Linking National Culture to Domestic Entrepreneurial Activity

Contents

Abstract

List of appendices

List of figures

List of tables

List of abbreviations

1. Introduction
1.1 The Social and Economic Impact of Entrepreneurial Activity - an International Comparison
1.2 Laying the Focus on International Comparative Entrepreneurship Research
1.3 Research objectives: Linking National Culture to Domestic Entrepreneurial Activity
1.4 Content and Structure of the Work

2. Entrepreneurship Theory on the Socio-Cultural Antecedents to Entrepreneurial Activity
2.1 Defining Entrepreneurial Activity - A Historical Perspective
2.1.1 The Sociological Roots of Entrepreneurship Theory
2.1.2 Entrepreneurial Economics
2.1.3 Acknowledging the Importance of Individual Level Factors in (Defining) Entrepreneurial Activity
2.1.4 A quick Synopsis of Findings and a Definition of Entrepreneurial Activity
2.2 Entrepreneurial Psychology - Focusing on the Entrepreneur
2.2.1 Approaching Entrepreneurial Psychology
2.2.2 Individual-Level Entrepreneurial Orientation
2.2.3 Entrepreneurial Cognitions
2.2.4 Validating Individual-Level Characteristics of Entrepreneurs across Cultures

3. Empirical evidence: Linking National Culture to Domestic Entrepreneurial Activity - A Review of Current Cross-Cultural Comparative Entrepreneurship Research
3.1 Applying Anthropological Concepts: International Comparative Entrepreneurship Research on Entrepreneurial Psychology
3.1.1 Synopsis of International Entrepreneurship Research
3.1.2 Comparative Entrepreneurship Research: The Impact of Culture on Entrepreneurial Psychology
3.1.3 Introducing Anthropological Concepts of National Culture
3.1.4 National Cultural Values in Favor of Entrepreneurial Activity
3.1.5 Applicability of Hofstede's (1980) and Schwartz's (1999) Concepts of National Culture
3.2 Methodological Issues
3.2.1 Collection of relevant Studies
3.2.2 Methods of Analysis and Evaluation
3.3 Empirical Findings on the Associations between National Culture and Entrepreneurial Activity
3.3.1 Associations between National Culture and Entrepreneurial Orientation
3.3.2 Associations between National Culture and Entrepreneurial Cognition
3.4 Presenting a Cross-Cultural Model of Domestic Entrepreneurial Activity
3.5 Advancing Cross-Cultural Comparative Entrepreneurship Research

4. Conclusion

Appendix

References

Declaration of authenticity

Abstract

In September 2006, the Organization for Economic Co-operation and Development (OECD) launched a major initiative dedicated to establishing internationally comparable statistics on entrepreneurship and its determinants (OECD 2006).

This highlights the importance of several aspects.

First, the impact of entrepreneurial activity in societies is manifold and critical to the economical success of nations. The role of entrepreneurship is further becoming increasingly significant with regard to the development of international businesses in a global market environment. Third and from a scientific point of view, entrepreneurship is gaining evermore attention from scholars of various disciplines.

As review of literature suggests, various socio-cultural elements determine entrepreneurial activity across countries. Yet, in spite of its economic and social significance, domestic venture creation rates - in international comparison - vary significantly.

Relying on the definition of entrepreneurship as the “creation of new enterprise” (Low & MacMillan 1988, p.141) this thesis assesses the various linkages between national culture and domestic entrepreneurial activity.

At first, a recap of historical entrepreneurship theory leads to the identification of some fundamental aspects. At the same time, it is found that individual-level factors play a central role. These personal factors are then examined further, relying on entrepreneurial psychology theory and deriving a set of cross-nationally valid socio-cultural antecedents to entrepreneurial activity.

Incorporating an anthropological perspective, a subsequent analysis of recent empirical findings examines the impact of differences in national cultural values on domestic entrepreneurial activity. Accordingly, domestic entrepreneurial activity may be influenced by national culture through direct as well as moderating effects, represented by the impact by differences in national cultural values on entrepreneurial orientation as well as on entrepreneurial cognition (Mueller & Thomas 2000; Thomas & Mueller 2000; Mitchell et al. 2000, 2002).

Eventually, findings are integrated to a common theoretical framework that draws a holistic picture of the various associations between national culture and domestic entrepreneurial activity.

In addition, the generated model allows some valuable implications for academia to further research the complex interaction between national culture and the various phenomena of entrepreneurial activity.

To practitioners and the substantiate domain, it is suggested that - besides economic and social context - an appropriate setting of cultural values constitutes an equally important factor in determining domestic entrepreneurial activity.

List of appendices

Appendix 1: Empirical evidence: Some facts and figures about entrepreneurial activity in European small and medium sized enterprises 65

List of figures

Figure 1: Initial Assumptions and further Research Outlook

Figure 2: Cross-cultural Communalities in Entrepreneurial Dispositions

Figure 3: Linking National Culture to Entrepreneurial Activity

Figure 4: A Cross-Cultural Model of Entrepreneurial Activity

List of tables

Table 1: A Selection of Cross-Culturally Valid Socio-Cultural Antecedents to Entrepreneurial Activity

Table 2: National Cultural Value Dimensions of Hofstede (1980) and Schwartz (1999)

Table 3: Contextual & Methodological Parameters of Mueller & Thomas (2000) and Thomas & Mueller (2000)

Table 4: Contextual and Methodological Parameters of Mitchell et al. (2000) and Mitchell et al. (2002) List of tables in appendix

Table 5: Aggregated statistical data on %-share of jobs of SME in selected European countries

Table 6: Aggregated statistical data on value created of SME in selected European countries

Table 7: International comparison of size-dependent %-shares of SME in European countries as an indicator of entrepreneurial activity

Table 8: International comparison of self-employment ratios in European countries as an indicator of entrepreneurial activity

Table 9: International comparison of venture creation and venture closure rates in European countries

List of abbreviations

illustration not visible in this excerpt

„If we learn anything from the history of economic development, it is that culture makes all the difference” Landes (2000, p.2)

1. Introduction

1.1 The Social and Economic Impact of Entrepreneurial Activity - an International Comparison

Entrepreneurship as the “creation of new enterprise” (Low & MacMillan 1988, p.141) is a global phenomenon.

As such, an understanding of its social and economic impact is essential for every economic society.

Yet, such an intention requires the ability to effectively measure both, the quantitative as well as the qualitative aspects of the phenomenon of new venture creation.

Determining the characteristics of entrepreneurial activity occurring in any given country however is a challenging task (OECD 2006).

In spite of the complex and multifaceted nature of the entrepreneurship, substantial academic ambitions have been undertaken to capture domestic entrepreneurial activity - in level and in shape.

The knowledge that research on the social and economic significance of entrepreneurship yields may be synthesized to two central findings:

First, entrepreneurship has the ability to fundamentally alter supply and demand conditions of markets (Carland et al. 1984; Bird 1989). Throughout the history of scholastic entrepreneurship research, the notion of entrepreneurial activity has closely been related to the notion of innovation (Schumpeter 1934).

With the aspect of innovation going beyond material factors to also affect personal priorities and psychological dimensions, entrepreneurs have been portrayed as agents of social and economic change (Licht & Siegel 2006).

Secondly, entrepreneurial activity increasingly often is being linked to job creation and to economic growth (Audretsch & Thurik 2001; Acs & Armington 2004; Van Stel et al. 2005).^{1 2}

The definition of entrepreneurial activity employed in this work - the creation of new venture - is broad and independent of organizational constraints. The description is therefore not specifically regarding small businesses only.

Nevertheless, domestic levels and shape of entrepreneurial activity, across nations, are significantly determined by the amount of individuals that create new businesses or manage their own established young ventures (Bosma & Harding 2007, p.6).

For instance, in 2004, an estimated amount of nine percent of the global population was involved in starting up their own ventures or was engaged in the running of novel owner-managed ventures (Acs et al. 2005, p.12).

As a result of the great importance of young and small businesses, international efforts to quantify the social and economic impact of entrepreneurial activity often draw on census data of small and medium sized enterprises (SME; OECD 2003; Eurostat 2006).³

The resulting figures are equally impressive.

With SME constituting an estimated share of 99,8% of European ventures (Eurostat 2006; IfM Bonn 2007), these businesses provide over two thirds of total jobs.

Besides the quantity of businesses and jobs, SME also dominate in value created (European Union 2005; Eurostat 2006). With the exception of two countries, in all EU-25 countries covered, value creation of SME exceeds that of large ventures (Eurostat 2006).

Unsurprisingly, the fostering of domestic entrepreneurial activity is a major objective of national governments worldwide (Audretsch & Thurik 2001; OECD 1998).

Along with the growing interest in entrepreneurship of the political domain and an increasing globalization of economic activity, intentions emerged to establish internationally comparable statistics on entrepreneurship.

For these purposes, international initiatives have been created (OECD 2006; Reynolds et al. 2000, 2005).⁴ The findings that efforts of cross-national collaboration yield, confirm prior knowledge about the social and economic importance of entrepreneurial activity.

Yet, international research on domestic level and shape of entrepreneurial activity has made another important observation.

As it appears, entrepreneurial activity, in spite of its substantial contributions, shows significant variations across nations (Acs et al. 2005, p.12; Reynolds et al. 2007).

Confirming results of cross-nationally varying entrepreneurial activity could also be obtained by examining some statistical data on SME.

The figures - derived from the data - are indicative of entrepreneurial activity and vary significantly across countries. Accordingly, across most European countries, the ratio of micro, small and medium sized enterprises, the share of self-employed individuals, as well as the net increase of ventures exhibit disparate values in international comparison (Eurostat 2005, 2006; OECD 2007).

1.2 Laying the Focus on International Comparative Entrepreneurship Research

Though entrepreneurial activity has the capacity to determine the economic performance of nations in a global market environment, it shows considerable variations across countries (Acs et al. 2005; Eurostat 2005, 2006; OECD 2007).

The present thesis follows the central objective of explaining these variations by assessing the role of national culture.

Drawing on related scientific literature, this examination can be distinctly positioned in academic research.

In the past years, the relatively young field of entrepreneurship research has attracted the increasing interest of scholars from a wide variety of academic disciplines (Mitchell et al. 2002, p.94; Cooper in Hitt & Ireland 2005, p.144).

From a historical perspective, entrepreneurship theory is rooted in sociological and economic schools.

As a result, these schools provide many fundamental concepts of entrepreneurship theory - such as entrepreneurial personality traits and motivations or cognitive abilities (Knight 1921; Schumpeter 1934; Weber 1958; Kirzner 1982).

In present times, these aspects are discussed in the distinct fields of entrepreneurial psychology as well as in cross-cultural entrepreneurship research (Brockhaus & Nord 1979).

Till date, there is no centrally-accepted conceptual framework that explains the various empirical phenomena not already explained by other fields of social science (Shane & Venkatamaran 2000, p.217).

However, Low & MacMillan (1988) have thoroughly mapped the academic field of entrepreneurship study.

Among others, Low and MacMillan characterize the notion of entrepreneurship along the dimensions of theoretical perspective, focus and level of analysis ( 1988, p.140).

Beyond a mere purpose of laying the research focus of this work, the dimensions presented by Low and MacMillan (1988) moreover serve useful to develop a general rationale underlying the examination. This additionally affects content and structure.

Regarding the first dimension of theoretical perspective, Low and MacMillan (1988, p.141f) distinguish two distinct types: strategic approaches and ecological perspectives.

While entrepreneurial research is dominated by strategic approaches that aim at identifying success factors, ecological perspectives are said to be gaining momentum.

Devoted to ecological perspectives, this work takes a holistic approach that goes beyond a consideration of single contextual factors.

Classifying these contextual factors of entrepreneurship to the category of “focus ”, entrepreneurship research, according to Low and MacMillan (1988, p.146), may address psychological factors, demographic aspects, organizational issues, socio-cultural theories as well as their more refined alternative of network concepts.

Explaining entrepreneurial activity, most works approach entrepreneurship from a strategic business management perspective, and, in an effort to work out success factors, narrowly assess single contexts (Hitt & Ireland 2005, p.83ff, Low & MacMillan 1988, p.142).

More specific topics (that most of these works primarily focus on) include know-how creation and learning (Loasby in Casson 1990, p.220), network advantages and agglomeration effects (Acs & Varga 2005; McCann in Casson et al. 2006, p.651ff), financial resources and venture capital (Cressy & Dushnitsky in Casson et al. 2006, p.353ff), institutional and political infrastructure (Storey in Casson et al. 2006; Fogel et al. in Casson et al. 2006) as well as necessary macroeconomic conditions (Highfield & Smiley in Casson 1990, p.275ff; Acs & Audretsch 1990, p.291), corporate venturing, as well as family businesses (Davidsson et al. 2001, p.6).

With many papers addressing theories on human capital, the entrepreneur himself as a person has also been subject to vibrant discussion (Davidsson & Honig 2003).

All these issues are important in entrepreneurship and some works even relate to sociological schools - for example, by dealing with network theories.

In this thesis, the socio-cultural antecedents to entrepreneurial activity will be highlighted from a broader, ecological perspective instead of emphasizing strategic approaches or critical success factors of venture creation.

Instead of narrowly explaining single factors, this work aims to shed some light on the complex structure and interrelations between them (Cochran 1965 in Low & MacMillan 1988, p.149).

Integrating sociological and psychological factors⁵ of the “jigsaw puzzle” of entrepreneurship as an academic field (Mitchell et al. 2004, p.505; Harrison & Leitch 1996, p.69; Shane & Venkataraman 2000, p.217) to one single picture - this decision implies determination of a third dimension of relevance in entrepreneurship research: level of analysis (Low & MacMillan 1988).

The objective to assess the associations of national culture and entrepreneurial activity affects both extremes of respective spectrum proposed by Low & MacMillan (1988, p.151) from the individual level to society level (Davidsson & Wiklund 2001, p.88).

By next introducing international entrepreneurship research (IER), this work applies yet another additional dimension.

On a very general level, IER comprises two broad streams: (1) the study of cross-border activities and (2) research on domestic entrepreneurial activity across nations or comparative entrepreneurship research (McDougall & Oviatt 2000).

Major research topics in both streams include strategic alliances, corporate entrepreneurship, economic development programs, marketing strategies, venture creation, transition economies as well as IPOs and other methods of financing (McDougall & Oviatt 2000, p.903). Besides the internalization of new ventures, another research theme that has emerged recently is that of comparisons of national cultures (McDougall & Oviatt 2000; Licht & Siegel in Casson et al. 2006).

This work lays its main focus on comparative entrepreneurship research that assesses the role of national cultural values (Ros et al. 1999; Schwartz 1999; Hofstede 198).

Besides the distinct areas of entrepreneurial sociology and psychology, a third major focus area of this work is cross-cultural comparative entrepreneurship research (Hayton et al. 2002; McDougall & Oviatt 2000; Coviello & Jones 2004).

1.3 Research objectives: Linking National Culture to Domestic Entrepreneurial Activity

To study the various associations of national culture to entrepreneurial activity, present thesis adopts and applies an appropriate chain of reasoning.

Parallel to an overview of the specific research objectives of this work, the following descriptions aim to reflect the adopted rationale.

To do so, the following fundamental logic should first be acknowledged;

Prior to assessing the effects of national culture on entrepreneurial activity, a set of dependent variables will be determined that encompasses relevant socio-cultural antecedents.

This differentiates how entrepreneurial activity is explained and measured (labelled as link 1) from how it is linked to national culture (labelled as link 2).

The next segment of this work (chapter 2) therefore addresses the first of these two issues and elaborates on the inherent elements of the notion of entrepreneurial activity.

Specifically following the objectives to define entrepreneurial activity and to identify its socio-cultural antecedents, the resulting analysis is a “journey” across several academic disciplines.

By first considering some important findings from sociology and economy, and then from psychology and anthropology in an integrative style (Low & MacMillan 1988), this thesis complies with demands for a combination of multidisciplinary approaches expressed by some scholars active in international entrepreneurship research (IER) (Davidson & Wiklund 2001, Zahra & George 2002; Coviello & Jones 2004; McDougall & Oviatt 2004).

While some of the issues discussed in this thesis are also applicable to respective domains, others are exclusive to entrepreneurship only (Mitchell et al. 2004).

This work thus also tries to comply IER scholars’ critical observations that entrepreneurship research has still not developed as a sufficiently distinct research field (Aldrich & Baker 1997; Harrison & Leitch 1996, p.69).

At the same time, the intention to identify the socio-cultural antecedents to entrepreneurial activity requires an examination of the role of entrepreneurship in society.

Before arriving at specific criteria for further study, a centrally applicable definition of entrepreneurial activity will be created and some preliminary assumptions generated.

In further examining link 1, these initial assumptions will subsequently be refined to a precisely determined and selected line-up of socio-cultural antecedents to entrepreneurial activity.

Because entrepreneurial activity is underlying a great variety of interrelated phenomena or measurable aspects (Hayton et al. 2002), this however leads to the emergence of some complexity.

In spite of having identified the defining elements of entrepreneurial activity, additionally difficulties to distinguish entrepreneurs from non-entrepreneurs arise.

Yet, potential and actually occurring entrepreneurship are often interlinked.

In an effort to explain entrepreneurial activity, some works measure entrepreneurial intentions (Mueller & Thomas 2000; Grilo & Irigoyen 2006), while others base their assertions on self-reflective statements captured from entrepreneurs (McGrath & MacMillan 1992). Obviously, more objective measures are also used, e.g. whether ventures were actually created (Brockhaus 1980; Brockhaus & Nord 1979). Finally, some scholars simply draw upon statistical data (Noorderhaven et al. 2004).

Thus, how entrepreneurial activity is explained and measured often determines how entrepreneurs are distinguished from non-entrepreneurs.

Where does the complexity lie? Many of the generated findings may therefore be equally applicable to individuals, who, though not engaged in entrepreneurial activity, display the typical characteristics of actual entrepreneurs.

In consequence, it is assumed that the presence of specified variables - in spite of their potential variety and interrelatedness - is unique to entrepreneurs and distinguishes them from individuals not predisposed to entrepreneurial activity.

The possibility of assessing the influence of elements arising from different national cultures requires yet another condition to be fulfilled, namely, the dependent variables that will be proposed to explain domestic entrepreneurial activity would ideally have to show cross-national validity.

The second important issue, and part of the basic rationale of this thesis relates to how national culture is applied to the above-described commonalities of (potential) entrepreneurs. It specifies how the independent macro level variable of “national culture” is linked to the individual level indicators of entrepreneurial activity (link 2).

Besides determination of valid values that allow for comparison cross-culturally, another research objective is therefore, to diligently assess their modes of functioning and causal relations to the socio- cultural antecedents and to entrepreneurial activity, the central research question of the present thesis.

1.4 Content and Structure of the Work

This work is constituted of three structural components.

Following present set of introductory abstracts are two chapters that form the main parts of this examination.

In the first of the two main chapters (chapter 2), a reflection of entrepreneurship theory aims to derive specific research objectives and hypotheses. In an effort to assess these hypotheses, chapter 3 reviews empirical studies.

The first segment of chapter two (chapter 2.1) starts out with a diligent elaboration of the historic roots of entrepreneurship theory.

Besides a determination of the most fundamental aspects of entrepreneurial activity (in chapter 2.1.1 and chapter 2.1.2) as well as of potentially relevant contextual factors (chapter 2.1.3), an assessment of historic theory is useful to derive some relevant core interdependencies.

Most importantly, in chapter 2.1.4, some initial assumptions are generated, as well as a centrally applicable definition of the notion of “entrepreneurial activity”.

Along the way, it will be shown that the setting of an exclusive focus on individual-level factors of (potential) entrepreneurs not only accommodates the boundaries of this thesis, it also satisfies much of what actually matters in relation to explaining entrepreneurial activity internationally.

By taking a more current perspective, some important concepts (that centre the notion of entrepreneurship in present days) will then be assessed more closely in the second segment of the first main chapter (chapter 2.2).

This assessment especially helps to shape and refine the initial assumptions to concrete variables, upon which further assessments are based. It also sets some important terminological and methodological guidelines.

Chapter 2 hence tries to identify the constitutive and cross-nationally valid socio-cultural antecedents to entrepreneurial activity such that all countries would display equal rates.

While chapters 2.2.1 (preliminary notes on entrepreneurial psychology), 2.2.2 (on entrepreneurial personality and motivation) and 2.2.3 (on entrepreneurial cognitions) deal with entrepreneurial psychology, the intention of chapter 2.2.4 is to verify the cross-cultural validity of identified elements and subsequently present a selection of criteria for further research.

The main objective of this work is to analyse to what extent variations in international entrepreneurial activity, i.e. the disparate presence of proposed dependent variables of entrepreneurial potential, are influenced by differences in national culture.

This is done in an in-depth review of current cross-cultural comparative entrepreneurship studies in the second main chapter of this work (chapter 3).

Chapter 3.1.1 presents a synopsis of international entrepreneurship, followed by a delineation of comparative entrepreneurship on cross-cultural differences in entrepreneurial psychological dispositions (chapter 3.1.2). Additionally, anthropological conceptions of national culture (chapter 3.1.3) are introduced, for which a desirable setting in favour of entrepreneurial activity is subsequently described (chapter 3.1.4). Explanations on cultural values are followed by a discussion on the applicability of the introduced concepts (chapter 3.1.5). Prior to a presentation of key findings, chapter 3.2 mentions some important methodological issues.

Besides checking to what degree the proposed socio-cultural antecedents to entrepreneurial activity indeed distinguish entrepreneurs from non-entrepreneurs across countries, a subsequent review of current empirical studies especially seeks to identify and explain respective differences in entrepreneurial potential as well as the role of differences in national cultural values (chapter 3.3).

Chapter 3.4 collates the generated findings to an integrated concept; some implications and a discussion of potential limitations follow (chapter 3.5).

The thesis closes of with a short conclusion (chapter 4).

2. Entrepreneurship Theory on the Socio-Cultural Antecedents to Entrepreneurial Activity

In the introductory chapters (chapter 1.1) some empirical data on small and medium sized enterprises (SME) has been presented.

The observations made allow several important initial conclusions. At the same time, they create an equally high amount of questions.

With respect to its social and economic significance, for one thing, it can certainly be acknowledged that entrepreneurial activity drives national economic growth and substantially contributes to innovation (Audretsch & Thurik 2001; Acs & Armington 2004; Van Stel et al. 2005; Schumpeter 1934).

Nevertheless, domestic entrepreneurial activity, in international comparison, shows substantial variations (Acs et al. 2005; Reynolds et al. 2007).

The objective of this work is to assess the associations between national culture and domestic entrepreneurial activity.

While the mentioned data thus clearly supports the decision to analyze the determinants and coherences of observed variations more closely, additional insights are required.

In order to be able to explain entrepreneurial activity internationally, a preliminary discussion of fundamental theoretical aspects seems necessary.

The next chapter seeks to identify the deciding culturally sensitive elements of domestic entrepreneurial activity by trying to find answers to questions such as: “What is entrepreneurship?” and “When and why does entrepreneurial activity occur?”

2.1 Defining Entrepreneurial Activity - A Historical Perspective

Entrepreneurship, in historical terms, has far-reaching origins.

With distinctions between various fields of social science having been less clear in earlier times,⁶ many of the core elements that form contemporary scientific perception of entrepreneurship are rooted in what is today referred to as sociology (Weber 1958; Casson 1990, p.xxii; Schroeder 1992).

But traces of entrepreneurial theory can also be found in economic schools.

The following abstracts will first address sociologic entrepreneurship theory and then deal with entrepreneurial economics.

2.1.1 The Sociological Roots of Entrepreneurship Theory

As a sub-field of social science, sociology analyses the phenomena of human interaction (Oxford English Dictionary). It is a distinct field of academic research in that it - in contrast to related schools of social science - is dissociated from particular foci as is the case in politic or economic schools.

One of the most influencing scholars of sociology is Max Weber (Schroeder 1992, p.1).

In his works, Weber examines the sense and structure of human actions and more specifically, the nature of their normative antecedents and central motivational drivers.

Weber’s (1958) most prominent work, titled “The Protestant Ethics and the Spirit of Capitalism ” , had a sustainable impact on sociological economics.

With the identification of the constitutive factors of occidental capitalism as the main focus of his essay, Weber links entrepreneurial activity to social developments (Jennings et al. 1994).

He proposes ethical motives to be the driving force of the emergence of capitalistic tendencies. More precisely, Weber hypothesises religious belief to be associated with the emergence of a capitalistic ethos - in particular, the rationalistic ethos of Protestant ethics.

According to Weber, feudal and religious secularization (Calvinism) led to individualism processes in Occidental Europe (Casson 1990, p.xxii). In consequence, this had varying effects.

First, feudal secularization processes resulted in a higher social legitimacy to indulge in mundane activities and in lower social constraints towards consumption habits that exceeded necessity (Jennings et al. 1994, p.84f). With this, a general acceptance for the pursuit of personal profit motives allegedly developed.

Secondly, and emerging from strong religious authority was, what Jennings et al. call the “Puritan syndrome” (1994, p.81f). Accordingly, religious values led to the development of a more rationalistic conscience. Along with a refinement of judgemental ability, the “Bourgeoisie” (affluent middle-class people characterized as conventional, conservative, or materialistic in outlook) social class began to strive towards the realization of higher values. Naming optimism and trust, commitment and faith and finally, discipline and altruism, Gilder (1986) further speaks of the emergence of an entire value-system.

With the resulting values dominating the effect of wealth accumulation, the intellectual and psychological basis of capitalism was formed. A livelihood characterized by hard work and simple consumption habits in society thus became thought of as an appropriate lifestyle (Casson 1990). Setting up a sustainable business that contributes to the accumulation of wealth and which benefits forthcoming generations became a legitimate objective of individuals in capitalist societies.

With regard to the role of entrepreneurship in society and economy, there is a large consensus among scholars that the described value system, being deeply rooted in religious ideas, has since then been an influential driver of SME activities, or put differently, of entrepreneurial activity (Jennings et al. 1994, p.81).

When we consider the empirical findings of the previous chapter (chapter 1), this can well be understood. The sociological aspects of entrepreneurship are easily highlighted by acknowledging the significant contributions of SME to job creation, self-employment and value creation.

Consistent with the idea of entrepreneurial behavior being grounded upon an ethical-religious valuesystem, the entrepreneurship-term has frequently been used as a social stereotype (Casson 2006).

For example, in earlier times “Victorian Entrepreneurship” (Casson 2006, p.7) in the UK referred to technically highly competent middle class members, who, although moving upward in social hierarchy systems, considered their actual achievements as secondary.

Likewise, Sarachek (1978) mentions the emergence of a “Rags to Riches” mythology in the US.

Similarly to this, Jennings et al. (1994, p.81) equate the term “American Dream” with Protestant ethics and associate with it the phenomenon of Margaret Thatcher’s “enterprise culture”.

With his concepts, Weber critically stood against neoclassical concepts such as those of Austrian School. In particular, Weber’s theories (1958) confronted Adam Smith’s view (1976) of economic action as being driven by social processes and mainly based on individual motivation (Casson 1990).

It can certainly be doubted whether Christianity alone determines entrepreneurial spirit. But Weber’s theories of the work ethics of capitalist society contributed substantially to understanding the underlying values of members of capitalist societies in the past and in present times (Casson 1990).

Economic schools have made many contributions to entrepreneurship theory. As part of further investigating historical entrepreneurship theory, the following abstracts will deal with entrepreneurial economics.

2.1.2 Entrepreneurial Economics

In economic theory, historical entrepreneurship is mainly constituted of four elements: by risk, by market processes, by innovation and finally, by motivational aspects that determine the relation between the entrepreneur and the firm (Casson 1990).

Works that strongly influenced the current perception of entrepreneurship in economic theory come (among others) from authors such as Cantillon (1755), Knight (1921), Adam Smith (1776), Schumpeter (1934), von Hayek (1937) and Kirzner (1982).

Obviously, the perspectives of each of these contributors do not address all of these fundamental aspects. At the same time, a consideration of these works may lead to identifying some minor inconsistencies.

But as this chapter seeks to generate a holistic view of the fundamental aspects of entrepreneurship, potentially emerging inconsistencies do not interfere with the objectives of this work.

In any case, the explanations of the following abstracts quite well manage to reflect these four elements. As early as 1755, a scholar named Cantillon first introduced the notion of entrepreneurship and ascribed to it the aspect of risk-bearing (Jennings et al. 1994, p.2f, Folta in Hitt & Ireland 2005, p.111).

This quality is also acknowledged by Knight (1921), who assigned entrepreneurs the ability to successfully anticipate future developments and to accept non-calculable risks. By distinguishing risk from uncertainty and subsequently noting that risk per se is calculable and thus insurable, Knight described entrepreneurship to offer profit potential through the acceptance of the uncertainty -factors.⁷

In the study of entrepreneurial economics, Adam Smith’s conception of the entrepreneur should also be mentioned (Casson 1990). As a traditional economist, Smith (1776) took a purely rationalistic approach. With his metaphoric association of the “invisible hand” efficiently regulating offer and demand, Smith granted entrepreneurial activity a central role in society (Casson 2006). More specifically, the image describes equilibrating market processes. Shortages, by leading to a rise of prices, would draw manufacturers into the market, whereas overproduction would have the reverse effect. The beneficial role of production (and in essence, of entrepreneurial activity) to society, according to Smith, is generated by the resulting product variety and minimal prices.

Joseph Schumpeter’s definition (1934) also appreciates the significant contributions of entrepreneurial activity to national economic performance. Schumpeter defines the entrepreneur as an innovator who offers new combinations of product factors that create and satisfy new market demands that were previously unknown.

He terms entrepreneurial activity as an act of “creative destruction”. Entrepreneurial activity is thus seen as part of a dynamic process of continuous market changes that upsets an alleged market equilibrium. Instead of risk, Schumpeter’s definition highlights the innovative aspect of entrepreneurship (Chrisman & Kellermanns in Hitt & Ireland 2005, p.61).

In further specifying the inherent elements of entrepreneurial economics, a school of thought should be introduced that takes a somewhat divergent perspective - that of Austrian Economics.

Arguing against neoclassical theory,⁸ traditional Austrian economists assume non-equilibrated market states as starting points. Instead of the entrepreneur performing disrupting innovation, Austrian economics rather emphasizes the profit-oriented quality of his activities that moves the market towards equilibrium.

A prominent author who has been affiliated with Austrian Economics is Israel Kirzner. Following Kirzner’s (1982) perception, such equilibrating forces result from the entrepreneur providing price quotations as an invitation to trade (Kellermanns in Hitt & Ireland 2005, p.63).

Kirzner, who developed the concept of entrepreneurial alertness - the “ability to recognize market opportunities that have been created by market imperfections” (Alvarez & Barney in Hitt & Ireland 2005, p.63) - explains entrepreneurial profit as the rewards for identifying these market opportunities.

To conclude, it is noted that the Austrian School has profoundly influenced current entrepreneurship theory.

Austrian economists were among the first to grant entrepreneurship a beneficial impact on society and on economy. This is consistent with the empirical evidence that has been presented in a previous chapter (chapter 1). Further, with Cantillon (1755), Austrian economics was first to acknowledge the risks inherent in entrepreneurial activity. A major academic contribution that entrepreneurship theory has made was giving fundamental insights to the antecedents and determinants of entrepreneurial activity (Kirzner 1982). In addition, Austrians presented the entrepreneur as an intermediary actor in a dynamic market process and thereby introduced many important terminological elements.

2.1.3 Acknowledging the Importance of Individual Level Factors in (Defining) Entrepreneurial Activity

In summarizing the above findings, it should first be acknowledged that the study of historical entrepreneurship theory reveals some noteworthy shortcomings.

These shortcomings are related to terminological characteristics, which display broad and general terms such as “risk” or “uncertainty”. According to Casson et al. (2006, p.27), due to the biblical connotation of these terms, some scholars assign historical economic entrepreneurship theory merely the potential to explain the existence of entrepreneurship, but not its underlying dynamics.

Complementary to this, Mitchell et al. (2002) conclude that “while economic theories have been useful in helping to identify what entrepreneurship is and when it occurs, they have been less beneficial in helping to explain the more micro questions of how and why” (p.94).

By referring to the, religiously-rooted values of Protestant ethics, above argument might as well be confirmed for sociological entrepreneurship theory.

Although many of the issues - currently being discussed in various entrepreneurship domains - stem from economic and sociologic thought, there is still substantial demand for further clarification.

The value of both schools can thus be largely seen in their function as a starting point for further questions.

In fact, this quite well meets the present chapter's objective to identify some of the potentially constitutive and culturally sensitive elements of entrepreneurial activity.

The Entrepreneurial Motive

Beyond the concept of work ethics in capitalist societies, Weber’s findings particularly served as a useful foundation for a deeper analysis of the coherent socio-cultural factors of entrepreneurial activity.

In contemporary times, the motives and ideals of entrepreneurially engaged individuals who drive the economic performance of nations are represented in a variety of sub-domains of academic entrepreneurship study.

The resulting academic interrelations observed by Alvarez and Barney (in Casson 1990, p.64) are particularly observable with associations between sociologic and psychological elements of entrepreneurship research.

Urgent questions that concern entrepreneurial psychology research, read: Specifically, which are those motives and values that underlie entrepreneurial action? Are those motives and values, in fact, of spiritual or even of religious nature? Are entrepreneurs then, in reality, also showing those elevated performance ambitions and are they showing parsimonious consumption habits?

In light of these questions, the notion of Puritan work ethics (“hard work”) indeed seems to show similarities to certain psychology-based notions, as the next chapter (chapter 2.2) demonstrates.

The consideration of sociological concepts in entrepreneurship theory yet allows some further preliminary assumptions.

Sociological thought - by proposing the above-mentioned value-system of society-members - also incorporates elements of cultural theories, i.e. anthropological theories (Encyclopædia Britannica 2007).

With this quickly emerges the idea of potential linkages between a nation’s cultural values and domestic levels of entrepreneurial activity.

A particularly interesting issue at this point for example would be to assess the image that society holds of entrepreneurs, i.e. of entrepreneurial activity.

To what extent differences in national cultures influence these alleged motives and values that supposedly determine entrepreneurial activity, will be subject of study in a later chapter (chapter 3).

The Entrepreneurial Opportunity

Apart from sociological entrepreneurship theory, the issues that are being discussed in entrepreneurial economics (e.g. the “risk”-notion of Cantillon (1755) and Knight (1921) or Kirzner’s (1982) “entrepreneurial alertness”) equally indicate that individual level factors seem to be of great importance in the study of entrepreneurship theory.

A possibility to synthesize the identified individual-level elements of entrepreneurial socioalogy and entrepreneurial economics may be given with the notion of the entrepreneurial opportunity (Shane & Venkataraman 2000).

This “chance for an individual (...) to offer new value to society, often by introducing new products or services” (Venkataraman & Harting in Hitt & Ireland 2005, p.100) - besides a purpose - also involves a promoting setting and, most importantly, certain subjective factors.

The proposed setting is a mix of objective factors that create entrepreneurial opportunities. It comprises endogenous and exogenous forces of society as well as knowledge creation.

Endogenous social forces that constitute the existence of an entrepreneurial opportunity - and thus, of entrepreneurial activity - are inefficiencies, limits to knowledge and incongruities.

Inefficiencies stem from resource asymmetries (they are due to rigid structural settings) or from informational asymmetries, whilst knowledge limitations are essentially simple limitations of outcomerelated capabilities in market participants’ performances.

Incongruities, according to Venkataraman and Harting (in Hitt & Ireland 2005, p.100) emerge when idea and reality bias, e.g. the perspective or knowledge of a person over a certain industrial setting may deviate from its actual reality.

As the authors state, endogenous forces can be handled by society, whereas the “exogenous changes in social, political, demographic, and economic forces” cause “large scale macro forces [that] determine how we live, where we live, and what we prefer” (Venkataraman & Harting in Hitt & Ireland 2005, p.101) that cannot be controlled.

The third element that promotes the creation of entrepreneurial opportunities contains forces or trends that arise from new knowledge.

New knowledge may originate from inventions and discoveries related to all sorts of human activities such as science, arts, music or physical activities.

To meet the objective of this work - i.e. to determine culturally sensitive antecedents to entrepreneurial activity - the above findings lead to the questions: What role do cultural factors play in all this? How do variations in certain cultural parameters affect the described setting and occurrences of those objective “ingredients”?

Predominantly, the two categories of exogenous social macro forces and knowledge creation are strongly influenced by social and cultural factors.

But at the same time, many other contextual factors also have a role to play.

As a result, the shape and peculiarities of some of these elements - for example, information asymmetries or structural rigidities that lead to inefficiencies, limits to knowledge (and learning) or political developments - have been investigated in many studies (see delineation in chapter 1.3).

Furthermore, as was previously determined, the focus of this work is more on individual level aspects that serve to explain entrepreneurial activity across cultures.

Such an intention to focus on specific sets of factors unique to entrepreneurs may however be fulfilled by examining incongruities as the outcome of biasing perspectives more closely.

In addition, this factor might be sensitive to cultural influences.

While the specific issue of human perception will be addressed in the subsequent analysis (chapter 2.2), the formation of an entrepreneurial opportunity is eventually determined by an additional factor: the idiosyncratic nature of the entrepreneur.

The above explanations indicate that domestic demand of entrepreneurial activities, i.e. that is, the availability of entrepreneurial opportunities, is largely determined by contextual factors that attract economists’ attention. But, for entrepreneurial activity to be initiated, there also has to be an adequate supply of entrepreneurs (Lafuente & Salas 1989).

The Entrepreneur

For entrepreneurial opportunities to be recognized and exploited, there have to be psychologicallyequipped entrepreneurs.

Apart from those mostly objective “ingredients” of an entrepreneurial opportunity, the critical factors that ultimately determine venture creation activities are subjective and reside on the individual-level (Venkataraman & Harting in Hitt & Ireland 2005, p.102).

Entrepreneurial activity is thus the outcome of different sets of “social, human, moral, and intellectual capital of entrepreneurially-active individuals, and, even more importantly, the manner in which the pursuer combines and leverages this capital” (Venkataraman & Harting in Hitt & Ireland 2005, p.102).

This is represented by individuals’ subjective experiences and different social networks, which lead to a heterogenic perception and individual personality traits (Aldrich & Zimmer 1986, p.8) and yet again emphasizes the individualistic and idiosyncratic nature of the entrepreneur.

Hence, if subjective individual-level dispositions and idiosyncratic factors of individuals ultimately determine entrepreneurial activity, and socio-cultural factors influence the individuality of people, it is legitimate to assume that differences in national cultures may lead to variations in international entrepreneurial activity.

Additional questions emerge in response to the various constitutive elements derived from the study of historic economic theory (e.g. risk, innovation or market processes).

In assessing the potential effects of cultural influences, it is to be examined more closely whether specific patterns can be identified in entrepreneurs’ individual-level dispositions, whether (successful) entrepreneurs indeed show unique qualities (that reflect these elements) and distinguish them from non- entrepreneurs across cultures, and above all, what influences national cultural differences have on these aspects altogether.

2.1.4 A quick Synopsis of Findings and a Definition of Entrepreneurial Activity

Defining Entrepreneurial Activity

Prior to proceeding further and starting a more specific analysis of hitherto generated findings, a definition of the notion of entrepreneurial activity should be agreed upon. Obviously, an adequate definition would comprise previously generated findings as well as accommodate the further objectives of this work. In this regard, the following issues should however be acknowledged.

Many scholars have observed the multitude of available definitions of the entrepreneurship term and assert that a precise, centrally-accepted definition of the notion would rather be im possible (Low & MacMillan 1988, p.141; Brockhaus & Horwitz 1985). Also, Shane & Venkataraman (2000, p.217) have considered such an effort to be one of the biggest challenges of the field.

Besides its foundation upon sociological thought, this work nevertheless aims to generate a holistic view on entrepreneurship that integrates economical, psychological, as well as anthropological, i.e. crosscultural approaches (see chapter 1.2 on “Laying the research focus”). The definition sought after would therefore have to include all these focus areas.

From an economical point of view, some scholars take strategic management approaches. In Sharma and Chrisman’s view (1999), entrepreneurship “refers to acts of organizational creation, renewal or innovation that occur within or independent of an existing organization” (p.17). Speaking in more simple terms, other researchers differentiate the entrepreneur from the manager and see him as the owner- director or founder-manager of a venture (Evans 1957; Jennings 1994, p.37; Acs & Armington 2004, p.915). By emphasizing the entrepreneur’s autonomy from other stakeholders, other academic colleagues speak of entrepreneurs as self-employed individuals (Bögenhold & Staber 1990; Schuler & Rolf, 2000).

However - in agreement with Davidsson and Wiklund (2001). - this work favors a theoretical perspective that is free of any organizational constraints.

Therefore, present thesis considers a combination of contextual factors that merely encompass the abovementioned aspects of entrepreneurial motives, entrepreneurial opportunities and, irrevocably bound up with this, the subjective nature of the entrepreneur (Low & MacMillan 1988; Gartner 1988; Shane & Venkataraman 2000, p.217).

With the adoption of an ecological perspective, an adequate definition would further imply a deep level of analysis. It would, therefore, be sufficiently profound as to also encompass the other addressed levels, specifically the societal level beyond the micro level.

The following descriptions meet some of these criteria.

For example, Low and MacMillan (1988) apply a cultural perspective and citing Glade (1967), see an entrepreneurially engaged individual as a “decision maker operating in a specific social and cultural setting” (Low & MacMillan 1988, p.150), which Glade himself terms as “opportunity structure” (Glade 1967, p.251).

Similarly, Bygrave and Hofer (1991) view the entrepreneur as an individual who “perceives an opportunity and creates an organization to pursue it” (p.14).

Although focusing less on the entrepreneur, but rather on his actions and their idiosyncratic nature, Timmons (1994) speaks of the “process of creating or seizing an opportunity and pursuing it regardless of the resources currently controlled” (McDougall & Oviatt 2000, p.903).

Shapero (1975) also hints at some other inherent aspects of entrepreneurial activity observed in historical entrepreneurship theory; he highlights the entrepreneur's ambitious commitment, partly influenced by prior knowledge and experiences, partly by the perception of opportunity.

In summarizing the terminological thoughts on the term of “entrepreneurial activity”, it becomes apparent that most of these definitions meet the above-described criteria for an adequate definition as well as hitherto generated findings only to some degree.

An attempt to integrate all these aspects would, however, be inappropriate.

The resulting description would not merely be sufficiently concise. It would neither encompass all the inherent as well as the coherent aspects, nor would it be free of any potential contradictions resulting from the variety of these aspects.

It is therefore decided that, for this work, Low and MacMillan’s (1988) definition of entrepreneurial activity as the “creation of new enterprise” (p.141) is adopted.

Such a definition is broad enough. Although it does not explicitly focus on many of the relevant aspects, it does not ignore them either.

This is especially valid for the subjective aspects of entrepreneurship, which will be dealt with in the following chapter that comprehensively deals with the unique psychological characteristics of entrepreneurs.

Preliminary assumptions for further research

In an effort to identify some of the socio-cultural antecedents that might serve to explain entrepreneurial activity internationally, the previous chapters lead to some initial assumptions on the constitutive individual-level elements of entrepreneurial activity.

These initial assumptions especially emerged by uncovering many of the core interdependencies in entrepreneurship theory.

The generated findings provide many valuable insights and also lead to an equally large number of questions that require further clarification.

The figure given below illustrates this in an aggregated, but rough style.

[...]

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^[1] Earlier academic literature on the economic impact of entrepreneurship mainly stems from US-based research and among others includes Birley (1987), Baumol (1993) or McGrath (1999). Confirming findings of the positive economic effects of entrepreneurial activity on level and rate of economic growth in cities stem from Acs & Armington (2004). Investigations with a focus on less developed countries have been conducted by Harper (1991) as well as Rondinelli and Kasarda (1992).

^[2] In a more current, per-capita income dependent investigation, Van Stel et al. (2005) have examined, whether entrepreneurial activity influences GDP growth. Their results indicate that entrepreneurial activity, in developing countries might negatively impact GDP. As the authors however state, these findings, may also be the result of a lower amount of large organizations in these countries or lower levels of human capital.

^[3] The appendix of present thesis contains a detailed description of the constitutive factors of SME and the role of SME in determining domestic entrepreneurial activity in an international context.

^[4] Prominent examples for international initiatives aiming to extend knowledge about entrepreneurial activity are given with the ‘Entrepreneurship Indicators Programme’ (EIP) of OECD-Eurostat or the ‘Global Entrepreneurship Monitor (GEM)’. Besides measuring the level of entrepreneurship across countries, these research initiatives aim to identify the most influencial factors in order to be able to derive effective policies for positive a stimulation of domestic entrepreneurial activity (Reynolds et al. 2004, p.5).

^[5] Although network studies address social context, these are not specifically regarded in this paper, as they often tend to be too distant from culture on a national as well as on an individual level (Low & MacMillan 1988). But potentially valuable contributions in such a sense have been made by Aldrich and Zimmer (1986) as well as Gartner (1985).

^[6] In simple and generable terms, social science is a group of academic disciplines that deals with human behavior in the context of society and culture. Social science comprises the disciplines anthropology, sociology, social psychology, political science, and economics (Encyclopædia Britannica 2007; Marshall 1998).

^[7] Cantillon (1755) also understood the entrepreneur as seeking profit opportunities by bearing risk through fixed- price contracts, while not knowing actual prices of goods in advance (Chrisman & Kellermanns in Hitt & Ireland 2005, p.61).

^[8] Neoclassical economic theory argues that informational market inefficiencies can hypothetically be regulated by applying the concept of transaction costs (Alvarez & Barney in Casson 1990, p.63).