several other designers at the time, Ralph realized the profitable advantages of licensing agreements. Soon the name Ralph Lauren could be found on perfume, children’s wear and, in 1983, home interior design. Ralph was one of the first major fashion designers to enter the branch of home decor (Canadeo, 1992) and it supported his vision of offering a whole lifestyle to his customers. BENETTON CHALLENGED FASHION ADVERTISING Luciano Benetton (1935–) and his sister Giuliana Benetton, established Benetton together in 1965. They started selling sweaters, and owing to its success, later the two other siblings, Gilberto Benetton and Carlo Benetton, joined (Ganesan, 2002). Benetton innovated a DANA (2nd edition) PRINT.indd 170 18/12/2020 11:32 Entrepreneurs in the fashion industry 171 dyeing technique, where instead of dyeing the raw fabric, garments would be dyed after being made. By delaying the dyeing process until later in the production, Benetton was able to better match consumer demand and save on resources (Sugden, 2012). In 1982 Luciano hired photographer Oliviero Toscani, and together they developed a new strategy for advertising. Instead of displaying a fictional world, which fashion advertising had been known for until then, they wanted to picture a reality (Favero, 2006). In the first advertisements, Toscani focused on promoting the Benetton story of its diverse colours. Children with different skin colours, wearing a wide selection of Benetton colours, were gathered on a white background to intensify the colours and the text said: ‘All the colours of the world’ (Sugden, 2012). Later this slogan was replaced with: ‘United Colors of Benetton’, which became part of the logo in 1989 (Favero, 2006). Several advertisements would from then on concentrate on race and equality issues, and from 1989 Benetton products were often left out of the image (Sugden, 2012). An advertisement of a black women, breastfeeding a white baby was criticized for referencing a time when black women were breastfeeding white women’s babies (Ganesan, 2002). Toscani and Luciano wanted to stimulate thinking with their images, encourage discussions about social problems, and communicate values of peace and equality. Owing to the controversial topics they adopted, they would receive various responses. Some advertisements were banned, and some media refused to publish them, but the more they were banned, the more free publicity they got (Ganesan, 2002). Topics including religion, politics, environmental disasters and the AIDS crisis were visualized in the advertisements, without any text, just with the logo of Benetton (Ganesan, 2002). Despite all the attention these advertisements gave to Benetton, retailers accused Benetton of confusing customers about what they were actually selling, and it affected sales negatively in the 1990s (Favero, 2006). However, at the same time Benetton was also challenged by competition from The Gap and ZARA (Favero, 2006). It has been suggested that Toscani crossed the line in 2000, with a campaign of images of prisoners sentenced to death (Ganesan, 2002). Surveys made after this campaign suggested that previously loyal customers had left. In 2001 Benetton could count 7000 stores in 140 countries (Ganesan, 2002). Toscani left Benetton in 2002 (Favero, 2006). H&M AND ZARA; AFFORDABLE FASHION AND FAST RESPONSE TO CONSUMER NEEDS Through the twentieth century, industrialized systems in the fashion industry have evolved and optimized for faster production and distribution, which has enabled fashion brands to react faster to consumer needs (Mo, 2015). The growth of fast-fashion retailer brands, such as Benetton, The Gap, H&M and ZARA, has made it possible for consumers to access fashionable garments at affordable prices. Making fashionable clothing accessible at low prices, and encouraging a rapid change of trends, has resulted in large profits for these companies. Erling Persson opened the store Hennes, in Sweden in 1947, and when he merged with Mauritz Widfross, in 1968, they became Hennes and Mauritz. They soon expanded into Denmark, Norway, and then England in 1976 (Pahl and Mohring, 2008). Their aim was to offer the consumer quality, in the latest international fashion, at the best price possible (Pahl and Mohring, 2008). DANA (2nd edition) PRINT.indd 171 18/12/2020 11:32 172 World encyclopedia of entrepreneurship In 1975, clothing manufacturer, Armancio Ortega Gaona, opened his first store, ZARA, to sell his clothes, because a customer had let him down. Soon ZARA expanded into Portugal, and later the rest of Europe. In 2007 they could count 1361 stores in 68 countries. Similar to H&M, its aim was to offer quality products in the latest fashion at an affordable price (Lopez and Fan, 2009). ZARA is currently part of the fashion group, Inditex (Escalona Orcao and Pérez, 2014). Although the two companies have similar goals, they are differentiated by how they are run. H&M outsources its production, which give it the ability to push prices down, and also gives it a more flexible economy. ZARA owns many of its production facilities, which gives it more control, flexibility in production and a faster response. To react rapidly to changes in demand, ZARA is in constant contact with its stores (Escalona Orcao and Pérez, 2014). It takes ZARA only 15 days, from the design of a new product until its arrival in the store (Pahl and Mohring, 2008). ‘You need to have 5 fingers touching the factory, and five touching the consumer’, Armancio said about ZARA’s strategy, thus taking control over the value chain (Lopez and Fan, 2009: 11). Both companies own most of their stores. They also make large investments in information technology (IT), to connect all parts of the value chain. To create a strong brand-image, H&M also invests largely in advertising, and have been collaborating with high-profile designers such as Karl Lagerfeld and Stella McCartney. ZARA spends very little on advertising, using mostly its stores and shop windows to promote itself (Pahl and Mohring, 2008). TOWARDS THE FUTURE The fashion industry currently is the second most harmful industry to the environment (Khandual and Pradhan, 2019), mainly because of its high use of energy, chemicals, water and other natural resources. Also, production is very human labour intensive and there have been several cases of abuse and bad working conditions for workers (Jestratijevic and Rudd, 2018). With consumers increasing awareness of the issues, great attention has been paid to sustainability and social responsibility in the industry, and several companies are redefining their business models (Khandual and Pradhan, 2019). A number of major fashion brands, including fast-fashion brands, have taken several sustainable initiatives. Among these brands are Inditex Group, which has reduced its use of chemicals, creating collections made only from certified organic cotton. Similar moves, of using natural organic materials and recycling, have been made by H&M (Arrigo, 2015), which also aims ‘to use its size and influence to bring about better conditions for people and to minimize environmental impact throughout the value chain’ (Arrigo, 2015: 17). However, fast-fashion brands have been criticized for mainly concentrating on sustainable subjects, such as fibre types, recycling and supply-chain management (Fletcher, 2014), while frequently offering new collections at low prices, which still encourage a high consumption. As a response to fast-fashion, there has been a rise of slow-fashion brands in the industry (Khandual and Pradhan, 2019). The term slow-fashion refers to the speed in the way we consume (Fletcher, 2010). The term can also refer to brands, which generally have a sustainable approach in their business. Slow-fashion brands tend to encourage a slower pace in the change of trends, better longevity and better quality of products (Jestratijevic DANA (2nd edition) PRINT.indd 172 18/12/2020 11:32 Entrepreneurs in the fashion industry 173 and Rudd, 2018). An example of this is the Danish clothing brand, Jan Machenhauer, where materials are selected for becoming more beautiful with wear. Avoiding trends, garments are created in aesthetics designed to last, and developed at a slower pace, in opposition to the general seasonal approach common in the industry (www.janmachenhauer.com, accessed 15 January 2020). Another Danish clothing brand, ee12, aims also to design in a durable aesthetic and quality, and here clothes are made to order. Sample garments are exhibited in their showroom, and manufacturing of garments only begins when the order has been placed and pre-paid (www.ee12.dk, accessed 15 January 2020). The Swedish clothing brand Atacac has developed a price model inspired by that which airline companies use for flight tickets. Before the garment is made, it starts at the lowest price, and thereafter goes higher and higher. This approach reduces overproduction and stock-keeping (www.atacac.com, accessed 15 January 2020). With the demand from the consumer for ethically produced products, and a suffering environment, a sustainable innovative mindset is crucial for current fashion entrepreneurs, and most probably will be in the future. WOMEN’S FASHION; BORROWING FROM THE BOYS Looking through the history of womenswear fashion entrepreneurs, each of them had their unique way of approaching the female body. Charles Worth wanted to give women more comfort and mobility (De Marly, 1990). Similarly, the aims of Chanel, who boosted the garçonne look, were a linear style, and she took inspiration from the straight shape of menswear (De La Haye and Tobin, 1994). Dior however, wanted to emphasize the curvy lines of the female body, with his ‘New Look’, in 1947 (Cawthorne, 1996). Ralph Lauren, who had started as a menswear designer, believed women wanted to wear tailored menswear, adjusted to the female body, and this often became his approach when designing womenswear (Canadeo, 1992). The fashion historian, Anne Hollander, also addresses how womenswear has been borrowing elements from menswear through time. She argues that in the late twentieth century, womenswear had fully adopted the menswear spectrum, although altered to fit the female body (Hollander, 1994). During World War I, women would often wear masculinized uniforms, which began to affect their daily wear as well. Women entering the work force, and beginning to play sports, which used to be a male domain, also made the female wardrobe adapt elements from the more practical male wardrobe (Hollander, 1994). The idea of women in menswear has for centuries also occasionally had sexual connotations. In the fourteenth century, men’s clothing began to be more tight-fitted and, for example, trousers, where the two legs are separated, were considered vulgar on women, until they were also adopted in the female wardrobe (Hollander, 1994). With the rise of different feminist movements of today, as for example the #metoo movement, comes also a question of how women of today should dress. Feminist movements and events, such as Slutwalk in Toronto 2011, encouraged women to wear what they want to wear, even if its sexually provocative (Darmon, 2014). Since 2010, published research about sexual objectification has widely increased, while the topic has also been discussed in the media (Lennon and Johnson, 2014). When the trend forecaster, Lidewij Edelkoort, presented the trends for spring/summer 2019, she said: ‘Now we have to rediscover what DANA (2nd edition) PRINT.indd 173 18/12/2020 11:32 174 World encyclopedia of entrepreneurship the status quo of the women is, how we define ourselves in the future as well as how we will dress in the future’ (Hendriksz, 2017). As a professional fashion designer myself, I gave my contribution to this question with my MA graduation collection in 2019. Inspired by the Japanese design tradition, which made me experiment with alternative ways to integrate body and sexuality, I gave my contribution and ideas on how women can dress in more body-covering and loose-fit clothing while still expressing their sexuality and appearing attractive. Instead of drawing attention to the actual body, I worked in a shape language with references to the female body and incorporated elements such as movement, transparency and layer-on-layer techniques, both in print and in shape, in order to arouse curiosity in the viewer about the body that is hidden underneath the clothes. Figure 20.1 shows a selection of garments developed for this collection. Figure 20.1 DANA (2nd edition) PRINT.indd 174 Design: Michelle Brandstrup, from her MA graduation collection ‘The Female Shape?’, Design School Kolding; photograph by Jonas Raaby 18/12/2020 11:32 Entrepreneurs in the fashion industry 175 CONCLUSION In the introduction it was suggested that a successful fashion entrepreneur is someone who can respond to the changing demands of the world, and understand the time he or she is part of. To sum up the fashion entrepreneurs included in this chapter, Charles Worth integrated textile sales and dressmaking, and played an important part evolving the dressmaker to an artistic position. Chanel responded to women’s needs during World War I, and expanded her fashion company into the branch of fragrance. After World War II, Dior understood what women had been longing for, and with his ‘New Look’ he presented something which offered a new hope for the future. Ralph Lauren managed to go beyond a brand of merchandise, and offered a lifestyle to his costumers, which he visualized in promotion and advertisements. Benetton challenged fashion advertising, and built a strong recognizable trademark and image. H&M and ZARA know how to respond quickly to new trends and keep prices affordable. Slow-fashion brands such as Jan Machenhauer, ee12 and Atacac know how to respond to the ethical demands of today’s consumer. With a changing world, time and industry, these are examples of entrepreneurs and companies, from different times in history, who understood the time they were part of, had innovative ideas as to how they could respond to needs and demands, and saw opportunities for growth. REFERENCES Arrigo, E. (2015), ‘Corporate sustainability in fashion and luxury companies’, Symphonya. Emerging Issues in Management, (4), 9–23. Bond, D. (1994), Great Business Stories: Coco Chanel and Chanel, Watford: Exley. Breward, C. (2010), ‘Savile Row’, in V. Steele (ed.), The Berg Companion to Fashion, New York: Berg, pp. 617–18. Canadeo, A. (1992), Ralph Lauren: Master of Fashion, Ada, OK: Garrett Educational. Cawthorne, N. (1996), The New Look: The Dior Revolution, London: Hamlyn. Chantal, T.-T. (2017), The House of Worth 1858–1954, London: Thames & Hudson. Coleman, E.A. (2010), ‘Worth, Charles Frederick’, in V. Steele (ed.), The Berg Companion to Fashion, New York: Berg, pp. 737–40. Darmon, K. (2014), ‘Framing SlutWalk London: how does the privilege of feminist activism in social media travel into the mass media?’, Feminist Media Studies, London: Routledge. De Marly, D. (1990) Worth: Father of Haute Couture, New York: Holmes & Meier. De La Haye, A. and S. Tobin (1994), Chanel: The Couturière at Work, London: Victoria and Albert Museum, Escalona O., A. Isabel and D. Ramos Pérez (2014), ‘Global production chains in the fast fashion sector, transports and logistics: the case of the Spanish retailer Inditex’, Investigaciones Geográficas, Bulletin No. 85, Instituto de Geografía, UNAM, Mexico City: pp. 113–27. Favero, G. (2006), ‘Benetton: identifying an image, imagining an identity’, Working Paper No. 06/WP/2006, Department of Economics, Ca’ Foscari University of Venice, Venice. Fletcher, K. (2010), ‘Slow fashion: an invitation for systems change’ Fashion Practice, 2 (2), pp. 259–66, doi:10 .2752/175693810X12774625387594. Fletcher, K. (2014), ‘Design for sustainability in fashion and textiles’, in S. Black, A. de la Haye, R. Root, A. Rocamora and H. Thomas (eds), Handbook of Fashion Studies, London and New York: Bloomsbury Academic, pp. 562–79. Ganesan, S. (2002), ‘Benetton group: unconventional advertising’, Global CEO, November, 53–9. Genty, M. (1994), ‘The House of Christian Dior: couture and elegance’, in M. Potter (ed.), Christian Dior: The Magic of Fashion, Sydney: Powerhouse, pp. 13–25. Gross, M. (2010), ‘Lauren, Ralph’, in V. Steele (ed.), The Berg Companion to Fashion, New York: Berg, pp. 219–23. Hendriksz, V. (2017), ‘Lidewij Edelkoort: “Goddesses will be the female archetypes in fashion”’, accessed 20 DANA (2nd edition) PRINT.indd 175 18/12/2020 11:32 176 World encyclopedia of entrepreneurship January 2020 at https://fashionunited.com/news/fashion/lidewij-edelkoort-goddesses-will-be-the-female-arch etypes-in-fashion/2017120818695. Hollander, A. (1994), Sex and Suits: The Evolution of Modern Dress, New York: Alfred A. Knopf. Jestratijevic, I. and N.A Rudd (2018), ‘Six forms of sustainable fashion’, Latest Trends in Textile & Fashion Designing, 2 (4), doi:10.32474/LTTFD.2018.02.000145. Khandual, A. and S. Pradhan (2019), ‘Fashion brands and consumers approach towards sustainable fashion’, in S. Muthu (ed.) Fast Fashion, Fashion Brands and Sustainable Consumption, Singapore: Springer, pp. 37–54. Lauren, R. (2007), Ralph Lauren, New York: Rizzoli International. Lennon, S.J. and K.K.P. Johnson (2015), ‘The role of dress in sexual objectification’, Bibliographical Guides, London: Bloomsbury Academic, doi:10.5040/9781474280655-BIBART15001. Lopez, C. and Y. Fan (2009), ‘Internationalization of the Spanish fashion brand Zara’, Journal of Fashion Marketing and Management: An International Journal, 13 (2), 279–96, doi:10.1108/13612020910957770. Madsen, A. (1990), Coco Chanel: A Biography, London: Bloomsbury. Mazzeo, T.J. (2010), The Secret of Chanel No. 5: The Intimate History of the World’s Most Famous Perfume, New York: HarperCollins. McDowell, C. (2003), Ralph Lauren: The Man, the Vision, the Style, New York: Rizzoli International. Mendes, V.D. and A. De La Haye (2014), The House of Worth: Portrait of an Archive, London: V&A Publishing. Mo, Z. (2015), ‘Internationalization process of fast fashion retailers: evidence of H&M and Zara’, International Journal of Business and Management, 10 (3), 217–36. Pahl, N. and W. Mohring (2008), Successful Business Models in the Fashion Retail Industry. Strategic Audit of H&M Compared to ZARA, Norderstedt, Germany: GRIN Verlag GmbH. Palmer, A. (2010), ‘Haute couture’, in V. Steele (ed.), The Berg Companion to Fashion, New York: Berg, pp. 392–96. Pocha, M.F. (2008), Christian Dior: The Biography, Woodstock and New York: Overlook Press. Pujalet-Plaà, E. (2010), ‘Dior, Christian’, in V. Steele (ed.), The Berg Companion to Fashion, New York: Berg, pp. 219–23. Somerville, K., L. Kamitsis and D. Whitfield (2017), The House of Dior: Seventy Years of House Couture, Melbourne: National Gallery of Victoria. Sugden, K. (2012), ‘Benetton backlash: does controversy sell sweaters?’, Advertising & Society Review, 13 (1), accessed 12 October 2020 at https://www.muse.jhu.edu/article/477903. Weatherly, M. (2009), Business Leaders: Ralph Lauren, Greensboro, NC: Morgan Reynolds. DANA (2nd edition) PRINT.indd 176 18/12/2020 11:32 21. Entrepreneurs versus entrepreneurial Karen Williams-Middleton, Martin Lackéus and Mats Lundqvist Not long ago, entrepreneurship was considered something exotic only achieved by a precious few. Currently, entrepreneurship is basically everywhere, leaving people to figure out what entrepreneurship implies in their contexts. Many feel alienated by stereotyped definitions that do not match their lived experience, as ‘entrepreneur’ and ‘entrepreneurship’ struggle to be separated from their narrow origins. Popular press and economic theory have made both terms inseparable from the creation of new economically successful firms. From desired outcome it follows that entrepreneurs and entrepreneurship are thus exclusively about having an identity and displaying behaviors that help reach this goal. Stereotyping then occurs in three ways: (1) through stipulating a certain outcome (successful firm) in a certain (economic) context; (2) by specifying certain behaviors, such as staying in control and appropriating, to achieve this outcome; and (3) by imposing an identity and mindset suitable for being this firm-creating and firm-controlling entrepreneur. If entrepreneurship and entrepreneur is all about creating economically successful new business, what about the entrepreneurial? A Google search of ‘entrepreneurial’ gives the impression that this adjective is mainly about existing in a way that results in the creation of a successful firm. However, along with this interpretation, there are also broader understandings, indicating a wider conceptualization including being innovative, creative, resourceful and adaptable, and embedded in different contexts other than in new firms. However, the broadening of entrepreneurship has also been met with critique that entrepreneurship then risks being diluted into meaning almost anything for anyone. Therefore, as society evolves into appreciating entrepreneurship well beyond creating new companies, so also does our need for a more appropriate language. This chapter aims to pave the way for a more emancipated understanding of entrepreneurial by analyzing current understandings from an interpretivist perspective, breaking away from narrow and stereotyped conceptions of entrepreneurship. THE STEREOTYPICAL MYTH OF THE ENTREPRENEUR The self-made man, a myth which purveys in the American culture, was made popular in particular by the work of Horatio Alger Jr. Research on the personality and characteristics of the entrepreneur followed but was soon termed the search for the heffalump, with arguments for and against a type pervading different streams of literature in the field of entrepreneurship. The stereotypical heroic entrepreneur is portrayed as white, male, middle-aged and often western, and the language and narrative associated with the role of entrepreneur is masculine. Using the stereotypical heroic entrepreneur has made the, 177 DANA (2nd edition) PRINT.indd 177 18/12/2020 11:32 178 World encyclopedia of entrepreneurship ‘under the radar until successful’ figure recognizable and intriguing through television programs, such as Shark Tank and Dragons Den, but also potentially off-putting and even hated. Significant literature has illustrated the disconnection many nascent entrepreneurs feel relative to these stereotypes when in a process of becoming. Despite research developments and evidence to the contrary, the myth of the heroic entrepreneur prevails, and reifies various gendered and ethnocentric biases, probably because it helps to personify an otherwise complex concept of entrepreneurship. The most comprehensive attempts to broaden entrepreneurship have taken place in the field of entrepreneurship education. Allan Gibb argued for educational innovation emphasizing a broader approach termed ‘enterprise education’. Enterprise education was claimed to have been liberated from a limiting business context, deemed to be the main problem behind numerous failed attempts to mainstream entrepreneurship in education (Gibb, 2002). Entrepreneurial individuals creating value in all walks of life have inspired many other key contributions, primarily in Europe and Australia. Many US-based contributions instead maintain a narrower business-orientated focus on venture creation as the key defining characteristic of entrepreneurship in education. One argument put forward is that this focus must remain in order for the field not to be diluted into progressive education in general. Another attempt to broaden entrepreneurship stems from policy. The European Commission presented a framework for entrepreneurial competencies in 2016. It was claimed to build ‘upon a broad definition of entrepreneurship that hinges on the creation of cultural, social or economic value’, and its purpose was to achieve a better bridging between education and work life (Bacigalupo et al., 2016: 6). This recent European development can be traced to streams of more societally orientated entrepreneurship. For instance, social entrepreneurs target real social problems using and adapting traditional business venturing tools, while community and civic entrepreneurs engage in networking to rejuvenate the local or regional economy. A mainland-European public entrepreneur engages in societally useful cultural or ecological activities, placing minor or no interest in economic motives. Except for the more Anglo-American social entrepreneur, these societally orientated sub-streams of entrepreneurship actually do not have a venture focus. Interpretivism has been offered as a perspective that potentially can avoid a dominant understanding of entrepreneurship where an outcome – a new economic venture – reinforces stereotyping. Interpretivism accepts that there is some objective reality out there. However, the only way we can gain knowledge about this reality (epistemology) is through experience or imagination. As a consequence, ‘the source of entrepreneurship has to be in individuals rather than in abstract markets’ and can stem from ‘intentionality rather than causality, of “becoming” rather than “being,” and relationships and interactions rather than social entities’ (Packard, 2017: 535–6). The main intention proposed for being entrepreneurial, then, is the pursuit of new value, which can be achieved in ways other than only through new firms. However, arguably, being entrepreneurial can include more than pursuing new value. A CONTEXT FOR BECOMING ENTREPRENEURIAL Becoming entrepreneurial, as in any practice, requires skill development and personalized adaptation. Entrepreneurship education has aimed to build connection to practice DANA (2nd edition) PRINT.indd 178 18/12/2020 11:32 Entrepreneurs versus entrepreneurial 179 through, for example, bringing entrepreneurs into the classroom. However, this does not transfer skill; instead it relates the stories of the entrepreneurial journey, often rationality constructed through hindsight. Artisans and other skilled workers learn through apprenticeship, where the master trains the student in the skill of the discipline, while at the same time the student can design his or her own specific style. This type of situated, socialized learning is recognized in family-based entrepreneurship, where each generation learns from the previous generation, but has not necessarily been translated into the educational domain. For more than 20 years, a small group of researchers and educational practitioners at Chalmers University of Technology has been developing and delivering a distinct action-based pedagogy where innovation and entrepreneurship is experienced hands on by students. This context for becoming entrepreneurial is named a venture creation program (VCP), defined as education where the process of creating a real-life venture, with the intention to incorporate it if successful, is the core learning vessel. The VCP set-up requires an integrated incubator that works in synergy with the program, but with a business prioritization and mandate. This deliberate high-tension approach implies that educational and commercial goals are made to coexist, despite substantial potential for conflict of interest. Entrepreneurship is learned in-vivo, as potential entrepreneurs and potential innovations are recruited, examined, matched, supported and developed. The context has launched more than 80 technology-based startups stemming from early-stage invention disclosures. Seventy-five percent of these startups are still operational. However, while fast-growing technology startups are easy to measure and appreciate in numbers and economic contribution, they are a mere by-product of the school. At the end of the process, students have received training in being entrepreneurial, including taking ownership through shares in the newly formed business, if viable and if it is the ambition of the student. Instead of the ventures, the emphasized output is entrepreneurial individuals prepared for sustainable business development. These individuals are uniquely trained to act entrepreneurially, regardless of organizational format. Thus, the most important contributions are instead the following: (1) over 800 students developing an entrepreneurial mindset that stays with them for their entire career trajectory; and (2) the increase in humanity’s understanding of how these identity-shaping processes can be orchestrated through action-based education. Universities in Sweden, Norway, the US, Japan and Thailand have visited Chalmers to study and subsequently emulate this educational design, translating key principles to their own environments. A global network of like-minded scholars from 20 universities has been established around these activities. More importantly, the Chalmers researchers have distilled an innovative pedagogical approach for how to enable individuals to become entrepreneurial. A value creation pedagogy approach has been adopted by educators from primary through to tertiary education, enabling institutions to take action. Students learn through applying their knowledge in attempts to create value for external stakeholders, a process which develops becoming entrepreneurial, while applicable to a broad spectrum of subject areas. Requiring students to start a new venture is no longer the only way to successfully establish entrepreneurial competencies. However, the deep learning that comes from a venture-creation approach is recognized as developing entrepreneurial competence leading to sustainable and scalable value creation. DANA (2nd edition) PRINT.indd 179 18/12/2020 11:32 180 World encyclopedia of entrepreneurship AN ORGANIZING FRAMEWORK FOR BECOMING ENTREPRENEURIAL In order to better explain what becoming entrepreneurial can imply, and how education can enable this, a simple organizing framework with four cornerstones is presented. The four cornerstones of the framework are (1) agency, (2) novelty, (3) value for others and (4) learning; see Figure 21.1. Agency is triggered through emotional ownership as students act together with their peers and invention provider in an emerging new venture team. The task – to develop an early-stage technology venture in which they might become co-founders and owners – is deeply personal and emotional. This staged situation elicits strong agency in the commitment and dedication necessary to persevere through the deeply emotional roller-coaster of an entrepreneurial journey. Novelty is introduced through research-based intellectual assets, typically taken from university and corporate research settings. This contributes with a high level of potential novelty to the world, making the students’ search for and claiming of novelty, key components of the experience. The entrepreneurial process requires students to create direct and indirect value for others. Value could be created for their team partners, for people at the incubator, for potential customers, for potential financiers, for advisors and for many other key stakeholders. Education facilitates learning; that is, experiential learning through iterative stages of creating a new venture situated in an authentic community of practice. The process is embedded in socially situated, high-stakes based contexts that increase emotional exposure, reflection and personalized learning. Each step taken generates powerful feedback, requiring students to constantly learn in order for the invention to survive and develop. Answering the complex question of how education enables individuals to become entrepreneurial, requires a clear understanding of what it means to be entrepreneurial. • Envisioning and exploring something new or different • Claiming and defending newness to/for others • Organizing and pioneering for the new ‘thing’ to be created NOVELTY LEARNING • Analyzing and planning for value creation as a way to learn cognitively • Experimenting with value creation to learn experientially and emotionally • Revising and persisting after reflection on if, how, and why value was created VALUE FOR OTHERS • Discussing and communicating value with others • Creating value for and with others • Feeling empathy with others, their needs and their feedback AGENCY • Dedication about an issue, on a personal level • Courage to own an issue despite uncertainty and risk • Action-taking again and again Figure 21.1 Organizing framework for what it means to become entrepreneurial DANA (2nd edition) PRINT.indd 180 18/12/2020 11:32 Entrepreneurs versus entrepreneurial 181 The adjective entrepreneurial is broadly applied in entrepreneurship literature, and what is intended by this descriptive term spans venture creation, value creation, opportunity recognition and so on (see, for example, Lundqvist et al., 2019). Becoming entrepreneurial puts personal development in focus. Thus, the framework takes an individual-based perspective. However, this is not in terms of a stereotyped role of a heroic entrepreneur. Instead, emphasis is on four concepts that each represent one key entry point that a person can take in his or her attempts to be and become entrepreneurial. Being entrepreneurial then is defined here as taking emotional action (agency) to create something new (novelty), imagined to be of significant value for others (value for others) and developed through learning by trial and error (learning); see Figure 21.1. Becoming entrepreneurial requires utilizing all four concepts, though not necessarily simultaneously. At any time, each concept can be addressed independently or in combination with one or more of the other concepts. Across the entrepreneurial journey, however, all four concepts are critical. If only one of the concepts is omitted, then the individual will not become entrepreneurial. Agency The agency concept illustrates the need for students to relate any entrepreneurial experience specifically to their own unique personal situation and motives. Students are required to ask themselves deeply personal ‘why’ questions around their own purpose and ability to be and become entrepreneurial. They are expected to articulate their deeply rooted personal reasoning and their own dominant logic for being entrepreneurial. They are also required to describe how they legitimize their entrepreneurial action towards external stakeholders, representing a crucial expansion of the traditional teacher–student relationship axis. Leveraging emotional exposure is another agency-related aspect of a VCP. Emotional events such as teamwork, external stakeholder interaction and uncertainty management have been shown to make people more entrepreneurial in powerful ways. These emotionally charged events can also generate significant pressure and stress. Agency also relates to emotional ownership of an idea or other type of intellectual asset. Strong personal agency can be developed around others’ nascent ideas and intellectual contributions, applying a surrogacy approach, and ideas can be continually shaped and re-shaped by all key stakeholders involved, building a team-based agency. The ‘why’ question, the emotional events and the surrogacy mechanism all illustrate crucial and more generic agency-related facets of being and becoming entrepreneurial. Knowing why you want to be entrepreneurial is a key aspect of becoming entrepreneurial. Learning to self-manage the emotional rollercoaster of an entrepreneurial journey is another crucial aspect of becoming entrepreneurial. Finally, awareness and ability in building team agency around an initial idea is a third necessary aspect. Novelty A VCP promotes the responsible utilization and commercialization of universitybased research ideas, stemming from intellectual property of its professors, employees, researchers and students. The context can also act as a catalyst for industrial and private individual innovation, illustrating the increasing importance of institutional connection DANA (2nd edition) PRINT.indd 181 18/12/2020 11:32 182 World encyclopedia of entrepreneurship and collaboration with external stakeholders in transforming value to society. Handovers through the entrepreneurial ecosystem are designed to provide the most effective and efficient pathway for transfer of ideas to the public/private arena, where their value (societal, commercial, and so on) can be realized. Through VCPs, not only are innovations with established novelty transferred and developed, but potential innovations can be accelerated through students taking on a surrogacy role and being trained to iteratively evaluate the feasibility of the ideas to hand. Students taking on a surrogacy role helps universities and incubators to increase the amount of technologies bridging the Valley of Death. Value for Others Education utilizing venture creation as the learning vessel naturally involves additional stakeholders. These actors provide feedback on what is perceived as valuable and thus directly or indirectly evaluate the entrepreneurial competence of the students. Utilizing the expertise of a community of others can give students access to particular expertise. For example, users or potential customers provide effective feedback and assessment of value, whereas regulatory agencies or intellectual property professionals are sought for assessment of novelty. Naturally, educators are utilized to assess learning, in particular relative to institutional requirements, but other stakeholders in the experiential environment, such as peers and incubation coaches and practitioners, also play important roles in assessing learning, as students become entrepreneurial. Learning Many understandings of nascent entrepreneurship rest upon the notion that entrepreneurial intent predicts becoming entrepreneurial. With this understanding, education focuses on raising intention through learning about entrepreneurship in a classroom or short-term exercises. Venture creation programs emphasize becoming entrepreneurial through interacting with value creation processes and developing role expectations in a team-based environment, rather than developing increased intentionality. Embeddedness allows the student to become aware of, react to or even create the many contextual contingencies that shape their own entrepreneurial-ness. The student translates specific opportunity assessment into more personal decisions addressing the merit and challenges ‘for me’. This translation of generic to personalized learning is critical, as it links the knowledge gained to the level of individual, which is paramount if the individual is to take entrepreneurial action. This process of becoming entrepreneurial unfolds iteratively as the individual takes action within an environment prepared to observe and feed back from multiple perspectives, upon which the student can reflect and adapt towards his or her self-image of being entrepreneurial. Iteration, repeatedly going back to similar contexts or known principles but with new eyes, has been argued as important when dealing with uncertainty. In the process of creating value for other humans, multiple (iterative) attempts are often necessary to connect with those perceiving the value of what is generated. The length of time spent becomes an important variable. It is unrealistic to expect transformative treatment effects upon one interaction. Education through venture creation generates multiple stimulators of learning, and learning outcomes emerge from real experiences encountered in the context DANA (2nd edition) PRINT.indd 182 18/12/2020 11:32 Entrepreneurs versus entrepreneurial 183 of the entrepreneurial process pursued. This can cause questions in determining which activities should take precedence, which, while challenging, is critical to becoming entrepreneurial, as it requires individuals to develop personalized decision-making criteria for operating in uncertainty. CONCLUSION Classrooms are not particularly designed to embody inconsistency and uncertainty. Education which uses the context of venture creation to create these conditions can provide learning through embeddedness in entrepreneurial experience. This, in turn, facilitates transformation of ideas into value (for self and others), developed through interactions with stakeholders, in both a sustainable and responsible manner. Offering understandings and tools for becoming entrepreneurial emancipates beyond a narrow view of entrepreneurship. A framework which focuses on value creation and is societal (social, ecological and economic value creation in all kind of contexts) is broadly applicable while at the same time distilling key cornerstones that anchor personalized development for becoming entrepreneurial. However, it is important to recognize that this type of learning is not exclusive to students starting a new venture. Students often comment on how they are continuously confronted with experiences counter to their assumptions or expectations of what it means to be entrepreneurial. To enable students becoming entrepreneurial, educators need to provide students with guiding principles they can apply outside the classroom, when seeking and evaluating opportunity and making decisions under conditions of uncertainty. REFERENCES Bacigalupo, M., P. Kampylis, E. McCallum and Y. Punie (2016), ‘Promoting the entrepreneurship competence of young adults in Europe: towards a self-assessment tool’, Proceedings of ICERI2016 Conference, 14th–16th November 2016, Seville: IATED, doi:10.21125/iceri.2016.1150. Gibb, A.A. (2002), ‘In pursuit of a new “enterprise” and “entrepreneurship” paradigm for learning: creative destruction, new values, new ways of doing things and new combinations of knowledge’, International Journal of Management Reviews, 4 (3), 233–69. Lundqvist, M., M. Lackéus and K. Williams Middleton (2019), ‘Emancipating the “Who am I?” question in entrepreneurship’, paper presented at the ECSB Entrepreneurship Education (3E) Conference, Gothenburg, 9–10 May. Packard, M.D. (2017), ‘Where did interpretivism go in the theory of entrepreneurship?’, Journal of Business Venturing, 32 (5), 536–49. DANA (2nd edition) PRINT.indd 183 18/12/2020 11:32 22. Entrepreneurship and blockchains Galia Kondova ENTREPRENEURSHIP AND THE PLATFORM BUSINESS MODEL Entrepreneurship is an economic driver around the world. It is usually associated with the business of small and medium enterprises (SMEs). These SMEs are companies founded originally to meet needs on a local market. They typically exhibit a linear growth path (Aulet, 2013). Aulet (2013) identifies a riskier and more ambitious form of entrepreneurship in the face of innovation-driven enterprise (IDE). Innovation-driven enterprise companies aim to operate regionally or even globally (Aulet, 2013). They typically focus on creating wealth instead of on local growth and keeping control of their business. Successful IDEs usually follow a platform business model that is conducive to the establishment of digital platforms and ecosystems. The platform business model is based on the concept of linking two parties with each other in order to enable the exchange of goods and services of all kinds (Parker et al., 2016). The power of platforms is associated with the phenomenon of network effects. While traditional businesses grow linear by simple addition, platform models connect one user with numerous other users, thus achieving scalability effects and facilitating a geometrical business growth (Cusumano et al., 2019). Metcalfe (2013) provided an analogy of the positive platform network effects with the telephone network. The telephone platform network exhibits quadratic growth rather than linear growth. BLOCKCHAINS AND THE PLATFORM BUSINESS MODEL The peer-to-peer decentralized nature of blockchain seems to provide the perfect infrastructure for the implementation of the platform business model. Blockchain is a decentralized and distributed network. The network is operated by a multitude of servers, referred to as nodes. Since this network is decentralized, a special consensus mechanism is required to ensure the authenticity, as well as the integrity, of the data (He et al., 2016). The practical application of blockchain was introduced by a self-published paper of an author called Satoshi Nakamoto in October 2008 (Nakamoto, 2008). Nakamoto (2008) published a protocol for a purely peer-to-peer electronic cash system called Bitcoin. According to the paper, the idea of Bitcoin was to create ‘an electronic payment system based on cryptographic proof instead of trust, allowing any two willing parties to transact directly with each other without the need for a trusted third party’ (Nakamoto, 2008: 1). The analogy to the telephone network is obvious in the case of blockchain as well. This time, however, the network effects are much more difficult to be estimated. These are expected to be enormous though. 184 DANA (2nd edition) PRINT.indd 184 18/12/2020 11:32 Entrepreneurship and blockchains Table 22.1 185 Major advantages and disadvantages of blockchain Major advantages of blockchain Major disadvantages of blockchain Data integrity Enhanced security Transparency Decentralization Peer-to-peer transactions Lack of standardization Challenges with scaling and interoperability High energy consumption The risk of money laundering and cybercrime Uncertainties about data privacy protection Some scholars even argue that blockchain could pave the way to entirely new business models based on virtual organizations such as decentralized autonomous organizations (DAOs) and automatic business transactions facilitated by devices in the Internet of things (IoTs) (Beck et al., 2016; Kondova and Barba, 2019). Some of the major advantages and disadvantages of blockchain technology are outlined in Table 22.1 based on the findings of Zbinden and Kondova (2019) and Kondova and Erbguth (2020). Moreover, McKinsey (2018) assessed the strategic business value of blockchain in a detailed report. The report comes up with the following three conclusions, namely, that ‘blockchain does not need to be a disintermediator to generate value’, ‘in the short term, blockchain’s strategic value is mainly in cost reduction’ and ‘feasibility at scale is likely to be three to five years away’ (McKinsey, 2018: 5). Thus, it is the near future to show whether the platform infrastructure provided by blockchain would enable sustainable platform business models with positive network effects and unprecedented business growth. REFERENCES Aulet, B. (2013), Disciplined Entrepreneurship: 24 Steps to a Successful Startup, Hoboken, NJ: Wiley. Beck, R., J. Stenum Czepluch, N. Lollike and S. Malone (2016), ‘Blockchain – the gateway to trust-free cryptographic transactions’, Proceedings of the Twenty-Fourth European Conference on Information Systems (ECIS), Berlin: Springer. Cusumano, M.A., A. Gawer and D.B. Yoffie (2019), The Business of Platforms: Strategy in the Age of Digital Competition, Innovation, and Power, New York: HarperCollins. He, D., K. Habermeier, R. Leckow and C. Verdugo (2016), ‘Virtual currencies and beyond: initial considerations’, IMF Staff Discussion Notes, 16 (3), 1. Kondova, G. and R. Barba (2019), ‘Governance of decentralized autonomous organizations’, Journal of Modern Accounting and Auditing, 15 (8), 406–11. Kondova, G. and J. Erbguth (2020), ‘Self-sovereign identity on public blockchains and the GDPR’, Proceedings of ACM SAC Conference, Brno, Czech Republic, March 30–April 3, 2020 (SAC’20), doi:10.1145/3341105.3374066. McKinsey (2018), ‘The strategic business value of the blockchain market’, report, accessed 20 May 2020 at https://www.mckinsey.com/business-functions/digital-mckinsey/our-insights/blockchain-beyond-the-hypewhat-is-the-strategic-business-value. Metcalfe, B. (2013), ‘Metcalfe’s law after 40 years of ethernet’, Computer, 46 (12), 26–31. Nakamoto, S. (2008), ‘Bitcoin: a peer-to-peer electronic cash system’, accessed 20 May 2020 at https://bitcoin. org/bitcoin.pdf. Parker, G., M. Van Alstyne and S.P. Choudary (2016), Platform Revolution: How Networked Markets Are Transforming the Economy and How to Make Them Work for You, New York: W.W. Norton. Zbinden, F. and G. Kondova (2019), ‘Economic development in Mexico and the role of blockchain’, Advances in Economics and Business, 7 (1), 55–64. DANA (2nd edition) PRINT.indd 185 18/12/2020 11:32 23. Entrepreneurship as a competence Margherita Bacigalupo ‘Entrepreneurship is when you act upon opportunities and ideas and transform them into value for others. The value that is generated can be commercial, cultural or social’ (Vestergaard et al., 2012: 11). This definition of entrepreneurship as capacity to act has been taken up by the European Commission in its effort to define entrepreneurship as a broad competence that can be learnt through formal education, as well as through non-formal and informal learning pathways (Bacigalupo et al., 2016). The definition adopted by the European Commission implies that entrepreneurship is both a solo and a collective competence, which requires a cluster of capabilities that are useful in life and can be transferred from one domain to another, and that all citizens should be afforded the possibility to develop. Entrepreneurship as a competence, thus, is not limited to new venture creation but, more broadly, entails the capacity to act entrepreneurially at work and in society, to create any type of value. What entrepreneurship competence is composed of, however, depends very much on the perspective adopted (Komarkova et al., 2015). A focus on effective performance within an occupation and professional development, led Cheetham and Chivers (1996, 1998) to identify four interrelated clusters of competences, namely: (1) cognitive competences, referring to the possession of the appropriate work-related knowledge and the ability to put it to effective use at work; (2) functional competences, referring to a standardised description of the tasks that a job holder should be able to perform and demonstrate through the achievement of observable outcomes; (3) personal and ethical competencies, referring to the characteristics of the learners leading to effective performance (psychological traits, observable behaviours and personal drives), combined with the possession of an appropriate set of values and the capacity to use them in decision-making in work-related situations; and (4) meta-competencies, that is, higher-order abilities, which include being able to learn, adapt, anticipate and create, but also communication, self-development, creativity, analysis, problem-solving, mental agility and reflection. A focus on the characteristics demonstrated by successful entrepreneurs, however, led Mitchelmore and Rowley (2010, 2013) to differentiate among: (1) conceptual and relationship competencies, including interpersonal skills, oral communication skills, relationship-building, networking, integrity, self-confidence, motivating self, political competence, being active, desire to succeed and perseverance; (2) business and management competencies, including budgeting skills, business operational skills, developing management systems, formulating and implementing strategies for exploiting opportunities, business plan preparation and writing, development of operational systems, planning business activities and managing finance; (3) entrepreneurial competencies, that is, idea generation, innovation skills, visioning, envisioning opportunities, product innovation, creativity, willingness to take risks, scan environments for opportunities and risk-taking; (4) human relations competencies, including employee development, managing employee 186 DANA (2nd edition) PRINT.indd 186 18/12/2020 11:32 Entrepreneurship as a competence 187 performance, human relations management skills, employee relations, hiring skills, leadership skills, motivating others, management style and management skills. When the focus is placed on competence, a set of knowledge, skills and attitudes that can be taught and learnt, again the taxonomy is different. The taxonomy developed by the Danish Foundation for Entrepreneurship (Rasmussen et al., 2015), for instance, identifies four competence areas: (1) action, defined as the competences to launch initiatives and develop them by working with others through collaboration, networking and partnerships. It comprises the capacity to analyse and manage finances, resources and risks, communicate purposefully and organise, and set goals for and lead activities. (2) Creativity, understood as the capacity to spot and generate opportunities for creating value and the capacity to generate ideas for the purpose, through divergent and abductive thinking, by combining knowledge from different fields in novel ways. Creativity entails the capacity to create and revise your personal conceptions, and to experiment and improvise to solve problems and challenges. (3) Outward orientation is conceived as the capacity to observe, analyse and construct a social, cultural and economic context as an arena for valuecreating activities and actions. Outward orientation places a strong emphasis on building an understanding of the world at local and at global levels, including a critical outlook at global opportunities and challenges. (4) Personal attitude, deals with students’ personal and inter-subjective resourcefulness in the face of tasks, challenges, difficulties and setbacks. It entails the ability to initiate acts of change, work persistently, accept and learn from others’ and your own mistakes and to make ethical assessments and reflections. It is a belief in having the capacity to transform the world through action and value creation, thereby realising dreams and plans, while learning by doing it. Although the three conceptualisations have elements in common, they show how researchers from different fields (professional development and productivity, economic growth and innovation, or education and training), holding different learners in mind (the job holder, the entrepreneur or the student), emphasise different facets of entrepreneurship as a competence. These differences have deep implications for how entrepreneurship is taught (Dana, 1987). Lackeus (2015) has analysed such implications focusing on the different emphasis on theory over practice, on the pedagogical approaches chosen as well as the main focus of entrepreneurial education. Whereas Cheetham and Chivers’s (1996, 1998) understanding of entrepreneurship as a professional skill leads to a focus on teaching for entrepreneurship, Mitchelmore and Rowley’s framework calls for teaching about entrepreneurship, the Danish conceptualisation pivots on teaching through entrepreneurship. When defining entrepreneurship as a key competence for lifelong learning, however, the perspective has to be broad and comprehensive, flexible and multipurpose to encompass personal development and venture creation. A broad definition of entrepreneurship puts equal emphasis on transversal skills and attitudes, such as perseverance or sense of initiative, and on those capacities traditionally associated with business, such as financial literacy or market analysis. With this aim, the European Commission has embarked on the development of the Entrepreneurship Competence Framework, known as the EntreComp (Bacigalupo et al., 2016), which has validated through iterative cycles of consensus-building activities with a broad variety of stakeholders. The EntreComp unfolds the definition of entrepreneurship into three areas, ideas and opportunities, resources, and into action. Each area contains five DANA (2nd edition) PRINT.indd 187 18/12/2020 11:32 188 World encyclopedia of entrepreneurship competences, which together make up the 15 competences that individuals (or teams) use to action opportunities and ideas. Beneath each of the 15 competences are a number of different threads that describe what the particular competence means in practical terms. Further, the EntreComp puts forward a progression model that unfolds each thread into eight levels of proficiency, stating 442 learning outcomes. Learning progresses along a number of dimensions, such as: progressive autonomy of the learner, increasing complexity of the value-creation setting and uncertainty linked to the process, growing degree of novelty in the idea to be developed, and progression from directed learning to self-regulated learning. Learning outcome statements are not specific enough to be used as a rubric; nevertheless they can inspire entrepreneurial learning interventions within and outside the world of formal education, considering the development of a learner over time, the different starting points of learners in any given time or the setting up of an entrepreneurship education journey. EntreComp creates a shared understanding of the knowledge, skills and attitudes that makes being entrepreneurial as a habit of mind, and can be applied to any situation: from school curriculum, to value creation in the workplace, from community initiatives to scaling up a business. These skills can not only be applied in any context, but can also be acquired across a variety of learning settings, not just in business schools but also in civil society, within existing organisations, in compulsory education or in youth initiatives. Broadening the notion of entrepreneurship as a competence for lifelong learning (European Parliament and the Council, 2006), offers an inclusive definition of what it takes to become entrepreneurial. Such a comprehensive definition, not only fits different learning needs but, most importantly, it creates a common language across stages of education, bridges formal, non-formal and informal learning settings, and connects the world of education and the world of work. REFERENCES Bacigalupo, M., P. Kampylis, Y. Punie and G. Van den Brande (2016), EntreComp: The Entrepreneurship Competence Framework, Luxembourg: Publication Office of the European Union. Cheetham, G. and G. Chivers (1996), ‘Towards a holistic model of professional competence’, Journal of European Industrial Training, 20 (5), 20–30. Cheetham, G. and G. Chivers (1998), ‘The reflective (and competent) practitioner: a model of professional competence which seeks to harmonise the reflective practitioner and competence-based approaches’, Journal of European Industrial Training, 22 (7), 267–76. Dana, L.P. (1987), ‘Towards a skills model for entrepreneurs’, Journal of Small Business & Entrepreneurship, 5 (1), 27–31. European Parliament and the Council (2006), ‘Recommendation of the European Parliament and of the Council of 18 December 2006 on key competences for lifelong learning’, Official Journal of the European Union, L394/310. Komarkova, I., D. Gagliardi, J. Conrads and A. Collado (2015), Entrepreneurship Competence: An Overview of Existing Concepts, Policies and Initiatives. Final Report, Luxembourg: Publications Office of the European Union. Lackeus, M. (2015), ‘Entrepreneurship in education. What, why, when, how’, Entrepreneurship360 Background Paper, accessed 16 September 2019 at http://www.oecd.org/cfe/leed/BGP_Entrepreneurship-in-Education. pdf. Mitchelmore, S. and J. Rowley (2010), ‘Entrepreneurial competencies: a literature review and development agenda’, International Journal of Entrepreneurial Behavior & Research, 16 (2), 92–111. DANA (2nd edition) PRINT.indd 188 18/12/2020 11:32 Entrepreneurship as a competence 189 Mitchelmore, S. and J. Rowley (2013), ‘Entrepreneurial competencies of women entrepreneurs pursuing business growth’, Journal of Small Business and Enterprise Development, 20 (1), 125–42. Rasmussen, A., K. Moberg and C. Resbech (2015) A Taxonomy of Entrepreneurship Education: Perspectives on Goals, Teaching and Evaluation, Odense: Danish Foundation for Entrepreneurship. Vestergaard, L., K. Moberg and C. Jørgensen (2012), Impact of Entrepreneurship Education in Denmark – 2011, Odense: Danish Foundation for Entrepreneurship – Young Enterprise. DANA (2nd edition) PRINT.indd 189 18/12/2020 11:32 24. Entrepreneurship in biotechnology Călin Gurău INTRODUCTION Biotechnology represents the industrial use of biological organisms and processes to manufacture medical, agricultural and consumer products (Oakey et al. 1990). Biotechnology applications include, among others, bulk and specialty chemicals, healthcare, food and drink products, waste or pollution treatment, and agriculture (Sager 2001). Based on these descriptions, we can characterize biotechnology entrepreneurship as the motivation, skills and actions required to successfully identify and exploit market opportunities regarding the use, manufacturing and consumption of products and services derived from the use of biological organisms and processes. To understand the specificities of entrepreneurship in biotechnology, we discuss in the following sections, the various paths of biotechnology entrepreneurship, the opportunities and challenges of biotechnology entrepreneurship, and finally, the relationship between entrepreneurship and intrapreneurship in this specific sector. PATHS TO ENTREPRENEURSHIP Biopharmaceutical enterprises represent classical examples of knowledge-based organizations (Cohen and Munshi 2017) that integrate multiple professional cultures. In most cases a successful biotechnology venture is the result of the collaboration between scientists and business experts (Mehta 2004), who use their complementary competencies to develop an organization based on a dynamic entrepreneurial culture (Arantes-Oliveira 2007). Usually, the scientists involved in bio-entrepreneurship have a strong academic background, since the science behind biotechnology products and processes requires expert knowledge, acquired through learning, experimentation and research. Often, as a result of their research activities, these scientists identify a promising idea or process that has a good potential to be developed and commercialized as a product or service. In this moment, the scientist often considers the advantages and the challenges to start an entrepreneurial venture, alone, or together with some colleagues or members of his or her research team (Gurău et al. 2012). However, although the scientist has the necessary knowledge to understand and develop the biological processes that represent the basis of an attracted commercial offer, he or she may have difficulty in understanding the structure of the market, the complexity of the value-added chain required to develop the future product or service, and accessing the financial, material and human resources required to develop and manage a functional enterprise. These skills and knowledge are usually brought to the biotechnology venture by one or more business experts, who complement the scientific knowledge of the researcher(s) with market and management experience and vision. Ideally, this start-up 190 DANA (2nd edition) PRINT.indd 190 18/12/2020 11:32 Entrepreneurship in biotechnology 191 team will then pass through several successive phases, which according to Mehta (2004), include: (1) opportunity recognition; (2) ensuring the intellectual property rights for the innovative idea, discovery or process which represents the scientific basis for developing a final product or service which represents the main market offer of the biotechnology venture; (3) funding and building the team and the company; (4) developing and using the technology for product research and development; (5) survive by obtaining additional funding, selling assets (for example, intellectual property licensing) or spinning-out applications; and (6) achieving the final product or service and launching it on the market. SECTORIAL OPPORTUNITIES AND CHALLENGES Among other necessary skills, a biotechnology entrepreneur should also be a good risk manager (Shimasaki 2014), as the challenges that need to be overcome during the phases of company and/or product or service development are multiple, difficult and often unpredictable. However, as biotechnology products and processes can be developed and commercialized to answer different needs in different economic sectors, it is important to discuss the opportunities and challenges of developing and managing a biotechnology venture in various activity sectors. The best-known area of biotechnology applications is healthcare. Healthcare biotechnology ventures attempt to develop therapeutic drugs or procedures which target human or animal diseases. Healthcare biotechnology products include biopharmaceuticals and diagnostic kits. Biopharmaceuticals are drugs and drug therapies produced through the use and transformation of living cells that treat, control and cure conditions such as AIDS, heart disease and various forms of cancer. Diagnostic products enable earlier and more effective identification of many illnesses and conditions. The dedicated healthcare biotechnology ventures start from selected active molecules to develop therapeutic drugs. However, given the direct interaction of the drug with the human or animal organism, the research and development (R&D) process for these products is long, complex, risky, unpredictable and resource-demanding, including three main phases: (1) discovery, (2) development and testing, and (3) manufacturing and commercialization (Evans and Varayia 2003). Research and development projects (across all therapeutic areas) take 14 years on average to come to market (Paul et al. 2010), with median costs estimated at $350 million, and with 95 percent of the experimental medicines failing to demonstrate effectiveness and safety (Herper 2013). It is a turbulent, highly competitive environment, in which the first company launching an effective product often becomes a successful market leader. Most biotechnology ventures deploy their activities on the first two stages of the product development process (Saviotti 1998), using the well-developed infrastructure for product commercialization, controlled and managed by specialized traditional organizations (pharmacies, retail stores, hospitals and national health agencies). Even the first two phases often prove to be too complex and resource-demanding for independent biotechnology firms, that are ultimately forced to focus on a specific value-added activity – representing the area of their main expertise, and develop collaborations or alliances with other biotechnology or pharmaceutical organizations. There are also biopharmaceutical products for which the R&D process is simpler DANA (2nd edition) PRINT.indd 191 18/12/2020 11:32 192 World encyclopedia of entrepreneurship and less expensive: such as diagnostic kits or vaccines. However, the need for supporting services, reagents and laboratory instruments has fueled the development of many specialized providers of laboratory equipment, reagents or services for dedicated biopharmaceutical companies. Another set of biotechnology products and activities is related to agriculture and food processing. Some of these are used for a very long time, being incorporated in traditional genetic selection (for example, the gradual amelioration of animal species through selective breeding) or food production methods (for example, the fermentation of cheese or the production of wine). Others are based on the new knowledge and techniques of genetic engineering and involve the modification of living organisms to promote specific traits, such as resistance to drought or to pests, or longer shelf-life for genetically modified fruits and vegetables. The new genetic techniques usually are applied on a large scale by multinational corporations, such as Monsanto, which have the necessary resources and infrastructure to conduct expensive R&D projects, and then to successfully launch and commercialize on the market the resulting products. Often, the discoveries made by small biotechnology ventures are either bought or incorporated through inter-organizational alliances into the value-added processes controlled by large corporations; but in a few cases, small biotechnology firms can maintain their independence by becoming leaders in a specific market niche. Modern agriculture and food biotechnology are highly controversial activities that create consumer resistance and prompt government actions, such as moratoriums on the research and production of genetically modified organisms (for example, the moratorium on genetically modified products, imposed by the European Union, and effective between June 1999 and August 2003). Finally, a third economic area using biotechnology products and procedures is the bioremediation and rehabilitation of polluted sites. The size of service providers varies in this market, but biotechnology small and medium-sized enterprises (SMEs) have a good chance to thrive by developing proprietary technology and specializing in specific types of sites or events (for example, the bioremediation or rehabilitation of mining areas, and land, river or marine pollution). ENTREPRENEURSHIP VERSUS INTRAPRENEURSHIP Considering the multitude of organizational actors that are active in the sectors applying biotechnology processes, it is important to consider the relationship between entrepreneurial and intrapreneurial activities. Entrepreneurship represents the initiative of an independent entrepreneur or entrepreneurial team which develops a new venture based on an innovative idea and a perceived market opportunity. ‘[I]ntrapreneurship refers to a system that allows an employee to act like an entrepreneur within a company or other organization. Intrapreneurs are self-motivated, proactive, and action-oriented people who take the initiative to pursue an innovative product or service’ (Kenton 2019). Considering the high risk and resource requirements of many biotechnology activities, the value-added chain of activities is often highly fragmented, the dedicated biotechnology SMEs focusing mainly on the innovative research activities or applying a niche leader strategy, while large companies attempt to acquire or develop alliances with these highly DANA (2nd edition) PRINT.indd 192 18/12/2020 11:32 Entrepreneurship in biotechnology 193 dynamic firms. This situation is easily recognizable in the pharmaceutical sector, in which a handful of large multinational corporations control the market, although they need the help of small innovative biotechnology firms to boost the number of identified creative ideas and, ultimately, of final therapeutic products effectively launched on the market. ‘In recent years declining productivity has become a concern for pharmaceutical companies. R&D returns declined to 2 percent in 2018, down from 10 percent in 2010, with figures showing a steady decline’ (Pategou 2019). To address this problem, large pharmaceutical companies have two options: to acquire and integrate innovative biotechnology firms in their corporate structure, or to develop partnerships with biotechnology SMEs. Both strategies offer advantages and disadvantages. The structural integration of the innovative unit into the hierarchical system of a large corporation may significantly alter the traditional work practices of the biotechnology, imposing more rigid routines and controls which can significantly reduce the motivation, creativity and productivity of innovative researchers (Schweitzer 2005). The other strategic option is to develop strategic alliances and partnerships between large corporations and innovative biotechnology firms, based on their natural complementarity of resources and skills. This approach matches the specific research capabilities of the biotechnology firm – characterized by a high level of creativity and innovation which is particularly effective for the discovery of a therapeutic product, with the high level of resources and management expertise of the large organization – which can successfully manage the development and commercialization part of an innovative project. However, small firms should be careful in engaging in this type of collaboration, as the disparity between the resources and power of the two organizations can induce forms of indirect control that can affect the independence and the innovativeness of the biotechnology firm. An interesting proof that high-technology innovativeness requires a specific work environment is the situation in which a researcher from a team of researchers, initially employed by a large pharmaceutical or biotechnology corporation, leaves the firm to create a spin-off organization with a smaller and less formal hierarchical structure, in order to pursue the development of highly innovative projects. CONCLUDING REMARKS Given the specificity of biotechnology activities, organizations and market, biotechnology entrepreneurship requires a series of essential capabilities that go beyond the capacity of a person to identify and exploit a market opportunity. These capabilities include: scientific knowledge and research expertise, identification and access to resources, risk management, market positioning, and, last but not least, the need to implement alliances and partnerships with other organizations while maintaining as much as possible the organizational independence and innovativeness of the firm. REFERENCES Arantes-Oliveira, N. (2007), ‘A case study on obstacles to the growth of biotechnology’, Technological Forecasting & Social Change, 74, 61–74. DANA (2nd edition) PRINT.indd 193 18/12/2020 11:32 194 World encyclopedia of entrepreneurship Cohen, S.K. and N.V. Munshi (2017), ‘Innovation search dynamics in new domains: an exploratory study of academic founders’ search for funding in the biotechnology industry’, Technological Forecasting & Social Change, 120 (July), 130–43. Evans, A.G. and N.P. Varayia (2003), ‘Anne Evans: assessment of a biotechnology market opportunity’, Entrepreneurship: Theory and Practice, 28 (1), 87–106. Gurău, C., L.-P. Dana and F. Lasch, (2012), ‘Academic entrepreneurship in UK biotechnology firms: alternative models and the associated performance’, Journal of Enterprising Communities, 6 (2), 154–68. Herper, M. (2013), ‘The cost of creating a new drug now $5 billion, pushing Big Pharma to change’, Forbes, 11 August, accessed 23 April 2019 at https://www.forbes.com/sites/matthewherper/2013/08/11/how-thestagger ing-cost-of-inventing-new-drugs-is-shaping-the-future-of-medicine. Kenton, W. (2019), ‘What is intrapreneurship?’, Investopedia, 20 September, accessed 23 November 2019 at https://www.investopedia.com/terms/i/intrapreneurship.asp. Mehta, S. (2004), ‘Paths to entrepreneurship in the life sciences’, Bioentrepreneur, 26 October, doi:10.1038/ bioent831. Oakey, R., W. Faulkner, S. Cooper and V. Walsh (1990), New Firms in the Biotechnology Industry, London: Pinter. Pategou, J. (2019), ‘The marriage of big pharma and biotech’, Drug Discovery & Development, 19 March, accessed 23 April 2019 at https://www.drugdiscoverytrends.com/the-marriage-of-big-pharma-and-biotech/. Paul, S.M., D.S. Mytelka, C.T. Dunwiddie, C.C. Persinger, B.H. Munos, S.R. Lindborg and A.L. Schacht (2010), ‘How to improve R&D productivity: The pharmaceutical industry’s grand challenge’, Nature Reviews Drug Discovery, 9 (3), 203–14. Sager, B. (2001), ‘Scenarios on the future of biotechnology’, Technological Forecasting & Social Change, 68 (2), 109–29. Saviotti, P.P. (1998), ‘Industrial structure and the dynamics of knowledge generation in biotechnology’, in J. Senker (ed.), Biotechnology and Competitive Advantage, Cheltenham, UK and Lyme, NH, USA: Edward Elgar, pp. 19–43. Schweitzer, L. (2005), ‘Organizational integration of acquired biotechnology companies into pharmaceutical companies: the need for a hybrid approach’, Academy of Management Journal, 48 (6), 1051–74. Shimasaki, C. (2014), ‘What is biotechnology entrepreneurship?’, in C. Shimasaki (ed.), Biotechnology Entrepreneurship Starting, Managing, and Leading Biotech Companies, Boston, MA: Elsevier, pp. 45–56. DANA (2nd edition) PRINT.indd 194 18/12/2020 11:32 25. Entrepreneurship in the ethnic ownership economy Ivan H. Light The ethnic ownership economy encompasses self-employed people, their unpaid family workers, and their co-ethnic employees. The ethnic ownership economy has three sectors: formal, informal and illegal. Access to these sectors importantly depends upon prior access to four capital resources: financial capital, social capital, human capital and cultural capital. In turn, young people obtain access to these economic resources through the class system and/or through the ethnic/religious groups to which they belong. The resources obtained influence the extent to which young people enter the formal, informal or informal sector of their group’s ethnic ownership economy. Middleman minorities are well endowed in these resources so their self-employment rates are recurrently high. Although descended from middleman minority theory, which Max Weber (1981: ch. 16C) initiated, the ethnic economy literature now more broadly addresses the economic independence of immigrants and ethnic minorities in general, not just of middleman minorities. This expansion releases the ethnic economy from narrow focus upon historical trading minorities, and opens a discussion of the entire range of immigrant and ethnic minority self-help and self-defense through business ownership. Business ownership represents a ubiquitous self-defense of immigrants and ethnic minorities, but especially of any who confront disadvantage in labor markets. Business ownership permits immigrants and ethnic minorities to reduce their employment disadvantage, renegotiating their participation in the general labor market from a position of greater strength. Unable to find work in the general labor market, or unwilling to accept the work that the general labor market offers, or just reluctant to mix with foreigners, immigrants and ethnic minorities have the option of self-employment in the ethnic economy of their group or of working for a co-ethnic. Although ethnic and immigrant groups differ in how well and how much they avail themselves of independent business, none ever lacks an ethnic economy. Light and Karageorgis (1994: 648) defined an ethnic economy as, ‘the ethnic selfemployed and employers, their unpaid family workers, and their co-ethnic employees’. Somewhat later, this definition of ethnic economy became the ethnic ownership economy, now only a co-equal component of an ethnic economy, not the whole of it. As currently understood, an ethnic economy consists of two sectors: the ethnic-controlled economy and the ethnic ownership economy (Light, 2005; Light and Gold, 2000).1 An ethnic ownership economy is still defined by business ownership. As before, an ethnic ownership economy still includes the self-employed, their unpaid family workers and co-ethnic employees. In contrast, an ethnic-controlled economy requires ethnic control, not ownership, and addresses employees who collectively influence hiring and wages in their workplaces. Such employees may control a business without actually owning it. This chapter is not about the ethnic-controlled economy. Rather, it explores how members of ethnic minorities become entrepreneurs in the ethnic ownership economy of their group. Ethnic ownership economies have three sectors: formal, informal and illegal 195 DANA (2nd edition) PRINT.indd 195 18/12/2020 11:32 196 World encyclopedia of entrepreneurship Table 25.1 Ethnic ownership economy and sectors Ethnic ownership economy Sector Formal Informal Illegal 1 2 3 Examples 1 Owners of dry-cleaning retail store, their unpaid family workers, and their co-ethnic employees 2 Owners of unlicensed garment factory, their unpaid family workers, and their co-ethnic employees 3 Owners of illegal lottery, their unpaid family workers, and their co-ethnic employees Source: Light (2005: 652). (Table 25.1). The formal sector consists of ethnic or immigrant-owned firms that pay taxes and are enumerated by public authorities. If co-ethnics own these firms, then both the owners and their co-ethnic employees work in the formal sector of the ethnic ownership economy. The ethnic ownership economy’s informal sector contains ethnic minority or immigrant-owned firms that, producing legal commodities, produce them without paying taxes and/or obtaining requisite licenses. The size of the ethnic economy’s informal sector is hard to measure so research studies often ignore it. If the existence of informal sectors is not recognized, awareness will be restricted to the formal sector, resulting in underestimation of the extent of ethnic minority or immigrant self-employment. The illegal sector of an ethnic ownership economy consists of co-ethnic-owned firms that produce illegal goods and services such as narcotic drugs, prostitution and gambling. The illegal sector does not include predatory crimes that yield victims rather than customers. The illegal sector is usually relegated to criminologists as if the pariah sector existed in shameful isolation. This treatment obscures the organic relationship of the illegal sector to the other two sectors of the ethnic ownership economy. The result is underestimation of immigrant and ethnic minority employment and economic influence, and mystification of the movements of personnel and capital between and among the sectors (Nee et al., 1994). Whether employees or owners, all co-ethnics working in any ethnic ownership sector belong to the ethnic economy of their group. The size of ethnic economies varies historically and among ethno-cultural groups (Fairlie and Meyer, 1996; Li, 2001). Sometimes most co-ethnics find employment in the ethnic ownership economy; sometimes, few do. Sometimes ethnic minorities and immigrants congregate most heavily in the formal sector, sometimes in the informal and sometimes in the illegal. Mapping the absolute and relative size and distribution of ethnic ownership sectors is of great importance to understanding the economic prospects of immigrants and ethnic minorities as well as to making intelligent policy choices. As matters stand, however, only the ethnic ownership economies of the formal sector can be estimated from official data sources. Ethnic ownership economies in the informal sector and the illegal sector are inaccessible from official sources, and must be estimated from social science research (Fairlie, 1999). Accordingly, just improving and debating the adequacy of size estimates is a continuing methodological concern of research in this area. DANA (2nd edition) PRINT.indd 196 18/12/2020 11:32 Entrepreneurship in the ethnic ownership economy 197 As one result, researchers have developed quantitative methods that permit them to estimate the size of ethnic ownership economies from public data sources. These methodologies permit analysts to estimate the size and sectoral distribution of ethnic ownership economies of a multiplicity of ethno-racial groups in multiple locations whereas previous methodology relied upon case studies of one group in a single location. Estimates indicate that ethnic ownership economies are surprisingly large. Light and Gold (2000: 34) found that just the formal sector’s ethnic ownership economies contained 11 per cent of the labor force of all foreign born persons in 1990. They estimated that 10 per cent of the average American ethnic group’s workers found employment in the informal sector of the ethnic ownership economy; using somewhat different definitions. Of course, constituent groups had higher and lower ethnic ownership economies than the statistical average. Among Hispanics, the percentage was 9.9 per cent; among African Americans, 5.6 per cent; Asians, 19.2 per cent and Koreans more than 50 per cent. Specific groups fall above and below this average, which also varies from city to city and country to country. In the most comprehensive and serious effort to measure informal sector self-employment using a case study, Tienda and Raijman (2000) found that 38 per cent of Mexican immigrant households in Chicago worked in the informal economy. Adding the informal and formal sectors, Light and Gold (2000: 52) estimated that about 20 per cent of the average ethno-racial group works in ethnic ownership economies. SINGLE AND DOUBLE DISADVANTAGE Immigrant and ethnic minority workers often turn to self-employment because of disadvantage in the labor force. Unable to find a job, they start their own business. Disadvantage increases self-employment in the informal and illegal as well as in the formal sector of the ethnic ownership economy. Racial, ethnic and religious discrimination are major causes of disadvantage, but lack of language skill and unaccredited human capital are also important. Disadvantage is not a simple or unitary concept. Current thinking distinguishes labor market disadvantage from resource disadvantage. Labor market disadvantage occurs when workers cannot obtain wage or salary employment that reaches the prevailing market return on their productivity (Light and Rosenstein, 1995: 153–5). The most extreme labor market disadvantage is long-term unemployment, which one expects to last forever. In such a case, all earnings prospects depend on selfemployment. Groups experience resource disadvantage when, as a result of some current or past historical experience, such as slavery or peonage, members enter the labor market with fewer resources than others. Resources include all attributes that improve the productivity of employees, notably human capital, but also social capital, cultural capital and financial capital (Jenssen, 2001; Morris, 2001). Even if resource-disadvantaged employees earn the expected wage, fully equivalent to what equivalently disadvantaged non-co-ethnics earn, their wages will be low because resource-disadvantaged workers exhibit low productivity. Less productive workers receive lower pay than more productive workers. In this case, they experience only one disadvantage, resource disadvantage. They are singly disadvantaged. However, when labor force disadvantage and resource disadvantage combine, those subjected to discrimination in the labor market are low-productivity employees as DANA (2nd edition) PRINT.indd 197 18/12/2020 11:32 198 World encyclopedia of entrepreneurship well. Because subject to discrimination and being less productive, the doubly disadvantaged typically lack the human, cultural, social and financial capital that support self-employment in the formal sector. As a result, their multiple disadvantages impel the doubly disadvantaged into the ethnic economy’s informal or illegal sectors. These sectors do not require the same abundance or type of resources, as does the formal sector. On the other hand, when immigrants or ethnic minorities have strong resources of human, social, cultural and financial capital, and when they suffer only discrimination in the labor force, the disadvantaged have resources that empower their self-employment in the formal sector. Subjected to disadvantage in the labor force, they turn easily to selfemployment in the formal sector, thus tending to mitigate or even overcome their earnings disadvantage in the labor market. This resource constraint version of disadvantage theory explains puzzling anomalies that arise from the highly unequal rates of self-employment among immigrants and ethnic minorities. The basic conundrum has been to explain unequal rates and unequal sectoral distribution of self-employment among disadvantaged groups. Why do some preponderate in the formal sector whereas others preponderate in the informal or illegal sectors? Resource constraint theory proposes that doubly disadvantaged groups usually have the expected motive to undertake self-employment in the formal sector, but they lack appropriate capital resources. They want to start their own business, but they do not know how, and would lack the other resources even if they did know how. As a result, the self-employment of the doubly disadvantaged develops in the informal sector or in the illegal sector rather than in the formal sector. The formal sector requires the most resources of the kind the doubly disadvantaged least command. Conversely, welleducated and affluent groups have the capital resources to undertake self-employment in the formal sector when they face disadvantage in the labor market. By treating the formal, the informal, and the illegal sectors as organic parts of the same ethnic ownership economy, the ethnic economy literature exposes movements of personnel and money among the sectors. These movements signal changes in the social location of ethnic groups. When successful in the informal sector, immigrant and ethnic minority firms and their owners may migrate into the formal sector. In these cases, business owners who were initially doubly disadvantaged, and who went to work in the informal sector, overcome their initial disadvantage. By working in the informal sector, the doubly disadvantaged acquired new capital resources that fueled their transition from informal to formal sector business ownership and from social marginality to respectability. The same progression can take initially disadvantaged immigrants and ethnic minorities out of illegal business into the legal sectors. The transition of American Chinatowns from sordid vice districts in the nineteenth century to tourist attractions in the twentieth century reflects this kind of transition. So does the Cinderella story of racketeer capital invested in Las Vegas thanks to which a generation of Jewish and Italian American gangsters became respectable business owners. Of course, if the frequency of life history transitions from informal sector to formal sector or from illegal sector to formal sector were much higher than it is, the frequent transitions would wipe out any association between ethno-racial origins and the preponderant sector of entrepreneurship. Starting in the informal sector or in the illegal sector would not reduce anyone’s likelihood of winding up in the formal sector. Conversely, entrepreneurs who started in the formal sector, like Donald Trump, would frequently DANA (2nd edition) PRINT.indd 198 18/12/2020 11:32 Entrepreneurship in the ethnic ownership economy 199 wind up as lunch-stand operators. In fact, these inter-sectoral transitions are infrequent. The advantaged hang on to their advantages, and the disadvantaged hang onto their disadvantages. Among the disadvantaged, those doubly disadvantaged preponderantly occupy the informal and illegal sector while those only labor market disadvantaged occupy the formal sector. This association shows that double disadvantage is only infrequently overcome by entrepreneurial success. That said, when disadvantage is overcome, and graduation to the formal sector is achieved on a wholesale basis, then an ethnic group has improved its social position. FOUR CAPITAL RESOURCES The ethnic economy literature has clarified and classified the resources people actually use to start and operate business firms as well as the social sources of these resources (Morris, 2001). Current thinking identifies four resources that emanate from two locations in the social order. The four resources are all different forms of capital, which is defined narrowly as any resource hoard that facilitates entrepreneurship (Johannisson, 2000; Sequeira and Rasheed, 2004). Obviously, financial capital accomplishes this goal, and, in the past, financial capital was regarded as the key resource. Currently, researchers add three other forms of capital to this list while retaining financial capital. The other three are human capital, social capital and cultural capital. Human capital refers to skills acquired in classrooms and on the job. Since the acquisition of these skills requires that their owner invest time and money in learning them, the ownership of hard skills represents an investment in personal productivity. Students invest in the expectation of long-run gain. For example, a four-year college degree now costs more than $100 000, but the college graduate has skills that render him or her more productive and, therefore, able to command a higher salary. Since the self-employed as a group have more years of education than do wage and salary workers as a group, human capital appears empirically to contribute to self-employment. Social capital means access to formal and informal social networks that facilitate and support entrepreneurship (Rušinović, 2006: ch. 4). Weak and strong social ties to others constitute these networks. The strength or weakness of a social tie depends upon its intensity and duration. Networks are a scarce resource that requires effort to build and maintain. Participants must invest time, energy and money in building and maintaining their social network. That done, their social network yields vocationally relevant information and help. Strong social ties yield help; weak social ties yield information so both strong and weak ties are desirable components of entrepreneurial networks. Help means loans of money and equipment, referrals, preferential buying, selling, and servicing, memberships and the like. Information includes technical assistance, timely advice, market tips, gossip, news, email and so forth. Entrepreneurs’ networks work best when social relationships are reciprocal. Reciprocal relationships are those in which the firm expectation exists that a favor done will be reciprocated. Reciprocal relationships require trust. For example, if Joe has a computer and Ann has a truck, Joe can borrow Ann’s truck today because Ann believes that when she needs a computer later, Joe will return her favor. Ann exhibits a trust-based expectation of reciprocity that, when present, enables both Joe and Ann to avoid having to buy or rent infrequently used DANA (2nd edition) PRINT.indd 199 18/12/2020 11:32 200 World encyclopedia of entrepreneurship capital equipment. Lacking comparable reciprocity, Joe’s and Ann’s competitors must rent computers and trucks, and the rental cost will increase the price of their commodity. Similarly, social capital can be embodied or hidden in other forms of capital. Cultural capital is the fourth form of entrepreneurial capital (Light, 2004). Cultural capital refers to aptitudes, interests, beliefs, habits, lifestyles and customs that facilitate entrepreneurship. Much cultural capital is inherited or passed down in the course of primary socialization to adulthood; some is acquired. Max Weber’s (1958) celebrated theory of the Protestant work ethic exemplifies and illustrates cultural capital. As is very well known, Weber taught that the Protestant Reformation of the sixteenth century encouraged traditional European peasants to save their money and work harder than their parents had been accustomed to doing. Early modern Protestants valued hard work, punctuality, thrift and temperance a lot more than Catholics. These traits still support entrepreneurship, and all such vocationally relevant character traits (as well as social institutions such as the family) are still cultural in origin whether they emanate from Protestantism or from some other ethno-religious tradition. For reasons like this, cultural capital supports the entrepreneurship of those who have the most and the right kind. SOURCES OF ENTREPRENEURIAL CAPITAL Where do entrepreneurs acquire capital resources? The ethnic economy literature does not investigate individual differences in personality as a source of motives or capabilities. This is a valid inquiry, but the ethnic economy literature does not undertake this line of inquiry. The ethnic economy literature is agnostic about individual differences, and cannot, in most cases, explain why of two members of the same ethno-religious or ethnocultural group, one becomes an entrepreneur and the other does not. This incapacity arises from the structure of explanation that the ethnic economy literature deploys. Capabilities are traced to group memberships. Individuals who are members of the same group are presumed to have the same capabilities. If, having the same capabilities, they diverge in their behavior, then something other than shared capabilities must explain the divergence. Fully assimilated members of a society’s dominant ethnic group are just as ethnic as immigrants. To be ethnic is just to have a culture. But, the ethnic economy cannot offer an ethnic reason why some Germans in Germany become entrepreneurs and others do not, or why some Malays in Malaysia become entrepreneurs and others do not. Class must be the source of that internal explanation. However, when comparing Germans and Malays in Portugal, the ethnic economy approach may find ethno-cultural differences that would explain why one group has a higher self-employment rate than another. Eschewing explanation of individual difference, the ethnic economy literature proceeds like an actuary, predicting rates of self-employment among groups with different amounts and different kinds of capital resources. To this end, the ethnic economy literature distinguishes ethnic resources and class resources depending upon a resource’s provenance. Class resources derive from an entrepreneur’s placement within the class structure of society. Resources possessed thanks to one’s class placement are one’s class resources. Generally speaking, the class system of society bestows more entrepreneurial capital upon rich people than upon poor people so the rich are expected to exhibit higher rates of formal sector self-employment. Rich people inherit wealth and influential social DANA (2nd edition) PRINT.indd 200 18/12/2020 11:32 Entrepreneurship in the ethnic ownership economy 201 networks. They can afford expensive educations. They are likely to have entrepreneur parents or relatives, who teach them the entrepreneurial way of thinking and acting. In sum, rich people have superior access to financial capital, human capital, social capital and cultural capital that supports their entrepreneurship. For example, Donald Trump’s father was a construction entrepreneur who took his adolescent son to job sites and introduced him to real estate promoters. Donald Trump later attended Wharton School of Finance. As a young man, Donald Trump inherited $5 million that staked his initial ventures in real estate development. In contrast, back in east Los Angeles, Antonio Lopez had only five years of schooling in Guadalajara, started work at 11, knew only working-class people like his parents, and inherited only a guitar from his father. Is it any wonder that Trump became the real estate mega-tycoon and Lopez the owner of a taco stand, rather than the reverse? However, the contribution of the class system to entrepreneurial resources, while still true, is old knowledge. There is no need to belabor this well understood point. The ethnic economy literature builds on this received wisdom, but adds new. The ethnic economy literature has contributed awareness that a second major source of entrepreneurial resources exists. This source is the ethno-cultural and the ethno-religious group structure of societies. Quite independent of the class system, ethno-cultural and ethno-religious groups may confer financial capital, human capital, social capital and cultural capital upon members who are not rich. For example, poor people can borrow financial capital from kin and friends if they have a large extended family that consists of people who normatively endorse lending money to family members. The Amish, the Chinese and the Hindustanis have both extended families and the belief that one should lend money to extended kin. Therefore, poor entrepreneurs who are Amish, Chinese or Hindustani have superior chances to borrow start-up capital thanks to their ethno-cultural provenance. In contrast, white Americans have a hyper-nuclear family system that strips away the extended kin who might otherwise be available to lend them start-up money. Moreover, white Americans generally believe that it is inadvisable to lend money to kin. ‘Don’t mix family and business’ is their cultural belief. Again, Asians, Latin Americans and Africans utilize rotating savings and credit associations to support saving and lending. These informal institutions make capital available to people on the strength of their social standing in a large community. Even poor communities utilize these informal financial institutions. However, white Americans have no such informal institutions in their cultural repertoire. White Americans have neither rotating savings and credit associations nor extended kin from whom to borrow. If banks refuse loans, and they are not rich, then white Americans have no alternative source of loan capital, as do Amish, Chinese and Hindustanis. Comparable cases can be made for the contribution of the ethno-religious and ethnocultural structure of society to the availability of social capital, cultural capital and, even, human capital. Ethnic groups that value human capital a lot will invest heavily in it even when the expected money rewards are low. They thus endow their young adults with productive skills than enable their entrepreneurship. The economic development of South Korea in the late twentieth century benefited immensely from the vast respect of the Korean people for education, and their willingness to acquire it even when the expected return was lower than the cost. Conversely, of course, the Amish reject education beyond the eighth grade so Amish youth fail to acquire the schoolroom’s human DANA (2nd edition) PRINT.indd 201 18/12/2020 11:32 202 World encyclopedia of entrepreneurship capital even when the market economy generously rewards human capital. In both these cases, group-level attitudes toward education affect human capital acquisition net of that capital’s expected money return. These attitudes are cultural in origin. In this manner, ethnic cultures and class cultures become alternative sources from which entrepreneurs may derive vocationally relevant human capital. Everyone participates simultaneously in a class culture and an ethnic culture. Fully assimilated members of the ethnic majority also have an ethnic culture in which they participate and from which they derive such capital resources as their group membership affords them. Country clubs, luxury resorts, and college fraternities are sources of class-derived social capital, but Methodists, vegetarians, housewives and farmers also have social capital. The social networks of humble persons will not include as many powerful or rich people as do the social networks of the rich and wellborn. As a result, the humble people cannot obtain equivalent help and information from their social networks as do the rich and wellborn from theirs. However, for all that, the humble people still have access to social networks through which help and information may flow in abundance. If so, well-connected people of modest class origins can still have access to social capital that supports a modest entrepreneurship. Antonio Lopez drew on his social network of Guadalajara paisanos to obtain help and information that enabled him to open a taco stand in Los Angeles. The example illustrates the availability of entrepreneurial social capital to many more people than only those who are rich and wellborn (Halpern, 2005: 48). Social capital is the telephone connection that permits people to communicate; but cultural capital is what they say once connected. Since adults who understand business rise to the top of the class system, the cultural capital of the rich and wellborn accurately refracts the values, attitudes, practices and habits that enabled entrepreneurship in the older generation. Just being born into this class conveys its entrepreneurship-supporting cultural capital. That birthright advantage increases the likelihood that the children of the rich and wellborn will become important formal sector entrepreneurs. But this conclusion cannot be the whole truth. If entrepreneurship were just for the rich, why do some non-rich people own taco stands and dry cleaning establishments? Evidently, the rich and wellborn do not monopolize what Nobel Prize winner Edmund S. Phelps (2007) called, ‘entrepreneurial culture’. Stigmatized middleman minorities also transmit an entrepreneurship-supporting cultural capital, handing it along to their young people. This cultural capital enables middleman minorities (such as Armenians in the Levant, Jews in Europe, the overseas Chinese) to generate more entrepreneurs than do other ethno-religious or ethno-cultural groups. Sometimes ethnic or religious groups acquire the cultural capital that supports entrepreneurship. The Quakers of England accomplished this acquisition in the eighteenth century, and the Gurage of Ethiopia in the twentieth (Nida, 2006). Ethnic cultures may contain or replicate the entrepreneurshipsupporting cultural capital of the rich and wellborn. When they do, people of modest class background have access to some or all the cultural capital of entrepreneurship even though they are neither rich nor wellborn. DANA (2nd edition) PRINT.indd 202 18/12/2020 11:32 Entrepreneurship in the ethnic ownership economy 203 CONCLUSION Ethnic minorities and immigrant groups often face disadvantage in the labor market. Ethnic ownership economies are a basic and ubiquitous source of economic self-defense in this situation. All ethnic and immigrant minorities control and transmit social capital, financial capital, human capital and cultural capital that supports the entrepreneurship of their youth. Some have more than others, but all have some. Therefore, young people of modest class background and outsider ethnic status may acquire the basic resources of entrepreneurship thanks to their ethnic or religious affiliation in addition to whatever their class background provided, if anything. Just looking at classic middleman minorities, we see that rich Jews, Armenians and Chinese derive resources of entrepreneurship from their class background as well as from their ethnic background. Because they are rich, they have class resources; because they are Jewish, Armenian or Chinese, they have ethnic resources of entrepreneurship in abundance. However, poor Jews, Armenians or Chinese still acquire cultural capital of entrepreneurship from their ethnic culture. Even without supporting class resources, this cultural capital increases the likelihood that poor Jews, poor Armenians or poor Chinese will become self-employed. When they do, they strengthen the ethnic ownership economy of their group and therewith that group’s ability to defend itself against disadvantage in the labor force. It is no wonder then that middleman minorities like these demonstrate high rates of self-employment in the formal sector. Conversely, if we consider ethnic groups that are not middleman minorities, which encompasses most of humanity, their children acquire entrepreneurship that supports entrepreneurship in the formal sector principally when born into the rich class. Children of the working class do not obtain entrepreneurship-supporting capitals from either their class culture or from their ethnic culture; hence, their access to formal sector self-employment is less likely. They may achieve access only into informal sector self-employment for this reason because the informal sector requires lesser resources of entrants. On the other hand, wayward youth, with no chance for legitimate business ownership, may have access to a cultural capital that supports entrepreneurship in the illegal sector of their group’s ethnic ownership economy. They have the wisdom of the street, not the wisdom of the business school. For this reason, the working-class youth are better endowed with the requisite capital for self-employment in the illegal sector than are MBAs. This conclusion need not mean that some steal and others earn an honest living. Playing The Godfather, Marlon Brando remarked that one could steal more with a briefcase than with a machine gun. Prisons are the entrepreneurship academies of the lower working class. When the working-class youth succeed in illegal enterprise, they or their descendants can relocate the business into the formal sector, which upgrades their own status but also the average status of the members of their ethnic group. NOTE 1. One must differentiate an ethnic ownership economy from an ethnic enclave economy. The terms are not synonyms although they are often carelessly treated as if they were. An ethnic enclave economy is an ethnic ownership economy that is geographically clustered around a high-density residential core. Ethnic enclave economies are a special case of an ethnic ownership economy. DANA (2nd edition) PRINT.indd 203 18/12/2020 11:32 204 World encyclopedia of entrepreneurship REFERENCES Fairlie, Robert W. (1999), ‘Drugs and legitimate self-employment’, Department of Economics University of California, Santa Cruz. Fairlie, Robert W. and Bruce D. Meyer (1996), ‘Ethnic and racial self-employment differences and possible explanations’, The Journal of Human Resources, 31: 757–93. Halpern, David (2005), Social Capital, Cambridge: Polity Press. Jenssen, Jenifer I. (2001), ‘Social networks, resources, and entrepreneurship’, The International Journal of Entrepreneurship and Innovation, 2: 103–9. Johannisson, Bengt (2000), ‘Networking and entrepreneurial growth’, in Donald L. Sexton and Hans Landström (eds), The Blackwell Handbook of Entrepreneurship, Oxford: Blackwell, pp. 368–86. Li, Peter S. (2001), ‘Immigrants’ propensity to self-employment: evidence from Canada’, International Migration Review, 35: 1106–28. Light, Ivan (2004), ‘Cultural capital’, in Maryanne Cline Horwitz (ed.), New Dictionary of the History of Ideas, New York: Scribner’s. Light, Ivan (2005), ‘Ethnic economies’, in Neil Smelser and Richard Swedberg (eds), Handbook of Economic Sociology, 2nd edn, New York: Russell Sage Foundation, ch. 26. Light, Ivan and Steven Gold (2000), Ethnic Economies, San Diego, CA: Academic Press. Light, Ivan and Stavros Karageorgis (1994), ‘The ethnic economy’, in Neil Smelser and Richard Swedberg (eds), Handbook of Economic Sociology, New York: Russell Sage Foundation, ch. 26. Light, Ivan and Carolyn Rosenstein (1995), Race, Ethnicity, and Entrepreneurship in Urban America, Hawthorne, NY: Aldine de Gruyter. Morris, Michael (2001), ‘The critical role of resources’, Journal of Developmental Entrepreneurship, 6: 5–7. Nee, Victor, Jimy Sanders and Scott Sernau (1994), ‘Job transitions in an immigrant metropolis: ethnic boundaries and the mixed economy’, American Sociological Review, 59: 849–72. Nida, Worku (2006), ‘Entrepreneurship as a social movement: how the Gurage became successful entrepreneurs and what it says about identity in Ethiopia’, PhD dissertation, University of California, Los Angeles. Phelps, Edmund S. (2007), ‘Entrepreneurial culture’, Wall Street Journal, 12 February, A15. Rušinović, Katja (2006), Dynamic Entrepreneurship: First and Second-Generation Immigrant in Dutch Cities, Amsterdam: Amsterdam University Press. Sequeira, Jenifer M. and Abdul A. Rasheed (2004), ‘The role of social and human capital in the start-up and growth of immigrant businesses’, in Curt H. Stiles and Craig S. Galbraith (eds), Ethnic Entrepreneurship: Structure and Process, Amsterdam: Elsevier, pp. 77–94. Tienda, Marta and Rebeca Raijman (2000), ‘Immigrants’ income packaging and invisible labor force activity’, Social Science Quarterly, 81: 291–310. Weber, Max (1958), The Protestant Ethic and the Spirit of Capitalism, Upper Saddle River, NJ: Prentice-Hall. First published 1906. Weber, Max (1981), The General Economic History, New Brunswick, NJ: Transactions. First published 1927. DANA (2nd edition) PRINT.indd 204 18/12/2020 11:32 26. Entrepreneurship in the printing sector Naomi J. Dana Invented in China (Carter 1925), printing is the method of producing an impression of something (from type, for instance) onto a suitable material, such as paper. This has been among the most important innovations in the progress of humankind, as it accelerated the spread of information and knowledge. During the late fourteenth century, the first European woodblock printing methods were carried out. This was made by carving the complete page onto a block of wood and printing from it. The method was document-specific, as letters could not be reused elsewhere; furthermore, it was labour-intensive and time-consuming. Therefore, it was generally limited to reproducing pictures rather than text. Although Chinese Alchemist Bi Sheng had experimented with movable type as early as 1041 (Gunaratne 2001), it was four centuries later that German goldsmith Johann Gutenberg became the first person to print a book from movable type. This innovation created unprecedented efficiency since movable type (see Figure 26.1) involves letters made Figure 26.1 Movable type; photograph by Léo-Paul Dana 205 DANA (2nd edition) PRINT.indd 205 18/12/2020 11:32 206 World encyclopedia of entrepreneurship of metal (originally copper and tin), that can be rearranged for printing different books. Also, Gutenberg adapted the wine press for printing. The first book printed with movable type and a wooden printing press is the Vulgate bible – commonly known as ‘the 42-line Bible’ – the most valuable volume ever printed. Printing enabled mass production of books. Gutenberg later became blind and his innovation was most appreciated after his death. A teacher, entrepreneur and printer, in the late fifteenth century, Italian Aldus Manutius founded his printing enterprise in Italy. He adopted narrow font styles since these enabled him to fit more words on a page, and this saved money on both ink and paper. Among his innovations was the introduction of the italic type style. The success of his books prompted other printers to imitate him; this resulted in the acceptance of both the italic and roman styles as standard throughout Europe. See also Davies (1995). In 1717, Boston-born James Franklin returned home from England with a press and letters to set up a printing office in Boston, Massachusetts (Franklin 1916). In 1724, his brother Benjamin Franklin – who considered himself an Englishman most of his life – travelled from Philadelphia to England and, employed in printing shops there, acquired skills that he would soon introduce to America. In 1726, he returned home thanks to money lent to him by Thomas Denham, for whom he worked before being employed by Samuel Keimer who was given a contract to print currency with America’s only copper press. This involved skills that nobody in America held, other than Benjamin Franklin. In 1729, Benjamin and his business partner Hugh Meredith purchased the Pennsylvania Gazette from Samuel; this newspaper was unique in that it was published twice weekly, and contained not only news, but also essays contributed by readers; many of the essays were written by Benjamin under pen-names. Applying the principle that oil and water do not mix, in 1796, the invention of a new printing process – lithography – by Prague-born German Alois Senefelder, was an important innovation. In 1798, another development, by Nicolas Louis Robert, was the invention of a mechanical method of manufacturing paper. In 1800, Lord Stanhope of England designed a cast-iron version of Gutenberg’s wooden press. Figure 26.2 features a metal press – an Albion table model hand-lever type manufactured in 1863, by Hopkinson & Cope. In 1810, Koenig’s powered press increased speed of printing from 300 to 1100 pages per hour. In 1856, the rotary press was invented by American William Bullock, which made it possible to print 48 000 pages per hour. THE NEW WORLD Known as the father of the platen press, in 1851, New Yorker George Phineas Gordon received a patent for an invention that was one of the first American contributions to printing technology; he produced the first practical platen press, using a heavy pressure plate. In 1881, Cleveland entrepreneurs Harrison T. Chandler and William H. Price established the firm Chandler & Price and purchased Gordon’s patent and produced the Chandler & Price Gordon platen press. Figure 26.3 features their pilot platen press. Printing and publishing became widespread. Entrepreneur William Southam began delivering newspapers when he was 12 years old, and at 33 bought a newspaper venture with a partner. In 1871 he incorporated Southam Limited, a firm that eventually grew DANA (2nd edition) PRINT.indd 206 18/12/2020 11:32 Entrepreneurship in the printing sector Figure 26.2 207 Albion; photograph by Léo-Paul Dana to publish periodicals as well as 17 daily newspapers and 56 community newspapers. Figure 26.4 features the Southam building, in Montreal. Typesetting continued by hand until 1886, when America’s Ottmar Mergenthaler revolutionised this process with a hot metal typesetting system that could cast a complete line of metal type, instead of individual characters as had been the case with monotype typesetting. Although his invention was trademarked as the Linotype, the Intertype Company produced a rival machine (Figure 26.5) in the UK, with identical principles. GERMAN TECHNOLOGY Among the most successful platen presses was the Heidelberg press, manufactured in Germany. Figure 26.6 features a Heidelberg platen from the 1920s. During the inter-war years, Germany remained a leader in printing technology. Among platen press models, DANA (2nd edition) PRINT.indd 207 18/12/2020 11:32 208 World encyclopedia of entrepreneurship Figure 26.3 Platen press; photograph by Léo-Paul Dana the Windmill was first produced in 1924 and almost 200 000 were produced by the time production ended in 1985. As a result of World War II reparation agreements, the Allies received printing technology from the Germans. Figure 26.7 is a post-war Printomatic stop cylinder press, manufactured in the UK from a 1934 German design. POST-WAR INNOVATIONS In 1952, German Dr Rudolph Hell invented the Klischograph (see Figure 26.8). This revolutionised the printing of photographs in newspapers by photo-electronically scanning the original picture by means of an electrical current that controlled a stylus that engraved a half-tone illustration, using a technique that represents an image by dots of different sizes with different spacing. DANA (2nd edition) PRINT.indd 208 18/12/2020 11:32 Entrepreneurship in the printing sector 209 Figure 26.4 The Southam Printing Company, Montreal; photograph by Léo-Paul Dana Figure 26.5 Post-war typecasting machine; photograph by Léo-Paul Dana DANA (2nd edition) PRINT.indd 209 18/12/2020 11:32 210 World encyclopedia of entrepreneurship Figure 26.6 Heidelberg platen; photograph by Léo-Paul Dana Figure 26.7 Printomatic; photograph by Léo-Paul Dana DANA (2nd edition) PRINT.indd 210 18/12/2020 11:32 Entrepreneurship in the printing sector Figure 26.8 211 Klischograph; photograph by Léo-Paul Dana In 1961, the Heidelberg K model cylinder press (Figure 26.9) was introduced. The innovation replaced a platen by a plate cylinder that allowed significant increases in quality and speed. By 1973, 25 000 of these were being used across 130 countries. Production continued until 1986. In 1969, United Technologies Corporation was awarded a patent for laser printing, an electrostatic digital printing process. This technique allows computer printers to quickly reproduce letters, figures and images with high accuracy. In 1974, David E. H. Jones laid out the concept of three-dimensional (3D) printing. In 1983, American Chuck Hull, inventor of stereolithography, made a 3D printer, launching what Berman (2012) called a new industrial revolution. Early in the new millennium, Cornell University began to develop machines that could print food. Since then, scientists have been designing prosthetic limbs and body parts to be built by means of 3D printing (Ten Kate et al. 2017). DANA (2nd edition) PRINT.indd 211 18/12/2020 11:32 212 World encyclopedia of entrepreneurship Figure 26.9 Heidelberg K model offset press; photograph by Léo-Paul Dana REFERENCES Berman, B. (2012), ‘3-D printing: the new industrial revolution’, Business Horizons, 55 (2), 155–62. Carter, T.F. (1925), The Invention of Printing in China and Its Spread Westward, New York: Columbia University Press. Davies, M. (1995), Aldus Manutius, Printer and Publisher of Renaissance Venice, London: British Library. Franklin, B. (1916), Franklin’s Biography, New York: Henry Holt. Gunaratne, S.A (2001), ‘Paper, printing and the printing press: a horizontally integrative macrohistory analysis’, Gazette, 63 (6), 459–79. Ten Kate, J., G. Smit and P. Breedveld (2017), ‘3D-printed upper limb prostheses: a review’, Disability and Rehabilitation: Assistive Technology, 12 (3), 300–314, doi:10.1080/17483107.2016.1253117. DANA (2nd edition) PRINT.indd 212 18/12/2020 11:32 27. Entrepreneurship policy David B. Audretsch 1 INTRODUCTION A generation of management and economics scholars such as Chandler (1977; 1990) concluded that there was little room for entrepreneurship in the context of starting a new firm, to generate efficiency and ultimately business and managerial success. Schumpeter (1942: 132) similarly concluded that, due to scale economies in the production of new economic knowledge, large corporations would not only have the innovative advantage over small and new enterprises, but that ultimately the economic landscape would consist only of giant corporations: ‘Innovation itself is being reduced to routine. Technological progress is increasingly becoming the business of teams of trained specialists who turn out what is required and make it work in predictable ways.’ Accordingly, a generation of scholars suggested that public policy should focus exclusively on the large corporation. For example, Galbraith (1979: 93–4) argued that entrepreneurship was disappearing in the contemporary economy, where the great entrepreneurs of the Industrial Revolution were replaced by the hierarchical large corporation: ‘The great entrepreneur must, in fact, be compared in life with the male Alpis mellifera. He accomplishes his act of conception at the price of his own extinction.’ Thus, according to Galbraith (1979: 61), the entrepreneur ‘is a diminishing figure in the planning system. Apart from access to capital, his principal qualifications were imagination, capacity for decision and courage in risking money, including, not infrequently, his own. None of these qualifications is especially important for organizing intelligence or effective in competing with it.’ By contrast, it was argued that public policy needed to focus on the large corporation. According to Schumpeter (1942: 106): ‘What we have got to accept is that (the largescale establishment or unit of control) has come to be the most powerful engine of . . . progress and in particular of the long-run expansion of output not only in spite of, but to a considerable extent through, this strategy which looks so restrictive.’ Galbraith (1958 [1976]: 86–7) echoed this view: There is no more pleasant fiction than that technical change is the product of the matchless ingenuity of the small man forced by competition to employ his wits to better his neighbor. Unhappily, it is a fiction. Technical development has long since become the preserve of the scientist and engineer. Most of the cheap and simple inventions have, to put in bluntly and unpersuasively, been made. However, as entrepreneurship has become recognized as an engine of economic growth, employment creation and competitiveness in global markets (Audretsch et al. 2006), public policy has shifted its priorty to promote entrepreneurship. For example, Romano Prodi (2002: 1), who at the time served as President of the European Commission, proclaimed that the promotion of entrepreneurship was a central cornerstone of European 213 DANA (2nd edition) PRINT.indd 213 18/12/2020 11:32 214 World encyclopedia of entrepreneurship economic growth policy: ‘Our lacunae in the field of entrepreneurship needs to be taken seriously because there is mounting evidence that the key to economic growth and productivity improvements lies in the entrepreneurial capacity of an economy.’ With the 2000 Lisbon Proclamation, the European Council made a commitment to becoming not just the leader in knowledge but also the entrepreneurship leader in the world in order to ensure prosperity and a high standard of living throughout the continent. Europe was not alone in focusing on entrepreneurship as a key factor generating economic growth. From the other side of the Atlantic, Mowery (2005: 1) observes: During the 1990s, the era of the ‘New Economy,’ numerous observers (including some who less than 10 years earlier had written off the U.S. economy as doomed to economic decline in the face of competition from such economic powerhouses as Japan) hailed the resurgent economy in the United States as an illustration of the power of high-technology entrepreneurship. The new firms that a decade earlier had been criticized by such authorities as the MIT Commission on Industrial Productivity (Dertouzos et al., 1989) for their failure to sustain competition against large non-U.S. firms were seen as important sources of economic dynamism and employment growth. Indeed, the transformation in U.S. economic performance between the 1980s and 1990s is only slightly less remarkable than the failure of most experts in academia, government, and industry, to predict it. The purpose of this chapter is to explain the emergence of entrepreneurship, not as a business strategy, but rather as a bona fide strategy and priority of public policy. The following section explains the emergence of a mandate for entrepreneurship policy. The economic rationale providing an intellectual and theoretical basis for public policy intervention to promote entrepreneurship is explained in the third section. The fourth section explains what exactly constitutes entrepreneurship policy, the instruments used to implement entrepreneurship policy, and the locus of entrepreneurship policy. Finally, conclusions and a summary are provided. In particular, just as entrepreneurship has become a bona fide area for the management of business, it has also emerged as a bona fide strategy for public policy. 2 THE MANDATE FOR ENTREPRENEURSHIP POLICY Between the 1950s and 1980s public policy to promote economic growth, employment and international competitiveness focused largely on promoting the factor of physical capital, which placed large corporations in manufacturing industries at the focal point of policy. This policy approach, which Audretsch and Thurik (2001) and Audretsch (2007a; 2007b) term the managed economy, reflected the insights generated by the Nobel Prizewinning Solow model, which linked economic growth and productivity explicitly to the factor of physical capital. Globalization has shifted the comparative advantage of Organisation for Economic Co-operation and Development (OECD) countries away from physical capital towards knowledge capital. The endogenous growth theory (Romer, 1986) provided an intellectual framework which correspondingly shifted the focus of public policy towards instruments which would promote investments in knowledge, such as research and development (R&D), patents, human capital and universities. DANA (2nd edition) PRINT.indd 214 18/12/2020 11:32 Entrepreneurship policy 215 Even as the comparative advantage in (physical) capital in OECD countries was beginning to fade, scholars and policy-makers began to recognize the primacy of a very different factor of production – knowledge capital, which is based not just on technological and scientific knowledge, but also in a broader sense of ideas, creativity, originality and novelty. The recognition by Romer (1986) and Lucas (1993), among others, that knowledge was not only endogenous, but that it also spilled over for commercialization by firms and individuals other than the firm or university actually creating that knowledge in the first place, shifted the policy debate and focus away from instruments inducing investments in physical capital, towards instruments generating knowledge and ideas, such as university research, education and training, R&D and patents. Thus, even as the OECD countries began losing the comparative advantage in physical capital, they seemed to be at least as well poised to thrive with a knowledgebased economy. In particularly, the Nordic countries, but also Northern Europe more generally, ranked among the world’s leaders in terms of the most common measures of knowledge. Thus, the inability of countries which were knowledge leaders, such as Sweden, to prosper in the global economy was so striking that it was referred to as the Swedish Paradox. However, it was not just Sweden that exhibited surprising low growth rates and rising unemployment, while at the same time having high rates of investment in research, human capital and culture. The European Union adapted the label to describe what it termed the European Paradox. While the prescriptions of investments in knowledge generated economic models of scholars, the experience of Sweden, and much of Europe, was suggesting that the links between knowledge and growth are, in fact, more nuanced and complicated. The conditions inherent in knowledge – high uncertainty, asymmetries and transactions cost – can result in decision-making hierarchies in companies reaching the decision not to pursue and try to commercialize new ideas that individual economic agents, or groups or teams of economic agents think are potentially valuable and should be pursued. The characteristics of knowledge distinguishing it from information, a high degree of uncertainty combined with non-trivial asymmetries, combined with a broad spectrum of institutions, rules and regulations impose what Audretsch and Keilbach (2007), Audretsch et al. (2006) and Braunerhjelm et al. (2010) term the knowledge filter. The knowledge filter is the gap between knowledge that has a potential commercial value and knowledge that is actually commercialized. The greater is the knowledge filter, the more pronounced is the gap between new knowledge and commercialized knowledge. It is the knowledge filter that impedes investments in knowledge from spilling over for commercialization that leads to the so-called Swedish Paradox and European Paradox. Europe was not alone in having investments in knowledge choked off from generating economic growth by the knowledge filter. Confronted with what is termed the knowledge filter impeding the spillover of knowledge from the firm or organization where it was originally generated, for commercialization by third-party firms, public policy instruments to promote investment in knowledge, such as human capital, R&D, and university research may not adequately generate economic growth. One interpretation of the European Paradox, where such investments in new knowledge have certainly been substantial and sustained, but vigorous growth and reduction of unemployment have remained elusive, is that the presence of such an imposing knowledge filter chokes off the commercialization of those new DANA (2nd edition) PRINT.indd 215 18/12/2020 11:32 216 World encyclopedia of entrepreneurship knowledge investments, resulting in diminished innovative activity and, ultimately, stagnant growth. By choking off the spillover and commercialization of knowledge and new ideas, the knowledge filter at the same time presents opportunities for individuals, or teams of individuals, that might place a high valuation on the potential of that knowledge, to become entrepreneurs. If someone is not able to pursue and implement their vision within the context of an incumbent firm or organization, in order to appropriate the value of her knowledge and ideas, they would need to start a new firm, that is, become an entrepreneur. The start-up of a new firm reflects knowledge spillover entrepreneurship because the ideas serving as the basis for the start-up were obtained, typically for little or no cost, from a different, incumbent firm or organization. Thus, knowledge spillover entrepreneurship serves as a conduit for the spillover new ideas generated by an incumbent organization but left uncommercialized. The knowledge spillover theory of entrepreneurship (Braunerhjelm et al., 2010; Audretsch, 1995; Audretsch and Keilbach, 2007; Audretsch et al., 2006), suggests that contexts which are rich in knowledge will tend to generate more entrepreneurial opportunities. By contrast, those contexts that have less knowledge will generate fewer entrepreneurial opportunities. A consequence of globalization, which has shifted the comparative advantage of developed countries from physical capital to knowledge capital, is that entrepreneurial opportunities become more pervasive (Audretsch, 2007a). From the end of the Second World War into the 1980s, public policy to promote economic growth, employment and competitiveness focused extensively on an approach to foster investments in physical capital and nurturing institutions that facilitated the most effective development and utilization of the labor force deployed to work with that capital. Small business was seen as generally being peripheral to even detracting from the efficient organization of capital in large corporations. As globalization shifted the comparative advantage in the OECD countries towards knowledge, ideas and creativity, the policy emphasis accordingly shifted towards promoting investments in knowledge, such as research and development, universities, human capital and education. Little emphasis was placed on small and medium-sized enterprises, since research and development, along with patenting and investments in human capital were generally perceived to lie in the domain of large corporations. However, along with the recognition that entrepreneurship provides a crucial role by providing a conduit for knowledge spillovers, has come the emergence of a new policy approach – entrepreneurship policy. The focus of entrepreneurship policy is to encourage and promote not just investments in knowledge, but also their commercialization through the start-up of a new firm. Thus, the focus is on policies that enable people, particularly in knowledge-based and creative industries, to start new business and to facilitate the growth of such new ventures. Recent literature has identified the emergence of a new public policy approach (Audretsch, 2007a; 2007b), with a focus on generating entrepreneurship capital, or the capacity of an economy to generate entrepreneurial activity. Investments in knowledge and ideas may not automatically spill over for commercialization, which would trigger innovation and growth. Rather, as is explained above, the knowledge filter impedes the spillover and commercialization of knowledge. By commercializing ideas and knowledge DANA (2nd edition) PRINT.indd 216 18/12/2020 11:32 Entrepreneurship policy 217 that might otherwise not have been commercialized, the start-up of a new firm serves as an important conduit for the spillover of knowledge. Thus, in an effort to appropriate the returns in terms of economic growth, employment, and international competitiveness from costly investments in knowledge, such as public research, education, and universities, a mandate for public policy and institutions to shift away from the managed economy towards an entrepreneurial society has emerged in the OECD countries (Audretsch, 2007a; 2007b). 3 THE ECONOMIC RATIONALE UNDERLYING POLICY INTERVENTION FOR ENTREPRENEURSHIP Besides a mandate for entrepreneurship policy, there is also an economic rationale for public policy intervention to create an entrepreneurial economy. Linking entrepreneurship to economic growth is not an automatic justification for public policy intervention. In fact, Bresnahan and Gambardella (2004: 5) argue that the emergence of the most prominent contemporary region, Silicon Valley, that has set the standard for an entrepreneurial economy rich in entrepreneurship capital, did not result from public policy intervention: ‘Our overall research design took seriously the proposition government policy leading and directing cluster formation might be an important part of the cluster formation story . . . we ultimately reject that proposition.’ Rather, for an economic rationale to justify public policy intervention, a reason must exist why the good or service in question, in this case entrepreneurship, will not be adequately provided by the private market. The economic rationale for public policy intervention to support entrepreneurship is based on market failure. There are four types of market failure – network externalities, knowledge externalities, failure externalities and demonstration externalities – providing an economic rationale for policy intervention. Entrepreneurial activity will tend to be suppressed as a result of these four types of market failure (Audretsch and Keilbach, 2007). Network Externalities When the value of an individual’s or firm’s capabilities and knowledge is conditional upon complementary firms and individuals, network externalities exist. Such network externalities frequently have a strong spatial component. In this case geographic proximity will facilitate accessing these complementary inputs. Thus, the value of an entrepreneurial firm and individual will be greater in the (local) presence of other entrepreneurial firms and individuals. The value of any individual’s or firm’s capabilities is therefore conditional upon the existence of partners in a network. Regions with an entrepreneurial cluster will tend to be more attractive to firms and knowledge workers. By contrast, regions with a paucity of entrepreneurship and knowledge will be less attractive to firms and workers. Thus, this source of market failure involves the geographic context which provides the (potential) platform for interactions and networks. Contexts, or regions, that do not enjoy a rich density of entrepreneurial networks will be burdened with more significant barriers to entrepreneurship, because the expected value of any recognized opportunity DANA (2nd edition) PRINT.indd 217 18/12/2020 11:32 218 World encyclopedia of entrepreneurship will be correspondingly lower in the absence of such networks, resulting in a lower propensity for economic agents to make the decision to become an entrepreneur. Knowledge Externalities The high propensity for knowledge to be associated with externalities is the second source of market failure. As Arrow (1962) suggested and Audretsch and Feldman (1996) show, knowledge generates externalities and can spill over for commercialization and innovation by third-party firms and individuals. However, as Audretsch and Feldman (1996) suggest, close geographic proximity to knowledge sources will facilitate the spillover of knowledge. Audretsch and Feldman (1996) and Audretsch et al. (2006) provide compelling empirical evidence that knowledge spillover entrepreneurship has a strong propensity to spatially cluster within close geographic proximity to knowledge sources. Similarly, Gilbert et al. (2008) provide empirical evidence that those entrepreneurial start-ups locating within a geographic cluster exhibit a superior performance vis-à-vis their counterparts that do not locate within a geographic cluster. Thus, location can influence the access of entrepreneurial start-ups to external knowledge spillovers. Public policy can compensate for the lack of an entrepreneurial cluster in a particular region by trying to facilitate an environment that is favorable to the formation of entrepreneurial clusters. Failure Externalities The third source of market failure emanates from the positive economic value created by entrepreneurial firms that fail. Entrepreneurial firms have a significantly greater propensity to failure within a few years subsequent to start-up (Caves, 1998). The failure rate for start-ups is even greater for knowledge-based and high-technology entrepreneurship. The higher failure rate of entrepreneurship in general and knowledge-based and high-technology entrepreneurship in particular is attributable to a greater degree of uncertainty. Entrepreneurial failure may generate significant positive value for other, third-party firms and entrepreneurs that can use these ideas. Valuation of a potential new enterprise by private financiers does not include failure externalities. A private investor can only appropriate her investment if the entrepreneurial venture succeeds. The external value created by a failed firm for use by other third-party firms is not considered or valued by private investors. In the event of entrepreneurial failure, the private investor will not appropriate anything from the original investment, regardless of how great the externalities are. However, from the perspective of public policy, which firm actually succeeds and subsequently generates growth and employment for the region is of less concern than that it is generated at all. After all, the public policy goal is typically growth for the overall region but not necessarily for any particular enterprise. Demonstration Externalities The fourth source of market failure is the demonstration effect associated with entrepreneurial activity. The demonstration effect refers to the learning undertaken by (potential) DANA (2nd edition) PRINT.indd 218 18/12/2020 11:32 Entrepreneurship policy 219 entrepreneurs and firms about the viability of entrepreneurship from observing incidents of entrepreneurial activity. The decision to commercialize ideas and enter into entrepreneurship can be influenced by observing the outcomes and consequences when others enter into entrepreneurship. The demonstration effect may be especially valuable for a region burdened with an impoverished amount of entrepreneurship capital. As a result of the market failures inherent in the externalities involved in knowledge spillover entrepreneurship – which stem from networks, knowledge, failure and demonstration – a gap is created in the valuation of potential entrepreneurial activities between private parties and the local public policy-makers. Thus, the constraints for obtaining early stage finance for entrepreneurial start-ups and nascent entrepreneurs tend to be even greater outside of a successful entrepreneurial cluster than within an entrepreneurial cluster. The four sources of market failure associated with entrepreneurship contribute to significant barriers to entrepreneurship at least in some contexts. The economic rationale for entrepreneurship policy is to mitigate these four sources of market failure. The role that entrepreneurship plays in permeating the knowledge filter and serving as a conduit of knowledge spillovers, combined with the strong propensity for those knowledge spillovers to be geographically bounded and remain localized, suggests a key role for public policy to promote entrepreneurship. By compensating for market failure, public policy can create a virtuous entrepreneurial circle, where entrepreneurs become networked and linked to each other, and provide strong role models of knowledge spillover entrepreneurship for other individuals to emulate. 4 INSTRUMENTS OF ENTREPRENEURSHIP POLICY With both a mandate and rationale for undertaking entrepreneurship policy, two important issues remain. The first revolves around what exactly constitutes entrepreneurship policy and a bona fide entrepreneurship policy instrument. The second involves the mechanisms and policy channels for implementing entrepreneurship policy. A broad spectrum of diverse policy approaches to promote entrepreneurship exist across countries and context. Still an important feature distinguishing entrepreneurship policy from more traditional approaches towards business characteristic of the managed economy (Audretsch and Thurik, 2001) is a shift away from the focus on the traditional triad of policy instruments essentially constraining the freedom of firms to contract – regulation, competition policy or antitrust in the USA and public ownership of business. Instead, as a result of globalization, a new policy approach has emerged with a focus on enabling the creation and commercialization of knowledge. Along with this shift in policy approach has emerged a distinction between entrepreneurship policy from the traditional small business policies. This distinction involves reconsidering the role of small and new firms. In the managed economy public policy generally took the stance of trying to preserve small businesses that were widely perceived to be burdened with an inherent cost disadvantage due to operating at a suboptimal scale of output. Thus, small business policy was essentially preservationist in the managed economy. For example, in light of the fact that small firms constituted an ever-decreasing share DANA (2nd edition) PRINT.indd 219 18/12/2020 11:32 220 World encyclopedia of entrepreneurship of the US economy during the first half of the twentieth century, Congress passed the Small Business Act of 1953, which established the US Small Business Administration (SBA), with an explicit mandate to ‘aid, counsel, assist and protect . . . the interests of small business concerns’. The agency was directed to help small businesses obtain government contracts and loans, along with management and technical assistance. The Act tried to protect small firms from exposure to a hostile economic environment, to at least mitigate the continued disappearance of small business and to preserve the role of small business in the US economy. By contrast, entrepreneurship public policy views new ventures as serving as a conduit for knowledge spillovers and thus serving as an engine of growth, employment generation and competitiveness in global markets. The focus of entrepreneurship is on the promotion of facilitating entrepreneurs to start new firms and on new and small firms involved in the commercialization of knowledge, or knowledge-based entrepreneurship. Small business policy typically refers to policies implemented by governmental agencies charged with the mandate to promote small business. The actual definition of a small business varies considerably across countries, ranging from enterprises with fewer than 500 employees in the USA and Canada, to fewer than 250 employees in the European Union, to 50 employees in many developing countries. Small business policy typically takes the existing enterprises within the appropriate size class as exogenous, or given, and then develops instruments to promote the continued viability of those enterprises. Thus, small business policy is almost exclusively targeted on the existing stock of enterprises and virtually all of the instruments included in the policy portfolio are designed to promote the viability of these small businesses. By contrast, entrepreneurship policy has a much broader focus. The definition, introduced by Stevenson and Lundström (2005: 19) for OECD countries, is ‘Entrepreneurship policy consists of measures taken to stimulate more entrepreneurial behaviour in a region or country . . . We define entrepreneurship policy as those measures intended to directly influence the level of entrepreneurial vitality in a country or a region.’ There are at least two important ways that distinguish entrepreneurship policy from small business policy (Stevenson and Lundström, 2005). The first is the breadth of policy orientation and instruments. While small business policy focuses on the existing stock of small firms, entrepreneurship policy is more encompassing because it includes potential entrepreneurs. Entrepreneurship policy also has greater sensitivity to contextual conditions and framework that shape the decision-making process of entrepreneurs and potential entrepreneurs. While small business policy is primarily concerned with one organizational level, the enterprise, entrepreneurship policy encompasses multiple levels of organization and analysis. These range from the individual to the enterprise level and focus on clusters or networks. The various perspectives might involve an industry or sectoral dimension, or a spatial dimension, such as a district, city, region or even an entire country. Just as each of these levels is an important target for policy, the interactions and linkages across these disparate levels are also important. In this sense, entrepreneurship policy tends to be more holistic than small business policy. The second way of distinguishing entrepreneurship policy from traditional small business policy is that virtually every country has a governmental agency charged with promoting the viability of the small business sector. These ministries and agencies have by DANA (2nd edition) PRINT.indd 220 18/12/2020 11:32 Entrepreneurship policy 221 now developed a large arsenal of policy instruments to promote small business. However, no agencies exist to promote entrepreneurship. Part of the challenge of implementing entrepreneurship policy is this lack of agency-level institution. Rather, aspects relevant to entrepreneurship policy can be found across a broad spectrum of ministries, ranging from education to trade and immigration. Thus, while small businesses have agencies and ministries to protect their issues, no analogous agency exists for entrepreneurs. Not only is entrepreneurship policy implemented by different ministries or agencies than those implementing either the traditional policy instruments constraining the freedom of firms to contract or those implementing traditional small business policy, but it involves a very different and distinct set of policy instruments. Stevenson and Lundström (2005) meticulously classified the broad and diverse range of instruments which are being used around the globe to promote entrepreneurship. Examples of the emerging entrepreneurship policy abound. Still, the point to be emphasized here is not so much the efficacy of the policy, but rather the clearly stated goal – to promote the spillover of knowledge from universities for commercialization that will foster innovation and ultimately economic growth. Not only are the instruments of entrepreneurship policy decidedly distinct from those traditionally used towards business and small business in particular, but the locus of such enabling policies is also different. The instruments constraining the freedom of firms to contract – antitrust, regulation and public ownership – were generally controlled and administered at the national level. By contrast, the instruments of entrepreneurship policy are generally applied at decentralized levels: state, city and local government. As Stevenson and Lundström (2005) point out, entrepreneurship policy uses a wide variety of instruments ranging from changing regulation to taxes, immigration, education, as well as more direct instruments such as the provision of finance or training. If entrepreneurship policy can be viewed as the purposeful attempt to create an entrepreneurial society, entire institutions that were the cornerstone of the managed economy are being challenged and reconfigured in favor of the entrepreneurial society. 5 CONCLUSIONS This chapter has explained and documented that entrepreneurship is not just central as a topic for the management of private business but also for public policy. As knowledge has become important and the era of the managed economy has receded, shifting to an entrepreneurial society has become a priority for public policy. Entrepreneurship policy is less about creating and promoting any particular type of individual, firm or industry but rather more about creating a society where entrepreneurship serves as the driving force for growth, employment creation and competitiveness in global markets. An important qualification, however, is that by itself, public policy will never succeed or guarantee the creation of an entrepreneurial society. As Gordon Moore, who is ‘widely regarded as one of Silicon Valley’s founding fathers’ (Bresnahan and Gambardella, 2004: 7) and Kevin Davis warn, the policy rush to generate an entrepreneurial society is fraught with dangers and ambiguities: ‘The potential disaster lies in the fact that these static, descriptive efforts culminate in policy recommendations and DANA (2nd edition) PRINT.indd 221 18/12/2020 11:32 222 World encyclopedia of entrepreneurship analytical tomes that resemble recipes or magic potions such as combine liberal amounts of technology, entrepreneurs, capital, and sunshine; add one university; stir vigorously’ (Moore and Davis, 2004: 9). Entrepreneurship policy has emerged as a bona fide priority and strategy for public policy because it can provide a missing link to economic growth. Investments in new knowledge, such as R&D, universities and human capital may be necessary but not sufficient for generating economic growth. Rather, mechanisms may also be needed to generate the highest return possible to society, in terms of growth, jobs and international competitiveness, from the investments made to create that knowledge in the first place. Entrepreneurship can make a crucial contribution to economic growth by facilitating the spillover and commercialization of ideas and knowledge that otherwise might never have been transformed into innovative activity. Public policy has accordingly begun to place a priority on not just investments in knowledge, but also in creating entrepreneurship capital, to try to ensure that those costly investments in new knowledge actually result in what society desires – growth and jobs in a globalized economy. REFERENCES Arrow, K. (1962), ‘Economic welfare and the allocation of resources for invention’, in Richard R. Nelson (ed.), The Rate and Direction of Inventive Activity, Princeton, NJ: Princeton University Press, pp. 609–26. Audretsch, David (1995), Innovation and Industry Evolution, Cambridge, MA: MIT Press. Audretsch, David and M.P. Feldman (1996), ‘R&D spillovers and the geography of innovation and production’, American Economic Review, 86, 630–40. Audretsch, David and R. Thurik (2001), ‘What’s new about the new economy? Sources of growth in the managed and entrepreneurial economies’, Industrial and Corporate Change, 19, 795–821. Audretsch, David B. (2007a), The Entrepreneurial Society, New York: Oxford University Press. Audretsch, David B. (2007b,) ‘Entrepreneurship capital and economic growth’, Oxford Review of Economic Policy, 23, 63–78. Audretsch, David B. and Max Keilbach (2007), ‘The theory of knowledge spillover entrepreneurship’, Journal of Management Studies, 44 (7), 1242–54. Audretsch, David B., Max Keilbach and Erik Lehmann (2006), Entrepreneurship and Economic Growth, New York: Oxford University Press. Braunerhjelm, P., Z.J. Acs, D.B. Audretsch and B. Carlsson (2010), ‘The missing link: knowledge diffusion and entrepreneurship in endogenous growth’, Small Business Economics: An Entrepreneurship Journal, 34 (2), February, 105–25. Bresnahan, T. and A. Gambardella (2004), Building High-Tech Clusters: Silicon Valley and Beyond, Cambridge: Cambridge University Press. Caves, R. (1998), ‘Industrial organization and new findings on the turnover and mobility of firms’, Journal of Economic Literature, 36, 1947–82. Chandler, A. (1977), The Visible Hand: The Managerial Revolution in American Business, Cambridge: Belknap Press. Chandler, A. (1990), Scale and Scope: The Dynamics of Industrial Capitalism, Cambridge: Harvard University Press. Dertouzos, M., R. Lester and R. Solow (1989), Made in America: Regaining the Productive Edge, Cambridge: MIT Press. Galbraith, John Kenneth (1958), The Affluent Society, 3rd edn 1976, Boston, MA: Houghton Mifflin. Galbraith, John Kenneth (1979), The New Industrial State, Boston, MA: Houghton Mifflin. (First published 1967.) Gilbert, Brett A., Patricia P. McDougall and David B. Audretsch (2008), ‘Clusters, knowledge spillovers and new venture performance: an empirical examination’, Journal of Business Venturing, 23 (4), 405–22. Lucas, Robert (1993), ‘Making a miracle’, Econometrica, 61, 251–72. Moore, Gordon and S.E. Davis (2004), ‘Learning the Silicon Valley way’, in Building High-Tech Clusters. Silicon Valley and Beyond, Cambridge: Cambridge University Press, pp. 7–39. DANA (2nd edition) PRINT.indd 222 18/12/2020 11:32 Entrepreneurship policy 223 Mowery, D. (2005), ‘The Bayh-Dole Act and high-technology entrepreneurship in U.S. universities: chicken, egg, or something else?’, paper presented at the Eller Centre Conference on ‘Entrepreneurship Education and Technology Transfer’, University of Arizona, 21–22 January. Prodi, Romano (2002), ‘For a new European entrepreneurship’, public speech, Instituto de Empresa, Madrid. Romer, P. (1986), ‘Increasing returns and long-run growth’, Journal of Political Economy, 94, 1002–37. Schumpeter, Joseph A. (1942), Capitalism, Socialism and Democracy, New York: Harper. Stevenson, L. and A. Lundström (2005), Entrepreneurship Policy. Theory and Practice, International Studies in Entrepreneurship Series, vol. 9, New York: Springer. DANA (2nd edition) PRINT.indd 223 18/12/2020 11:32 28. Environment for entrepreneurship Jean-Jacques Obrecht In mainstream thinking on entrepreneurship, the entrepreneur is the central figure. He is seen to be involved in a process of searching for new opportunities and creating new organizations. As a driving force of competition, he takes risks and strives for profits. His behaviour lies on pursuing self-interest and his environment is confined to markets. In a sociological perspective of entrepreneurship as a whole, this way of understanding entrepreneurship belongs to ‘the supply-side perspective which focuses on the availability of suitable individuals to occupy entrepreneurial roles’, whereas the demand-side would focus on ‘the number and nature of the entrepreneurial roles that need to be filled’ (Thornton, 1999). Since differences in entrepreneurial role patterns are linked to differences in entrepreneurial environments, the latter perspective requires enhanced attention as to the context in which entrepreneurship occurs. 1 PRELIMINARIES ON CONTEXTUALIZATION In a world where, despite the globalization of markets, diversity as regards people and institutions combines with inequality as regards economic development levels, the examination of what contextualization means in the field of research on entrepreneurship is all the more necessary, unless we assimilate the entrepreneur to a ‘rational fool’ which is equivalent, according to Amartya Sen, to the state of a ‘social moron’ (Sen, 1977). Indeed, the understanding of the entrepreneurial environment requires appropriate analytical tools. These are to be looked for outside prevailing literature on entrepreneurship which, as recalled above, draws up a single role model grounded on Western utilitarianism and which, therefore, might not be endowed with worldwide applicability. The case of entrepreneurship as a remedy against poverty in particular is one of the biggest challenges of our times but development policies which would promote such entrepreneurialism regardless of the context are liable to produce ‘islets of wealth in an ocean of misery’. The consideration of contextual factors influencing entrepreneurial action has without doubt been given a large space in the last 40 years. The influence of culture on local business climate and thereby on business creation was one of the topics which researchers in small business economics examined throughout (Johannisson, 1984). Much work has been based on Gert Hofstede’s celebrated model which emphasizes the importance of cultural values such as individualism and collectivism, the former giving individuals the necessary freedom for entrepreneurial action as opposed to the latter. But this dichotomized view has been blended by many findings pointing to the fact that these cultural characteristics may coexist in the same country (Morris et al., 1993); moreover, other findings refer to entrepreneurial activities as being influenced by both (Tiessen, 1997). The notion of a ‘symbiotic relationship between entrepreneurship and culture’ 224 DANA (2nd edition) PRINT.indd 224 18/12/2020 11:32 Environment for entrepreneurship 225 (Morrison, 2000), while emphasizing the fact that entrepreneurs’ behaviour is deep rooted in local cultures and traditions, refers also to the influence the entrepreneur may have on the evolution of local usual practices because the entrepreneurial process is not entirely confined within cultural norms. Through the concept of ‘innovative milieu’, the focus was put on the influence of technology on local development (Maillat and Kebir, 1999). The notion of ‘entrepreneurial milieu’ widened the space of influence to the whole range of factors depending on the location of the entrepreneur and his business, positive collective attitudes towards entrepreneurship being seen as the most significant (Gasse, 2003). The part of local institutions in the development of an ‘entrepreneurial culture’ has been given due consideration too; in the French literature on this topic, the word ‘territory’ soon came into use to point out a regional area as a socially organized structure hosting the promotion of the small business sector (Marchesnay and Fourcade, 1996). While recognizing the importance of contextual factors, entrepreneurship provided a relevant and exciting setting to explore the issue of networks, along the lines of social networks analysis developed in sociology. In the 1980s, Howard Aldrich and Catherine Zimmer took a critical position on traditional approaches. They focused on ‘entrepreneurship as embedded in a social context, channelled and facilitated or constrained and inhibited by people’s positions in social networks’ (Aldrich and Zimmer, 1986). In current literature on entrepreneurship and small business, the network metaphor was used by a number of researchers following the pioneering work of Bengt Johannisson to develop comprehensive models of how the entrepreneur operates the environment through his personal network. ‘The personal network of the entrepreneur not only is an instrument by which he acquires environmental resources but also an instrument by which he performs his organizing mission’ (Johannisson, 1987). More recently, while noticing that the conceptualization of ‘embeddedness’ and its operationalization remain underdeveloped, he outlined an enlarged network framework, focusing on small firms where ‘the point of departure is individual exchange relationships as personal ties concerning economic and social concerns’. He distinguishes three layers of embeddedness. ‘First-order embeddedness concerns the localized business networks created by combining these dyadic relations. Second-order embeddedness is achieved when considering also the memberships of business persons in economic and social local institutions while third-order embeddedness concerns the special cases where these institutions bridge gaps between firms’ (Johannisson, 2002). In newer research on small business creation, the quality of the ‘local relational environment’, as a bearing of social capital, has been put forward as a crucial success factor of start-ups (Plociniczak, 2002). From a perspective of ‘true’ contextualization, apparently singular forms of entrepreneurship have been explored. In-depth understanding of indigenous entrepreneurship is shown to require a careful analysis of the entrepreneurial environment because the characterization of entrepreneurial action and goal attainment and the nature of goals are contingent also on the social and cultural context and on people’s history (Peredo et al., 2004). Ethnic entrepreneurship which concerns immigrant individuals striving for a better life through small business creation, is also approached in terms of ‘social embeddedness of the entrepreneurial venture’ (Levy-Tadjine and Paturel, 2006) or in terms of ‘discrimination’ and ‘marginalization’ that are obviously connected with social structures (Ramangalahy et al., 2002). On the subject of indigenous entrepreneurship, DANA (2nd edition) PRINT.indd 225 18/12/2020 11:32 226 World encyclopedia of entrepreneurship ‘community-based enterprise’ is a good case as this form of entrepreneurship often emerges in regional areas or localities threatened by poverty. It is defined as ‘a community acting corporately as both entrepreneur and enterprise in pursuit of the common good’ (Peredo, 2003; 2006). In contexts where the recovery of a region is at stake, local development agencies or the people of a local parish and so on may take initiatives like searching for new opportunities or implementing networks that facilitate access to information and provide every kind of support to small businesses operating in that region. Obviously these ‘collective practices of opportunities identification’ which substitute for the firm’s defaulting occur in particular contexts (Tremblay and Carrier, 2006). Because of the common interests at issue, they might be considered as a form of ‘community entrepreneurship’. It is also admitted that contextual fragilities lie at the root of social entrepreneurship: not surprisingly, the increasing volume of literature on social entrepreneurs, that is, individuals who are offering their time and energy to address any social or economic problem of a group or community, expresses by itself the increasing number of fragile contexts. Last but not least, one may find in the prolific literature on female entrepreneurship arguments which link the entrepreneurial significance of gender to the cultural and social context, including the case of indigenous or ethnic women’s entrepreneurship. These studies which have in common that they stress the significance of the entrepreneurial environment, give clear indication of the complexity of the entrepreneurial roles worldwide which are not reducible to a single model. Based on his work in international entrepreneurship, Dana suggests that the causal variable behind enterprise is not an opportunity, but rather one’s cultural perception of opportunity (Dana, 1995). Many findings show that the same statement could be applied to risk perception. Above all, evidence has been provided that ‘serving local community needs’ as the main goal of business strategies or ‘seeing communal values and the notion of the common good as essential elements in venture creation’ makes alternative forms of entrepreneurship, in many settings, the culturally appropriate response to the problems it is meant to address, that is, most of the times problems related to poverty (Curry, 2005; Peredo, 2003). These are only very few of a number of findings which show the variety of the entrepreneurial roles as they crop up in different contexts. The entrepreneurial environment consequently emerges as a possible field of research of its own. The next section, supported by a selective survey of literature, brings together the constituents of a possible conceptual framework for a comprehensive understanding. By way of a short-cut view, some of the constituents may be in the following proposition: embedding structures generate social capital as an indispensable resource for action; owing to local social capital, the entrepreneurial environment is moulded by a set of proximity dynamics. 2 EMBEDDING STRUCTURES AND SOCIAL CAPITAL The most relevant theoretical advances likely to support the elaboration of a conceptual framework come from the critical positions some outstanding sociologists have taken towards the methodological individualism of neoclassical economic theory. Whereas the concept of ‘embeddedness’ was forged by Karl Polanyi and used from a historical DANA (2nd edition) PRINT.indd 226 18/12/2020 11:32 Environment for entrepreneurship 227 perspective as an argument against the ‘market ideologists’ (Polanyi, 1944), it made Mark Granovetter the most quoted scholar in respect of the idea that economic action is embedded in actual social relations rather in abstract markets. In Granovetter’s words, ‘actors do not behave or decide as atoms outside a social context, nor do they adhere slavishly to a script written for them by the particular intersection of social categories that they happen to occupy. Their attempts to purposive action are instead embedded in concrete, ongoing systems of social relations’ (Granovetter, 1985). Throughout a vast literature, the embeddedness perspective has proven to be the unavoidable starting point of any endeavour to work out a contextualized approach of entrepreneurship. Embedding via Embeddedness Granovetter’s specific contribution lies in the concept of ‘structural embeddedness’ which refers to ‘the structure of the overall network of relations’. As a higher level of embeddedness it includes the lower level of ‘relational embeddedness’. Whereas the former refers to the network structure of relationships between numbers of actors, the latter describes the dyadic relations between individuals with reference to the quality level of such personal links (Granovetter, 1990). The characterization of the entrepreneurial environment therefore has to address the social network structures that are embedding the entrepreneur’s action. In the abundant literature that Granovetter’s conceptualization has given birth to, many other kinds of embeddedness have been added over time. Among the most familiar types are those identified by Sharon Zukin and Paul DiMaggio. Besides structural embeddedness, three other types approximating well-established, other conceptualizations are distinguished: cognitive, cultural and political (Zukin and Dimaggio, 1990). Indeed, ‘cognitive embeddedness’ refers to ‘the ways in which the structured regularities of mental processes limit the exercise of economic reasoning’. This notion points at the actors’ limited ability to make use of the sort of rationality required by neoclassical economics and meets the well-known bounded rationality approach of Herbert Simon. ‘Cultural embeddedness’ refers to ‘the role of shared collective understandings in shaping economic strategies and goals’ and conveys a sociological perspective that goes back to Max Weber. By ‘political embeddedness’ is meant ‘the manner in which economic institutions and decisions are shaped by a struggle for power that involves economic actors and non market institutions’. This has been discussed by numerous scholars, among others by Amitai Etzioni who, in particular, argues for the need to balance freedom with morality, and community with autonomy. In view of the rehabilitation of ‘embeddedness paradigm’s’ original meaning and a clear articulation of its essentially social dimension with other spatiality related dimensions, German geographer Martin Hess proposed an interesting view on the fundamental categories of embeddedness (Hess, 2004). ‘Societal embeddedness’ considers ‘the societal i.e. cultural, political etc. background or genetic code, influencing and shaping the action of individuals and collective actors within their respective societies and outside it’. It also ‘reflects the business systems idea of an institutional and regulatory framework that affects and in part determinates an actor’s behaviour’. As a distinct concept, ‘network embeddedness’ refers to ‘the network of actors a person or organization is involved in’. It may be described as a relational aspect, the relationships of an individual or a firm DANA (2nd edition) PRINT.indd 227 18/12/2020 11:32 228 World encyclopedia of entrepreneurship with other actors, and as a structural aspect including both business agents and nonbusiness agents, for example, government and non-government agents. Spatiality is not a precondition for network embeddedness which is the result of a dynamic embedding and disembedding process within or across spatial configurations. ‘Territorial embeddedness’ considers ‘the extent to which an actor is anchored in particular territories or places. Economic actors become embedded in the sense that they absorb, and in some cases become constrained by, the economic activities and social dynamics that already exist in those places.’ From this reconceptualization of embeddedness one may also extrapolate a hierarchical vision of embedding structures. Territorial structures embody the spatially bounded receptacle of located activities. Network structures are organized relationships which get settled within the territorial structures and beyond. Societal structures, on account of their fluidity, permeate through every other structure. This pattern of embedding structures could show up as a useful first approximation of the entrepreneurial environment. Network Ties: Strong versus Weak Within the inferences one may draw from the distinction between high and low density networks, Mark Granovetter initiated a stimulating proposition concerning ‘the strength of weak ties’ (Granovetter, 1973). He argued that in social structures where networks with strong ties are prevalent, ‘cliques’ are liable to take form. Without weak ties between the high density networks, these structures are exposed to overall fragmentation. ‘Social systems lacking in weak ties will be fragmented and incoherent. New ideas will spread slowly, scientific endeavours will be handicapped, and subgroups separated by race, ethnicity, geography or other characteristics will have difficulty reaching a modus vivendi.’ The function of weak ties is thus to set a ‘bridge’ between more or less knitted networks. The ‘cohesive power of weak ties’ idea has been explored in Granovetter’s work in conjunction with some crucial issues such as poverty. The heavy concentration of social energy in strong ties, he says, has the impact of fragmenting communities of the poor into encapsulated networks with poor connections between these units; individuals so encapsulated may then lose some of the advantages associated with the outreach of weak ties. This may be one more reason why poverty is self-perpetuating. (Granovetter, 1983) The last statement together with the main argument might have some interest in connection with the viability of entrepreneurship as a means to overcome poverty in underdeveloped countries. As an established paradigm in network research, Granovetter’s weak ties hypothesis has been widely drawn on within the entrepreneurship literature and linked to network structures. Taking the entrepreneur’s point of view, it was necessary to get a better understanding about the strong versus weak ties’ respective utility and about their mechanisms of utilization in networking. Despite non-convergent empirical findings, the argument is now that the effectiveness of networks depends upon the presence of both strong and weak ties since they are equally likely to provide various resources, depending on the form of the ties and on the context. DANA (2nd edition) PRINT.indd 228 18/12/2020 11:32 Environment for entrepreneurship 229 Network Structure of Social Capital In that abundant literature, the lasting work of Ronald Burt has become an inevitable reference. His structural approach leading to the concept of ‘structural holes’ (Burt, 1982; 1992) and his recent contributions on the ‘network structure of social capital’ (Burt, 2000; 2001), provide a valuable theoretical coherent background to our search for a conceptual framework of the entrepreneurial environment. The ‘holes in social structure’ resulting from ‘weaker connections between groups’ ‘create a competitive advantage for an individual whose relationships span the holes’. This is due to the fact that ‘structural holes separate nonredundant sources of information’, that is, on either side of a structural hole different flows of information are circulating. ‘Structural holes are thus an opportunity to broker the flow of information between people, and control the projects that bring together people from opposite sides of the hole.’ The information and control benefits obtained by an individual across structural holes are the constituents of social capital. Now, there are other authoritative approaches of social capital as those pioneered by Pierre Bourdieu (1980; 1986), James Coleman (1988; 1990), Robert Putnam (1993; 2000) and Nan Lin (1999; 2001). In Lin’s views, social capital as a resource is prominent: it can be defined as ‘resources embedded in a social structure which are accessed and/or mobilized in purposive actions’. These resources may be existing or be latent. Bourdieu also defines social capital as ‘the aggregate of the actual or potential resources that are linked to a possession of a durable network of more or less institutionalized relationships of mutual acquaintance and recognition’. According to the French sociologist’s ideological position however, these ‘assets in networks’ together with the other forms of capital serve mainly as a leverage that individuals who are supposed to be only motivated by pursuing self interest, manipulate in order to gain dominating positions. Coleman sets a link between social capital as a collective asset and purposive individual actions. It is ‘some aspect of a social structure . . . facilitating certain actions of individuals who are within the structure. Social capital is productive, making possible the achievements of certain ends’. In Coleman’s views as well as in Lin’s, however, social capital needs to be activated to be effective. Over and above this, he emphasizes the case of closed networks with strong internal connections: they create normative sanctioning mechanisms and, consequently, higher levels of trust, that is, possible sanctions make it less risky for individuals in the network to trust one another. Along the same lines, Putnam maintains the focus on action leveraged by social structure. Social capital, he says, ‘refers to features of social organisation, such as trust, norms and networks that can improve the efficiency of society by facilitating coordinated action’. Social capital gets its utmost significance as ‘bridging capital’ which refers to the value assigned to social networks between socially heterogeneous groups whereas ‘bonding capital’ refers to that of homogeneous groups of people; the latter may turn in forms of networks harmful to society. Thus, according to Coleman and Putnam, social capital as a distinct resource stands out as a possible leverage for collective action. Owing to the contributions of these scholars, Ronald Burt presented an integrative view of social capital as a set of structural holes and network closure. The latter takes up Coleman’s argument: networks with closure or dense networks are favourable for direct access to information and have, in particular, the trust advantage. Taking the two DANA (2nd edition) PRINT.indd 229 18/12/2020 11:32 230 World encyclopedia of entrepreneurship network mechanisms into account, Burt suggests that ‘while brokerage across structural holes is the source of added value, closure can be critical to realizing the value buried in the structural holes’. While gaining popularity is a rather ‘elusive concept’ (Fukuyama, 2000), social capital has also been identified by the World Bank as a crucial issue for overcoming poverty worldwide. In one of many reports, it is argued that ‘social cohesion is critical for societies to prosper economically and for development to be sustainable’ and that public policy should therefore promote ‘cross-cutting ties among social groups’ (Narayan, 1999). Within the perspective set by Robert Putnam, experts of the World Bank resumed the ‘bonding’ and ‘bridging’ concepts and added the notion of ‘linking’. Bridging capital refers to ties that cut across different communities, groups or individuals, whereas linking capital refers to vertical connections that span differences in power and/or status. They also insist on the fact that bonding capital which refers to horizontal tight knit ties may be exclusionary and may stand in the way of cooperation and trust at the societal level. 3 LOCALNESS AND PROXIMITY DYNAMICS The ‘effectiveness’ and ‘responsiveness’ of social capital, to use Robert Putnam’s words, come to the fore in local environments. Social capital is a latent resource for action. To be effective, it has to be activated so that some density within social relationships is needed: proximity contributes to the development of strong ties by favouring face-to-face relations between actors. But, drawing on the preceding conceptualizations, one may assume that the strength of localness is not only determined by the density of interactions within the frontiers of a local environment. Since in the literature on entrepreneurship localness happens to be seen as a possible source of competitive advantage in the global economy and, moreover, in the literature on economic development as a requisite for sustainability, it makes sense to elaborate upon localness as a relevant and significant dimension of the entrepreneurial environment. On that score, the theoretical corpus related to the ‘economics of proximity’ appears to be a rich vein where useful concepts could be dug out. At the crossroads of spatial and industrial economics, this new field of research has been growing since the beginning of the 1990s, first in France and later internationally. For scholars of economic geography and regional science the matter was to get a better understanding of the role of space in the coordination of economic activities. Coordination therefore is analysed by considering ‘situated agents’, meaning agents as they are located in a geographical space but also how they are embedded in a local system of relations conditioning their economic activities. As yet, proximity economics has enriched the traditional analysis of clusters by providing different proximity typologies and suggesting different measurement tools. In newer work on industrial districts, technology districts, local productive systems and so on, the role of proximity as a matter of competitive advantage has been discussed by some researchers. In a quite different domain, other scholars have tried to find new solutions for environmental issues where antagonistic interests often prevail, with the help of proximity analysis. The interesting point in proximity economics is to suggest that localness is not just a question of spatial distance and that proximity is a multidimensional concept bringing DANA (2nd edition) PRINT.indd 230 18/12/2020 11:32 Environment for entrepreneurship 231 new inputs into the discussion of local development issues. As pointed out by the French sociologist Michel Grossetti, ‘economic activities are not necessarily always and equally dependant on social networks’ (2006). The process of embedding occurs through personal relations and, since these are mainly local, goes his argument, this process explains by itself the whole range of proximity effects. Anyway, in view of a contextualized approach of entrepreneurship, one could expect from proximity economics some support to enter localness into the entrepreneurial environment on a new footing. Proximity Typologies The rudimental distinction between ‘geographic proximity’ and ‘organized proximity’ (Torre and Zuindeau, 2009) may be the first entry. The geographical distance between individuals or organizations is, of course, the most appropriate and tractable indicator to catch on the concept of geographic proximity. But other indicators may be relevant too, such as access times depending on the state of infrastructures. Geographical proximity finally proceeds from ‘the opinion the agents may have on the nature of the geographic distance’ which separates them. Organized proximity deals with relationships and refers to ‘the capacity of an organisation to make its members interact’. Any organization is in a position to facilitate interactions between its members and, a priori, makes them easier than those with outsiders. On the one hand, there is the adherence logic at work: individuals come close because they are interacting and because their interactions are facilitated by explicit or tacit behavioural rules or routines they follow. On the other hand, members of an organization may share a similar system of representations or beliefs and knowledge as well. The functioning of this social tie is mainly tacit and answers a similarity logic. The point is that such organized proximity is not necessarily correlated with geographic proximity and that it may evolve its own, given time. A more detailed typology has been provided by Ron Boschma in analysing the role of proximity in the process of interactive learning and innovation. His main argument is that ‘the importance of geographical proximity cannot be assessed in isolation, but should always be examined in relation to other dimensions of proximity that may provide alternative solutions to the problem of coordination’ (Boschma, 2005). For that purpose he suggests a rather comprehensive typology distinguishing five proximity dimensions: cognitive, organizational, social, institutional and geographical proximities. ‘Cognitive proximity’ means that agents who share the same knowledge base and expertise may learn from each other. The question at stake is not only the access to information in terms of rapidity and efficiency but also, and above all, the extension of cognitive possibilities. The focus is on the cognitive capabilities of individuals and organizations and their development, rather than on the intrinsic nature of knowledge such as tacit and codified knowledge. However, for several scholars, cognitive proximity has a more extensive meaning such as to refer to the relationship of people that belong to a community of practice and therefore communicate efficiently (Torre and Rallet, 2005). ‘Organizational proximity’ matters because it facilitates the exchange of knowledge. It refers to the fact that learning by interaction depends on the capacity to coordinate through organizational arrangements, the flows of knowledge coming from a variety of actors within and between organizations. Organizational proximity finally is contingent DANA (2nd edition) PRINT.indd 231 18/12/2020 11:32 232 World encyclopedia of entrepreneurship on the level of autonomy and the degree of control that can be exerted in those organizational arrangements. ‘Social proximity’, following Granovetter’s initial concept of embeddedness, refers to the interpersonal links between individuals in so far as they are socially embedded and thereby involving trust based on friendship, kinship and experience. Social proximity does not exclude situations where individuals are sharing values, such as ethnic or religious values but those characteristics of cultural proximity are more significant at the macro level of society. In Boschma’s typology, those values are part of institutional proximity ‘Institutional proximity’ indeed resumes an earlier distinction made by André Torre and Jean-Pierre Gilly and refers to the fact that individuals and organizations, first, share the same space of representations and beliefs, as already mentioned above, and, second, face the same incentives and constraints due to their institutional environment made of laws, formal and informal rules, cultural habits, language, and so on (Torre and Gilly, 2000), that is, the ‘invisible institutions’ (North, 1990). It meets also the concept of ‘institutional thickness’ which puts emphasis on the role of strong combinations of regional cultures and institutions as positive factors underlying local development (Amin and Thrift, 1993). ‘Geographical proximity’, as a consequence of being superseded by alternative proximities, refers only to the spatial distance between agents so that its analytical relevance depends upon its coupling with the other forms of proximity. According to Ron Boschma, ‘geographical proximity per se is neither a necessary nor a sufficient condition for learning to take place’ but it may ‘facilitate inter-organisational learning’. The effects of proximity, however, are not univocal. ‘Not only too little’, asserts Boschma, ‘but also too much proximity may be detrimental to interactive learning and innovation.’ Too little cognitive proximity, for instance, decreases the capacity of an agent to identify, interpret and exploit the knowledge possessed by another agent, whereas too much proximity of this kind may result in ‘cognitive lock-in’. Too little organizational proximity goes along with a lack of control increasing the risk of opportunism; too much entails the risk of being locked in a specific exchange relation leading to a lack of flexibility. But there are mechanisms which may enhance control, solving the problem of too little proximity, while they prevent locking-in through greater autonomy, solving the problem of too much proximity. The differentiated pattern of proximities also has been given attention by a group of French economists whose purpose was to explain the success versus the decline of clusters (Vicente et al., 2007). Assuming that interactions between agents are always sequential, the concept of mimetic behaviours or interactions which has been the subject of a growing literature in economics, helps to ‘understand how firms converge more or less rapidly in their decision to locate close to each other (geographical proximity) and how this convergence process gives rise to other forms of proximity’. The main point is that ‘according to the mimetic process of co-location, the nature of socio-economic proximities can be very different and has a strong influence on the stability and the performance of clusters’. In everyday situations, of course, the different aspects of proximity are linked together in a dynamic process like that of ‘localized learning’ (Malmberg and Maskell, 2006). The concept of ‘interactive learning as a localized process’ outlines how DANA (2nd edition) PRINT.indd 232 18/12/2020 11:32 Environment for entrepreneurship 233 local conditions and spatial proximity between actors enable the formation of distinctive cognitive repertoires and influence the generation and selection of skills, processes and products within a field of knowledge or activity. Localized learning helps explain why there is regional economic specialization, why similar and related firms tend to co-locate to form clusters, why both these phenomena reproduce over time. The relevance of the different types of proximity has been discussed and there is still much more empirical investigating to do. This is especially important given that increasing globalization puts the significance of geographical proximity into question. So the issue is to find out which kind of proximity or which arrangement of different proximities can make up for the diminishing leverage of geographical proximity. This leads to the questioning of what may be called the ‘strength of localness’. Strength of Localness Whenever it comes to local aspects of the entrepreneurial environment, the characterization of localness has to take into consideration the variety of ways proximity permeates this environment: one may postulate that the strength of localness a priori is related to proximity’s variety and is contingent on an appropriate set of proximities. Arguments can easily be found in the extensive literature on small businesses’ internationalization and sustainable local development, to take only a few but relevant topics that form a striking part of the globalization debate. In the literature on small businesses’ internationalization, the well-documented vulnerability of small and medium-sized enterprises (SMEs), as regards their position in the global economy, makes a good case for the local network structures as a substitute resource (for example, Julien, 1994). It is argued that fragility which accompanies small size can be offset by a supportive environment provided by networks as ‘organized systems of relationships’ (Szarka, 1990). Evidence has shown that, instead of ‘going it alone’, SMEs may go abroad by joining local business networks, especially in many countries where local governmental agencies and/or local development bodies themselves play an increasing role in resilient environments. By helping to establish contacts, promoting know-how transfers, setting up reputation mechanisms that prevent opportunistic behaviour, and providing inputs like education or technology transfer services to network firms, these local organizations develop strong ties with the small firms’ local network. The ‘glocal’ market strategy which has been defined as ‘combining global business operations with small firm local cooperation’ (Johannisson, 1994) became a loop-hole for small business owner-managers’ survival and a favourite research field for academe. The local network argument also got much support from the ‘resource-based view of the firm’ (Wernerfelt, 1984) which was successfully taken over in the literature on strategic management in different ways (for example, Barney, 1991; Hamel and Prahalad, 1990; Brouthers et al., 2008). As regards the internationalization issue, the sustainability of a competitive advantage on international markets was said to require resources endowed with the quality of being unique assets. Resources of that kind may precisely come from local network structures. This has been highlighted by researchers interested in the case of ‘international-at-founding’ which refers to the situation of a business organization that, from inception, seeks to derive ‘significant competitive advantage from the use of resources and the sale of outputs in multiple countries’ (Oviatt and McDougall, 1994). DANA (2nd edition) PRINT.indd 233 18/12/2020 11:32 234 World encyclopedia of entrepreneurship Technology-based ‘born globals’ have particular stakes in local networking. Far from substituting international for local networks, technology-intensive firms which have achieved high levels of internationalization in fact also exhibit above-average levels of local networking with respect to research collaboration and intra-industry links. Internationalization therefore appears to be grounded or embedded in successful local networking and research and technology collaboration (Keeble et al., 1998). In the more common case of ‘international-by-stage’, SMEs are pursuing internationalization only after a steady development on domestic markets and then internationalizing their activities through a series of progressive stages (Cavusgil, 1984; Johanson and Vahlne, 1977). The market-oriented niche strategies which usually are within the reach of SMEs may then be strengthened by resource-based strategies engaging the local network structures in which they are embedded. The ‘glocalized’ process of SMEs’ internationalization is still stirring up much attention from many researchers involved in the ‘small business cause’. Some of them recommend that SMEs’ strategies abroad be strongly supported by an ‘increasing territorialization of export strategies’ based on ‘nearness proximity’ (Torres, 2002). This means a stronger articulation between small business strategies and local development choices made by the local administrative bodies: ‘glocalisation displays a dialectical relation between International Management of Enterprises, especially small sized business, and International Management of Territories’. From the perspective of the knowledgedriven global economy, others would insist in particular upon the ‘localized learning’ argument (Malmberg and Maskell, 2006). The ‘challenge is to uphold a viable environment for localized learning . . . Successful globalization means strengthening rather than weakening the conditions for localized learning’. This requires ‘the development of distinct and valuable localized capabilities that promote and guide learning processes into particular trajectories’. These capabilities originate within the local social and institutional set-up. Localized learning supported by localized capabilities thereby sets localness at the foreground in a domain where, a priori, there are no boundaries: knowledge is supposed to be volatile. All together these views, it seems, consider local structures and processes as critical contributors to localness’ strength on their own. It should be noticed however that such an account of spatial relationships hardly conceals an ‘overterritorialized concept of embeddedness’ in the words of Martin Hess, which we have previously referred to. His revisiting of the seminal work of Karl Polanyi and Mark Granovetter, led him to critically engage with views, like those expressed in ‘most work in economic geography . . . proposing local networks and localized social relationships as the spatial logic of embeddedness’ (Hess, 2004). The SMEs’ glocal case indeed seems to exclude ‘societal embeddedness’ as a possible contributor to the strength of localness. In the terminology of social capital theory, bridging capital apparently is a non-important matter. Now the success potential of local business networks is by some means or other correlated not only with the entrepreneurial culture inside a territory, but also with the acceptance level of entrepreneurship by society as a whole. The latter is shaped by common history and common aspirations, for instance, as regards the contribution of entrepreneurship to common wealth in a market economy. The current discussions on the social responsibility of entrepreneurs and on the ethical dimension of entrepreneurship are good examples of this issue. As such sorts of concerns are kept outside local business strategies and local social relationships, this situation of ‘network DANA (2nd edition) PRINT.indd 234 18/12/2020 11:32 Environment for entrepreneurship 235 closure’ – due to defaulting extra-local linkages of a crucial kind – would limit the strength of localness to the detriment of the small business sector in the global economy. In the face of globalization, the strength of a local network structure finally may depend over time on the societal values of the whole set of actors playing their respective roles in a territorial network that would be involved in the process of internationalization. In the debate on sustainable local development, localness is, of course, considered the true base for overall sustainable development. Sustainability in the practices of local development appeared to be a concern before the famous Brundtland Report, Our Common Future, of 1987 (United Nations World Commission on Environment and Development, 1987). This was due to a greater sensitivity to non-market issues of economic development together with a greater awareness of the fact that they can best be dealt with at the local level. New ways of thinking about economic development, new values, new expectations and new norms are spreading now. On that score the analysis of the entrepreneurial environment should give greatest attention to sustainable local development as a possible leverage of evolving societal values. In a theoretical perspective, any emphasis on the importance of localness leads to views that are opposite to macroeconomic theory which for a long time has disdained localness as a ‘no-man’s land’. Stressing localness means that it is the specific local characteristics that give the impetus or set the brakes on development. Most of the theoretical work on sustainable local development assumes that the development a territory may bring depends on the way it shapes its functioning and organizing, that is, its institutional settings. Such a view could easily be theorized by integrating the previous conceptualizations of social capital and proximity into a comprehensive framework such as the one elaborated by French economist Valérie Angeon and others (Angeon and Callois, 2005; Angeon et al., 2006). They endeavour to show how articulation between social capital and proximity dynamics is fundamental to a proper understanding of the social determinants of territorial sustainable development dynamics. In short, ‘social capital, to be activated in an efficient way, needs a supportive environment through specific dynamic relationships. It rests on some density of ties, which supposes that the actors are embedded, in a certain way, in proximity relations’. The territorial social capital which is involved in this process is an endogenous set of mental representations, values related to trust and norms that are linked to certain forms of proximity like ‘organized proximity’ and ‘institutional proximity’. Although it can best be activated in a territorial context, extra-local linkages are supposed to prevent lock-in situations. The latter condition obviously addresses the ‘bridging capital’ argument or, to put it in another way, the ‘not too much, not too little proximity’ reasoning. The strength of localness seems to be grounded on a mix of ‘societal embeddedness’ and ‘territorial embeddedness’. In older theoretical work on community development such as that elaborated by Ken Wilkinson, the focus had been put in particular on the interaction process of individuals, groups and organizations. The community is seen as a dynamic interaction field: it emerges from the normal flow of interactions among actors in a locality. The interests that actors have determine in part the course of the community’s social process. The shared interest in the welfare of their locality differentiates the community field from other local interaction: ‘locality orientation is the hallmark of community action’ (Wilkinson, 1991). In that ‘community interaction field theory’ which is supposed to apply especially to rural communities, focus is then put on the fact that the organization of the community’s DANA (2nd edition) PRINT.indd 235 18/12/2020 11:32 236 World encyclopedia of entrepreneurship action, that is, linking and coordinating local resources for the benefit of the community, does not occur spontaneously. Community capacity building and community leadership are therefore critical questions. Any community development programme, for instance by promoting entrepreneurship through educational programmes, has to give careful attention to these constraints (Korsching and Allen, 2004). This emphasis on the organizational aspects of community development obviously brings it near to the newer approach of sustainable local development, as mentioned before. Localness, however, is also a controversial subject that different ideologies related to economic development issues have seized upon for a long time. It is worthwhile to remind ourselves of the main points of these ideologies on account of the various ways localness may be perceived and used. In the past there have been many pleadings, in particular within the cooperative movement, in favour of a social economy that meets the needs and aspirations of people and a society that enables the human being to strengthen its individual and collective identity to counteract the pervasive process of what we call today globalization. The enterprises that make up this sector – cooperatives, mutual societies, associations as well as informal organizations – have proven their efficiency throughout history in Europe, Africa, India and Latin America. They are still considered ‘the best means for sustainable local development’ (Draperi, 2005). Localness via these collective forms of locality-based enterprises comes forth as bred in the nature of things regarding the functioning of social economy. Localness more recently has been ascribed to critical qualities through the ‘glocal vision’ of economic development. Whereas at a first stage the debate on sustainable development put the focus on the global level, the think tanks on ‘glocalization’ now recommend a greater balance between local and global dimensions in the evolution of world’s affairs (CERFE, 2003). To put it more precisely, the goal is both to establish a link between the benefits of the global dimension – in terms of technology, information and economics – and local realities, while, at the same time, establishing a bottom-up system for the governance of globalization, based on a greater equality in the distribution of the planet’s resources and on an authentic social and cultural rebirth of disadvantaged populations. Local realities are recognized on the account of the importance of cultural diversity and on the vigorous entrepreneurial spirit of local actors. Localness in that vision is conceived of as a means to give the best chances of success to the Western development pattern. As a radical criticism of the neoliberal model of globalization, a ‘post-development’ approach has gained ground since the last decade, where ‘localism’ has been given the force of a general unquestionable principle. It strongly emphasizes the ‘necessity to revive the local land’ in view of ‘getting out of development and economy and fighting against globalisation. What is at stake is to avoid the “glocal” argument being used as an alibi for pursuing the wasting of the social tissue’ (Latouche, 2004). This implies ‘building down our mindset in the realm of economics’ and to rethink the issue in terms of ‘sustainable decrease’. In this perspective, localness is valued for itself as a necessary and sufficient condition of sustainability at the societal level and for everyday living. From a policy perspective, the significance of localness and the various ways it is claimed in economic development issues is best documented in numerous reports on ‘community development’ which have been released since the 1970s. In these documents, DANA (2nd edition) PRINT.indd 236 18/12/2020 11:32 Environment for entrepreneurship 237 community is usually understood in geographical terms but it may also refer to common cultural heritage, language, language and beliefs or shared interests. In short, a threefold challenge local grassroots practices have to face should be noted: it involves capacity building, organizing collective action, and good governance. The capacity-building challenge has to do with the variety of tangible and intangible resources that have to be mobilized within a territory and which altogether determine its potential for change. It also includes all that is brought to bear on a process to make it successful, such as commitment, motivation and leadership. Capacity building thus depends on dynamic processes involving individual and collective actors pursuing a common goal. The organization of collective action relies either on a contractual process through which partners commit themselves to consulting, coordination and cooperation and/or on a participatory planning process which creates a long-term framework for decisionmaking and action. The organizational effectiveness of collective action also depends on maintaining momentum in such key areas like leadership and partnership. The governance challenge addresses the question of how possible diverging interests may be harmonized with a view to realizing a common project. Divergences could bear on the individual interests within the private sector or be entailed by the differences between market economy and social economy. The challenge concerning the latter issue is all the more significant as ‘social entrepreneurship’ is considered by an increasing number of leading personalities such as Muhammad Yunus, the advocate of micro-finance and Nobel Prize winner, as a robust basis for sustainable development. Institutions empowered to grant participatory processes of decision and action and to secure transparency that everyone may benefit from are generally seen as the best way to tide over the difficulties rooted in the everyday situations of contradictory interests. Again localness, by the mere fact of proximity dynamics, is supposed to ensure the best context for coming through with each of the challenges local development practices have to meet. But the defenders of local sustainable development should also care about the strength of localness which not only depends on the ‘institutional thickness’ of a community, but also on institutional bridging: the latter may provide external resources of any kind and information on alternative ways of organizing or participating which might have been experienced elsewhere. As an overall statement, one may say that localness of social capital makes every possible environment unique since there are no grounds for proximity dynamics to evolve the same way or in the same direction. The local environment’s uniqueness is enhanced by the variety of possible ‘externalities’ influencing its strength. By way of comparison, localness appears as a prism, with several parallel sides refracting and splitting each one of the colours coming from its environment. The analysis of the entrepreneurial environment has to cope with this prismatic appearance of social capital and has to render an account of the whole spectrum of resources and values it conveys. 4 CONCLUDING REMARKS There stands out a clear parallel between development theory and entrepreneurship theory. While for a long time the tendency to conceive of development as being essentially DANA (2nd edition) PRINT.indd 237 18/12/2020 11:32 238 World encyclopedia of entrepreneurship a homogenous mechanical process prevailed, the contingent nature of development and a possible range of development alternatives are increasingly being acknowledged. The English version of the social regulation theory as elaborated by Paul Hirst and Jonathan Zeitlin is one of the new approaches that places much more emphasis on human agency and recognizes the contingency of development. Within this theoretical framework, the global economy is analysed ‘in terms of a series of modes of development based on combination of the currently ascendant regime of accumulation and a variety of modes of social regulation’ (Hirst and Zeitlin, 1991). The regime of accumulation determines the overall possibilities for the global economy in terms of production and consumption levels whereas a mode of social regulation is ‘a complex of institutions and norms which secure, at least for a certain period, the adjustment of individual agents and social groups to the overarching principle of the accumulation regime’. As emphasized in the French approach to the theory of social regulation, rules are liable to a continuous renewing through a process of negotiation that grounds social relationship (Reynaud, 1997); rules resulting from social interactions allow for communication, exchange, collaboration, contract and, even, conflict mechanisms. The theoretical approach of entrepreneurship is evolving in a similar manner, although with some appreciable delay. Most of the literature on entrepreneurship keeps up with entrepreneurialism, that is, the ethnocentric Western approach which sticks to searching for the ‘essence of entrepreneurship’. The recognition of alternative forms of entrepreneurship, however, makes its way through specialized research on topics such as indigenous entrepreneurship, community-based entrepreneurship and so on, as recalled above. The conception of entrepreneurship as a ‘rhizome’ should show the way forward. Based on this metaphor, Chris Steyaert suggests. to keep entrepreneurship as what it is: a fertile middle space, a little chaotic and unfocused arena, a heterotopic space for varied thinking, a space that can connect to many forms of theoretical thinking and where many thinkers can connect to, a true inter-discipline. In this spirit, this would require us, secondly, to alter our way of thinking of science into a so-called rhizomatic one. (Steyaert, 2005) The demand-side approach of entrepreneurship without doubt takes up this spirit. It highlights the distinct yet intertwining features of the entrepreneurial environments whose understanding needs connections with other fields of theoretical thinking, as we have indicated. Also it makes clear that there is no single role set to be played by entrepreneurs in the global economy. Entrepreneurship as leverage for wealth in developed countries and entrepreneurship as a remedy against poverty in developing countries do not occur on the same stage: researchers have to give the utmost attention to the differences regarding social capital as they originate from the societal, network and territorial embedding structures because the relevance of a unique entrepreneurial role pattern is at stake. In addition, on account of the uniqueness of local environments resulting from the proximity dynamics, researchers should contemplate a widely differentiated role pattern as a new reasonable working hypothesis for studying entrepreneurs and their environment. 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DiMaggio (eds), Structures of Capital: The Social Organization of the Economy, Cambridge: Cambridge University Press. DANA (2nd edition) PRINT.indd 241 18/12/2020 11:32 29. Ethics and entrepreneurship Alan E. Singer 1 INTRODUCTION According to Sen (1997), the economic way of thinking downplays the role of ethics. Since most theories of entrepreneurship have adopted that ‘way’, a contribution from ethics might be of substance. There is considerable consensus amongst contemporary philosophers that the economic way is a story or a narrative that mainly tells, in this context, how an entrepreneurial society based on trade is ethically superior to a totalitarian hierarchy, or a society at war, or overrun by crime (compare Baumol, Chapter 13, this volume). The ethics story plainly overlaps with this, but it mainly tells how a caring and just society that upholds rights and humane ideals is even better. Simply put, the former is somewhat dismal while the latter is idealistic. There is also a (meta)-story in which ethics is ultimately captured or eventually revealed by economic theory. This tells us for example that (i) illegal entrepreneurship is often unethical, although in some cases it can have an economic coordinating or liberating function, but also that (ii) ethics is already built into the activities of productive entrepreneurs. In addition, many of the latter individuals believe that they are already ‘acting ethically’ (doing good) simply by being entrepreneurial: crafting a synthesis, mobilizing resources and innovatively engaging stakeholders (for example, Brenkert, 2002; Christensen, 2008). Entrepreneurs are thus seen as role models demonstrating self-help, often providing an exit from poverty for themselves and their families or communities, in a world of undistributed riches. They are not ethically required to do any more. To the extent that society as a whole might be ‘heavily indebted’ to entrepreneurs collectively (compare Chapter 13, this volume), this viewpoint seems justified. 2 DUALISM In accordance with the notion of creative-destruction, it is extremely common for any given entrepreneurial act to be perceived and narrated in diametrically opposing ways. Descriptions of entrepreneurial activity as productive versus destructive are a matter of strong contention. For example, many appreciate that entrepreneurs (in general) serve society and add to the common good because, or to the extent that, they create jobs, satisfy demand, create and share knowledge, facilitate cultural renewal, restore the environment, design ecologies, pay taxes, lobby to update outmoded laws, stabilize governments, act as role models, keep the dream alive, demonstrate mastery, encourage value-expression, engage in philanthropy, and so on. Others, or the same persons at different times, conclude precisely the opposite. Entrepreneurs damage society and detract from the common good, because they (correspondingly and variously) create sweatshops, decrease local affordability, conceal 242 DANA (2nd edition) PRINT.indd 242 18/12/2020 11:32 Ethics and entrepreneurship 243 or monopolize knowledge, destroy ancient cultures, damage the environment, destroy ecologies, avoid and evade tax, lobby at other’s expense, support corrupt or oppressive regimes, frustrate others with unrealistic goals, create slaves, colonise the mind, cynically service an image, and so on. There is an extensive multidisciplinary literature that elaborates these two contrasting stories, thereby richly informing the ethics–entrepreneurship relationship. It can be helpful to organize this material within a framework of dualism. Such a ‘dualism’ is comprised of several bi-polar components, such as shareholder versus stakeholder models of management (or variants of capitalism), exploitative versus compensatory responses to market failures, right versus left political leanings, ethics now versus later (that is, timing), to mention a few. These ‘components’ each then inform a collection of topical themes within entrepreneurship and ethics, such as poverty, environment, property rights, corruption, relations between businesses, governments and non-government organizations (NGOs), and so on. There are also several spanning themes in the dualism framework, each of which inform both ‘poles’ of the bi-polar components. These include intentionality, character, imagination and societal macro-trends. The remainder of this chapter briefly discusses a selection of the components and themes. 3 COMPONENTS The set of human values can be (roughly) partitioned, with one sub-set (that is, one side of the dualism) associated with efficiency, craftsmanship and free exchange; the other ‘side’ with justice, care, avoidance of harm and protection of rights. Productive for-profit entrepreneurship plainly expresses the former sub-set, while social and eco-preneurship, by definition, give priority to the latter (for example, care, stewardship, restoration). On the same side as the efficiency-related ‘values’ one finds the economic principle of utility maximization (exchange) and normative ethical egoism. On the other side, one finds utilitarianism (which resembles the multi-stakeholder model of strategic management) and deontological ethics. The title ‘Kantian entrepreneur’ plainly belongs to the authentically caring social or humanistic eco-entrepreneur, but not to the entrepreneurial designer of a corporate empire that is ‘oligarchic, elitist non-democratic and exclusive’ (Neilsen, 2002: 233). Some other complex moral and political theories span the dualism (see below). Contractarianism, for example, has agreements amongst free self-interested individuals at its core, which places it on the ‘exchange and efficiency’ side of the dualism; but there is also an emphasis on justice and the avoidance of some types of harm. 3.1 Stakeholders A dialectical tension between a stakeholder model and shareholder model of enterprise has been widely recognized in the general literatures of strategy (for example, De Wit and Meyer, 2005) and in business ethics. Freeman (1999: 234) described the term ‘stakeholder’ as an ‘obvious literary device, meant to call into question the (typical) emphasis on stockholders’. The answer to that question then seems to depend on time and place. For example, Jawahar and McLaughlin (2001) noted that most start-up entrepreneurs are concerned only with stockholders, creditors and customers; but this often changes later DANA (2nd edition) PRINT.indd 243 18/12/2020 11:32 244 World encyclopedia of entrepreneurship on, as other stakeholders are engaged. This dovetails with ‘rags to riches’ stories that begin with an exit from poverty and end with Carnegie-style altruistic philanthropy. This shareholder versus stakeholder component of the dualism plays out somewhat differently under the several regional variants of capitalism. Investor-capitalism (Anglo-US) and crony-capitalism (almost everywhere) invite a lot of Freeman-type ‘questioning’; although as Hendry (2001) noted, in these regions, the issue seems broadly settled in favour of shareholders. In continental Europe and Japan (and in US managerial capitalism up to about 1980) a somewhat different balance has perhaps been struck. 3.2 Market Failures Entrepreneurial strategies for profit involve the deliberate exploitation (taking advantage) of several known limitations (imperfections, failures) of market-based systems. These limitations forge a gap between capitalist enterprise and overall conditions of human well-being. In this context, Sheperd and Levesque (2002: 152) commented that the entrepreneurial-process ‘can be used to exploit stakeholders, for the personal gain of the entrepreneur’. Accordingly, Prakash Sethi (2003) prescribed that institutions should ‘hold companies accountable’ for a more equitable distribution of above-normal profits that were obtained by the ‘exploitation of market power’. Heath (2006: 551) then claimed that ‘the exploitation of one or another form of market imperfection’ is what ‘upsets people’ and ‘gives profit-seeking a bad name’. Ethics in general emphasizes doing the right thing in the first place, rather than being held accountable for what is wrong. Accordingly, it tells how entrepreneurs might (i) voluntarily refrain from exploitation by exercising self-restraint or self-regulation, or (ii) proactively compensate for and mitigate the effects of others’ exploitative behaviour (for example, Singer, 2007a, 2007b). In practice, this type of ethical-strategy requires partnerships with suitably reformed institutions (see below) as well as a clear explanation to stakeholders. 4 TOPICAL THEMES The topical themes associated with ethical entrepreneurship include poverty, property and corruption. Each can be informed by the above bi-polar components, but also by the various spanning-themes within the dualism framework (compare section 5 in this chapter). 4.1 Poverty While entrepreneurship sometimes functions as an exit route from poverty, the larger ethical issue concerns the prospects for the alleviation of global poverty through capitalist enterprise. A mainstream view sees that for-profit enterprises create wealth, but they do not have an interest in re-distribution, other than through the capital markets to other business enterprises. Prahalad and Hammond (2002) have narrated the story of a benevolent global capitalism-as-usual, in which bottom-of-pyramid (poverty) markets are duly financed with micro credit and ‘served’ with consumer goods; where women are honoured and where DANA (2nd edition) PRINT.indd 244 18/12/2020 11:32 Ethics and entrepreneurship 245 high-technology infrastructures spread rapidly through less developed countries (LDCs) due to the deliberate strategies of for-profit enterprise. According to its critics, this story leaves out the many people in poverty who cannot self-sustain or, more pertinently, are effectively prevented by others from doing so. Bhensadia and Dana (2004), for example, saw ‘a real danger’ that the rural poor (in India) would be ‘left out’. More generally it is apparent that entrepreneurs can destroy value for the local poor. This is exemplified by food exports from regions in famine. Accordingly, there are many (for example, Freeman, 1998) who believe that for-profit enterprise alone is not a complete solution to poverty. It is also necessary to have changes in peoples’ attitude, agenda, mindset or political philosophy. This implies that entrepreneurs themselves ought to have dual or mixed motives, including the direct and deliberate reduction of poverty. This alternative ‘story’ of deliberate targeted assistance aligns closely with almost all ancient theological texts that tell of ways of routinely and quietly helping the unproductive poor, while remaining productive oneself. 4.2 Property Baumol (Chapter 13, this volume) notes that entrepreneurial talent can be shifted away from war and crime by having ‘rules against confiscation of private property and for patent protection’. The idea is that intellectual property laws help would-be warriors, criminals and the once-poor, to capture revenue, appropriate profit and secure a return on investment, through legitimate non-violent enterprise. A more distinctively ethical account begins at the other end. It is first asked (rhetorically and idealistically) how social and environmental values can be ‘taken care of through the institutions of property and consumption’ (Freeman and Venkataraman, 2003: 3) commenting on (Derry, 2002). Then, with a good definition of property as ‘the relationship between people with respect to things’ (Munzer, 1990) it becomes obvious that the contemporary capitalist laws on property are placing power-relations (that is, market power and political capital) far ahead of ‘relations’ of care, social justice and humane ideals. Strong intellectual property rights (IPR) regimes in particular (patents and digital copyrights) are often seen as highly unjust and uncaring (for example, Collier, 2000). They arguably also create an inefficient tragedy of the anti-commons (Heller and Eisenberg, 1998). There is a serious concern that patents make poverty worse to the extent that they are discriminatory, favour corporate interests over citizen–user-consumers and directly reduce specific freedoms and capabilities. Indeed, patent protection of pharmaceuticals has been a distal cause of millions of deaths. Patents also treat human-designed lifeforms as legal property, thereby violating several widely held ethical principles, including some pertaining to slavery. Accordingly, ethical entrepreneurs would be cautious about the implementation of their property rights in general, but especially their own dependence upon IPR. Authentic eco-preneurs, social-entrepreneurs and craft-based innovators have already subordinated profit (that is, the accumulation of property rights by shareholders) to more idealistic motives. They might attempt to overcome the tradeoffs involved in IPRdependency by adopting IPR-free strategies, such as hypercompetitive cannibalization, or revenue-capturing from auxiliary market offerings. DANA (2nd edition) PRINT.indd 245 18/12/2020 11:32 246 World encyclopedia of entrepreneurship 4.3 Codes and Corruption In the international context, entrepreneurs frequently encounter implicit requests for facilitating-payments and bribes (for example, Transparency International, 2009). Laws, guidelines and codes of ethics that proscribe this (and other aspects of entrepreneurial conduct) are often viewed with cynicism and frustration. There is a widespread sense that they are impractical and that in any case, the language of ‘ethics’ is deployed only by power elites (for example, in codes of conduct) who are themselves profoundly corrupt. Put differently, ‘ethics is for the weak’, as Nietzsche explained. Accordingly, in cases where codes are in place ‘knowing when to break the rules appropriately may be a sign of real respect and understanding of them’ (Molyneaux, 2003: 142). This is the type of knowledge that can help the entrepreneur in practice and that can sometimes be provided by moral theory. The Principle of Double Effect, for example, implies that a facilitating payment for an otherwise normal deal (like unloading fruit from a dock) might be excusable, provided that (i) the deal depends on it, (ii) there is no expectation of subsequent violations of human rights or pollution danger, and (iii) the entrepreneur is providing routine and continuing support for other institutions and NGOs that battle against corruption (Roy and Singer, 2006). 4.4 Partnerships Many for-profit entrepreneurs routinely lobby for policies that are expected to benefit the enterprise even though they might detract from the common good (for example, Smith, 1776; Brooke-Hamilton and Hock, 1997; Oberman, 2004). Some go further by promulgating a self-serving ideology, thereby shifting the attitudes of citizens and electorates towards favouring such activities and neglecting humane ideals. Ethical entrepreneurs, in contrast, would (and do) attempt to shift public attitudes in the opposite direction. They look for good-faith institutional partners in this mission. They do not just comply or wait for ‘a pertinent change in the institutions’ (Baumol, Chapter 13, this volume) but they choose instead to be proactive in this ethical-political arena. 5 SPANNING THEMES Various spanning themes further inform both ‘poles’ of various components of the ethics–entrepreneurship dualism framework. Some examples are: intention, character, imagination, trends and synthesis, as follow. 5.1 Intention The efficiency motives and the justice motives of an ethical entrepreneur are both subject to the classical constraints associated with free will. The problem of free will versus determinism (or deliberate versus emergent strategy) is theological and secular, social and economic. Many theological texts contain warnings to the effect, ‘make your plans, they will fail’, and most for-profit entrepreneurs do just that. In the Western secular tradition, Kant emphasized only the quality of intentions. To be ethical, these must involve DANA (2nd edition) PRINT.indd 246 18/12/2020 11:32 Ethics and entrepreneurship 247 genuine goodwill. Whether or not a project succeeds is then of less moral significance. In practical enterprise, however, this Kantian emphasis is typically reversed. Only good outcomes count in the public mind and in the bank. The individual entrepreneur then becomes a celebrity or an (accidental) hero, despite (or perhaps because of) the substantial amount of luck (and malfeasance) that might have been be involved. 5.2 Character and Wisdom Virtue ethics is sometimes regarded as the most important ethical theory of business and management (for example, Solomon, 1992). It spans the dualism because excellent craftsmanship and efficiency, as well as an attitude of caring and a practical commitment to humane ideals, are all marks of good character. By implication, any ethical entrepreneur would nurture and display all of these traits. Virtue ethics also consider (along with philosophical pragmatism and practical wisdom) that the choice of the right course of entrepreneurial action ‘cannot be reduced to the application of a universal rule or principle’ (Dunham et al., 2008: 10). Doubt is thus cast upon the value of seeking ‘a few good moral principles’ or codes to guide the entrepreneur (compare Soule, 2002). The virtuous or wise or ethical entrepreneur is variously seen (for example, Dunham et al., 2008; Singer and Doktor, 2008; Zeleny, 2005) to be one who (i) has a detailed understanding of all the relevant circumstances, (ii) selects and explicates good purposes, (iii) remains mindful of the personal and enterprise lifecycles, and (iv) prioritizes activities accordingly. (Pragmatists might then be quick to point out that such habits are also the proper mark of a good strategist.) 5.3 Synthesis and Imagination Synthesis per se is a rather obvious dualism-spanning theme (for example DeWit and Meyer, 2005). Many definitions of entrepreneurship refer to a ‘synthesis’ of economic opportunity, or to an economic imagination (for example, Earl, 1983; Sarasvathy, 2002). Competitive advantage can then be described with reference to a synthesis of various strategy components, such as shareholder and stakeholder, compliance and choice, and so on. At the same time, philosophers (for example, Werhane, 1999) have prescribed the exercise of moral imagination or ethical imagination in business and social life; that is, the crafting of a more inclusive plan or narrative: one that exposes and overcomes false choices between ‘poles’ like efficiency and justice (for example, Kuttner, 1984). It is perhaps worth mentioning at this point that the ‘dualism’ framework is itself a candidate for a new synthesis. The relationship between entrepreneurship and ethics has also been described as a correspondence (that is, of similar ideas, not opposites). The correspondence thesis (for example, Logsdon and Wood, 2002; Singer, 1994) claims that many of the categories of meaning deployed in the discourse of strategy and enterprise are also ethical categories (for example, strategic responsiveness to local market tastes is also a form of caring, or ethics). The dualism framework, in contrast, re-cast categories as opposites. Thus we have a ‘dualism of (dualism versus correspondence)’ that can be further expanded recursively, whereupon it becomes evocative of Bateson’s theory of ecology, or ecological understanding (compare Singer, 2002). This, in turn, constitutes the deepstructure of ‘living enterprise’ and eco-preneurship (for example, Hawken, 1993). DANA (2nd edition) PRINT.indd 247 18/12/2020 11:32 248 World encyclopedia of entrepreneurship 5.4 Moral Progress Ever since the idea of dialectics was first articulated (by Plato, 428–348 bc) it has been associated with progress, but especially in the sciences of life and mind. Accordingly, this brief account concludes with a consideration of trends. One can quickly find reports that associate reductions in poverty (in various locations) with periods of enterprising economic activity. This is often taken to mean that enterprise alleviates poverty in general. However, one can also find reports to the contrary, implying that something different or extra is needed. Similar levels of ambiguity surround the related issue of the empirical link between corporate social performance and financial performance (compare Margolis and Walsh, 2003). Looking forward, yet another significant ambiguity appears. Pessimists perceive a moral regression in society as a whole, while optimists envision gradual moral progress. Few of the latter attribute this progress to the spread of for-profit enterprise (as distinct from social and eco-entrepreneurship, or alternative political arrangements). On this point, Godlovitch (1999: 219) has pointed out that for-profit enterprise culminates in an infinity of material goods and information; but this is not a human condition that we can seriously recognize as ideal. Accordingly, he wrote, we only make moral progress to the extent that something else (ethical enterprise perhaps?) is chosen as our ‘most important progressive venture’ (ibid.). 6 CLASSIFICATION It is impossible to identify any fully representative set of contributions to ‘entrepreneurship and ethics’. However, the organizing framework outlined in this chapter (common themes, bi-polar components, spanning themes) enables the classification of relevant contributions according to the following types: 1. 2. 3. 4. 5. 7 Capturing: ethical entrepreneurial behaviours are explained purely in terms of rational utility maximization, as in game theory. Separating: concepts from within one side of the dualism are linked together. For example, efficiency is used to justify and explain the for-profit goals of an enterprise. Spanning: one or more ‘spanning themes’ are explored. For example, the character and wisdom of entrepreneurs is considered, in relation to their social and economic concerns. Synthesising: synergies or complementarities are discussed, involving both poles of selected bi-polar component(s). For example, win–win strategies are described. Re-casting: a claim is made that some component of the framework has superior explanatory power. For example, market failures explain more than value conflicts. CONCLUSION The dualism framework and classification might facilitate further inquiry into ethics and entrepreneurship. The many sceptics who continue to believe that such inquiry is DANA (2nd edition) PRINT.indd 248 18/12/2020 11:32 Ethics and entrepreneurship 249 not needed, or that the role of ethics should be ‘downplayed’ in business practice, might be impressed by a turn-of-the-century survey (mentioned in Kapustkina et al., 2008) in which it was found that only 8 per cent of secondary school students (in a region of Russia, in 1999) regarded ‘honest labour’ to be a suitable way to gain economic wealth. Fifty-nine per cent responded that ‘more suitable ways’ included organized crime, while 81 per cent mentioned power. REFERENCES Bhensadia, R.R. and L.P. Dana (2004), ‘Globalisation and rural poverty’, International Journal of Entrepreneurship & Innovative Management, 4 (5), special issue on entrepreneurship and poverty. Brenkert, G. (2002), ‘Entrepreneurial ethics and the good society’, Business Ethics Quarterly, Ruffin Series no. 3 on Ethics and Entrepreneurship, 5–44. Brooke-Hamilton, J. and D. Hock (1997), ‘Ethical standards for business lobbying: some practical suggestions’, Business Ethics Quarterly, 7 (3), 117–30. Christensen, S.L. (2008), ‘Ethical entrepreneurs: a study of perceptions’, International Journal of Entrepreneurship and Small Business, 6 (1), special issue on entrepreneurship and moral progress. Collier, J. (2000), ‘Globalisation and ethical global business’, Business Ethics: A European Review, April, 71–6. De Wit, B. and R. Meyer (2005), Strategy Synthesis: Resolving Strategy Paradoxes to Create Competitive Advantage, London: Thompson Learning. Derry, R. (2002), ‘Seeking a balance: a critical perspective on entrepreneurship and the good society’, Business Ethics Quarterly, Ruffin Series no. 3 on Ethics and Entrepreneurship, 197–208. Dunham, L., J. McVea and R.E. Freeman (2008), ‘Entrepreneurial wisdom: integrating the ethical and strategic dimensions’, International Journal of Entrepreneurship and Small Business, 5 (5), 8–19. Earl, P. (1983), The Economic Imagination, Brighton: Wheatsheaf. Freeman, R.E. (1998), ‘Poverty and the politics of capitalism’, Business Ethics Quarterly, 1, special issue, 31–5. Freeman, R.E. (1999), ‘Divergent stakeholder theory’, Academy of Management Review, 24 (2), 233–6. Freeman, R.E. and S. Venkataraman (2002), ‘Introduction’, Business Ethics Quarterly, Ruffin Series no. 3 on Ethics and Entrepreneurship, 1–3. Godlovitch, S. (1999), ‘Varieties of progress’, in P.H. Werhane and A.E. Singer (eds), Business Ethics in Theory & Practice, Dordrecht: Kluwer. Hawken, P. (1993), The Ecology of Commerce, London: Weidenfeld and Nicolson. Heath, J. (2006), ‘Business ethics without stakeholders’, Business Ethics Quarterly, 16 (4), 533–57. Heller, M.A. and R.S. Eisenberg (1998), ‘Can patents deter innovation? The anti-commons in biomedical research’, Science, 280, 698–701. Hendry, J. (2001), ‘Missing the target: normative stakeholder theory and the corporate governance debate’, Business Ethics Quarterly, 11 (1), 159–76. Jawahar, I.M. and G.L. McLaughlin (2001), ‘Towards a descriptive stakeholder theory: an organisational life cycle approach’, Academy of Management Review, 26 (3), 397–414. Kapustkina, E., M. Sinyutin and Y. Veselov (2008), ‘Entrepreneurial trust in the St Petersburg region of Russia’, International Journal of Entrepreneurship, 5 (5), 94–102. Kuttner, R. (1984), The Economic Illusion: False Choices Between Prosperity & Social Justice, Boston: Houghton Mifflin. Logsdon, J. and D. Wood (2002), ‘Business citizenship: from domestic to global level of analysis’, Business Ethics Quarterly, 12 (2), 155–87. Margolis, J. and P. Walsh (2003), ‘Misery loves companies: rethinking social initiatives by business’, Administrative Science Quarterly, 48 (2), 268–306. Molyneaux, D. (2003), ‘Saints and CEOs: an historical experience of altruism, self-interest and compromise’, Business Ethics: A European Review, 12 (2), 133–43. Munzer, S.R. (1990), A Theory of Property, Cambridge: Cambridge University Press. Neilsen, R.P. (2002), ‘Business citizenship and United States “Investor Capitalism”: a critical analysis’, Business Ethics Quarterly, Ruffin Series no. 3 on Ethics and Entrepreneurship, 231–40. Oberman, W. (2004), ‘A framework for the ethical analysis of corporate political activity’, Business & Society Review, 109 (2), 245–62. Prahalad, C.K. and A. Hammond (2002), ‘Serving the World’s poor, profitably’, Harvard Business Review, September, 48–57. DANA (2nd edition) PRINT.indd 249 18/12/2020 11:32 250 World encyclopedia of entrepreneurship Prakash Sethi, S. (2003), ‘Globalisation and the good corporation. A need for pro-active co-existence’, Journal of Business Ethics, 43 (1), 21–31. Roy (Achinto) and A.E. Singer (2006), ‘Reducing corruption in international business: behavioural managerial and political approaches’, Journal of Economic & Social Policy, 10 (2), 3–24. Sarasvathy, D.S. (2002), ‘Entrepreneurship as economics with imagination’, Business Ethics Quarterly, Ruffin Series no. 3 on Ethics and Entrepreneurship, 95–112. Sen, A. (1997), ‘Economics, business principles and moral sentiments’, Business Ethics Quarterly, 7 (3), 5–15. Sheperd, D. and M. Levesque (2002), ‘Stakeholder value equilibration, disequilibrium and the entrepreneurial process’, Business Ethics Quarterly, Ruffin Series no. 3 on Ethics and Entrepreneurship, 151–6. Singer, A.E. (1994), ‘Strategy as moral philosophy’, Strategic Management Journal, 15, 191–213. Singer, A.E. (2002), ‘Global business and the dialectic: towards an ecological understanding’, Human Systems Management, 21 (4), 249–65. Singer, A.E. (ed.) (2007a), Business Ethics & Strategy, vols 1 and 2, Aldershot: Ashgate. Singer, A.E. (2007b), ‘Global strategy and ethics: managing human systems and advancing humane ideals’, Business Ethics Quarterly, 17 (2), 341–64. Singer, A.E. and R. Doktor (2008), ‘Entrepreneurship as wisdom’, International Journal of Entrepreneurship and Small Business, 6 (1), 20–27. Smith, A. (1776), An Inquiry into the Nature and Causes of the Wealth of Nations, London: W. Strahan and T. Cadell. Solomon, R.C. (1992), Ethics and Excellence: Cooperation and Integrity in Business, Oxford: Oxford University Press. Soule, E. (2002), ‘Management moral strategies: in search of a few good principles’, Academy of Management Review, 27 (1), 114–24. Transparency International (2009), Business Principles for Countering Bribery, available at http://www.transparency.org, accessed October 2010. Werhane, P.H. (1999), Moral Imagination and Managerial Decision Making, New York: Oxford University Press. Zeleny, M. (2005), Human Systems Management: Integrating Knowledge Management and Systems, Hackensack, NJ and Singapore: World Scientific. DANA (2nd edition) PRINT.indd 250 18/12/2020 11:32 30. Ethnic minority entrepreneurship Léo-Paul Dana and Michael H. Morris Entrepreneurship and immigration represent two of the most significant global trends in these early years of the twenty-first century. Both are occurring at historically unprecedented levels throughout the world. Dana (2007b) made it clear that these are not unrelated trends. Research over the past 40 years has demonstrated that immigrants often create new ventures at a higher per capita rate than populations in general. Yet, current knowledge of the ways in which immigrants and other minorities create ventures, the types of ventures they create and the outcomes of those ventures remains limited. As such, it becomes less clear how much we can generalize about immigrant or minority group entrepreneurship. Indeed there are important differences among immigrant groups. The Government of Canada found that per 1000 Filipino workers in Canada, 18 were self-employed; the same reported that per 1000 Greek workers in Canada, 124 were self-employed (Dana, 1991). How can such differences be explained? Other differences are also apparent across immigrant groups. For instance, while immigrant entrepreneurs are often characterized as having been forced into entrepreneurship because of limited opportunities within a host country, research studies (see Dana, 2007b) have demonstrated that a wide range of motives drive their behaviour. Furthermore, countries differ significantly in the extent to which they actively encourage entrepreneurial behaviour among new arrivals. Similarly, while one might conclude that immigrants only create lifestyle or ‘mom and pop’ type ventures concentrated in the retail sector, research suggests that significant diversity exists in the types of ventures that are being created. This chapter is a synthesis of the 48 perspectives on immigrant and minority entrepreneurship provided in Dana (2007b). As a kind of meta-analysis, we have attempted to capture the dominant themes, major arguments and key findings put forward by the outstanding collection of contributors. It is our contention that some important generalizations may be possible based on the patterns that emerge in this chapter. Toward this end, we have formulated an integrative model of factors that explains the emergence of an immigrant or ethnic venture. Implications are drawn from the model for theory building, entrepreneurial practice and public policy. A set of priorities are proposed for future research. DEVELOPING A MODEL OF IMMIGRANT AND ETHNIC ENTREPRENEURSHIP The 48 perspectives provided in Dana (2007b), when considered collectively, suggest there may be a common set of key variables that explain immigrant entrepreneurship. That is, there may be common aspects to the immigrant experience that override ethnic 251 DANA (2nd edition) PRINT.indd 251 18/12/2020 11:32 252 World encyclopedia of entrepreneurship and cultural differences. Figure 30.1 illustrates our attempt to capture these key variables. It focuses on six key variables, each of which is summarized below. 1 The Immigrant Entrepreneurship does not happen without entrepreneurs. While the literature has historically focused on the traits of these individuals, and more recently there has been considerable attention devoted to their cognitive styles, or how they think, the research in this volume has tended to emphasize the relevance of other considerations. Especially important in this vein are motives, values and skills. Motivation to create a venture can generally be categorized into ‘push’ versus ‘pull’ factors. Entrepreneurs are pushed into entrepreneurship when they have limited access to meaningful employment opportunities within existing companies. The obstacles can range from overt labour market discrimination and communication barriers to skill shortcomings. The need to make a living and support one’s family, absent opportunities with existing organizations, pushes the individual towards entrepreneurship. Similarly, having technical skills, but an inability to sell these in the labour market, pushes one to create a venture. Alternatively, recognition of opportunity and the desire to achieve a vision can pull an individual towards the entrepreneurial path. While it is generally assumed that immigrants are more pushed than pulled, we find ample evidence of immigrants driven by motives to build growth-oriented ventures and to create wealth. Values play a role as well, especially when the immigrant has a value-set that is strongly tied to his or her ethnic background. Strong identification with one’s ethnicity can lead to a preference to create ventures tied to the ethnic network or enclave, but also to a motivation to serve the ethnic community. Such values will often be manifested in the business practices of the entrepreneur, including employment practices, incurrence of debt and approach to customer service. Yet, there is also evidence that ethnic entrepreneurs share universal values that are unrelated to their ethnicity. Examples of such universal values include individualism, achievement, competitiveness, risk-taking and a strong work ethic. The very act of emigrating may be reflective of some of these so-called entrepreneurial values. Also relevant in this realm is the relative size of what we might call the ‘ethnic gap’, or the extent of difference between the norms, values, customs, symbols and language of the host and home countries. Where this gap is larger, the immigrant is driven towards the ethnic network or enclave and towards entrepreneurship. Finally, while the role of other demographics are clear, these chapters do suggest that age and gender also represent significant considerations in the tendency to create ventures in new environments, and in the types of ventures created. 2 Host Country Factors While a wide range of country factors affect levels of entrepreneurship in general (for example, taxes, mandated social benefits provided by companies, regulation), our interest is in the environmental elements that most influence immigrant entrepreneurship. Based on the range of work submitted to this volume, the role of the informal economy within the larger economy of the host country appears to be an especially DANA (2nd edition) PRINT.indd 252 18/12/2020 11:32 253 DANA (2nd edition) PRINT.indd 253 18/12/2020 11:32 Figure 30.1 Commonality of business interests with ethnic network interests and resource Learning/ knowledge acquisition • Type of venture • Dependence on ethnic enclave • Relative focus on the business versus the ethnic group The immigrant venture Ethnic network/enclave • Access to international ethnic network • Homogeneity of ethnic group • Cost of membership in network/enclave • Reciprocity and trust • Diversity of business types • Extensiveness of network • Crowding within enclave • Infrastructure • Resources/cultural capital Immigrant venture flowchart • Values • Motives • Ethnic gap (home versus new country) • Age and gender • Communication and networking skills • Technical skills • Linkage to ethnic businesses back home The immigrant Host country factors • Role of informal economy in larger economy • Host country entrepreneurial culture • Cultural heterogeneity • Historical role of immigration • Support programmes for entrepreneurs • Welfare/social benefit system • Permeability of markets • Regulatory constraints Co-ethnic dependence over time • Outcomes for immigrant – assimilation – income and wealth – upward social mobility • Venture outcomes • Societal outcomes • Upward social mobility • Assimilation Outcomes 254 World encyclopedia of entrepreneurship salient consideration. The presence of a large population of unregistered businesses says something not only about limited opportunities within the ‘legitimate’ business sector, but also implies a culture of creating ventures to address needs, and a willingness of the government to look the other way. Countries also differ in terms of their overall entrepreneurial orientation, where the basic cultural values and norms of society are more consistent with individual initiative, personal responsibility, wealth creation, reward for hard work, competitiveness and innovation. Not only does immigrant entrepreneurship flourish in such environments, but these countries often have a history of high rates of immigration, with immigrants making major contributions to economic development. Similarly, such countries will tend to demonstrate great cultural heterogeneity. And, while cultural heterogeneity is consistent with higher levels of entrepreneurial activity, the tendency for immigrants to cluster both geographically and around certain industries appears to occur regardless of this heterogeneity. Hence, in both homogeneous and heterogeneous countries, the ethnic network plays a significant role in immigrant entrepreneurship. The entrepreneurial friendliness of a country will also be reflected in some other variables emphasized in the preceding chapters. Immigrant entrepreneurship is facilitated where markets are more permeable, regulatory constraints are limited, and specific support programmes exist not only for entrepreneurs, but for immigrant entrepreneurs. Ironically, immigrant entrepreneurship is also facilitated by a limited welfare or social benefit system in the host country. Generous social welfare may be more of a conduit either for unemployment or entry into the traditional labour market, as opposed to the creation of one’s own venture. 3 The Venture The evidence here suggests that a large majority of immigrant and ethnic ventures are either retail or service businesses, or related to a skill or trade the immigrant brings from their home country. Most are in low entry barrier industries, where differentiation of the business is difficult and competition is often price based. The ethnic network or enclave can serve to offset these severe market challenges, in effect creating a workable competitive space for the entrepreneur. Yet, as noted above, there is considerable diversity in the types of ventures created by immigrant and ethnic entrepreneurs. However, dependence on the ethnic enclave may well limit growth and constrain innovation within the venture. This is not to say that there are not sizeable ventures that develop based on the ethnic enclave, but these appear to be the exception. In fact, a perusal of the many case examples provided within the pages of this book find few highly innovative ventures that compete on the basis of continuous new product or service development. There are also few examples of hightechnology or technology-based ventures. 4 Ethnic Networks and Enclaves A unique aspect of immigrant and minority entrepreneurship is the frequent presence of an ethnic network or enclave as a facilitator of new venture creation. In some contexts, entire sub-economies have been created that involve a given immigrant or ethnic DANA (2nd edition) PRINT.indd 254 18/12/2020 11:32 Ethnic minority entrepreneurship 255 group controlling all stages of the value chain. In other instances, the ethnic network is a source of resources and legitimization. In still other cases, the network extends to the immigrant’s home country and/or is connected to a global diaspora. By viewing these ethnic networks and enclaves through the lens of different countries and ethnicities, we are better able to appreciate how they affect and interact with immigrant or ethnic entrepreneurs. The critical importance of ethnic networks in affecting immigrant entrepreneurship is strongly supported in country after country. They are an invaluable source of a wide range of resources (money, suppliers, employees, customers, distributors) and generate what has been termed ‘cultural capital’. Just as vital is the role of the network or enclave as a source of information and knowledge. They provide legitimacy and infrastructure, as well as the aforementioned competitive space within which the entrepreneur can survive in the early stages of the venture. And they can frequently provide connections to a larger international network. Yet, ethnic networks differ based on some key characteristics. The relative homogeneity of the ethnic individuals within the network is a case in point. This homogeneity may contribute to levels of reciprocity and trust within the network or enclave. The greater the reciprocity and trust, the more engrained within the network a venture is likely to become over time. Another relevant characteristic is the extensiveness of the network. Extensiveness refers not simply to geographic scope, but to the diversity of the industries and business types represented within the network or enclave, the stages of the value chain within industries that are represented, the reach of the network or enclave into the non-profit and government sectors, and the related political activism of the network or enclave. Homogeneity, trust and extensiveness might also be expected to affect the cost of membership within the network or enclave, including resources (money, time, goods and services) that must be reinvested by the entrepreneur in the network over time. A related variable concerns the degree of ‘crowding’ within the network or enclave, particularly among ventures providing the same basic goods or services. Crowding undermines the relative returns to the entrepreneur from depending upon the network or enclave, and limits growth prospects. Yet, it can be an important incentive for ultimately lessening the venture’s dependency on the ethnic network or enclave. 5 Co-ethnic Dependence over Time: Two Intervening Variables The growth path followed by immigrant or ethnic ventures has not received sufficient attention from researchers. For instance, richer insights are needed regarding crossnational differences in the survival and growth rates between ventures started by immigrants or ethnic minorities and those in the mainstream economy, and the underlying reasons contributing to such differences. Further, we need to better understand the extent to which ethnicity affects strategic intent. Again, the ethnic network plays a role. The studies here suggest that ethnic networks facilitate venture start-up and short-term growth, and may reduce failure rates, but might also either limit or have no effect on longer-term growth. Hence, dependency on the ethnic network, and the extent to which the entrepreneur views the venture as existing to serve the ethnic group, or views the ethnic group as a means of serving the venture, impact the firm’s growth path. DANA (2nd edition) PRINT.indd 255 18/12/2020 11:32 256 World encyclopedia of entrepreneurship Based on the work presented by the researchers in this volume, two key variables appear to impact the venture’s co-dependence on the ethnic network or enclave, and the venture’s ultimate growth path. The first concerns the amount of learning and knowledge acquisition that occurs over time. The more learning that is achieved by the entrepreneur and those working within his or her venture, the more growth occurs, while dependency on the ethnic network lessens. The network is initially the most critical source of information. The question is how much the entrepreneur identifies and utilizes new information sources over time, and how much he or she learns from ongoing experimentation with new products, markets, and internal business processes. The second variable impacting the venture’s growth path concerns the extent to which the core interests and needs of the venture coincide with the interests and resources of the ethnic network. Over time, commonalities in interests, needs and resources can often wane, especially as the ethnic network or enclave becomes more crowded. Emerging competitive practices within the industry can force the entrepreneur to develop new competencies in areas where the ethnic network has less to offer. The development of these competencies can, in turn, lead the entrepreneur to become less dependent on the ethnic enclave and to grow more aggressively. The dynamism of the ethnic network itself becomes an important consideration. More dynamic networks or enclaves can be expected to continually develop new capabilities and assets, fostered in part by the addition to the network of new but diverse immigrant or ethnic ventures. Less dynamic and more conservative networks will only limit the potential of the venture, and give rise to the entrepreneur diversifying away from co-ethnic dependency. 6 Outcomes The immigrant and ethnic venture experience produces outcomes at three distinct but related levels. The first of these is for the immigrant or ethnic minority entrepreneur and his or her extended family. At this level, the most apparent outcome is income substitution and wealth generation. Yet, given the preponderance of survival and lifestyle ventures being created, wealth generation may be limited. Further, the considerable needs of the family combined with the need to invest in the ethnic community, may well constrain the amount of reinvestment into the business. Less clear is the extent to which these ventures represent stepping stones to employment in established companies within the mainstream economy. The opposite may often be the case, in that by focusing on the needs of the venture, the entrepreneur does not develop skills and experiences that are in demand within the labour market. The venture serves other purposes as well. One of these is upward social mobility for the entrepreneur, but even more so for the children of the entrepreneur. An interesting issue concerns the impact of venture creation on the amount and rate of assimilation by the entrepreneur of the culture and norms of the host country. Ventures operating in relatively narrow niches and less dynamic markets may actually hinder the assimilation process. Heavy dependence on the ethnic network can also slow the assimilation process. A slow rate of assimilation can, in turn, limit the growth rate and directional path of the venture. This brings us to venture outcomes. The financial performance of these ventures over time (that is, sales growth, profit growth, growth in numbers of non-family employees) would seem to be directly DANA (2nd edition) PRINT.indd 256 18/12/2020 11:32 Ethnic minority entrepreneurship 257 associated with the variables outlined in the model. Hence, ventures will perform better based on the motives and skills of the entrepreneur, the entrepreneurial friendliness of the host country, the type of venture created, the resources, extensiveness, crowdedness and dynamism of the ethnic network or enclave, the amount of learning by the entrepreneur over time, commonality of the business interests and needs with the interests and resources of the ethnic network, and co-ethnic dependence over time. Finally, the perspectives provided in Dana (2007b) suggest that immigrant ventures can produce significant societal outcomes. National economic growth and vitality are chief among these outcomes. However, there is evidence to suggest that these ventures also contribute to a number of other quality-of-life dimensions. As these ventures are frequently started in poorer or more economically challenged neighbourhoods, they provide a source of neighbourhood stability. Further, by providing for the economic welfare of the immigrant’s extended family, entrepreneurial ventures may serve as a deterrent to criminal and gang activity. In addition to any taxes paid, immigrant entrepreneurs frequently contribute in meaningful ways both to their communities and their ethnic networks. And, in the final analysis, these ventures add to the social, cultural and commercial fabric of society by adding diversity to communities, while also introducing new products and new business practices. IMPLICATIONS Six decades ago, Cochran (1960) focused on the role of cultural factors in economic growth. In 2000, the Human Genome Project claimed that race did not exist. Today, scientific teams study the genetic traits of ethnic groups. Are behaviour and ethnicity linked and if so, how and why, and does it matter? The 49 chapters of Dana (2007b) all report on ethnic minorities and their respective entrepreneurial activities. As explained by Morris, ‘An ethnic group is a distinct category of the population in a larger society whose culture is usually different from its own. The members of such a group are, or feel themselves, or are thought to be, bound together by common ties of race or nationality or culture’ (1968: 167). Yet, ‘Ethnic groups only persist as significant units if they imply marked difference in behaviour, i.e., persisting cultural difference’ (Barth, 1969: 15–16). In some cases, ethnic groups integrate into host societies, into which they have immigrated; in most cases they do not. Where groups with unlike spheres of values coexist, the result is a pluralistic society. Barth (1963; 1966; 1967a; 1967b; 1981) is one who has placed great emphasis on the existence of different spheres of values. Central to his discussion is the notion of the entrepreneur as an essential broker, mediating boundary transfers in this situation of contacts between cultures. By being active in the transformation of a community, entrepreneurs are social agents of change. The nature pluralism in a host society affects ethnic minority entrepreneurship. It is, therefore, useful to distinguish among (1) melting pot pluralism; (2) structural pluralism; and (3) fragmented pluralism: 1. When people, from different cultures, share activities in a secular mainstream arena, the expression of cultural differences tends to be limited to private life. Often, DANA (2nd edition) PRINT.indd 257 18/12/2020 11:32 258 2. 3. World encyclopedia of entrepreneurship employment is shared in a common sphere of life, while cuisine, customs, languages and religion are a domestic concern. This form of socio-economic pluralism is referred to as melting pot pluralism, and this is descriptive of the situation in the USA. Immigrant entrepreneurs thrive in such as scenario. In contrast, structural pluralism involves a society with different cultures that do not share a secular mainstream arena. In such a case, there is minimal interaction across cultures. Rather, each ethnic group has its distinct institutions, and members of a given community have a lifestyle that is incompatible with that of people from other backgrounds. This type of pluralism is prevalent in the Muslim areas of China (Dana, 2007a) and in the Central Asian republics (Dana, 2002), where entrepreneurs often cater primarily (or only) to members of their own ethnic group. Fragmented pluralism is an unstable state of socio-economic pluralism from which a society can shift toward ‘ethnic cleansing’. With fragmented pluralism, distinct societies are loosely held together by a weak political unit, such as was the case with Yugoslav federalism (Dana, 2005), and each ethnic group lives a separate life. In this context, there is minimal interaction between competing ethnic groups. Gurău et al. (2020) address the variety of theoretical interpretations of ethnic minority entrepreneurship and provide a model of immigrant entrepreneurs along with a typology. TOWARDS FUTURE RESEARCH Future research topics might include: the impact of the motives for migrating; host country factors such as the nature of pluralism; economic sectors of immigrant ventures; causal factors in patterns of growth among ethnic entrepreneurs; enclaves; and co-ethnic dependence over time. Also, more research would be welcome on the topic of ethnic networks, as pioneered by Aldrich and Zimmer (1986); on middlemen minorities, as pioneered by Bonacich (1973); and on social capital as discussed by Bates (1994). To what extent do immigrant entrepreneurs employ people from other ethnic communities? When do they cater to mainstream society? What might be the optimal strategy? Dabić et al. (2020) propose a research agenda. REFERENCES Aldrich, H.E. and C. Zimmer (1986), ‘Entrepreneurship through social networks’, in D.L. Sexton and R.W. Smilor (eds), The Art and Science of Entrepreneurship, Chicago, IL: Upstart, pp. 3–20. Barth, F. (ed.) (1963), The Role of the Entrepreneur in Social Change in Northern Norway, Bergen: Norwegian Universities’ Press. Barth, F. (1966), Models of Social Organization, London: Royal Anthropological Institute. Barth, F. (1967a), ‘Economic spheres in Darfur’, in Raymond Firth (ed.), Themes in Economic Anthropology, London: Tavistock, pp. 149–74. Barth, F. (1967b), ‘On the study of social change’, American Anthropologist, 69 (6), 661–9. Barth, F. (1969), ‘Introduction’, in Fredrik Barth (ed.), Ethnic Groups and Boundaries: The Organisation of Cultural Difference, Oslo: Universitetsforlaget, pp. 9–38. Barth, F. (1981), Process and Form in Social Life, London: Routledge and Kegan Paul. Bates, T. (1994), ‘Social resources generated by group support networks may not be beneficial to Asian immigrant-owned small businesses’, Social Forces, 72 (3), 671–89. DANA (2nd edition) PRINT.indd 258 18/12/2020 11:32 Ethnic minority entrepreneurship 259 Bonacich, E. (1973), ‘A theory of middleman minorities’, American Sociological Review, 38 (5), 583–94. Cochran, T.C. (1960), ‘Cultural factors in economic growth’, The Journal of Economic History, 20 (4), 515–30. Dabić, M., B. Vlačić, J. Paul, L.-P. Dana, S. Sahasranaman and B. Glinka (2020), ‘Immigrant entrepreneurship: a review and research agenda’, Journal of Business Research, 113, 25–38. Dana, L.P. (1991), ‘Bring in more entrepreneurs’, Policy Options, 12 (9), 18–19. Dana, L.P. (2002), When Economies Change Paths: Models of Transition in China, the Central Asian Republics, Myanmar, and the Nations of Former Indochine Française, Singapore, London and Hong Kong: World Scientific. Dana, L.P. (2005), When Economies Change Hands: A Survey of Entrepreneurship in the Emerging Markets of Europe from the Balkans to the Baltic States, Binghamton: Haworth Press. Dana, L.P (2007a) Asian Models of Entrepreneurship – From the Indian Union and the Kingdom of Nepal to the Japanese Archipelago: Context, Policy and Practice, Singapore and London: World Scientific. Dana, L.P. (2007b), Handbook of Research on Ethnic Minority Entrepreneurship: A Co-evolutionary View on Resource Management, Cheltenham, UK and Northampton, MA, USA: Edward Elgar. Gurău, C., L.-P. Dana and I.H. Light (2020), ‘Overcoming the liability of foreignness: a typology and model of immigrant entrepreneurs’, European Management Review, doi:10.1111.emre.12392. Morris, H.S (1968), ‘Ethnic groups’, in David L. Sills (ed.), International Encyclopedia of the Social Sciences, London and New York: Macmillan, vol. 5, pp. 167–72. DANA (2nd edition) PRINT.indd 259 18/12/2020 11:32 31. Evolution of entrepreneurship and its role in stewardship-based economics* Raymond W.Y. Kao, Rowland R. Kao and Kenneth R. Kao It has been exactly 30 years since the Ecologist began campaigning first at the self-destruction of mankind. Much has been achieved since, much remains to be done. (Fred Pearce, ‘The spirit of the age’, Ecologist, July/August 2000) Now, not 30 but 50 years on, some of the issues raised by the Ecologist and many others are just reaching the critical mass of public opinion for action to be taken about them, with much more as yet largely ignored. World Bank statistics on global poverty alone tell us how much work remains to be done. The unfortunate realities that face us now, as we move forward through the twenty-first century, should make us wonder: how is it possible that we have done so little to ease the too legitimate concerns over the potential for the self-destruction of mankind? At the point of updating this chapter, the COVID-19 pandemic is in full force and will be remembered as a turning point in human history. The spread of the virus has been exacerbated by unprecedented levels of human movement around the world. Throughout this global crisis, entrepreneurism has taken a role front and centre – with all levels of enterprise from the small home-based businesses making face masks and personal protective gear, to large corporations, such as GM, manufacturing desperately needed ventilators used to keep the most seriously affected patients alive to recover from this deadly disease – seen increasingly as addressing these issues, and stewardship accountability applied to entrepreneurial undertaking. Governments worldwide have also stepped up financial support for biotechnology and pharmaceutical companies to develop innovative ways to combat this deadly disease, lighting a fire under the entrepreneurial spirit. The lightning fast speed afforded by the Internet and social media, as well products of entrepreneurial innovation, have served to feed the entrepreneurial fever, demonstrating its importance to human survival. Also, quieter streets, cleaner air and wildlife returning to places they had not been seen for years, have reminded us of things that we had thought we had lost, or taken for granted. It has thus, at least temporarily, reminded people of our stewardship role, and caused people all around the world to reassess their values. It could be argued that, at the heart of our fight against COVID-19, is a battle between economics and the health of human people. The current American president, Donald Trump, argues for re-opening the economy, which has been closed to stop the spread of the virus. While others do not share President Trump’s penchant for favouring illusory cures for COVID-19, the concerns about the world economy are real, as are concerns about the impact on health and society. Do we accept that people must die, sometimes in great distress and pain because of this pandemic, so that economies can be restarted and to prevent the loss of even more years of life owing to other causes? The danger brought about by the control policies themselves is real. Yet, while many have died, most people 260 DANA (2nd edition) PRINT.indd 260 18/12/2020 11:32 Evolution of entrepreneurship 261 around the world are as healthy as they were before the pandemic, and ready to work. Thus the potential for productivity remains almost exactly the same as it was before the pandemic. What has changed is that the system of distribution is damaged. The fundamentals of economics are the same, no matter what the system or underlying philosophy involved: production (or the making of new or required combinations), exchange (the equal trading of value), redistribution (the accrual or loss of value by individuals or other economic entities) and consumption. Any attempt to coordinate all this should be viewed as unrealistic. Any human system requires human decision, and therefore at least some human freedom. Humans are not ants or bees, and our behaviour is driven by need, wants and desires, sometimes for more and more without any feeling of the need for a margin – that is, greed. Despite the negative connotations of greed in respect of needs and wants, it is a perhaps unfortunate reality that there is a co-dependency among the three; they all function in the marketplace to push human beings to create and innovate, resulting in a great deal of the progress that has been made to date. Personal desire and the push for more also affect the system of distribution. Thus, any economic system must reconcile the two aspects of the individual and the common good. Here, we argue that entrepreneurship is the key to reconciling this contrast but, to be sustainable, it must be an entrepreneurship that recognizes the concept of the residual. It has been recognized now for many decades that entrepreneurship is at the heart of human activity. Questioning whether there are any boundaries as to what entrepreneurship encompasses, however, could be seen as a matter of ethical and moral debate. Over 25 years ago, at the 1995 Entrepreneurship Conference held in Shanghai and jointly run by China’s Fu-Dan University and Nanyang Technological University of Singapore, the senior author delivered an opening address in which he noted that entrepreneurship should be identified as a creative and innovative human activity that benefits both selfinterest and the common good. A young attendee commented: In your address, you said that people in the drug-trafficking business are not entrepreneurs, but I think you are wrong. Drug trafficking is a business, and traffickers are just as much entrepreneurs as any other venture founders. They created the business, making money for themselves, and provide jobs for others. Why don’t you consider them to be entrepreneurs? The senior author responded: ‘Well, I don’t know about China, but in Singapore, a drug trafficker, if caught and found guilty as charged can be sentenced to death by hanging.’ Definitions are, therefore, very important. In this case, the difference in definition between what is considered to be an entrepreneur (in the questioner’s mind) and what is considered a criminal (in Singaporean legislation) is literally the difference between life and death. Definitions are there to serve as a guide, in a learning environment, helping to communicate knowledge among those concerned. It is broadly agreed that laws are created on the basis of justice to govern the limits of human behaviour and business conducted. However, the law does not define justice. To enforce and interpret justice in the law is the task of a person (usually a judge), or a group of persons, such as a jury. Similarly, a definition is created with a specific purpose in mind and is intended to be used in practice. To uphold the intentions that lie behind a definition remains a human problem, for individuals to decide. DANA (2nd edition) PRINT.indd 261 18/12/2020 11:32 262 World encyclopedia of entrepreneurship 1. WHO IS AN ENTREPRENEUR? It is slightly fanciful to say that the dinosaurs became extinct because they failed to be sufficiently entrepreneurial and adapt to a changing environment, but it is no less true that, in the absence of entrepreneurial spirit, we would either be extinct ourselves or remain in a less innovative and creative society, as hunter-gatherers, just like our prehistoric ancestors. They certainly had no automobiles, computers, Internet, advanced medicine, cosmetic surgery or personal jets. These luxuries are the results of the entrepreneurial spirit in society and can also be the reward of entrepreneurial action on the part of the individual. It is equally true that not all those who achieve these things are entrepreneurs. We are reminded of a now old-fashioned term, the ‘American dream’. Once upon a time the American dream referred to the right of every individual, by virtue of their own talents, ambitions and hard work, to succeed. That is, America’s pride was to be an entrepreneurial society. Unfortunately, now the fruits of that dream are viewed by too many to be the dream itself – a lottery winner, for example, is viewed by many as living the American dream. Worse still, individuals can cheat and lie, manipulate the system, perhaps even commit heinous and harmful offences to get what they want, in the name of the American dream. In the current world of well-to-do countries, the desire for greater wealth is the main driver of many people’s actions, and perhaps this is how entrepreneurship was spurred. If so, the original meaning of the term has been lost – what is left is only a caricature of the original. Cantillon’s definition (see also Table 31.1) purported that the enterprise under a selfemployed individual has dual status: the enterprise is both an economic entity and a social entity. As an economic entity, the self-employed individual has the proprietary right to make decisions in allocating the uncertain returns for himself or herself. As a social entity, he or she is accountable as a steward for resources to see that all resource-providers receive a fair share of return for their contribution, including the restoration of what was taken from nature and a fair share of the fruits of their labour. Entrepreneurial Attributes The attribute of uncertainty signifies risk-taking. Cantillon’s four elements suggest that although an entrepreneur is a person, this person is at the centre of entrepreneurship knowledge. This definition, though almost 300 years old, generally fits in well with the production functions of economic analysis that typically include: ● ● ● factor of distribution – income or profit; factor of exchange – income can only be generated from an exchange system under the market economy; and factors of production – the process of innovation and creation. While an entrepreneur is generally perceived to be a risk-taker, this is only one attribute. Attempts to encompass the defining attributes of an entrepreneur are many (for example, Table 31.2). However, these definitions are problematic; for example, there are questions about the relationship between an entrepreneur and their firm. In a firm, there can be others who have similar attributes to those of the owner/entrepreneur, with every DANA (2nd edition) PRINT.indd 262 18/12/2020 11:32 Evolution of entrepreneurship Table 31.1 263 Definitions of an entrepreneur Richard Cantillon 1710 A self-employed person with uncertain returns Abbe Nicollas 1767 Jean-Baptiste Say Joseph Schumpeter Frank Knight 1801/1810 1910 1921 Edith Penrose 1959 J.E. Stepanek D.C. McCelland Robert E. Budner Orvis F. Collins W.D. Litzinger 1960 1961 1962 1964 1965 J.B. Rotter Israel Kirzner J.A. Timmons 1976 1979 1985 A leader of men, a manager of resources, an innovator of ideas, including new scientific ideas, and a risk-taker A coordinator of production with management talent A creative innovator A manager responsible for direction and control, who bears uncertainty A person with managerial capabilities separate from entrepreneurial capabilities, and able to identify opportunities and develop small enterprises A moderate risk-taker A person with a high need for achievement A person who has a high tolerance for ambiguity A person with a high need for autonomy Low need for support and conformity, leadership, decisiveness, determination, perseverance and integrity Internal locus of control An arbitrageur ‘A’-type behaviour pattern Source: Kao et al. (2010). management level having at least one decision-maker who makes at least some proprietary or stewardship decisions. They, like the owner/entrepreneur, need to possess the ability to exercise characteristics, such as confidence, creativity and innovative ability, to assure a firm’s success. There are many known attributes of successful entrepreneurs. Hornaday’s and Gibb’s works are used here to highlight the essentials (Table 31.2). The Entrepreneur, Income or Profit Distribution and the Concept of Residual Must all profit go to the proprietary decision-maker (owner) or is profit viewed as a residual for redistribution to all those who have made a contribution? A number of issues must be considered. Wages to workers must be paid first before income – since the entrepreneur is self-employed, he or she would be the decision-maker to allocate resources (including human resources) according to their desires including, in particular, earned uncertain returns or profit which include appropriate remuneration to workers in the enterprise, traditionally providing a clear distinction between the entrepreneur and the non-entrepreneur. However, in accordance with Cantillon’s definition, it is the matter of making proprietary decisions (traditionally ownership decision) that counts. This definition suggests that a self-employed person is the only entrepreneur, and that the distribution of uncertain income or profit is entirely at the discretion of the self-employed entrepreneur. However, this also raises a question: if an individual displays many or all of the attributes used to define an entrepreneur, but does not have decision-making powers over the distribution of uncertain income, does that mean that this person is not an entrepreneur? If that is so, then the attempts to define entrepreneur attributes are meaningless, since they are wholly DANA (2nd edition) PRINT.indd 263 18/12/2020 11:32 264 World encyclopedia of entrepreneurship Table 31.2 A comparison of identified entrepreneur attributes between the works of Hornaday and Gibb Hornaday Gibb Self-confidence Perseverance, determination Energy, diligence Resourcefulness Ability to take risks Need to achieve Creativity Initiative Flexibility Independence Foresight Dynamic leadership Ability to get along with people and take criticism Profit orientation Perceptiveness Optimism Creativity Initiative High achievement Risk-taking (moderate) Leadership Autonomy and independence Analytical ability Hard work Good communication skills Source: Kao (1989: 7). dependent on a single (external) factor. On a broader scale, this issue is how socialism or communism takes the route to challenge the entrepreneur’s decision. An approach to resolve decision-making conflict on profit distribution is to evolve to the concept of residual. To adopt the residual concept for business is not a complicated process. But to do so, profit must be reinterpreted in which the costs of Cantillon’s social entity are discounted from it, leaving the uncertain returns as the residual. For reporting and tax purposes, calculation of accounting income could be reformulated using the following guidelines. 1. 2. 3. 4. Recognize residual and use it in financial reporting for shareholders and recognize stakeholders’ right to a share of residual with full disclosure. Establish residual to replace formally used the term of retained earnings. Full disclosure in respect of how unallocated residual was established. Unallocated residual is ultimately derived after deducting income tax. The concept of residual has been adopted indirectly by many nations via taxation to account for excessive climate-damaging fossil fuel emissions. The recognition that climate stewardship as part of the social entity, could be incentivized by its integration into the income accounting spreadsheet. In this instance, a company that reduces its carbon footprint can lower its taxes, thus leaving a larger residual. The definition of an entrepreneur, therefore, might include incorporating residual in their business activities. DANA (2nd edition) PRINT.indd 264 18/12/2020 11:32 Evolution of entrepreneurship 2. 265 ENTREPRENEURSHIP, ENTERPRISING CULTURE AND THE EVOLUTION OF ENTREPRENEURIAL THOUGHT Like the awareness and definition of the entrepreneur, the knowledge-based discipline of entrepreneurship could be said to have started with Cantillon in 1710. Cantillon was followed by a number of writers who established new criteria forming the basis of new definitions of the discipline, though all these remain widely quoted (Table 31.3). Cantillon’s early, narrow definition based on a self-employed person with uncertain income, was considerably broadened by increasingly generic terms of reference. Menger (1871, cited in Kao 1995a: 72) defined entrepreneurship as involving: obtaining information, calculation, an act of will, and supervision. Schumpeter’s (1934) definition some 40 years later was in many ways the key to the modern concept and can be paraphrased as the making of different combinations and something that everyone participates in sometimes, but never all the time. This was followed by Timmons narrowing the definition to actions involving searching and seizing business opportunities. At the same time, a few others seemed focused on pushing entrepreneurship development including business development, enterprise development and growth. Entrepreneurship is an all-encompassing term covering all human creative and innovative endeavours, not just in profit-making commercial undertakings and not-for-profit organizations, but also any individual who has the urge to do something new and something different, first as motivation for self-interest, then as part of a group as whatever he or she does must be of benefit to others as well. This progression from individual to the group can been seen in the evolution of entrepreneurial thought as seen by the senior author over the past half century. In the 1960s, the emphasis was on independent business, and few people could even pronounce or spell entrepreneurship. In the 1970s and 1980s, we saw the development of entrepreneurship as an academic discipline, with new chairs at universities and PhDs being offered. Finally, in the twenty-first century, the environment, poverty, health care and the drain of resources have become ever more urgent issues. The search for the meaning of entrepreneurship extends beyond its limited scope of small business commercial undertakings for the pursuit of profit-making. Kathleen R. Allen (1989: 4) had the following description: Table 31.3 Summary of entrepreneurship definitions Contributor Period Contribution Carl Menger 1871 Joseph Schumpeter 1910 Harvey Leibenstein 1970 Israel Kirzner W. Ed McMillan and Wayne A. Long Howard H. Stevenson 1975 1990 Entrepreneurship involves obtaining information, calculation, an act of will and supervision Entrepreneurship is the finding and promoting of a new combination of productive factors Entrepreneurship is the reduction of organizational inefficiency and the reversal of organizational entropy The identification of market arbitrage opportunities Entrepreneurship is the building of growth organization DANA (2nd edition) PRINT.indd 265 1992 Entrepreneurship is the pursuit of opportunity beyond the resources currently under your control 18/12/2020 11:32 266 World encyclopedia of entrepreneurship Entrepreneurship is a mindset or a way of thinking that is opportunity focused, innovative, and growth oriented. Although entrepreneurship is most commonly thought of in conjunction with starting a business, the entrepreneurial mindset can be found within a large corporation, in socially responsible non-profit organizations, and anywhere individuals and teams are desiring to differentiate themselves from the crowd and apply their passion and drive to executing business opportunities. It is certainly a notable effort to extend entrepreneurship from the narrowly confined meaning of just small business, to include all business undertakings, large or small. It should also be recognized, however, that entrepreneurs (creative and innovative individuals) exist in other organizations, such as not-for-profit organizations, governments, and so on. As a consequence, the definition of entrepreneurship needs to be welded together from the following three components: 1. 2. 3. Wealth-creating and value-adding processes. Actions involved in wealth-creating and adding value to the process through venture formation and/or initiation of entrepreneurial endeavours. Wealth for the individual and value for society. The definition emphasizes the importance of creating wealth and adding value. Also, it includes all such activities, and therefore departs from Cantillon’s self-employed individual. When the Journal of Enterprising Culture had its inaugural issue (in 1993), the editorial board decided to place the definition on the inside front cover, with a refinement to include who is an entrepreneur in a two-part definition, as follows: ‘To summarise, entrepreneurship is “The process of doing something new and something different for the purpose of creating wealth for the individual and adding value to society. An Entrepreneur is a person who undertakes a wealth-creating and value-adding process, through incubating ideas, assembling resources and making things happen”’ (original emphasis). This broadening of the definition has led to a natural extension to consider not just entrepreneurship as a function of some individuals, but as a property of a collective and the identification of an enterprising culture. Enterprise or enterprising culture needs to be recognized in any organization, in order to sustain development and growth. For a healthy enterprise culture, any organization is built on the academic discipline of research and learning. A.A. Gibb (1987) provided some useful guides for enterprise culture development, based on the cultivation of strong entrepreneur attributes within every individual in the organization (Figure 31.1). These definitions led to a further refinement in the author’s later work to replace ‘adding value to society’ with ‘the common good’. This same definition led to the development of the doctrine of entrepreneurism. 3. ENTREPRENEURISM The entire discipline of entrepreneurship is based on the human need to create and innovate, a need that is best fostered in an environment where these attributes are valued more than, for example, the need to avoid failure. In this view, entrepreneurship, creation and innovation efforts under a market system are the pillars that make everything possible DANA (2nd edition) PRINT.indd 266 18/12/2020 11:32 Evolution of entrepreneurship 267 Ample opportunities for familiarization with small business tasks especially during youth Abundant positive role images of successful independent business Enterprise culture Opportunities to practice entrepreneurial attributes reinforced by society culture during formative years Network of independent business/family contacts and acquaintances reinforcing familiarity and providing market entry opportunities Provision formally and/or informally of knowledge and insight into the process of independent business management Source: Gibb (1987: 14). Figure 31.1 Enterprise culture in the market economy. Entrepreneurship is a wonderful human endeavour; however, too many definitions dwell on profit-making. The desire to create and innovate is in all individuals, and is independent of market objectives. The efforts of these individuals in a fundamental sense contribute to the common good, to make life better for future generations. Profit is only a very small part of this, and unfortunately reflects the human craving for money with no regard for the common good. As in the Chinese saying that one rat dropping will spoil a pot of delicious soup, emphasis on the accumulation of wealth spoils the definition of entrepreneurship. Creation and innovation does not necessarily require the desire to accumulate wealth. This can be witnessed currently by the numerous stories of how businesses, which have been closed owing to public health lockdown to prevent the spread of the Covid-19 virus, are reformulating their industry to generate personal protective equipment to help the workers who care for those stricken with the potentially deadly virus. Alternatively, in less challenging times, should the corporate raider who liquidates the assets of companies, and dips into employees’ pension funds to accumulate personal sums of money, be considered an entrepreneur? Is Don Corleone in The Godfather a portrayal of an entrepreneur? Or are they representations of the old Chinese saying? Entrepreneurism is an ideology proposed as a sensible alternative to capitalism, on the one hand, and socialism, on the other, and being based on the common good. It is DANA (2nd edition) PRINT.indd 267 18/12/2020 11:32 268 World encyclopedia of entrepreneurship not just about making money, nor is it merely about starting up a venture or owning a small business – it is a way of life, applicable to all human economic activities. Living on a planet with finite resources, humanity is sustainable only if there is constant pursuit of innovation and creativity, not just for personal gain but also for the common good. It is also a philosophy, as it is based on the statement: ‘To create and innovate is not a matter of choice, but necessity.’ The definition of entrepreneurship must include the common good. Without this qualification, drug traffickers could easily justify their harmful trade by stating that they are job providers. How does this compare with the Chinese soup analogy? The notion of the common good can be seen in the following three sources: 1. 2. 3. From the Second Vatican Council (1961, para. 65): ‘Factors that contribute to the common good and the overall conditions of life in society that allow the different groups and their members to be active in their own perfection more fully and more easily.’ From Wikipedia: ‘The Common Good is a term that can refer to several different concepts. In the popular meaning, [it] describes a specific “good” that is shared and beneficial for all (or most) members of a given community. This is also how the common good is broadly defined in philosophy, ethics, and political science’ (accessed 15 October 2020 at https://wiki.p2pfoundation.net/Common_Good). From the Government of Ontario, Canada website (accessed 15 October 2020 at https://news.ontario.ca/en/release/56537/ontario-joins-forces-with-the-private-sectorto-fight-covid-19): ‘Ontario together: help fight coronavirus, offers emergency products and innovative solutions or volunteer to support our response to COVID-19.’ In this case the common good is seen as the only way to find a solution for common benefit. The ancient Chinese scholar, Moen-Tzu, tells us that humans can be born good or bad. Those with a good nature will do good for others, while the bad will take advantage of others. We are influenced by the examples of others, and can learn or be taught to be either good or bad. Those who were born bad and those characterized as bad through influence by others, can be taught and/or learn to be good. A meaningful definition will serve as a guide for action, but action is still in the hands of people. For example, job creation is one of many benefits to society resulting from the initiation of a new venture. It is hardly a benefit to society, however, to allow criminal activity aimed at making profit at the cost of human misery, to claim they are providing jobs. The idea of constructive destruction has been used by manufacturers of products that maximize the short term with a built-in obsolescence strategy that causes resource drain, creation of undue waste and contamination of the environment. Unfortunately, of late, this concept has been the norm, with big-box retailers and worldwide online ordering and delivery, placing the most useless trinkets literally at the fingertips of anyone with a smartphone. These are just a few negative repercussions that result when corporations have abused a sound concept for their own benefit, with no long-term vision for the common good. Reassessing the meaning of profit, it is more appropriate to advocate the use of residual to reduce harmful social injustice, avoiding unnecessary human conflict, still within the DANA (2nd edition) PRINT.indd 268 18/12/2020 11:32 Evolution of entrepreneurship 269 market system, to formulate an affordable means that will ease human conflict. A definition of entrepreneurism is therefore created on the premise that humans are driven by two fundamental desires: the desire to own and the desire to create. Ownership is not just the titular holding of property – physical, intellectual or otherwise – but the right to make decisions. That is, the right to free choice: the desire to create and the desire to take that which is there, and to alter its form to suit our purposes, bringing into being something that did not exist before. However, it must be fully recognized that there is a world of difference between ownership and stewardship. Entrepreneurism is all about making human proprietary decisions: exercising ownership rights on the one hand, and assuring stewardship responsibilities, on the other. Entrepreneurism is an ideology in which an individual is a creative and innovative agent with the desire for ownership and the right to make proprietary decisions, and the common good to guide action. As a body of knowledge, it presupposes the involvement of three independent yet interrelated entities: the state, business entity and individuals. 1. 2. 3. The state: entrepreneurial government. Under entrepreneurism, the state is the infrastructure consisting of individuals committed to serving people for the common good that will facilitate their realization of economic freedom, their right to acquire ownership to harvest their labour, and their right and obligations to protect the environment. The individual: entrepreneurial person. The individual is the centre of the economy, and as a stakeholder in any undertaking is responsible to himself or herself. The individual views entrepreneurship and working as an entrepreneur as a way of life. The business entity: entrepreneurial entity and entity entrepreneurial managers. Entrepreneurship is a process of doing something new (creative) and doing something different (innovative) for the purpose of creating wealth for the individual and adding value to society. Through entrepreneurship, the doctrine of entrepreneurism reigns over all economic endeavours. The entrepreneurial approach is applicable to business management in general, including the creation of new ventures, managing one’s own business, business with family members, government and public institutions, charitable and not-or-profit organizations as well as professionals and professional organizations. The entrepreneurial approach to corporate management is an integral part of entrepreneurial contemplation. In addition to the instinctive entrepreneurial contemplation in individuals, government, organizations business and others, entrepreneurism also puts forward the examination of accounting practice in matters of profit determination and cost recognition leading to the consideration of adopting residual for measurement and as a basis for redistribution. Human effort, in particular the redistribution of the fruits of labour, helps to relieve the tragedy of global poverty and environmental damage, and the renew depleted resources where possible. 4. STEWARDSHIP-BASED ECONOMICS Both capitalism and communism have their roots in Adam Smith’s An Inquiry into the Nature and Causes of the Wealth of Nations (1776). Capitalism can be viewed as a DANA (2nd edition) PRINT.indd 269 18/12/2020 11:32 270 World encyclopedia of entrepreneurship generalization of Schumpeter’s notion of constructive destruction, in that it emphasizes private property ownership without consideration for the common good. The pursuit of capital accumulation leads to aggregation beyond personal consumption requirements, exploitation of labour and exhaustion of non-renewable resources. The reliance on a market system to make adjustments itself would require waiting until there is a sub-system to make the ‘invisible hand’ to see human misery and desperate pleas to prevent environmental damage and the drain of resources. While innovation and creativity prompt new discoveries, better use of resources and the ability to harvest more for those who create and innovate, to advocate that profit goes only to those who create business and anticipate uncertain returns without taking into consideration the common good, would clearly push many people into the dark corner of poverty and lead our world towards disaster. While a capitalist society may stimulate the individual’s desire for more (greed), the issue of unfair distribution of resources (wealth) would inevitably lead to rebellion and, in this, communism is a natural outgrowth from capitalism. Communism may have attracted many individuals concerned over the problem of distribution, but it provides no clear incentive for the individual to create and innovate for their own personal benefit. Any system under the fair distribution scheme is less than effective and does not stimulate an individual’s interest for the common good. Ownership-based economics has led to the rapid development and apparent universal success of the market economy. It is a system built on the deception of unlimited resource availability and ill-defined profit, and is misled by the idea that an invisible hand alone can be an equitable system of distribution. While creating wealth for the few, it induces individuals and societies to continually grab for more. The undisciplined craving for more for the advantaged few, fuelled through the market system, creates poverty, damages environmental and human health, and drains limited resources which are not just for us but for the future as well. As long as our economy’s functionality is based on ownership, we will hardly see the end of these. It is neither feasible nor advisable to abolish the market system, however, we must realize that the ownership idea may be legal, but it has deceptively led us into a vicious circle of addiction out of which we may be unable to emerge. While entrepreneurism serves as a guide based on creative and innovative nature, the real issue of ownership challenge is that it fundamentally is little more than a struggle for owning. Indeed, the origin of human conflict throughout history is rooted in greed and forceful acquisition of ownership. In recent years, economic expansion has seen its share of unfairly acquired ownership over resources by the fabrication of information to commit criminal activities ranging from cheating innocent investors in the market system to inflicting civil war on a foreign country. Although Smith’s (1776) idea of wealth in the market system was to create wealth for me and for you as well, the unfortunate reality in today’s market economy is quite different from that which Smith had in mind. This is what the market economy is – all justice is based on the matter of competition, based on the decision made by invisible hands. To some people this ownership-based system is the only system for our ever-expanding economy. Therefore, we would have to accept that poverty is common, natural and inevitable, if: 1. 2. 3. Greed is the sole motivation to be rich. The rich and powerful prefer to make the rich richer. The political policy favours the rich. DANA (2nd edition) PRINT.indd 270 18/12/2020 11:32 Evolution of entrepreneurship 271 There is no single sub-system within the market system to help ease the pressure on poverty. Government policy and religious and charitable organizations are all helpful, with significant effort to ease the pain. Bear in mind, both rich and poor are relative, and the only absolute is greed, an irrational desire for more. The fundamental problem is that while greed dictates that the sky’s the limit, we have no idea what that limit is. The depletion of non-renewable resources and erosion of environmental health available to current generations will mean there will be less for our descendants. Unless the creative and innovative efforts can restore what was once there for the future, we will have to expect that humans landing on Mars will be our only salvation; but how will this help to relieve the pressure on poverty, resources drain and environmental disaster? Stewardship-based economics recognizes the importance of the market system. It is irreplaceable, but we cannot take advantage of the system merely to satisfy an individual’s wants and greed at the expense of others’ labour, limited resources and the freely provided living environment. We must realize that we are a part of the Earth, but we do not own it. We must exercise our right to make proprietary decisions, but we must also assume stewardship responsibility. While proprietary decision-making might give us a twofold approach to easing the pressure on both the human race and the opportunity to allocate resources for self-interest, it is necessary to accept the responsibility to ensure all decisions made are also for the common good. Stewardship economics acts as a signpost towards balancing the short-term need for survival with the long-term need for sustainable growth, and serves as a philosophical beacon that will guide individuals, particularly business leaders, toward actions in the interest of humanity. As stewardship-based economics was developed from earlier work on entrepreneurship and entrepreneurism (Figure 31.2), it places a great deal of emphasis on acting now to be responsible stewards for making resources allocation decisions, as well as the need for education to consider a few key areas: ● ● ● ● We have only one Earth, and everything on it is meant for everyone. Some are strong, others may be weak, but everyone is entitled to their share of what Earth has to offer. The number of countries with their diversity of people, culture and background makes it difficult to generalize. Nonetheless, it is clear that no individual can live alone, and no one should take resources ruthlessly just for their personal use. The sharing of resources should be a way of life. Resources are finite. The challenge lies not in deciding who should or should not have them, but in finding more sustainable and renewable resources through creation and innovation. As stewards, everyone has the right to make proprietary decisions while in control of the resources. Stewardship responsibility must, however, be exercised during decision-making, and there must be accountability for the consequences of actions taken based on any decision. While entrepreneurship appeals to the individual’s desire for advancement of personal wealth, it also includes consideration of the common good to allow entrepreneurial activities to work for both the individual now as well as for the future for humanity. The common-good idea could not fulfil its required action, unless every individual appreciates the reality of living and acting on the basis of stewardship responsibility and DANA (2nd edition) PRINT.indd 271 18/12/2020 11:32 272 World encyclopedia of entrepreneurship Entrepreneurship: doing something new and something different for self-interest and common good. Entrepreneurism is all about making human proprietary decisions. Exercising ownership rights on the one hand, and assuring stewardship responsibilities on the other. Stewardship-based economics: responsible stewardship for making resources allocation decisions, and educating others to act and think likewise. A broad knowledge-based discipline to overcome difficulties experienced by human beings through our past, of poverty, human conflicts, environmental damage and resources depletion. Figure 31.2 Evolution: from entrepreneurship to stewardship-based economics accountability, recognizing that we may be a part of the Earth, but we do not own it. It is on this that the shift from ownership-based economics and the early conception of entrepreneurship to stewardship-based economics and entrepreneurism is founded. NOTE * After more than four decades of service to the discipline of entrepreneurship, Professor Raymond Kao passed away peacefully on 26 April 2019. This piece has been updated with some of his additional thoughts from an unfinished manuscript, contextualized to the present day by the other two authors. REFERENCES Allen, K.R. (1989), Launching New Ventures, 4th edn, Boston, MA and New York: Houghton Mifflin. Gibb, A.A. (1987), ‘Enterprise culture, the meaning and implications for education and training’, Journal of European Industrial Training, 11 (2), 14. Kao, R.W.Y. (1989), Entrepreneurship and Enterprise Development, Toronto: Holt, Rinehart and Winston of Canada. Kao, R.W.Y. (1995a), Entrepreneurship: A Wealth-Creation and Value Adding Process, Singapore: Prentice Hall Asia. Kao, R.W.Y. (1995b), ‘Entrepreneurship definitions’, in Entrepreneurship, Englewood Cliffs, NJ: Simon & Schuster. DANA (2nd edition) PRINT.indd 272 18/12/2020 11:32 Evolution of entrepreneurship 273 Kao, R.W.Y., R.R. Kao and K.R. Kao (2010), ‘From Entrepreneurship to Stewardship-Based Economics’, in R.W.Y. Kao (ed.), Sustainable Economy Corporate, Social and Environmental Responsibility, Singapore: World Scientific, pp. 291–310. Pearce, F. (2000), ‘The spirit of the age’, Ecologist, 30 (July/August). Schumpeter, J.A. (1934), The Theory of Economic Development: An Inquiry into Profits, Capital, Credit, Interest, and the Business Cycle, Cambridge, MA: Harvard University Press. Second Vatican Council (1961), Mater et magistra, encyclical of Pope John XXIII on Christianity and Social Progress, 15 May. Smith, A. (1776), An Inquiry into the Nature and Causes of the Wealth of Nations, London: W. Strahan and T. Cadell. Timmons, J.A. (1990), New Venture Creation: Entrepreneurship in the 1990s, 3rd revd edn, Burr Ridge, IL: Irwin Professional. DANA (2nd edition) PRINT.indd 273 18/12/2020 11:32 32. Exit Karl Wennberg* Much research has been devoted to look for characteristics that drive individuals towards engaging in entrepreneurship. Less attention has been given to the question of what makes people persist in or exit from entrepreneurship. However, recent years have seen an increasing focus on entrepreneurial exit in a number of specialized workshops and conferences, new research projects, and special issues in international journals. This chapter provides a stocktake on past exits, outlining the progress that research has made, together with some key problems in defining and investigating entrepreneurial exit. Conceptually, the chapter focuses on the level of analysis and different definitions of exit. Empirically, the chapter describes the streams of research suggesting that exit is either determined by the environment or the entrepreneur, together with a stream of research that emphasizes the connection between entry and exit as path-dependent processes. The chapter concludes by highlighting a number of unsolved issues and interesting pathways for future research on entrepreneurial exit. Entrepreneurial exit is a multifaceted and multi-level phenomenon. It concerns both exit of entrepreneurial firms from the marketplace and exit of self-employed individuals from their entrepreneurial activities on the labor market. Empirical studies of these topics hold that entrepreneurs and new firms will be less likely to exit as they persist over time. Yet, few of these studies acknowledge that exit is multifaceted in that there are different types of entrepreneurial exit, such as liquidation, bankruptcy or sell-off of a firm. For example, closure rates are likely to be lower as firms’ age and improve their performance, whereas sell-off rates increase with age but are less likely to be related to the firm’s performance (Mitchell, 1994). In studies of organizations and strategy, entrepreneurial exit has often been equated ‘failure’ as a fundamental performance measure of new organizations. Yet, recent studies show clear indications that exit from entrepreneurship is theoretically distinct from failure. Bates (2005) and Headd (2003) investigated the US Census Bureau’s 1996 survey ‘Characteristics of Business Owners’ (CBO) which is based on a large representative sample of US businesses founded between 1989 and 1992. They found that about one-third of the discontinued business owners characterized their firms as successful at closure. Ucbasaran et al. (2005) surveyed a representative sample of 767 entrepreneurs in Great Britain and found that among the entrepreneurs that had closed down a business, more than a third considered their last business to be ‘a success’. These studies indicate that, at least in the eyes of entrepreneurs, exit and failure are two distinct concepts. How, then, can we define the concept of entrepreneurial exit? In order to define a phenomenon with clarity and precision, one needs to satisfy four conditions (Chopra, 2005). First, a clearly defined object must be present on which the phenomenon acts. Second, the boundaries of the phenomenon must be distinct; moreover, the gradations of boundaries must be apparent. Third, forces associated with the phenomenon – that affects or are affected by it – must be clear. Fourth, knowledge of the 274 DANA (2nd edition) PRINT.indd 274 18/12/2020 11:32 Exit 275 process by which the phenomenon unfolds must be clear. Looking at the accumulated knowledge on entrepreneurial exit on these dimensions, it becomes obvious that exit as a phenomenon needs better clarity and precision. The literature has made significant progress on the third and, to some extent, the fourth elements, identifying predictors and consequences of exit. Yet, knowledge of exit processes as they unfold are still few (an excellent exception is Burgelman, 1994). Research has also made little progress on the first and second elements. Although having looked at individual, firm and populations as the objects on which the phenomenon acts, research has failed to distinguish between the role of individual-level, firm-level and population-level elements of the exit decision. For example, if individual characteristics are ignored in a firm-level study, for very small firms the firm-level factors will often be highly correlated with the (unmeasured) actions and characteristics taken by entrepreneurs. A more important problem is that the conceptual boundaries of exit have not been clearly defined and discussed. This has hampered theoretical progress since much of the empirical efforts do not distinguish between exit, failure and closure. Before outlining the available evidence on exit, it is therefore necessary to discuss some conceptual and definitional issues of entrepreneurial exit. LEVEL OF ANALYSIS AND MEASUREMENT OF EXIT A key feature of entrepreneurship research is the intersection of individuals and organizations. Entrepreneurship is generally conceptualized as individuals pursuing entrepreneurial opportunities, often by the creation of new organizations. For new ventures, the firm may even be considered as ‘an extension’ of the founder (Chandler and Hanks, 1994). Yet, a problem in entrepreneurship research has been the lack of distinction between entrepreneurial failure and exit, that is, the difference between attempting to keep a business open but failing to do so, and the deliberate closure or successful sale of a business. Furthermore, exit operates on several levels of analysis: for example, the entrepreneur may exit (for instance, by selling and leaving the business) while the firm persists, signifying exit at the individual but not the firm level; or the entrepreneur may close the business but continue being an entrepreneur by starting a new business, that is through serial entrepreneurship. A fundamental reason for the lack of research on entrepreneurial exit is probably that it is very difficult to measure in precise ways. Since the probability of exit is highest in the very early period of a new firm or the career of a self-employed person, studying entrepreneurial exit necessitates access to unbiased data-tracking firms or individuals from the very onset of their entrepreneurial activities. In the empirical literature on exit, it is apparent that exit rates vary greatly between different studies. One explanation is the fact that very small firms (Mata and Portugal, 1994) and very early attempts at self-employment (Arum and Muller, 2004) have much higher exit rates compared with larger firm or individuals which are more established in self-employment. It is therefore likely that some of the differences in exit rates are due to differences in measurement. Specifically, studies using register databases seem to exhibit higher exit rates than studies relying on survey data (see, for example, Aviad and Vertinsky, 2006, in Canada; Delmar et al., 2006, in Sweden; or Mata and Portugal, 1994, in Portugal). This indicates that many studies might be affected by reporting bias. Evans and Leighton (1989) noted that DANA (2nd edition) PRINT.indd 275 18/12/2020 11:32 276 World encyclopedia of entrepreneurship annual survey data as in their own study tends to under-report very short spells in selfemployment. There are thus reasons to believe that the true exit rates, both of the firm level and on the individual level, might be much higher than the survey-based research has shown. It should also be noted that predictors of exit often seem to differ between selfemployed men and women (Arum and Muller, 2004), and between larger firms started and managed by men and women entrepreneurs (Kalleberg and Leicht, 1991). Since selfemployed men, or firms started and managed by men, almost always make up a majority of the samples used in studies of entrepreneurial exit, analyses of pooled data with only an indicator variable for sex are therefore likely to be conflated by statistical associations evident only for men. Furthermore, empirical studies that have distinguished between exit by men and women entrepreneurs often find many fewer statistical relationships between theoretical variables and exit among women entrepreneurs, leading to poor explanatory power in these models. These facts have three important conclusions for research on entrepreneurial exit: (1) The theoretical predictors known to affect exit are based on samples dominated by men. Hence, we do not know if these theories matter for women entrepreneurs. (2) In order not to confuse statistical relationships, studies of entrepreneurial exit need to conduct separate analyses for men and for women. (3) the low explanatory powers of models of women’s exit pattern indicate that current theoretical models are not good at explaining women entrepreneurs’ exit, and that much more research on this specific issue is needed. ENTRY AND EXIT AS PATH-DEPENDENT PROCESSES Many studies have found that initial conditions at the time of entrepreneurial entry are vital in shaping entrepreneurial exit. For an individual entrepreneur, the personal reasons and factors associated with entry into entrepreneurship are also often associated with both if and how the person eventually chooses to leave entrepreneurship (Taylor, 1999). For a new firm, the very factors present at the time of founding can influence the firm in long-lasting ways, regardless of whether the environmental conditions at time of founding subsequently change (Delmar et al., 2006). These firm-level factors can essentially be grouped into two different categories. The first category consists of resources at the time of founding, such as capital assets and entrepreneurial team members/ employees. The second category consists of explicit goals and strategies for organizing and growing the firm. These two categories have been found to be the strongest types of predictors of exit. Studies of entrepreneurial exit have found that low probability of exit is strongly associated with a stronger resource base, both for the individual entrepreneur in terms of human capital and knowledge (Brüderl et al., 1992) and for the firm in terms of capital assets (Bates, 1990), product offerings (Kalleberg and Leicht, 1991) and number of employees (Delmar et al., 2006). Low exit rates are also associated with firms’ growth strategies (Brüderl et al., 1992) and entrepreneurs’ setting of specific goals with their ventures (Delmar and Shane, 2003; Kalleberg and Leicht, 1991). Goals and motivation at the time of founding affects both the likelihood of exit and how the exit process will evolve. That is, not all entrepreneurs have a clear goal of what they want to achieve with their venture. Some want to exploit a valuable invention or discovery. Some want DANA (2nd edition) PRINT.indd 276 18/12/2020 11:32 Exit 277 freedom to decide how and when they work (Carter et al., 2003). These differences will affect how entrepreneurs consider the possibility of exit as well as the relative attractiveness of different exit paths. In this way, the progress of new firms and self-employed entrepreneurs follow a pathdependent process where initial conditions generally shape the paths by which firms and entrepreneurs subsequently evolve. Firm-level exit processes are path-dependent both in terms of initial goals and resource committed to the venture, as well as environmental conditions at the time of founding (Delmar et al., 2006). Individuals’ self-employment is also path-dependent in that their process is shaped by the conditions by which the individual engages in entrepreneurship. For example, the exit rate for entrepreneurs who enter self-employment from unemployed or on a part-time basis is much higher than those that enter from employment (Taylor, 1999; Wennberg et al., 2006). In empirical research, it might be difficult to untangle the effect of such initial factors and how they interact with the entrepreneur or the entrepreneurial team. For example, firms started at times of economic prosperity, such as during the dot-com boom, often have more ambitious goals and are more likely to attract resources to their venture. Also on the individual level, the entrepreneurs’ resources and knowledge are closely intertwined. Human capital factors have been found to be a strong predictor of both start-up capital and business survival, indicating that failure to control for entrepreneurs’ human capital characteristics might lead research to overestimate the importance of capital (Bates, 1990). IS EXIT DETERMINED BY THE ENVIRONMENT OR THE ENTREPRENEUR? Various streams of literature have referred to individual-level, firm-level and populationlevel elements of the exit decision. In empirical studies, there are two predominant levels of analysis: the entrepreneur may exit while the firm persists, signifying exit at the individual but not the firm level; or the entrepreneur may close the firm but continue being an entrepreneur by starting a new firm. Yet, despite the preconception that ‘new firms more often fail’ in the organizational literature, new firms are not more likely to fail in unchartered markets than established firms engaging in this market. A study by Mitchell (1994) investigated 141 new entrepreneurial firms and 274 diversifying entrants in seven US medical product markets. He found that the new firms were no more likely than diversifying entrants to exit, but that they were less likely to sell their firm, ceteris paribus. This indication that entrepreneurs are less likely to sell their firm than diversifying entrants is interesting in that it suggests that entrepreneurs are attached to their ventures in excess of the economic value that can be earned from divesting them. Conversely, it is therefore also very likely that less profitable firms can subsist for many years, or as in van Witteloostuijn’s model of organizational decline, ‘Inefficient firms might outlast efficient rivals’ (van Witteloostuijn, 1998: 501). The issue of ‘environment versus organizational factors’ in entrepreneurial exit was investigated by Everett and Watson’s (1998) study of 5196 Australian retail and service start-ups between 1960 and 1999. They found that environmental economic factors were associated with between 30 per cent and 50 per cent of small business exits, depending on which definition of exit is used. Excluding exit due to bankruptcy, which was DANA (2nd edition) PRINT.indd 277 18/12/2020 11:32 278 World encyclopedia of entrepreneurship negatively related to macroeconomic conditions, exit rates defined as (1) sell-off, (2) closure, (3) ‘disbanding to prevent further losses’ or (4) failure ‘to make a go of it’, were found to be positively associated with macroeconomic conditions. Everett and Watson interpreted this as a strengthening economy may trigger voluntary exits since entrepreneurship seeks to maximize the returns available to them on both their financial and human capital. Perhaps the most conclusive evidence to date was provided by Gimeno et al. (1997) who followed 1547 US firms associated with the National Federation of Independent Businesses over the course of two to five years. They found that the exit of entrepreneurial firms was affected not only by individual-specific, firm-specific and environmental factors that simultaneously affected entrepreneurial income, but also by factors that did not affect income. They explained their findings by formulating a threshold model of entrepreneurial continuation, where a firm is terminated due to lack of performance below a critical level. This level, or threshold, is shaped by individuals’ perceived value of economic and psychic returns associated with entrepreneurship. A key finding of the study was that exit is underspecificated as a dependent variable, that is, that there are several different types of exit decisions that might involve different theoretical explanations. ARE THERE DIFFERENT TYPES OF EXIT? The above studies provide some indications that delineating between different types of entrepreneurial exit could be an important area for future research. The dominating focus on ‘survival’ in the perspective on entrepreneurial exit inspired by organization theory reflects the implicit or explicit view that firms are frequently seen in the light of ‘going concern’ – that is, entities that try to prolong their existence. For incumbent firms with a multitude of stakeholders, such as large joint-stock corporations, this might not be an unreasonable assumption. Yet, for new independent firms run by one or a few entrepreneurs, the destiny of a firm is intimately linked to that of its owner(s). Headd (2003) investigated perceptual measures of success among the 12 185 firms in the 1996 ‘Characteristics of Business Owners’ survey, a representative sample of all US firms started between 1989 and 1992. He found that after four years in business, half of all businesses had exited, however one-third of all exiting entrepreneurs considered their firm to be ‘successful’. Headd also found that factors characterizing exiting firms such as lack of initial resources, started by a young entrepreneur, and so on, did not differ between what the entrepreneurs themselves perceived as ‘successful’ or ‘unsuccessful’ exits. A conclusion of the study was that searching for factors associated with firm exit is less meaningful since such a high proportion of exiting entrepreneurs seem to consider this a satisfactory outcome.1 Another conclusion was that entrepreneurs’ goals and time horizons at the onset of their firms are likely to diverge: some may want a lifestyle business, some are trying to build a high-growth firm that they can divest of in a few years, yet some others seek to avoid unemployment, and so on. This interpretation receives support from DeTienne and Cardon’s (2006) study of exit strategies among 189 entrepreneurs in the US electrical measurement and surgical medical instruments industries. They found that older entrepreneurs were more likely and entrepreneurs with medical training were less likely to have an exit strategy, and that common human capital variables such as DANA (2nd edition) PRINT.indd 278 18/12/2020 11:32 Exit 279 age, education and experience were related to which specific exit strategy (family succession, sale to individual, employee buy-out, initial public offering, liquidation) that the entrepreneurs envisioned. Another study by Wennberg et al. (2007) followed 1735 Swedish firms started in 1994 for nine years, finding that similar human capital variables were also associated with the eventual exit outcome (that is, sell-off, closure due to good performance, or closure due to poor performance). DO EXIT RATES CHANGE OVER TIME? The previously mentioned difficulties in measuring entrepreneurship from the time it is initiated, taken together with the studies suggesting there are types of exit that are systematically different, indicates two problems in summarizing and aligning the available evidence on entrepreneurial exit: if there is variation in the dependent variable that is not taken into account, and difficulties in measurement issues will cause most studies to sample on the dependent variable (that is, exclude most of the smallest/newest firms and self-employment attempts), it is not strange that prior research has been unable to align the various common predictors of exit into an overarching theoretical framework. Some research has found a trend in that individuals’ exit rates seem to have increased during the past few decades. Meager and Bates (2004) found that over half of the 9356 persons they studied in the first to ninth waves of the British Household Panel Study had exited within three years, while Taylor (1999) used retrospective accounts from the same data and found that only one-third of the 769 persons that entered self-employment between 1979 and 1991 had exited within three years. Also, the patterns for men’s exit seem to diverge greatly from those of women. In almost all studies, exit rates are significantly higher for women. This is a further indication that more research is needed on the exit processes of women entrepreneurs. WHAT HAPPENS AFTER EXIT? Entrepreneurship research has been discussing the importance of moving from solely discussing firm-level outcomes towards looking also at individual-level and societal-level outcomes (Venkataraman, 1997). Yet, to date there is a dearth of studies of societallevel outcomes of entrepreneurial exit. An important exception is Aviad and Vertinsky’s (2006) investigation of manufacturing plants in 3908 local Canadian areas from 1983 to 1998. They found that the exit of older firms increases the entry rates of new firms, and that on average, new entrants were more productive. Also many questions related to individual-level outcome of exits remain to be answered. For example, Wennberg and Wiklund (2006) found in their study of 25 529 Swedish knowledge-intensive firms that 78 per cent of firms that were sold performed above the population average. They termed these seemingly successful sell-offs ‘exit by success’. In the literature to date, there are still no investigations of the firm founders of such firms post sell-off. How is the financial net worth of these individuals compared with before they started their firms? And in subjective terms, do these individuals evaluate their sold firm as ‘personal success’ or ‘personal failure’ (Bates, 2005), and what are the factors associated with such evaluations? DANA (2nd edition) PRINT.indd 279 18/12/2020 11:32 280 World encyclopedia of entrepreneurship NOTES * I am grateful for comments from Miguel Amaral, Anders Landberg, and participants at the 2007 EM Lyon advanced entrepreneurship scholars retreat. All errors are mine alone. 1. An important objection to this interpretation would be that a large share of the successful exits might be due to entrepreneurs’ post-exit rationalization of what were in fact unwanted outcomes. REFERENCES Arum, R. and W. Muller (2004), The Re-Emergence of Self-Employment: A Comparative Study of SelfEmployment Dynamics and Social Inequality, Princeton, NJ: Princeton University Press. Aviad, P.E. and I. Vertinsky (2006), ‘Firm failures as a determinant of new entry: is there evidence of local creative destruction?’, unpublished manuscript, Vancouver: University of British Columbia. Bates, T. (1990), ‘Entrepreneur human capital and small business longevity’, The Review of Economics and Statistics, 72 (4), 551–9. Bates, T. (2005), ‘Analysis of young, small firms that have closed: delineating successful from unsuccessful closures’, Journal of Business Venturing, 20 (3), 343–58. Brüderl, J., P. Preisendörfer and R. Ziegler (1992), ‘Survival chances of newly founded business organizations’, American Sociological Review, 57 (2), 227–42. Burgelman, R. (1994), ‘Fading memories: a process theory of strategic business exit in dynamic environments’, Administrative Science Quarterly, 39, 24–56. Carter, N.M., W.B. Gartner, K.G. Shaver and E.J. Gatewood (2003), ‘The career reasons of nascent entrepreneurs’, Journal of Business Venturing, 18 (1), 13–39. Chandler, G.N. and S.H. Hanks (1994), ‘Market attractiveness, resource-based capabilities, venture strategies, and venture performance’, Journal of Business Venturing, 9, 331–49. Chopra, A. (2005), ‘Survival’, paper presented at the Academy of Management Conference, Hawaii, 5–10 August. Delmar, F. and S. Shane (2003), ‘Does business planning facilitate the development of new ventures?’, Strategic Management Journal, 24, 1165–85. Delmar, F., K. Hellerstedt and K. Wennberg (2006), ‘The evolution of firms created by the science and technology labor force in Sweden 1990–2000’, in J. Ulhöi and P.R. Christensen (eds), Managing Complexity and Change in SMEs: Frontiers in European Research, Cheltenham, UK and Nothampton, MA, USA: Edward Elgar, pp. 69–102. DeTienne, D. and M. Cardon (2006), ‘Entrepreneurial exit strategies: the impact of general and specific human capital’, paper presented at the Babson College Entrepreneurship Research Conference, Bloomington, Indiana, 8–10 June. Evans, D.S. and L.S. 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Export support services for SME internationalization Nathalie Belhoste, Rachel Bocquet and Véronique Favre-Bonté Small and medium-size enterprises (SMEs) are key to the competiveness of advanced industrialized countries. Their growth is driven by many factors, among which internationalization plays a significant role (Dana et al., 1999; Etemad et al., 2001; Wright et al., 2015). International business and management studies frequently investigate SMEs’ internationalization (Dominguez and Mayrhofer, 2017; Johanson and Vahlne, 2009; Johanson and Wiedersheim-Paul, 1975; Vahlne and Johanson, 2013), a complicated process that demands significant resources, especially if the goal is to reach distant markets (Ojala, 2009; Zhang et al., 2016). Among these resources, those from public or private support services (that is, specialized organizations or actors that help companies expand internationally by providing advice, contacts, training or support) have received increasing attention in the literature. However, results are still contradictory or contrasted; some consider that their efficiency on the internationalization performance is real (Brouthers and Wilkinson, 2006; Gençtürk and Kotabe, 2001; Leonidou et al., 2011; Sousa and Bradley, 2009) while others show that their effect remains limited (Francis and CollinsDodd, 2004; Ramsden and Bennet, 2005) or that exporting can be successful without assistance (Dana et al., 2008). To clarify how public and private support services might encourage internationalization efforts by SMEs, we propose that specifying the type and stages of SMEs’ internationalization processes might be insightful. We thus consider that the way SMEs use support services regarding their specific processes (determined by their type and stage) is of utmost importance because it adds a complementary perspective to the debate regarding the efficiency of these services: this efficiency is not only intrinsic to the support service itself but might be enhanced if it is developed or used in conjunction with the process undertaken by the SME. SMES’ INTERNATIONALIZATION SUPPORT SERVICES: WHAT WE KNOW SO FAR We define internationalization support services as specialized organizations or actors that help companies expand internationally by providing advice, contacts, training or support (De Holanda Schmidt and Ferreira Da Silva, 2012; Freixanet, 2012). They may be organized by the State (for example, national export promotion programs or assistance, or chambers of commerce services) or by private actors, and their focus moves beyond solely export services to include overall internationalization processes. Many SMEs rely on these actors to facilitate or perform their sales, logistics, marketing and service activities (Balabanis, 2000; 282 DANA (2nd edition) PRINT.indd 282 18/12/2020 11:32 Export support services for SME internationalization 283 Peng and Ilinitch, 1998) because the support service providers have superior local market knowledge or connections with relevant intermediaries. While the usefulness of export promotion programs or export performance assistance has been widely debated (for an updated review, see Coudounaris, 2018), the results remain contradictory or contrasted. Moreover, the question of the use of these services during the internationalization process is still an issue. The Usefulness and the Use of Internationalization Support Services On a general basis, studies focus more often on the frequency of use than on the use itself (Ayob and Freixanet, 2014). To describe how firms use these programs, most studies address the degree of adaptation to the firm’s needs (Crick, 1997; Naidu and Rao, 1993) or specific firm characteristics, such as its international experience (from non-exporter to advanced exporter) or size (Buckley, 1983; Freixanet, 2012). For example, Buckley (1983) and Sbrana and Tangheroni (1991) show that SMEs use support services less than larger firms do. However, given their budget constraints, they are more dependent than large firms on the information generated by business associations (Gashi et al., 2013). Kedia and Chhokar (1986) and Ahmed et al. (2002) assert that more experienced companies are more likely to be clients of international support service providers. Koksal (2009) combines these aspects to argue that larger, more experienced companies are more familiar with the various support services available from public authorities, so they can better understand and rely on the assistance options that suit their needs. Experience abroad and the stage of export development also might determine the link between support service use and export performance, though prior research offers some conflicting results. Denis and Depelteau (1985) and Seringhaus (1987) indicate that for the most internationally experienced companies, export services mostly support their pre-export activities. Crick (1997) instead finds that the most experienced firms are more aware of these programs, so they use them more. In general, firms with different degrees of internationalization expertise probably have different needs (Diamantopoulos et al., 1993; Spence, 2003). Singer and Czinkota (1994) use export stage as an antecedent to understand the relationship between service use and export outcomes. According to their findings, the type of service or product sold and the company’s experience abroad do not strongly influence its use of support services, whereas management commitment does. Czinkota (1996) also shows that firms have a greater need of export training services in their early export phase, while they need more support for sales logistics when they gain experience and reach a high advanced export level. Costa et al. (2017) explain that most industrial business associations (such as chambers of commerce) seem to provide continuous support for the international operations of SMEs, not only during the initial stages. Freixanet (2012) instead shows that the level of knowledge and uses of various programs vary with the type of assistance offered and the firm’s international experience; a proposed segmentation defines the firm’s level of internationalization involvement and skills using criteria such as export volume, size of the export department, creation of permanent establishments abroad and creation of production subsidiaries. DANA (2nd edition) PRINT.indd 283 18/12/2020 11:32 284 World encyclopedia of entrepreneurship Type and Variety of Internationalization Support Services Few of these studies take an in-depth look at the nature of the assistance though, or if they do, they focus on only one type. For example, Seringhaus (1987) describes trade missions that support foreign market entry. Observing the specific role of chambers of commerce, Leonidou and Theodosiou (2004) show that they provide first-hand information but that this information is not regarded as useful for firms. When gathering information for internationalization, Leonidou and Katsikeas (1997) observed that companies relied more on their personal network than on this institutional network. Crick (1997) details the type of assistance requested, such as the need for information or financial support, and Freixanet (2012) uses precise criteria to identify the nature of assistance programs and proposes measuring performance according to firms’ international experience. Furthermore, we note that most internationalization support services and programs are developed by state agencies, but not exclusively. Studying the direct and indirect effects (via geographic scope) of public support on the export intensity of European SMEs, Ciszewska-Mlinaric (2018) shows that only financial support (versus non-financial support) is positively, directly and indirectly associated with their export intensity. Beyond public actors, private companies have gradually emerged as important actors, though extant research mostly ignores their role. Among the few studies that analyse the impact of private-sector involvement in international trade policy (Singh, 1983), Bartoli et al. (2014) identify an important influence of banks in supporting export efforts by SMEs. Finally, most studies involve traditional exporters that take a gradual internationalization approach. Catanzaro et al. (2015) offer some conceptual insights, but they focus on the effectiveness of international assistance programs for specific stages of traditional internationalization processes. This literature review thus reveals two key gaps. First, most studies center specifically on the decision to start exporting. When studies expand to include support services applied to different stages, the results are still contradictory. Also, with the notable exception of Freixanet (2012), descriptions of internationalization stages tend to be limited, such as describing pre-export and export stages. Even Freixanet’s (2012) classification does not address how each stage of the process aligns with support service uses, despite evidence that SMEs’ needs shift with their growth and progress (skills and resources). Second, research focuses predominantly on the role of national export programs. We lack clear distinctions among the types of support provided and about the role of private support services. THE USE OF SUPPORT SERVICES BY SMES DURING THEIR INTERNATIONALIZATION PROCESS: WHAT WE NEED TO KNOW In his seminal work, Freixanet (2012) called for longitudinal analyses that could confirm the causal effects of export programs. In line with this suggestion, Belhoste et al. (2019) analyse SMEs’ choice to use (or not) internationalization assistance supports during the entire internationalization process. In line with Hilmersson et al. (2017) and Efrat and Shoham (2012), they define SME internationalization process according to two main dimensions: (1) time to internationalization (that is, the time that has elapsed from a firm’s DANA (2nd edition) PRINT.indd 284 18/12/2020 11:32 Export support services for SME internationalization 285 inception to its first sales abroad) and (2) the stage of their internationalization process (that is, early stage and later stage international operations). These temporal aspects of internationalization are used to discriminate between the type of SME process of internationalization (gradual or rapid) and the stage (entry or intensification). Based on a qualitative study of 32 French SMEs that have all reached Asian markets, either gradually (19 referred to as traditional SMEs) or rapidly (13 referred to as international new ventures, INVs), they identify different configurations of the use of internationalization support services by SMEs, challenging some previous assumptions and the conventional ways of studying export services designed to support SMEs. Type of Support Services and Time to Internationalization The results from this study show that support services help traditional SMEs to build knowledge, extend networks, reduce psychic distance (Johanson and Vahlne, 1990; Ojala, 2009) with Asia and, therefore, support gradual international involvement (Johanson and Vahlne, 1990). This contrasts with INVs that use fewer support services given their lack of resources. Traditional SMEs also look for specific private support services and are ready to pay more than INVs and rely less on funding – a specificity of public support services. We also observe high levels of disappointment from traditional SMEs regarding public support services while INVs found some value in those services. This study also constitutes an attempt to resolve some conflicting results in the literature. Ahmed et al. (2002), Crick (1997) and Kedia and Chhokar (1986) argue that most experienced companies are more likely to use international support structures. The findings indicate, contrary to Crick (1997), that the use of internationalization assistance services declines as the firm gains experience abroad if it is a traditional SME, but the same finding does not hold for INVs. Type of Support Services and Stage of Internationalization Previous literature had partially identified that the export phase (early export stage to more advanced stage) could impact the use of support services. Czinkota (1996) and Crick (1997) showed that firms have a greater need of export training services in their early export phase and that the type of support may vary. Belhoste et al. (2019) go one step further and complement Czinkota (1996) and Crick (1997)’s results showing that SMEs have a greater need for export training services in their early export phase but only if they are in a gradual process of internationalization. In contrast, most INVs realize they need help after their first steps locally. Furthermore, as the use of internationalization assistance services varies with experience, the content of this support also differs. Singer and Czinkota (1994) hypothesize that services providing objective knowledge (for example, workshops and advice) are more useful during pre-export activities, whereas experiential knowledge services (for example, trade shows abroad) are more useful at advanced stages. Belhoste et al. (2019) does not find such a clear distinction; rather, the use of these services varies with the time to internationalize and stage of internationalization. Their findings also reveal distinct, but complementary, uses of private and public support services. Consistent with Zahra and George (2002), they show that INVs seek tips and free services, given the scarcity of financial and human resources, but only during the intensification stage. The use of private support actors is less important during this stage, unless DANA (2nd edition) PRINT.indd 285 18/12/2020 11:32 286 World encyclopedia of entrepreneurship traditional SMEs seek them after being disappointed by public services. Since traditional SMEs know what services are available, they pursue an optimal mix of private and public services, next to their business networks. CONCLUSION We think that this chapter provides a better understanding of the efficiency of support services in two different ways: first, in better distinguishing the type of help and support services actors used; and second, in measuring the efficiency regarding the internationalization process and stage rather than solely considering the export intensity as a dependent variable. Efficiency, in order to be evaluated, needs to consider not only the service by itself but also the type of firm that uses it according to its internationalization stage and process. We are convinced that this combination could help deepen the debate on efficiency of export support services whether they are public of private. These findings have several important managerial implications. In particular, support services (public or private) can use them to target their offer more precisely, according to the different types of SMEs they encounter and their internationalization process stages. Furthermore, SMEs can clarify their needs, according to their current stage in their internationalization process. In turn, they can determine which tailor-made proposals offered by private and public actors are most applicable to their internationalization efforts. It also paves the way for several research perspectives. Extensions to distinct geographic contexts might reveal whether the SME’s home country affects its use of support services; we anticipate that the economic, institutional and cultural characteristics of the home country likely influence how public and private support services develop their offers. 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The joint effects of international entrepreneurship characteristics, network ties, and firm ownership’, International Business Review, 25 (2), 522–34. DANA (2nd edition) PRINT.indd 288 18/12/2020 11:32 34. Family business Frederik J. Riar and Franz W. Kellermanns Family firms are essential to both emerging and advanced economies. Nearly 90 percent of all firms worldwide are family firms (Aldrich and Cliff, 2003); they outnumber nonfamily firms in terms of their contribution to global economic activity and employment (De Massis et al., 2015; Gedajlovic et al., 2012). Although many family firms are small, a sizable number are represented among medium and large corporations (La Porta et al., 1999), such as ALDI Group, BMW, Cargill and Walmart. Owing to the high relevance of family firms for the worldwide economy, scholars have recognized family business as a research field (Debicki et al., 2009). The theory of family firm conferences (see Chrisman et al., 2003; Chua et al., 2003), the highly visible publications on family business (for example, Schulze et al., 2001, 2003), and the establishment of family-firm specific conferences (for example, the International Family Enterprise Research Academy, IFERA, and the Federal Energy Regulatory Commission, FERC) have helped to start and fuel the growth of the field. Researchers have investigated many questions in this area, such as: how do family firms evolve? How and why do family firms differ in their behavior compared to non-family firms? What processes in family firms are affected by the idiosyncrasies that originate from family involvement? Indeed, both entrepreneurship and general management journals are now considered important outlets (Chrisman et al., 2008), among them Family Business Review, Journal of Family Business Strategy, Entrepreneurship Theory and Practice, the Journal of Management, the Academy of Management Journal and the Academy of Management Review. Recent research suggests that the contributions from the family-firm literature are central to questions in the wider fields of management and the organizational sciences (for example, Gedajlovic et al., 2012). DEFINING FAMILY BUSINESS The definition of a family firm has never been fully settled, partly owing to the underlying heterogeneity of family firms. Not surprisingly, the literature provides a number of definitions of a family firm (for instance, Chua et al., 1999; Westhead and Howorth, 2007). Chua et al. (1999: 25), for example, define a family firm as ‘a business governed and/or managed with the intention to shape and pursue the vision of the business held by a dominant coalition controlled by members of the same family or a small number of families in a manner that is potentially sustainable across generations of the family or families’. According to this definition, family involvement in ownership, management, and succession are conditions that must apply (although not necessarily jointly) to distinguish a family firm from a non-family firm. Defining a family business is further complicated by how it originates. Do firms tend to be born as family businesses or can non-family firms be made into family businesses 289 DANA (2nd edition) PRINT.indd 289 18/12/2020 11:32 290 World encyclopedia of entrepreneurship (Chua et al., 2004)? Both development patterns have important implications. On one side, a family business may be created through the organization of resources and capabilities of family members at its inception (for example, Sirmon and Hitt, 2003). On the other, a firm may start with no family involvement at all, often termed a lone-founder firm in the literature (for example, Miller et al., 2011). These firms may evolve into true family firms later, often after family members of the founder become involved in ownership and management. However, the initial intention of the founder is often not considered in this debate. Thus, some lone-founder firms are born as family firms, while others develop into family firms later, and yet others remain non-family businesses. Although the literature is ambivalent, empirical results seem to favor family firms being born over being made. Specifically, Chua et al. (2004) found that most firms were started as family firms with a high degree of family involvement and an expectation of transgenerational succession, while only a small fraction of family firms were started as non-family firms that gradually evolved into family firms. The authors found that, over time, family involvement tends to decline (Chua et al., 2004). This suggests that not only the ability of the family to influence the firm, but also the willingness to do so, should be an important part of defining family firms by behavior (Chrisman et al., 2015a; Chua et al., 1999). FAMILY BUSINESS BEHAVIOR In addition to the questions of how family businesses are defined and how they evolve, scholars have devoted significant attention to comparing family firms with non-family firms, specifically, the drivers that distinguish between the two and that lead to heterogeneity of firm behavior (for example, Chrisman et al., 2009, 2015a; Gedajlovic et al., 2012). Chrisman et al. (2015a), for example, present a framework of how family involvement influences innovation management based on ability (discretion to act) and willingness (disposition to act), and show that rational models of firm behavior do not always apply to family firms. They suggest that although family firms have a superior ability to innovate when compared with non-family firms (see also, Duran et al., 2016), family firms often engage in idiosyncratic strategies, which lower their willingness to pursue technological innovation (Chrisman et al., 2015a). These important insights to firm behavior often assume a particular homogeneity of both family and non-family firms. This mere assumption and basic distinction between family and non-family firms, however, is insufficient for some research questions. Since firms in general and family firms in particular can be very different (Chua et al., 2012; Neubaum et al., 2019; Westhead et al., 2002), scholars have begun to study the heterogeneity of family firms by examining, for example, how family involvement affects aspects such as internationalization, proactive stakeholder engagement, professionalization or procedural justice climate (Arregle et al., 2012; Barnett et al., 2012; Cennamo et al., 2012; Kellermanns et al., 2012; Verbeke and Kano, 2012). In addition to investigating individual family-firm specific variables, recent family business scholars have applied new methodical approaches, such as latent profile analysis, to generate theoretically meaningful profiles of family firms (Stanley et al., 2017, 2019). Instead of focusing on individual variables, multiple variables are investigated together to generate profiles and insights from regression analysis. For example, Stanley et al. (2019), DANA (2nd edition) PRINT.indd 290 18/12/2020 11:32 Family business 291 having established multiple profiles of family firms, provide insight on how firms differ in entrepreneurial orientation and performance. In particular, they found that tempered family firms (that is, family firms with a board of directors, a family chief executive officer and at least 50 percent family ownership) showed levels of entrepreneurial orientation and firm performance different from other established firm types (for example, family firms labeled strong family influence firms or dynasties). Taken together, the extant family business literature affirms the notion that family firms are not only unlike non-family firms but also differ significantly from each other. FAMILY BUSINESS GOALS Family firm heterogeneity is often driven by diverging strategic orientations (Chua et al., 2012; García-Álvarez and López-Sintas, 2001; Sirmon and Hitt, 2003), which are motivated by family firms’ unique idiosyncratic goals (Chrisman et al., 2015b; Kotlar and De Massis, 2013). Williams et al. (2018) classify family business goal research as antecedents (for example, family presence or founder influence), characteristics (for example, number of goals or heterogeneity), related outcomes (for example, relationship related or governance related), moderators (for example, founder centrality or succession) and feedback loops (for example, conflict or reputation). The plethora of goals affect the type of utilities pursued by family firms. Recent research suggests that family firms are frequently managed to maximize not financial but non-financial goals, which are often associated with socio-emotional wealth (SEW) (Berrone et al., 2012; Debicki et al., 2016; Gomez-Mejia et al., 2011; Gómez-Mejía et al., 2007; Schulze and Kellermanns, 2015), that is, non-financial benefits that an owning family derives from a business to satisfy affective needs, such as living out ownership identity, exerting influence and control, and building or perpetuating a family dynasty (Gómez-Mejía et al., 2007). Prior research on SEW in the family business field suggests that the stronger the role of the family in the business, the greater the pursuit of SEW (Gomez-Mejia et al., 2011; Gómez-Mejía et al., 2007). Yet, pursuit of the various dimensions of SEW is not uniform (Randolph et al., 2019) and varies by the underlying goal structure of the family, specific characteristics of the family firm, and interactions among family members (Berrone et al., 2012; Debicki et al., 2016; Jiang et al., 2018; Randolph et al., 2019). A better understanding of the psychological micro-foundations of family firms is warranted (Jiang et al., 2018). CONCLUSION Our brief overview of family business includes a discussion of definitions of family firms as well as a description of family-firm behavior and goals. While early research has characterized family firms as a uniform block, our overview emphasizes that family firms are now recognized as heterogeneous in the literature. This underlying heterogeneity offers multifarious opportunities for future research. For example, relationship conflict and its negative implications have been stressed both in the more practitioner-orientated literature (for example, Gordon and Nicholson, 2008) DANA (2nd edition) PRINT.indd 291 18/12/2020 11:32 292 World encyclopedia of entrepreneurship and in more academic-orientated research (for example, Kellermanns and Eddleston, 2004). Yet, differences in the occurrence, frequency, and strength of both positive and negative forms of conflict are probably driven by a plethora of family-related variables. The number of family members and their kinship relationships, as well as their relationship quality, are likely to affect the complexity of the conflict. In addition, family-firm specific variables, such as family ownership distribution, family involvement in the business, and succession planning, may affect conflict and suggest that heterogeneity is a key aspect not yet fully captured in the literature. More specifically, the heterogeneity of the family itself is important and can influence decision-making processes. While the notion of the importance of the family in family firms is not new (Aldrich and Cliff, 2003; Morris and Kellermanns, 2013), the role of the family often plays the part of an unobserved variable in the literature. For example, while succession is a dominant theme in family-firm research (De Massis et al., 2008), little is known of how kinship relationships play out during the succession process (for an exception, see Haberman and Danes, 2007). Focusing on kinship research and evolutionary psychology (Yu et al., 2020) or social psychology (Jiang et al., 2018) provides useful ways to capture family-firm heterogeneity. Finally, not all family firms are embedded in the same institutional environments. While the literature assumes that certain aspects of family firms are universal (that is, the pursuit of idiosyncratic behavior driven by family-specific elements), the why and how may differ dramatically according to the environment and culture to which the firm is exposed. For example, some researchers have focused on the uniqueness of family businesses in Asia (Eddleston et al., 2019), while others have examined family firms in Africa (Khavul et al., 2009), where kinship ties work in a unique way (Khayesi et al., 2014). REFERENCES Aldrich, H.E. and J.E. Cliff (2003), ‘The pervasive effects of family on entrepreneurship: toward a family embeddedness perspective’, Journal of Business Venturing, 18 (5), 573–96. Arregle, J.-L., L. Naldi, M. Nordqvist and M.A. Hitt (2012), ‘Internationalization of family-controlled firms: a study of the effects of external involvement in governance’, Entrepreneurship Theory and Practice, 36 (6), 1115–43. Barnett, T., R.G. Long and L.E. 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Zellweger (2012), ‘Extending the socioemotional wealth perspective: a look at the dark side’, Entrepreneurship Theory and Practice, 36 (6), 1175–82. Khavul, S., G.D. Bruton and E. Wood (2009), ‘Informal family business in Africa’, Entrepreneurship Theory and Practice, 33 (6), 1219–38. Khayesi, J.N.O., G. George and J. Antonakis (2014), ‘Kinship in entrepreneur networks: performance effects of resource assembly in Africa’, Entrepreneurship Theory and Practice, 38 (6), 1323–42. Kotlar, J. and A. De Massis (2013), ‘Goal setting in family firms: goal diversity, social interactions, and collective commitment to family-centered goals’, Entrepreneurship Theory and Practice, 37 (6), 1263–88. La Porta, R., F. Lopez-De-Silanes and A. Shleifer (1999), ‘Corporate ownership around the world’, Journal of Finance, 54 (2), 471–517. Miller, D., I. Le Breton-Miller and R.H. Lester (2011), ‘Family and lone founder ownership and strategic behaviour: social context, identity, and institutional logics’, Journal of Management Studies, 48 (1), 1–25. Morris, M.L. and F.W. Kellermanns (2013), ‘Family relations and family businesses: a note from the guest editors’, Family Relations, 62 (3), 379–83. Neubaum, D.O., N. Kammerlander and K.H. Brigham (2019), ‘Capturing family firm heterogeneity: how taxonomies and typologies can help the field move forward’, Family Business Review, 32 (2), 106–30. Randolph, R.V., B.N. Alexander, B.J. Debicki and R. Zajkowski (2019), ‘Untangling non-economic objectives in family & non-family SMEs: a goal systems approach’, Journal of Business Research, 98 (May), 317–27. Schulze, W.S. and F.W. Kellermanns (2015), ‘Reifying socioemotional wealth’, Entrepreneurship Theory and Practice, 39 (3), 447–59. Schulze, W.S., M.H. Lubatkin and R.N. Dino (2003), ‘Exploring the agency consequences of ownership dispersion among the directors of private family firms’, Academy of Management Journal, 46 (2), 179–94. DANA (2nd edition) PRINT.indd 293 18/12/2020 11:32 294 World encyclopedia of entrepreneurship Schulze, W.S.,M.H. Lubatkin, R.N. Dino and A.K. Buchholtz (2001), ‘Agency relationships in family firms: theory and evidence’, Organization Science, 12 (2), 99–116. Sirmon, D.G. and M.A. Hitt (2003), ‘Managing resources: linking unique resources, management, and wealth creation in family firms’, Entrepreneurship Theory and Practice, 27 (4), 339–58. Stanley, L.J., R. Hernández-Linares, M.C. López-Fernández and F.W. Kellermanns (2019), ‘A typology of family firms: an investigation of entrepreneurial orientation and performance’, Family Business Review, 32 (2), 174–94. Stanley, L.J., F.W. Kellermanns and T.M. Zellweger (2017), ‘Latent profile analysis’, Family Business Review, 30 (1), 84–102. Verbeke, A. and L. Kano (2012), ‘The transaction cost economics theory of the family firm: family-based human asset specificity and the bifurcation bias’, Entrepreneurship Theory and Practice, 36 (6), 1183–205. Westhead, P. and C. Howorth (2007), ‘“Types” of private family firms: an exploratory conceptual and empirical analysis’, Entrepreneurship and Regional Development, 19 (5), 405–31. Westhead, P., C. Howorth and M. Cowling (2002), ‘Ownership and management issues in first generation and multi-generation family firms’, Entrepreneurship & Regional Development, 14 (3), 247–69. Williams, R.I., T.M. Pieper, F.W. Kellermanns and J.H. Astrachan (2018), ‘Family firm goals and their effects on strategy, family and organization behavior: a review and research agenda’, International Journal of Management Reviews, 20 (S1), S63–S82. Yu, X., L.J. Stanley, Y. Li, K. Eddleston and F.W. Kellermanns (2020), ‘The invisible hand of evolutionary psychology: the importance of kinship in first-generation family firms’, Entrepreneurship Theory and Practice, 44 (1), 134–57. DANA (2nd edition) PRINT.indd 294 18/12/2020 11:32 35. Financial issues of entrepreneurship Jean-Michel Sahut and Eric Braune Entrepreneurial companies are characterized by strong, even hyper, growth in their sales and/or assets. For many researchers, the strong growth of start-ups is linked to the characteristics of the company, its resources and its governance structure. Companies have only limited resources at the time of their creation. To grow, they consume many resources, both financial and cognitive. Their growth thus depends on their ability to mobilize numerous stakeholders who distribute these resources, but who in return modify the governance structure of the company (Dowling et al., 2019). Therefore, entrepreneurs face specific financial problems compared with other businesses. These are the issues addressed in this chapter. They have given rise to a considerable amount of research on entrepreneurial finance at the intersections between several disciplines including finance, but also entrepreneurship and even innovation. These issues are explored in two parts: start-up financing cycles and the challenges inherent to entrepreneurial financing. 1. START-UP FINANCING CYCLES Start-ups usually consume more cash than they generate owing to their investments (particularly in technology and marketing) and working capital requirements greatly exceeding net cash flows (income minus out-of-pocket expenses) from operations. Thus, their lack of financial resources can lead growing start-ups to default and then to file for bankruptcy. Financial difficulties for start-ups also stem from: ● ● ● their intangibility. Their most valuable assets are usually intangibles (patents, trademarks and other intellectual property rights) which are inherently difficult to finance with credit; the nature of their growth. This is generally based on innovative products or services which are very promising but for which the market is uncertain. This increases both the risk of bankruptcy and the potential gain if successful; and their team. Start-ups must attract, motivate, compensate and retain highly qualified technical and entrepreneurial talent in ways which minimize the impact on the company’s current cash flows, which are often severely limited. More specifically, the financial requirements of start-ups evolve mainly according to their stage of development. As young companies increase their turnover, investments must be increased and the uncertainties in their target market must decrease. 295 DANA (2nd edition) PRINT.indd 295 18/12/2020 11:32 296 World encyclopedia of entrepreneurship Revenue Equity crowdfunding & crowdlending Accelerators VCs, acquisitions/mergers & strategic alliances Angels, FFF Later stage Seed capital Co-founders Secondary offerings Early stage Public market Mezzanine 3rd Break even IPO 2nd 1st Valley of death Time Note: Horizontal axis is the time or age of the start-up; vertical axis is the revenue of the start-up; bold curve = evolution of start-up revenues; 1st = first stage of financing; 2nd = second stage of financing, 3rd = third stage of financing, mezzanine = at this stage, firms can access to mezzanine financing. At the first stage, the new firm seeks out seed capital and funding from family, friends and fools (FFF), angel investors and accelerators. Then, if the firm can survive through the ‘valley of death’ – the period when the firm is trying to develop on a ‘shoestring’ budget – the firm can raise capital from diverse sources, including venture capitalists (VCs). Source: Accessed 18 April 2020 at https://www.wikiwand.com/en/Venture_capital. Figure 35.1 Start-up financing cycle Actors financing the start-up will therefore intervene according to their assessment of three fundamental parameters of the start-up: its stage of development (level of turnover or assets), the volume of capital requested and the perceived risk. The financing of start-ups has transformed over the past decade to become more complex owing to the arrival of new players, Figure 35.1 provides an overview of these players according to their revenue and time. There are many possible sources to finance a start-up: ● ● ● ● ● self-financing (provided by the founders); subsidies (provided by governments or non-governmental organizations); working capital (provided by suppliers and customers); credit (provided by banks and other investors); and increase in capital (provided by friends, business angels, venture capitalists and other investors). Only equity financing (via capital increases) is accessible in the early stages of development because creditors need the company to have already been active for a few years to DANA (2nd edition) PRINT.indd 296 18/12/2020 11:32 Financial issues of entrepreneurship 297 assess its risk and then to lend money. However, with the development of crowdlending, entrepreneurs can have access to credit at earlier stages of development in which banks will not intervene. Aside from the founders of the start-up, the various stakeholders who may participate in increasing the capital (equity) of the start-up in its different stages of development are ● ● ● ● ● ● family, friends and fools (FFF): those close to the entrepreneur (family, friends and acquaintances) can be a source of possible financing at the time of creation. Usually, these people invest for friendly or personal reasons, and they generally remain passive vis-à-vis the management of the start-up they have helped to create; crowd (by crowdfunding): a new kind of participative financing. Through a platform, an intermediary presents different projects in order to solicit funding from Internet users; business angels: including private individuals who decide to invest part of their financial wealth in innovative companies. Passionate about the entrepreneurial adventure, they are generally former entrepreneurs themselves (or even serial entrepreneurs); venture capital (including seed funds and government venture capital funds): a type of financing provided by companies or funds to small, early-stage, emerging companies; private equity: an alternative investment type and consists of capital that is not listed on a public exchange; initial public offering (IPO, including individual and institutional investors): the first sale of stock issued by a company in order to be exchanged later, on a stock market. Segmentation of the different financing actors listed in Figure 35.1 tends to evolve with the impulse of new players, different forms of crowdfunding, the shift of certain traditional players towards seed capital (risk capital interventions in seed capital) and the development of co-investment between different types of players (Drover et al., 2017; Sahut et al., 2020). This evolution makes it easier for the entrepreneur to access various sources of financing from the start. By restoring power to the entrepreneur vis-à-vis capital providers, the entrepreneur can thus develop a real financing strategy and trajectory (Bellavitis et al., 2017), by decompartmentalizing the types of resources provided and negotiating financing agreements which are more advantageous for them (in the shareholders’ pact, for example). Governance, the purpose of which is to govern the entrepreneur’s conduct by regulating interactions with the various providers of resources (Cumming et al., 2020) therefore becomes an increasingly crucial issue in both the financing of start-ups and their success. DANA (2nd edition) PRINT.indd 297 18/12/2020 11:32 298 World encyclopedia of entrepreneurship 2. ENTREPRENEURIAL FUNDING CHALLENGES Informational and Cognitive Problems Linked to Financing Decisions Made by Innovative Start-ups Financing decisions ideally should be based on perfect information from managerentrepreneurs. While problems of agency are often mentioned when the business environment is static, environmental uncertainty leads to an increase in information problems faced by fund investors and entrepreneurs alike. We must therefore try to analyse all problems relating to financing entrepreneurial projects in a climate marked by radical uncertainty. It is widely accepted that manager-entrepreneurs have an informational advantage in external capital markets. According to agency theory (Jensen and Meckling, 1976), this informational asymmetry can lead managers to make non-optimal decisions from the perspective of funders. Innovative projects in particular, in the context of business creation, can, by the intangible nature of the assets they generate and on which they are based, give rise to different forms of manipulation by entrepreneurs, and can generate residual losses for investors. Aboody and Lev (2000) note that executives of companies engaged in research and development activities earn three to four times more from buying or selling shares in their companies than do executives of other companies. It seems, therefore, that the managers of research and development intensive enterprises are taking advantage of the informational advantage they have to make the most of the financial valuation of the companies they run. For example, the Myers and Majluf (1984) model shows that the announcement of financing of a new project through the issuance of shares reveals a type of company whose assets are of low value and overvalued by the market. The issuance of shares then allows the executive to retain a disproportionate share of the operating flows generated by the new project at the expense of new shareholders. Aboody and Lev (2000) propose that investors favour financing projects which have the shortest recovery times. O’Sullivan (1998) argues that the objective of financial markets has never been to finance innovation or entrepreneurship, but instead to provide liquidity to capital providers or to transform initially illiquid investments into negotiable property rights on the financial markets. The possibilities for activating research and development expenditures are highly regulated by accounting standards, including IAS 38. However, this strict boundary does not necessarily meet the conservative objective of those who drafted the standard. Indeed, Lev (2001) points out that the manager can aggressively decide to spend all research and development expenses on charges. On the one hand, this decision will not be sanctioned by investors who are not sensitive to the exceptional losses recorded by the company. On the other, if the research and development project is successful, the company will be able to count on net depreciation revenue streams and in this way display an illusorily inflated profitability ratio over a period of several years. This mechanism may seem interesting to manager-entrepreneurs who are both concerned with masking the research and development effort of the company they are managing while demonstrating their ability to generate a high rate of return on investment. It is also consistent with the findings underpinning Daniel and Titman’s (2006) model. DANA (2nd edition) PRINT.indd 298 18/12/2020 11:32 Financial issues of entrepreneurship 299 They found that the income of past intangibles is positively and strongly correlated with the issuance of shares, and strongly and negatively correlated with the company’s future revenues. Investors’ expectations are therefore skewed owing to the concealment of the origin of the income they see. The vagueness of traditional assessment models also contributes to the choice of funding for projects with a rapid recovery time. Sahut and Mnejja (2009) highlight the vagueness surrounding profitability estimates of innovative projects and start-ups. This difficulty, aside from any agency problems, generates a cognitive cost associated with the exchange of information between the entrepreneur and potential investors in the project, and this cost is borne in full by the company. Empirically, Lev et al. (2005) show that companies with high growth rates in research and development expenditure and relatively low revenue growth – typically intangible, asset-intensive start-ups – are systematically undervalued by investors. As a consequence, projects may be excluded because of the cognitive costs associated with information exchange between project proponents and their financers. This brings into question the traditional framework and the usual nature of information exchanges between business leaders and investors. The Capital Structure of Innovative Start-ups and Financing of Research and Development Expenses: Debt versus Cash Flow According to agency theory, the presence of a large volume of debt in the liabilities of the company can encourage shareholders to opt for high-risk investment projects with high hopes for income. If successful, shareholders will withhold most of the revenue from the project; if the project fails, the bankers will bear the bulk of the cost. Contractual arrangements protect bankers from this risk and the industries where the risk of asset substitution is greatest must have the highest debt financing costs. As a result, innovative start-ups should have a particularly high cost of capital. Opler and Titman (1994) and Shi (2003) identify the different costs associated with financing innovative companies through debt. Shi (2003) notes that the increase in research and development spending is associated with an increase in the financial cost of debt. The author also points out that debt remains a means of financing widely used by innovative companies. Opler and Titman (1994) argue that highly indebted companies which invest in research and development are those which will lose the most market share in the event of a slowdown in economic activity. In this situation, banks seek to recover their debt by cutting investments, which is particularly detrimental to start-ups engaged in highly innovative markets. The results recorded by Opler and Titman (1994) therefore validate the hypothesis that creditors lack knowledge about investment opportunities. A study of relational banking financing in Japan arguably demonstrates that banks do not have a sufficient time horizon nor the expertise necessary to assess the quality of the links between the business model of the company and its financing strategy as soon as the environment becomes complex. Analysing the sources of financing for US companies during the 1951–96 period, Fama and French (1999) highlight the predominant role of self-financing in company investment strategies. While the issuance of shares only financed 7.9 per cent of investments and long-term debts financed little more than 17 per cent of these, the revenues generated by the company cover 69.5 per cent of the financing needs of the investment. This leads to a general acceptance of the manager’s authority in investment decisions: they enjoy an DANA (2nd edition) PRINT.indd 299 18/12/2020 11:32 300 World encyclopedia of entrepreneurship informational advantage over shareholders and concentrate most of the resources needed on financing their investment choices. Companies’ preference for financing investments through cash flow raises the problem of the financial constraint on investment decisions. Manager-entrepreneurs identify investment opportunities and forgo incurring expenses owing to insufficient current availability or the uncertainty weighing on its future cash flow. In summary, if the solution of financing investments by cash flow predominates, this method of financing generates different types of problems which concern: ● ● ● centralization of information and decisions made by the manager; concentration of financial management resources; and limited investment financing capacity. Expanding the Concept of Financing: Property Rights versus Rights of Control and Access The new forms of production organization are now characterized by a dispersion of knowledge which is accompanied by a movement to specialize company expertise (Minkler, 1993). For example, Lewis (1995) argues that goods and services purchased by an industrial company account for between 50 per cent and 70 per cent of the value created. However, if the organization of production is based on shared knowledge, the products exchanged between sellers and buyers possess qualities that are difficult to measure. As a consequence, these transactions cannot easily be organized through a market relationship. It is therefore not surprising that pragmatic collaborations (Helper et al., 2000) have replaced the old types of alliances. As argued by Helper et al. (2000), these new forms of collaboration are characterized by a common desire to improve the property being traded without this work being accompanied by a clear division of property rights and control over goods and services generated in this way. The acquiring company retains the right to source from other suppliers, and its partner can freely redeploy the proceeds of collaboration from other purchasers. These flexible collaborations appear to be well adapted to the organization of production in markets characterized by rapid technological change. On the one hand, they allow buyers to quickly change partners and thus take advantage of the innovations proposed by innovative start-ups without delay. For example, Gilson et al. (2009) report that inter-company collaborations to develop new products do not necessarily come with a requirement to supply the partner. Analysing the contract between Warner-Lambert and Ligand Pharmaceuticals, a biotechnology laboratory, Gilson et al. (2009) note that Warner-Lambert provides the bulk of research and development funding for Ligand Pharmaceuticals, while ensuring that the former can terminate the relationship at any time. Expenses already incurred would then be deemed unrecoverable costs. In this case, Warner-Lambert must waive ownership rights over the results already achieved by terminating the collaboration and Ligand is then free to continue research with the partner of its choice. The contract also provides that Ligand will receive compensation based on the salary of the researchers involved in the project as well as a fee for the research undertaken if Warner Lambert decides to withdraw from the project. On the other hand, the terms of Ligand’s withdrawal are not envisaged in the contract, DANA (2nd edition) PRINT.indd 300 18/12/2020 11:32 Financial issues of entrepreneurship 301 which seems to indicate that this collaboration is not accompanied by any opportunity costs for Ligand. This seems to validate the access logic described by Rajan and Zingales (1998). According to these authors, companies that possess a scarce resource and control their partners’ access to this resource can encourage them to specialize in ways that are favourable to them. In this context, the control rights exercised over access are sufficient for the partners to specialize, and there is therefore no need to resort to integrating the latter into the company. Thus, for Rajan and Zingales (1998) the exercise of control rights over access to a resource can replace property rights over assets, and this enables the company holding a scarce resource to multiply its collaborations with other entities, including start-ups whose research and development it can finance in full or in part. The disconnection of control rights and property rights leads to a division of roles between companies. Innovative start-ups are tasked with exploring the possibilities offered by different fields of knowledge, while established companies build system products which can incorporate these different fields (Chesbrough and Rosenbloom, 2002). Venture Capital Brown et al. (2009) attribute 75 per cent of the technology boom of the 1990s to the massive growth in financing of innovative start-ups during this period. Kortum and Lerner (2000) suggest that venture capital, although on average less than 3 per cent of a company’s research and development spending during the period 1983–92, was nevertheless responsible for 10 per cent of the American industrial innovations of that decade. In order to describe venture capitalists, we must differentiate fund managers, termed general partners, from investors or sponsors, known as limited partners. The former raise funds from the latter, make investment decisions and sit on the board of innovative start-ups. The remuneration of general partners consists of fees and a percentage, usually 20 per cent, of the gains from the sale of the fund’s ownership rights to financed companies (Gompers and Lerner, 1999). Venture capitalists may be confused with general partners, but most of the former delegate management of their investment and are content to have a passive role in controlling the return rate of their investment. Limited partners do not intervene in the management of companies financed by the fund. Furthermore, some companies, such as Apple, directly finance innovative start-ups. Others, such as Dell, have set up subsidiaries dedicated to corporate venturing investments or intervene through funds issued by independent financial companies dedicated to corporate venturing (Dushnitsky, 2006). In all cases, corporate venturing investments cannot exceed the available funding of the companies in question. The first work of venture capital companies therefore involves selecting projects, and each of these can be assessed against the information available to the venture capitalist about the companies’ internal research and development. Furthermore, Manigart et al. (2000) note that Anglo-Saxon and continental European countries do not use the same assessment tools and do not give equal importance to the different criteria always present at the time of selection. Consequently, US companies, whose activity is more business orientated and less solely financial, tend to favour two criteria. The first is the entrepreneur’s résumé. They must have previously demonstrated their ability to carry out innovative projects and at this stage, this dimension is considered discriminating by investors. Moreover, when the marketing phase of the innovative product commences, the head of DANA (2nd edition) PRINT.indd 301 18/12/2020 11:32 302 World encyclopedia of entrepreneurship the company can be replaced by a different profile and it is therefore not necessary for the project to be initiated by a manager (Kaplan et al., 2009). The second criterion relates to the overall coherence of the project, although solely accounting aspects are background considerations. As Chesbrough and Rosenbloom (2002) note, the business plan can be developed as innovation takes shape, and the example of Xerox’s invention of the photocopier demonstrates that the inadequacy of the business plan cannot be sufficient to invalidate a project. Therefore, the credibility of the project and the quality of the research previously carried out by the contractor are the two key factors that can favourably guide the decisions made by investors. The second work of venture capital companies relates to project financing conditions. These have two characteristics: the sequencing and syndication of investments, the interests of are mentioned next (Rédis and Sahut, 2013). Venture capital financing is sequential, that is, additional funds are made available to the contractor based on the status of the project. Funders can also stop investing if the project or contractor do not keep their promises. Sequencing of the investment is part of an innovative four-step management plan for the start-up, having an average duration of six years (Kaplan and Schoar, 2005). It appears that the role of venture capitalists, regardless of the nature of the venture capital, far exceeds the functions traditionally assigned to a company’s financial partners. In addition to the usual control activities, organizational, legal, technical and commercial expertise are also available, and these are all sources of added value for the company. Furthermore, sequencing funding enables dynamic risk management. Start-up companies receive fewer resources, are refinanced more frequently than expansion companies and their financing is conditional to a higher internal return rate than traditional companies (Gompers and Lerner, 1999). Moreover, the study undertaken by Sorenson and Toby (2001) concerning the conditions of funding for 7590 start-ups reveals that more than two-thirds of this funding was syndicated. This means that different venture capitalists simultaneously or successively invested in the same innovative project. In addition, when the analysis focuses on corporate venture capital strategies, this ratio increases further, to almost 90 per cent (Basu et al., 2011). Syndication of venture capital investments has several advantages. First, compared with traditional financing, this mechanism makes it possible to invest in a larger number of projects and therefore constitutes a means of risk diversification (Abel and Nisar, 2007). Furthermore, Brander et al. (2002) argue that co-financing practices enable investors with limited resources to participate in more projects and thus improve their information and knowledge on innovative projects. Finally, research into co-financing makes it possible to multiply opinions on the project at hand before committing funds. Convertible bonds are by far the preferred financing instrument for venture capital companies. The study conducted by Kaplan and Stromberg (2000) shows that convertible bonds were used in 189 of the 200 funding sequences they analysed. Convertible bonds have a unique feature which makes them particularly attractive in financing risky projects; they enable investors to change the nature of the debt they hold in the company according to the state of the project completed. Thus, if the project succeeds, the venture capital companies are the residual creditors of the company. In any other outcomes, the convertible bond is comparable to a company debt. Therefore, the use of this financial instrument allows risk to be transferred to the entrepreneur when things go wrong and changes the rights of investors to cash flow as the project is developed (Schmidt, 2003). Furthermore, Hellmann (2006) states that venture capital companies generally employ a particular DANA (2nd edition) PRINT.indd 302 18/12/2020 11:32 Financial issues of entrepreneurship 303 type of convertible bond, termed a preferred convertible equity bond, which allocates decision-making rights to investors prior to conversion of the stock into shares, and it is accompanied by a right to an additional dividend. According to Hellmann (2006) this leads the investors to prefer an exit by acquisition of the company, even if this appears less favourable to the entrepreneur. The acquisition value must reflect the expected future revenues of the company. However, in the event of a sale, the preferential convertible equity bonds held by the investors are not converted into common shares. The financers therefore capture a significant portion of the proceeds of the sale at the expense of the entrepreneur, who is not paid to the extent of the effort he or she has provided. Kaplan et al. 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