Two Indonesian Case Studies Commerce Essay

Published: Last Edited:

This essay has been submitted by a student. This is not an example of the work written by our professional essay writers.

I will divide the background and rationale of this research into six sections. The first five will mainly discuss, through a literature review, the theoretical debates that will shape the rationale (research topic and locus) of my research, while the last one will describe the significance of it. In the first of those five sections, I will begin reviewing entrepreneurship studies to date and outline the different perspectives that prevail in this field. It will be followed, in the second section, with an outline of Schumpeter's idea on entrepreneurship and economic development, which will be used as the core theory of my research. This section will also discuss the role of entrepreneurship in economic development per se. In the third section, I will present a historical overview of the studies that relate entrepreneurship to culture. Then, I will primarily discuss, in the fourth section, three central themes that have inspired cross-cultural research, all of which are interrelated. This section will start with an introduction describing how economists perceive culture and why the topic is shared between various academic disciplines.

Finally, in the fifth section, I will discuss why it is important to conduct this kind of study in developing countries, the kind of entrepreneurship my particular study will focus on, and why I choose Indonesia as a research location. I will start by discussing why SMEs are characterised as the dominant carriers of entrepreneurship in developing countries. The discussion is extremely important for the research, as it will serve as a starting point to clarify the type of entrepreneurship that will be my focus and the type of entrepreneurs who will be involved with this research. The fifth section will end with an overview of Indonesia's cultural diversity and of the state of entrepreneurship studies in the country.

An Overview of Entrepreneurship Studies

It must first be acknowledged that a generally accepted definition of entrepreneurship does not exist (OECD, 1998; Van Praag, 1999; Lumpkin & Dess, 1996; Bull & Willard, 1993). Table 1 is a summary of some of the most common and influential ideas about what entrepreneurs do.

Table 1

Definition List of Entrepreneurship



The entrepreneur is coordinator and arbitrageur of the economy and within a firm.

(Cantillon, 1931/1755; Say, 2001/1803; Marshall, 1920/1890; Walras, 1954/1874)*

The entrepreneur is the innovator who implements change within markets through the carrying out of new combinations. These can take several forms:

the introduction of a new good or quality thereof,

he introduction of a new method of production,

the opening of a new market,

the conquest of a new source of supply of new materials or parts, and

the carrying out of the new organization of any industry.

(Schumpeter, 2004/1911)*

Entrepreneurs attempt to predict and act upon change within markets. The entrepreneur bears the uncertainty of market dynamics.

(Knight, 1964/1921; 1942)*

The entrepreneur is the person who maintains immunity from control of rational bureaucratic knowledge.

(Weber, 1947)*

The entrepreneur is always a speculator. He deals with the uncertain conditions of the future. His success or failure depends on the correctness of his anticipation of uncertain events. If he fails in his understanding of things to come he is doomed.

(von Mises, 1996/1949) *

Entrepreneurial activity involves identifying opportunities within the economic system.

(Penrose, 1980/1959)*

The entrepreneur recognizes and acts upon profit opportunities, essentially an arbitrageur.

(Kirzner, 1973)*

Entrepreneurship refers to a firm's actions relating to product-market and technological innovation.

(Miller, 1983)**

Entrepreneurship is creation of new combinations.

(Kanter, 1985)**

Entrepreneurship is the act of innovation involving endowing existing resources with new wealth-producing capacity.

(Drucker, 1985)*

Entrepreneurship is the process of new venture creation; the process by which new organizations come into existence.

(Gartner, 1985; 1989a)**

Entrepreneurship is the practice of creating or innovating new products or services within existing businesses or within newly forming businesses.

(Schuler, 1986)**

The process by which individuals - either on their own or inside organizations - pursue opportunities without regard to the resources they currently control.

(Stevenson & Jarillo, 1989)**

The process by which firms notice opportunities and act creatively organize transactions between factors of production to create surplus value.

(Jones & Butler, 1992)**

Entrepreneurship talks about the pursuit of an opportunity irrespective of existing resources.

(Krueger & Brazeal,


The essential act of entrepreneurship is new entry. New entry can be accomplished by entering new or established markets with new or existing goods or services. New entry is the act of launching a new venture, either by a start-up firm, through an existing firm, or via 'internal corporate venturing'.

(Lumpkin & Dess, 1996)*

The field of entrepreneurship involves the study of sources of opportunities; the processes of discovery, evaluation, and exploitation of opportunities; and the set of individuals who discover, evaluate, and exploit them.

(Shane & Venkataraman, 2000)*

Entrepreneurship relates to the process of creating a new venture.

(Kouriloff, 2000)**

Entrepreneurship is the creation of a new enterprise.

(Low, 2001)**

Entrepreneurship is a context dependent social process through which individuals and teams create wealth by bringing together unique packages of resources to exploit marketplace opportunities.

(Ireland, Hitt & Sirmon, 2003)*

*As cited in Ahmad and Seymour (2008). **As cited in Shahidi and Smagulova (2008).

From the table above, we can see how entrepreneurship as a definition evolved. Although chronologically Schumpeter's definition first introduced in 1911 embodies the characteristic of entrepreneurship that is widely recognized today, thus credited as the first modern interpretation of the concept, the debate regarding a universal definition of entrepreneurship continues. Nevertheless, this debate has instead given rise to a number of new themes to the concept of entrepreneurship, which includes the risk-taking role of entrepreneurs, the role of innovation or the creational process in entrepreneurship, the arbitrage role of the entrepreneur, and the relationship between the process of change, emergence, or creation, with entrepreneurial activity. A famous example of this debate can be seen in one of Gatner's (1989) papers wherein he discusses how entrepreneurship and entrepreneurs should be defined.

As a result, the study of entrepreneurship by itself is becoming highly diverse and complex (Verheul, Wennekers, Audretsch & Thurik, 2002; Gregoire, Dery & Bechard, 2001), involving a variety of disciplines outside economics to its field, such as psychology, anthropology, sociology, and management (see Figure 1).

Figure 1

Bases of Entrepreneurship Theory Building

(Source: Barreira, 2010, p. 2)

Entrepreneurship research has also included individual, group, organization, industry, and society within its level of analysis (Low & MacMillan, 1988). The research topic seems to have an expanding trend, discussing issues such as gender, ethnicity, migration, social capital, culture, or religion. This diversity is further complicated by the proliferation of subcategories of entrepreneurship research, which introduce additional terminology such as 'venture capitalist', 'corporate entrepreneurship', 'corporate venturing', 'intrepreneuring', 'internal entrepreneurship', and 'venturing' (Sharma & Chrisman, 1999). This is why any effort to condense this broad range of understandings of entrepreneurship into a single definition is dubious (Falcone & Osborne, 2005).

Hans Landstrom (2005a) argues that this diversity is due to the time discrepancy of interest among researchers on entrepreneurship studies, which are linked to societal economic development at a particular time. He refers to these periodic historical shifts of interest in entrepreneurship research as 'swarms' and classifies them as follow:

Table 2

The Linkage between Societal Development and Entrepreneurship Research

(Source: Landstrom, 2005a, p. 16)






Mechanized factories and railways

Economists (Austrian/German researchers)

Entrepreneurship as a function of the market - the ability of the entrepreneur to perceive opportunities for profit


Modem industrial society


(USA/Austrian researchers)

Entrepreneurship as a function of the market - the entrepreneur a creator of instability and creative destruction


Electrification and automobiles

Behavioural Scientists

(US researchers)

The entrepreneur as an individual (traits)



Management Studies

(mainly US researchers)

Entrepreneurship as a process

Landstrom furthermore explains that entrepreneurship has historically evolved to become a multidimensional concept (Landstrom, 2005a), where each definition depends largely on the disciplinary approach, the focus of the research undertaken, and the level of analysis (Bosma, Zwinkels & Carree, 1999). According to Verheul et al. (2002), all of these existing definitions can be categorized into two broad perspectives: the supply and the demand perspective. Commonly these are also referred as the pull and push factors of entrepreneurship (Vivarelli, 1991). NB do not use commas in references

The demand side perspective emphasizes its studies on entrepreneurship opportunities created by the diversity of consumers' demand or the industrial structures. Its supporters highly consider the influence of technological developments and government regulations as being central for their research. Meanwhile, the supply side perspective highlights the characteristics of the population or demographic compositions within a particular country as important subjects to be studied. Examples of those characteristics are the influences of cultural and institutional environment on individuals, as well as their attitudes towards entrepreneurship.

Economics Development and Entrepreneurship

In spite of this somewhat chaotic state of the literature, if we want to talk about entrepreneurship and its role in economic development, then Joseph Schumpeter is unquestionably the right person to look at. Schumpeter (2002/1911, 2003/1911) was perhaps the first economist who used the term 'economic development', even before Harry Truman politically introduced it in his inaugural speech, to explain the changes and the dynamic of economic process. Indeed, economics at his time did not deal with dynamic phenomena, and therefore, theories that may explain the process of economic development had not yet been recognised. Schumpeter believed that the economy ". . . does not grow into higher forms by itself" (Schumpeter, 2003/1911, p. 75). Static theory, according to Schumpeter, overlooked the increase in population, capital growth, technological advancement, organizational transformation, and consumer preferences, which are all crucial for the development process.

In his Theorie der Wirtschaftlichen Entwicklung, originally published in 1911, Schumpeter (2002/1911) successfully pictured a dynamic model of economy that distinguished two types of changes, namely 'development' and 'adaptation'. Development deals with changes from within the economic domain, or in his own words, ". . . changes in economic life that are not forced upon it from without, but arise by its own initiative from within" (Schumpeter, 2002/1911, p. 145). Development involves the transfer of capital from old business to a new one by utilising established method of production to create innovative approaches. For Schumpeter, adaptation is the opposite of development and relates more to changes that are not "qualitatively new", such as growth in population or growth in wealth (Schumpeter, 2002/1911, pp. 405-406).

Adaptation, according to Schumpeter, occurs because of a static process, a process that has no change at all, or an automatic change that is fuelled by outside forces of the economy. Schumpeter deemed the characteristic of humanity as static. While people are always eager to earn extra money and work very hard in what they do, they only act within given limits and never do anything radically new (Schumpeter, 2002/1911, pp. 111). If change happens, Schumpeter argued, it is only because something has happened outside the economy, and for their survival, they have to adapt. He believed this static behaviour is caused by a static social environment that tends to react negatively to something that is deviant in nature (the sociological factor) and by the resistance to new things felt individually by the economic actors themselves (the psychological factor).

Human action is illogical. For that reason, Schumpeter rejected the concept of the 'rational economic man', since it is only appropriate for a static economy not for economic development. Development instead needs 'deviant' people who are equipped with various new ideas, as well as the ability to convert those ideas into action. He repeatedly described, in his chapter two of Theorie der Wirtschaftlichen Entwicklung, this kind of individual as the 'man of action' [1] who does not accept reality as it is and is willing to fight against any odd or obstacle. Schumpeter then identified this person as the entrepreneur, and characterised him not as an inventor, but instead as an innovator who introduces "new ways of using existing means" or "factors of production" (Schumpeter, 2002/1911, p. 409). The entrepreneur's talent, as noted by Schumpeter, consists of abilities to think and do something intuitively rather than rationally, and a good entrepreneur always chooses the right intuitive choice. In short, entrepreneurs for Schumpeter are the true agents of economic development, and development will cease to exist without them (Schumpeter, 2003/1911, p. 76). These entrepreneurs creatively destroy the static economic equilibrium to create a new one.

In the early 1960s, development economists started to realise that there was something missing within the development theories, and it was not just organisational in nature but more to do with the actors themselves (agency). To remedy the muddled situation, Benjamin H. Higgins (1968, p.105) put a case in his book by stating that in or currently developing countries "[t]he lack of adequate entrepreneurship is one of the most frequently cited obstacles to take-off". He suggested that economists should return to Schumpeter's Theorie der Wirtschaftlichen Entwicklung in order to understand that:

. . . [although it] appears true that the relatively small entrepreneurial group in [developing countries] frequently consists of a deviant class [such as] the Chinese in Southeast Asia, the Hindus in East Bengal, the Jews in Libya, the Indians in Africa, and so on[,] . . .[it] also raises doubts about the possibilities of successful development in [such] countries which start with a climate inimical to entrepreneurship (Higgins, 1968, p.105).

During those years, economists and policymakers began to recognise Schumpeter's vision in relation to economic development (Adelman, 2001). This was due to the observation of serious limitations in the capacity to absorb foreign development assistance in many developing countries, which led to a failure in inducing sufficiently rapid growth in many privately owned and managed industries. There were simply not enough potential entrepreneurs willing and able to undertake development projects in those countries. This situation gave a path to the re-emergence of the Schumpeterian school of economic development that studied the social origins of entrepreneurship. It also influenced the new socio-cultural school of economic development headed by McClelland (1961) and Hagen (1962) that analysed the sociocultural and psychological barriers of entrepreneurship among developing countries, particularly in relation to the differences of entrepreneurial traits among different cultures.

Both schools argued that governments should foster the development of entrepreneurship by subsidising private investment in order to artificially increase the rate of return, by generating joint ventures with the private sectors, and finally, by sponsoring various curricula on entrepreneurship channelled through their education systems. These arguments led to the establishment of the International Finance Corporation within the World Bank Group, which served to finance private entrepreneurial activity in developing countries. Numerous aid programs also started to route their funds into various education programs specifically dedicated to the preparation of potential entrepreneurs and policymakers in those countries. The World Bank at that time, in 1955, created its own institute committed to teach economics and management, named the Economic Development Institute. It was renamed as the World Bank Institute (WBI) [2] in 2000.

The Advent of Socio-Cultural Entrepreneurship Study

Traditionally, classic philosophers before Schumpeter condemned entrepreneurs because of their thirst for profit (van Praag, 1999). This view is consistent with Aristotle's vision, which perceived economic activity as a game wherein one man's gain another man's loss. Thus, at that time, entrepreneurs were seen as robbers instead of heroes. However, this condition changed drastically when, in 1755, Richard Cantillon (1931/1755) published his Essai Sur la Nature du Commerce en Général and introduced a rather different perspective on entrepreneurship. According to him, ". . . the exchange and circulation [of capital] of the state is conducted by the actions of these entrepreneurs" (Cantillon, 1931/1755, p. 77), hence, putting them as the key player that arbitrage the economic system.

Since Cantillon's posthumous and anonymous publication, the role of entrepreneurs was recognized and the study of entrepreneurship was becoming increasingly prevalent within the field of economics. For instance, Jean-Baptiste Say, an influential classic economist who was highly influenced by Cantillon's Essai, argued that economic advancement requires both entrepreneurs and the accumulation of capital. Attacking Aristotle's zero-sum game, Say (2001/1803, p. 26), in his Treatise on Political Economy (originally published in 1803), wrote that economic activity gives existing materials a utility they did not possess before and coined this kind of activity as the production of wealth. According to him, entrepreneurs' job is to put forward this kind of production in order to improve the economy of a nation, since they are the only economic agents that possess the creativity, ideas, imagination, and innovation to do it (Say, 2001/1803, p. 33).

Late 19th century neoclassical economists, led by Alfred Marshall [3] , also paid considerable attention to the theory of entrepreneurship within their economic model. According to Marshall, entrepreneurs drive the production and distribution process, they coordinate supply and demand on the market, as well as capital and labour within the firm (Marshall, 1920/1890). In short, Marshallian entrepreneurs are those individual who undertake all the risks that are associated with production, while leading and managing their firms. Yet, while he recognized the importance of entrepreneurship within his economic model, Marshall, similar to Léon Walras and his famous general equilibrium theory, relied heavily on his famous intersecting curves of supply and demand when explaining Smith's invisible hand in equilibrating the forces of the market. Marshal put the entrepreneurs on both of his curves, the supply side when they act as producers and the demand side when they act as distributors and marketers, and used the aggregate price to link the two, making entrepreneurs disappeared from the view, replacing their position to be only as buyers and sellers in the economy (Casson, 2003). This is why neoclassical economists today consider the market as a given black box, which records every competition among economic agents (i.e. buyers and sellers), that produces a set of equilibrium prices and product quantities as their recording material, and firmly lock entrepreneurship inside it to be merely as competitive buyers and sellers (Richardson, 1960).

Despite of this, comprehensive socio-cultural studies did not receive serious attention until the latter half of the twentieth century (Landstrom, 2005a, 2005b; Swedberg, 2000, 2006a). Stewart (1991) even suggested that anthropological studies on entrepreneurship only started to flourish after the Second World War, and thus places it as merely a post-war phenomenon. Those studies reached their peak through the 70s and were largely divided into two main interest focuses, namely on social change and economic development. Two seminal authors mainly fuelled this flurry of interest (Macdonald, 1965; Thornton, 1999; Brouwer, 2002; Carr, 2003; Swedberg, 2009; Lalonde, 2010). The first was Alexis de Tocqueville (2003/1835) with his ideas on the importance of institutional and socio-cultural factors in analysing the degree of entrepreneurial activity of a given society, and the second was Max Weber (1930/1905) with his thesis on the significance of value systems in explaining entrepreneurial behaviour.

Alexis de Tocqueville (2003/1835) observed, in his 1831 journey, that the United States was a place where work was highly valued and industriousness was an ethic. He also witnessed how Americans enthusiastically pursued money, compared to Europe at that time. According to him, the poor in Europe had no hope for prosperity and wealth no matter how hard they worked, and the rich upper class worsened the situation, giving bad influence to the poor, suggesting that it was ludicrous for them to seek wealth (Ondracek, Bertsch & Saeed, 2011).

On the other hand, Weber (1930/1905), through his well-known The Protestant Ethic and the Spirit of Capitalism published in 1905, theorized that capitalism and its agent, the entrepreneur, was the consequence of the belief system of particular Protestant sects, especially Calvinism. He argued that Calvinism, with its doctrine of double predestination, had unintentionally provided beneficial economic consequences. Weber believed that self-confidence and worldly success is taken as a signal of God's favour and salvation by Calvinists (Milner, 1970). Compared to Alexis de Tocqueville's Democracy in America first published in 1835, Weber's Protestant Ethic and the Spirit of Capitalism clearly linked culture (manifested as religion), entrepreneurship, and economic development, and hence, it has served as a foothold for subsequent socio-cultural studies on entrepreneurship and economic development.

Similar to Weber and his other contemporaries in the historical school of economics (see footnote no. 4), the theoretical work of Joseph Schumpeter also sets culture as a determinant of entrepreneurship. In his famous Capitalism, Socialism, and Democracy, Schumpeter (2006/1947, p. 132) noted that the main function of the entrepreneur in economic development is to bring innovation forward through carrying out of new combinations. In the same page, he also listed five types of what he meant as new combinations, which are by (1) introducing new good or quality; (2) introducing new methods of production; (3) opening a new market; (4) searching a new source of supply of new materials or parts; and (5) carrying out new organization of any industry. Schumpeter (2004/1911) believed that innovation itself depends on the rate of profit, and most importantly, the social climate. According to Higgins (1968, p. 94),

Schumpeter's concept of the "social climate," a complex phenomenon reflecting the whole social, political, and socio-psychological atmosphere within which entrepreneurs must operate. It would include the social values of a particular country at a particular time, the class structure, the educational system, and the like. It would certainly include the attitude of society toward business success, and the nature and extent of the prestige and other social rewards, apart from profits, which accompany business success in the society.

Culture: Questions for its supporters

Following our previous discussion, we should however understand that "[to] economics, or at least the version of economics that became dominant in the twentieth century [the neoclassic economics], culture is a very strange animal indeed" (Beugelsdijk & Maseland, 2011, p. 15). Out of the three authors who pioneered the socio-cultural study on entrepreneurship, only Schumpeter is widely considered as an economist and sociologist, whereas the other two, particularly Weber, are only regarded as sociologists. This is something that is undeniably paradoxical. Swedberg (1996) put a note that although Weber, along with his colleagues, considered himself as an economist, later generations, such as Talcott Parsons, introduce him as a sociologist instead. Even Blaug (1986, p. 872), in his second edition of Who's Who in Economics, writes that Weber is ". . . one of the major figures in sociology", not economics. It seems that neoclassical economics as the dominant stream, which claims the power to control anything that belongs to economics or not, has cast Weber out from economics because, perhaps according to it, his broad and historical approaches are more sociological than economical in nature (Swedberg, 1996). The development of economics and sociology as separate disciplines has indeed been described as a turf war, particularly before they separated thinkers such as Max Weber, Karl Marx, and Émile Durkheim as sociologists.

Economics [4] undeniably positions culture outside the realm of its instrumental design. According to the discipline, culture is inherited and given to individuals, and making its effect to be considered as caeteris paribus or is held as a constant variable (Sahlins, 1976). If we search through history, this situation takes it root from the 'father' of economics and Capitalism himself. Adam Smith's (2007/1776) famous 'inquiry into the nature' and the ". . . natural course of things" (p. 348) have indeed led to the renunciation of culture in the new discipline he had unintentionally established. He believed that culture is 'unnaturally' constructed, while the materiality and the habits to provision or accumulate matters are seen as supra cultural. In other words, greed is the nature of humanity above all culture. This presupposition is highly reflected through the term of 'homo economicus' or the rational economic man, who, according to the discipline, is the true agent of economics and is characterised as an individual with an innate rationality.

Likewise, Marxism, as an 'antithesis' to Capitalism, also regarded culture as an a priori and a superstructure within their historical materialism (Zein-Elabdin, 1998). These inherited perspectives have consequently force economics to discount culture from its analysis, whilst purporting that various achievements on economic development attained by the west since the Industrial Revolution took place as merely a representation of their natural or historical norm (Zein-Elabdin, 2004). The main goal of economics through its supra cultural structure is to establish what is to be believed as the universal principles of behaviour (e.g. McClelland, 1961). Culture is a limitation for this ambition, as it constitutes worldviews, which implies that there are various ways of perceiving reality, resulting in various logics of behaviour.

This opposition to culture in economics places the socio-cultural study of entrepreneurship or development at the edge of economics, to be shared with various disciplines inside social science as interdisciplinary topics. Moreover, this state of affair has also provided a clear battle line within the research field, which is between those, mostly economists, who are in favour of institutional factors and incentives as their explanation (i.e. the demand perspective), and those, who came from various disciplines in social sciences including economics, who use culture as the basis of analysis (i.e. the supply perspective). Nonetheless, frictions also exist among the supporters of culture and I will discuss these in the following subsections.

Only western culture?

Schumpeter (2004/1911, p. 155) argues that the deviant characteristic of his entrepreneur is without any doubt ". . . stronger in primitive stages of culture than others". Although to some extent he is right, the term primitive culture that he frequently used has sparked another question that I will address at the end of this subsection. Influenced by Schumpeter's words, Black (1963, p. 27) stated:

All we know for certain is that once people become conscious of the possibility of economic development in their society, entrepreneurs start appearing . . . What is true of entrepreneurship is broadly true of all the requisites for economic growth. As more people become conscious of the possibility of a better material life through a different use of their time, energy, and savings, there will be more productive work and more productive savings.

Many early societies indeed valued work as something that belongs to the lower class of the society, and therefore, the innovative entrepreneur was deviant for their social structure. The ancient Indians and in many ancient Indianised kingdoms, for example, put the working class or the shudras at the very bottom of their caste system, followed by the vaishyas who engaged in trade and commerce. The ancient Greeks sneered at crafts and overlooked artisans as well. This can be seen through the Greek-rooted word 'banausic', a pejorative term related to earning a living (Landes, 2000). Both ancient Rome and China also considered people who engaged in productive activity and commercial activity as disgraceful (Baumol, 2004).

Schumpeter believed that for the development of entrepreneurship and the economic development that follows, a culture must first value work. Before the Industrial Revolution took place and before many European enlightenment philosophers and political economist, such as Adam Smith (2007/1776; 2002/1759), Karl Marx (1886/1849), or John Stuart Mill (1999/1859), valued work, economic growth in Europe is estimated to have been approximately zero [5] . This figure change drastically in 18th century England, where the Gross Domestic Product (GDP) per capita is estimated to have grown by 20%-30% and "[i]n the 19th century, this figure rose, perhaps tenfold, to some 200%" (Baumol, 2004, p. 317). In the 20th century, the United States' overall GDP per capita, despite of the great depression, is conservatively estimated to have risen by about 700%. Work and the value of work was definitely a philosophical topic that was warmly discussed and debated by many European classical economists.

It took root from Adam Smith's famous 'diamond-water paradox' or the paradox of value, which originate from the era of Nicolaus Copernicus. The paradox is the apparent contradiction that, although water is more useful to mankind, in terms of survival, than diamonds, diamonds command a higher price in the market. In his famous Wealth of Nations first published in 1776, Smith (2007/1776, p. 18) wrote:

Nothing is more useful than water: but it will purchase scarce anything; scarce anything can be had in exchange for it. A diamond, on the contrary, has scarce any use-value; but a very great quantity of other goods may frequently be had in exchange for it.

He then separates the value of an object according to its usage and exchange, and explained that:

What are the rules which men naturally observe in exchanging them [goods] for money or for one another, I shall now proceed to examine. These rules determine what may be called the relative or exchangeable value of goods. The word VALUE, it is to be observed, has two different meanings, and sometimes expresses the utility of some particular object, and sometimes the power of purchasing other goods which the possession of that object conveys. The one may be called 'value in use;' the other, 'value in exchange.' The things which have the greatest value in use [e.g. water] have frequently little or no value in exchange; on the contrary, those which have the greatest value in exchange [e.g. diamond] have frequently little or no value in use (2007/1776, p. 18).

To conclude his explanation, Smith used labour or work as the fundamental element that determined the exchange value of an object. He believed that "[t]he real price of everything, what everything really costs to the man who wants to acquire it, is the toil and trouble of acquiring it" (Smith, 2007/1776, p. 20). Smith's position on value gave fuel to two isms in economic thought, namely marginalism and Marxism (Setiawan, 2007).

Ondracek et al. (2011) argues that an economy will certainly collapse if a culture only values wealth but devalues productive works, those who work, and their entrepreneurs who do those productive works. In many societies, particularly after the Industrial Revolution took place, the appreciation of work is an upshot of various political and social revolutions, where the influence of such events spread rapidly throughout each society. In the western part of Europe, the French Revolution saw a reordering of society, cleaning up the old spoiled aristocracy. The Communist Revolutions in Russia and China help the resurgence of a pro-work culture. It has swept away to some extent the ancient deep-rooted attitudes and the affectation against productive work. Compared to the west (the European and North American), Baumol (2004, p. 318) believes that what is missing from the economy of various developing countries is indubitably ". . . the productive entrepreneur, working under the incentives to innovate that derive from the powerful mechanism of the competitive market". In the same paragraph, he also put a note that in the west, the

. . . entrepreneur has not only become respectable, but has also assumed the attributes of a hero, although, as in all subtle tales about heroes, with a mixed and not altogether unsullied character (Baumol, 2004, p. 318).

We should however realise that Baumol's last argument, as well as previous statements quoted from Schumpeter and Black, irrefutably possess "…a sulfuric odor of race and inheritance, an air of immutability" (Landes, 2000, p. 2). For instance, the term primitive culture used by Schumpeter is by itself highly western ethnocentric. Western writers, at his time, usually used the word 'primitive', 'savage', or 'barbaric' to denote peoples outside the stream of Euro-American culture, differentiating those cultures that they assume as underdeveloped with their own 'modern' culture (Hsu, 1964). Furthermore, the notions of better and productive environment, such as noted by Black above, are in fact culturally framed. It points to the idea that modernity is introduced by western culture in order to break the traditional culture of a particular community, by providing surreal opportunities for choice, which eventually reveal that they carry serious risks.

As a result, we could easily put forward questions on the reliability of those arguments on account of their mono-cultural perspective. Does culture, in many developing countries and in its real life context, impede the development of entrepreneurship, and thus, hamper economic development? Do those developing countries need such a revolutionary movement as experienced by France, Russia, or China, in order to recalibrate their culture to accommodate the so-called 'western' entrepreneurial culture?

National culture: The cross-cultural approach

It is only in the last four decades, when for the first time in 1980 Hofstede introduced his famous model on cultural dimension based on national culture, that the relationship between culture and entrepreneurship were empirically studied. Many academics consider the work made by Hofstede as the most famous systematic attempt to study culture and cultural differences. His Culture's Consequence is basically inspired by Inglehart's (1977) research on data collected from the World Values Survey that place culture and cultural changes as the key intervening variables between institutional processes and economic development. He aimed to measure cultural difference between nations by utilizing national culture. His work is based on the largest survey of work values at IBM subsidiaries that was held twice, in 1963 and in 1967 respectively, comprising of 116,000 questionnaires, from which over 60,000 people responded from over 40 countries (Hofstede, 1984/1980).

In addition to Hofstede, there is also a wide range of cross-national empirical studies conducted by various other researchers, such as: Lynn (1991) who studied different national attitudes to competitiveness and money; Mcgrath, Macmillan, and Scheinberg (1992) who examined cultural values shared by entrepreneurs across the globe; or Tan (2002) who studied the impact of culture and national context on entrepreneurs and non‐entrepreneurs (for a complete catalogue of these studies and their measurement tools, see Taras 2008). Nevertheless, compared to those researchers, Hofstede's research has had a more profound effect on academics and practitioners (Jones, 2007).

Hofstede is the most cited Dutch author and the ninth most cited European author according to the Social Science Citation Index of 2001 (Powell, 2006). Since his first publication in 1980, Hofstede's influence has become pervasive and successively developed many offshoots. Even those who reject his theory or conclusions must at least acknowledge his work. His model is taught in classrooms and has been instrumental in the implementation of various social contexts, including cross-cultural issues of entrepreneurship (Verheul et al., 2002; Dawson & Young, 2003; Jones, 2007). Many researchers took up his pioneering study of character based on a huge amount of data enthusiastically, [6] and it has been accepted and adopted quickly within academic and organizational environment ever since (Hayton, George & Zahra, 2002).

Hoftstede defines culture as "… a collective programming of the mind which distinguishes the members of one group or category of people from another" (Hofstede, Hofstede & Minkov, 2010, p. 6) and places value in the core of his onion model of culture, which, according to him, holds a critical feature that distinguishes one culture from another (Hofstede, 1984/1980, p. 18). In regard to cultural change, he believes that the shifting nature of the modern world will only affect the level of practices, not values. Overall, through his cross-cultural studies, he identifies six main dimensions of cultural values, which he claims to affect human thinking, organizations, and institutions in predictable ways. Those dimensions are power distance, uncertainty avoidance, individualism, masculinity, long-term orientation, and indulgence versus restraint. Although these dimensions are "… hypothetical construct[s] [and] … not directly accessible to observation" (Levitin, 1973, p. 492), Hofstede et al. (2010, p. 31) argue that they are the "… aspect of a culture that can be measured relative to other cultures".

However, by assuming that there is a large degree of homogeneity within nation states, as opposed to large differences between nation states, and by considering that national culture is a common component of a wider culture that contains both global and subnational constituents (Hofstede, 1984/1980, p. 29), Hofstede and his supporters overlooked cultural differences between regions within countries (Basu & Altinay, 2002; McSweeney, 2002; Busenitz, Gomez & Spencer, 2000; Didero, Gareis, Marques & Ratzke, 2008). He also tends to ignore the importance and variations of the community (Dorfman & Howell, 1988; Lindell & Arvonen, 1996; Smith, 1998). In fact, in a highly centralized country, cultural systems that exist locally may still dominantly influence the grassroots community's way of life (Pieterse, 2001; Goodman, 2004; During, 2005; Richerson & Boyd, 2005).

Local cultural knowledge serves as the community's primary standard entry requirement that all its members need to acquire. In other words, compared to Hofstede's 'common component' of national culture, the dynamics of culture that exist locally have a greater impact on an individual. Moreover, the evolution of local cultures and their interactions with supporting national policies have also been a key determinant of success that encourages entrepreneurship activities locally (Pieterse, 2001; Shiller, 2005). Hence, aspects contained in a local cultural system along with all of its supporting attributes prevail in building a dynamic atmosphere that fosters entrepreneurship (Roberts, 1991; Todorovic & McNaughton, 2007).

Magala (2004) also heavily criticizes Hofstede's theoretical framework for containing an in-built western bias. He concludes that all of Hofstede's cultural dimensions ​​are highly influenced by western perspectives because only western scientists conducted the entire research process (particularly the empirical data gathering and processing). Hence, if there was any local culture containing dimension at all, which was 'salient' for individuals to identify but 'invisible' to those unacquainted with the local community's 'tacit knowledge', or 'nonlinear' with Hofstede's six dimensions, they went unnoticed or were labelled as aspects of the six dimensions rather than acknowledged as independent factors.

Child and Kieser (1977, p.2) admit that the boundaries in which culture is shared are problematic, thus according to them "… it may make as much sense to refer to a class or regional culture as to a national culture". McSweeney (2002) argues that the limited characterization of culture in Hofstede's work, its confinement within the territory of states, and its methodological flaws mean that it restricts, rather than enhances, the understanding of particularities. As a result, a researcher who wants to understand the national culture of a particular country first needs to recognise the rich and diverse mixtures of its local practices and institutions, rather than assuming their 'homogeneity'. This is why I argue that searches for culture-fit models, such as will be carried out in the course of this research, are much needed to provide understanding on how cultural variables explain the effect of different practices in different cultures within its local context.

The agent of cultural change? [7] 

In the previous sections, I have discussed how culture supports a cooperative social environment that fosters entrepreneurship, and thus, facilitates economic development. Nevertheless, does culture at all times have to take the lead? For economic development to be set in motion, is it always culture first, then entrepreneurship? Is the relationship between culture, entrepreneurship, and economic development constantly one-way and linear in nature? If it is true that entrepreneurs are deviant in nature, as Schumpeter characterised them, it is likely that this deviation can act as the catalyst for cultural changes that may well create a better environment for entrepreneurship, and eventually, enhance overall economic development. In this subsection, I will discuss the relationship between culture and entrepreneurship the other way around.

As I have mentioned before, for Schumpeter the function of entrepreneurs through their innovations is to:

. . . reform or revolutionize the pattern of production by exploiting an invention or, more generally, an untried technological possibility for producing a new commodity or producing an old one in a new way, by opening up a new source of supply of materials or a new outlet for products, by reorganizing an industry and so on (Schumpeter, 2006/1947, p. 132).

Here, entrepreneurs act as promoters of change from 'within' the economic domain that imagines new solutions. As the true agents of economic development, they endogenously (in an economic sense) destroy old ways and replace them with new ones (Schumpeter, 2002/1911; 2003/1911; 2004/1911; 2006/1947). They are fully equipped [8] with various new ideas, as well as the ability to convert those ideas into successful innovations and inventions in order to adjust inferior creations as a whole or in part (for examples see: Kirzner, 1973; Leff, 1979; Baumol, 1990; Heberer, 1999; Boettke & Coyne, 2003; Coyne & Boettke, 2009).

Although mostly motivated by profit, the introduction of new products usually brings along with it an influence, positive or negative, toward altering the society and eventually triggers social and cultural change, such as noted by Schumpeter (2006) below:

Railroad construction in its earlier stages, electrical power production before the First World War, steam and steel, the motorcar, colonial ventures afford spectacular instances of a large genus which comprises innumerable humbler ones-down to such things as making a success of a particular kind of sausage or toothbrush. This kind of activity is primarily responsible for the recurrent "prosperities" that revolutionize the economic organism and the recurrent "recessions" that are due to the disequilibrating impact of the new products or methods. (p. 132)

Schumpeter (2002, 2003) furthermore pointed out that entrepreneurship might also produce rather unique consequences for the society. We can use famous philanthropists and their large private foundations, such as Rockefeller, Ford, or Carnegie, as a straightforward example of this uniqueness.

Those entrepreneurs, because of their wealth, acquired a high social position in society and used this condition to amend socio-cultural structures according to their personal view by means of their philanthropic acts, arguing that change is needed for the advancement of humanity in general. Even today, we can say that many of the so-called social entrepreneurs perhaps will not survive without the funding made by numerous rich philanthropists around the world. For instance, one of Carnegie's grandest philanthropic gestures was when he offered the people of the Philippines $20 million in 1889 to help them buy their independence from Spain and spare themselves from American imperialism (Bishop & Green, 2008). Through their scholarship programs, Ford Foundation as well as many other foundations in developed countries are also responsible for the transfer of western culture to many developing countries. [9] Likewise, Warner Brothers, Walt Disney, as well as other companies that are working in the film industries in Europe or the United States are also responsible for such cultural transfer and the rise of consumerism in those countries. However, beside all of the controversies [10] surrounding their activities, overall I believe that these entrepreneurs did not only create new products or even new business models, but they have undeniably triggered cultural changes worldwide, are pressing forward those kinds of changes, and are doing so consciously in many cases.

From the example above, we can see that the interaction between culture and entrepreneurship is indeed not one-way in nature (Verheul et al., 2002; Steyaert & Hjorth, 2006). Besides being one of the elements orientating further actions, in reality, culture itself is still the product of actions (Parsons, 1949; Kluckhohn & Kelly, 1945; Kroeber & Kluckhohn, 1952; Hodgetts, Luthans & Doh, 2005; During, 2005). Therefore, this condition places culture as a subject of both repulsive and attractive forces of change. Innovations as well as inventions change community's social structures and affect culture internally (Wagner, 1981/1975). They produce changes within a community by modifying social dynamics, which facilitate creative actions in promoting new cultural models. Subsequently, these social shifts, as suggested by Schumpeter, will stimulate ideological modifications and other types of cultural change (O'Neil, 2006). In order to survive, a culture always needs to be re-acceded and re-integrated under the consensus of the community where it belongs (Parsons et al., 2001). And, this is where entrepreneurs who are themselves shaped by culture, can take a critical role in driving cultural changes, no matter how big or small the impact may be from case to case (Heberer, 1999; Coyne & Boettke, 2009).

Unfortunately, many texts [11] that specifically discuss entrepreneurship do not address these complexities, particularly the various issues that emerge from a research context with a highly diverse indigenous culture such as Indonesia (see Low & MacMillan, 1988; Voros, 2007). They avoid the complexities by considering the relationship as simply a one-way interaction, treating questions, such as how cultural attributes affect entrepreneurship and how entrepreneurship through its entrepreneurs acts as a driver of cultural changes, as a separate study or research topic (Peredo, Anderson, Honig & Dana, 2004). My research will fill that gap by studying the relational nature of cultural attributes and entrepreneurship that exists locally within Indonesia. I shall seeks to understand the relationship by describing and analysing local Indonesian entrepreneurs' social actions, and how these actions are guided by various cultural concepts with which these entrepreneurs have grown up, just as the perspective of entrepreneurs in Western countries is influenced by their cultures.

Why developing Country and Why Indonesia?

While the phenomenon and the role of entrepreneurship in the economy have been widely studied in developed countries, studies of entrepreneurship in developing countries like Indonesia are still under-represented (Bhide, 2000). Lingelbach, De La Vina, and Asel (2005, p. 7) even claim that, "Entrepreneurship in developing countries is the most understudied important global economic phenomenon today". The presence of mainstream development theories and neoclassical theories of entrepreneurship in those countries has exacerbated this situation. They maintain and propagate their own narrow view by promoting the universality and superiority of their western model (Kayed, 2006). Both have failed to make a real contribution to the developmental aspirations of the people in developing countries because their assumptions often ignore cultural, environmental, technological, and structural differences found between the developed and developing countries. Even when it is regarded as a universal category within economics, entrepreneurship should also be understood as the country-specific experience that it is. Moreover, during the course of the twentieth century, globalisation has marginalized local people around the world. Rapid shifts in economic forces, advances in technology, and social acculturation imposed by the dominant 'ruling culture', under the false premise of its being a 'common culture', have had many negative effects and have caused developing countries to suffer greatly.

For those reasons, studies on the degree of cohesion that remains and the desire to (re)build their communities on traditionally and culturally grounded foundations among many indigenous people are important (Reuter, 1999; 2003; 2010; Anderson, 2002; Peredo, Anderson, Honig & Dana, 2004). They can be used as a bridge that link western theories, on either development or entrepreneurship, with the unique cultural and political realities that exist in developing countries, whilst serving as a foothold to overcome the deficiencies of normative western approaches prescribed and promoted by many consultants, various educational systems, as well as numerous training systems in those countries. However, the role of those studies should not only be as a supporting tool or a simple exercise in analysing the existence of outliers in the global world-system. They should also comprise of efforts in providing theoretical and empirical sources of analysis, which can be put forward in many settings including, but not exclusive to, indigenous communities. Hence, through this research I argue that not considering the complexity of local contexts will hinder attempts to understand entrepreneurship in Indonesia. I choose Indonesia as a research context because of the country's cultural diversity, the composition of its indigenous population, as well as the problems that it faces, as outlined below.

SME and entrepreneurship in developing countries

Before I discuss the research context of this study, let us first answer the question, what is the nature of entrepreneurship in developing countries? I will trace and describe the reality faced by many developing countries in regards to entrepreneurship. This subsection will serve as a starting point, arguing that the characteristic type of entrepreneurship in these countries is SMEs. I will then discuss specific issues in relation to the unique cultural reality and entrepreneurship development found in Indonesia, as a representation of such countries.

Most academics agree nowadays that if an economy discourages SMEs, it is likely to discourage newer dynamic industries from putting down the roots they may otherwise do (Berry, 2007). Zimmerer and Scarborough (1994) even predicted that the 21st century would dawn with the greatest number of small businesses ever. Their prediction turned out to be true so far and, over the past two decades, many governments have identified the encouragement of new SMEs as a significant component of economic strategies for job creation and wealth accumulation (Holmund & Kock, 1998; Kuratko & Hodgetts, 1995; Hodgetts & Kuratko, 1995; Birley & Westhead, 1989). Still, these achievements would be impossible without the presence of David Birch (1979).

In the mid-1970s, Birch received a grant from the Economic Development Administration of the United States to study how the movement of enterprises across state boundaries initiates employment growth. He reported that inter-state movement of enterprises was a minor part of the overall job changes, and that 82% of the new jobs created came from SMEs (Birch, 1979). Birch's systematic studies and empirical results gave SMEs a place on the research map. His report not only opened up the research field, but also received considerable attention from politicians and media, which placed a spotlight on the situation and the importance of SME (Landstrom, 2005b, p. 160).

If we speak about entrepreneurship in developing countries, the term SME will automatically rise up to the surface, as most social scientists outside the field of economics use both terms synonymously and interchangeably to describe business activities that include the formal and informal sectors. A vivid example of this can be seen in Sarah Turner's (2003) book, Indonesia's Small Entrepreneurs. Turner interchangeably uses the term 'entrepreneurship' with 'small business', and loosely defines the 'entrepreneur' as a 'small business owner'. Indonesians even use the word 'kapitalis' (capitalist) and 'pengusaha' (businessman) as the synonyms for 'wirausahawan' (entrepreneur). This is very different compared to the definition used in economics or the study of entrepreneurship as discussed earlier, in the first section.

Indeed a clear distinction, such as that insisted upon by many scholars within the field of economics, is very difficult to be achieved because the major share of enterprises in developing countries is small in terms of assets and many of them operate informally using family labour. For example, Fafchamps (2001) found that market intermediation in Africa is characterized by an excess of small traders that employ fewer than ten employees or family helpers, a case that resembles Turner's (2003) as well as Dahles and Bras' (1999) findings in Indonesia. Due to their abundance, the World Bank has instead focused on SMEs in its effort to target entrepreneurship in developing countries (Ayyagari, Beck & Demirgüc-Kunt, 2003). Even though I would suggest that SMEs are not necessarily entrepreneurial in nature, here I support Gartner's (1989) vision that realizes entrepreneurial start-ups as a subset of SMEs. Schumpeter (1947, p. 151) once also observed that to "… see the phenomenon even in the humblest levels of the business world is quite essential though it may be difficult to find the humble entrepreneurs historically".

SMEs definitely hold the added allure of being a key component of economic development and poverty alleviation in many developing countries (Kotey & Meredith, 1997). They provide an avenue for entrepreneurship (Littunen, 2000b), where their growth in these countries is often used as an indicator of entrepreneurial development. As previously mentioned, SMEs tend to dominate their corporate communities, at least in terms of enterprise registrations, if not always in terms of aggregate size. Furthermore, since they are labour-intensive, most scholars agree that SMEs are a major and sustainable generator of employment, as well as income for their citizens working outside the public sector (Banerjee & Duflo, 2007). For example, in Cambodia, Laos, and Nepal, SMEs represent the vast bulk of the corporate sector, accounting for approximately 99% of all firms, over 70% of total employment, and more than 50% of GDP output (Freeman, Abonyi & Supapol, 2009).

Additionally, SMEs in developing countries also serve as a useful bridge between the informal economy of family enterprise and the formalized corporate sector, balancing development among regions (Kotey & Meredith, 1997). They act as inter-industrial linkages or as supporting industries producing components and parts for large enterprises (LEs), via market mechanisms, subcontracting systems, or other forms of production relationships. SMEs are in general much more self-sufficient and independent, because they finance their operations overwhelmingly from the personal savings of the proprietors, supplemented by gifts or loans from relatives, from local informal moneylenders, traders, input suppliers, or payments in advance from consumers (Tambunan, 2008).

However beside all of the recognitions given to them, SMEs are "… one of those things that is recognized when seen but difficult to define" (Gore, Murray & Richardson, 1992, p. 115). Up until today, there is no single, uniformly acceptable definition of SME (Storey, 1994), because it varies significantly in line with the scale of the economy concerned, the degree of development, and the economic structures that are present (Castel-Branco, 2003). Early definitions of SME were often quite vague. The dominant principle behind those definitions, such as adopted by the US (Small Business Mobilization Act of 1942 and Small Business Act of 1953) or the UK (1971 Bolton Committee's Definition), was on defining a disadvantaged enterprise that need to be supported in terms of market share or bargaining power (Schizas, 2010). Nevertheless, because small business policy has often provided direct and indirect subsidies to businesses identified as sufficiently 'small' (Levine, 2005), definitions have gradually shifted towards more objective sized thresholds. Currently, almost all definitions on SME adopted by governments worldwide employ a small number of variables accepted as proxies for size. Yet, what is included or excluded among those variables is ultimately a political decision, even though technical arguments for different treatments abound.

According to the Indonesian Parliamentary Act No. 20 (2008), Small and Medium-sized Enterprise includes all businesses having a net worth of more than 50 million Rupiah up to a maximum of 10 billion Rupiah excluding land or other building of business premises, with an annual sales turnover between 300 million Rupiah and 50 billion Rupiah. Meanwhile, as the country's official statistical body, the Indonesian Central Bureau of Statistics (BPS-Badan Pusat Statistik) has its own opinion that is more focused with the labour quantity, and thus, specify SMEs as all business entities that employ between five and 100 employees (Rahmana, 2009). Yet, in this research, I will use the combination of both classifications above in order to define SMEs. I will also put a strong emphasis on the types of entrepreneurs who will be involved in this research, particularly a distinction between the necessity and the opportunity entrepreneurs, choosing the latter as one of the key criteria in selecting the main research participants. This is because, compared to the necessity entrepreneurs who do not have any other option, but to work for themselves, I consider opportunity entrepreneurs are more entrepreneurial in nature as they are opportunistically driven.

As a result, during the research to come, the main research participants within each research site will be the individuals, both women and men, who are altogether the founder as well as the owner of a business entity, which match the standards established by Act No. 20 (2008) and BPS. Additionally, in regards with local culture, the main research participant within each research site should be a native (pribumi), raised by the research site's specific cultural background.

Indonesia and its diversity

Indonesia, as the most culturally diverse country in the world, has numerous indigenous populations, separated into various distinct ethnic groups. While in some colonialized countries indigenous people are minorities in their own motherland, in Indonesia they represent the vast majority of the population. This is why we have to trace back through history in order to describe clearly the concept of indigenous people in Indonesia (Koentjaraningrat, 1984).