Entrepreneurial capabilities in generating new ideas

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An entrepreneur must be skilled in generating new ideas and introducing them to the market, but a big part of innovation also is the ability to stabilize processes and market conditions in order to allow customers and clients to buy the products or services over a sustained period of time (Stokes and Wilson, 2010). So basically, the essence of innovation is the successful exploitation of a new idea. But before exploiting the idea, an entrepreneur must possess the ability to recognize the right opportunities. Entrepreneurial opportunity recognition is the ability to identify 'situations in which new goods, services, raw materials, markets and organizing methods can be introduced through the formation of new means, ends, or means-ends relationships' (Eckhardt and Shane, 2003: 336). In one of the most important papers to date on this topic, Ardichvili et al. (2003: 106) argue that 'identifying and selecting the right opportunities for new businesses are among the most important abilities of a successful entrepreneur'.

In the entrepreneurship literature the notion of entrepreneurial capabilities - 'the ability to identify a new opportunity and develop the resource base needed to pursue the opportunity' (Arthurs and Busenitz, 2006: 199) - has become an increasingly important concept that has been used to explain the resources and skills required for effective entrepreneurial activity (see, for example, Alvarez and Busenitz, 2001; Chell and Allman, 2003).

Dataset 8: Type of entrepreneurship (opportunity or necessity)

As aforementioned, entrepreneurship can be either opportunity driven or necessity driven. Studies have found that, in general, individuals with lower opportunity costs are more likely to found firms (Amit et al., 1995). In other words, entrepreneurship can also be considered as a consequence of lower opportunity costs.

It can be observed that constraints and opportunities differ depending on the type of entrepreneurship. As Van Stel et al. (2007:173) points out, a high regulatory burden influences necessity entrepreneurship and opportunity entrepreneurship differently. Van Stel et al. goes further by claiming that potential necessity entrepreneurs usually possess less wealth; regulatory costs can upset their financial status and deter them from entrepreneurship. On the other hand, potential opportunity entrepreneurs normally possess more wealth; they have more options (notably, to continue being a wage earner), which in turn make them sensitive to start-up costs (Ho and Wong, 2007). In contrast, potential high-impact entrepreneurs who expect large gains are less likely to be deterred by a regulatory burden, granted that the expected gain is high enough (Ho and Wong, 2007).

There are four main reasons that emphasize the importance to make a distinction between opportunity and necessity driven entrepreneurs. First, necessity and opportunity entrepreneurs appear to differ in terms of their socio-economic characteristics, such as the level of education, relevant experience and age (Reynolds et al., 2001; Amit and Muller, 1995; Block and Wagner, 2007; Wagner, 2005; Giacomin et al., 2007).

Second, the reasons why entrepreneurs decide to become self-employed influence the ways how they conduct and manage their business, which in turn affects their business performance. For example, entrepreneurs who start a business because they want to earn more money than in wage-employment can be expected to behave differently than individuals who create a new venture to be better able to combine work and household responsibilities (Hessels et al., 2008). Also, necessity-driven entrepreneurs seem to be less satisfied than opportunity-driven entrepreneurs (Block and Wagner, 2007; Galbraith and Latham, 1996; Block and Koellinger, 2009; Kautonen and Palmroos, 2009).

Third, in their study of the interplay between the business cycle and the entrepreneurship cycle Koellinger and Thurik (2009) show that, when a discrimination is made between the start-up motives, opportunity entrepreneurship leads the cycle by two years, while necessity entrepreneurship leads the cycle by only one year.

The fourth argument comes from the observation that determinants of (nascent) opportunity and necessity entrepreneurship differ (Block and Wagner, 2007; Wagner, 2005; Morales- Gualdrón and Roig, 2005). This means that policies that are intended to stimulate entrepreneurship may have different consequences for necessity-driven entrepreneurship and opportunity-driven entrepreneurship. For example, stimulating the unemployed to start a business will benefit necessity and not opportunity entrepreneurs (Bergmann and Sternberg, 2007).

Finally, it should be noted that there is no strict division between these two types of entrepreneurship. As Block and Sandner (2009) point out, people are not always a complete opportunity entrepreneur, only driven by the unique business opportunities on the market, or a complete necessity entrepreneur.

Market conditions:

Another fundamental aspect in creating an entrepreneurial environment is related to the market conditions. Which opportunities are created by the current market conditions? As Pennings (1980) put it, as the infrastructure develops and as the entrepreneurial system grows, the system will thrive only if the environment is conducive for entrepreneurial activity and new venture creation. Whether a market is attractive for an entrepreneur depends on a number of factors, such as the size and growth rate of the market, the number of competitors, and the intensity of the competition. Is there long-term growth potential for their products/services, are there any market restrictions, how are the labor laws constructed, all of these and many more questions are posed by entrepreneurs who are considering to introduce a new product or service into a market.

Dataset 9: Setting up a new business or taking over an existing one

This dataset investigates whether an entrepreneur prefers taking over an existing company or rather starts a new business. Often it is seen that entrepreneurs choose to take over an existing company when it concerns a family business. In general it is unusual for children who have entrepreneurial parents to become wageworkers. Numerous studies have highlighted that individuals whose parents are self-employed are more likely than others to set-up their own businesses, for example because they are more inclined to view the creation of a new enterprise as a viable career option (Shapero and Sokol, 1982).

In the United States, 61,2% of the respondents chose to set up a new business rather than taking over an existing one. 30,4% chose taking an existing one over setting up a new business. The preference of starting a new business can be due to the costs that are involved with business start-up procedures. As the graph below indicates, the start-up costs are significantly lower in the United States compared to South Korea and the rest of the world.

Cost of business start-up procedures (%of GNI per capita)

In South Korea, 43,3% of the respondents chose to set up a new business rather than taking over an existing one. Yet over one-third of the respondents (34%) chose taking over an existing one over setting up a new business. Blanchflower and Oswald (1998) find that the receipt of an inheritance seems to increase an individual's probability of being selfemployed, and Fairlie and Robb (2004) discuss how prior work experience in a family-owned business has positive effects on business outcomes. Altogether, as mentioned earlier, taking over an existing one is most likely because it concerns a family owned business.

3) What does it imply for entrepreneurship in both countries and how do these variables actually defer?

After discussing the indicators of entrepreneurial activity in the previous chapters, the question now arises: how exactly do these determinants of entrepreneurial activity interact with each other? To investigate on this question, an empirical analysis is done to research to what extent a selection of factors have an effect on the choice of status (self-employed or employee).

1. A role model

2. Education

3. Previous experience: Experience in starting a business

4. Barriers: Difficulty of finding financial support

5. Fear of failure

The relevant variables will be further explained in the section below where the observations within the model will be discussed. In total 26168 respondents from 35 countries have been interviewed on these topics. These indicators have been chosen to create a general representation of a country's opinion towards entrepreneurship during their process of taking steps to becoming self-employed.

We will study the relationship between the dependent variable 'choice of status' on the LHS and the independent variables 'role model', 'education', 'experience in starting a business', 'difficulty of finding financial support, and 'fear of failure' on the RHS. All these variables are expected to affect the individual's likelihood to become self-employed. The expectations are that as the number of the these criteria that are met increases, the higher the probability of becoming an entrepreneur will become.

Coefficientsa

Model

Unstandardized Coefficients

Standardized Coefficients

t

B

Std. Error

Beta

1

(Constant)

9.833

6.269

1.569

Importance role model

.297

.132

.288

2.259

Importance education

.158

.229

.094

.692

Experience

.710

.162

.582

4.391

Importance financial support

.264

.099

.354

2.681

Fear of failure

.031

.195

.023

.159

a. Dependent Variable: self-employed

Significance level = 0.10

Based on the model it is significantly true that role model, experience, and financial support affect the choice for self-employment.

Remarkable observations from the model:

Only the variables that have a significant effect on the choice of status are being discussed, namely role model, experience and financial support.

Role model:

The model shows as expected that a role model tends to be significantly more important for South Korea than for the United States. The cultural differences between these two countries can be a possible explanation for this phenomenon. The United States has a dominantly individualistic culture where role models serve as a mere source of inspiration, whereas South Korea shows to have a less self-interested culture where role models are mostly associated with prestige and high status. Also, when a family member is already an entrepreneur, this increases the likelihood of other members of the family to become entrepreneurial as well. Blanchflower and Oswald (1998) find that the receipt of an inheritance seems to increase an individual's probability of being selfemployed, Therefore, South Korea is more likely to value an entrepreneurial role model than the United States is.

Experience:

The model shows that experience in starting up a business has a significant effect on the choice of status. As Bosma, van Praag, Thurik and de Wit (2004) explain, the industry experience of the founder increases firm survival, firm profits and firm employment. Gimeno, Folta, Cooper and Woo (1997) also find that experience in related businesses has a positive effect on performance, and has no effect on the likelihood of exiting entrepreneurship conditional on performance. There is also consistent evidence that previous experience in self-employment increases the likelihood of survival in new business ventures (Holmes and Schmitz, 1996; Quadrini, 1999; Taylor, 1999).

The United States have a higher percentage of people having experience with starting up a business. As Ellsworth (1985) explains, U.S. firms' activities have been largely the result of entrepreneurial efforts, unencumbered by government involvement but limited by an advanced market system. Companies have therefore, within the limits of the capital institutions, been free to follow market demand and to evaluate the merits of opportunities (e.g. acquisitions) based on their attractiveness (e.g.) of industry) and returns or profitability (i.e. ROI, stock price, discounted cash flow, projected demand).

South Korea has a slightly lower percentage of people who have experience with starting a business than the United States. This lower percentage can be explained because of the chaebol. As mentioned earlier, the Economist (May, 2011) points out, "the Korean economy is dominated by the chaebol, huge conglomerates with tentacles in every stew. Parents of bright young Koreans typically steer them into steady careers in the chaebol, the government or the professions." Therefore, it is less likely in South Korea to have experience in starting a business.

Financial support:

The model shows that it becomes more difficult to start one's business due to lack of financial support, is significantly true. The United States has a high percentage of respondents agreeing on this matter. As the FCCISL (2010) points out, "surveys have revealed that SMEs have difficulty in borrowing from formal channels of credit in view of their inability to present bankable proposals due to limited knowledge and skills in financial management and operational governance. Many financial providers consider SME financing as a high-risk activity that generates high transaction costs and/or low returns on investment." This could be a possible explanation that shows that when there is a lack of financial support, it can become more difficult to start a business in the United States.

In South Korea we see a much lower agreement on this matter. In South Korea it is the case that the government's efforts to establish sound economic planning, and the private business sector's response to strategic industrial initiatives to stimulate interest in attractive industries, led to firms diversifying into specific industries to receive preferential allotment of foreign aid and grants, preferential loans and financing, and tax exemptions or deductions (Chung and Lee, 1989; Yoo and Lee, 1987). South Korea also differs from the United States in the aspect that they have a national credit guarantee system. As Jung (2002) points out, perhaps the most important is the credit guarantee system, by which SMEs get credit guarantees from government-owned financial institutions in order to obtain bank loans. This window opportunity has been a way of gaining access to capital for many companies in preferred industries.

Conclusion:

This paper examined how entrepreneurial activity can be measured and what its indicators are. From the first part it can be concluded that both the United States and South Korea have a mutual preference for being self-employed. Why some chose for self-employment and why others chose for being employed were based on the aspects such as avoiding high wage taxes, labor contracts, the need for achievement and locus of control.

The second part contains how entrepreneurs perceive the six determinants of entrepreneurial activity and the explanatory reasons why they differ in nature in South Korea compared to the United States. These six determinants are regulatory framework, culture, access to finance, entrepreneurial capabilities, and market conditions. Nine OECD-Eurostat EIP datasets have also been analyzed to determine differences, similarities and anomalies in entrepreneurial activity. The results were that these stem from cultural, national and economic grounds. The most important findings from the first two chapters together were:

- The presence of chaebol in South Korea

- The individualistic mentality and high-risk taking culture in the United States

- The strong influences of South Korea's Confucian ideology

In the third part a regression model was created to investigate the effect of five selected factors (role model, education, financial support, previous experience, fear of failure) on a person's choice of status: becoming self-employed or being an employee. The findings suggested that only a role model, previous experience, and financial support have a significant effect on the choice of status. To summarize these findings:

- A role model is of much stronger importance in South Korea

- The higher level of experience in starting a business is of much stronger importance in the United States

- Due to a lack of financial support, it becomes significantly more difficult to start a business in the United States

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