Going forward: Key research issues in context

Entrepreneurs receiving microfinance loans are a subset of small-scale entrepreneurs, facing the same problem: how to overcome resource scarcity and institutional dysfunction to grow new ventures. In this sense, the microfinance phenomenon provides a natural experiment regarding the provision of financial capital and how micro-entrepreneurs succeed once they have overcome the initial financial hurdle. However, little attention has been paid to the complementary role that intangible non- financial resources play for micro-entrepreneurs to succeed in a transitional-economy context, as discussed below.

2.5.1 Dearth of research

Despite the growth of entrepreneurship as a field of research, and increased attention to emerging and transition economies, including China, management studies on small- scale and necessity-based entrepreneurship remain sparse. The majority of studies on entrepreneurship still aim to reach high-growth start-ups in major cities, with a paucity of research targeting micro and small ventures in less developed contexts (Bruton et al., 2008; Luthans and Ibrayeva, 2006). In 2008, management scholars observed that “there is virtually no research on the poor in the subsistence economies of the developing world” (Bruton et al., 2008: 5). An update in 2013 found only minor improvements. Between 2003 and 2013, 81 research articles on enterprise at the bottom of the pyramid outside of Europe and North America appeared in Financial Times-listed business journals13 (Bruton et al., 2013), totalling approximately 2 percent of all articles published during that period. Half of these appeared in the

Journal of Business Ethics, and most took an institutional perspective rather than examining the performance and strategy of individual entrepreneurs. A review of entrepreneurship research in transition economies found just slightly better coverage, with 129 articles published over 20 years in major journals yet only 14 of these papers employing data analysis at the individual firm level (Manev and Manolova, 2010).

13 _{The authors of this literature review do not include many high-quality journals not on the FT-45 list,}

which they use as a reference point for the prevalence and prominence of research on this topic. Also, their count includes important work from an institutional perspective beyond the scope of the current study.

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A key reason for this gap is the difficulty of conducting rigorous field research among micro-entrepreneurs in emerging-economy settings (Imas et al., 2012; Tsai, 2002). Challenges for researchers include language barriers, cultural differences, low levels of out-group trust, respondents’ lack of familiarity with surveys and interviews, low education and literacy levels, and reluctance to share sensitive information with strangers, as well as environmental factors such as weather and transportation (Tan et al., 2009; Webb, 2014). Access to reliable data is also difficult. For instance, in a study of micro-enterprises in India, the researchers noted: “These entrepreneurs rarely keep physical records of the transactions and most of the contracts with suppliers and buyers are drawn orally. Given the small size of operations and lack of record- keeping, proper accounts of their transactions are hard to come by” (Prajapati and Narayan, 2011: 234).

Despite these difficulties, management scholars have called for more work on emerging-economy enterprise at the base of the pyramid. As noted by Luthans and Ibrayeva (2006: 96), “Despite our rapidly escalating understanding of entrepreneurs and the entrepreneurial process … there is still very little knowledge about entrepreneurial functioning in transition economies in general, and in harsh environments”. This is important, because major differences in institutional infrastructure in developed and emerging economies influence the development of enterprise and market exchange (Hitt et al., 2000). Scholars have therefore called for greater examination of the strategic actions that entrepreneurs in poorer regions use to overcome economic and institutional barriers (Prahalad and Hammond, 2002; Webb et al., 2009, 2010).

2.5.2 Focus on intangible resources

Amidst the scarce literature, a few studies have begun to identify the factors that influence the success of loan recipients through theoretical and qualitative work.14 For example, a qualitative study in Latin America makes the research proposition (not yet

14 _{Additional research views microfinance as an empirical setting in which to advance institutional}

theory (e.g., Battilana and Dorado, 2010; Khavul et al., 2013) and to explore entrepreneurial finance, including crowdfunding and peer-to-peer lending (Bruton et al., 2015).

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tested) that the success of lending in creating high-performing businesses depends on the behaviour and outlook of clients, including their future orientation, decision- making discretion, and ability to manage relationships in their social network (Bruton et al., 2011). A theoretical paper proposes that the dearth of human capital and social capital in resource-poor environments poses as much constraint to enterprise as lack of credit (McMullen, 2011). An empirical study of Kenyan loan recipients agrees, stating that “capital is not enough” as business outcomes rely on innovation as well as human and social capital (Bradley et al., 2012).

Among micro-entrepreneurs not receiving loans, a few studies (described in detail in subsequent chapters) address intangible resources, with mixed results. For instance, an early study of micro-entrepreneurs in Jamaica explores determinants of success including human capital and financial capital as well as social measures (Honig, 1998). In an ethnographic case study among entrepreneurs in Sri Lanka, the authors argue that success depends on management skills and creative mobilisation of scarce resources via social networks (Kodithuwakku and Rosa, 2002). Meanwhile, very few studies apply psychological capital to any entrepreneurs, let alone small-scale or emerging-economy entrepreneurs who face high levels of risk, uncertainty, and anxiety (Hmieleski and Carr, 2008; Welter and Smallbone, 2011), as well as economic stress (Cole et al., 2009).

Taken together, this handful of studies support the development of a theoretical approach regarding how nascent ventures apply intangible resources to overcome resource constraints (Guo and Miller, 2010; Li, 2007; Wright et al., 2005) and counteract ineffective institutions and uncertain environments (Estrin et al., 2013). Yet no overarching framework for deployment of these resources has yet been fully developed or tested. Applying various management theories, the combined force of different forms of capital may allow even the smallest firms to develop competitive advantage (Luthans and Youssef, 2004).

2.5.3 Contextualisation and individual-environmental factors

Finally, scholars have called for greater contextualisation of entrepreneurship research (Zahra and Wright, 2011), for instance, to better integrate cultural elements

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influencing entrepreneurs (Welter and Smallbone, 2011). Examples of this include evaluating theoretical approaches from highly developed markets for relevance to specific emerging-economy settings (Kiss et al., 2012; Shenkar and von Glinow, 1994), or developing new indigenous theory (Li, 2012). Theories developed in the US, for instance, are not necessarily generalisable and should be tested in other, especially non-Western contexts (Tsui et al., 2007). The unique conditions found in different emerging and transition economies require different entrepreneurial approaches (Manev and Manolova, 2010; Peng and Heath, 1996).

While many studies on emerging and transition economies have adopted an institutional perspective (Wright et al., 2005), scholars have called for greater attention to attitudes and cognitions of individual entrepreneurs as well as stronger engagement with the social dimension of context (Zahra and Wright, 2011). Studying entrepreneurs in context can also benefit from a more integrated approach that incorporates psychological elements to explain the interaction between individuals and their environment (Luthans and Ibrayeva, 2006).

Entrepreneurship in emerging and transition economies has become well established as a research area within entrepreneurship research over the last two decades (Shane, 2012). In both developed and emerging contexts, extant research has tended to divide into two approaches, focusing either on the individual characteristics of the entrepreneur or on the influence of institutions and the external environment (Shane, 2003). The current study acknowledges both perspectives by examining entrepreneurs’ individual attributes and external interactions via networks within the larger operating environment. Examining the interplay of individual and environmental factors can help to explain how certain entrepreneurs overcome resource constraints and institutional deficiencies.

This dual, contextualised focus is appropriate given China’s current entrepreneurial environment. Yang and Li (2008) described three phases of the transition from a centrally planned system to a market-based economy. The first phase is marked by highly relational exchanges to address resource gaps and institutional deficiencies, as informal institutions substitute for formal ones (Peng, 2003). The third and final phase

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features a formalised rule-based framework. In between these two poles is the current intermediate phase, incorporating elements of old and new, which, given an incremental approach to reform, is likely to be a long-term reality for China (Yang and Li, 2008).