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Entrepreneurial opportunities

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Entrepreneurial opportunities

  1. 1. The current issue and full text archive of this journal is available at www.emeraldinsight.com/1750-614X.htmCMS1,4 Entrepreneurial opportunities, capacities and entrepreneurial environments216 Evidence from Chinese GEM data Yiyuan Mai and Zhilong Gan School of Management, Huazhong University of Science and Technology, Wuhan, Peoples’ Republic of China Abstract Purpose – To study how entrepreneurial environments influence entrepreneurial opportunities and capacities in China. Design/methodology/approach – This paper constructs statistical models to test the relationship between environmental factors and entrepreneurial opportunities or capacities in 13 cities in China according to the conceptual model of GEM. Based on the data derived from GEM reports, the authors use principal component of factor analysis and lest square regression to study the impacts of entrepreneurial environments on entrepreneurial opportunities and capacities empirically. Findings – This paper indicates that among 13 Chinese cities, if one city has more favorable conditions in terms of nine factors of entrepreneurial environments, it will have more entrepreneurial opportunities, and its entrepreneur will have higher capacities. Moreover, the authors find the extent of the impacts of the economic and cultural environments on entrepreneurial opportunities and capacities is higher than that of political and market environments. Research limitations/implications – The quantity of sample statistics is relatively small, because it is difficult to develop the GEM project roundly in China. Originality/value – This paper provides Chinese government with theoretical support so that the government can utilize limited resources to develop entrepreneurial activities. Meanwhile, it furthers foreign researchers and investors to understand the specific conditions in terms of Chinese entrepreneurial environments, opportunities, and capacities more clearly. Keywords Entrepreneurialism, Entrepreneurs, China Paper type Research paper 1. Introduction The impacts of entrepreneurship on economic growth have been confirmed by more and more researchers. In addition to increase employment opportunities, export and capital stocks, entrepreneurship has significant effects on entrepreneurs’ spirit and technical innovation. The emergence of entrepreneurship derives from formation of entrepreneurial opportunities and realization of entrepreneurial capacities, which cause new business creation. Number of entrepreneurial opportunities and level of entrepreneurial capacities determine rate of entrepreneurial activities and influence the role of entrepreneurship on economic growth. Thus, many researchers put moreChinese Management Studies emphasis upon studies on entrepreneurial opportunities and capacities. At present,Vol. 1 No. 4, 2007pp. 216-224 most researches are theoretically based on qualitative analysis. There is dearth ofq Emerald Group Publishing Limited1750-614X evidence based on empirical data. The reason causing the above condition is theDOI 10.1108/17506140710828505 difficulty in the measure for entrepreneurial environments, opportunities and capacities.
  2. 2. Therefore, it is theoretically important to advance the research. Moreover, while Chinese Entrepreneurialgovernment propose a momentous strategy of “independent innovation,” it is opportunities,practically significant to study how entrepreneurial environments influenceentrepreneurial opportunities and capacities in China. From this perspective, this capacitiespaper attempts to establish theoretical foundation for government policies. Section 2 of the paper describes the literature linking entrepreneurial environments,opportunities and capacities so as to finds out the deficiency, and indicates the 217directions of next step of researches. In Section 3, we develop the hypotheses, andthereafter describe the source of data and the model. Meanwhile, we explain how toempirically test these hypotheses. The results of the analysis are presented in Section 4,while the discussions of the findings are presented in Section 5.2. Literature reviewA great many literatures show that lots of researchers study entrepreneurialenvironments, opportunities and capacities from different perspectives. Firstly, wereview the associated documents.2.1 Literature linking entrepreneurial environmentsThe term “entrepreneurial environments” refers to a combination of factors that play arole in the development of entrepreneurship. Many works have indicates the effect ofdifferent factors of entrepreneurial environments on entrepreneurship. Governmentscan influence market mechanisms, making them function efficiently by removingconditions that create market imperfections or administrative rigidities (Fogel, 1994).Socioeconomic factors may be as important as availability of loans, technical assistance,physical facilities, and information (Gartner, 1985). The presence of experienced andsuccessful entrepreneurial role models in a community conveys a message to the otherpotential entrepreneurs that business is an attractive career option (Zapalska andZapalska, 1999). Successful entrepreneurs can be developed through educational andshort-term training programs, especially when market imperfections exist, largeindustries dominate the industrial sector, government policies do not support smallbusinesses and several bureaucratic hurdles have to be overcome to get permission tostart a business (Davidsson, 1991). Countries that keep rules and regulations at aminimum, offer tax and other incentive, and provide training and counseling services tostart-up entrepreneur increase the likelihood of new venture development (Dana, 1987,1990). Furthermore, factors such as the availability of financial resources, being in largeurban areas, and the presence of universities for training and research are also found tobe very important in increasing the rate of new venture creations (Pennings, 1982).2.2 Literature linking entrepreneurial opportunitiesEntrepreneurial opportunities are a series of market imperfections (Kirzner, 1973).The imperfections and individual heterogeneity in market cause the formation ofentrepreneurial opportunities. Current studies on the factors which affect entrepreneurialopportunities mainly focus on the opportunity identification. Some researchers havelucubrated on the environmental factors which influence entrepreneurial opportunityidentification. Carroll and Delacroix (1982) maintain that environments have great effectson the formation of entrepreneurial opportunities. Stevenson and Gumpert (1985) classifyfour environmental dimensions which affect entrepreneurial opportunity identification.
  3. 3. CMS The dimensions include technology, market, social value and policies. Singh (2000) argues1,4 that situational factors of external environments have a certain role on entrepreneurial opportunity identification. Timmons (1999) indicates that if environments had changed, many opportunities would come into being, and the gap of knowledge and information will cause the formation of other space.218 2.3 Literature linking entrepreneurial capacities Entrepreneurial capacities can be divided into entrepreneurial intentions and skills, which together with entrepreneurial opportunities are three key elements of entrepreneurship (Gnyawali and Fogel, 1994). Entrepreneurial intention is individual motivation that spurs potential entrepreneur to create new business (Reynolds and Miller, 1992). Existing researches have analyzed deeply the impacts of external environments on entrepreneurial intention. Kirchoff (1991) identified social and economic factors, such as blocked promotion, recession, unemployment, and the need to earn a reasonable living, as having a profound influencing effect on shaping the attitudes and creating intentions of an entrepreneur. Robertson et al. (2003) found that the factors inhibiting start-ups included an expressed fear of debt, a fear of failure, difficulties in obtaining finance, regulation, and taxation. With respect to the factors affecting entrepreneurial skills, researchers argue that the intention derives from many factors, such as former working experience (De Koning, 1999), managerial skills (Koeller and Lechler, 2006), and social networks (Hill et al., 1997). Basing on the above review, we found that empirical studies on the impacts of entrepreneurial environments on the opportunities and capacities were relatively scarce. The researches on this respect were based on foreign countries, and their conclusion did not always accorded with Chinese economic system. Since, China has distinct economic, cultural, political and social environments, the study on the impacts of entrepreneurial environments on the opportunities and capacities has practical significance in promoting regional entrepreneurial activities. Therefore, this paper attempts to find the specific impacts in China. 3. Estimation model 3.1 Premise of model and hypothesis The conceptual model employed by GEM indicates opportunity recognition and entrepreneurial potential are influenced by factors of entrepreneurial environments: availability of finance, government policies, government programs, education and training, research and development transfer, commercial and legal infrastructure, internal market openness, access to physical infrastructure (Reynolds et al., 1999). The model shows in Figure 1. It reveals that in social, cultural and political condition, entrepreneurial environments influence entrepreneurial opportunities and capacities which both mate each other to engender entrepreneurial activities. Since, the model was propounded by Reynolds in 1999, it has attracted the attention of over 40 GEM countries. These countries adopt the model as the framework of entrepreneurial investigation in order to find out their specific entrepreneurial environments. According to these countries’ GEM reports, the nine environmental factors propounded by the model can roundly reflect regional conditions in entrepreneurial environments. Meanwhile, the model rationally explains the mechanism of the impacts of environments on entrepreneurial opportunities and capacities. Thereby, based on the model, this paper posits that:
  4. 4. Entrepreneurial framework Entrepreneurial conditions Entrepreneurial opportunities, opportunities Financial capacities Government policies Business Government programs Education & training churning 219 R&D transfer Commercial, legal infrastructure Internal market openness Entrepreneurial capacity Skills Access to physical infrastructure Figure 1. Motivation Culture, social norms GEM conceptual model H1. Regions with higher level of availability of finance will have more entrepreneurial opportunities and higher entrepreneurial rate. H2. Regions with more favorable policies will have more entrepreneurial opportunities and higher entrepreneurial rate. H3. Regions with more government programs will have more entrepreneurial opportunities and higher entrepreneurial rate. H4. Regions with more perfect system of education and training will have more entrepreneurial opportunities, and entrepreneur will have higher capacities. H5. Regions with more successful research and development transfer will have more entrepreneurial opportunities and higher entrepreneurial rate. H6. Regions with more perfect commercial and legal infrastructure will have more entrepreneurial opportunities and higher entrepreneurial rate. H7. Regions with lower barriers to entry will have more entrepreneurial opportunities and entrepreneurs will be more intense to create new business. H8. Regions with more perfect physical infrastructure will have more entrepreneurial opportunities and higher entrepreneurial rate. H9. Regions with more favorable culture and social norms will have more entrepreneurial opportunities and higher entrepreneurial rate.In addition to the relationship among these objects, it is the different effects of ninefactors on entrepreneurial opportunities and capacities that are the focus of this paper.Which factors have more significant role on the opportunities and capacities than otherfactors? This is an important question to discuss, considering how to utilize limitedresources to boost entrepreneurial activities furthest in China. Thereby, the tenthhypothesis posits as follow: H10. Under Chinese entrepreneurial environments, there must be a part of factors which effects on entrepreneurial opportunities and capacities are more significant than others.
  5. 5. CMS 3.2 Data sources1,4 The empirical data in this paper derive from the Chinese reports of the GEM research program carried out from November 2005 to December 2006. The program implements adult population surveys and unstructured interviews with the experts in entrepreneurial environments, opportunities and capacities. These experts come from government, universities and organization of venture investment in 30 cities in220 China. They grade entrepreneurial conditions of these cities according to GEM module. These grades lie from 1 to 5. Higher grade shows finer condition. After collecting these results, we gain the empirical data this paper needs. 3.3 Models 3.3.1 Initial models. Based on the conceptual model propounded in GEM research program, this paper utilizes statistical models of multiple linear regressions for hypothesis testing. Initial models present as follows: X 9 yj ¼ a0j þ aij xi þ 1 ð j ¼ 1; 2; 3Þ ð1Þ i¼1 In the models, the independent variables xi are nine environmental factors which include the availability of finance, government policies, government programs, education and training, research and development transfer, commercial and legal infrastructure, internal market openness, access to physical infrastructure, culture and social norms. Entrepreneurial opportunity, motivation and skills are dependent variable y1, y2, y3. 3.3.2 Test for collinearity. Some of nine factors overlap each other at a certain extent, for example, subsidiary and financial bills belong to policies as well as availability of financial resources for new business; government program is embodiment of policies; meanwhile, commercial and legal infrastructure also include financial services which belong to availability of finance. Thereby, before analysis of multiple linear regressions, we need to test collinearity among these independent variables. Through calculating correlation coefficients of nine independent variables shown in Table I, we find that there exists collinearity between these nine variables. Thus, the paper utilizes factor analysis of principal components to eliminate the collinearity. By using SPSS 13.0 to deal with the data, we gets the value of KMO which is 0.737 more X1 X2 X3 X4 rX5 X6 X7 X8 X9 X1 1.000 X2 0.786 1.000 X3 0.881 0.977 1.000 X4 0.923 0.651 0.763 1.000 X5 0.970 0.776 0.855 0.906 1.000 X6 0.917 0.778 0.837 0.846 0.941 1.000 X7 0.869 0.888 0.912 0.790 0.822 0.859 1.000 X8 0.841 0.916 0.918 0.759 0.827 0.781 0.824 1.000 X9 0.898 0.627 0.736 0.862 0.838 0.827 0.839 0.657 1.000Table I. Notes: X1: availability of finance, X2: government policies, X3: government programs, X4: educationCorrelation coefficient and training, X5: R&D transfer, X6: commercial and legal infrastructure, X7: internal market openness,between variables X8: access to physical infrastructure, X9: culture and social norms
  6. 6. than 0.7, and significance of Bartlett’s test that is less than 0.0001. The results show Entrepreneurialthat the data are fit for factor analysis of principal components. The communality lies opportunities,from 0.889 to 0.990 that indicates the accountability of common factors to the variable.According to matrix eigenvalues and cumulative percents, this paper adopts the first capacitiestwo factors as common factors. Their eigenvalues is more than 1. Meanwhile, theaccumulative contribution of the two factors is 93.11 percent. And then, applyingvarimax rotation and four-time iterative methods, we gain a rotated component matrix 221and a component score coefficient matrix as Table II. The data of component matrix show that culture and social norms, educationand training, availability of finance, research and development transfer, commercialand legal infrastructure is higher loaded on factor F1 than other variables. On the otherhand, government policies, government program, physical infrastructure and internalmarket openness are higher loaded on factor F2 than others. The former five variablesmainly represent economic and cultural environments in the region, and the latter fourones denote political and market environments. According to component scorecoefficient matrix, this paper reduces nine variables to two factors and uses the factorsto modify original models. 3.3.3 Modification of the models. Based on factor analysis of principal components,nine variables are reduced to two factors. Thus, the modified models are as follows: yj ¼ b0j þ b1j F 1 þ b2j F 2 þ 1j ð j ¼ 1; 2; 3Þ ð2ÞNew independent variables F1 denotes the information of culture and social norms,education and training, availability of finance, research and development transfer,commercial and legal infrastructure, and F2 represents other four variables in theoriginal models. The dependent variables remain identical. With component scoresas values of independent variables, the model is estimated using least squareregression, alternating three dependent variables as the measure for entrepreneurship.According to the regression coefficients and the significant level, this paper attempts tofind the difference of the impacts of nine variables on entrepreneurial opportunities,skills and intentions.4. Estimation resultsThe results of statistic analysis are showed as Table III. Multiple correlation coefficients Ris more than 0.9 that indicates the regression effect is significant. Standardized coefficients Rotated component Component score matrix coefficient matrixVariables F1 F2 F1 F2Culture and social norms 0.89 0.33 0.450 2 0.314Education and training 0.874 0.385 0.402 2 0.258Availability of finance 0.821 0.546 0.254 2 0.087R&D transfer 0.804 0.538 0.246 2 0.082Commercial and legal infrastructure 0.772 0.546 0.217 2 0.054Government policies 0.344 0.934 20.362 0.556 Table II.Government programs 0.498 0.854 20.194 0.387 Component matrix andAccess to physical infrastructure 0.453 0.839 20.218 0.405 component scoreInternal market openness 0.618 0.712 20.009 0.188 coefficient matrix
  7. 7. CMS b1 are positive, and significance level is less than 0.05. The results indicate entrepreneurial1,4 opportunities, skills and intention is positively related to variables F1 which mainly represents the information of culture and social norms, education and training, availability of finance, research and development transfer, commercial and legal infrastructure. In the same way, the value of coefficient b2 and significance level show that entrepreneurial opportunities, skills and intention is positively related to variables F2, which mainly222 denotes the information of government policies, government program, physical infrastructure and internal market openness. These results accord with the first nine hypotheses in Section 3. Therefore, the positive impacts of nine environmental factors on entrepreneurial opportunities and capacities are supported effectively in 13 Chinese cities. With exception to the above conclusion, we find another important one. Because b11 is more than b12, b21 is more than b22, and b31 is more than b32, the extent of the impacts of F1 on entrepreneurial opportunities and capacities is higher than that of F2. According to the component matrix, culture and social norms, education and training, availability of finance, research and development transfer, commercial and legal infrastructures are higher loaded on factor F1 than other variables. On the other hand, government policies, government program, physical infrastructure and internal market openness are higher loaded on factor F2 than others. The former five variables mainly represent economic and cultural environments in the region, and the latter four ones denote political and market environments. Thus, it can be seen, in 13 cities, the extent of the impacts of the economic and cultural environments on entrepreneurial opportunities and capacities is higher than that of political and market environments. Thereby, the tenth hypothesis is supported. 5. Conclusions This paper constructs statistical models to test the relationship between environmental factors and entrepreneurial opportunities or capacities in 13 cities in China according to the conceptual model of GEM. Based on the data derived from GEM reports, we use principal component of factor analysis and lest square regression to study the impacts of entrepreneurial environments on entrepreneurial opportunities and capacities empirically. After calculating the correlation matrix, we find that the data of environmental factors have relatively high correlation. If adopting the nine factors as independent variables in multiple regression equation, the problem of collinearity must appear. Thus, by utilizing factor analysis of principal components, nine environmental factors are reduced to two common factors. And the component scores are adopted as the value of independent variables to implement multiple regression analysis. The statistical results show that among 13 Chinese cities, if one city has more favorable conditions in terms of availability of finance, government policies, F1 F2 Multiple Standardized Standardized Dependent correlation coefficients Significant coefficients Significant variable yi coefficient R b1j t level b2j t levelTable III. y1 0.944 0.734 7.009 0.000 0.634 6.045 0.000The results of multiple y2 0.911 0.813 6.238 0.000 0.457 3.508 0.006regression y1 0.955 0.884 9.424 0.000 0.413 4.399 0.001
  8. 8. government programs, education and training, research and development transfer, Entrepreneurialcommercial and legal infrastructure, internal market openness, access to physical opportunities,infrastructure, it will have more entrepreneurial opportunities, and its entrepreneurwill have higher capacities. capacities With respect to the difference of the impacts of nine environmental factors onentrepreneurial opportunities and capacities, we find the extent of the impacts of theeconomic and cultural environments on entrepreneurial opportunities and capacities is 223higher than that of political and market environments. Economic and culturalenvironments are mainly composed of culture and social norms, education andtraining, availability of finance, research and development transfer, commercial andlegal infrastructure. Political and market environments consist mostly of governmentpolicies, program, access to physical infrastructure and internal market openness). The study is based on regional data derived from Chinese entrepreneurship monitorresearch program. The samples include developed areas in entrepreneurialenvironments as well as underdeveloped ones. So the diversity and timeliness causethe conclusions to really reflect the entrepreneurial conditions in China. Theenvironmental factors comprise economic, cultural, political and social aspects thatadvance the integrality and typification of the study. To some extent, the analysesbased on empirical data are also beneficial supplements to current researches. With respect to the statistical results, this paper reveals the relationship betweenChinese entrepreneurial environments and entrepreneurial opportunities or capacities,and indicates the difference of the impacts of environmental factors onentrepreneurship. These conclusions will provide Chinese government withtheoretical support so that the government can utilize limited resources to developentrepreneurial activities. Meanwhile, the paper furthers foreign researchers andinvestors to understand the specific conditions in terms of Chinese entrepreneurialenvironments, opportunities, and capacities more clearly.ReferencesCarroll, G.R. and Delacroix, J. (1982), “Organizational mortality in the newspaper industries of Argentina and Ireland: an ecological approach”, Administrative Science, Vol. 27, pp. 169-98.Dana, L.P. (1987), “Entrepreneurship and venture creation: an international comparison of five commonwealth nations”, in Churchill, N.C., Hornaday, J.A., Kirchhoff, B.A., Krasner, D.J. and Vesper, K.H. (Eds), Frontiers in Entrepreneurship Research, Babson College, Wellesley, MA.Dana, L.P. (1990), “Saint Martin/Sint Maarten: a case study of the effects of culture on economic development”, Journal of Small Business Management, Vol. 28 No. 4, pp. 91-8.Davidsson, P. (1991), “Continued entrepreneurship: ability, need, and opportunity as determinants of small firm growth”, Journal of Business Venturing, Vol. l6, pp. 405-29.De Koning, A. (1999), Conceptualizing Opportunity Recognition as a Socio-cognitive Process, Centre for Advanced Studies in Leadership Working Papers, Stockholm.Fogel, G. (1994), “Perception of small business owners: a study of the development of entrepreneurship in Hungary”, Midwest Review of Business Research, Academy of International Business, Chicago, IL, pp. 89-99.Gartner, W.B. (1985), “A conceptual framework for describing the phenomenon of new venture creation”, Academy of Management Review, Vol. 10 No. 4, pp. 696-706.
  9. 9. CMS Gnyawali, D.R. and Fogel, D.S. (1994), “Environments for entrepreneurship development: key dimensions and research implications”, Entrepreneurship, Theory and Practice, Vol. 18,1,4 pp. 43-62. Hill, G. E., Lumpkin, G. T. and Singh, R. (1997), “Opportunity recognition: Perceptions and behaviors of entrepreneurs”, Frontiers of Entrepreneurship Research, Vol. 17, pp. 168-82. Kirchoff, B.A. (1991), “Entrepreneurship’s contribution to economics”, Entrepreneurship, Theory224 and Practice, Vol. 16 No. 2, pp. 93-114. Kirzner, I.M. (1973), Perception, Opportunity and Profit, University of Chicago Press, Chicago, IL. Koeller, C.T. and Lechler, T.G. (2006), “Economic and managerial perspectives on new venture growth: an integrated analysis”, Small Business Economics, Vol. 26, pp. 427-37. Pennings, J.M. (1982), “Organizational birth frequencies: an empirical investigation”, Administrative Science Quarterly, No. 27, pp. 120-44. Reynolds, P. and Miller, B. (1992), “New firm gestation: conception, birth and implications for research”, Journal of Business Venturing, Vol. 17, pp. 405-17. Reynolds, P.D., Hay, M. and Camp, S.M. (1999), Global Entrepreneurship Monitor: 1999 Executive Report, Kauffman Center for Entrepreneurial Leadership, Kansas City, MO. Robertson, M., Collins, A., Medeira, N. and Slater, J. (2003), “Barriers to start-up and their effect on aspirant entrepreneurs”, Education & Training, Vol. 45, pp. 308-16. Singh, R. P. (2000), Entrepreneurial Opportunity Recognition through Social Networks, Garland Publishing, New York, NY. Stevenson, H. and Gumpert, D. (1985), “The heart of entrepreneurship”, Harvard Business Review, Vol. 63, pp. 85-94. Timmons, J.A. (1999), New Venture Creation: Entrepreneurship for 21st Century, 5th ed., McGraw-Hill, Boston, MA. Zapalska, A. and Zapalska, L. (1999), “Small business ventures in post-communist Hungary”, Journal of East-West Business, Vol. 5, pp. 5-21. Further reading Li, C., Qiguo, C. and Lin, S. (2007), “A framework for the study of entrepreneurship environment”, Jilin University Journal Social Sciences Edition, Vol. 1, pp. 50-6. Qiang, L. and Yanfu, J. (2001), “The theory of entrepreneurship and an analysis of its conceptual framework”, Economic Research Journal, Vol. l9, pp. 85-94. Xuemin, W. (2004), Applied Multivariate Statistical Analysis, Press of Shanghai University of Finance and Economics, Shanghai. Zhenhong, C. and Junwu, D. (2004), “Foreign research on entrepreneurship: past trend and future direction”, Foreign Economies and Management, Vol. 2, pp. 7-11. Corresponding author Zhilong Gan can be contacted at: ganzhilong@gmail.com To purchase reprints of this article please e-mail: reprints@emeraldinsight.com Or visit our web site for further details: www.emeraldinsight.com/reprints

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