Operational Contexts, External Determinants

As has been discussed, in addition to the individual construct, the opportunity landscape or external operational context can also influence an entrepreneur’s action and process of opportunity pursuit (Baumol, 1993; Shane and Venkataraman, 2000; Shane et al., 2003). With an understanding to the background of the internal, individual construct, attention now turns to understanding the operational contexts entrepreneurs must navigate in pursuit of opportunity. Not all entrepreneurs will recognize value and maximize an opportunity at the same time or in the same way, and different individuals will weigh the value of an opportunity differently given perceived elements of a specific operational structure (Shane and Venkataraman, 2000). Paring analysis of the individual with the entrepreneur’s external environment provides a broader understanding of an operational context enabling the breadth and depth of specific actions (Lee and Peterson, 2000). Entrepreneurial intentions can be influenced by a multitude of factors including motivation and individual capacity, but also the current competitive environment, resource availability, political system, market involvement and regulatory environment (Gregoire et al., 2010; Herrington and Kelley, 2012). The following section looks to define and present broader themes of the operational context believed to have the potential to influence entrepreneurial actions. The nuanced elements of determinants found to have influence on entrepreneurship through this research will be discussed and analysed in greater detail in Chapter 6.

2.5.1 Operating Environments for Entrepreneurs

The ‘environment’ in which an individual operates is a complex mix of socio-economic factors inclusive of interlinked, yet distinctive political, legal, regulatory, economic, market and socio-cultural systems (Chell, 2008). However, entrepreneurial pathways and dynamics

can differ significantly depending on the varying institutional contexts and specific levels of market professionalization and/ or wider economic development (Acs et al., 2008). Additional complexity can be added to these systems via existing physical, technological and even religious environments (Chell, 2008). While research to date has focused mainly on the individual or firm analysis of entrepreneurship, it has largely overlooked “system-level constraints and outcomes” (Shane and Venkataraman, 2000; Acs et al., 2014, p. 478). Despite the seeming potential for an opportunity to be lucrative, without the existence of the necessary resources or supporting structure, an entrepreneur cannot maximize an opportunity ‘discovered’ (Sarason et al., 2006). Likewise, the existence or ability to access these specific resources may dictate the degree to which an individual may take entrepreneurial action (Shane et al., 2003). This can be specifically seen within emerging markets where regulatory, financial and legal systems may be lacking. Successful environments for entrepreneurship are heavily determined by quality of governance, access to capital, institutions (political and social) as well as the perception of entrepreneurs within societies (Acs et al., 2008).

Emerging economies, such as Ethiopia and Rwanda, are increasingly experiencing large scale institutional transformation with a focus on further stimulating and enabling economic growth through market-based policies (Boso et al., 2013). Increasing privatization and corresponding ‘entrepreneurial transformation’ of state enterprises can also be a significant part of entrepreneurial activity (Zahara et al., 2000, as cited in Valliere and Peterson, 2009 p. 464). While this presents widespread opportunities, it can also be seen as a means of excluding private sector participation.

2.5.2 Identified Determinants

Within the entrepreneurial environment, interdependencies between the entrepreneur and wider development potential is impacted by factors such as governance effectiveness, access to capital or additional resources as well as social perception of entrepreneurs (Acs et al., 2008). Given this research focus, the external determinants of entrepreneurship within the wider operational systems are understood to be the political environments, market

structures, available resources and historical, socio-cultural settings and are briefly described in turn below.

These specific determinants are highlighted in the current literature as acknowledged factors to entrepreneurship and economic effectiveness (see: Casson, 2003; Shane, 2003; Acs et al., 2008; Chell, 2008; Brixiova and Asaminew, 2010; Boso et al., 2013). However, the determinants selected for this specific research are used as overarching themes to house further investigation into each and were chosen due to sensibility in appreciating multiple and differing aspects of the operational context believed to have an influence on entrepreneurship. Further investigation and analysis in order to understand where and how these specific elements support and promote entrepreneurship as well as which may dissuade and constrict entrepreneurship will be further discussed in Chapter 6.

2.5.2.1 Political Environment

Political environment includes the current political system, including its political and economic stability, legal restrictions or ease and efficiency (cost) of doing business and ability for business establishment. In order for entrepreneurship to be cultivated within an economy, the political system should be transparent, enable “individual rights, democratic rules and checks and balances of a government” (Lee and Peterson, 2000, p 408.) Political freedoms, power decentralization, strong rule of law and property rights are also believed to increase levels of opportunity exploitation (Shane, 2003). As presented earlier in this literature review, government policy can approach entrepreneurship support under four distinctive policy approaches: Extension, New Firm Creation, Niche and Holistic Entrepreneurship. Within this research, the two types of approaches were found to be implemented within the political systems analysed: Extension Policy and New Firm Creation Policy. As will be discussed in Section 6.3, each government takes a different approach to, and acceptance of, entrepreneurship, however neither has yet to actively implement policies specifically targeting and supporting entrepreneurship.

2.5.2.2 Market Structure

Market structures include the industry structures, regulatory climates, barriers to entry, population dynamics (social, cultural, political norms), market size and opportunity and

political involvement within a given market structure. Market incentives can increase opportunities for entrepreneurial action and this can also be supported through government regulations aimed at making an economy more efficient (Lee and Peterson, 2000). However, market structures can also restrict and inhibit entrepreneurial action and movement throughout a market system. It is critical to recognise that entrepreneurs operate and grow differently in differing stages of an economy’s development. Thai and Turkina (2013) argue that a more formalized and open economy enables entrepreneurship to flourish due to more formalized, widely accepted, understood and legally executable structures of systems geared towards developing a human capital base, as opposed to a less formalized, closed economy.

2.5.2.3 Resource Availability

Resource availability refers to the ability to access adequate means of capital and finance, existing infrastructure, available technology and opportunity for education and/ or training, (business or technical) (Goetz and Freshwater, 2001; Shane et al., 2003). Finance (accessibility, availability and cost) was found to be problematic for many entrepreneurs within developing country contexts due to lack of access, high cost and impeding bureaucracy from banks and inability to provide sufficient collateral (lack of assets). This is especially problematic for entrepreneurs within the early stages of business development or operators within informal sectors hindered by typical banking challenges. Additionally, entrepreneurs are often unable to obtain financing if needs are larger than typical micro- credit providers due to the smaller size of business and lack of related collateral endowments, or are unable to afford and use such large financing provided from national lenders. From a financial lender’s perspective, micro-loan recipients do not have the structure and capital to be able to take larger loans and often lenders do not find medium sized loans financially viable or an attractive service to provide (Herrington and Kelley, 2012).

Lee and Peterson (2000) found that the most favourable external environments for an entrepreneur are those that provided market incentives (financial returns), but also provided access to appropriate capital availability in order to pursue opportunity as wished. A country’s investment climate and related institutions are critical in encouraging and actually enabling entrepreneurial activity and development as well as overall economic development,

or its lack thereof (Valliere and Peterson, 2009). In developing economies, entrepreneurs may be more dependent on donor-oriented financing mechanisms or international financial institutions, but not local financial providers. While this may legitimize some business aspirations, a corresponding risk of bureaucracy and political interference also exists (Valliere and Peterson, 2009).

2.5.2.4 Historical and Socio-Cultural Setting

The historical, socio-cultural setting refers to the specific desirability for entrepreneurship or business success related role models for new entrepreneurs as well as cultural beliefs associated with opportunity exploitation (success, failure, ‘traditional’ employment models) within a society (Goetz and Freshwater, 2001; Shane et al., 2003). Research shows that entrepreneurs operating within an informal economy or less regulated sector are highly driven by a ‘socially-supportive culture’. This socially supportive or accepting culture for entrepreneurship, along with the presence of entrepreneurial role models is also believed to support opportunity exploitation (Shane, 2003). A socially supportive culture creates acceptance or animosity of success, approving or disapproving of the individual risk taker, responding to failure or expectations of success among a wider community. The socially supportive culture is less important within more developed economies due to higher levels of regulation and formalized processes (Thai and Turkina, 2013).

Conflict, while not discussed as a specific determinant, it is recognized to have devastating impacts to entrepreneurs, the wider development of entrepreneurship as well as a wider economy and its institutions (Bruck et al., 2012). While conflict results in obvious damage to a country and economy, it also results in reduced or destroyed market size, limited profitable opportunities, increased uncertainty, technological stagnation and higher transaction costs for entrepreneurs. It also impacts the quality of the “entrepreneurial pool” from lost investment opportunity and/ or access as well as lost educational opportunity (Bruck et al., 2012, p. 11). During times of conflict, an entrepreneurial brain-drain of sorts can also adversely impact an economy’s ability to recover and rebuild, and this is especially harmful for less developed economies. Entrepreneurs, as with smallholder producers or poorer segments of a population, tend to be disproportionately affected by conflict (Bruck et

al., 2012). Given the recent violent histories of both Ethiopia and Rwanda, influence from conflict on entrepreneurship was also appreciated within the wider discussion.