Economic Foundations Of Entrepreneurship Business Essay


During the last decade, many western countries are going through constant alterations due to propagation of globalisation, intensification of internationalisation, and enhancement of technology where growth in employment is no longer achievable for the large established corporations (Davidsson, 1995; Davidsson, Lindmark, and Olofsson, 1995) and the need for small, new business ventures are imperative. Explicitly speaking, entrepreneurship creates job opportunities and prosperity within economies; there is development of more innovative products and services, sustained competitiveness, and improvement in overall standard of living.

Today, entrepreneurship is prevalent among researchers, policy-makers, and students. It is a major context for research in the current era (Bechard and Toulouse, 1996; Kuratko, 2005; Nabi and Holden, 2008; Acs, 2006; Mitra et. al 2011). Academics, policymakers, scholars, and practitioners gain interest and motivation in the study of entrepreneurship because it plays a vital role in the market economy through technological advancement and production efficiency (Kuratko, 2005), also, a crucial mechanism to the development of economic growth (Kuratko, 2005; Acs and Szerb, 2007; Acs, 2006; Karanassios et. al 2006). Acknowledgement of the significance of entrepreneurship as a competitive and economic growth driver, the pedagogy system now prepares students for the entrepreneurship opportunities and challenges through developing their skills, behaviour, and mind-set (Alberti et. al 2004, McKeown et. al, 2006; Smith and Martin, 2006; Mitra et. al 2011). Universities and colleges across the world implement schemes to encourage and assist students in pursuing entrepreneurship routes. These schemes educate youngsters about the importance of entrepreneurship for their professions and personal development. Hence, gradually students are becoming more inclined towards entrepreneurship. The governments and economists also regard entrepreneurship as an important strategic behaviour encouraging younger generation to invest in entrepreneurship education and training, to enhance their entrepreneurial intentions.

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The subsequent literature review aims to provide the readers of the significance and critical dimensions of entrepreneurship by evaluating the main concepts of entrepreneurship that this study will be looking at.

2.2 Economic foundations of Entrepreneurship

Several studies have argues that entrepreneurship is an effective mechanism to hancing country's economic growth and achieving a sustained national competitiveness. Acs (2006) differentiates between 'necessity' and 'opportunity' entrepreneurship, discovering that opportunity entrepreneurship positively affects economic development, however, finds no association between necessity entrepreneurship and economic development. This may be because entrepreneurship is considered as an obligation rather than an interest or desire to seize a business opportunity. An extensive cross-national survey between developed (Finland, Germany, Ireland, and Portugal) and developing (Uganda and Kenya) nations conducted by Davey et. al (2011) ascertained high probability of starting a new business in developing nations than in developed nations, however was associated with the country's gross domestic product (GDP) resulting in a negative correlation because students opt necessity-based entrepreneurship rather than opportunity-based.

Moreover, Acs (2006) highlights the 'Entrepreneurial Framework Conditions' which taken into account a country's capability of increasing new business ventures, i.e. influencing the monetary policy, and also the extent to which people are education and driven to start their own business. For instance, the Global Entrepreneurship Monitor (GEM) (2011), indicates China (efficiency driven country) acquiring a large fraction of entrepreneurs in the high growth expectations category, 'twenty or more employees', indicating there is high propensity for entrepreneurs to grow within five years. When taking into account the innovation-driven economies, the number of entrepreneurs is relatively small, however these few entrepreneurs contribute immensely to employment growth, and examples include, United States (US), United Arab Emirates, and Singapore.

A different perspective is developed by Acs and Szerb (2007), emphasising on the economic policy lateral of entrepreneurship. Those factors that have a direct impact on the entrepreneurs are, facilitating in the business start-up, access to finance, protecting the intellectual property rights, and Tax policy. Authors also highlight the 'Knowledge Spill-over Theory of Entrepreneurship" in understanding the criticality of entrepreneurship to the economy and stress that the country's policy measures should encapsulate entrepreneurship when making decisions regarding fiscal policies, Information Technology (IT), government regulations, and education. Venkatachalam and Waqif (2005) and Albert et. al, (2004) agree to the extent that entrepreneurship education programs assist individuals who has the need, incentive, and the capacity, to seize new business opportunities and start their own business.

The European Commission (2004) has also published an Action Plan on entrepreneurship that concentrates on actions in five strategic policy areas, which are, 'entrepreneurial mind-sets', 'incentives for entrepreneurs', 'competitiveness and growth', 'access to finance', and 'regulatory and administrative framework', (Karanassios, et. al. 2006) in the European region. The entrepreneurship policy adopted by the commission points out that European Union takes entrepreneurship as an important route for country's economic growth and sustained competitiveness. Entrepreneurship is a key indicator of achieving a country's aggregate growth rate by creating new jobs, enhancing technological pace, and increasing the productivity level through firms operating efficiency. Overall, it assists the country in the development of gross domestic product and standard of living, hence alleviating poverty and unemployment. However, Luthje, et. al. (2004) argue that Germany has been far behind than other developed economies, to promoting and recognising the possible benefits and opportunities of graduate entrepreneurship. Therefore, recently, the country has started to give more attention to the area, and consequently, fourty-two courses in entrepreneurship were established between 1997 and 2000 and many other training programs are also being implemented (Luthje, et. al., 2004).

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Kuratko (2005) approves that entrepreneurship plays an important role in the alteration of market economies and market structures, enabling firms to become more efficient and adopting more effective strategies to compete more fiercely and innovatively. The author also argues that entrepreneurship helps women and other minority groups to employ an active role in the work environment, especially in the developed economies, where the emphasis is on equal opportunities and freedom of movement. Hence, entrepreneurship is a ground-breaking phenomenon that assures country's overall economic development.

In view of the above arguments of entrepreneurship as a requirement for economic growth and sustained competitiveness, the following section, looks at entrepreneurship as an intended and strategic behaviour, enabling the reader to understand the magnitudes of entrepreneurial intention as an important indicator of entrepreneurship, also a key concept of the study. It is evident that entrepreneurial intention reinforces individual's attitudes toward entrepreneurship.

2.3 Entrepreneurship as Intended, Strategic Action

In the social science literature, the theory of entrepreneurship is broadly associated with intended, strategic behaviour, and intentions are the single best predictor of planned behaviour and the central factor of theory of planned behaviour (Ajzen, 1991; Shapero, 1982; Krueger, 1993; Krueger et. al 2000) while personality traits (Bird, 1988) behaviour in specific situations (Kennedy et. al, 2003) have resulted in poor empirical analysis, making the two concepts somewhat flawed. Ajzen (1991) argues that when behaviours are not subject to problems of control, it is best predicted using intentions with accuracy. Graerenitz et. al (2010) also found that in given behaviours and associated intentions, attitudes are subject to 50 per cent of the variance in intentions, while intentions explicate over 30 per cent of the variance in behaviour. This indicates that intentions are a superior analyst of action.

2.3.1 Previous Research on Entrepreneurial Intentions

Majority of researchers in this field view entrepreneurship as an intended, planned behaviour (Krueger, 1993; Krueger and Brazeal, 1994; Kolvereid, 1996; Linan and Chen, 2006; Brenner et. al 1991; Carey et. al 2010; Byabashaija and Katono, 2011; Kristiansen and Indarti, 2004; Nabi and Holden, 2008; Falck, et. al 2010; Nabi et. al 2010a; Keat, et. al, 2011; Nabi and Linan, 2011). Acquiring entrepreneurial intention to undertake a new business means that he/she is motivated (Atkinson's theory of achievement motivation) to commence a new business venture (Ajzen, 1991; Krueger et. al 2000) which explains the likelihood of success in a given behaviour. This is quite similar to perceived self-efficacy of (Bandura, 1977; Shapero, 1982) which entails the capability of the person to successfully start a new business. It is stated, "motivation determined what a person wants to do, self-efficacy determined what he thinks he can do", (Elfving et. al, 2009, p.30)The higher the perceived self-efficacy of starting a new business, higher is the propensity of successfully executing it. For instance, Kristiansen and Indarti (2004) and Ellen (2010) discovered that self-efficacy (Bandura, 1977) significantly influences student's entrepreneurial intentions.

The early research on entrepreneurship concentrated on the psychological characteristics of business founders, and traits theory (Bird, 1988 and McClellands, 1961) was applied in the literature of entrepreneurial intentions from different angles. Some of the studies concentrate on personal job characteristics and social identity having an impact on entrepreneurial intentions. For instance, Brenner et. al, (1991) study found that graduates recognise entrepreneurship as an affluent opportunity; however, it is most associated with those individuals acquiring job characteristics such as innovation, individualistic, and sovereignty. Also Smith and Beasley (2011), established that personality traits such as, independence and confidence to positive impact entrepreneurship. This indicates that there is a relationship between personal job characteristics and entrepreneurship; hence depends on the favourable outcomes that entrepreneurship provides individuals with.

Despite the recognition of the traits theory in the literature, it alone is considered a weak predictor (Nabi, Holden, and Wamsley, 2010) in understanding entrepreneurial intentions. Hence, relying solely on personal characteristics to understand the popularity of graduate entrepreneurship is not accurate but needs to take into account other internal and external influences. The theory has received constant criticism regarding limited predictive capacity (Nabi, Holden, Walmsley, 2010; Riverola, 2012; Azjen, 1991; Shapero and Sokol, 1982) due to constraints and restrictions in methodology to determine comprehensive findings in support of the theory.

The literature also provides some valuable insights of gender with entrepreneurial intentions. Keat, Selvarajah, and Meyey (2011) claim that male students are more interested in entrepreneurial activities than female students in Malaysia, in line with the critique made by Kolvereid (1996) that males have significantly higher entrepreneurial intention than females in Scandinavia. Information by Nabi et. al (2010a) show that 41 per cent of males have clear entrepreneurial intent, than female students with only 26 per cent. The gender and other demographic variables, such as age, previous work experience, and social background, reflect cultural differences broadly. For instance, more individualistic countries (Hofstede's cultural dimensions) like USA and Germany stress on individual development and personal achievements while in less individualistic countries; collectivism is encouraged ensuring strong, cohesive in-groups. When taking into account the Middle East countries, such as United Arab Emirates are more conservative and still majority parts of the region do not encourage women to start businesses. In addition, gender impact large variances on entrepreneurial intentions between developed and developing economies. It is mostly considered a control variable in many studies which is more robust to find the impact on entrepreneurial intentions. Many researchers, however, ascertain that demographic variables do not have a direct impact on entrepreneurial intentions, Kristiansen and Indarti, (2004) found no significant impact of age, gender, and educational background on entrepreneurial intentions. Hence, the literature is ambivalent. The impact of gender differs across cultures, and this need to be reflected in the studies where more cross-cultural studies should be undertaken.

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According to the theory of planned behaviour, person's attitudes have a direct impact on actual behaviour through intentions. Fishbein and Ajzen (1975) defined attitudes as, "a learned predisposition to respond in a consistently favourable or unfavourable manner with respect to a given object (Schwarz et. al, 2009, p.274). Individual's attitudes are constantly changing across different environments, circumstances, and time lags. When compared with personality traits, it is considered to be more flexible and robust measurement of constructs. Consequently, the influence of attitudes is crucial in explicating entrepreneurial intentions (Krueger, et. al 2000; Linan and Chen, 2006; Krueger, 1993; Autio et. al 1997). However, the literature is far from conclusive acquiring large differences across many researches and among different researchers and practitioners employs different measurements to study the relationship between dependent (attitude) variables and independent (intention) variables.

Carey et. al (2010) examined the relationship between intentions and individual's attitudes towards the type of venture. The study revealed that attitudes toward small, high income ventures and high-growth ventures are positive, resulting in student's intentions to start high-growth ventures positively associating with small, high income ventures. However, no association was found with small, life style ventures. The high aspirations of students to start more favourable growth ventures could be a result of the findings, where small, life style ventures did not give students that enthusiasm. Turker and Selcul (2009) argue that positive attitude toward entrepreneurship, despite the type of ventures, increases the disposition of starting a new business. When considering gender of attitudes, men have more positive attitudes towards entrepreneurship than females (Nabi et. al 2010a and Walter et. al 2010). Women are still considered a minority in majority of the developing countries, limiting their opportunities and motivation to empower (Walter et. al 2010). Research by Shabana (2011) show only seven per cent of women is optimistic about entrepreneurship while Kourilsky and Walstad (1998) study revealed that women feel that they are not capable of starting a new business and less self-assuring towards entrepreneurship. There is still on-going debate among academics and practitioners about the impact of gender on attitudes, usually men have more positive attitudes of entrepreneurship than females, however, has lost its position among developed economies in the recent years, where women have the equal opportunities as men.

The relationship between attitudes and intentions is not always positive. Studies show that there is a colossal difference between attitudes and intentions. Brenner et. al (1991) learned that entrepreneurial attitudes and intentions of graduates show contradictory results; for instance 55 per cent of graduates' attitudes were positive towards entrepreneurship as a career choice, however, only 5 per cent of them intended to start one when taking into account their actual situation and constraints such as access to finance, practicability of the ventures, and the actual constraints of starting a business. The variance between attitudes and intentions may develop from graduates' sensitivities towards the outcomes affiliated with two alternatives; entrepreneurship and employment. Nabi and Holden (2008) also revealed that 33 per cent of students have strong intentions to start a new business; however, only 4 per cent actually start a business. Entrepreneurship is indeed not the easiest job among the alternative careers, given the competitiveness of the environment and the constraints of it. One of the key challenges faced by individuals is the access to finance (Shabana, 2011; McLarty, 2005; Smith and Beasley, 2011; Ekpoh and Edet, 2011) where only seven per cent were not affected by finance, however, a large 79 per cent consider cost of capital as a significant barrier. Shabana (2011) found 22.22 per cent of women considering finance as an obstacle hindering the process of entrepreneurship.

Nabi et. al (2010a) stress on the level of entrepreneurial maturity within a graduate that may affect their decisions regarding entrepreneurship and starting own business. With more entrepreneurial maturity, comes high self-confidence and better understanding of the potential opportunities and burdens that come along with starting a new business venture, and vice versa, less entrepreneurial maturity is subject to low self-confidence and having indistinct objectives in life. This entails that a mature entrepreneurial graduate may have greater entrepreneurial intentions and the propensity to start a business may be higher. However, being over-confidence comes with its drawbacks such as undervaluing the pressures of venture creation and under estimation of venture failure rates (Zellweger, et. al 2011) which may ultimately lose the potential of carrying out the business successfully.

It is evident that entrepreneurial intention remains a significant aspect of entrepreneurship looking at above arguments and other previous research (Krueger et al., 2000; Kolvereid, 1996; Linan and Chen; Autio et al. 2001). However, it is argued that attitudes are developed from exogenous influences (Ajzen, 1987) and indirect influence on intentions. These exogenous factors may include the environment, education, and social norms.