Network Constructs In Entrepreneurial Opportunities Commerce Essay


Identification, evaluation and exploitation of opportunity are major components of entrepreneurial process when entrepreneurs decide to run a business or even invest in new venture. In recent years, many scholars in entrepreneurship , marketing as well strategic management have tried to develop a clarify view of opportunity and influential factors on it. In this paper, I have used Companys and McMullen's (2007) view in which they develop a typology of opportunity that cover all perspective in opportunity studies. In other hand, the influence of networking on entrepreneurship and entrepreneurial process has been studied in a wide range of entrepreneurship research But in most of them, general importance of networking like social networking in entrepreneurship has been studied and network dimensions have not been paid in detail. This paper builds on, studying role of network dimensions like network content, network governance and network structure on entrepreneurial opportunity, based on Companys and McMullen's (2007) categorization.


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Entrepreneurship because of entailing technical information of product and services, making identification and correction of inefficiencies in economy and causing change in order to entrepreneurially driven innovation in capitalist society, has turned into one of the most important subject in business studies (Shane and Vankataraman, 2000) . However, research subjects such as traits, personalities, orientations, motivations, structures, policies, mechanisms, processes and cultures has gotten many attention in entrepreneurial practice , but opportunity is distinctive and unique for entrepreneurship(Fletcher, 2006). Identification, evaluation and exploitation of opportunity are major components of entrepreneurial process when entrepreneurs decide to run a business or even invest in new venture. (Lindsay and Craig, 2002). Because of vague nature of opportunity in studies, In recent years, many scholars in entrepreneurship , marketing as well strategic management have tried to develop a clarify view of opportunity and influential factors on it. Some scholar have used of Schumpeterian view of opportunity and some have used Kirznerian view, and some combine these two views in their studies. In this paper, I have used Companys and McMullen (2007) view in which they develop a typology of opportunity that cover all perspective in opportunity studies.

In other hand, the influence of networking on entrepreneurship and entrepreneurial process has been studied in a wide range of entrepreneurship research , such as role of networking in Entrepreneurial process (Birley 1985) , Initial and ongoing success of entrepreneurial firms of new firms (Butler & Hansen , 1991), Emerging and established firms (Johannisson ,1998) , entrepreneurial opportunity recognition(Singh ,2000), Entrepreneurial process as ongoing process from start-up onwards (Jack et al , 2004), New venture creation (De Carolis, Litzky & Eddleston ,2009) and etc. But in most of them, general importance of networking like social networking in entrepreneurship has been studied and network dimensions have not been paid in detail.

This paper builds on, studying role of network dimensions like network content, network governance and network structure on entrepreneurial opportunity, based on Companys and McMullen's (2007) categorization.

Entrepreneurial Opportunity

Having an entrepreneurial opportunity is first step in entrepreneurship (Casson, 1982). Opportunity is core dimension of entrepreneurship (Busenitz et al., 2003). shane and venkataraman (2000) believed "The field [entrepreneurship] involves the study of sources of opportunities; the process of discovery, evaluation, and exploitation of opportunities; and the set of individuals who discover, evaluate, and exploit them. (Shane & Venkataraman, 2000:218) ". And opportunity is those situations in which new product, service and raw material and organization process for selling are introduced. (Casson, 1982).

According to field and taken perspective, Opportunities can be defined in different ways. Two most important definition of it back to Schumpeter (1934) and Kirzner (1979), in which , Schumpeter (1934; 1942) defined opportunity as new combination of resources which can be form of new raw material , new process of production and new method in organizing and marketing in new geographical area. According to him entrepreneurs are equal to innovators and entrepreneurs create opportunities. In this view environmental changes just create information through which entrepreneurs can recombine resources to get more value. Individual with new knowledge can buy valuable material in low price and recombined and sell them in higher prices. (Shane , 2003).

Kirzner (1979) defined opportunity as market imperfection knowledge and believed innovation and recombination of resources are not necessary for entrepreneurship. In this view entrepreneurs are those who get benefit from information asymmetry in environment, and for being entrepreneurs one needs just have different access to this information. In other word, he believed to opportunity discovery not opportunity creation.

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Others as well, conveyed definitions about opportunity such as Venkataraman and Sarasvathy (2001:652) who imply an entrepreneurial opportunity as consisting of "the opportunity create future economic artefacts and as such, involves a demand side, a supply side, and the means to bring them together". According to Stevenson and Jarillo (1986) opportunities are favorable and positive situations that though the process lead to action. So opportunities are situations which initiated by business idea and can lead to run a firm or improve current position of existing business. (Christensen et al., 1994). Shane (2003) defines an entrepreneurial opportunity as 'a situation in which a person can create a new means-ends framework for recombining resources that the entrepreneur believes will yield a profit' (p.18).

According to shane and vankataraman(2000) , as far as entrepreneurial opportunity needs identification new Means-Ends relationship, it is different from others opportinities those increase efficiency of existing product , raw material and organization process in organizations by optimization of existing means-ends framework. (Kirzner, 1997).

Process of opportunity

Zahra, Korri and Yu (2005) cited whenever exploitation of opportunities take place, opportunity actually has been created. And both of them are required for run a new business. Opportunity identification includes creation and discovery of opportunities and exploitation is doing action for taking advantage of opportunity is including refinement, evaluation, implementation and commercialization. (Bengtsson et al., 2005).

Opportunity exploration and exploitation are part of entrepreneurial process that has been divided into three phase: entrepreneurial phase, in which opportunity identification take place, second phase is Business start up phase in which individuals are looking for resources to run a business. This phase encompasses some activities like looking for suit supplier, funding and register a firm as well relation with institutions for get more support in other word in this phase opportunity exploitation take place. And finally third phase is ongoing business phase in which new firm look for way to having more growth. In this phase New venture use inter organizational network for getting more support and reach to growth (Butler and Hansen ,1991)

Measuring and duration of opportunity

One of the important factors in opportunity literature is knowing about how opportunity can be measured. For this, scholars have given several ways. First way is, opportunity that has lead to run a business or exchange agreements (Chandra, Styles & Wilkinson, 2009; Ellis, 2011) that is a totally objective way for it. And second one that is more subjective and is related to asking about opportunities from entrepreneurs. Asking about the probability of recognizing new business opportunities in the near future (Arenius & De Clerq, 2005), to count the number of new venture opportunities they have perceived recently (Singh, 2000) or to evaluate their alertness to opportunities generally (Ozgen & Baron, 2007)

Another important factors is duration of opportunities in which some factors such as provision of monopoly rights, rate of information diffusion, being imitable , have influence on it. Hereby existence of patent protection, slowness in information diffusion and inability of others as well inability to find substitute and rare resources increase duration of opportunity (Shane and Vankatarama,2000)

Schools of Opportunity

According to Whetten's (1989) journalistic questions of theory development (i.e., who, what, where, when, why, and how), Companys and McMullen ( 2007) suggested three distinct schools of entrepreneurial opportunities for getting better understanding about opportunity exploration and exploitation. Their typology has been built on changes in data about material resources which affect on possibility of production by enabling new possible solution to existing problems. First school is economic school in which involved individual in production and consumption goods and services find a solution by their knowledge for certain problems. According to this school opportunities are objective thing in the world and are waiting for discovery. It refers to how opportunity is recognized. Economic opportunities include material innovation of both technological and market opportunities in which opportunity initiate by change in information about material and is related to distribution of information and individuals just should through systemically searching (Kirzner, 1973), and exploit it by learning and innovation. (Denrell et al., 2003)

Second school is cultural cognitive school, which is referred to different interpretations of data. Opportunity as subjective in nature in this school needs interpretive process to be discovered. And individuals in this school should be engaged in process of sense making to discover opportunity. In other word, cultural cognitive opportunities are cultural innovations which introduce by both producer and consumer in result of change in their preference. Definition of opportunity in this school depends on interpretation of individuals, and it need mental scheme to find and exploit the opportunity (Companys and McMullen , 2007). However like economic school this school as well believes in distribution of information but it says knowledge is distributed culturally grounded in societal systems of meanings and understandings. So according to this school opportunities are not exist and waiting for discover and, instead, individual should construct them systematically by borrowing and combining cultural schemas and templates to develop new meanings and understandings (Swidler, 1986). To sum, the cultural cognitive school views entrepreneurial opportunities as subjective phenomena that are defined and enacted by entrepreneurs through social interaction

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Third school is related to sociopolitical school that refers to changes in who is interpreting the data. In this school opportunity has been viewed as both objective and subjective in nature. Depend on level of analysis, if focus is on change in data opportunity will be objective in nature and if focus is on interpretation opportunity will be subjective. So scholars in this school believed when opportunity is embedded in network structure will be objective and when individual for exploitation it needs political skill it will be subjective (Companys and McMullen , 2007). Change in interpreter is source of opportunity. In other word, sociopolitical opportunities encompasses network opportunities resulting from structural attributes of social networks and political opportunities related to change in governance structures of networks. Therefore, in this school network defines the opportunity and the actor's ability to perceive and exploit it. Network position determines the critical resources and information (Burt, 1992). And the part that needs to mobilization of resources in network structure refer to governance mechanism and convenience other actors to exploit the opportunity refers to political skill and is related to subjective part of opportunity (Companys and McMullen , 2007).

Discovery of opportunity

Opportunity exploration is process to identification of opportunities which includes activities such as search, discovery, creation and running across problems. Although opportunities always exist but getting profit from it needs opportunity recognition. In spite of existence of opportunity in all through the world but it is not obvious for everyone (Hayek, 1945). Researchers believed having prior knowledge and cognitive properties are reason why some people can discover opportunities while others cannot. So information corridors and cognitive properties are two important factors in opportunity recognition.(shane and vankataraman , 2000)

Information corridors imply to stock of information that individuals have and it create mental scheme which help them to recognize new information. In this part prior knowledge play an important role. According to Becker & Murphy (1992) having special information is more useful than general information.

Cognitive properties: As it has been cited before, entrepreneurial opportunities are related to finding new mean-ends relation, but having just new information maybe lead to fail if individuals can not to find new means-end relationship. (Busenitz & Barney, 1996; Kaish & Gilad, 1991; Shaver & Scott, 1991) , finding this relations need a kind of cognitive ability to find it. Cognition in baron's view is defined as "the processes through which information is entered into memory, processed, and retrieved for later use" (Baron , 2008).

Environmental scanning techniques and creativity enhancing methods are as well two important factors in opportunity recognition (Stasch, 1990). In addition some scholars believed, personal characteristic like optimism, creativity, (Ardichvili et al., 2003), taking risk (kirzner , 1979) and entrepreneurial alertness , (Ardichvili and cardozo., 2000) are important in opportunity recognition. Optimism increase self confidence and belief in solving every difficult problem. (Ardichvili et al., 2003). And finally, entrepreneur's networks have been considered as most important factor in opportunity recognition. (Singh , 2000.)


In entrepreneurship process opportunity recognition is necessary but not enough. In addition to opportunity recognition, Opportunity exploitation is necessary in entrepreneurial process. Opportunity exploitation is activities that are done to take advantage of opportunity and entail activities such as refinement, evaluation, implementation and commercialization. Nature of opportunity such as entailing high value (shane and vekataraman , 2000) and individual characteristic like, risk taking , ambiguity bearing, willingness to exploitation affect on opportunity exploitation (Khilstrom & Laffont, 1979). High expected value like amount of demand, profit margin of industry , life cycle of technology , competition in opportunity , cost of capital and population -level learning are another important factors in exploitation of opportunity(shane and vekataraman , 2000). According to Aldrich and Zimmer (1986) social ties by increasing probability of resource acquisition, will help probability of opportunity exploitation. Having related and useful prior knowledge and experience increase probability of opportunity exploitation by reduce of cost of it. (shane and vekataraman , 2000). Andersson et al. (2005), believed opportunity exploitation as well depend upon firm's position in network.


Today, in turbulent environment having social and business contact are crucial for growth and success in market. And taking the advantages without networking is very difficult and always impossible even for flexible and big organizations (Vasilchenko and Morrish , 2011). As time goes, successful execution of strategies are rely more on networking and making innovation and commercialized it depend upon companies embededness in networking. (Elfring and Hulsink 2003; Kelly 2000). Beside, Entrepreneurship does not take place in a vacuum, and involves economic actions between actors and based continues interaction in social relationships (Birley, 1985). As far as network offer access to power, information, knowledge, capital, advice, social support and as well collaboration with other network, it has been viewed as one of the most important issues in entrepreneurship literature. According to Ostgaard and Birley (1996) Networking, as well, can help business to overcome their lackness and accelerate opportunity recognition and exploitation (Vasilchenko and Morrish , 2011).

According Kontinen and Ojala (2011) formation of network can be active or passive. In Active perspective entrepreneurs always search for new network relations proactively or try to utilize existing networks. In this view sellers commence the networking. In reactive view, networking initiated by buyer and entrepreneurs reactively responds to existing network.

Network construct

According to, Hoang and Antoncic (2003) based upon existing literature in networking there are three essential components of networks: the content of the relationships; the governance of these relationships; and the structure or pattern that emerges from the crosscutting ties. Content of network content is related to what is transferred between actors (Hoang and Antoncic ,2003). According to Carson (2001) Content of network has been classified into two groups: inter-organizational networks (also called business networks or formal networks) and personal networks (also called social networks or informal networks) (Carson, 2001). There are different types of relation in network content such as formal, informal and intermediary ties. (Kontinen and Ojala , 2011) . Informal ties are those relations that relate friends and family member to each other's (Coviello, 2006). And formal ties exist between individual business partners (Ojala, 2009). In Intermediary ties, third part in network facilitates relation between them. (Ojala, 2009).

Second construct in networking literature in governance mechanisms. That refers to coordination issues in network exchange. Network governance is related to how actors related to each other's and structural embeddedness. (Jones et al., 1997). Most important factor in governance mechanism is trust that improve quality of resource flow between in this contrast (Larson, 1992), Mutual trust as a governance mechanism is relying on belief in other partners. (Hausler et al., 1994) .Moreover, power , influence and threat of ostracism and loss of reputation are another important issues (Hoang and Antoncic ,2003).

And finally, third construct is network structure. That has been defined as "the pattern of relationships that are engendered from the direct and indirect ties between actors." (Hoang and Antoncic ,2003). One of the crucial elements in it is network size that has been defined as the number of direct link between actors. Another measure of network structure is centrality which like size is about ability to access or control resources through direct and indirect links. In other word, size and centrality in network is used as measure of amount of accessible resources for entrepreneurs but other measures have influence on diversity of resources. Strength of ties is another measure in network structure. Other measures in network structure are density and heterogeneity base measures. Density in network has been measured by extent to which an actor's contacts are interconnected. Increasing density in network will decrease probability of access to new information and resources will be reticulate between actors in network. Heterogeneity of resources decreases possibility of getting new information. (Hoang and Antoncic ,2003).

Strength of ties

According to Granovetter (1973) strength of tie, independent of network type (formal, informal and intermediary- Söderqvist and Chetty (2009) , is divided into weak and strength ties. For instance ties between family member or friends is considered strong tie while are informal. (Hofferth, Boisjoly and Duncan, 1999). According to Kontinen and Ojala (2011) scholars have found several perspective for finding strength of tie such as number perspective in which there are some measure like closeness (Marsden & Campbell, 1984), trust (Elg, 2008; Jack, 2005;Morgan &Hunt, 1994; Singh, 2000),mutual respect (Jack, 2005), and commitment (Hite, 2003;Morgan & Hunt, 1994). Another perspective is use of frequency and duration perspective. According to söderqvist and Chetty (2009) strong tie has been defined as one which is close , based on trust , mutual respect and commitment, while in weak tie there is no strong trust between actors and actors in it don not know each other's well and closeness is not emotionally in it.

Through weak ties individuals and firm can reach to new information and resources (Granovetter,1973). As well in weak ties individual can get benefit through bridging between actors in structural holes (Burt, 1992) Weak tie can help entrepreneurs for getting more valuable information and resources (Singh, 2000) and new idea (Burt ,2004) . Strong tie, in other hand, is more trustable and high reliability, and more available. Granovetter (1992) however partners in strong tie because of high trust can offer valuable advice (Singh, 2000). Strong tie is very important in success conduction of entrepreneurs than weak ties (Kontinen and Ojala , 2011).


Today, values creation in turbulent environment has been dealt with serious challenge (Hitt et al., 2001) and getting benefit from this situation needs entrepreneurial strategies and structures. Scholars, who believed in objective opportunities, take adaptive strategies corresponding environmental contingencies. And scholars who believe in opportunity as subjective in nature focus on proactive strategies for exploitation of opportunities (Companys and McMullen , 2007).

In content of network, informal network can help individual for identification, as well having informal network and taking part in professional forum can help people in opportunity exploration. In exploitation of opportunity formal networking is more useful than informal when opportunity is objective in nature. As well as having formal network will help entrepreneurs in exploitation of opportunity which are cognitive cultural and informal relationship increase political skill of entrepreneurs in convincing them for exploit the opportunity. According to Birley (1985) informal network can help entrepreneurs by helping them in assembling raw materials, supplies, equipment, space, employees and orders. And formal networks like relation with bank and other institutions can help them in exploitation of opportunities. Butler and Hansen (1991) social network is usually used for opportunity identification and business network are used for exploitation of opportunity.

When network governance mechanism is mater, Mutual trust in networking can help probability of opportunity identification and by having political along with mutual trust exploitation of opportunity will be facilitated.

In structure of network , increasing actors in network , having weak ties , making a bridge in structural hole and heterogeneity will increase probability of opportunity recognition . And for exploit the opportunities more dense, diverse, and strong tie is useful . Greve (1995) found use bridging to new contact can lead to new information and experience that is important for opportunity recognition. According to Hilss and his colleagues (1997) weak ties are very important for identification of opportunity. Singh (2000) found however recognition of new venture opportunity is more rely on social network and weak ties but when successful opportunity come to mater both strong and weak tie become important . furthermore, According to Ozgen and Baron (2007) as far as Entrepreneur's alertness , schema strength and self efficacy is three important factor in opportunity recognition , having informal industry network and involving in professional forums and weak and informal ties help individual to be exposure more to opportunity. professional forum also strengthen mental scheme and informal industry network can improve individual's self efficacy by increasing belief in their self.