Developmental Entrepreneurship: Adversity, Risk, and Isolation: Volume 5

Developmental Entrepreneurship: Adversity, Risk, and Isolation is the fifth volume in the series International Research in the Business Disciplines. It is the second volume in our series that has followed a thematic format. Professors Galbraith and Stiles, the editors of the volume, have once again done a superb job of identifying an important area for study and providing an array of interesting viewpoints for readers to consider. Over time, I believe this volume will be viewed as another critical contribution to the overall study of entrepreneurship and business.

The first paper by Hernando de Soto is titled, “Trust, Institutions and Entrepreneurship.” Hernando de Soto certainly needs no introduction. As the author of two best-selling books, The Other Path and The Mystery of Capital, and the founder of the Institute for Liberty and Democracy in Peru, Hernando de Soto has made his mark on examining critical issues related to economic development among poor people. In 1999, Time magazine chose Hernando de Soto as one of the five leading Latin American innovators of the century. Forbes magazine highlighted him as one of 15 innovators “who will re-invent your future.” The Economist magazine identified his Institute for Liberty and Democracy as one of the top two think tanks in the world. The essay in this volume, based upon a speech given at the University of North Carolina on October 26, 2004, examines the important relationships between institutions, trust, property rights, and the ability of entrepreneurs to participate in economic growth and development. This stimulating essay sets a foundation for much of what is discussed in this volume.

Recently a study on expectations was published. The researchers went to about 80 different countries and asked, “Do you trust other people?” When they asked this question in Norway, it turned out that about 65% of a region responded, “Yes, I do trust.” So the cultural theorists might come back and say, “Ah, see, trust.”

How can we help poor people to earn more from their knowledge – rather than from their sweat and their muscle? This chapter is about promoting the innovation, knowledge, and creative skills of poor people in poor countries – and particularly about improving the earnings of poor people from such knowledge and skills. My principal message is that a lot is being done in this regard. On the whole, this useful work is a matter of straightforward application of familiar legal and commercial instruments and skills such as copyrights, trademarks, and patents. This does not mean that it is easy, however.

The start of the second decade after the transformation process began is an appropriate time to reflect on some of the emerging policy issues affecting small business development. While emphasising that setting up, operating and developing businesses results from the creativity, drive and commitment of individuals, rather than as a result of government actions, the conditions that enable and/or constrain entrepreneurship are affected by the wider social, economic and institutional context, over which the state has a major influence. In this regard, a key point to stress is the variety of ways in which government can affect the nature, extent and pace of small business development in an economy, rather than narrowly focusing on direct support measures. As a result, when considering the question of policies to support small business development, it is necessary to consider the implications of a range of government policies, institutions and actions for the environment in which small businesses can develop, instead of just focusing on direct interventions that are specifically targeted at small businesses. This is because any benefits accruing from the latter may be more than outweighed by the negative effects of other government policies and actions and those of state institutions. This applies in mature market-based economies as well as in those at various stages of transition, although the transition context typically adds further dimensions.

The economies of the former Soviet Union satellite countries have had to evolve during the past decade. Recent changes in the business environment of a transforming Polish economy have made entrepreneurial behaviors acceptable and thus have promoted the founding of new ventures. The private sector in Poland has proven to be one of the key mechanisms in achieving success in the transition of the economy. This study presents interviews conducted with entrepreneurs involved in tourism and hospitality. The major characteristics of the Polish tourism and hospitality industry are examined, and the difficulties that confront these small businesses are identified.

It has been slightly more than 15 years since Poland embarked on its ambitious program of political and economic transformation. A synthetic review and analysis of this process seems to be in order.

Entrepreneurial activity is a critical issue in the transition of economies attempting to reduce, or abolish state-owned monopoly enterprises. In many Central and Eastern European countries, privatization, restructuring, and failure of state-owned enterprises as consequences of the reforms typically led to a reduction of the size of the workplace. For example, in Poland, about 3.5 million employees lost their jobs in the period 1991–1996 (PEAD, 2003). After the collapse of communism in Europe, post-communist countries have undertaken reforms to liberalize their economies. These reforms stimulated the development in the private sector of small and medium-sized enterprises. New ventures provide a counterbalance to the loss of jobs at state-owned companies. In the period 1991–1996, new enterprises in the private sector in Poland created more than 1.8 million jobs. By the end of 2002, they provided work for 68% of the total employed persons (PEAD, 2003). Further, new ventures can play a critical role in stimulating economic growth. As a result of market reforms, the contribution of the private sector to Gross Domestic Product, e.g., in Hungary, went from 7% in 1988 to 85% in 1999 (World Bank, 2000). However, many new ventures do not survive the first year of operation. For example, in Poland, about 40–45% enterprises established in the period 1995–2000 failed after the first year of their existence (PEAD, 2003).

Two worldwide trends in recent decades are commonly noted and sometimes linked in discussing disasters. First, the reported global cost of natural disasters has risen significantly, with a 14-fold increase between the 1950s and 1990s (Munich Re, 1999). During the 1990s, major natural catastrophes are reported to have resulted in economic losses averaging an estimated US$ 54 billion per annum (in 1999 prices) (ibid). Record losses of some US$ 198 billion were recorded in 1995, the year of the Kobe earthquake – equivalent to 0.7 percent of global gross domestic product (GDP) (ibid).

It is well recognized that disasters, whether naturally occurring or the result of human invention, affect a region on many levels. Not only are disasters felt within the painful context of human tragedy, loss of life, and physical suffering, but disasters can also destroy the immediate socio-economic fabric of the affected population as well as the ability of a region to sustain itself during the slow process of recovery and reconstruction. As Newton (1997) notes, “disasters are not isolated from the social structure within which they occur; rather, they are social phenomena” (p. 219).

The Republic of South Africa is located on the southern most part of Africa and stretches latitudinally from 22° to 35° South and longitudinally from 17° to 33° East. Its surface area is 1,219,090km². It has a population exceeding 44 million and 11 official languages namely English, Afrikaans, isiNdebele, isiXhosa, isiZulu, Sepedi, Sesotho, Setswana, siSwati, Tshivenda and Xitsonga (Burger, 2004). Since becoming a democracy in 1994 it has embarked on an ambitious process of political, economic, social and legal reforms to improve the quality of life of the people of South Africa.

Located in South-eastern Africa, between South Africa and Tanzania, Mozambique (population 19,000,000) is currently one of the poorest countries in the world with only a $1,300 gross domestic product per capita (purchasing power parity, CIA World Factbook, 2005). In spite of its rich natural resources, because of the chronic history of violence, dire poverty, HIV/AIDS (12.2% adult infection rate) and diseases related to pollution and natural disasters, Mozambique also has one of the lowest life expectancies in the world at 40.32 years (CIA World Factbook, 2005). The recent 2000 Mozambican floods alone displaced a quarter million residents into emergency camps, with the affected population reaching 1 million residents. In overall human and social development, Mozambique currently ranks 168th out of 177 countries in the U.N.'s Human Development Index (2003 HPI, U.N. Human Development Reports), and 96th among 103 developing countries in the U.N.'s human poverty index (2003 HDI-1, U.N. Human Development Reports).

A vast portion of the economic activity in Mozambique consists of small businesses. Moreover, these business activities are often either informal or unrecorded in official sources (Dana, 1996; Fialho, 1996; Fungulane, 1999). Not surprising, the accuracy of the statistical coverage is poor and uneven.¹ For example, calculations of the economic contribution of the informal sector by the Instituto Nacional de Estatistica (INE) and the Italian Government Co-operation Agency suggest that the real GDP is underestimated by some 79% (Economist Intelligence Unit, 1998). Abreu and Abreu (1996), of the Central Bank in Mozambique, using a monetarist approach, have estimated that the informal sector accounts for at least 33% of the Mozambican GNP. In Beira, the second largest city in Mozambique, Navaia and Kaufmann (1999) estimate that at least 60% of the firms are informal businesses.

Within entrepreneurship research there is an increased interest in investigating the nexus between venture opportunities and enterprising individuals (Venkataraman, 1997; Shane & Venkataraman, 2000; Eckhardt & Shane, 2003; Sarasvathy, Dew, Velamuri, & Venkataraman, 2003). The move is towards the understanding of why and when opportunities emerge, why only some individuals identify and exploit these opportunities, and how different conditions influence the means of their exploitation.

“No man is an island, entire of itself” (Donne, 1624). When the British metaphysical poet John Donne (1572–1631) wrote that, concepts such as entrepreneurship, marketing, tourism, and world trade were either not known or rudimentarily conceived. The scope and implications of these business forces for the health of countries would not be more fully realized for centuries to come. While Donne was not speaking directly to the issues of this research, it is significant, given the central focus of marketing on exchange, that what Donne wrote about in the context of human relations and the need of people to exist in interaction with one another has a connective interpretation to commerce. By extension, individual companies or organizations are not islands unto themselves as they face the make-or-buy and outsourcing decisions, industries are not islands as they must exchange for raw materials and labor, and countries are not metaphorical islands given the uneven distribution of raw materials around the planet. The relative geographic isolation of Iceland (2 hours by airplane from Great Britain), a small population base of approximately 300,000, and a location near the Arctic Circle underscores the need for trade and interaction with other countries as a means of creating and maintaining a vibrant economy.

Early on it was recognized that this broad concept of entrepreneurship could be used to understand and improve the condition of particular disadvantaged populations; the so-called “under-developed” communities and regions (e.g. Danson, 1995). Only recently, however, has the notion been applied by scholars of entrepreneurship to a particular sector within this category, to the indigenous populations of the world.

Recent statistics indicate that the number of minority-owned and women-owned firms in the United States continues to rise. Indeed, the number has risen substantially since the last census count; from 2.3 million minority businesses in 1992 to over 3 million in 1997 – a 30 percent increase. During this same period, the receipts of minority businesses increased 60 percent – from $369 billion to $591 billion. At the same time, the number of firms in which women held majority ownership (51 percent or more) increased 16 percent – from 6.4 million to 7.4 million. The receipts of predominantly women-owned firms increased 33 percent – from $1.2 trillion to $1.6 trillion (when data are adjusted for comparability of 1992 and 1997 statistics – see U.S. Department of Commerce, 1992a, b, 1997a, b, c).

When examining anecdotal evidence of migration processes, from historical and geographical perspectives, stories of individual immigrants that became successful entrepreneurs in the host country are commonplace. These narratives help individualize and romanticize the usually crude statistics of the increasingly common population movements across political borders. They also serve a number of purposes within the ethnic community, most of them associated with the creation and nurturing of the group's social capital. This critical ethnic resource has been consistently shown to provide significant benefits to immigrant communities, particularly in environments with higher levels of perceived risk (e.g., Portes, 1998; Martes & Rodriguez, 2004).

During the past decade, sub-national government agencies in the late industrialized nations have taken on greater responsibilities in the area of economic and industrial planning. This has been especially true in Mexico where fiscal and planning decentralization, shifting local politics, the recent entry into the North American Free Trade Agreement (1995), the peso crisis and resulting job-loss (1995–1997) and the latest wave of investment opportunities (in part an outgrowth of NAFTA) have, to varying degrees, facilitated greater intervention in the local economy by state-level planning and development authorities. Since the mid-1990s most state governments in Mexico have substantially increased the number of staff and working budgets of their economic development ministries.

The lack of traditional employment opportunities for many students and the oft-repeated cry for South Africa to invest in developing black entrepreneurs prompted the University of Western Cape's Department of Management to introduce an Enterprise Management stream at graduate level and Entrepreneurship as a subject at 2nd and 3rd year levels in recent years. All these initiatives are based on a strong capability in entrepreneurship and small business that has been developed in the department since the introduction of the Enterprise Development Unit in 1997.

By almost any index Mexico has historically struggled in the last century with economic and social growth. For example, Kearney's (2005) well-respected Globalization Index ranks Mexico 42nd in the world and the U.N. Human Development Reports (2003) rank Mexico 53rd in its Human Development Index. Recently, however, Mexico appears to have made a commitment to transform into a competitive nation by privatizing state-owned industries, reducing international commerce barriers and tariffs, attracting foreign investment, and establishing free-trade agreements (NAFTA) with neighbors such as the United States and Canada (Young & Welsch, 1993). However, to sustain the changes, a strong and capable group of domestic entrepreneurs are needed in Mexico.

In 2001, the Elementary and Secondary Act legislation was reauthorized in the U.S. as The Leave No Child Behind Act (NCLB) to place special emphasis on the importance of basing educational practice on empirical research. The reauthorization also required that America's public school systems become more accountable for the learning of students, for improving the educational achievement of all students, and for closing the achievement gap between advantaged and disadvantaged segments of the student population.