Chapter 5 ENTREPRENEURSHIP DEVELOPMENT ENVIRONMENT Entrepreneurship is not an inborn skill; it is a product of environment. It involves a complex of economic and social behavior. To be successful, an entrepreneur has to remain dynamic and responsible to the whole environment. Entrepreneurship can hardly survive under any given circumstances. It can flourish only under right environment. It is a part of total system. The social values, culture, government policies, political system, technology, economic conditions, laws, etc influence the growth of entrepreneurship.
In fact, the entrepreneurship can not be kept aloof from the changing social values, ideologies, new emerging aspirations, environmental pressures, religious beliefs, consumer wants, and society needs etc. Business is a system made up of certain environmental factors which require the entrepreneurs to adopt a dynamic attitude and a new strategy of their own. Entrepreneurship environment refers to the various facets within which enterprises- big, small and other have to operate. The enterprise is therefore, influenced by the environment.
By and large, entrepreneurship is influenced by an environment created by political, social, economic, national, legal forces, etc. Entrepreneurial environment is broadly classified into six important segments: 1. Political environment includes: (a) Political atmosphere (b) Quality of leadership 2. Economic environment includes: (a) Economic policies (b) Labor (c) Trade (d) Tariffs (e) Incentives (f) Subsidies 3. Social environment includes: (a) Consumer (b) Labor (c) Attitude (e) Opinion (f) Motives 4. Technological environment include: (a) Competition & risk b) Efficiency (c) Productivity (d) Profitability 5. Legal environment include: (a) Rules & Regulation (b) Legal obligation 6. Cultural environment includes: (a)Structural aspiration (b) Values. POLITICAL ENVIRONMENT Political environment affects the entrepreneurial growth and accelerate the process of economic activity. Law and order is of high propriety, followed by government policies in regard to the promotion of entrepreneurship, followed by incentives, encouragement and right institutional structure will go a long way in fostering entrepreneurship. ECONOMIC ENVIRONMENT
The entrepreneurial growth and development is also governed by the economic environment. It encompasses a wide spectrum of items, namely, land, availability of raw materials, skilled labor, infrastructure, machinery, capital and so on. Shortage of raw materials can be much adversely affect entrepreneurial environment and it has been affecting many industries. Shortage of raw materials, inferior quality, high price resulting in high cost of production are bringing bad name to small industry. Without raw- materials, no industry can run and no entrepreneurship would come up.
The more favorable the conditions of raw- materials are, better would be its influence on entrepreneurial emergence. The role and importance of market and marketing should never be under- estimated for the up rise of entrepreneurship. If the proof of pudding lies in eating, the proof of production lies in marketing. If the entrepreneur does not possess knowledge and various marketing technique, he is unlikely to survive. The size and composition of market both influence entrepreneurship in their own ways. The benefits of an improved and healthy market condition in the environment of entrepreneurial growth are self- explanatory.
Germany and Japan are examples where rapid improvement in market was followed by rapid entrepreneurial appearance. SOCIAL ENVIRONMENT Social environment strongly affect the entrepreneurial behavior which contribute to entrepreneurial growth. The social factors can be (i) family background (ii) Kith and kins (relatives, friends and teachers), (iii) religion, (iv) social status, (v) social mobility and (vi) social marginality. Family backgrounds greatly affect the entrepreneurial environment and maintenance of social system. Joint family or nuclear families have their own benefits and disadvantages.
There is more sentimental attachment of family members of joint family as compared to nuclear family. But even in nuclear families, sentimental association or emotional bonds are stronger in India as compared to those in the western countries. The environment of the family also influences the entrepreneurship. If rather the father is a professional or a businessman or the like, the son is more likely to adopt the same occupation because of certain inherent advantages by virtue of his father being in the similar line. Similarly, social status has its own role to play.
Every human being aspires for a high social status and once he achieves a reasonable level, his aspirations and desires for it start getting multiplied. People, therefore, become quite responsible in the wake of protecting and developing desire their status. Chester Barnard said that the desire for improvement of status and especially the desire to protect status appear to be the basis of a sense of general responsibilities. People work hard to maintain their status as it also contributes to their entrepreneurial growth. Caste and religion of entrepreneurs are the contributory factor of entrepreneurial development.
History reveals that the entrepreneurial traits do not belong to a specific caste rather the entrepreneurs emerge from varied communities. James Berna conducted a study of 52 medium – scale manufacturing entrepreneurs and found that his firms had mostly grown from small beginnings and his entrepreneurs had to face formidable obstacles but their enterprise did grow. But sociologists still claim that caste and religions do have an impact on the environment. For example, paresis of Maharashtra, Jains of Rajasthan and Gujarat have been the mainsprings of entrepreneurial activity.
Social mobility involves the degree of social and geographical mobility and the nature of mobility channels within a system. These are varied opinions about the influence of social mobility on the entrepreneurial environment. Hostelitz and McClelland’s needs for openness of a system and flexibility in role relations respectively reveal an imperative role of mobility within a system for entrepreneurial development. Their viewpoint is that high degree of social mobility would possibilities promote entrepreneurship.
Brozen’s emphasis is that the system should neither be too flexible nor too rigid because the former would pull the entrepreneurs away from his role and the latter would restrict the entrepreneurs. However, social mobility does not work in the system in isolation but there are many other factors which influence the entrepreneurial environment. Social marginality also positively influences entrepreneurship. Stauworth and Curran stress that a person belonging to a social group traditionally constrained to enter economic activity and barred from many other activities y the society is expected to choose the owner manager role in a small industry. TECHNOLOGICAL ENVIRONMENT Technology represents the application of scientific knowledge for practical purposes. While the 20th century and certainly the 1st half of up to 1950 gave us a massive industrial base, shift from agriculture and rural life to urban life, utilization of energy and power for our benefit, the ongoing progress of technology through R & D efforts have led to more comfortable lifestyles. The last three decades of the 20th century brought in what we call an Information Revolution.
Technological advancement has become a catalytic agent in the promotion of entrepreneurship growth of industrial and allied services. Thomas DeGregori sets forth thirty operational principles demonstrating that technology creates and that with intelligent policies in science out society can be sustainable and will continue to invent new resource creating technologies. Conversely, he argues, “Living within limits; is a course that, if followed, would lead to certain decline and destruction”. The technological impacts on agriculture, industry are immense.
Further, technology brings in cultural changes as well as the quality of life. Technological development continues to give fillip to entrepreneurship in multi- facet manner, affecting the life of the entrepreneurs as well as the common man. The entrepreneurs endeavor is to stay ahead technologically in product and service with a penchant for quality. This will not only enhance profits, but also maintain balance in the ecosystem. Next two decades will see a knowledge revolution, leading to large- scale adoption of new technologies in India.
Most of them will be based on information technology using tools such as computer and mobiles phones for processing, storage and transfer of data, internet communication and e- commerce. Many new industries, arising out of application of new technologies, will flourish in countries of Asia, depending on their stage of economic and technological development. The knowledge revolution has made it possible to routings processes- a shift from the traditional manual control of conventional machinery for using the computer brain to operate the machinery.
Computer software is an alternate way to recognize traditional work processes, through application of overseeing knowledge aided by systematic, logical analysis. LEGAL ENVIRONMENT There are various rules and regulations applicable to different groups of industries, for various purposes. Some of them relate to: Registration, licensing, pollution, Acquision, payment of wages and labor related laws, pollution and environmental rules, laws relating to organization, product, patent, resource and taxes. According to a recent study, there are over 150 legal requirements an entrepreneur has to take care off.
Some legal entity may be a business, a government agency, or a large non- profit organization may well contain in its fold a network of diverse autonomous organization. The old model of corporation is fast becoming obsolete and is being replaced by new ones. We are witnessing the operation of Schumpeter’s doctrine of “creative destruction” in practice. Traditional geocentric ways of industrial operations are being replaced by innovative, multi- location industrial operations tapping the synergies of “outsiders” from different countries.
This is happening in china and India now: and in countries like Korea, Singapore, Thailand and Malaysia this process began almost a decade or two ago. Indeed Australia, being closely aligned to the western countries, had the advantage of a head start. CULTURAL ENVIRONMENT Every organization has an invisible quality –a certain style, a character, a way of doing things that may be more powerful than the dictates of any one person or a formal system. This invisible quality “the corporate culture” decides how effective the organization is in the marketplace.
Achieving cultural changes to maintain a prime market position is the key preoccupation of every chief executive these days. Max Weber emphasizes that cultural factors have a crippling effect on entrepreneurial growth. Culture consist of (i) tangible man- made objects like furniture, buildings etc. (ii) Intangible concepts like laws, morals, knowledge etc. (iii) Values and behavior acceptable within the society. Catalyzing changes in corporate cultures by managing people and talent better seems to be the new mantra on the Indian corporate landscape.
Better people management is being recognized as the key to sustained success- from managing internal relationship to building corporate cultures that nurture talent. Gone are days when the dictate ran down from the top and the boss words were carved out in stone. In place of fear and destruct of management policies, is creeping in, slowly but surely, a culture of inclusiveness and openness which starts at the very bottom of the ladder. There is a growing understanding that it is people driven strategies that sow the seeds of consistent growth.
Hence, there is a growing demand for change managers and culture interventionists who are putting in place a wide range systems and templates which handle issues from employee attrition rates to the business perceptions within the company, to nurturing talent by matching people with the right jobs and bringing in new talent. Besides, demographic advantages, other factors that will contribute to the shifts in economic power are cultural traits, lifestyles, new technologies, and globalization.
Demographically young nations capable of efficient absorption and application of new technologies enabling sharper completion in business, will not only thrive, but will emerge as key drivers of globalization. The pace of India’s ascendancy will be accelerated, when India move up the value chain, supplying high- value product and services in the global market. The emergence of the internet will provide added thrust to the process. Environment & Entrepreneurial Urge: Entrepreneurship is the creative ‘elan’ of industrial development which for historical reasons is feeble in backward areas especially in the region of eastern Uttar Pradesh.
It is not feasible to expect entrepreneurial urge among people who live in poverty, illiteracy and ignorance. Conceptualization of entrepreneurship in term of self-confidence, optimism, achievement motivation and other such attributes constituting the variable, residual non –marketed services receiving the residual profit income as payment (Kilby) does not have any meaning in backward areas; because these qualities themselves need a minimum of economic well- being below which the hard preoccupation with the basic need life leaves no room for critical reflection and initiative necessary for any enterprise.
Entrepreneurial qualities are born of an environment through individuals’ creative response to potential opportunities. An entrepreneur needs a clear perception of economic opportunities and the investment capacity to pursue these opportunities. In Gorakhpur division where the basic struggle for existence is so tough, per capita income so low and where illiteracy or low level of education prevents access to business information or ideas, there is neither perception of opportunities nor the capacity to exploit these opportunities.
Not only the environment is timid without brisk activities or aggressive idea but also men are too deprived to have an urge to know and grow. When we think of the development of backward areas, we must think of the ascent of these lowly men to the capacity to participate in the development process, into the cosmetic growth of the soil by outsiders’ investment and outsiders’ profit. No effort will be successful to convert such people into entrepreneurs unless we realize the basic symbiotic nature of entrepreneurship so inextricable integrated with their total life – situation and environment.
Therefore, in developing an environment and changing the life- situation, we take the first step to develop entrepreneurship. Significance of Entrepreneurial Environment: A study of socio- political and economic environment has a great social and economic significance to the growth of entrepreneurship. Modern business is treated as a social and economic institution and is affected by the political, social and economic forces. The political environment, industrial policy, licensing policy, foreign exchange regulations, banking policy, technological development and social change from the framework within which an enterprise has to work.
It is for these reasons that all business plans must be based on the immediate environment. An entrepreneurial plan cannot be framed and finalized for its implementation without its relevance to the political, social, economical and technological requirements. In fact, it is environment which regulates entrepreneurial activities. Business environment has a positive relationship with the development of entrepreneurship. Relationship between Entrepreneurship & Business Environment Business environment is a combination of various dynamic, complex and uncontrollable external influences within which an entrepreneur has to function .
Environment includes those pressure and controls which are usually out of control of an entrepreneurial firm. The factors of environment may changes from time to time in accordance with changing conditions in a country. The environment contains the external factors which pressure, risks, challenges, opportunities, gains, and threats for the entrepreneur. Entrepreneurship is influenced by various factors such as: (a)Political stability and government policy. (b)Educational System. (C)Technical advancement & knowledge. (e) Achievement motivation. f)Availability of supporting facilities. (g)Family background. (h)Caste and religious affiliation. (i)Cultural values. Entrepreneur is a product of environment. Entrepreneurial traits are born of an environment through individuals’ creative response to potential opportunities. Both entrepreneur and environment are dependent on each other. All external environments affect the working of an entrepreneur. But entrepreneur also change the environment. The influence of entrepreneurial acts on the external environment especially on the society can be measured easily.
National Environments for Entrepreneurship The volume and success of the entrepreneurial activity in a country depends on the independent economic decisions of each of its residents. The probability that residents will participate in entrepreneurial ventures is based on their individual motivation to become entrepreneurs, ability to undertake entrepreneurial activities, and perceptions about the opportunities that are available to them (Gnyawali & Fogel, 1994). National environments can influence each of these factors.
Government policies that provide entrepreneurs with financial assistance via subsidies, preferential procurement, or favorable tax policies (we call this a strong regulatory environment for entrepreneurship) increase the opportunities available for new ventures and small businesses. In countries in which business education and training programs are prevalent and residents understand how to found and manage a new business (we call this a strong cognitive environment for entrepreneurship), individuals are more likely to hold the ability to successfully manage their own company.
Finally, in countries in which entrepreneurial activity is valued and admired (we call this a strong normative environment for entrepreneurship), more individuals are likely to be motivated to found a new business or manage a small business. These regulatory, cognitive, and normative environments form three pillars of support for a country’s entrepreneurial activities (Busenitz, Gomez & Spencer, 2000; Kostova, 1996; Scott, 1995). Governments vary in their preferences for promoting one sector of economic activity over another.
Some governments may prefer to avoid interfering in their domestic marketplace by prioritizing one sector over another. And a few governments may even prefer to discourage entrepreneurship. We suggest that governments that choose to promote domestic entrepreneurial activity will be best off if they implement policies to strengthen all three of the relevant pillars— regulatory, cognitive, and normative. Public policies targeting the regulatory environment can improve the opportunities available to entrepreneurs by offering small businesses financial incentives or preferential treatment in government procurement.
Governments can strengthen the cognitive environment, and thus increase the abilities of entrepreneurs, by offering government-sponsored training programs or consulting services. And by improving the normative environment for entrepreneurship — for example, by using the bully pulpit to sway public opinion toward an admiration of entrepreneurs — governments can increase the motivation of entrepreneurs. The process by which a strong environment for entrepreneurship emerges in a country is incremental and cyclical.
An increase in the number of small businesses in a community will prompt new entrants or established businesses to invest in profitable ventures that support entrepreneurship. For example, small businesses are likely to patronize consulting services, law firms, accountants, and other business service providers who target their services toward the entrepreneurial sector. Likewise, as the number of new ventures increases, financing mechanisms such as venture capital and bank loans aimed at entrepreneurs, may emerge as potentially lucrative investments for financial organizations.
Similarly, a growing entrepreneurial sector is likely to attract the attention of publishers, who may introduce magazines targeted at entrepreneurs, and schools and universities, which may begin offering courses and degrees in entrepreneurship. An increase in the number of entrepreneurs in a country also gives a stronger voice to small business interest groups, and therefore increases the chances that government officials will offer policies that promote new business development.
And the presence of these newly established support services and government programs, in turn, should facilitate the entry of the next generation of entrepreneurial ventures. Therefore, countries that are able to provide an impetus for entrepreneurship in their domestic economies may be able to place them on a trajectory of increasing small business growth over time. Environments for Entrepreneurship Development: Key Dimensions and Research implication. The term “entrepreneurial environment” refers to a combination of factors that play a role in the development of entrepreneurship.
Empirical studies on the entrepreneurial environments of various countries show that countries that keep rules and regulations at a minimum, offer tax and other incentives, and provide training and counseling services to start-up entrepreneurs increase the likelihood of new venture development (Dana 1987, 1990). Furthermore, factors such as the availability of financial resources, being in large urban areas, and the presence of universities for training and research are also found to be very important in increasing the rate of new venture creations.
Studies also show that entrepreneurs face several obstacles including lack of financial assistance, lack of information on various aspects of business, excessive taxation, and high rates of inflation (young and Welsch 1993; Fogel 1994). Scholars recommend a variety of policy options for developing entrepreneurship. These may include providing venture capital funds, tax-based incentives, and government procurement programs; protecting proprietary ideas and innovation; investing in education and research; rewarding entrepreneurship; and minimizing entry barriers (Goodman, Meany, and Pate 1992; Zapalska and Fogel 1998).
There seems to be an agreement among researchers that the more conducive the business environment, the more likely new businesses will emerge and grow. Individuals are more likely to be encouraged to start a business when the social environment values entrepreneurship, opportunities are available, and entrepreneurs have sufficient knowledge and skills to start and manage a business. The encouragement of private business activity has been an important element in the economic transformation of Eastern Uttar Pradesh.
Research shows that small business development in Western Uttar Pradesh has been influenced to a great extent by a unique entrepreneurial environment, and the availability of economic inputs (capital, labor, material, and technology). This study examines which elements of the entrepreneurial environment could be improved to foster entrepreneurial growth. Conceptual Framework The environmental conditions of entrepreneurial activities in Eastern Uttar Pradesh were examined using Gnyawali and Fogel’s (1994) conceptual framework.
This framework uses five dimensions: (1) financial assistance; (2) non-financial assistance; (3) entrepreneurial and business skills; (4) socioeconomic conditions; and (5) policies and procedures for entrepreneurial activities. 1. Financial Assistance to Small Businesses: Generally, entrepreneurs require financial assistance for at least one of three purposes: to diversify or spread the start-up risk, to accumulate start-up capital, and to finance growth and expansion.
While availability of financial resources appears to be a major predictor of the frequency of new business start-ups, many lenders seem to be unwilling to invest in high-risk projects or tend to withhold support until the firm has been established successfully (Pennings, 1982). One out of three businesses funded by venture capital companies in the US have resulted in financial loss to venture capital firms; consequently, venture capital companies are “simply inappropriate for most start-up firms” (Bhide, 1992, p. 11). In most developing countries and emerging market economies, only a few venture capital companies and commercial banks are available and alternative sources of financing are almost non-existent. Thus, a paradox emerges: entrepreneurs cannot start a business without financial assistance; they do not have access to financial institutions and cannot secure financial assistance if they lack prior business experience.
Most commercial operations such as venture capital firms and commercial banks tend to exhibit greater interest in concentrated, urban areas that usually have a well-developed infrastructure and concentrated demand for funds, in areas where businesses are easier to supervise and monitor, and in businesses that have demonstrated some potential for success (e. g. Fried & Hisrich, 1988). Also, most bankers, especially commercial ones, may hesitate to finance small start-up firms because of the high costs involved in the processing and supervision of loans.
Moreover, most bankers lack the kind of experience and capability needed for understanding and responding to the special needs of small entrepreneurs. Research has shown that creation of investment companies, provision of low-interest loans, and availability of credit guarantee schemes for small business financing have all contributed to the establishment of new businesses (Dana, 1987; Harrison & Mason, 1988; Hawkins, 1993). 2. Non-Financial Assistance to Small Businesses: Entrepreneurs need support services in addition to financial assistance.
In particular, entrepreneurs need most assistance in conducting market studies, in preparing business plans, and in getting loans. Business incubators can play a major role in providing a variety of services to start-up entrepreneurs. As most incubator facilities provide office space, common office facilities, faster and efficient means of communication, and counseling and advisory services to their tenants at low costs, incubators can be very helpful in places where infrastructure is not well developed or where modem physical facilities are costly.
Entrepreneurs spend nearly half of their time during their start-up phase in making contacts and networks with other entrepreneurs and related agencies. Therefore, networks are useful mechanisms to enhance business capability of entrepreneurs. Networks provide four essential ingredients to entrepreneurship support and motivation; examples and role models; expert opinion and counseling; and access to opportunities, information, and resources. The forms of network include trade fairs, entrepreneurial fairs, associations and clubs. Studies have shown the importance of small business assistance programs to developing entrepreneurship.
In this study researcher found that the presence of business development assistance was significantly correlated with the share of jobs created by small firms. In this study it is found that, many entrepreneurs expressed a need for better information services, especially in rural areas, including most of Kushinagar District. They lacked basic economic information such as forecasts, business directories, legal notices, and data on the SSI sector they also wanted advice on how to become more competitive, deal with banks, and find trade and investment partners in the region.
Government procurement programs and subsidies for research and development are also important for entrepreneurs (Goodman, Meany, & Pate, 1992). Further, research has shown that provision of management and entrepreneurship training programs, various forms of start-up incentives (e. g. , tax concession, exemption of custom duty), and provision of consulting services enable a person to start a business. Certain infrastructural elements seem to make substantial impact on the entrepreneurial environment.
These elements include the existence of universities and research and development programs, a well-educated and technically skilled labor force, and modern transport and communication facilities that provide easy access to suppliers and customers. Galbraith and Noble (1988) show that firms make location decisions based on the community’s ability to supply trained and capable workers and on the proximity to research and development institutions. 3. Entrepreneurial and Business Skills:
The level of technical and business skills is also a major factor in successfully starting and developing a small business. Unless entrepreneurs are well equipped with technical and business skills, they may not be able to overcome problems at different stages of their firm’s development. Research shows that the need for training programs is greater in regions where external assistance and preferences for small business are limited. In Gujarat, both business-related experience and business education were highly correlated with the entrepreneur’s ability to start and manage a business.
Training and educational services are particularly important in emerging market economies because entrepreneurs lack basic business skills. The researcher found that around 30 percent of the Gorakhpur division entrepreneurs surveyed requested training in the areas of preparing business plans, decision-making, negotiating, pricing, market penetration, handling of cash-flow organization, and managing the business. 4. Socioeconomic Conditions Entrepreneurship may not prosper if most members of the society view it with suspicion.
A favorable attitude of the society toward entrepreneurship and a widespread public support for entrepreneurial activities are both needed to motivate people to start a new business. In fact, social factors may be equally important as availability of loans, technical assistance, physical facilities, and information: 5. Government Policies and Procedures Governments can influence the market mechanisms and make them function efficiently by removing conditions that create market imperfections and administrative rigidities. They can also create an “enterprise culture” that enables firms to take reasonable risks and seek profits.
Entrepreneurs may be discouraged to start a business if they have to follow many rules and procedural requirements, if they have to report to many institutions, and if they have to spend more time and money in fulfilling the procedural requirements (Dana, 1987, 1990; Young & Welsch, 1993). The Uttar Pradesh recently introduced Value Added Taxes (VAT). This intervention was perceived negatively by most entrepreneurs because it has added more confusion to this emerging market economy and increased already cumbersome procedural requirements entrepreneurs needed to follow.
The more fundamental forces bringing entrepreneurship about, such as family, the presence and effectiveness of social networks, or attitudes supportive of entrepreneurship, receive virtually no serious attention from formal economic development programs if entrepreneurial development is to be more than a token collection of programs, it is imperative that individuals sympathetic to entrepreneurial thinking be spread throughout community structures and organizations, non-profits, for profits and government bodies.
Mokry (1988) suggests that local communities can play an important role in developing an entrepreneurial environment. For example, close relatives can help entrepreneurs seek out solutions, locate resources, and assemble a team of willing people to address the entrepreneur’s problems. The presence of experienced entrepreneurs and successful entrepreneurial role models in a community or country conveys a message to the potential entrepreneurs that business is an attractive career option.
Conversely, negative public attitude towards entrepreneurs coupled with the lack of role models may discourage people from going into business. For example, in Eastern Uttar Pradesh there exists a general feeling in the society that every one must get the job service specially ‘sarkari naukari’ (Govt. Job). Thus, it discourages the right kind of entrepreneurial environment, and demoralizing the youth for self employment. Societies and cultures that value entrepreneurship tends to develop societal systems to encourage it.
For example, it is often recognized that among people of Chinese origin, entrepreneurial role models encourage people to go into business supported by close networks of family members and relatives (Kao, 1993; Siu & Martin, 1992). Government and Entrepreneurship Development Institutions can organize programs in order to develop societal awareness towards entrepreneurship and make people recognize the importance of being entrepreneurs. For example, the Australian government has eased immigration procedures for foreigners with a business idea, capital, and experience (Dana, 1988).
Similar examples can be found in many other countries, suggesting that positive societal factors help attract potential entrepreneurs to start a business. The need for such motivational factors is generally higher in countries where entrepreneurial awareness is low than in countries where such awareness is high (McClelland, 1961). Tax and other start-up incentives have a greater impact when people have greater motivation to go into business. Economic factors such as proportion of small firms in the population of firms, extent of economic growth, and diversity of economic activities also influence the rate of new venture creation and growth.
Research has shown that the greater the percentage of small firms in growing sectors, the greater the share of jobs created by small firms in the industries operating in those sectors (Phillips, 1993). Firms are more likely to grow if they are in highly innovative industries than if they are in less-innovative industries. Feiock’s (1987) research has shown that cities having a larger number of economic development programs achieve a higher rate of growth in new venture establishments than cities having a smaller number of such programs.
Factors such as high sophistication of buyers, strong distribution channels, and intense rivalry among existing firms provide an opportunity for entrepreneurs to pursue innovation. The foregoing discussion shows that the existences of various environmental conditions increase the chances of emergence and growth of entrepreneurial development in a country. Though a single factor may have less significant impact, the interaction of various factors may considerably increase the impact on entrepreneurial development in a country. If a development program improves only one [of these] factors, the results may be quite meager, perhaps not worth the efforts and expense. To improve a properly selected combination of factors may, on the other hand, prove highly effective” (Staley & Morse, 1971, p. 361; emphasis in original). For example, without having some business opportunities in the environment, and without having motivated and capable entrepreneurs in starting a business, any amount of financial assistance or government procurement system may not increase entrepreneurial activity.
Without having some opportunities in the environment, entrepreneurs will not be able to start a business; and, even if they start, they are likely to fail. Therefore, some conditions appear important only when the conditions of primary importance exist. To understand what conditions are of primary importance or how the factors interact, it is necessary to look at the core elements of new venture creation. The next section discusses these core elements and matches the core elements of new venture creation to environmental conditions in our framework.
CORE ELEMENTS OF A VENTURE CREATION PROCESS Some key factors may lead to an increase in a person’s desire and decision to start a business. Examples of such factors include a person’s perception of desirability and feasibility of starting a business or the person’s propensity and intention to found a business and his or her sense-making about the environmental forces. Vesper (1990) identified four elements in venture creation: a profitable business opportunity, technical know-how of the entrepreneur, business know-how of the entrepreneur, and entrepreneurial initiative.
Thus, some literature suggests that for an entrepreneur to start a business, he or she should perceive that a profitable opportunity exists, should feel confident that he or she possesses necessary skills to go into business, and should take an initiative for starting a business. This chapter builds on these factors, especially those articulated by Vesper, by redefining Vester’s term “initiative” as “propensity to enterprise” (El-Namaki, 1988) and combining the “technical know-how” and “business know-how” into “ability to enterprise. Thus, we conceptualize the three key elements of a venture creation process as opportunity, propensity to enterprise, and ability to enterprise. 1. Opportunity Opportunity refers to the extent to which possibilities for new ventures exist and the extent to which entrepreneurs have the leeway to influence their odds for success through their own actions. Entrepreneurial opportunities tend to be higher in economies that are deregulated, where market mechanisms operate freely, and where entrepreneurs have to face very few barriers to entry (El-Namaki, 1988).
Thus, government policies and procedures affect the business opportunity. The opportunity will influence an entrepreneur’s propensity to enterprise and ability to enterprise. 2. Propensity to Enterprise A stream of research on entrepreneurship emphasizes the psychological and behavioral characteristics of entrepreneurs. The most common of these are the high need for achievement (McClelland & Winter, 1969), capacity to innovate (Schumpeter, 1934), internal locus of control (Shapero, 1977), propensity for taking risks (Brockhaus, 1980), and key entrepreneurial characteristics.
People that have an urge for excellence, willingness to take moderate risk, and desire to be independent are very likely to become entrepreneurs (McClelland, 1961). A study conducted in various countries (Management Systems International, 1990) found ten behavioral characteristics of successful entrepreneurs. These characteristics are opportunity seeking and initiative, persistence, risk taking, demand for quality and efficiency, commitment to work, goal setting, information seeking, systematic planning and monitoring, persuasion and networking, and independence and self-confidence.
The literature on personal entrepreneurial competencies argues that people with certain behavioral characteristics are able to perceive the opportunities available in the environment, seize such opportunities, and then turn such opportunities into profitable ventures. Yet, a personality or behavioral profile is not a sufficient condition for people to go into business. An individual with high propensity to start a business is more likely to go into business when he or she sees several business opportunities in the environment.
Furthermore, the propensity to enterprise will be enhanced when an individual feels confident in his or her ability to enterprise. 3. Ability to Enterprise Ability to enterprise refers to the sum of technical and business capabilities required to start and manage a business. While “technical capability” refers to the technical skills, “business capability” refers to the knowledge and skills in various functional aspects of business (Vesper, 1990) such as business planning, product development, marketing, personnel management, general management, accounting, finance, etc.
Furthermore, as entrepreneurs face resistance from customers, investors, and several other stakeholders, they require some political and strategic planning skills in order to succeed in their endeavors (MacMillan, 1983). Without having the ability to enterprise, entrepreneurs may not be able to seize the opportunities available to them and successfully go through various start-up activities or manage the on-going business. Individuals with the necessary ability to enterprise, when combined with enhanced propensity to enterprise, will increase their chances of going into business.
And, once they are in business, they are most likely to be the winners (Vesper, 1983). A crucial requirement in the process of new venture creation is a match between the opportunity, the propensity to enterprise, and the ability to enterprise. While the opportunity may enhance one’s propensity to enterprise, persons with high propensity to enterprise will perhaps be able to identify the opportunities in the environment. Similarly, ability to enterprise may depend upon the nature of available opportunities. Some people may have high engineering skills but the opportunity for the use of such skills may be low.
Persons with a high ability to enterprise may also be more able to locate opportunities than those with lower ability to enterprise. The likelihood to enterprise increases with an increase in the propensity and ability to enterprise and a match with available opportunities. Thus, a high level of opportunity, propensity to enterprise, and ability to enterprise will positively correlate with an individual’s likelihood to enterprise. Each aspect of environmental condition is related to a specific aspect of the core elements of new venture creation.
Generally, the availability of opportunities is a primary element for enhancing the propensity and ability to enterprise and consequently the likelihood to enterprise. The dimension of the environment that directly relates to the opportunity is macroeconomic policies and procedures. The better the legal and institutional framework for efficient functioning of the markets and the fewer the barriers that constrain people to pursue business opportunities, the greater the likelihood of business start-up. The dimension of the environment that relates to the propensity to enterprise is socioeconomic factors.
The greater the importance placed by the society on entrepreneurial values and behaviors, the larger the proportion of experienced entrepreneurs and role models, and the higher the societal recognition of entrepreneurial performance, the more likely that the propensity to enterprise is high. The dimension of the environment that relates to the likelihood to enterprise is the level of entrepreneurial and business skills. The greater the availability of technical and business-related training, the greater the ability of the potential entrepreneurs to start and manage a business.
Thus, if people have a high propensity to enterprise but a low ability to enterprise, environmental interventions will need to develop the entrepreneurial and business skills of these people. Conversely, if people have high ability to enterprise but a low propensity to enterprise, environmental interventions needs to be oriented towards making the socioeconomic conditions conductive for entrepreneurship. The above analysis suggests the following propositions. P1: The higher the opportunity, propensity to enterprise, and ability to enterprise, the higher the likelihood to enterprise.
P2: The more favorable the socioeconomic factors, the greater the propensity to enterprise. P3: The greater the entrepreneurial and business skills, the greater the ability to enterprise. P4: The more favorable the government policies and procedures, the higher the opportunity to enterprise. As argued earlier, a person with high propensity to enterprise may enter into business; yet the person is likely to fail either at the start-up stage or afterwards if he or she lacks the ability to enterprise. Conversely, a person with high ability to enterprise but low propensity to enterprise lacks adequate motivation to venture into business.
Successful entrepreneurship thus requires high levels of propensity and ability to enterprise. Therefore, P5: The higher the likelihood to enterprise, the higher the new venture creation. Financial and non-financial assistance appear important only if the overall likelihood to enterprise is high. The studies (e. g. , Davidsson, 1991) have shown that tax and other incentives were important when people had higher motivation to go into business. Therefore, P6: The higher the likelihood to enterprise and the greater the availability of financial and non-financial assistance, the higher the new venture creation.
Ideally, research aimed at studying entrepreneurial environments should include entrepreneurs, policy makers, entrepreneurship development institutions, and the general public as key informants. This is because it is the perception of entrepreneurs about the environment that shapes their actions; it is the set of policies and actions of the government and the set of programs of the business development organizations that influence the opportunity, propensity to enterprise, and ability to enterprise.
And, it is the overall attitude of the general public that influences the propensity to enterprise. Entrepreneurship development institutions need to be taken as key informants to study the ability to enterprise and the entrepreneurial and business skills dimension of the environment. An important agenda for research is to identify the relative importance of each factor in developing entrepreneurship. It would be useful to know the relative importance of each factor as assigned by entrepreneurs, policy makers, and entrepreneurship development agencies working in the country.
Overall, the arguments above suggest that before developing specific policies and programs, governments could focus on analysis of the extent of the opportunity, propensity to enterprise, and ability to enterprise, could identify weak areas, and then formulate policies and programs to strengthen the weaker areas. While a growing body of literature exists on entrepreneurial environments, the literature is highly fragmented. Some scholars have prepared a list of environmental conditions that may play a role in developing entrepreneurship in a country or region (e. g. , Bruno & Tyebjee, 1982; Gartner, 1985; Manning, Birley, & Norburn, 1989).
Others have a more descriptive approach to show “what is out there” in a particular country or region (e. g. , Dana, 1987, 1990; Davidsson, 1991; Doutriaux, 1988; Hawkins, 1993; Swanson & Webster, 1992). Still others have focused on what governments can do or have done to develop entrepreneurship (e. g. , Goodman, Meany, & Pate, 1992; Mokry, 1988; Westhead, 1990). Thus, while the role of environmental conditions in developing entrepreneurship has been recognized, most of these studies have been fragmented, highly descriptive, and focused on only a few aspects of the environment.
More importantly, most of the literature has neither paid adequate attention to the needs of the entrepreneur–the main beneficiary of the environment–nor described the environmental conditions in terms of the process of new venture creation. Gaps are evident in the literature. First, a conceptual framework is lacking to integrate the available literature on entrepreneurial environments. Second, explicit links have not been established between the needs of entrepreneurs and how environments can fulfill entrepreneurs’ needs, induce or reinforce their desire to go into business, and thus facilitate the process of new venture creation.
Third, limited guidelines exist to conduct empirical research on entrepreneurial environments. Finally, a limited body of literature addresses the needs of policy makers despite the recognition of this group as an important audience for research on entrepreneurship (Hoy, 1989). In an attempt to bridge these gaps in the literature, we first develop a conceptual framework to integrate existing literature on entrepreneurship environments. LITERATURE ON ENTREPRENEURIAL ENVIRONMENT In this chapter, we refer to an “entrepreneurial environment” as a combination of factors that play a role in the development of entrepreneurship.
First, it refers to the overall economic, socio-cultural, and political factors that influence people’s willingness and ability to undertake entrepreneurial activities. Second, it refers to the availability of assistance and support services that facilitate the start-up process. One can group the available literature on entrepreneurial environments into three broad streams: (a) general environmental conditions for entrepreneurship; (b) descriptive studies of the environmental conditions of a particular country or region; and (c) the role of public policy in shaping the entrepreneurial environments.
General environmental conditions discussed in the literature include legal and institutional frameworks for efficient functioning of private enterprises, presence of experienced entrepreneurs, presence of skilled labor force, accessibility of suppliers, accessibility of customers or new markets, high degree of competition among firms, favorable government policies, provision of training and support services by entrepreneurship development institutions and support agencies, and supportive infrastructure (Gartner, 1985;).
In addition, the literature suggests that the characteristics of people, their skills, experience, and motivation, play important roles in new venture creation (Manning, Birley, & Norburn, 1989). Empirical studies of entrepreneurial environments of various countries show that countries that keep rules and regulations at a minimum, offer tax and other incentives, and provide training and counseling services to start-up entrepreneurs increase the likelihood of new venture start-ups (Dana, 1987, 1990).
Furthermore, factors such as availability of financial resources, large size urban areas, and presence of entrepreneurship development institutions for training are found to be very important to increase the rate of new venture creation (Pennings, 1982). Studies also show that entrepreneurs face several obstacles, such as lack of financial assistance, lack of information on various aspects of business, excessive taxation, and high rate of inflation (e. g. , Young & Welsch, 1993).
Scholars that focused on the role of public policy (Goodman, Meany, & Pate, 1992; Westhead, 1990) suggest several policy options for developing entrepreneurship. These policy options include provision of venture capital funds, tax-based incentives, and government procurement programs; protection of proprietary ideas and innovations; investment in education and research; explicit recognition of, and support for, entrepreneurship by government agencies; fostering of entrepreneurship by educational institutions; and minimization of entry barriers. See Goodman, Meany, & Pate (1992) for a further review of activities governments have undertaken to stimulate entrepreneurship. ] Some commonalities exist among these streams of literature. First, there is agreement among scholars that the more conducive the business environment, the more likely that new businesses will emerge and grow. People will more likely be encouraged and feel competent to start a business when the social environment values entrepreneurship, when various opportunities are available for entrepreneurs, and when they have sufficient knowledge and skills required
To start and manage a business the willingness and capability to start a business may be further enhanced if potential entrepreneurs do not face hurdles during the start-up process and if they are confident that outside expertise could be obtained easily when necessary. Governments both directly and indirectly affect the development of an environment that could support entrepreneurship.
This literature also suggests that the need for the development of a unique environment may be greater in emerging market economies and in developing countries because of the low level of entrepreneurial activities and several environmental hostilities operating in these countries (El-Namaki, 1988; Segura, 1988). This is because “there is sufficient evidence that environmental forces ranging from purely cultural and social currents to ingrained government bureaucracy go quite a long way towards straining the driving force behind entrepreneurs (El-Namaki, 1988, p. 01). Furthermore, compared to large-scale enterprises, the need for a conducive environment could be greater in the Case of small-scale enterprises because such enterprises may have little control over the environment in which they operate (Pfeffer & Salancik, 1978). These enterprises may lack resources and “political clout” that usually are needed to influence an enterprise’s environment.
While scholars generally agree on the importance of several environmental conditions for entrepreneurship development, the list of environmental conditions is so fragmented that the available literature is of very little help in studying entrepreneurial environments or in developing policies and programs for entrepreneurial development. For example, we know little about the relationship among various elements of the environment and about the relative importance of each element in developing entrepreneurship. ENVIRONMENTAL ANALYSIS
This integrated approach which is the key to the development of backward areas implies a very careful environment analysis or research study of the target groups of beneficiaries, their activities and differential needs: and the practical modes of operation by which their activities can be linked with the covering enterprise. Unless these studies are made meticulously, the entire planning will only give unproductive results. Most of the development schemes fail to benefit the target clientele because elaborate linkages are not identified and built up. An imagination study should- . Identify the beneficiaries or target groups, 2. Analyze the environment for immediate feasible enterprise in an integrated manner, 3. Delineate the linkages and institutional arrangements, 4. Recommend the appropriate organizational structures to provide necessary promotional support. Unfortunately, in most of the studies on backward areas, there is a tendency to make generalization and ignore the specific details of really feasible projects. As a result, immediate perception of concrete opportunities by interested entrepreneurs is left in confusion.
Sometimes “Area Studies” make a general statement of demand and resources and recommend certain enterprises which are not immediately feasible due to important reasons unaccounted for in such studies. It is also not seriously contemplated whether the recommended enterprises are feasible within the capabilities and investment capacity of the target – group. In short, most of the studies fail to discern the real issues of growth in the target area and fail to identify the concrete and specific needs of these endowments like resource, skill etc. to flourish.
Enunciation of general objectives and generic beneficiaries tend to blur the distinct contours of one homogeneous group from the other. Also, the extension of certain standard facilities or service does not serve their actual needs. All this possibly happens because in such basic studies, we fail to identify clearly the target – groups and their specific problems, and make theoretical studies on resource and demand in an impersonal manner, as a result of which even the schemes devised on the basis of such studies tend to become too impersonal and rigid.
Sometimes, the schemes become so inflexible on account of a standardized petrified approach that in some most genuine cases demanding a certain departure from the fixed framework, the scheme is incapable of giving requisite help. It is, therefore, absolutely necessary that any action plan for a backward area must first devise an appropriate structural support for comprehensive coverage of their needs. INSPECTOR RAJ: THE GREAT SURVIVOR The license –quota raj may be over but the inspector raj still reigns supreme.
Industry may have been delicensed in 1991 but is still highly regulated. Each industrial unit is visited by between 40 and 60 inspectors in the course of a month. Table 5. 1 is an illustrative, and not an exhaustive list of inspectors. There may be several more inspectors depending on the kind of manufacturing activities. As a result, small and medium enterprises are forced to shell out bribes to those officers or else face harassment. Table 5. 1: Inspection in Small & Medium Industrial Units |Department/ |No. of Inspectors Work Done | |Ministry | | | |Industry |5 |Check registration , inventories, tax payment quality control, | | | |safety equipment | |Home |2 |Check fire protection facilities and compliance with Explosives | | | |act. |Planning & Statistics |1 |Collect data on production, manpower, man hours utilized and lost| |Finance |12 |Five for income tax (three of them checking the same records for | | | |three different departments); seven from excise department | |Separate Revenue |5 |Enforcement, verification and recovery of sales tax; weights and | | | |measures | |Revenue Department (State Govt. tax |1 |Registration of professional | |Labor |8 |Checking compliance with different labor laws, checking the same | | | |records | |Municipal corporation |2 |Municipal bye laws | |Power & energy |1 |Electricity connections | |Health & family welfare |2 |Hygiene and occupational health | |Urban affairs and employment |1 |Sanitation | |Environment & forests |2 Pollution control | |Communication |1 |Telecom facilities | |Local self- government food & drug |2 |Octroi and mass raids | |Administration |1 |Safety standards | The procedure to start a new industrial unit is lengthy process and required a list of approval from the competent authorities. Table 5. 2 reveals the indicative list of approvals and clearance required for a new project in Uttar Pradesh. Table 5. 2: Indicative list of approvals and clearances required for a new project |Sl.
No |List of approvals and clearances required |Departments to be consulted |Estimated Time taken (in days)| |01 |Issuance of provisional registration (including NOC 18 for 220|Directorate of Industries |Same Day/Instant | | |types of non polluting SSI19 s) | | | |02 |Permanent of registration of SSI |Directorate of Industries |30 days | |03 |Sanction of power load for construction |Uttar Pradesh State Electricity|30 days | | | |Board (UPSEB) | | |04 |Sanction of power load for production |UPSEB |30 days | |05 |NOC for 29 highly polluting type of industries |Uttar Pradesh Pollution Control|120 days | | | |Board (UPPCB) | | |06 |NOC for industries other than above 29 and the list of 220 non|UPPCB |30 days | |polluting industries | | | |07 |Grant of Consent to 29 types of highly polluting industries |UPPCB |120 days | |08 |Grant of Consent to low polluting medium and small scale |UPPCB |30 days | | |industries | | | |09 |Temporary registration of trade tax |TRADE TAX DEPT. 3 days | |10 |Permanent registration of trade tax |-do- |30 days | |11 |Inspection report for Trade Tax exemption/department |-do- |30 days | |12 |Decision at Commissioner’s level after submission of |-do- |30 days | | |Inspection report for Trade Tax exemption/deferment | | | |13 |Approval prior to construction of factory building/ use as a |LABOUR DEPT. 30 days | | |factory for non-hazardous industries | | | |14 |Approval prior to construction of factory building/ use as a |-do- |60 days | | |factory for hazardous and major hazardous industries | | | |15 |NOC on Fire Safety from Fire Officer |FIRE DEPT. |30 days | |16 |Declaration of land as non agricultural |REVENUE DEPT. 30 days | |17 |Proceedings under section 154 of UP Zamindari Abolition Act |-do- |15 days | |18 |Grant of License |FOOD DEPT. |10 days | |19 |Permission/NOC from District Magistrate’s level for storage of|FOOD DEPT. |30 days | | |HSD | | | |20 |NOC for grant of license |DRUG CONTROL