Does Culture Impact Entrepreneurial Activity

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An Entrepreneur is somebody who has the nerve to challenge things around them. He not scared to take risks and transform novel ideas into reality. In the process, an entrepreneur questions a lot of existing norms and customs and undertakes a lot of risky ventures and takes bold decisions. Talking from a purely economic/ business perspective an entrepreneur is a person who creates new products/ markets, exploits and combines resources in creative ways, and cater to evolving markets or create a new market altogether.

Entrepreneurship is taken synonymous to risk taking. It’s a frame of mind, an attitude toward exploring new venues and exploiting untapped resources. Its can be thought of as a personality trait of the entrepreneur that makes them comfortable in dealing with ambiguous and uncertain situations sometimes characterized by a high risk of failure or losses. This tendency in people has been studied from decades and has been an active topic of debate among economists and sociologists since countless years. Entrepreneurs play a vital role in development of new markets; invention of new and revolution in existing technology; and mobilization and evolution of human capital. As such entrepreneurial activity is taken as the engine for economic development and prosperity for any society conducive to entrepreneurship and entrepreneurial activity.

Entrepreneurs have traditionally been characterized by various qualities and personality traits. Entrepreneurs are essentially mercurial in nature, i.e. prone to insight, deceptiveness, cunningness, brainstorms, ingenuity and are very rational and opportunistic (Bird, 1992). Entrepreneurs are optimistic but practical decision makers (Cooper, Woo, & Dunkelberg, 1988) and are largely driven by a need for independence and high achievement (Collins and Moore, 1970).

Talking from a collective perspective, entrepreneurship can be stated as a characteristic of a certain society’s culture. In order to gain insight as to why some countries have a relatively high level of entrepreneurial activity than others, we need to study entrepreneurship from a cultural perspective. Are those economies prone to develop economically and prosper because their culture is conducive to it?

Or is there some other answer to a country’s economic stagnancy, lack of growth of human capital and widening of the gap between the rich and the poor? True, other non/economic measures like education, abundance of resources, capital, sound financial institutions, efficient banking system, efficient legal system, per capita income, political stability, foreign investment etc are critical to an economy’s growth and prosperity; but entrepreneurship, as stated above is an attitude, a frame of mind and a set of beliefs that is different from that of the non-entrepreneurs. Entrepreneurship is regarded as the engine for economic prosperity without which neither of these benchmarks in education, politics, etc could ever be achieved. An economy and a society are characterized by its people. And therefore, their destination would be defined by human capital that builds it all up.

Dutch Researcher Greet Hofstede (1980) analyzed culture across four broad and distinct tendencies. Looking at entrepreneurial activity and mindset in a society and whether a culture is conducive to an entrepreneurial attitude or not, we can analyze the four cultural tendencies across societies to better understand the difference in economic prosperity and development experienced by countries across the globe.

Power Distance (the degree of inequality among people that a society considers as normal) in entrepreneurial cultures would be much less as compared to those characterized by risk-aversion and no entrepreneurship spirit. To overcome the poverty trap, individuals become entrepreneurs and facilitate technological innovation and industrial growth. Where cultures restrict such activities, we witness concentration of wealth in a few hands, corruption and instability.

Denmark and Israel, for example, seek to reduce inequality of power whereas India and Philippines maintain and accept such power distances. Individualistic cultures are more likely to nourish entrepreneurship as they emphasize on independence and self-centeredness. Individuals in the USA and Netherlands, place a higher concern for the self, whereas those in Pakistan shoe greater concern for the family and the community. Cultures characterized by high masculinity emphasize on technical performance and assertiveness are likely to be more entrepreneurial than those characterized by femininity (emphasizing on interpersonal relationships and tenderness). In masculine cultures on USA, Japan and Germany, performance and accumulation of wealth ranks higher in importance where in feminine cultures of Sweden and Norway, relationships, environment etc are seen as more important.

Similarly, society where people have a low long-term orientation i.e. the desire for immediate gratification of material, social and emotional needs tend to harness an entrepreneurial spirit. In countries like USA and UK, people display a short term orientation toward the expectation of fulfillment of desire whereas in Japan and China people prefer stability and thrift in practices to earn longer lasting benefits in the future. Uncertainty avoidance refers to people’s level of comfort toward uncertainty and ambiguity. Singaporean and Jamaican cultures for example welcome uncertainty while Greek and Portuguese seek certainty (Landy & Conte, 2004). Notice how all the measures pertain to a collective behavioral pattern that characterizes a certain culture, something sociologists refer to as the “collective psyche” of a people.

It’s can be seen that countries that rank lower in power distance, higher in masculinity, lower in long term orientation, lower on uncertainty avoidance and higher on individualism on the Hofstede scale are more conducive to entrepreneurship and thus witness vigorous economic development and human capital growth.

The following pages present an analysis of various cultures (and economies) around the world and seek to determine the effect on entrepreneurship of the prevailing national culture. It is however clear that entrepreneurship is not the only answer toward a country’s economic and financial dilemmas since countries displaying low spirit of entrepreneurship also experience economic growth and technological advancement. But the importance of entrepreneurship is strongly emphasized upon for sustainability of growth in a highly competitive global front and increasingly integrated financial markets of the global economy. Therefore it is important to study entrepreneurship and the influence of national culture over it to understand the future trends of an economy’s performance and financial well being.

Keeping the Hofstede theory in mind we begin to understand the variation in entrepreneurial spirit across cultures and thus can surmise on the future growth and expansion prospects. The Chinese culture, for instance, is largely dubbed as being the most resistant to change and being the least adaptable to dynamism and uncertainty. Chinese culture is rated as significantly low (24 as opposed to 71 for USA) in individualism, high on power distance (81), high in masculinity, high in uncertainty avoidance and significantly high (114, as opposed to 25 for USA) in terms of long term orientation (Sagatori, 2006). This, as seen in a survey conducted by Accenture from 80 leading business executives in China, is the biggest barrier to entrepreneurship in China. The Chinese executives have a more bureaucratic approach than entrepreneurial toward business processes that restricts organizational development and innovation.

There’s a significant aversion to risk, executives focus on maintaining status quo and order rather than create value. 83 percent of executives participating in the survey considered this as hampering the growth of an entrepreneurial culture in their organization. As a matter of fact, 64% of senior executives in China, as opposed to the global average of 42%, described risk-evasiveness as an organizational characteristic.

However, the opening of markets across the globe and the economic prospects for a national economy has significantly influenced China to open its door and hence we notice a change in workplace ethics and HR policies. Chinese business leaders are starting to realize the value of fostering a culture of continuous innovation and entrepreneurship in order to achieve sustainable growth in the fast evolving market economy of today. This would require a strategized changed in the “collective psyche” i.e. fostering a culture of entrepreneurship and innovation on an organizational and national level throughout the country.

Talking about Eastern European societies typically Finnish, Swedish and German are low in power distance, average in uncertainty avoidance, high in individualism, and low in masculinity (Pshenichnikova, 2005). Entrepreneurship is seen restricted in Germany thanks to high power gap and gender discrimination. This needs to be curbed thru institutional change in the culture and discouraging gender discrimination. Slowly, women are seen emerging on the business front esp. in East Germany. A major finding tells that the transformation of the traditional economy into a service and information oriented one needs to be permanent and concrete.

Also, for growth and innovation, new jobs and new careers need to be invented, professions that keep the progress wheel moving. Therefore, it is necessary that along with the natural rate of growth and expansion in the service industry of traditional professions such as that of a doctor or a lawyer, we need to create new markets and new industries for the process of evolution to occur. Hence, self-employment is not the only answer or the only indicator toward an entrepreneurial culture of a society. The study indicated that almost 50% of self employed people in Germany, simply belonged to the solo-self-employment category i.e. the one-man job professions of that of a lawyer or a doctor. This tendency can not be seen as a positive sign of entrepreneurship, since it does not involve the development and evolution of human capital. East and West Germany showed disparate growth pattern till the mid 1990s which led to a reform in the growth structure (from East to the West). The division of gender and discriminatory tendencies seem to be stable during the time period as the ratio of 3 women to 7 men in the workforce has remained quite unchanged. (Bogenhold & Fachinger, 2008)

The Anglo American societies, esp. that of Canada are rated as low in power gap, high in individualism, average in masculinity, and low in uncertainty avoidance. These show a significant increase in technological advancement, rise in employment etc. People in Canada still place importance on collectivist esp. in workplace affairs and unionizing of operations.

In the conclusion, it can be stated that the East indeed seems to be more rigid and narrow-minded in terms of its social institutions and cultural dynamism. If we consider culture as part of the larger economic system (or perhaps vice versa, with economic system being part of the larger cultural-social system), it’s only too reasonable to associate economic development being a sub factor of cultural growth and dynamism. Countries who experience narrow and rigid social institutions, restrict individual freedom have emerged to produce a week economy and instable political and civic infra structure. These countries are trapped in a vicious cycle that feeds itself since both technological and cultural innovation is restricted which hampers economic and industrial growth. The Hofstede theory provides valuable insight in understanding culture and pin pointing the factors involved in determining the economic success and progressive qualities like entrepreneurship, risk taking, and intellectual development.

Bibliography

12 Manage. “Cultural Dimensions (Hofstede)” 12 Manage Executives, Fast Rrack, Inc. Web.

Accenture. “Barriers to Entrepreneurship in China”. Web.

Bogenhold and Fachinger. “ENTREPRENEURSHIP, CULTURE, FINANCE AND ECONOMIC DEVELOPMENT” 2008. Web.

Hofstede Scores. 2008. Web.

Landy, F and Conte, J. “Work in 21^st Century”. 2005. Blackwell Synergy Publishers.

Pshenichnikova,I. “Doing Business in Russia: Cross Cultural Factors”. Web.

Simron Kriss, Sagorati. “Hofstede’s Five Cultural Dimensions”. 2006. Web.

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Does Culture Impact Entrepreneurial Activity

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