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10.0 The Entrepreneurial Firm Networks Clusters and the Octopus: Entrepreneurs and entrepreneurship in Africa

Guest post by: Journal of Development Entrepreneurship

Article Overview: While networks and clusters contribute to business success and continuity, the African entrepreneur experiences difficulties establishing and maintaining effective business networks and clusters (Barr, 1999; Kiggundu, 2001; Ramachandran & Shah, 1999).

10.0 The Entrepreneurial Firm Networks Clusters and the Octopus: Entrepreneurs and entrepreneurship in Africa

(Journal of Developmental Entrepreneurship, Oct 2002 by Kiggundu, Moses N)

While networks and clusters contribute to business success and continuity, the African entrepreneur experiences difficulties establishing and maintaining effective business networks and clusters (Barr, 1999; Kiggundu, 2001; Ramachandran & Shah, 1999). Barr found that size is important because small firms were less able to manage risk and uncertainty by gaining membership in networks and clusters. Pedersen (1999) found few examples of effective joint action in the form of product development, standardization, quality control, labor training, or common marketing, which could lead to technological upgrading and business growth. He attributed this to lack of trust, and poor organizational form and physical infrastructure. Ramachandran and Shah (1999) found that African-owned firms lacked joint action, and networking, which kept them out of the loop for information on valuable resources, capital and markets. McCormick (1999), however, reported successful enterprise clusters in Kenya, Ghana, and South Africa involving various business joint activities including production, marketing, subcontracting, and sharing resources such as tools, premises, etc.

African entrepreneurs prefer sole proprietorships, with partnerships and limited company organizations being uncommon. Kallon (1990) reported that 73.4% of the firms studied were single proprietorships, 10.9% were general, and 9.4% were limited partnerships and only 6.3% were corporations. Earlier, Hart (1972) found that 67.7 % of the sample of entrepreneurs studied was opposed to partnership form of organization. As one of her interviewees put it, "With partners you have two bulls in the kraal. They are equal, and you can't keep equal people together" (p. 157). Yet, partnerships could help alleviate problems of small size, under-capitalization, networking/clustering, limited competencies, and succession. SMEs are intimately connected to larger enterprises, domestic and foreign, either positively through linkages or negatively through exclusion and isolation from the larger formal economy. Also, the productivity, survival and growth of the small entrepreneurial firms are fundamentally bound up with the fortunes of the economy as a whole (McGrath & King, 1999). It therefore makes sense for these small enterprises to restructure themselves in such a way as to manage these interdependences to their advantage.

Typically unable to sustain effective networks or clusters, the African entrepreneur manages risk and uncertainty by using the octopus organization form. According to Jorgensen et al. (1986), the octopus is the entrepreneur's strategic but costly response to environmental market imperfections, risk and uncertainly. Instead of investing and expanding a single firm in a clearly defined line of business, the entrepreneur engages in several unrelated businesses all at once. The firm becomes a cluster of disparate enterprises linked only by the owner and family members. Because limited opportunities exist to liquidate assets, unsuccessful ventures are shelved rather than liquidated, but can be reactivated if business conditions change. The business maintains high inventory levels to hedge against irregular supplies, and to fend off social claims on working capital. Entrepreneurs with large families open more businesses, not in response to business opportunities, but to lure children (sons) back into the family firm. Individual businesses are kept deliberately small to avoid public visibility, government taxation and regulation. Both Hart (1972), and Kiggundu (2001) found evidence of the octopus form of organization in South Africa and Uganda, respectively. Koop, de Reu and Frese (2000) also seem to have found evidence of the use of the octopus form of organization in Uganda, where entrepreneurs were involved in a variety of unrelated businesses such as cattle keeping and crop growing in order to diversify their revenue sources.

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Article Tags: business networks, business opportunities, entrepreneur, entrepreneur, entrepreneurial firms, entrepreneurs, entrepreneurs, joint action, Journal of Developmental Entrepreneurship, Kiggundu Moses, limited partnerships, Ramachandran, Ramachandran Shah, risk and uncertainty, risk and uncertainty, South Africa, South Africa



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