What Drives the Creation of Entrepreneurs?
21 August, 2017
It's easy to focus on personal characteristics when we think about entrepreneurs. What's the person's tolerance for risk? How well have they mastered the fundamentals driving success for their business? How well have they anticipated consumer tastes and changing global trends?
We can readily overlook the conditions created on a national level. When we do consider these, it's easy to fall back on preconceived notions, like American go-getting, British quirkiness, German efficiency, Indian industriousness. In an article entitled, “The Direct and Indirect Influences of National Culture on Entrepreneurial Intentions: A Fourteen Nation Study”, Christopher Schlaegel, Xiaohong He, and Robert Engle look at entrepreneurial intent. This is an individual's intention, or will, to start a new business. Schlaegel, He, and Engel propose particular national characteristics that foster the development of entrepreneurial intent.
Countries higher in power distance have a higher level of entrepreneurship.
Power distance is the “extent to which one accepts that power in institutions and organizations is distributed unequally.” Here, nations high in power distance are more tolerant of differentials in authority among high- and low- status people in an organisation.
According to Hofstede's Power Distance Index, countries higher in power distance include Malaysia, Mexico, and China. By contrast, countries like Austria, Ireland, and New Zealand are lower in power distance.
Countries with a lower level of individualism have a higher level of entrepreneurship.
Countries with high individualism “value freedom and autonomy, view results as coming from individual achievements, and place the interests of the individual over the interests of the group”.
According to Hofstede's global measurement of Individualism, countries with lower levels of individualism include Indonesia, Pakistan, and Colombia. By contrast, countries with some of the highest levels of individualism include the USA, Australia, and the UK.
Countries with a higher level of uncertainty avoidance have a higher level of entrepreneurship.
Countries with high uncertainty avoidance “feel uncomfortable when coping with uncertainty and, therefore, emphasise strict laws and regulations and embrace formal structures as a way of coping with uncertainty.”
According to Hofstede's Uncertainty Avoidance, countries with higher uncertainty avoidance include Greece, Portugal, and Japan. Countries with the lowest uncertainty avoidance include Singapore, Denmark, and the UK.
This research highlights several notable facts, but none more so, in our view, than the absence of the U.S. against each of the factors that drive the formation of entrepreneurial intent. Quite aside from its cultural dominance of notions of successful entrepreneurship (Facebook’s success, and strong entrepreneurial personalities in people like Steve Jobs and Oprah Winfrey), it also seems to be a nation dedicated to the entrepreneur (consider the enduring attraction to and belief in the American Dream). As suspected, when we do look at other measures of entrepreneurship, they bear out the U.S.’s dominance here: the U.S. ranks top of the Global Entrepreneurship Index (which measures the health of entrepreneurship ecosystems across 137 countries) and combined research from the World Bank and Expert Market (a market consultancy) suggests that the U.S. has a relatively high proportion of “determined entrepreneurs” (in the U.S. there’s a high volume of new businesses per capita in spite of the relatively high amount of red tape entrepreneurs have to contend with).
What then are the implications of Schlaegel, He, and Engle’s results? In part, they open a ripe discussion about the nature of incentive to entrepreneurship:
- High power distance may incite budding entrepreneurs to try to change a status quo they find unfair, or it may be about an acknowledgement that society accepts large power differentials and that you'd prefer to be “on top” rather than “below”
- Low individualism may evoke a desire to stand out from the crowd (leading to higher levels of entrepreneurship), or it may be about the prospect of harnessing group work to greater effect
- Higher uncertainty avoidance may be a counter-balancing response to too much constraint, or it may be the application of a lifelong training in finding opportunities within a limiting system. Equally, it could be about attempting to establish “the new” where processes and products have been allowed to become too outdated
Whatever the nature and development of entrepreneurial intent, it seems that the individual is important in qualifying the impact of national differences. Equally, it's worth considering what the prospect of starting one’s own business offers to people in different locations: when compared to the other options, what does entrepreneurship offer them? How is this related to factors like social mobility; fulfilling one's potential; economic chances and quality of life; social, political, or environmental impact; or meeting critical personal, family, and professional goals?
A summary cross-reference finds that countries most likely to foster entrepreneurial intent are found near the bottom of the Global Entrepreneurship Index. Perhaps this suggests one of the key reasons that entrepreneurially-minded people seek to migrate to countries like the U.S.: they have an environment that fosters their talent and an ecosystem more likely to help it bear fruit. Just consider some of the foreign-born entrepreneurs who made their success in the U.S.: Sergey Brin (Google), Pierre Omidyar (eBay), and Jerry Yang (Yahoo!).
Schlaegel, C., He, X., Engle R. (2013). The direct and indirect influences of national culture on entrepreneurial intentions: A fourteen nation study. International Journal of Management Vol.30 No.2 Part 2. 597-609.
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