Entrepreneurial constraints through family business pakistan study

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Abstract:

This research explains the entrepreneurial process using the characteristics and environmental approach in explaining entrepreneurial behaviors (need for achievement, locus of control, risk-taking propensity, tolerance for ambiguity, and Type-A behavior) as identified by Gartner to be important determinants of new business formation process. The model identified in the paper extends the work of previous literature which concentrated on only intentions, explaining entrepreneurship and its causes in constraint of the environmental factors. In this research family business has been taken as a mediator between entrepreneurial behavior and new business formation process. The methodology utilized is Causal correlational strategy to know the direction as well as the strength of relationship. Regression and Correlation stats have been proposed to be used as analysis technique. Purposive sampling technique has been used. The primary data collection technique is through questionnaires. Literature suggests high correlation between entrepreneurial behavior and new business formation, but also suggests that social, economic and social networking environment has an influence over this process.

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Keywords: Entrepreneurship, Entrepreneurial value, Entrepreneurial Characteristics, entrepreneurship in Pakistan, Family business

Background

It is the entrepreneurs who form business ventures but why they do so is still to answer (Carland, Carland, & Stewart, 1996). The worth and spread of the word entrepreneurship is clearly evident by its prominence in scholarly literature (Vesper, 1988) and the propensity of this field to attract experts from many disciplines as economics, sociology and psychology. This trend can be seen evident as the formation of new business journals "Journal of Business Venturing" specifically on this topic (Churchill and Lewis, 1985). Along with its increasing publication in non-academic publications. Porter and McKibben, (1988) has also stated its dominance as it is seldom to find any business school without a subject on entrepreneurship. The academic fame can be a reason of its industry prominence, contributing a major portion of industrial production in developed nations (otsuki, 2002) while about 60% to 90% of business activity in the whole world is comprised of SME's (Mohafi, 2008).

Annual GDP per capita growth (0.8%) is unable to match the continuous growth (United States Census Bureau) in the population of the world causing high unemployment (30% in non-industrialized while 4-12% in developed nations) thus giving birth to different social classes along with colossal social disparities. The FAO (Food and Agriculture Organization) estimates about (1.02 billion) people to be undernourished in the world. Increasing population requires more food, services and infrastructure. This shortage filling requires efforts from every one, government as well as the peoples residing in the nation. Entrepreneurship has been suggested as a strategic tool to fill such gaps. Wennekers, (2006) comments on the increasing positive attitude of people towards entrepreneurship.

Pakistan is known to be a developing nation with every day crisis and corruption although got a huge potential of entrepreneurship. Some attributes hinders the entrepreneurial spirits in Pakistan as they want to become wealthy overnight these entrepreneurs must understand that becoming entrepreneurs requires step by step process. It is not always that entrepreneurial activities are focused on creating wealth. Pakistan's political and economical history is filled with changes and events as military regime etc from the very independence of Pakistan the legislation faced are centrally controlled. Gradually the state has gone through developing the infrastructure, producing goods and services and managing markets. Entrepreneurs have also developed throughout the course of history although governmental policies were more tilted towards large scale manufacturing rather than small scale businesses. The era from 1947 till 1958 was concerned with the policies devised for trade and emerging exchange rate. The era 1959-55 government introduced laws pertaining to tariff's which were highly in favor of large scale manufacturers. Many other implications were introduced during the 50's era as Licensing for imports. The decade 1958-68 is generally attributed as the era of development. During this era industries experienced large scale growth. During this era the loan policies were tilt towards high level industries. During all these decades although huge growth were experienced but many policy maker ignored the small units. During the Pakistani history formal sector is being given more attention while informal sector roughly counts 40 % of the economic sector in spite of being such a big sector it still faces many problems including lack of special policies designed for them.

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Basic reason for this type of research on entrepreneurship is that nations have to deal with many economic problems as unemployment, social violence, decrease productivity, recession, inflation etc. previous literature suggests entrepreneurial activity present in any nation to be one of the problems solving tool. Thus this research provides an insight into a developing nation (Pakistan) in lights of entrepreneurship identifying the major reasons for growing entrepreneurs in the country even after all the external constraints. As a result providing youthful insights to nations that are underdeveloped as well as nations that are facing sever crisis a gateway to prosperity.

Wave of recessions has hit many countries throughout the history and every recession has caused shifts in economic powers as from the socialists to capitalists vice versa, Today's mundane reality is globalization which increases the opportunities as well as threats to different nations. Globalization heats up the competitive environment making some better off while others not better off. Entrepreneurship has been considered by many as one prominent factor contributing to the economies even in the time of recession. Many scholars have wrote on entrepreneurship but with focus on only intentions, cultural influence and/or on entrepreneurial behavior etc from students, thus poses a need to enhance the understanding of entrepreneurship beyond only intentions, traits or culture towards having a more clear understanding of entrepreneurial process in lights of practical grounds. Thus this paper understand the entrepreneurial process from those who have initiated it, high lightening the actual points persuading or hindering him/her to become an entrepreneur. Lack of sufficient literature on mediating or moderating factors pertaining to entrepreneurship raises the need to expand the previous work of renowned scholars.

Research questions

What is the relationship between entrepreneurial behavior and environmental values?

What factors in the social, political environment either hinders or supports the new business formation?

What types of environmental values are present in Pakistan as perceived important by entrepreneurs?

Which entrepreneurial traits are present in Pakistani entrepreneurs?

Which factor contributes the most in entrepreneurial formation?

Up to what extant family business mediates the new business formation process?

Objectives

To explore the relationship present if any between entrepreneurial behavior and environmental values

To identify factors in the social, political environment that either hinders or supports the new business formation

To identify environmental values present in Pakistan as perceived important by entrepreneurs

To identify entrepreneurial traits which are present in Pakistani Entrepreneurs?

To know which factor contributes the most in entrepreneurial formation

To explore whether family business mediates the new business formation process

Significance of the Study

This research focuses on providing practical implications of how entrepreneurs are formed, which entrepreneurial traits are present in Pakistani entrepreneurs, thus providing a mean to study entrepreneurship in a new dimension which is studying this broad phenomenon on practical grounds rather than only collecting data from students as sample elements. This is the time of globalization were physical boundaries present between nations have been blurred, competition is intense. At this moment in time Nations require to know the differences in nations entrepreneurial activities and especially entrepreneurial activities with reference to developing nations and underdeveloped nations. Significance can also be seen that this research will help understand and open entrepreneurial understanding in whole new avenues. Entrepreneurship is that activity that not only helps a person get employment but also provide employment to others thus reducing unemployment, increasing productivity. The solutions given by this study can help nations that are still in the phase of recession, understand how entrepreneurship is considered to take a prime role in economic development.

Literature Review

Entrepreneurship being a very broad term can be attributed many meanings as defined by many authors for some (Ma and Tan, 2006; McClelland, 1961; Collins & Moore, 1964) it is an individual level activity concerned with the creation of wealth and personal fulfillment. Hamid & Abaidullah, (2006) termed SME's as entrepreneurship with no greater than Rs. 2.40 million having 10 to 99 employees. Cantillon can be attributed as the pioneer using the word 'entrepreneur,' explaining it "as someone buying at certain prices and selling at uncertain prices". Cantillon studied entrepreneurial activity on the economy, at that moment his focus on individual who performed the role was not the focus of discussion. The concept of entrepreneurship was developed as combining factors of production (Jean Baptiste). Individual who is an entrepreneur is considered as the most prominent unit to analyze in case of both theories as well as research (Herron and Sapienza, 1992). The view point on entrepreneurship has been developed by (Schumpeter) as driving force of an economy with innovation being at its essence. "He writes that 'the carrying out of new combinations we call "enterprise"; the individuals whose function is to carry them out we call "entrepreneurs" (1934: 74)". One area of problem which (Carland et al., 1984) identified is entrepreneurship becoming a symbol of small business management. Reynolds, Van de Ven, Vesper, Cooper however focused on the start-up process. Baumol, (1986) attributes entrepreneurship as one of the omnipotent factors towards economic productivity and growth and flow of knowledge. This research paper rests with the definition taken by (McClelland, 1961; Collins & Moore, 1964) individual human beings with their background, environment, goals, values, and motivations are the real objects of analysis.

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The approaches attributed towards entrepreneurial research are "why" (McClelland, 1961; Collins & Moore, 1964), "What" (Schumpeter, Kirzner, or Casson) and "How". Why deals with the notion that, why do an entrepreneur act?, What tells the outcomes derived when entrepreneurs act and finally how answers the questions related to how do they manage their aims, in spite of environmental affect or personal reasons for the fulfillment of these aims. This paper mostly explains the why form on entrepreneurial research by looking into which factor generates the real business formation. Entrepreneurial research can be studied in different manners as psychology, sociology and economics etc, where psychology deals with entrepreneurial behavior (Gartner, 1989; Bygrave and Hofer, 1991).

Initiating entrepreneurship is not anything to be generated from outside, individuals initiating entrepreneurial act have inbound qualities for choosing either to start or not any entrepreneurial business (Morrison, A. 2000; Kirzner, 1979; Jarillo, C. 1990). Thus individual's poses entrepreneurial traits. Considerable literature can be found focusing on the concept of different entrepreneurial processes, as new business formation (Herron and Sapienza 1992), entrepreneurial motivation (Naffziger, Hornsby, and Kuratko 1994) and entrepreneurial potential (Krueger and Brazeal 1994). In order to understand the process of entrepreneurship one must have an understanding of entrepreneurial intentions being the reason that, they form the underpinnings of new organizations (Krueger, 1993b). Entrepreneurial phenomenon is not a onetime process but it occurs over time (Gartner et al. 1994) and entrepreneurial intentions might be viewed as the initial step of this long term process. The study of intentions as being determinants of becoming entrepreneur requires to be expanded towards entrepreneurial behavior (Michael, J. 1996). Among many determinates of behavior and attitude, characteristics and traits plays a pivotal role (Michael, J. 1996).

H1: Entrepreneurial behavior are related to new business formation

H0: Entrepreneurial behavior do not relate to new business formation

Gartner, (1990) states that entrepreneur's exhibit unique personality characteristic and abilities attached with individuals, identifying five attributes that are close to entrepreneurs, need for achievement, locus of control, risk-taking propensity, tolerance for ambiguity, and Type-A behavior (Brockhaus 1982; Brockhaus and Horwitz 1986; Furnham 1992). The approach used to study entrepreneurship in lights of the characteristics they show is called as characteristics approach. The above mentioned characteristics have also been confirmed by many researchers as need for achievement (McClelland, 1962; Perry et al., 1986; Bagley and Boyd, 1987; Hornaday and Aboud, 1971), locus of control (Brockhaus, 1982; Perry et al., 1986; Lorrain and Dussault, 1988; Bagley and Boyd, 1987; Getwood et al., 1995; Paulhus, 1983; Hood and Young, 1993), risk taking propensity (Mengel, 1972; Liles, 1974; Broehl, 1978; Brockhaus, 1980; Ahmed, 1985; Longenecker et al, 1997), tolerance of ambiguity (Trapman and Morningstar,1989), need for autonomy (Mckeran and Flanningn, 1996; Jennings, Cox and Cooper, 1994 other characteristics have also been attributed with entrepreneurs as creativity (Draker, 1985).

The view point of researchers on the school of thought concerning with "traits" have been opposed by many (Gartner, 1989a;1989b), to others this approach can be helpful in specific situations (such as PRO scientific and technical inventors) and their non-entrepreneurial counterparts. There is a need for entrepreneurship process to be studied in a more dynamic method (Robinson et al., 1991). Shaver and Scott (1991) argued trait research as methodologically weak thus arguing that there must be a consistency between constructs and there measures. Concluding the results of a meta analysis done by (Zahra, Shaker, 2002) values or beliefs as need for autonomy, need for achievement, change orientation) was not found consistently associated with new business formation which derives the need to discuss whether there are special values in Pakistani environment which enables new business formation or not.

Need for achievement can be defined as a person who sets a goal and starts in the efforts of attaining them and are more concerned with the outcome rather than the rewards. Locus of control is divided in two parts by (Rotter, 1966) as Internal (persons resting on their own judgment, actions and behaviors) external (more believers of fate and destiny etc). The feeling of a person of not having control over economic resources (Economic Powerlessness: Personal efficacy) can also be a part included in locus of control. Tolerance towards ambiguity is defined as stress handling ability by a person on the arousal of any ambiguous situation. Shane et al., (2003) highlights the importance of this characteristic for the new business formation as the individual has to face many problems during firm formation process. Risk taking propensity is the person's ability to take risk. Authors also argue that high self efficacy and high need for achievement can be related to risk taking ability.

McClelland's best-selling The Achieving Society (1961) framed entrepreneurship as a social role. The approach by McClelland in "The Achieving Society" rests on the notion that entrepreneurial behavior is dependent on environmental factors. McClelland in his research inquires why there is a different rate in economic growth of different societies, what is the reason some economies show high while some show low growth.

H11: There is a relationship between entrepreneurial behavior and environmental values

H10: There is no relationship between entrepreneurial behavior and environmental values

The following hypothesis have been developed to know whether there is a relationship between entrepreneurial behavior and environmental values, looking into the strength of relationship and especially focusing on Pakistani environment.

Environmental factors as political, social and educational influence the choice of forming an entrepreneurship in any society (Timmons, 1994). Kirzner, (1979) argues that uncertainty and competition in environment initiates entrepreneurial values which in term are the reason for initiating an enterprise. Entrepreneurial act is also majorly influenced by the situation or environment in which an individual works (Shane 2002; Di Gregorio and Shane 2003; Lerner 2004; O'Shea et al. 2005; O'Shea et al. 2007).

H21: Environmental values moderate the choice of new business formation

H20: Environmental values does not moderate the choice of new business formation

Environmental values include the social, political conditions in the country which either initiates or stops the business processes. Gartner believed that personal trait school of thought is not the only determinant of new business formation but environmental factors also plays a pivotal part. For environmental factors cultural, social and economic elements play an important part. Social factors include experiences, family background, social class and education. Economic factors include financial and credit institutions, accessibility of capital, market structure (competition, demand and supply). A persons social networking situation or structure of the social environment can also have an influence on the new business formation process (Aldrich, 1986). The study by Mosey and Wright (2007) found those with prior experience with entrepreneurship are subjected towards having better business as well as social network, hence were in a better stance to engage with investors and business people.

Throughout the globe no one can deny the dominating and leadership role of businesses owned by Chinese (Limlingan, 1986), "Why" approach to entrepreneurial research explains this as the closeness of Chinese families (Jarillo, C. 1990). Krueger (1993a; 1993b) and Scott and Twomey (1988) concluded that entrepreneurial intentions are found to be denser in people whose parents are entrepreneurs. Many researchers have focused on family business and new business formation, although less attention has been directed towards family business as a mediator between entrepreneurial values and new business formation. Performance and perceptions are considered to be impacted by family business's (Kleinsorge, 1994; Lyman, 1991; Sharma, Chrisman, & Chua, 1997). Gartner, (2001) concerns whether family business studies have a legitimate role to play in understanding new venture creation.

H1: Family business mediates the new business formation process

H0: Family business does not mediates the new business formation process

Businesses that are managed and owned by one or more than one family members are termed as family business (Handler, 1989; Hollander & Elman, 1988). Davis and Tagiuri (1982) defined family firms as "…Organizations where two or more extended family members influence the direction of the business through the exercise of kinship ties, management roles, or ownership rights." For the purpose of this research family business is business as defined by (Handler, 1989; Hollander & Elman, 1988).

Theoretical framework

Based on the extensive work done by different scholars on entrepreneurship Independent, dependent, mediating and moderating variables have been defined. New business formation is dependent on entrepreneurial values which are taken from the work as (Gartner 1980; Brockhaus 1982; Brockhaus and Horwitz 1986; Furnham 1992) defined five values are found to be close to entrepreneurs as locus of control, need for achievement, Type-A behavior, risk taking propensity and tolerance for ambiguity. While this model contains entrepreneurial values as independent variable. Family business are the ones owned and managed by one or more than one family members, thus literature suggests that family business plays an important role in the formation of new businesses. If all the factors as a person has family business and entrepreneurial values but the environmental factors lack or does not support such a person as legal or social constraints than it moderates the relation between family business and new business formation.

Schematic Diagram

Social Networking

Social

Economic

Entrepreneurial values

New Business Formation

Family Business

Environmental Values

Population

The population to which we are interested in making and describing inferences is referred as target population. For the purpose of our research target population comprise the people of Lahore, Faisalabad and Karachi. The reason to choose such population is the concentration of population and ratio of new business formations in these cities of Pakistan.

Sampling

As we are targeting persons with newly started businesses and identify which entrepreneurial traits they have or not, also to clarify does family business mediates their choice. We need Purposive Sampling (PS) technique to identify firstly whether the person who have started a business also have a family business or not. So, the sampling technique is Purposive Sampling and this type of sampling is a non-probability. The study intends to target groups with family businesses. Purposive sampling is chosen as we are to collect data from those respondents who have family businesses. Data shall be collected on the basis of convenience since no sampling frame is available in Pakistani context as to choose entrepreneurs. Although students can be used as samples to determine individual differences and vocational intentions (Gartner, 1989). Krueger (1993b) provided a number of cogent arguments supporting the use of student samples to study entrepreneurial intentions. As this research is beyond intentions data shall be collected on convenience basis from real entrepreneurial doing there businesses.

In order to identify the sampling size this research article focuses uses the following formula

Research methodology

The research methodology used is causal correlational. To see the relationship direction and the strength of relation of both all the variables involved. Different statistical packages are used to analyze the data as Excel 2003, SPSS, Eviews etc. for the purpose of this research Excel 2007 and SPSS.17 shall be used to analyze the data ANOVA, Correlation, Regression shall be applied.

Validity and Reliability

In order to check the validity of the data questionnaires shall be firstly handed over to experts and then after data collection cronbach alpha shall be tested to ensure reliability.

Ethical Considerations

Throughout the research special importance shall be given to ensure whether ethical considerations are being followed or not. There are many forms of ethics that a researcher has to follow among these some are explicit while others are implicit, explicit considerations include using others research work with proper permission or citation or acknowledgement which ever is appropriate.

Analysis and Discussion

Based on the literature review analysis and discussion part is formalized showing different models, methodologies, sampling, instruments of analysis used to explain the process of entrepreneurship by different researchers.

In order to test the personality theory, literature suggests big Five Factor Model (Extraversion, Emotional stability, altruism, Openness, Conscientiousness) by (Hoekstra, 1993) many researchers have found big Five Factor model to show insignificant results, and Myers-Briggs Type indicator( Extraversion, Introversion, Sensing, intuition, Thinking, Feeling and Judging, perceiving) (Myers, 1962) has been significantly used showing significant relation between specific traits as part of entrepreneurs. Other test, taking capabilities and characteristics under consideration have been used as MBS and BSOK. BSOK model uses personality characteristics on a five point likert scale. But is not currently in use. Many scholars are consent on most of the Gartner's 5 dimensions Locus of control, Risk taking propensity, need for achievement, need for autonomy and Type B behavior (Mc Clelland, 1961; Ahmed, 1985; Perry, 1986; Begley, 1987; Hornaday, 1971; Ahmed, 1985; Brockhaus, 1982; Perry, 1986; Lorrain, 1988; Hood, 1993; Begley, 1987; Gatewood, 1995; Perry, 1988; Rotter, 1966; Paulhus, 1983; Mengel, 1972; Dart, 1971; Meyer, 1961; Liles, 1974; Broehl, 1987; Mc Clelland, 1961; Hornaday, 1970; Vesper 1990; Kets de Vries, 1986; Collins, 1964, Hornaday, 1970; Wainer and Rubin, 1969; Vesper, 1990 ; Budner, 1962; Bellu, 1987; Gatewood, 1995). All the studies show that the five characteristics are highly correlated with new business formation. As the focus on previous literature has been on entrepreneurial traits in lights of intention and much data has been gathered from students as sample. Which is not showing the actual picture as what is going on the real world? No sort of relationship has been formed between characteristics present in real entrepreneurs thus looking into the subject of entrepreneurship from the eyes of entrepreneurs. Finding and highlighting the opportunities and constraints they face during the entrepreneurial process.

Among the suggestions role of governmental agencies and institutes have been highlighted as prime suspects to hinder or breeze the air of entrepreneurship in any nation. Some suggests entrepreneurial awards as best entrepreneur of the year to be proposed by the state, by many giving a supportive environment is the key point to success. Many authors argue on the importance of family businesses as showing how most of the businesses are claiming them to be family oriented to gain success. Reason behind such a big support is the level of commitment, loyalty and support from other members of the family. Among the five characteristics researchers suggests that although there is a significant relationship between all to form an entrepreneurial process but the interdependence of each trait must not be ignored. As when there is a high need for achievement and need for autonomy in a person there is a high propensity of risk bearing in a person.

cf. Littunen, 2000 suggests studying characteristics only ignoring the environment can over simplify the results thus neglecting the complex nature of reality.

Limitations and Future Research

Although researches are done giving detailed analysis of the construct in consideration, but no single research is perfect having some limitations as the limitations of the current research includes.

The constraints of time is always present as the broadness of the topic is concerned

Entrepreneurial values are also influenced by culture; this study has the limitation that cultural values are not taken

Other areas of entrepreneurial research as what are the outcomes of entrepreneurship still remains to be focused

Cost is also a limitation as no prior funding is available

Hierarchal regression analysis can be done to identify the one personality characteristic influencing entrepreneurial behavior the most