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Exploring entrepreneurship in a declining economy

Written by: Journal of Development Entrepreneurship

Article Overview: The paper explores entrepreneurship in a period of economic decline by identifying reasons for business start-ups under such conditions and examining whether the reasons were extrinsic in nature and entrepreneurial in origin.

Exploring entrepreneurship in a declining economy

The paper explores entrepreneurship in a period of economic decline by identifying reasons for business start-ups under such conditions and examining whether the reasons were extrinsic in nature and entrepreneurial in origin. The effectiveness of formal enterprise support programs and initiatives was also examined. The findings indicate that business start-ups were not motivated by extrinsic factors alone, even in adverse economic circumstances. As expected, it was also found that adverse conditions tend to produce more survivalist or "mom and pop" types of ventures as opposed to innovative, growth-oriented firms. Enterprise support programs and initiatives designed to support the small business sector as agents of economic recovery were found to be ineffective in this role.

Key words: Declining economies, entrepreneurship, developing countries, enterprise support systems

New venture creation and development have been recognized in the literature as critical elements in the social and economical development of a nation (e.g. Schumpeter, 1934, 1950; Harbison, 1956; Young, 1971; Drucker, 1985). Many factors that precipitate the emergence and development of new ventures have been researched and analyzed in depth in mature economies (e.g. Koning & Sniders, 1992) and emerging economies (e.g. Kolvereid & Obloj, 1994; Regnier, 1998). However, such research has not been done in less developed countries experiencing periods of sustained economic decline. The main goal of this paper is to explore the spirit of individual enterprise in a declining economy, in this case Nigeria.

Entrepreneurship is a multifaceted phenomenon that cuts across disciplines. There is no universal theory of the phenomenon. The existing theories of entrepreneurship are propounded from a variety of schools of thought, with many authors emphasizing different variables to explain it. Among these variables are culture (Gadgil, 1954; Jenkins, 1984; Shapero, 1984); personality (McCelland, 1961; Brockhouse & Horwitz, 1986; Sexton & Upton, 1990), marginality (Geertz, 1963; Young, 1971; Shapero & Sokol, 1982; Brenner, 1987), and intentionality (Learned, 1992: Katz & Gartner, 1988). The explanations provided by these different theoretical approaches essentially match most entrepreneurial behavior, but not necessarily all.

For the purpose of this study, entrepreneurship is viewed from two traditional definitions of the phenomenon: the "Schumpeterian" and "Kirznerian" perspectives. The Schumpetarian definition presents entrepreneurship as an agent for innovation that leads to the introduction of a product or service into the market, the development of new production, organizational and controls systems in the organization, the discovery of new sources of raw materials, and so on. The "Kirznerian" definition, on the other hand, posits that entrepreneurship should be related to the identification of opportunities in the market place and emphasizes the profit motive as a core component. Where Schumpeterian entrepreneurship disturbs the balance of forces by introducing something new, Kirznerian entrepreneurship achieves profits from an existing disequilibrium. Thus, for the purposes of this research, an entrepreneurial venture is one that has a new and innovative idea and that is small only initially. The goal for such a venture is to create wealth through growth. Based on this perspective, many new ventures are not especially entrepreneurial, representing instead subsistence, survival, or "mom and pop" types of operations (Birch, 1981; Sexton & Bowman-Upton, 1991).

There are many motives for entrepreneurship. This research focuses on the role of highly adverse economic conditions in pushing people into entrepreneurship. In this vein, specific motivators include the need for subsistence, the need to innovate to survive, and the need to quickly recognize and exploit opportunities brought about by developments in the environment. It is suggested that sufficiently adverse conditions leave people little alternative other than self-employment. Especially in the absence of an adequate social safety net in terms of public or private welfare or related support programs, the entrepreneur acts based on economic motives. A key purpose of this study, then, is to assess the reasons leading to business start-ups in Nigeria during the years of economic decline, and the extent to which they can be characterized as financial and extrinsic in nature.

In a similar study in post-communist Poland, Kolvereid and Obloj ( 1994) found, contrary to their expectations, that financial reasons were not the primary reasons for business start-ups. This was the situation despite the difficult conditions Poland inherited after communist rule, which Kozminski (1993) characterized as illustrating all problems of economic and political instability, and cultural change. They found the start-up reasons to be strong and diverse where both financial and intrinsic factors played important roles. However, in a similar study (Yusuf, 1994) using data from three South Pacific nations with varied levels of economic difficulties and political instability, it was found that financial reasons were among the primary motives for new venture start-ups. The apparently contradictory results of these studies, which might be due to differences in regional and cultural characteristics, leaves room for this question to be explored in the Nigerian context. It will also enable us to further understand the nature of entrepreneurship in Nigeria in particular and in declining economies in general.

Exploring entrepreneurship in a declining economy
Journal of Developmental Entrepreneurship, Apr 2000 by Yusuf, Attahir, Schindehutte, Minet

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Article Tags: business sector, business start ups, critical elements, declining economy, economic circumstances, economic decline, economic recovery, economical development, emerging economies, enterprise support, extrinsic factors, horwitz, main goal, new ventures, precipitate, schools of thought, sniders, survivalist, universal theory, venture creation



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