The Variances in National Cultural Differences

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Our research question is "Do national differences in culture explain any of the variance in new business activity rates between nations?" The construct of culture has many definitions, and as Schwartz (1994) points out, it is best to see it as multi-dimensional. In this paper, we focus on national-level differences in culture, and distinguish between culture measured as a particular complex of universal or basic values, and culture measured as a set of context-specific beliefs or norms, such as those that might be related to new business activity. In this paper, we suggest that the widely-believed effect of "culture" on new business activity rates is more accurately depicted as a consequence of new business activity-related beliefs than universal values.

In our 2003 Babson paper, prompted by the repeated failure of the Global Entrepreneurship Monitor research consortium to find a significant association between new business activity-related beliefs of entrepreneurship experts and new business activity at the national level (Reynolds, Bygrave, Autio, Cox & Hay, 2002), we explored the association between national-level cultural values and national new business activity rates. We employed two sets of "universal" value-based measures of national culture, generated by Hofstede (2001) and Inglehart (1997), and the Global Entrepreneurship Monitor data on new business activity for 23 nations. We found that national culture appeared to be a poor predictor of new business activity at the national level, when controlling for economic and demographic variables (wealth and population growth). This result was in contrast with previous work in the field, which has found significant associations between entrepreneurship, variously defined, but has typically not employed basic control variables and/or employed much smaller samples of nations (see Hayton, George and Zahra, 2002 for a review).

In this paper, we address some issues raised by Hayton et al. (2002) in their review of the literature on culture and entrepreneurship. They call on researchers to go beyond Hofstede's culture measures, which have been criticised by several authors (e.g. Schwartz, 1994; McSweeney, 2002; Voronov and Singer, 2002). A more recent and expanded set of theory-based but empirically-validated values is provided by the Schwartz Values Survey of 47 nations. In this paper we examine the relationship between new business activity and the seven Schwartz values-based dimensions of national culture (Schwartz, 1994).

Hayton et al (2002) suggest that there is also a need for researchers in this area to distinguish between values and beliefs, and to move from the general to the specific. Following this call, we examine the relationship between the Global Entrepreneurship Monitor measures of new business activity and two national measures of "entrepreneurship beliefs", one derived from a survey of entrepreneurship experts and the other from national samples of 2,000 or more working age adults in each of 31 countries in 2003. Based on these results, we present a model of values, beliefs and behaviour to guide further work on culture and entrepreneurship.

Cultural Values

The national-level cultural values constructs or dimensions featured in this research are taken from the Schwartz Values Survey (Schwartz, 1994; Schwartz and Bardi, 1997, 2004). This is a survey of "universal" or "basic" values: "what people believe is good or bad, what they think should and should not be done, what they hold to be desirable or undesirable" (Schwartz and Bardi, 1997, p.386). The Schwartz Values Survey is based on a theory of culture-level values that derived seven types of values "by considering the basic issues or problems that societies must confront in order to regulate human activity. It views values (such as success, justice, freedom, social order) as the socially approved goals used to motivate action to cope with these problems and to express and justify the solutions that are chosen" (Schwartz and Bardi, 1997, p389).

Schwartz's types of values are associated with three basic issues: the nature of the relation between the individual and the group, how to guarantee responsible social behaviour that preserves the social fabric, and the relation of humankind to the surrounding natural and social environment. These three basic issues can be addressed in different ways, creating in each case a dimension of values. The value dimension created as a consequence of addressing the first issue has at its poles the constructs of "conservatism" and "autonomy". Conservatism stresses the individual as meaningful in terms of membership of close groups, and resists disruption of the status quo. On the contrary, cultures at the Autonomy end of this value dimension view individuals as unique characters who do and should express their individuality. Schwartz distinguishes between two forms of Autonomy: Intellectual Autonomy values curiosity, broadmindedness, and creativity, while Affective Autonomy values pleasure, an exciting life, and enjoying life. According to Schwartz, the conservatism/autonomy value dimension bears considerable similarity to Hofstede's individualism/collectivism dimension. It also is closely linked to Hofstede's power distance dimension (Steenkamp, 2001).

Schwartz's second value dimension, on how social behaviour is regulated, is visualised as having Hierarchy at one pole and Egalitarianism at the other. Cultures with strong Hierarchy values support the hierarchical allocation of fixed roles and of resources. They value social power, humility, authority, and wealth. On the other hand, egalitarian cultures value equality, social justice, freedom, and responsibility.

Finally, the third values dimension contrasts Harmony with Mastery. Cultures at the Harmony end of this values dimension emphasise fitting harmoniously into the environment, and value nature, protecting the environment, and the world of beauty. These values are associated with the Hofstede uncertainty avoidance values dimension (Steenkamp, loc. cit.) Cultures at the mastery end of this values dimension "emphasise getting ahead through self-assertion, through changing and mastering the natural and social environment". They value ambition, success, and daring. These values are closely associated with the masculinity/femininity dimension of Hofstede (Steenkamp, loc. cit.).

Schwartz's Values Theory has not been employed to our knowledge in the culture-related entrepreneurship literature, which has been dominated by Hofstede's dimensions derived from surveys conducted on employees' attitudes to their employment conditions in 1968 and 1972 on IBM employees in 50 different countries. These studies have tended to consist of small national samples, and consequently have low power, or have used reasonable samples but not controlled for basic demographic or economic variables, as recommended by Hofstede. Smith, Peterson and Schwartz (2002) note that very few cross cultural studies in general employ samples of 30 or more nations, and of these, correlations with behaviour frequencies are rare.

The advantage of Schwartz over Hofstede is that it is theory-based and validated, rather than derived from data that was collected for a different reason. It is based on surveys of teachers, rather than employees of IBM. Teachers' values may be more reflective of national culture since they are powerful transmitters of values to the next generation. The Schwartz samples were obtained in the late 1980's and early 1990's, 20 years later than Hofstede. It may be that we failed to find a culture effect using the Hofstede variables because the Hofstede variables do not reflect current national cultural values. Use of the Schwartz variables should be a better test. The measures of the values constructs for the countries featured in this paper are taken from Schwartz (1994) and Schwartz and Bardi (1997).

Hayton, George, & Zahra, (2002) summarise previous research on Hofstede's constructs and entrepreneurial activity. They identify the likely optimal conditions for encouraging entrepreneurship as high individualism, high masculinity, low power distance, and low uncertainty avoidance. This ideal complex of values is based partly on empirical results and partly on theory, such as entrepreneurial orientation and entrepreneurial self-efficacy. We note here that previous studies of entrepreneurship and culture have not measured new business activity rates directly, but rather inferred entrepreneurship activity or potential from general traits such as internal locus of control, risk-taking, and innovativeness. These seem rather close to universal values (see above), suggesting an element of tautology. We note also that some other researchers may have different, value-based, conceptions of entrepreneurship to the functional one we adopt, which is the act of starting a business. With this caveat, we use these previous findings and the associations between the Hofstede and Schwartz variables noted in the literature as our guide to developing hypotheses with the Schwartz variables, as follows. In each case, ceteris paribus applies.

H1: The higher a nation's Conservatism score, the lower the rate of new business activity.

H2: The higher a nation's Intellectual Autonomy score, the higher the rate of new business activity.

H3: The higher a nation's Affective Autonomy score, the higher the rate of new business activity.

H4: The higher a nation's Hierarchy score, the lower the rate of new business activity.

H5: The higher a nation's Egalitarianism score, the higher the rate of new business activity.

H6: The higher a nation's Harmony score, the lower the rate of new business activity.

H7: The higher a nation's Mastery score, the higher the rate of new business activity.

New Business Activity-Related Beliefs

As Smith, Peterson and Schwartz (2002) point out, behaviours are always enacted within a defined context, and basic values may not be directly linked to specific actions. "Widely-shared beliefs in given societies [for example, that entrepreneurs are heroes, or villains] may mediate between cultural values and enactment of specific behaviours" (p.204). Voronov and Singer (2002) would go further and argue on the basis of a review of the literature on individualism-collectivism that such "values" do not exist; that for example, there are only individualist behaviours, which are enacted in certain contexts and not in others. We follow these authors in suggesting that basic values are less important to new business activity rates than new business activity-specific beliefs. In order to test this, we examined the independent effect of entrepreneurship beliefs on new business activity, controlling for national cultural values and basic socio-economic factors.

The first annual Global Entrepreneurship Monitor (GEM) asked representative samples of adults from 10 countries whether they thought starting a new business was a respected occupation in their community, and identified a positive correlation between high levels of reported respect and new firm start-ups (Reynolds, Hay & Camp, 1999). Successive GEM reports emphasised the primary importance that national experts place on social and cultural norms in determining the level of national entrepreneurial activity, particularly in terms of independence versus dependency (Reynolds, Hay, Bygrave, Camp & Autio, 2000, Reynolds, Camp, Bygrave, Autio & Hay, 2001, Reynolds et al., 2002). Yet carefully constructed multi-item indices on entrepreneurship-related cultural and social norms, with high reliability and stability, on around 1,000 entrepreneurship sector experts per year across 30 to 40 nations, repeatedly failed to demonstrate significant correlations with new business activity (Reynolds et al, 2002, see p. 20 and p.39, note 19 and Reynolds et al, 2004, p.71).

It is possible that the experts' perception of national beliefs towards entrepreneurship were not consistent with those of their populations. To check this, in the 2003 survey, for the first time, 3 of the 5 items in the cultural and social norms index were added to the population survey. These were:

1. In your country, most people consider starting a new business a desirable career choice

2. In your country, those successful at starting a business have a high level of status and respect

3. In your country, you will often see stories in the public media about successful new businesses.

An additional item on equality of living standards was included, but we consider this to reflect basic values rather than new business activity beliefs and so ignore it in our analysis. For cost reasons, respondents were asked to answer yes or no rather than rate their agreement on a 5 point scale like the national entrepreneurship experts. A national-level index of national cultural support for entrepreneurship was created from the responses to the items from 113,778 respondents from 31 nations. This modestly and significantly correlated with new business activity (r=0.61, p<0.001), but did not correlate significantly with the 5 item expert-based cultural and social norms index (r=0.30, p=0.101). This population-level index had a low Cronbach alpha however (0.53), probably because of the yes/no answer design. (These three items had been employed using a 5 point scale for the GEM entrepreneurship experts survey and loaded with 2 other items on a single factor with a Chronbach alpha of 0.88, according to Reynolds, Bosma, Autio & others, forthcoming.) Despite the low level of reliability, this result supports the experts' views that entrepreneurship beliefs are important, and the conjecture that their entrepreneurship beliefs were not representative of their national populations.

Reynolds, et al (2004, p.45) report an association between entrepreneurship-related beliefs and new business activity at the individual level across 31 nations. Respondents in the national population sample surveys who answered yes to all three questions were 4 times more likely to be engaged in a business startup than those who answered no to all 3 questions. This was based on an individual-level index of cultural support with 4 categories based on individual responses to these three items.

In line with this result and the theoretical literature on values, beliefs and behaviour outlined above, we would hypothesise that the more people agree with each of these statements in a nation, the higher the level of new business activity in the nation, controlling for basic socio-economic factors and national cultural values. We would also expect that this factor would have a stronger independent effect than national cultural values.

H8: The more positive the new business activity-related beliefs in a country, the higher the level of new business activity.

New Business Activity Measures

This research utilises the GEM 2002 and 2003 Survey data (37 countries and 116,602 randomly sampled respondents in 2002; 32 countries and 103,778 randomly sampled respondents in 2003). The GEM database provides standardised measures of individuals' participation in entrepreneurial activities and their attitudes. Reynolds et al. (forthcoming) provide a detailed review of the GEM methodology. Specifically, GEM measures the following at the individual (human, not business) level: Business start-up rates, both independent and sponsored, or corporate, and opportunity-driven or necessity-driven. GEM national level new business activity data was very stable between 2002 and 2003 (r=0.93, p<0.000, N=28), but the composition of nations was slightly different. Accordingly, to maximise the number of nations for analysis, combined 2002 and 2003 GEM scores were used for national-level statistical analysis, where this was possible.

Method

Design

The survey element of this research was conducted in a total of 40 countries-see Table 1 for a complete list. The survey was composed of a series of questions to which there were discrete response options. The questions' order of presentation, indicated below, was identical in every case. Following completion of the questionnaire respondents provided information on their age, gender, educational attainment, labour force status, and monthly household income.

Participants

In each country a representative sample of the adult population numbering at least 2,000 respondents was obtained, with the exception of Thailand, Mexico and Uganda where the sample was only 1,000. The total global sample was 117,000 in 2002 and 104,000 in 2003. However, this study included only those deemed of working age, i.e. between 18-64 years, reducing the total to 94,260 for 2002 data and 73310 for 2003 data. Data collection was conducted in summer and autumn of 2002 and 2003.

Materials

Questionnaire: The distinct types of entrepreneurial activity were measured by recording responses to the questions given immediately below. All respondents were asked in turn whether each of the statements applied to them, with the response options of "yes', "no', "don't know', and "refused". The questionnaire, where appropriate, was translated, and the translation(s) approved by native speakers independent of the translator.

• You are, alone or with others, currently trying to start a new business, including any self-employment or selling any goods or services to others.

• You are, alone or with others, currently trying to start a new business or a new venture for your employer-an effort that is part of your normal work.

• You are, alone or with others, currently the owner of a company you help manage, self-employed, or selling any goods or services to others.

Additional questions filtered out individuals who were not actively trying to start a business or who did not or would not own any of the business. Individuals identified as nascent entrepreneurs or new entrepreneurs (i.e. those who had started less than 42 months before the survey) were also asked for their motivations behind starting. Almost all respondents could be categorised into opportunity-based entrepreneurs, i.e. those who started because they spotted an opportunity to do so, and necessity-based entrepreneurs, i.e. those who started a business because they could not find alternative employment. The combined index of new business activity: TEA, or Total Entrepreneurial Activity, is a measure of the proportion of the working age population that are either nascent or new entrepreneurs, independent or corporate-based, and opportunity or necessity-based.

Procedure

The data provides level of analysis and observation challenges. National cultural measures were available from the Schwartz Values Survey for only 24 of the 40 nations. Therefore OLS Regression analysis presented a degrees of freedom problem. The number of observations could be increased by employing individual not national level data and employing Probit analysis. However, this presents a level of analysis problem: the dependent variable would be measured at the individual level, while independent variables would be measured at the national level, leading to possible aggregation bias, and apparently stronger relationships between variables than are actually the case, and probable violation of the assumption of independence of observations. A solution is Hierarchical Linear Modelling, which enables nesting of individuals within groups and which is widely used in studies of educational performance within and between schools. In this case, HLM gives us the ability to examine the individual level data in terms of variables that are true of their country but not directly applicable to them, while minimising aggregation bias through a two-step analysis. Instead of being limited to one level of analysis, we can model the multilevel structure of the data. Two standard economic and demographic control variables were employed in the analysis: GDP per capita 2002, and population growth rate (average of 1996-2002).

Results

Overall, new business activity-related beliefs, as measured in the population surveys by individual items the national level index compiled from all 3 items, were the only consistent predictors of entrepreneurial activity. These were significant and positive for all 3 measures of new business activity. The beliefs of experts on these 3 items had no association with new business activity, confirming that their new business activity-related beliefs appear not to be representative of their national populations. The Schwartz variables had little or no consistent effect. The HLM was run again for four of the seven Schwartz values, following the results of a factor analysis by Steenkamp (2001) that showed these dimensions loading on a smaller number of factors, but the results were essentially the same, and are not those mentioned in the discussion. Tables 2 and 3 show the results of the HLM for Total Entrepreneurial activity and the Schwartz values measures and the GEM new business activity beliefs measures. Because of space limitations, the results for opportunity and necessity new business activity rates are not shown. OLS Regressions were also run, with national level dependent variables, with similar results, although the relatively small number of observations for the number of independent variables warrants caution in the interpretation of the results and statistical results are not reported here.

Model 1: Total Entrepreneurial activity. The HLM models indicated significant effects for the population survey "media" belief item, and "new business good career choice", and for Harmony when run with the Schwartz variables. The OLS model indicated significant effects for the population-based belief index when run with the Hofstede dimensions but not with the Schwartz dimensions.

Model 2: Opportunity-driven Entrepreneurial activity. The HLM models indicated significant effects for the population survey "media" belief item. The OLS model indicated a significant negative effect of power distance when run with the Hofstede dimensions and a significant positive effect for the affective autonomy dimension when run with the Schwartz dimensions.

Model 3: Necessity-driven Entrepreneurial activity. The HLM models indicated significant positive effects for the population survey "career" belief item, and significant negative effects for GDP per capita 2002. The OLS model indicates a significant positive effect of the population level "media" item and for the beliefs index when run with the Hofstede dimensions. Along with the HLM models the OLS models consistently show a significant negative effect of GDP per capita.

Discussion

The validity of the results is limited by the relatively small number of nations, 25 in the case of Hofstede dimensions and 23 in the case of Schwartz variables, in the analysis. This is particularly a problem for the OLS results, but also affects the HLM results. With only 14 to 18 degrees of freedom at level 2 (national level), the HLM significance tests need to be interpreted with caution (Sullivan, Dukes and Losina, 1999). However, the fact that there is some consistency between the HLM analysis which uses individual level data on the dependent variable and the OLS which uses national aggregate data, supports our overall tentative results, that there is a stronger association between new business activity-related beliefs and new business activity than between basic values and new business activity.

We consistently found that only one belief item or the belief index was significantly associated with new business activity, supporting hypothesis 8. As these items correlate highly with each other, this is not surprising. We did not find a consistent values effect on new business activity with either Hofstede or Schwartz values measures, which means that hypotheses 1 to 7 are not supported. This may be partly due to correlation of several of these variables with wealth. By contrast, our beliefs index variable is not correlated with wealth (r=0.113, p=0.544, N=31). It may also be that behaviour is influenced more by context-specific beliefs than by universal values, as discussed in our derivation of hypothesis 8 above. However, when distinguishing between the motivation for business start-ups it is worth noting that opportunity motivated start-ups, but not necessity motivated start-ups are predicted by 'affective autonomy' - composed of elements such as 'enjoying life & 'varied life' which relates to the life-style choice that frequently informs opportunity motivated start-ups.

Our beliefs index variable is correlated with population growth (r=0.527, p=0.004, N=28). As Hofstede himself argues (2001, p68), it is better to employ a simple socio-economic variable than a complex variable in seeking explanations to phenomena. Positive beliefs about new business activity may be reinforced by the additional new business activity that occurs in growing populations. This greater level of new business activity may quite naturally get picked up by the media, as growth in demand helps some entrepreneurs to become very successful. In contrast, in nations with static or declining populations, opportunities to become successful through business creation may be relatively rare and thus naturally be less a feature of media attention.

These findings reinforce the views of Smith et al. (2002) and Voronov and Singer (2002) that behaviour is context-specific, and our conclusion in a previous paper (Hunt and Levie, 2003) that population growth is a more powerful predictor of new business activity than culture. Despite this, new business activity-related beliefs do appear to have some effect independent of population growth.

This result leads us to speculate whether it may be possible for governments to influence new business activity through encouraging the media to report entrepreneurs in a favourable light. An attempt to do this in Scotland (a nation with a declining population) in the 1990's (Levie and Steele, 2001) has increased reporting of entrepreneurs considerably, and there is some evidence of a shift in attitudes to entrepreneurship in Scotland in the 2000 to 2004 period (Levie, Brown and Cooper, 2004). It is too early to say if this experiment in social engineering is resulting in long run shifts in new business activity. Although values may have little direct effect on behaviour, Smith et al (2002) warn that cultural values do affect the impact that widespread beliefs or norms have on action. Putting this in context, the promotion of positive new business activity-related beliefs may have most effect in countries where conservatism and power distance are high, such as China, Bulgaria and Romania.

Conclusions and Future Research

We conclude that there is some evidence to support our hypothesis that the more positive the new business activity-related beliefs in a country, the higher the level of new business activity. However, there is little evidence to support the hypothesis that there is a direct association between cultural values and new business activity.

Going beyond our results, we propose a modification of the model of culture and entrepreneurship proposed by Hayton et al (2002). In it, cultural values are seen as moderators of the effect of the economic and institutional context, rather than as direct predictors. We have not tested for moderating effects, and this will be the next stage in our research, provided we can assemble enough observations. Following Smith et al (2002) and Voronov and Singer (2002), we question whether basic needs and motives are separate in practice from cultural values. In this modification, we employ the construct of universal cultural values, which incorporate the basic needs, motives, beliefs and behaviours that are treated separately by Hayton et al. We add a context-specific set of beliefs.

In the model shown in Figure 1, we propose that values have an indirect effect on new business activity through the institutional and economic context. The institutional and economic context can also affect values, resulting in a feedback loop. This context also has an indirect effect on new business activity through context-specific beliefs in addition to its direct effect. Values may also moderate the effect of changes in institutional and economic context on context-specific beliefs. Future research could test this model and attempt to examine the indirect influence of basic values and context-specific beliefs on new business activity through, for example, structural equation modelling. A major challenge however will be assembling sufficient observations to permit such analysis.

CONTACT: Jonathan Levie, Hunter Centre for Entrepreneurship, Strathclyde, University of Strathclyde, Glasgow G1 1XH, United Kingdom; (T) +44 141 548 3502; (F) +44 141 552 7602; j.levie@strath.ac.uk

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