Volume II, Issue 3, 2006
Page - 1 Journal of Asia Entrepreneurship and Sustainability
Volume II, Issue 3
© 2006, Journal of Asia Entrepreneurship and Sustainability
No reproduction or storage, in part or in full, permitted without
prior permission.
[email protected]
Goitom Tesfom1
Assistant Professor of Management
College of Business and Public Administration
Eastern Washington University
3000 Lander Holm Circle SE
Mail Stop House 101
Bellevue, WA, 98007
e-mail [email protected]
His research interests are International Marketing, International Business and Entrepreneurship.
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It has been long believed that social networks influence entrepreneurial drive.
They give access to resources that are hard to get through formal channels.
However the findings of this study show that despite a strong social network
relationship, exchange of business information and material resources among first
generation East African Entrepreneurs in the Seattle area is very limited. To avoid
competition among co-ethnic members, entrepreneurs do not discuss how they
identified the business opportunities and as individuals how they draw resources.
Moreover there is no evidence that shows the first generation East African
Entrepreneurs posses’ ethnic self help institutions and associations nor have
individual ties that provide access to training, credit, capital and information.
Entrepreneurs valued the positive role of cultural factors: strong saving tradition,
persistency and desire for income continuity in their entrepreneurship derive.
Key words: Entrepreneurship, Immigrant networks, East African, Seattle, Social networks.
The Merriam-Webster Dictionary presents the definition of an entrepreneur as one
who organizes, manages, and assumes the risks of a business or enterprise. The
term enterpreneurship may cover the creation of new entreprises, innovation and
even the mangement of new enterprises (Mosted, 1991). Thus entrepreneurship can
be viewed in its essence to be inidividuals or treams creating works, such as
products or services, for other people in the market place (Mitchell and Morse,
Entrepreneurs require information, capital, skills, and labor to start business
activities. While they hold some of these resources themselves, they often
complement their resources by accessing their contacts (Cooper, Folta, and Woo,
1995; Hansen, 1995). Entrepreneurs are often confronted by problems associated
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with obtaining credit and financing the business, as well as with having the
requisite managerial and technical experience that facilitates success.
Entrepreneurial immigrant groups have been found to follow the path of preserving
ethnicities and forming enclaves of entrepreneurial activity based on family
cohesion, trust relations, common language cultural and life habits (Raijman and
Tienda, 2000). The ethnic networks provide entrepreneurs with business contacts,
advice and training and capital loaned through informal financial markets. As
mentioned above, entrepreneurial networks help to bring firms more resources.
More resources help to achieve higher performance. Higher performance in turn
motivates network formation. However, the analysis of social networks has been of
the “direct relationship between social networks and entrepreneurship and not the
relationship between social network and Entrepreneurship through resource”
(Jenssen and Koening, 2002, P.1040).
Raijman and Tienda (2000) argue that several residentially concentrated groups,
like Mexicans and African Americans, exhibit low rates of business ownership
while residentially dispersed groups, like Asian Indians, have high rates of
entrepreneurial activity. Moreover Dalin (2005) mentioned that business start rates
are still lower for African-Americans than other racial or ethnic groups. Because of
group differences in the distribution of ethnic resources, several authors suggest
that the lower rates of business ownership of blacks and Mexicans have been
explained by their lesser ability to mobilize business resources through ethnic ties
(Waldinger, 1995; Rough, 2001; Lee, 2000). Studies suggest that whites are selfemployed at the rate of 7.5%, with Hispanics at 3.9% and blacks at 2.5% (Holland
and York, 2004).
The contemporary immigration of East Africans to the United States and their role
in creating small enterprises has not been researched. The civil war in Somalia that
erupted in 1991 and the subsequent resettlement programs have enabled families to
move to Europe (Germany, Switzerland, Finland, and the United Kingdom) and
the United States (Hyndman, 1999). The thirty year conflict between Ethiopia and
Eritrea (1961-1991) resulted in a massive influx of refugees to the United States,
Australia and Europe. The total population of East Africans in the Seattle Area is
estimated at 16000 (Ethnomed, 2005). Moreover the self-employment rates are
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estimated at 5.07%2 which is higher than the self employment rate for Mexicans
and African Americans.
The objective of this paper is to explore how the first generation East African
entrepreneurs in the Seattle area able to survive and transform themselves into
successful business owners, what forces played a role in the process and to explain
Theoretical Background
Studying characteristics of entrepreneurs' social networks may help to shed light on
the new venture creation process by East African entrepreneurs and its subsequent
success. Casson (1997) defines a network as a set of high trust relationships which
either directly or indirectly link together everyone in a social group. Social network
analysis is based on an assumption of the importance of relationships among
interacting units. Social exchange or "network" theory increased among
entrepreneurship researchers in the mid-1980s and extended into SME,
organizational, and market research fields (Johannisson et al., 1994). Sociologists
have for many years explored the resources embedded in social relations and social
network structures (Kamman, 2000). Hence, entrepreneurial enterprises have been
a productive area for the application of social network theory (BarNir and Smith,
2002). These studies focus mainly on Cubans, Jews, Chinese and Koreans who
have made the US their home (Chung and Kalnins, 2004; Raijman and Tienda,
2003). Presumably, each of the entrepreneurially successful groups has developed
social networks and organizations that facilitate greater access to information,
products and services (Rauch, 2001). According to Lee (1999), while co-ethnic
supply networks were common in the Jewish and Korean communities in the US,
not in the African Americans. Saxenian (1999) confirmed Lee’s findings in Asian,
Jewish, SriLankan, and Vietnamese Immigrant communities in Canada. Moreover,
highly educated Chinese and East Indian Immigrants in California were able to
create 15 international, formal and informal networks (Saxenian, 1999) and over a
quarter of the new high technology ventures created in Silicon valley over the last
20 years were started by the Chinese and East Indies immigrants (Menzies etal.,
2000). Several authors mentioned that social networks were used to raise funds for
Business license and startup listings, Seattle, King County
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investment (Bates, 1997; Tseng, 1995; Huck et al., 1999). Tseng (1995) found that
Taiwanese immigrants in the US in the finance, insurance and real-estate industries
borrow money from ethnic banks. Moreover Laguerre (1998) reported that Haitian
immigrant used revolving credit associations as source of capital. However
according to Huck etal (1999) African American and Hispanics relied on banks
than social networks.
Kamann (1998) builds his model on network relationships around the concept of
milieu that is based on the notion of constructed territory. Kamann’s “Triple plus
model” combines social, economic and geographical space. Millat and Lecog
(1992) distinguished between the endogenous innovative milieu and the exogenous
innovative milieu. The first arises around territorial networks of small and medium
sized enterprises whose economic relations are rooted in history and where certain
cultural coherence can be found. The second type, exogenous innovative milieu,
arises from the establishment of subsidiaries or parts of large companies in an area.
Kamann’s approach is in line with our objectives. The research subject of this
study can be treated as a milieu and it resembles the indigenous innovative milieu.
The actors are first generation East African entrepreneurs in the Seattle area who
own small and medium sized enterprises whose economic relations are rooted in
history and where certain cultural coherence can be found. Furthermore the
interaction of the actors in the milieu can be explained through the Triple plus
method (Figure 1).
3. Shock analysis
Cultural and other
cognitive elements
2. Social interaction
1. Material relations
Figure 1. The Triple plus Methodology. Source: Adapted from Kamann 1998, Page. 286.
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To understand the factors that influence the entrepreneurship drive by first
generation East African entrepreneurs we focus on four variables (figure1). These
are material relations, social networks, shock analysis and cultural and other
cognitive elements. Material relations are exchange relations in the network
containing material goods, services and capital flows. Social networks concern
direct exchange of information, strategy formulation, and goal setting. Shock
analysis includes political and economic factors that have affected the network and
their threats and challenges for the entire network and individual actors. The plus
focuses on cultural and other cognitive elements. It mainly concerns ideological
relations among network members. It analyzes cultural variables such as saving
and spending behavior, specific ways of doing business, and way of thinking about
things. Figure 1, depicts the relationship among the variables.
The total accumulated knowledge supplied by all the successive variables should
give an adequate answer to how entrepreneurship has become common to first
generation East African entrepreneurs in the Seattle area and ultimately identify the
factors that contributed to the phenomena.
Hofstede (2003) explains East Africans as societies of a more collectivist nature
with close ties between individuals. The Somalis, Ethiopians and Eritrean
communities in the Seattle area are built on connections. Better connections
usually provide better opportunities and can facilitate access to information,
motivation and material resources. But, what are the connections that enabled the
first generation East African entrepreneurs in the Seattle area to build their own
businesses? How do these connections lead to more effective and productive
entrepreneurs? How does success emerge from the complex interactions within and
between communities? A social network approach is deemed most appropriate to
answer these questions. The social network approach suggests that a person's
behavior is contingent on the nature and structure of social relationships, which
also provides the resources and support required for entrepreneurship. Social
networks, however, do not constitute the resources themselves but rather the ability
of the individual to mobilize these resources on demand (Portes, 1995). As one's
social network is viewed as a factor crucial to business success (Redding, 1991),
the higher business ownership by East African entrepreneurs in the Seattle area can
be studied as a function of entrepreneurs' social and cultural connections. Thus
based on the above arguments the following two propositions are formulated.
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The higher the rate of business ownership by first generation East
African entrepreneurs in the Seattle area, the greater the exchange of
resources in the Ethnic network.
The stronger the collective culture of East Africans in the Seattle Area
the easier for entrepreneurs to mobilize resources from the Ethnic
To understand the factors that influence the higher business ownership, the
researcher interviewed a number of East African entrepreneurs and members of the
East African community offices in the Seattle Area. The data are used to verify the
relevance of the model (figure 1) and to test the propositions formulated. The
researcher learned that not much information is available about the first East
African entrepreneurs in the Seattle area. Thus, to really deepen his understanding
of social networks he needed to reach below the surface to understand the
mechanisms and processes that influence the operation and function of social
networks. This type of knowledge was likely to be achieved more easily using
qualitative approaches. This research was based on an interview of 46 first
generation East African immigrant entrepreneurs. The list of the first generation
East African entrepreneurs was compiled from business directories, East African
community trade websites and the Seattle Public Library reference section. The
criteria for interview were the business should be owned by first generation East
African entrepreneurs and willingness to be interviewed. Although a lack of time
on the entrepreneur’s side and sometimes initial mistrust created obstacles to data
collection, the cultural connection of the interviewer to the East African
community helped to build a reasonable level of trust. The questions were semistructured but did not contain any leading questions. An open-ended interview was
conducted with key members of each organization using a checklist to guide the
interview process so that uniformity and consistency can be assured in the data.
The business break down of the entrepreneurs interviewed is 18 groceries, 9
restaurants, 3 tour services, 5 beauty shops, 3 gas stations, 3 clothing shops, 3 real
estate and 2 auto repair shops. However, since some grocery stores also handle
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traditional home made clothes it is difficult to put clear distinction between
groceries and clothing shops.
Discussion of results
The interview results show that 60% of the first generation East African
entrepreneurs immigrated to the US prior to 1990. Among the 46 entrepreneurs
interviewed 82% are men and 18% women (table1). However since 91% of the
businesses are owned by married couples the data does not show single business
ownership. It simply shows the gender of the person who was running the business
during the interview. The data also shows 61% of the entrepreneurs are over 40
years old. While 33% of the entrepreneurs possess less than high school diploma or
no education, 67% possess education ranging from high school diploma to
Master’s degree. Out of those who have high school diploma or higher 39%
completed their education in the US and 57% were educated back home. Another
4% (2 entrepreneurs) received their education in some other country prior to their
immigration to the US. Some of the entrepreneurs who studied back home
completed their studies in languages other than English.
Table 1. Demographic Characteristics of Entrepreneurs n=46
Below 20 years old
20- 40 years old
41 - 60 years old
Over 60 years old
Marital Status
Level of Education
Less than high school or none
High school diploma
Vocational/technical degrees
Associates degree (2-yr college degree)
Bachelors (4-5 yr college degree)
Master's degree
PhD or advanced professional degree such as MD, JD.
Place where diploma received
In the US
Back home
Some other country
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How do you characterize your integration to the US
Very easy
Somewhat easy
Somewhat difficult
Very difficult
Did you get assistance during your integration to the
US Culture
Source: Interview 2005-2006
While those with higher level of education are engaged in businesses such as real
estate, gas station franchise operations and tour service those with lower level
education run groceries and restaurants. The integration to the US culture was
much easier to entrepreneurs who immigrated after acquiring education back home
than those who did not.
Material relations
Access to financial resources
The data shows that 98% of the first generation East African entrepreneurs
interviewed in this study immigrated to the US as refugees and they did not have
the means to finance their businesses. During the interview 92% of the
entrepreneurs reported that personal saving was the main source of business
financing (table 2). While 13% of the entrepreneurs supplemented personal saving
with bank credit, none of them used bank credit alone for business financing. Lack
of sufficient credit history, collateral requirements and religious factors were
mentioned as reasons that hindered the first generation East African entrepreneurs
from getting bank credits. Some entrepreneurs mentioned that there is a negative
attitude towards credit in the East African business culture and entrepreneurs are
not comfortable with large loans to grow a successful business. Hence,
entrepreneurs prefer to open businesses with private financing rather than depend
on credit. The objective is to limit the liability in case the business fails. However
the data shows that those who supplemented personal saving with bank credit were
able to start businesses that require higher investment.
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Field notes. “I don not like credit at all. I always want to limit the business risk to
my savings. When I go down I do not want to hurt others”.
Most of the first generation East African entrepreneurs worked two jobs to raise
the money required for investment. Their private savings enabled them to expand
into underserved markets, mainly the Rainer Valley and Central Area where they
can establish businesses at low start up costs. Among the 46 entrepreneurs
interviewed only 7% received financing help from friends and families. Credit
among entrepreneurs is very Limited (table 2). In East Africa, entrepreneurs often
contribute to revolving credit associations called “Ekub” or “Edir”. In these
rotating credit associations, members are willing to loan money to others. If a
member of a credit association refuses to make future payments to others after
receiving a loan, others could take him to a court and get their money back. The
researcher found no evidence that shows the first generation East African
entrepreneurs in the Seattle area used “Ekub” or “Edir” to raise money for
Table 2. Material Relations among entrepreneurs n=46
Problems encountered during business startup
Lack of finance/Credit
Lack of education/License
Lack of expertise in the business area
Lack of skilled employees
Lack of space/outlet
Lack of customers
Any other
Startup Capital
<100, 000
100, 000-250,000
Source of start up capital
Personal saving only
Personal saving and bank credit
Bank credit only
Credit from family members
Personal saving and credit from family members
Bank credit and credit from family members
Any other source, please specify
Source: Interview 2005-2006.
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Enterprise development
While some of the entrepreneurs opened their businesses outright, others were
operating from home. The home based shop owners reported that they worked
during the day and sold cultural clothes and Jewelry from home during the
evenings. By doing this they avoided outlet rent and were able to do business at
their convenience. The low cost advantage means less start up capital is required to
run this business. The home based businesses were also used to test if the business
really works. Later the home based business transformed themselves into fullfledged shops and traded items in large-scale. These shop owners complain that
home based shops take business away from them.
Concluding remarks: Apart from a limited support from close family networks the
East African entrepreneurs neither utilizes ethnic self help institutions and
associations nor have individual ties that provide access credit capital. Hence
private saving played a major role in raising business start up capital.
Social networks
Access to information
The network relationship among East African entrepreneurs is divided into family
and social networks. Personal network relationship among the East African
community in the Seattle area is strong and provides a means of long term support
to immigrants. During the interview 83% of the entrepreneurs reported that they
have “close” and “very close” relationship with their families (table 3). After they
arrive in the US, Immigrants can get short term help in terms of food, finance and
shelter from families in the US. During the interview 78% of the entrepreneurs
mentioned that when they first came to Seattle they received assistance mainly
from family members in the Seattle area (table 1). However, later the East African
immigrants also collect information regarding job opportunities and the general
social environment from others who have preceded them. The latter usually helps
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the new East African immigrants to build social relationships with fellow
countrymen in the US who are not family members.
Table 3. Exchange of Information among Entrepreneurs n=46
Source of current Entrepreneurial Opportunity
I worked in a similar business concern
Just my self
By accident
If you need information about new business
opportunities whom would you turn to?
Small business administration
My accountant
Have you had any chance to connect socially with
other entrepreneurs from your country?
Do you have a partner in your business?
How do you characterize your connections with
your families or extended families back home?
No relationship
Some what close
Very close
Extremely close
Source: Interview 2005-2006
Exchange of business information among the first generation East African
entrepreneurs is very low. While 89% of the entrepreneurs mentioned that they
often socialize with other first generation East African entrepreneurs, only 2
reported that friends and family members were the source of the current
entrepreneurial opportunity (table 3). Moreover 70% of the entrepreneurs told the
interviewer they themselves were the source of the business idea that resulted in
opening of the current business. Competition among entrepreneurs was mentioned
as a reason for information withholding. Most of the businesses target the East
African community and to avoid competition among co-ethnic members,
entrepreneurs do not discuss how they identified the business opportunities or how
they draw resources. To the contrary, first generation East African entrepreneurs
often cross ethnic lines and ask entrepreneurs from other countries for business
information. During the interview 17% of the first generation East African
entrepreneurs mentioned that they received business information or advice from
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Korean and Vietnamese entrepreneurs in the Seattle area (table 3). Many of the
entrepreneurs in this group are engaged in beauty supply shops, hair salons travel
service and real estate.
Field notes. “I had a plan to own my business but I did not know what type of
business to start. One day I visited a nearby beauty supply shop. I observed the
person who was running the shop had language problems and customer service
was very poor. I asked my self if he can do it why not me. Later I opened a beauty
supply shop. Since I did not have an experience in the beauty supply business I
asked a Korean beauty supplies shop owner for advice and that helped me a lot”.
If they need information 69% of the entrepreneurs said they would contact their
accountants (table 3). Most of the accountants the entrepreneurs deal with are not
East Africans.
Access to training
Although 22% of the entrepreneurs had prior experience in businesses similar to
the ones they have now, 70% of the entrepreneurs learned about their current
businesses after they arrive in the US (table 3). Many of the entrepreneurs in the
latter group, except few who run businesses that require professional licenses,
worked as employees for at least five years, mainly in low pay jobs, before they
opened the current business. This is inline with Borjas (1986) findings that the
greatest prosperity of self employment among immigrants, relative to natives,
occurs five years to ten years after immigration. Hence, they often start the
business after they settle down and possess skills that enable them to form an
enterprise from the ground up.
Support from Ethnic based organizations.
First generation East African entrepreneurs in the Seattle area are organized in
communities. The community offices provide a platform for East Africans to
socialize and help in settling refugees. However the study found no evidence that
the community offices facilitate entrepreneurship. The entrepreneurs reported that
the driving factor for opening a business is their desire to guarantee income
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continuity. Many of the entrepreneurs told the interviewer they left their jobs to
start business.
Field notes. “After I studied English language for seven months I decided to be a
nursing assistant. However I set a goal to myself to work as nursing assistant for
three years only and there after to open my own business. I opened my business
two and half years later”.
This is inline with Toussaint-Commeau’s (2005) argument that the longer an
immigrant resides in the US the more he/she is financially assimilated into the new
society, which often coincides with a greater willingness or to be self employed.
Partnership in Business
Business ownership with other partners is not common with first generation East
Africans entrepreneurs in the Seattle area. While as many as 10% of the enterprises
started with partners, currently only 5% retain that status. The reasons given for
failing partnerships were conflicts of interest and shirking.
Field notes. “I used to have a partner when I started my business. Later I took over
the whole business to my self. I did it once and I am not going to do it again”.
To avoid conflict and damage in social relationship that may emanate from failure
in partnership, East African entrepreneurs prefer sole ownership.
Concluding remarks: East African social and family networks play a critical role in
the adaptation processes of immigrant entrepreneurs; however, there is no evidence
that shows they played any role in fostering exchange of business information
among entrepreneur and in creating access to training. Moreover due to high
potential of conflict in interest and shirking entrepreneurs refrain from having
partners in business.
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Shock analysis
Shocks created by negative developments in East Africa
The civil war in Somalia, the border conflict between Eritrea and Ethiopia and
recently the political conflict in Ethiopia have created divisions among the East
African community in the Seattle area. These incidents in East Africa transcend
borders and create division and conflict among the different groups. During the
interview 67% of the entrepreneurs reported that these incidents weaken
cooperation among East African entrepreneurs in the Seattle area. Moreover realestate entrepreneurs in particular mentioned that political crises back home affects
their customer base in Seattle. Political instability and harsh economic incidents in
East Africa have financial implications on first generation East African
entrepreneurs in the Seattle area. While 78% mentioned remittance to families at
home as a factor that undermines their reinvestment capacity, 60% reported that
politics/war create emotional instability (table 4). Many first generation East
African entrepreneurs send money to families back home. When there is drought or
war the remittance increases significantly and eventually puts strain on
entrepreneur’s investment capacity.
Table 4. Factors concerning shock analysis n=46
Political and economic factors back home that affect your business in the US
Source: Interview 2005-2006
Shocks created by negative developments in the US
First generation Somali entrepreneurs in the Seattle area have mentioned that
September eleven created another shock to them. US government investigation into
their business activities led to low customer confidence and eventually loss of
customers. Moreover some grocery owners complained that new city zoning policy
disturbs alcohols sales and forces them to relocate their long established
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Field notes. “Currently the Seattle city administration is expanding the alcohol
free zone. Although I am far way from the city, the regulation includes my location
and I am afraid that I may be out of business”.
None of the entrepreneurs cited problems related to getting licenses to start a new
Concluding Remarks: The discussion above shows that almost all first generation
East African entrepreneurs in the Seattle area face shocks. Unfavorable political
and economic conditions in East Africa limit reinvestment capacity hinder
cooperation among entrepreneurs and weaken their customer base. Moreover
political developments in the US also weaken the level of trust between Somali
entrepreneurs and their customers.
The plus: Cultural and other cognitive elements
Economic and cultural factors acquired back home
First generation East African entrepreneurs in the Seattle area were asked if they
recall any culturally based values they acquired back home which have
implications on the successful creation and growth of entrepreneurial ventures in
the US. Strong saving capacity (74%), home cooking (47%) and persistency (63%)
were mentioned as the main factors that contributed to business ownership. Prior to
their immigration to the US the first generation East African entrepreneurs learned
how to live with meager resources. This culture helped them to minimize expenses
and promote saving when they arrived in the US. Culturally, home cooking and
minimizing restaurant visits is considered key to promote saving. The culture of
persistency also mentioned as a factor that guarantees business continuity. Many of
the entrepreneurs mentioned that even during hard times, when the business is
losing money, they always opt for keeping the business going.
Economic and cultural factors acquired in the US
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Entrepreneurs were also asked to name any cultural behaviors that they developed
in the US and have found useful in their success as entrepreneurs. Customer
relationship skills and working long hours were mentioned as major factors.
During the interview 76% of the entrepreneurs explained that once they opened
their business their major challenge was how to serve customers effectively (table
5). Although politeness and respect to others are well recognized in the East
African culture, entrepreneurs mentioned that customer relationship in the US
requires advanced customer skills. According to the entrepreneurs the need for
advanced customer service skills in the US called for a culture that they never had
and they needed to learn it as fast as possible. Many entrepreneurs, 82%, told the
interviewer they learned how to build customer relationship skills after they
opened their businesses (table 5). Entrepreneurs also indicated that because of lack
of customer service experiences in their dealing with customers in the Seattle area
they were labeled as arrogant. While 41% mentioned they learned individualism,
58% reported they learned working long hours in the US.
Table 5. Cultural and Cognitive factors, N= 46
Cultural factors from your home countries that have positive
or negative impact on entrepreneur’s success in the US?
Home cooking
Respect for others
Cultural factors acquired in the US that have positive or
negative impact on entrepreneur’s success in the US?
Customer service skills
Hard work
Cooling Mechanism
Legal interference in family life
Source: Interview 2005-2006.
Concluding remarks: The research results indicate that East African entrepreneurs
benefited from their economic and cultural background. While strong saving
tradition gave them an opportunity to raise start up capital, persistence and need for
income continuity contributed to entrepreneur’s business survival. However
remittance has negative effect on investment.
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Before moving into our conclusion first we will identify areas that could improve
the findings of this research. Fist, the interview includes entrepreneurs from only
three out of seven possible countries in East Africa. Second, the interview is
limited to first generation East African entrepreneurs in the Seattle area. Thus there
is a need to conduct a comprehensive, regional or global, research for
understanding other economic and cultural variables of first generation East
African entrepreneurs and their impact on entrepreneurship drive. Other
researchers can use the factors identified in this study as a basis to develop a
questionnaire for a regional or global survey of East African origin entrepreneurs.
Each factor could be posed to the respondents as a potential factor that influences
their entrepreneurship drive. Their responses could be along a Likert scale (5 or 7
points) from "not important" to "more important factor." Then, responses could be
factor analyzed to see if the statistical results match the results in this study or
whether some new underlying factors emerge from the survey. Such research can
lead to significant changes in the social, political and economic contexts for
immigrant and minority groups. Furthermore it will open avenues for further
research, and for the continued development of support institutions that will
encourage future entrepreneurial networks of immigrants and minority groups.
Although the study is based on specific groups of first generation East African
entrepreneurs in the Seattle area, the findings contradict the common
generalization by many researchers in entrepreneurship that ethnic social networks
are often a source of resources to entrepreneurs. Our findings indicate that ethnic
social networks can exist simply for socialization purposes with little effect on the
entrepreneurship drive of the members of the ethnic group. The social networks
can even be dysfunctional because of competition among businesses owned by the
members of the social network. The evidence bellow supports this argument.
The first hypothesis that states the higher the rate of business ownership by first
generation East African entrepreneurs in the Seattle area, the greater the
exchange of resources in the Ethnic network is not confirmed in this study.
Apart from a limited support from close family networks the East African
entrepreneurs neither utilizes ethnic self help institutions and associations nor have
individual ties that provide access to credit capital, information and training.
Private saving played a major role in raising business start up capital. Thus, our
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findings indicate that although the first generation East African entrepreneurs in
the Seattle area have been benefited from their economic and cultural backgrounds
there was little exchange of resources in the ethnic network. The research results
indicate that while remittance have a negative effect on business expansion,
cultural factors such as personal saving, need for income continuity and persistence
influenced the entrepreneurship drive by East African entrepreneurs. The study
reveals that 92% of the entrepreneurs raised money for investment through
personal saving. Moreover 74% reported that they benefited from the strong saving
tradition they learned back home. In the East African culture home cooking and
avoiding restaurants is considered key to promote saving.
The second hypothesis that states the stronger the collective culture of East
Africans in the Seattle Area the easier for entrepreneurs to mobilize resources
from the Ethnic network not confirmed in this study.
Although 89% of the entrepreneurs socialize with other entrepreneurs only 2
entrepreneurs (4%) mentioned that they received business information from
friends. Competition among entrepreneurs is blamed for the low level of
cooperation and exchange of information among entrepreneurs. Moreover, apart
from family networks, there is no evidence that shows the East African
entrepreneurs utilize ethnic self help institutions and associations or have
individual ties that provide access to training credit capital and information.
Entrepreneurs can gain a lot from cooperation. Placing a combined order could
lead to lower prices and help them enjoy competitive leverage over competitors.
Besides, the first generation East African entrepreneurs should learn how to
diversify into businesses that target beyond the East African Community in the
Seattle area. This will help them to expand their customer base, minimize
competition, build trust and foster cooperation.
Kamman’s (1998) model has been useful in identifying the factors that influence
entrepreneurship. However, despite the strong social network relationship among
East African entrepreneurs in the Seattle area, there is no evidence that shows the
social network helped them to generate resources. Thus our findings lend support
to Granovetter (1985) argument that individuals may have an effective attachment
to each other for its own sake.
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The study reveals that the first generation East African entrepreneurs in the Seattle
started businesses five to ten years after immigration. This suggests that in part, the
entrepreneurs many have benefited from an assimilation of information or
information accumulation processes. Thus, policy initiatives that promote
entrepreneurial training and provide assistance could help to increase the success
of East African entrepreneurs in the Seattle area. For instance it might be feasible
for Eastern Washington University at Bellevue to offer a short term courses or
workshops in entrepreneurship to help people get started, learn about sources for
resources, and explore different business ideas and different business models.
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Volume II, Issue 3
© 2006, Journal of Asia Entrepreneurship and Sustainability
No reproduction or storage, in part or in full, permitted without
prior permission.
[email protected]
The Effects of Economic Transition on Chinese
Dr. Terrence Sebora
Management Department
University of Nebraska-Lincoln
Email: [email protected]
Dr. Weixing Li
Management Department
University of Nebraska-Lincoln
Lincoln, NE 68588-0491
Email: [email protected]
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The Effects of Economic Transition on Chinese Entrepreneurship
The environment is an important initial factor in influencing the strategy, structure,
and processes of any organized endeavors, including entrepreneurial startups.
Some researchers suggest that the socio/political environment may be so powerful
as to create or destory entrepreneurship in a country. By applying social cognitive
theory to entrepreneurship, previous research demonstrated how environmental
dynamism and hostility significantly discourage entrepreneurial outcomes in
transitional economies. Recent changes in China have made entreprenurial
behaviors legitimate and thus promoted the founding of new ventures. The
transition of China from planned economy to a market-based economy represents a
major paradigm shift and during which substantial improvement has occurred in
the political, legal, and administrative environment to meet the needs for new
economic structure. This paper provides empirical evidence of how environmental
changes in China may support a climate that facilitates the birth of new
entrepreneurial ventures. Also addressed is the important role that entrepreneurial
self-efficacy plays in process of entrepreneurial outcomes.
Key Words: Entrepreneurship, Self-Efficacy, China
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One consequence of the economic reform programs in planned economies,
such as the former Soviet Union, China, and other Eastern European countries,
has been a substantial change in environmental conditions associated with the
creation of new ventures. This has been true to such an extent that Johnson and
Loveman (1995) have argued that the creation of new business through
entrepreneurial development is the principal source of economic renewal at the
enterprise level in transitionary countries. Among transition economies, China
may provide process that uniquely supports new venture creation.
In contrast to the “back to zero” approach exhibited in countries such as the
former Soviet Union, in which the entire prior economic system is broken down
and a market economy structure built, China seeks to integrate a market-driven
economic structure in its previously centrally-planned economic system step by
step, resulting in a “soft landing.” Recent statistics strongly support China’s
approach. Since 1979, the Chinese economy has experienced growth of over eight
percent a year (Bruton, Lan, Lu, & Yu, 2000). This rapid economic growth,
combined with the face that the nation has an estimated twenty-five percent of
world’s population, makes China an emerging economic giant (Bruton, et al.,
2000). China’s entry to the WTO is expected to fuel the speeding economic
growth. Despite the probability of periodic corrections, most observers expect this
rapid growth will continue. China will continue to be of increasing importance to
the future global marketplace (Ralston Holt, Terpstra & Kaicheng, 1999). Some
scholars predict that the 21th century will see China emerging as the world’s
largest economy (Leonard, 1997). Undoubtedly, these positive environmental
factors provide a warm “bed” for Chinese entrepreneurs to be born.
Of course, as with the other transitional economies, China has also faced a
combination of factors such as resistance to change in their prevailing
bureaucratic- administrative business culture, underdeveloped legal and financial
infrastructure, considerable administrative discretion and corruption by some
government officials, restrictive taxation, high interest rates, and a lack of
management expertise and skills (Connor, 1991; Kaser, 1995; Kornai, 1995;
Luthans, et al., 2000). Thus, it can be expected that environmental context also
partly impedes new venture creation in China.
Because an entrepreneur exists within a complex matrix of social interactions
within an even larger context of community, society, and culture, Carsrud &
Johnson (1989) see the entrepreneurial process as a response to environmental
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conditions. Aldrich & Wiedenmayer (1993) suggest that the sociopolitical
environment may be so powerful as to create or destroy entrepreneurship in a
country. Stinchcombe (1965) argues that environmental forces significantly affect
organizations during their emergence, constraining and imprinting the new form in
distinctive ways.
The environmental changes in the recent twenty years in China have made
entrepreneurial behaviors legitimate and thus promoted the founding of new
ventures. While the transition from China’s planned economy to a market-based
economy represents a major paradigm shift, rapid changes and substantial
improvement have occurred in the political, legal, and administrative environment
in order to meet the needs for new economic structure. This paper attempts to
identify and analyze the effect of China’s political, economic, legal, and cultural
environment on the Chinese new venture creation and then examine the role that
entrepreneurial self-efficacy may play in the relationship between this external
context and new venture start-up.
Political Environment
The Chinese Communist Party (CCP) was built by a few young and idealistic
students in 1921, who sought to establish a new China in order to rescue the people
from the “deep water and fiery fire” (poor living conditions and high compression).
These same idealists became the Chinese Party leaders in 1949. The newly built,
complex Chinese political system combined the rich culture and history of the
country with a similarly deep-rooted feudal political and social heritage (Hodgetts
& Luthans, 1996).
Since that time, Chinese society has experienced a pattern of “ups and
downs” or “speed-ups and slow-downs” as it adjusts and readjusts on the political,
economic, and business scenes. This “bumpy ride” has been due in large part to
the poor fundamentals resulting from the previous underdeveloped economy and a
lack of managerial knowledge and skills in CCP members (Schermerhorn and
Nyaw, 1990). A broad array of political struggles (Chinese people defined as “the
Massive Movements”) such as “the Great Jumping,” “Fighting the Left,” “Fighting
the Right,” and the worst, “the Cultural Revolution,” resulted in a long series of
consolidations in Chinese politics and economics. Over time, the communist
ideology became seriously distorted even for those who used to be very loyal to the
CCP, and particularly for those who suffered during any of “Massive Movements.”
Moreover, outrage over the Tiananman Square incident in Central Beijing on June
4, 1989, weakened support from the international community.
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Along with the changes in CCP leadership came political diversity. Since
1979, a new age headed by Deng Xiaoping started with redirecting government
focus from politics to economic development. This change in focus led China into
an “open-door” policy, which dramatically sped China’s economic development
and brought China into the global market stage. Consequently, Chinese enterprises
have had to face the pressure to increase productivity and business performance
(Schermerhorn, 1987).
The Chinese economic system that is encouraging post Maxist-Leninist
reform is characterized by the independence of government and economic
enterprises, and has led to a uniquely Chinese form of capital (Leonard, 1997).
Even though there still is a socialist suit on the body, the political essence has
already been changed to market-based development. For example, China’s entry
into WTO, an issue that China struggled with for thirteen years, clearly
demonstrates the political leaders’ determination for economic development.
However, because the heritage of face-saving, connection, and private interest are
still ingrained in Chinese politics, the current leaders understand that it is
treacherous for them to use internal power to destroy existing political patterns too
quickly. Therefore, the leaders promoted the WTO issue to “open the door, let the
wolf come in” to use external power to weaken entrenched internal coalitions
which resist the economic reform. For doing this, they have earned extra credit
from the majority of the Chinese population.
Even though the general enterprise still maintains an internal authority
structure parallel to the communist party (see Figure 1), the essence of the
economic structure has dramatically changed in the power system. The directors
or managers of the enterprises, who substantially run the factories, have the real
The previous party cadre members have gradually lost control of the core
economic operations and their power is on the wane. Particularly in the southern
part of China, political influence on both personal life and business has been
limited or absent since the China’s open policy in 1978. People in this area shifted
their interest from politics to profit-seeking business. Work centrality has clearly
become market-based business development. For example, the per capita GNP of
Candon Province is the same as that of France. Owing to high
Figure 1. Parallel internal authority structures in the traditional Chinese
industrial enterprise
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Worker’s Congress
Enterprise Party Committee
Factory Director ………..…..
Typical ………
decision First Secretary
- production
Management Cadre ……….
………Party Cadre
- work incentives
Work Group Leaders ……...
………Party Group Leaders
- promotions
- pay
Workers ……..…………….
Holding Party
Membership employment
(Source: Schermerhorn & Nyaw, (1990) “Managerial leadership in Chinese
industrial enterprises.”)
independence of business operations, less political influence from the central
government, and geographical advantage (close to Hong Kong and Taiwan),
entrepreneurs have been mushrooming in the last twenty years and have become
the mainstream of economic growth. These developments suggest the following:
Hypothesis 1. The frequency of new business start-ups in China is
inversely related to the strength of political influence.
Hypothesis 2. The frequency of new business start-ups in China is
positively related to the freedom of business conduct.
Legal Environment
The practices of the past, such as the dominance of personal over institutional
control in politics and lack of organized democratic forces, made the
reconstruction of the political and economic environment at best contradictory and
inconsistent, and at worst chaotic and destructive (Luthans, et al., 2000). The
ongoing political and economic reforms in China have been changing the
traditional administrative, bureaucratic structures to private ownership. Thus, the
structural heritage of socialism is in many ways fundamentally incompatible with
new market changes, which make reform a partial and lengthy process (Luthans, et
al., 2000).
Despite new forms of economic activities now allowed by state authorities,
the post communist governments (many of which consists of the same people and
same thinking, only with change rhetoric) still have countless administrative and
ideological instruments to control not only the state, but also the private sector.
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The conflict between a new political and economic reform construct and old
ideological instruments results in the absence of well-designed policies and
infrastructure to support the private sector and often forces fledgling entrepreneurs
to quit their business early on (Luthans, et al., 2000).
Peng & Heath (1996) argue that the necessary legal framework of a market
economy such as well-defined property rights is still lacking in transition
economies. Without a legal regulatory framework, both efficiency and equity are
adversely affected and crime and corruption are encouraged. Therefore, potential
entrepreneurs may believe that the new system is not on their side because they are
not protected from the powerful old party holdovers and new criminal outfits
(Luthans, et al., 2000).
Merrifield (1991) claims that in a socialist redistributed economy, state
banks and official sources of credit generally offer loans more on the basis of
political rather than economic considerations. The legitimacy and legality of
entrepreneurial development become a privilege that must be bought by illegal
bribes and expensive forms of compliance. Li Ruihuan, the Chairmen of Central
Political Consulting Committee, pointed out that China still has many officials who
use their personal discretion over the law in judging and solving economic
disputes. Even though commercial laws, such as those guiding domestic and
international contracts, joint ventures, and sole investment, have been reformed
and formally adopted for a long time, local protectionism still exists in many parts
of China, particularly in the remote areas. Some lawyers who investigated for
court cases in these areas are often blocked or even physically harmed.
The central government in China is not unaware that the conflict between
the ideological needs for new economic structure and the existing ideology
embedded in the old economic system impedes the economic development. A
large number of emerging economic criminal structures with state power have been
in the court systems. Many high-ranking officials across the whole country of
China have been sued for taking illegal bribes and other unearned money. The
Chinese central government realizes that the turbulence of economic development,
enhanced by the globalization and competition, is challenging the both the political
and economic system to “feed” the fledgling Chinese entrepreneurs in order not to
be “eaten” by the Western “wolves”.
A significant achievement of the central government in the recent years has
been attacking smuggling. One case, investigated by Prime Minister Zhu Rongji,
involved 2000 people in Xiamen (the largest smuggling ring in Chinese history),
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including auditors, lawyers, police, and court officials, eventually led to the jailing
of more than 500 high ranking officials. A clean and fair business environment
encourages Chinese entrepreneurs.
A basic requirement for entrepreneurs to conduct business is autonomy or
freedom. Entrepreneurs need to use their own discretion over resources to seize
business opportunities. Moreover, aspiring entrepreneurs need to have the freedom
to “pitch” their new ideas to capital holders for financial support, who are critically
important for entrepreneurs because capital holders are always looking for the most
profitable business. In addition, entrepreneurs require protection from the illegal
activities of others that reduce the incentive to choose business ownership. While
still early, there are indications that the Chinese government is pursuing legal
policies that impact both business discretion and protection. Enforcing commercial
law and reducing personal discretion over legal issues may facilitate Chinese
entrepreneurship, suggesting that:
Hypothesis 3: The frequency of new business start-ups in China is
inversely related to the degree of personal discretion allowed in the
interpretation of commercial laws.
Hypothsis 4. The frequency of new business start-ups in China is
inversely related to the strength of illegal business activities
Cultural Environment
Entrepreneurship has not enjoyed a high standing in the Chinese socialist
regime (Armstrong, 1983). The previous Chinese power system placed a
particularly strong emphasis on officially recognized ranks. In the socialist culture,
persons involved in commerce were held in low esteem. Even more seriously,
private business in China used to be considered as the “tail of the Capitalism,”
which was regarded as one of the most serious anti-revolutionary criminal activity.
For almost 40 years, the Chinese government has provided its citizens with a
comprehensive social safety net with universal access to health care, education,
and employment. A whole array of goods and services (including housing and
utilities) were provided either free of charge or at subsidized prices. The population
has become accustomed to accept many features of this system as granted rights or
the “Iron bowl.” A specific work culture was formed that linked expected
employment security with a low level of effort, along with modest material
expectations. Since 1978, the Chinese government has transferred its employment
focus from politics to economic development. A series of policies, regulations and
strategies aimed at speeding up economic growth were issued and greatly
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motivated the national workers and farmers to work hard for more profit. Farmers
began to cultivate their own fields and workers were not protected with the “Iron
Bowl” any longer.
The size of unemployment in China has also influenced new venture
creation. China has three distinct classes of business that operate in different
institutional environments: state business, joint ventures, and village and township
enterprises (Bruton el at, 2000). The state businesses, or state owned enterprises
(SOEs), dominate the heavy and strategic infrastructure industries. China’s SOEs
employ over 110 million workers, approximately the same number as the entire
work force of the United States (Bruton, et al., 2000). However, China’s SOEs,
like most state-run enterprises throughout the world, are in extremely weak
financial condition and at least 60 percent of them are losing money (Bruton el al.,
2000). Currently, the central government is pursuing a policy to withdraw its
involvement in the existing state-owned enterprises. An estimated 20 to 30 million
of workers in the SOEs are considered unnecessary resources for production. This
labor surplus must be redistributed in order to restore the financially troubled firms
to the acceptable and sustainable performance levels.
Even though CCP’s legitimacy rests on protecting workers, a large number of
prior employees have been removing from their posts. Large scale of downsizing
(50% downsizing within three years) in governmental offices has also resulted in
displaced workers. Many of these displaced or underpaid workers began to
explore new challenges by exploiting the resources available to them. Many of
them become small business entrepreneurs. Increasingly, to improve employment,
the government has provided necessary conditions for enhancing and facilitating
them to be re-employed or to start their own private businesses. For example,
Chinese government holds an array of conferences under the title of
“Entrepreneurship” in order to motivate more entrepreneurial development. In
today’s Chinese culture, persons involved in business have been receiving more
and more respect and esteem. Successful entrepreneurs are gaining more and more
official recognition, indicating that:
Hypothesis 5. The frequency of new business start-ups in China is
related to the degree of public support provided by government
International Leadership Development
The selection of young knowledgeable people as the leadership group members
has become a popular way to confront the conflicts inherent in this period of
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change. Many high-ranking administrative positions call for the applications from
young knowledgeable people (by written examination and interviews). More
significantly, a large number of young government officials, who are responsible
for economic development, have been sent to the United States for “brainstorming”
process -- even though many of them are poor at English language. In order to
attract knowledgeable and young people obtaining overseas doctoral degrees,
Chinese central government issues a favorable regulation that international
doctoral degree holders are allowed to register private companies in a so-called
“Doctoral Economic Development Square” and are provided with sufficient loans
with normal interest rates. This use of young intellectuals to lead the transition
suggests that:
Hypothesis 6. The frequency of new business start-ups in China is
related to the number of foreign-trained young intellectuals in
important positions.
Entrepreneurial Self-Efficacy and Entrepreneurial Outcomes
Self-efficacy is a central construct in Bandura’s social learning theory (1977a,
1982; Wood and Bandura, 1989). There have been extensive discussions of selfefficacy and its implications for management and entrepreneurship (e.g., Gist,
1987; Boyd and Vozikis, 1994; Wood and Bandura, 1989). Although it is beyond
the scope of this paper to systematically delineate the construct, some of the salient
issues are addressed so as to clarify the concept.
Self-efficacy is defined as a personal judgment of “how well one can execute
courses of action required to deal with prospective situations” (Bandura, 1982:
122). Stajkovic and Luthans (1998) described self-efficacy as an individual’s
convictions (or confidence) about his or her abilities to mobilize the motivation,
cognitive resources, and courses of action needed to successfully execute a specific
task within a given context. Self-efficacy refers to people’s beliefs about their
ability to influence the event that affect their lives. It is concerned not with the
actual skills one has, but with judgments about what one can do with those skills
(“I know I can play ‘The William Tell Overture’ on the violin while blindfolded”)
(Mager, 1992). Studies with self-efficacy focus on how employees weigh,
evaluate, and integrate information about their perceived capabilities before they
select their choices and initiate their effort (Stajkovic & Luthans, 1998).
Self-efficacy is a serious matter (Mager, 1992). It affects a person’s choice
behavior, motivation, perseverance, and is facilitative through patterns. Low selfefficacy can make a person vulnerable to stress and depression (Mager, 1992). It is
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found in the prior studies that employees with high self-efficacy will activate
sufficient effort in a task to produce a successful outcome, and vice versa. Three
dimensions measure self-efficacy: magnitude, strength, and centrality (Stajkovic &
Luthans, 1998).
Many studies in the organizational science have touched self-efficacy simply
because of its significant impact on an individual’s behavior or work-related
performance. Bandura (1986) claimed that self-efficacy is not only significantly
positively associated with work-related performance, but also the consequence of
work-related performance. Sadri & Robertson (1993) conducted a field study and
found its significant correlation with actual work-related performance, and
behavioral choice and intention. Stajkovic & Luthans (1998) quantitatively
synthesized, tested, and compared the variations in the self-efficacy – work-related
performance patterns of results as a function of moderating effects of various
studies’ characteristics across the population of all available studies. They found,
by means of a meta-analysis, that there is a significant weighted average
correlation between self-efficacy and work-related performance and a significant
within-group heterogeneity of individual correlations. Studies with self-efficacy
has provided practical guidelines for more effective management of human
resources in today’s organizations as well as suggestions for new directions for
future theory development and research (Stajkovic & Luthans, 1998).
Bandura (1977b, 1986) distinguishes his social learning theory from many
traditional psychological theories by emphasizing reciprocal causation among
cognition-behavior and environment. Whereas traditional unidirectional theories
depict human behavior as caused either by environmental events or internal
dispositions, social learning theories explain human behavior in terms of triadic
reciprocal causation among behavior, cognition and other personal factors, and
environmental event. Each of the three factors affects and is affected by the other
two. Bandura (1977b, 1982, 1986) found that self-efficacy is the most effective
predictor of performance. People with high self-efficacy have more intrinsic
interest in the tasks, are more willing to expend their effort, and show more
persistence in the face of obstacles and setbacks (Chen, et al,, 1998).
Entrepreneurial self-efficacy is defined as the strength of a person’s belief
that he or she is capable of successfully performing the various roles and tasks of
entrepreneurship (Boyd and Vozikis, 1994; Scherer, et al., 1989). Chen, et al.
(1998) claim that entrepreneurial self-efficacy affects entrepreneurship behavior
through influencing entrepreneurial decisions.
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The changing political, economic, legal, financial, criminal, and cultural
environments facing entrepreneurs in China are fairly visible and relatively easy to
recognize. It still takes time for a fully supportive entrepreneurial environment to
develop. Very often, entrepreneurs have to surmount the obstacles in a nonsupportive environment. However, this environment could be assessed as replete
with opportunities by those with high entrepreneurial self-efficacy but fraught with
cost and risks by people with low entrepreneurial self-efficacy. Even if people
perceive an identical reality consisting of uncertainties, risks, and hardships
pertaining to an unfavorable entrepreneurial environment, those with high
entrepreneurial self-efficacy would feel more competent to deal with that reality
than those with low entrepreneurial self-efficacy.
People with a high
entrepreneurial self-efficacy anticipate different outcomes than people with low
entrepreneurial self-efficacy.
Brockhaus (1980) contended that because entrepreneurs have a very high
belief in their ability to influence the achievement of business goals, they perceive
a very low possibility of failure. People with high entrepreneurial self-efficacy are
likely to associate challenging situations with proportional rewards. They believe
that their perseverance and resilience will offset the disadvantages embedded in the
inferior environment. Therefore, individuals who consider themselves efficacious
in performing entrepreneurial roles and tasks are more likely to enter the
entrepreneurial environment than those who do not. Instead of lamenting
challenges imposed by the environment, high self-efficacy entrepreneurs start to
determine and analyze how to deal psychologically with this unsupportive
environment and turn threats into opportunities (Luthans, et al., 2000). Luthans, et
al. (2000) also suggest that the emergence of potential entrepreneurs in transitional
economies depends on the entrepreneurial potential of the society, which is, in
turn, largely a function of systematic effort on developing entrepreneurial selfefficacy, suggesting that:
Hypothesis 7. The frequency of new business start-ups in China is
related to the entrepreneurial self-efficacy.
Methodology Used
Study Site. Data collection was conducted in Tangying County, Henan
Province, mainland China, about 500 kilometers southwest of Beijing. The
population in this county is 439,000 and total area about 645 square kilometers. Its
industries include traditional areas such as mechanical engineering and high
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technology industries such as computer and mobile phones. This county is
considered as a representative of Chinese middle/small communities.
Sample. There are approximately 3800 registered companies and enterprises in
this country. Seventy company owners were asked to fill out the questionnaires
and 61 respondents answered all or most questions. The local commercial
registration office provided the data of the number of new companies or enterprises
registered in each year from 1995 to 2000. The demographic information obtained
from the questionnaires indicated that 59.6% of the participants are private owners
and that 67% are male, 33% female. Service industry accounts for 77% and
manufacturing industry for 23%. 38% of participants previously worked in state
companies and 13% of participants started their own businesses because of lay-off
from state companies.
Re-Translation Method. A major concern with cross-cultural research is the
accurate translation of US-based measurements to other cultures and languages. A
cultural gap occasionally triggers affective or conceptual responses (Ibrayeva,
1999). Earley (1989) suggests that the use of re-translation method may avoid or
narrow the cultural difference. This study involved two languages: English and
Chinese. A management major doctoral student (native Chinese) studying in the
US translated the English version of the questionnaires in Chinese language.
Before the questionnaires were distributed to the participants, the Chinese version
of questionnaires was re-translated in English by an English majoring student in
Beijing (Native Chinese). The original and the re-translated version of the
questionnaires were carefully compared and discrepancies in terminology or intent
were discussed and reconciled. This re-translation method was used in this study
for all the measures.
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Variables. The number of registered companies in each year between 1995 and
2000 is the dependent variable. There are seven independent variables: the strength
of political influence on venture creation (strength), business freedom (freedom),
overseas training leaders (training), personal discretion (discretion), financial
infrastructure and illegal business (financial), and public support (support), and
entrepreneurial self-efficacy (efficacy).
Analysis. The method used in this study is regression analysis. This analysis
provides the correlations between each of independent variable and the number of
yearly new ventures (dependent variable). Significant level of each correlation is
also revealed in the analysis.
Discussion of the Statistical Results
Descriptive analysis indicated that the level of the environmental and
psychological variables among 61 entrepreneurs in China is, on a 5 point scale,
3.425 strength, 3.8667 freedom, 3.8667 training, 3.5067 discretion, 3.0233
financial, 3.2867 support, and 4.0717 efficacy. The relatively low scores on
financial infrastructure and illegal business may reflect current financial policies
supporting private businesses and the serious strikes on illegal businesses.
The statistical findings were that all the variables are correlated with the
number of new venture creation. However, significance levels indicate that
strength (p=.000), freedom (p=.027), training (p=.003), discretion (p=.020), and
efficacy (p=.036) are significantly correlated with the number of ventures started.
Strength has a negative relationship with venture creation. Financial
infrastructure/illegal business and public support do not have significant
relationships with venture creation (financial p=.293, support p=.221). Therefore,
Hypotheses 1, 2, 3, 4, and 7 are supported and Hypotheses 5 and 6 are not
One reason why financial infrastructure and illegal business were not
significantly related with venture creation could be the recent improvement of the
banking policies. Due to large size unemployment, the Chinese government is
seriously challenged to address the social consequences of those who lose jobs.
Because of governmental involvement in banking system, bankers have been
forced to lift their policies of not providing funds to private businesses, reflecting
the government’s hope that new businesses can create new jobs. The relative low
evaluation score from the entrepreneurs indicates that private businesses may
already have sufficient access to bank loans at the current time.
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Public support from government agencies is also found to not be significantly
related with entrepreneurship perhaps because people have started to tune out the
governmental daily verbal promotion and encouragement for being entrepreneurs
in the recent years. Entrepreneurial self-effacy is significantly associated with
people’s entrepreneurial decision. Clearly, a major concern for people who are
struggling to start their own businesses is their entrepreneurial self-efficacy, that is,
whether or not they believe that their businesses can survive and make money.
This finding is consistent with Bandura’s (1986) social cognitive theory that selfefficacy plays a pivote role in people’s decision behavior.
Theories of entrepreneurship offered in the growing literature have mainly focused
on one-side determinism, where either environmental or personality variables have
been specified as unique predictors of entrepreneurial action (Luthans, et al.,
1998). Taken separately, both approaches have generally failed to capture the
complexity of human action that encompasses the interaction of environmental,
cognitive, and behavioral variables. (Bandura, 1986, 1997; Stajkovic & Luthans,
1998a, 1998b). Given an improving political, economic, legal, and cultural
environment in the People’s Republic of China, this paper presented a discussion
how these environmental changes tend to provide a more supportive climate,
facilitating the birth of new entrepreneurs. Political influence, business freedom,
open-minded leadership and personal discretion are found to foster new venture
Key to the findings of this study is the important role that entrepreneurial selfefficacy plays in process of entrepreneurial outcomes. Entrepreneurial self-efficacy
cannot only lead to better explanation to entrepreneurship, but also effectively
strengthen new venture start-ups in the continuously improving environment of the
People’s Republic of China.
Despite this impact of the environment, it is suggested that entrepreneurial
self-efficacy may better predict which individual entrepreneurs may able to
overcome environmental threats and turn them into opportunities. Unlike
personality traits, self-efficacy can be developed through training and modeling
(Gist, 1989; Gist, Schwoerer, & Rosen, 1989). Instead of hoping for dramatic
improvement in the general environment, Chinese authorities may be well advised
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to implement formal entrepreneurship self-efficacy training programs to foster
individual initiative for entrepreneurial outcomes.
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Volume II, Issue 3
© 2006, Journal of Asia Entrepreneurship and Sustainability
No reproduction or storage, in part or in full, permitted without
prior permission.
[email protected]
Energizing Entrepreneurs: Resourceful Communities
and Economic Pathways
Vikram Murthy
Department of Management Communication
Waikato Management School
New Zealand
Email: [email protected]
Professor David McKie
Chair of Department of Management Communication
University of Waikato,
New Zealand
Email: [email protected]
Volume II, Issue 3, 2006
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INTRODUCTION This paper illustrates the relevance for the non-profit sector of
moving beyond its traditional roles into entrepreneurial community economic
development. Its approach aligns with conceptualizations of sustainability through
the self-help galvanization and development of enterprise opportunities, education
pathways, and labour market outcomes for the community, by the community.
METHOD It develops the concept of social entrepreneurship as a hybrid form
between private, non-profit, and public sectors, in line with examples of non-profit
organizations with entrepreneurial offshoots, generating revenue for the
organization’s social objectives.
ANALYSIS The article operationalizes these ideas through the design, creation,
roll-out, and achievement of a community enterprise incubation program for urban
Polynesians in Aotearoa/New Zealand. It examines the challenges, how they were
resolved, and analyzes how both challenges and reforms contribution to the body
of knowledge.
RESULTS Through the project’s demonstrable initial successes, the authors argue
that it offers clear signposts to government, the public sector, and the private sector
in how to move beyond simple capacity building to sustainable enterprises and by
entrepreneurs in the community who have been created, energized, and given
experience by participation in the process. They present the project as a prototype
on how to resource community groups and organizations embarking on their
community economic development journeys and how to liberate the selfmotivating entrepreneurial energies of communities.
This paper positions the expanding role of non-profit organizations in the context
of a growing body of community economic development theory. From Giloth
(1988) in the 1980s through to Wallace (1999) in the 1990s, and including a
number of post-2000 authors (Alvord, Brown, & Letts, 2004; Harding, 2004;
Roper & Cheney, 2005; Seelos & Mair, 2005), community economic development
has increasingly been conceptualized as the self-help galvanization and
development of enterprise opportunities, education pathways, and labour market
outcomes, for the community, by the community. Their culmination finds
expression in the president of the Edna McConnell Clark foundation’s statement:
“if you’re really concerned about impact and measuring the social yield of your
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investments, you’ve got to invest like an investor, invest in something that has a
good chance of succeeding” (Bailin, cited in Ellsworth & Lumarda, 2005, p. 97).
The emergence of this shift over time has been the outcome of three
complementary forces: the visible failures of the public sector and the market in
local communities; the inability of the state to act effectively on behalf of those
affected by market failures; and the inability of public and private institutions to
design, implement and sell workable solutions to poverty and neighborhood
decline (see Giloth, 1988, Hart, 2005). Notwithstanding the emergence of global
markets and global links (see Prahalad, 2005), connectedness is still more
concerned with local homogeneity because “our very diversity frustrates our best
efforts to identify shared problems and purposes” (Hoch, 1996, p. 225).
This paper follows the growing global premise that community economic
development will deliver successful outcomes if it empowers citizens by building
their capacities to innovatively solve the problems and maximise the opportunities
in their lives. Such development must nurture, respect, leverage, and be sensitive to
both the individual cultures and the social networks that exist in communities.
Moreover, it needs to foster economic empowerment through self-determination
(Weiwel, Teitz, & Giloth, 1993). For community economic development to
continue to bear fruit, it has, this paper asserts, to deliver on the two fronts
promoted by Pitegoff (1993): by building capacity – commercial, religious,
community institutions, people, and local agencies – in local infrastructure, while
at the same time acting as a change agent, mobilizing private/public partnerships to
resource communities (see Hart, 2005, pp. 201-202).
However, this is not to advocate a one-size-fits-all solution to community
revitalization issues. Rather, we adopt Pearce’s (1994) model of community
economic development and his continuum of community economic forms with
three distinct embodiments; community enterprises, social purpose enterprises, and
voluntary enterprises. In essence these are all community enterprise activities
emerging from the social non-profit sector. Their common characteristic involves
activities centered on a social purpose and their growth has paradoxically mirrored
the decline and/or drying up of public and private funding pools for non-profit
organizations (Emerson & Twersky, 1996).
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Setting the scene: Contexts, case study, and participants
In order to attain long term financial sustainability, and short term operational
viability, it is clear that, for non-profit organizations, earned-income generating
sources offer the community a more reliable and more enabling funding
mechanism than solicited funds and grants. Pearce (1994) has defined these social
purpose enterprises as commercial enterprises where funding comes from
public/private sources and the profits generated are returned in the form of social
services to the community. Policy makers worldwide are increasingly aware of this
phenomenon. Research has found that social enterprises with mixed revenue
streams create five times as many jobs and just over six times the amount of turnover of mainstream entrepreneurial businesses while, at the same time,
regenerating deprived communities, creating socially inclusive enterprise cultures,
and delivering public services in a cost-efficient way (Harding, 2004).
It is in this international context that we describe the design, creation, roll-out, and
initial success of a community enterprise incubation program for urban
Polynesians in Aotearoa/New Zealand. The local context provides further
challenges. The form and character of urban Polynesians, their needs, and their
desires, are continuously evolving as they move deeper into the new millennium.
Marriage outside their communities, migration away from their islands, urban
problems of housing, dysfunctional families, poor health, indifferent education are
layered with the global problems that Polynesian families face. Across the board,
poverty and social disenfranchisement require to be acknowledged, understood,
and tackled.
In charting the progress of this incubation program, we locate the engine of change
as our charitable community development trust which is committed to effective
social enterprise for communities. We show how our trust’s program moved
beyond a base of merely building organizational and personal capacity; an
initiative that had no economic development as an end-game in sight. We follow
the program’s adaptation to an enlightened, if short-lived, government initiative
that assisted community organizations build social purpose enterprises. Through it
we demonstrate significant achievements in terms of setting up commercial
operations, and major collateral benefits through the development of strategic
leadership in the community groups, who were better able to manage the double
bottom line of social mission and money. In the course of our description, we draw
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the conclusions that community-based social purpose enterprises fulfill multiple
and significant roles in the community that are not being appreciated as central by
funding agencies who are more accustomed to welfare and patronage than
entrepreneurship. In showing how the lack of such a wider appreciation limited the
impact of the project, we propose that other research may investigate failures
confirming our experience of the retarding factors and seek out successful ventures
that confirm our ideas of enabling conditions.
There were two enablers that were the harbingers of success. Firstly, the program
built its momentum and drive on the enthusiasm of the participants on their voyage
of business acumen discovery. Secondly, it provided those participants with
insights on how to leverage simple but special community skills for generating
revenue for their social programs. These ranged from the engagement of “too-hard
basket” local teenagers in making planter boxes from waste kauri wood, through
the harnessing of recidivist youth to wash and groom cars, the flowering of the
natural affinity of Cook Island women for their children into an after-school child
care centre, and the channeling of a community’s love for and pride in a historic
market garden into a fresh produce enterprise. Each of the community groups that
came on to the program came with trepidations: about the program, about its call
on their time, about its utility to their circumstances, and about the possibility that
it was one more attempt at positive change that would be still-born. What each of
them brought with them however, was a lot of heart and a deep-seated belief that it
was their turn to stand up and be counted in their communities’ battles to save their
children, womenfolk, and old people by creating hope and self-esteem through
realizing opportunities.
The program celebrated participants’ increasing sense of self-reliance, and
undiluted satisfaction. This grew as they saw themselves mastering hitherto
unknown business concepts of competitive advantage and sustainability, customer
segments, product design, and service excellence for the enterprises that they
collectively crafted for their community organizations. This was the essence of the
call to move away from the “dependency” model to the “Maori and Polynesian
potential framework.” For those in our trust delivering the program on behalf of
the government funding agency, it was an object example of how social
entrepreneurship could, like business entrepreneurship, recognize, explore, and
exploit environmental opportunities (Venkataraman, 1997). The difference
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however was the nourishing social entrepreneurship that thereafter continued to
create social value as a primary output and economic value as a by-product to the
organization’s needs for sustainability and self-sufficiency (Seelos & Mair, 2005).
A brief history of the background to Pacific Island capacity building
In 2003, the Community Employment Group (CEG) of the Department of Labor,
New Zealand government initiated a contract for capacity building for Pacific
Island groups in Tamaki Makaurau (Greater Auckland). In line with CEG’s
eligibility criteria at the time, the contract was awarded to a charitable trust with
predominantly Pacific Island trustees. However because of capability issues in that
trust, the authors were sub-contracted to design, deliver and compliance-report on
the one-year program. We worked with over forty participants from twenty very
small, small, medium and large Pacific Island charitable, community development
trusts predominantly from the South and West of Auckland. The program,
approved by CEG, was designed to build capacity, competency and sustainable
advancement in organization and individual participant viability. Effective delivery
was achieved using a mixture of workshops involving all participants, focused and
group-specific training and facilitation, and one-on-one mentoring of key trust
board members and senior management.
Capacity Building Program Content and Delivery
The project team took great care to demonstrate cultural and communal sensitivity
in its facilitation techniques, its expectations of participants’ engagement, and its
drive for outcomes. The workshops’ program content included the fundamentals
of good governance, strategic planning, human resources, financial planning, and
system quality assurance and organization performance improvement. The groupspecific interventions included organizational audits and gaps analysis, assistance
in formulating organizational visions, missions, values, strategic and operational
plans, dedicated hands-on support in implementing the organization-audit
recommendations and building a “bottom drawer” of compliance reporting
templates. The trust board and senior management mentoring was geared to
developing concepts of servant leadership and fiduciary discipline which are vital
to a community trust. Formal and multiple feedbacks from participants on the
efficacy of the project team’s efforts and the utility of the program was an integral
deliverable of the program. Both CEG and the forty participants were very pleased
with both the design and delivery of the program and its significant contribution to
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the upgrading of peoples’ knowledge, skills and understanding of their trusts and
their roles and responsibilities and accountabilities in an organized world.
From Community Capacity Building to Community Enterprise Incubation
The Pacific Island community groups’ capacity building project taught the authors’
some important lessons. As we worked with the groups it became evident that any
intervention that purported to improve community group sustainability and better
organizational survival probabilities needed to have a dual focus. On the one hand,
it had to teach better servant leadership, governance and strategic management;
wherever possible it had to help communities straddle the two worlds of
community service and agency compliance better; it had to assist groups build
operational and productivity excellence, so that their communities and their
benefactors could see maximum “bang for their buck.” On the other hand, to be
truly empowering a program had to also help the community group understand not
just its mission and service-delivery desires but equally importantly help it to
understand the economics of its service passion and then to assist it to build an
economic engine to deliver on that aspiration.
This insight is not specific to New Zealand or to Pacific Island communities in
greater Auckland, though their social fabric, tribal structure and island culture
require customized design and delivery mechanisms. Although the concept of
social entrepreneurship may be new, initiatives that employ entrepreneurial
capacities to solve social problems are not. For years, agencies worldwide have
launched programs and implemented interventions to help impoverished or
marginalized groups (Alvord et al, 2004).
Community enterprise incubation
The authors therefore approached the government with a new program of
community engagement delivered through their charitable trust. This trust seeks to
transform communities through sustainable solutions and passionate involvement.
All trustees and associates have to live the credo. A significant part of the trust’s
work is government and agency-funded work in the community sector. As such it
is very “mindful” of all insights and learning that it can leverage to contribute to
community services-capabilities enhancement and more vitally, to community
financial viability and sustainability. Our recommendation to CEG, Department of
Labour was that instead of spending money building “capacity for capacity sake”
in community groups, it would be much more beneficial for the participating trusts,
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their community stakeholders, and agency benefactors if their entrepreneurial
capabilities were developed with the clear purpose of envisioning, designing,
ramping-up, and rolling out a community enterprise with a business model that
would be viable in the near term and sustainable into the future. We proposed that
we would work with a cluster of four or five charitable trusts for a period of one
year. The groups would be chosen on selection criteria that assessed their
entrepreneurial interest, the existence of an organizational framework (however
rudimentary), and their firm intent to stay with the program over the twelve months
and the availability of a key person (the social entrepreneur) whom we would train
and who would then power the project forward. The cluster would give individual
members networked peer support and the “high availability” culturally sensitive,
non-judgmental business mentoring would be both a fillip to reach forward and a
safety net for support. Whilst community capacity building is a laudable target,
community enterprise incubation is a liberating outcome. It is pragmatic in its
intent, prudent in its efforts to build community enterprise in a safe and assisted
environment, and inspirational in its potent collateral outcomes of community
pride, wellness and the meaningful engagement of youth, women and older people.
Selling community enterprise incubation to the funding agency
The proposal was “revolutionary” for CEG to consider for a number of reasons:
CEG only supported community employment initiatives, not community enterprise
initiatives though the downstream outcome of “self-employed” entrepreneurs was
something that they picked up on as the proposal went through their vetting
processes; our charitable trust looked too “professional and slick” for CEG whose
community advisors preferred to fund and work with Pacific Island community
groups who were less structured, more acquiescent and looked, felt, and acted
“more community and less corporate”; like all funding agencies CEG was in a
“pilot project funding” paradigm, skewered on the twin prongs of only funding
projects up to initial sustainability and the growing public angst about government
spending on communities without tangible outcomes; a twelve month project
registered as too long and too expensive an engagement on their risk-rewards
radar; and finally a number of their community advisors were averse to a selection
process, suggesting instead that participation should be voluntary.
Boschee (1995) observed that traditionalists in the non-profit sector viewed the
mixing of profit motives with moral imperatives with deep suspicion, but that the
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service providers’ challenges in terms of escalating costs, shrinking resources, and
multiplying needs lend weight to sensible pragmatism. We found the same
arguments weighed heavier still in the new millennium. Notwithstanding the
impediments, the proposal was finally green-lighted with one major compromise:
CEG was only prepared to fund a pilot program for six months. They were
prepared to give only best-efforts assurances for the balance of the suggested
duration. Our other suggestions that the program be perpetual and that fresh
community groups be constantly pipelined for enterprise incubation was taken
under advice by the agency.
We, however, strongly believed that the program would benefit the communities it
touched and that it would increasingly challenge their mission-based organizations
to be more community-customer driven and search for and adopt entrepreneurial
mindsets and strategies. Like Campbell (1998), we saw these as ultimately building
self-sufficiency. The ultimate “blowback” benefit would be the migration of the
entrepreneurial principles from the social purpose enterprise to the parent
community organization, which in turn would build elements of effectiveness and
efficiency attractive to prospective funding agencies (Boschee, 1995). We were
also convinced that the community enterprises that resulted, and the community
entrepreneurs that would be facilitated, would be compelling validation for the
agency when it reviewed its position after the pilot. We reworked the contents and
outcome expectations and the shortened program commenced in January 2004.
The Pacific Island Community Enterprise Incubation Program Content and
Phase 1 of the community enterprise incubation and empowerment programme
was designed to build enterprise capacity in each of the five participating groups.
Non-profits that assume an entrepreneurial posture are less hesitant to implement
concepts and practices from marketing, strategic planning, and systems for the
analysis and control of costs. In other words a certain blurring of sector boundaries
is taken for granted, indeed, is often necessary for survival (Roper & Cheney,
2005). The Pacific Island groups were trained in areas ranging from opportunity
recognition and selection through to business planning basics focused mainly on
product/service design, industry analysis, customer selection, market research,
competitor analysis and basic human resources recruitment and retention
processes. Using a mixture of training, coaching, facilitation, and mentoring, the
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project team achieved enormous buy-in from the participants. Workshops, handson mentoring and training on site, “meet the leaders” network sessions,
introductions to NGO community agencies with angel investment funds, and the
internet and email were all used to drive learning and embed enthusiasm in
participants. The project team secured the close involvement of a number of the
CEG advisors and field workers in the programme. This gave the groups the
impetus to learn and participate while, at the same time, providing them with ready
validation and recognition.
Community Enterprise Incubation Program Outcomes
The results were significant. In the immediate aftermath of the program all five
groups went on to commence commercial operations and participate successfully
in a dynamic business environment. CrossPower a church-based community
organization, which engaged “difficult” teenagers in a carpentry and woodworking shed, created a business plan aimed at building a limited variety of planter
boxes, and household and garden furniture using second grade kauri timber
donated by a saw-mill down-country. On the basis of that business plan, newly
created product samples, a clearly articulated strategic intent, and some great
marketing work by the teenage crew, they secured significant product orders for
Kakapo Wood Products (the brand name) from Kings Plant Barn a local gardening
DIY chain.
Mangere Genesis a New Zealand Police supported trust working with recidivist
youth built a robust business model for a mobile car cleaning and grooming
service. The “Car Genie” captured the attention, imagination and social
responsibility interest of both Budget and Avis Car Rental companies based at
Auckland Airport and the trust began sourcing funds to set-up their car-wash
The Ranui Community Market Garden secured Waitakere City Council land for a
market garden and sought registrations of interest from a number of community
groups wishing to establish specialty vegetable and flower garden plots on the site.
Community members enlisted the support of the local polytechnic and the city
council to help with marketing and publicity and obtain a perpetual right to use the
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The Auckland Cook Island Support Services Trust added to its after school and
holiday programmes from the additional products and services opportunities that
they had identified during the market research stage of their business case
development. Active marketing by the parents of school-going children in the
congregation had ensured strong expressions of interest from a number of the local
primary and secondary schools.
Spacific Innovations, the Samoan community trust whose social entrepreneurs had
all been involved in events management and tourism-related portfolios in other
lives secured event management projects with the Pacific Artists Trust and the
Samoa Rugby Union.
In addition, the programme built capacity through out the individual organizations,
a collateral outcome that the project team had signaled from the beginning.
Participating trusts became much more adept at using resources like the internet
and email to gather, verify, and test information and hypotheses. There were direct
employment outcomes because these community enterprises hired part-time and
full-time staff. There was a great sense of pride and achievement in the trusts, both
at completing the program and in starting an enterprise that contributed to trust
activities rather than the total dependence on agency funding or community
donations that was hitherto the norm.
Topline benefits: The maturing of leadership in the social entrepreneurs
Increasing diversity in populations, aging, the reshaping of economic contracts
between businesses and their employees, the preponderance of knowledge as the
basis of competitive advantage, the decrease in funding, and the increase in
compliance and governance requirements for non-profits, are all trends with major
impacts on the near-term viability and long term health of non-profits worldwide
(Brunham, 2002). All the Pacific Island participants in our groups were from
communities that had become marginalized for a variety of reasons. These
included: successive government privatization of road works and similar stable
employment for semi-skilled workers; the European Union’s economic exclusion
of New Zealand meat exports to the UK that had hastened the demise of another
significant employer, the meat freezing works; and funding restrictions, and the
lack of an advocacy “voice,” that had consigned local education facilities to the
lowest deciles. Accordingly, the well-known vicious cycle of poverty, racism,
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ignorance, drugs, family violence and abuse had played itself out to its logical end.
For each of these non-profit groups, justifying the need was not an issue, getting
the resources to do something about it was: some received ad hoc funding from
government and quasi-government agencies like Child Youth and Family, the
Ministry of Social Development, and local Councils; and most were back-filling as
they went about service delivery, or were depending on tithing from congregations
and community members who could ill afford it.
These groups were therefore ready, willing, and, as it turned out, able participants
in the social purpose enterprise incubation. We promoted entrepreneurship in
Thompson’s (1999) sense of the conscientious application of discipline to exploit
resources which are ready to hand and which can somehow be found. In the case of
the Pacific Island groups these resources consisted largely of the good will of the
communities they served, the dedication of their trust boards, and bands of diehard volunteers who were prepared to give willingly of their time and energies.
The strength and weaknesses of the concept of social entrepreneurship lie in the
fact that most of its applications are in the form of a hybrid between private, nonprofit and public sectors. A non-profit organization with an entrepreneurial
offshoot that generates revenue for the organization’s social objectives is one such
hybrid (Roper & Cheney, 2005). Whether it was an after school care centre, a car
grooming business, an events management enterprise, a market garden, or a wood
crafts manufacturer, each of these projects represented the very real translation of
ideas into opportunities and opportunities into employment, education, and
enterprise outcomes. The communities could enjoy the fruits of the efforts and see
the benefits of cloning.
One of the key prerequisites for the success of our project, and for its communitywide buy-in, was the quality of leadership and project stewardship that group
leaders from each of the five groups demonstrated with increasing levels of
sophistication as the program progressed. Leadership must be comfortable with
social entrepreneurship – that is managing a double bottom line; mission and
money. Social entrepreneurship allows you to stabilize funding, develop earned
revenue streams, plan for sustainability, enable risk taking and reward success
(Brunham, 2002).
It requires a special kind of leadership to make community group members
comfortable with the concept, understand the dynamics of pursuing such a dual
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track, and commit to the task of implementing the architecture while still
maintaining an uncorrupted vision of the non-profit’s strategic social intent.
Without such a universal mindset in the group, it was impossible to expect the
group to sustain its enthusiasm for the program and for the enterprise that was born
as a result. Whether it was Pastor Kiria with his call to provide the congregation’s
youngsters with successful business role models from within or it was Sully Paea
with his clear intent to demonstrate to stakeholders that troubled teenagers could be
turned around with meaningful work, each of these leaders came up with, and
further honed, their significant personal credibility. They also generated
commitment to the project by framing it in terms of important social values, rather
than purely economic terms, which resulted in a sense of collective purpose among
all those who joined the effort (Burns, 1978, cited in Waddock & James, 1991, p.
395). In the process we believe that they developed a winner’s repertoire: a set of
skills and orientations that would make them capable of capturing human hearts
and motivating people to pursue organization success in any endeavor that their
organizations chose to pursue in future (Bennis & O’Toole, 2000).
The short term sequel
CEG expressed satisfaction at what had turned out to be one of the few successful
projects they had supported in that year. Our charitable trust was asked to resubmit
the community enterprise incubation proposal for Phase 2 of the project which we
did. Regrettably however, in the middle of the agency’s approval process,
parliamentary questions on the agency’s poor record of risk management on funds
provided to some unconnected community groups in the South Island of New
Zealand, led to the spontaneous self-destruction of CEG and the subsuming of its
funds under other government ministries. Phase 2 of the community enterprise
incubation project was abandoned.
The charitable trust however pitched the community enterprise program to
AREDS, the Auckland Regional Economic Development arm, which was looking
for any program with a Maori (first nation, indigenous people of New Zealand)
flavor that it could back to meet its mandate for indigenous people advancement.
Supported as it was by ex-CEG senior management, the participants in the earlier
program and a number of senior national urban Maori leaders, the Maori
Community Enterprise Development program got the go-ahead for a pilot. This
program was designed using a Maori kaupapa framework, with Tikanga Maori,
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marae ambience and Maori facilitators. The program was targeted to at-risk Maori
youth and women. The needs analysis and selection process for identifying
participants was completed. Unfortunately for the project and its selected
participants AREDS was disbanded and its Maori program was left in limbo.
Without an agency and funding the Maori Enterprise Incubation program treads
water. Our trust continues to actively source funding on behalf of community
groups in the South Auckland area who are keen to learn opportunity exploration
and exploitation. We continue to promote the delivery of training programs for
community groups who wish to create entrepreneurial social purpose enterprises as
independent revenue earners for their social missions.
Community-based social purpose enterprises fulfill multiple and significant roles
in the community. Emerson and Twersky (1996), make the irrefutable point that
these are probably the only transitional employment options for marginalized
community members who find it difficult to enter or re-enter main-stream
workforces. Waddock and Post (1991), point to social entrepreneurs as catalytic
change agents who can combat intractable problems when public agencies and
individual organizations have failed. De Leonardis and Mauri (1992) hail it as
productive social justice producing, as well as distributings, community wealth.
Mort, Weerawardena, and Carnegie (2003) conceptualize it as a model of sustained
competitive advantage pitted against other social enterprises and commercial
enterprises for survival and growth using superior value as its raison d’etre. Seelos
and Mair (2005) speak of the need for a critical mass for social entrepreneurship to
make a significant social and economic development. The authors add their voice
to this debate by calling on government, the public, and the private sector to
resource community groups and organizations for entrepreneurial projects.
Otherwise they often embark on their community economic development journeys
with little more than hope and/or desperation. Social purpose enterprise and social
entrepreneurship is a rising tide and it has the capacity to lift many economically
and culturally marginalized boats.
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Bennis, W., & O’Toole, J. (2000). Don’t hire the wrong CEO. Harvard Business
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Boschee, J. (1995). Social entrepreneurship. Across the Board, 32(3), 47-54
Brunham, K. (2002). What skills will nonprofit leaders need in the future?
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Campbell, S. (1998). Social entrepreneurship: How to develop new social-purpose
business ventures. Health Care Strategic Management; 16(5), 17-18.
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in solving the world’s most difficult problems. Upper Saddle River, NJ: Wharton
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Volume II, Issue 3
© 2006, Journal of Asia Entrepreneurship and Sustainability
No reproduction or storage, in part or in full, permitted without
prior permission.
[email protected]
Business Ethics of University Professors in China A
Preliminary Analysis3
Alan K.M. Au4,
School of Business and Administration
The Open University of Hong Kong
Homantin, Kowloon
Hong Kong
Allan K.K. Chan
Hong Kong Baptist University
Alan C. B. Tse
This research is funded by the Research Grants Council (RGC) of the Hong Kong Government
Dr. Alan Au is an Associate Professor at The Open University of Hong Kong and the Principal Investigator of this
RGC funded research. Prof. Allan Chan is the Associate Dean of the School of Business at the Hong Kong Baptist
University while Prof. Alan Tse is a Professor with the Department of Marketing at the Chinese University of Hong
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The Chinese University of Hong Kong
While the economic reform in the Chinese Mainland improves the overall standard
of living in China, the fast economic growth, inevitably, created a lot of social
problems: the widespread of the level of corruption is just an example. Since
corruption is a social practice, it takes time to correct such an unwelcomed
behaviour. Therefore, it is important that in educating the younger generation,
Chinese educators, especially business educators, must place more emphasis on
ethics education. However, how ethical is business educators? This is an
interesting question but not frequently asked. This is especially important when
society relies on this group of people to build up the future of a nation. This
research is designed to investigate the ethical standards of business educators in
China. The findings of this study suggested that there was no significant difference
between Chinese academic staff with different personal attributes; except in three
areas: household income, academic seniority and gender.
For recent decades, business educators have been called on to provide a greater
emphasis on ethics education. One interesting question which is seldom asked is:
“How ethical are business educators?” This is an important question because if
business educators are having a tendency to behaviour unethically, how can society
rely on them to provide a greater emphasis on teaching our future leaders to act in
an ethical and socially responsible manner. Despite the importance of this topic,
few studies have been carried out in this area and this is especially understudied in
China. Studies on business ethics education have become important in China
because of the unhealthy upsurge in corruption in recent years. Hence, the aim of
this research is to investigate the current ethical position of university professors in
China. This paper is divided into six sections. The next section discusses the
background of this study. The design of research instrument is explained in section
three. Section four presents the hypotheses to be tested in this research. The results
of the study are shown in section five while the concluding section provides some
implications for future research.
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Background of the Research
Ethical decision making has been a topic of interest for business researchers for
many years. Ethical decision making models divide influences on an individual's
ethical beliefs and decision making into two broad categories; that is, 1) factors
associated with an individual and 2) factors which form and define the situation
surrounding which decisions are made (Hood and Logsdon 2002, Lawson 2004,
Randall and Gibson 1990, and Turnipsed 2002,).
Perhaps the factors that received by far the most attention are relating to the
personal attributes of the subjects. A variety of personal attributes, such as 1)
gender (Coate and Frey 2000, Lawson 2004, Serwinek 1992); 2) religion (Farling
and Winston 2001, and Wimalasiri 2004); 3) Nationality (Abratt et al 1992, White
and Rhodeback 1992); 4) age (Callan 1992, Lawson 2004, and Wimalasiri 2004);
and 5) types and years of employment (Callan 1992, and Serwinek 1992), have
been investigated, but there seems to be mixed results and a general lack of
significant correlations in many studies.
Therefore, while some studies confirm the existence of relationships between
individual attributes and individual's ethical beliefs, others do not. In addition,
there is also limited research conducted on the ethical education in China,
especially those relating to the ethical position of the Chinese academic
community. Hence, this study aims to investigate the influence of these individual
attributes to the educators’ ethical beliefs in the Chinese context.
Research Design
After reviewing the relevant literature, a questionnaire, which comprised two parts,
was designed. The first part contained 42 statements which were designed to probe
respondent's judgments on ethical issues. These statements were developed along a
six-point Likert scale. In second part of the questionnaire, the respondent's
demographic profiles were also asked.
The questionnaire was originally developed with 61 statements to determine
respondent's judgments on ethical issues and written in "Hong Kong" Chinese.
Since the survey was conducted in the mainland, the language and cultural aspects
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of the statements were evaluated by an expert panel to ensure the appropriateness
of these statements. The panel comprised 3 professors of different academic
disciplines from two mainland universities; that is, one from the business
(marketing) field, another from the social science (economics), and the third from
the science (engineering). The evaluation was in two stages. First, the professors
were asked to modify the language of the 61 statements so that they were
understandable by Mainland Chinese. After collecting the feedback from the
professors, the statements were revised accordingly. A revised questionnaire was
then sent to the professors again. In the second round of the process, the professors
were asked to rate each statement as being "suitable", "moderately suitable" or "not
suitable" for evaluating ethical standard of respondents. A statement would not be
adopted if any one of the three professors rated it as "not suitable". A statement
was only included when at least two of the three professors rated the statement as
"suitable". The final questionnaire contained 42 statements.
Because of the nature of the research and the length of the questionnaire,
convenience sampling technique was adopted for this survey. The sample of this
study was composed of 100 teaching staff at the People’s University of China in
Beijing. The final useable questionnaires were 92, providing a response rate of
92%. The questionnaire was distributed through one of our Chinese mainland
Research Associates who was a Professor at a major university located in Beijing.
The high response rate is explained by the fact that the Research Associates in this
project are senior professors at major universities in China who carry high respects
in the Chinese academia. In addition, the Research Associates had personally
distributed and collected the questionnaires from the respondents and therefore,
most respondents were willing to participate in this study.
Hypothesis Testing
After reviewing the literature, eight hypotheses were tested. These hypotheses
attempted to look at how ethical position is affected by educators’ personal
characteristics. The first variable studied was the gender of the respondents and the
following hypothesis was tested.
H1: There is no significant difference between the ethical standard of female and
male educators.
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In addition to the gender variable, the academic seniority of the individual could
also affect the respondents’ ethical position. Following this line of thought, the
following hypothesis was set up and tested:
H2: There is no significant difference between the ethical standard of senior and
junior academics
The other two demographic variables studied were the business exposure of the
academics and the religiosity of the educators. Little work has been done on the
business exposure of the academic. For religiosity, Shepard and Hartenian (1990)
found that respondents high on religiosity tended to be more ethical. The relevant
hypotheses were as follows:
H3: There is no significant difference between the ethical standard of academics
with outside consultancy practices and those without such practices.
H4: There is no significant difference between the ethical standard of academics
having religious beliefs and those not having religious beliefs.
Family income may also affect the ethical position of the educators. Hence, the
following hypothesis was also tested:
H5: There is no significant difference between the ethical standard of academic
with higher family income and those with lower family income.
In addition, it is also interesting to determine whether being a member of the
communist party would have an impact on the ethical position of the educators.
What is more, the risk taking attitude of the faculty members could also influent
their ethical belief. In this respect, the following two hypotheses were designed to
look into these aspects:
H6: There is no significant difference between the ethical standard of academics
who are members of the Communist party and those who are not.
H7: There is no significant difference between the ethical standard of academics
who are more risk aversive and those who are less.
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Finally, the relationship between the martial status and the ethical position of the
respondents was also investigated:
H8: There is no significant difference between the ethical standard of academics
who are married and those who are never married.
Cronbach’s alpha was used to test for the reliability of the scale. The coefficient
alpha for the summated scale was found to be 0.811, which is considered as
satisfactory. Hence, during the analyses, a summated score (Ethics) based on the
sum of the scores of individual statements was used in testing the hypotheses.
ANOVA was used to test the above hypotheses. In the ANOVA tests below, the
Leven test for homogeneity of variances was conducted to test the homogeneity of
variances. The results showed that the basic assumption has not been violated.
The hypothesis that there is no significant difference between the ethical standard
of male and female professors was rejected with p = 0.052. Hence, there is a
significant difference between male and female professors in terms of their ethical
position. It was found that male educators were less ethical than their counterparts
of the opposite sex.
Regarding the hypothesis that there is no significant difference between the ethical
standard of senior and junior academics, it was found that there was no significant
difference between full professors and associate professors in terms of ethical
standards, but lecturers are significantly more unethical than both groups of
professors (p = 0.100).
On the question of the relationship between a person’s religiosity and one’s ethical
position, it was found that the effect due to religion was insignificant (p = 0.551).
This means that the ethical position of faculty members is not affected by whether
they have a religion or not. In addition, this study also found out that there was no
significant difference in terms of ethical position between university educators who
had and those who did not have outside consultancy practices (p = 0.549)
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On the issue of the income effect on the ethical position of faculty members, the
main effect due to household income is significant (p = 0.000). It was found that
the lower the income, the lower the ethical standard of the respondents.
Interestingly, it was found that there was no significant difference in the ethical
position between educators who were members of the communist party and those
who were not (p = 0.165). Again, the risk taking attitude of the respondents did not
have an impact on the level of ethical position of the respondents (p = 0.283).
Finally, this study found that there was no relationships between the ethical
position of university educators and their martial status (p = 0.396).
In general, the findings suggest that there is no significant difference between
faculty with different personal attributes; except in three areas: household income,
academic seniority and gender. Like other studies, male are found to be less ethical
than female. For the level of academic maturity, the result suggests that senior
academics are more ethical than junior academics. This supports findings of
previous studies that maturity is a factor affecting the ethical standards of people.
This may be the result of an increased ethical maturity on the part of senior
academics from having faced more life situations involving ethical issues.
Interestingly, those with a religion and those who are members of the communist
party are found to be no more ethical that their counterparts who are less religious
and not a communist party member. Finally, the family income of the educators
affects their ethical position as well, with lower income respondents exhibit a
tendency to act unethically.
This preliminary study suggests the need for additional research in this area of
study. Expanded studies to include more universities are necessary to determine
whether these findings can be generalized. Such results can provide a means to
evaluate the ethics education process in universities in China. It is also suggested
that longitudinal study is needed to ascertain changes in the ethical positions of
faculty and how such changes may affect the ethical development of students.
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© 2006, Journal of Asia Entrepreneurship and Sustainability
No reproduction or storage, in part or in full, permitted without
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[email protected]
The dynamics of entrepreneurs’ success factors in
influencing venture growth
Raduan Che Rose, PhD; Naresh Kumar, PhD; Lim Li Yen
Graduate School of Management
Universiti Putra Malaysia
[email protected]
This study aims to investigate the formal and informal attributes of founding
entrepreneurs contributing to venture growth. The study found significant
relationship between venture growth and entrepreneurs with high personal
initiative, focused on specific competency areas within operations, finance,
marketing and human resources. In operations, founding entrepreneurs are found
to be concerned with equipment selection, quality of products and services,
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competitive strategies planning and the improvement of product and services.
Raising capital from bank and institution was the only area of concern in finance,
whilst in marketing, it was promoting company and its product and services,
understanding market needs and customer feedback are prioritized. Lastly, every
aspects in human resources is considered important, which includes recruiting and
retaining employees, human resource policies and compensation plan, training and
development, delegating and relinquishing control, develop performance appraisal
and finally, employees motivation. The study showed no significant relationships
between venture growth and human capital, social network support, and
government support programs.
Entrepreneur, personal initiative, human capital, competency,
government support programs, venture capital, Malaysia
The opportunity to create wealth and being their own boss has attracted many to be
entrepreneurs. Evidently, this has amplified the studies on small and medium
enterprises’ (SME) growth and more importantly, the formal and informal
attributes associated with the entrepreneurs who have led their companies
successfully to growth-stage. The common research areas cited in the literature are
such as entrepreneurs’ leadership, entrepreneurial orientation, management skills,
competencies, human capital, personality traits and circle of network. McClelland
(1961) asserted that qualities associated with a high need for achievement
contribute to the success of new venture. Begley and Boyd (1987) found that
entrepreneurs (founders) scored significantly higher than small business managers
(non-founders) in need for achievement, risk-taking propensity, and tolerance of
ambiguity. Brockhaus (1982) reviewed a number of psychological characteristics
and conclude that need for achievement, internal locus of control and a risk-taking
propensity as attributes contributing to the success of new business start-ups. On
the other hand, Brockhaus and Horwitz’s (1986) empirical findings showed that
entrepreneurs with internal locus of control strive for high achievement.
Mill (1984) suggested that risk taking is a key factor in distinguishing
entrepreneurs from managers. It is believed that entrepreneurs take greater degree
of risk especially in areas where they have control or competencies in realizing the
profit. Many studies have included risk taking as a major entrepreneurial
characteristic. Mitton (1989) confirmed that entrepreneurs eagerly undertake the
unknown and uncertain circumstances, thus the entrepreneurial inclined individuals
are expected to display more tolerance of ambiguity than others. As far as
innovativeness is concerned, Mitton suggested that it is the focal point of
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entrepreneurship and an essential entrepreneur characteristic.
entrepreneurial literatures show that entrepreneurs are significantly more
innovative than non-entrepreneurs (Ho & Koh, 1992; Robinson & Sexton, 1994).
Entrepreneurs’ personality traits have also been identified to have impact on
organizational performance (Robinson & Sexton, 1994). Studies also found that
personality traits such as locus of control and ambiguity tolerance influenced the
business success directly and the business process indirectly (Entrialgo, Fernandez,
& Vazquez, 2000). Kiggundu (2002) later added demographic variables to his
study and found that personality traits have direct influence on the success of
African entrepreneurs. Although studies on personality traits have played an
important role in contributing to the success of entrepreneurs worldwide,
nevertheless, personality traits have been criticized both on theoretical and
empirical ground in the studies of entrepreneurship. Gartner (1988) in his research
article entitled “Who is the entrepreneur?” mentioned that asking “Who” is the
wrong question, but rather the personality of entrepreneur is only related to the
success of business start-up through more specific mediating processes. This is
due to the fact that these factors are not relevant if there is no action and initiative
taken by the entrepreneurs.
Frese and Fay’s (2001) study conducted on a group of employees revealed that
those with higher personal initiative performed significantly better in the
workplace. Research on personal initiative concentrate on the self-starting nature
of entrepreneurs: how they pursue success with their proactive attitude, how to
seek and grasp opportunity with their proactive approach, and how to find any
solutions or necessities to overcome barriers to achieve their goals (Frese, Kring,
Soose, & Zempel, 1996; Frese, Fay, Hilburger, Leng, & Tag, 1997). Entrepreneurs
with high initiative are able to stay ahead of their competitors, and are role model
for their employees. Initiative is goal-directed and action-oriented (Frese et al.,
1997) and, therefore, closely linked to an active strategy. It is also a psychological
variable behind the reason whether a person has what it takes to become an
entrepreneur. An entrepreneur with high personal initiative is someone who
initiate to take action and to be proactive. Whether it is to determine the success of
start-ups or to successfully lead a company to growth-stage, personal initiative,
which represents the ability to self-start, proactive, and over-coming barriers plays
a major role. Even so, majority of the research carried on personal initiative is in
relation to employees’ performance and perhaps limited studies have been reported
on personal initiative in relation to entrepreneurial success.
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Unlike personal initiative, human capital, which is considered passive approach
(where individuals simply reacting to the environment according to what they
possessed), was quite extensively studied. Human capital is the theory concerned
with knowledge and capacity; this includes the education level, industry experience
and management experience. The review of literature showed that human capital
contributes to business start-ups and venture growth. However it is also found to
have positive and negative result in relation to the success of entrepreneurs in their
businesses. Human capital elements of the entrepreneurs such as familyenvironment, education, age, work history, role models and support networks have
been identified to contribute to the business venture success (Hisrich, 1990;
Krueger, 1993). The assumption is that higher human capital of the entrepreneurs
increases the chances of their company’s survival and success (Dyke, Fischer, &
Reuber, 1992; Bruederl & Preisendoerfer, 1998). Recently, Lussiers and Pfeifer
(2001) empirically found that in addition to competencies and personality traits,
human capital of individual entrepreneurs play a role in contributing to the success
of entrepreneurs. His study found that entrepreneur with higher education level,
industrial and managerial experience, and business exposure has greater chance of
succeeding than people without tertiary education, minimal industrial and
managerial experience, and with little or no business exposure.
Similarly, competency is one of most crucial factors to ensure the success of new
business ventures. The entrepreneurs faced even greater challenge when they have
successfully bring their organizations to growth and as the company moves into
this stage, it experienced what observers refer to as strategic reflection point
(Grove, 1996). A strategic reflection point represents a time in the life of the
business when the fundamental operations have profoundly changed. According to
theorists, Adizes (1979), and Greiner (1972), organizations progress through
consistent, predictable phases of development known as life-cycle stages. In the
start-up stage, the company is concerned with inventing the product or services,
establishing a market niche, attracting new customers, and manufacturing and
marketing of the product (Flamholtz, 1986). Once the company begins to grow
rapidly, it will need to have more formal structures and coordination due to the
increase in functional activities. In the growth stage, the entrepreneur is forced to
focus on the long-term stability while maintaining the innovative and
entrepreneurial spirit that made it successful in the first place. As the founding
members of the company, the entrepreneur plays an important role in the long-term
business success of a new venture. The entrepreneurial leader champions the
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vision of the company and inspires others such as investors, venture capitalists,
bankers, customers and employees to support the vision. However, at some point
in time, the company will continue to grow and the founder must focus and
emphasize on different areas of competencies and talents in order to lead the
company to long-term business success.
According to conventional wisdom, due to the poor functional competencies of the
founders, they are typically replaced by professional managers who have the
experience and the necessary competencies required to manage the company when
it begins to transit from a start-up stage to a growth stage company. Willard,
Krueger, and Freeser (1992), found no evidence that professional managers
performed better in high-growth companies than the original founders. They
observed that many founders could learn to manage growth effectively. Therefore,
the assumption that a professional manager must be employed may no longer be
valid. This study challenged the conventional wisdom by revealing the process by
which successful entrepreneurs transform themselves into professional managers.
While studies found that founders could have the competencies to perform equally
well as professional managers, there are very few studies on the similarity and the
areas of competencies these successful entrepreneurs and managers focused on for
growth stage companies. Many studies found that majority of the business failure
were due to the lack of management skills or competencies (O’Neill & Duker,
1986; Terpstra & Olson, 1993). Bruno, Leidecker, and Harder (1987) studied ten
failed high-technology firms and concluded that there were three major reasons for
the failure: 1) financial difficulties, 2) product/market problems and 3) managerial
problems. Hence, entrepreneurs who have the necessary competencies especially
in the area of operations, finance, marketing and human resources, and
management skills required for the business are more likely to be successful at
start-up (Prahalad & Hamel, 1990; Swiercz & Spencer, 1992). The areas of
competency has been greatly researched in most developed countries, and most
literatures revealed that they are positively related to companies at venture growth,
and likewise, there is no literature found pertaining to such topic in Malaysia.
Thus one of the aims of this study is to examine the areas of functional
competencies that founding entrepreneurs focused on and contributes to the
success of managing companies at growth stage.
Apart from the competencies mentioned earlier, Bruerderl and Preisendoerfer
(1998) found in their research that social network support is related to both,
survival and growth of newly founded companies. A network approach assumes
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that entrepreneur’s ability to organize and coordinate networks between individuals
and organizations are critical for starting up a company and business success. It
was found that formal support sources were hardly used, the institutions mostly
mentioned were banks (Birley, Cromie & Myers, 1991). Support from informal
network such as friends, relatives, previous employers and acquaintances have
found to benefit the business. Thus another aim of this study was to examine to
what extent social network support significantly contribute to the success of
managing companies at growth stage.
Lastly, questions have also been raised pertaining to the government’s role in
supporting the entrepreneurs both during start-up and venture growth. Many are
unaware of funds and programs provided by the government, while some believes
it is impossible to obtain such assistance, others are just simply ignorant of it. In
comparison with neighboring countries pertaining to these support programs, an
article mentioned that the literature published by the Malaysian Industrial
Development Authority appears to be preoccupied with internal bureaucratic
concerns rather than the entrepreneur's needs (Dana, 1987). Malaysian government
recognizes that about 25 percent of the country’s economic performance is
contributed by the SMEs. Therefore the government has put in place many
regulatory, legal and financial frameworks conducive to SME start-ups and
development under various strategic plans such as Second Industrial Master Plan
(1995-2005), Financial Sector Masterplan (2001-2010), Small and Medium
Industry Development Plan (2001-2005) and Eight Malaysia Plan (2001-2005).
Currently, there are five major areas of government support programs for SMEs in
Malaysia, among which are: financial and credit assistance; technical and training
assistance; extension and advisory services; marketing and market research; and
infrastructure supports (Abdullah, 1999).
Yusuf (1995) found in his study that government support is one of the critical
success factors for small business in South Pacific. Governments in developing
countries play a role in promoting and supporting companies by providing
incentives and infrastructure. However, although there are numerous agencies and
institutions established by the Malaysian government to assist SMEs, it is still
unclear whether these programs are accessible to SMEs and how far do SMEs
utilize the programs. Therefore, it is also the interest of this research to investigate
whether entrepreneurs of growing enterprises are utilizing government support
programs to grow their businesses and if not, what are the reasons for not doing so.
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The growth of successful small medium enterprises in Malaysia plays a very
crucial role in the development of the country’s economy and unemployment issue.
Nevertheless, 79,310 businesses discontinued during the year 2002 (CCM, 2002),
and the numbers are rising. Evidently, it is crucial and important to examine the
factors contributing to successful founding entrepreneurs in Malaysia. Studies have
been done to examine factors and elements possessed by founding entrepreneurs
contributing to the business start-up success, such as the entrepreneurs’ leadership,
human capital, management skills, functional competencies, personality traits and
so on. Nevertheless, there are very few studies found to examining these elements
in relation to venture growth and particularly yet to found any in the Malaysian
context. Thus this study was initiated to examine the relationships between
personal initiative, human capital and competencies of the successful founding
entrepreneurs of Malaysia in respect to venture growth. In addition, the study was
aimed to identify whether entrepreneurs at venture growth are aware and fully
utilizing government-support programs, and to what extent these programs are
beneficial to their business.
The target population for this study is Malaysia Enterprise 50 (E-50) winners for
the year 1997 to 2003. E-50 is an annual award program organized by the Small
and Medium Industries Development Corporation (SMIDEC), Malaysia. This
award recognizes the achievements of Malaysia’s enterprising homegrown
companies which are well positioned for the future. 50 winners are selected from
among the nominations received, and the evaluation is based on the companies’
management and financial performance. From the 350 winners in the Enterprise 50
list, there are only 252 unique companies as they are repeated winners. A letter
was sent to all 252 founding CEOs requesting for their participation. However,
only 100 of them managed to participate in this study. Self completion
questionnaire was utilized to collect data for this study.
Questionnaires were delivered to all participants personally by the researchers.
Literature review and feedback from the panel of experts provides inputs for the
development of the research questionnaire. The pilot study further refines the
questionnaire prior finalizing it. The Cronbach’s Alpha values for all the items
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were well above the commonly acceptable value of .70 (Fowler, 2002). The
questionnaire was divided into five sections. The first section collected data
pertaining to human capital, whereby the participants were asked to indicate their
level of education, whether family owned the business, number of years working
experience prior to owning business, and number of year’s management experience
prior to starting the business. The second section measures competencies which
are divided into two types: functional competencies and interpersonal competency.
There are four functional competencies - finance, operations, marketing and human
resource. Interpersonal competency is specifically relating to social network
support. Participants were asked to respond on a five-point scale; (1) being no
emphasis and (5) being major and constant emphasis for each of the five
competencies which they focused while managing growth. The questions are
similar to Lussier and Pfeifer (2001) and Yusuf (1995); however, for the purpose
of this study additional questions relevant to the various competencies were added.
The third section is in regards to government support programs, questions asked
were whether the entrepreneurs are aware of the availability of such programs and
if so, are they utilizing these programs and whether there are any difficulties faced
in obtaining assistance of these programs. Dichotomous ‘yes’ or ‘no’, multiple
choices and open ended questions were used in this section.
The dependent variable is the venture growth level. Venture growth is measured
by annual sales growth. To measure sales growth, the participants were asked
about the company sales for the past three years (2002 – 2004). Compound Annual
Growth Rate or CAGR was used to calculate the growth rate. Finally in the last
section, respondents’ background information was collected.
Binary logistic regression is a technique for predicting the mean value of a binary
response variable as a function of one or more covariates. It was employed in this
research to examine the relationship between a single dependent variable, venture
growth (VG), which is dichotomous and several independent variables. Ordinary
regression can not safely be applied to this kind of response variable because the
venture growth is classified as either high growth or low growth, and the variance
of binary variable is not constant. In addition, an ordinary regression approach
would yield predicted values which lie outside the range of feasible values for the
dependent variable. Instead, logistic regression models the probability of a
positive response (e.g. ‘high growth’) given the values of other variables.
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Findings and Discussion
The relationship between the dependent variable, VG, and fourteen other
independent variables were examined, and the result is showed in Table 1. If the
significance level of the Wald statistic is small (less than 0.05) then the parameters
are useful to the model and are significantly related to venture growth.
Table 1: Logistic Regression (Trimmed Model)
Educational level
0.527 4.26 1
1.15 0.981 1.373 1
0.039 0.337
0.969 3.987 1
2.611 0.959 7.41 1
0.046 0.144
from FIN
1.088 0.371 8.598 1
0.003 2.969
Promoting company and its
market Group
Customer feedback
Market analysis
1.222 3.948 1
0.047 0.088
Working experience prior HC2
owning business
Parents own business
Competitive strategies and OPER
Group 3
Improvement of product
and services
Wald df Sig.
0.007 0.038
0.006 13.61
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Recruitment and retraining
and HR
compensation plan
Training and development
of staffs
relinquishing control
Motivate employees
2.756 1.143 5.814 1
Personal Initiative
RELTPI 2.322 0.79
-2 Log-likelihood Value
Model Chi-Square
Goodness of Fit
Cox & Snell R Square
Nagelkerke R Square
8.636 1
0.016 15.737
0.003 10.198
Note: regression coefficients (B), standard error (S.E), Wald statistic, degrees of
freedom (df), significance level (Sig), odds multiplier (Exp(B)).
Human Capital
Among the four variables in human capital tested using binary logistic regression ,
HC1, HC2 and HC4, which are ‘education level’, ‘working experience prior
owning business’ and ‘parents own business’ respectively, the results were
significant at p=.039, p=.007 and p=.046. Higher education level helps the
entrepreneurs to have better knowledge and skills which contribute to the success
of their venture. Working experience also assists the entrepreneurs with
information and understanding about the industry and thus, assisted them in
venturing into the current business they are in. Entrepreneurs with parents who
owned business may have the opportunity to learn and acquire skills from the
parents from a young age and also understood the requirements of being an
entrepreneur to get them ready for what to anticipate in owning business ventures.
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Whereas HC3 which is the ‘management experience prior owning business’ was
found not significant at p=.241, apparently individuals who were found successful
in their small business venture were less reliant upon their previous business skills,
they seemed more open to growth and changed, planned for that change through
delegation and strategic planning, and sought to learn or use general business skills
(Kemelgor, 1985), this could also suggest that the many years of managerial
experience might have affected their ability to judge, analyze, make quick decision
and calculate risk well, hence their experience may not benefit their business
The results also showed that only certain areas among the four areas of the
competency, namely operation, finance, marketing and human resource, were
deemed as important by the CEOs and they are significantly related to VG.
OPER_Group3 which are ‘competitive strategies and planning’ and ‘improvement
of product and services’ scored significantly high at p=.006. The entrepreneurs
would want to find out more about the competitors, by emphasizing more on
competitive and strategies planning, it allowed the entrepreneurs to ensure that the
products or services are constantly improving to have the competitive advantage.
OPER_Group1 and OPER_Group2 were found not significant to VG, with p=.062
and p=.201 respectively, the variables in OPER_Group1 and OPER_Group2 are
‘equipments selection’, ‘day to day operations’, ‘production scheduling and
planning’ and ‘quality of products or services’, these are considered day-to-day
operational tasks and are likely to be relinquished by the team of founding CEOs
and delegated to their subordinates. As for ‘quality of products or services’, it
could be because the companies had installed proper quality standard and checks
such as ISO standard and 5S, therefore, the entrepreneurs are only concerned on
the overall quality of the companies products or services and not the day to day
process. Another possible explanation is the entrepreneurs know that the quality
systems are in placed; therefore, they are only concerned with unforeseen quality
The variables for finance, FIN_Group1 and FIN_Group2 have different results,
FIN_Group1 has a value of p=.003 which scored significantly high with VG,
FIN_Group1 which is to raise capital from institution showed significant result
because only by being able to source for external funds and to manage the finance
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well, it would ensure the long run success of the venture (Dunn et al., 1993).
FIN_Group2 on the other hand has a value of p=.862, similarly to operation,
founding CEOs would not allocate for daily tedious tasks such as ‘record keeping’,
‘financial control’, ‘budget planning’ and ‘cashflow management’. Although,
literature review supported that cashflow management is important during business
start-up, this non-significant relationship is explained by Teutenberg (1997) when
he found that cashflow generally post as a concern and problem for smaller
businesses rather than larger organizations, this is due to the fact that larger
companies have greater access to people to train executives to manage it and plan
for it
The result showed that marketing is significantly related to VG. MKTG_Group
which represents all the marketing functions such as ‘promoting company and its
product and services’, ‘understanding market needs’, ’customer feedback’ and
‘market analysis’, has a value of p=.047. Trulsson (2002) found that it is crucial
for entrepreneurs to appreciate the importance of putting customer first and what
that implies for their operations is crucial. In all businesses, founding CEOs will
always placed emphasis on ensuring the company’s product or service being sold,
as the livelihood of the company depend it. Knowing the demands of customers
will definitely ensure the long term success of business ventures. As for human
resource, HR_Group which consists of all the human resource functions such as
‘recruiting and retaining employees’, ‘HR policies and compensation plan’,
‘training and development of staffs’, ‘delegating and relinquishing control’,
‘develop performance appraisal’ and ‘motivate employees’, was found significant
in relation to VG with a value of p=.016. The finding seemed universal, and it is
expected that entrepreneurs delegate many of the important tasks to trustworthy
and skilled professional employees, thus they would be involved in recruiting and
retaining employees, especially high levels staffs. However, recruiting new staffs
would naturally mean developing them would be the next important step, and this
required human resources development activities (Ardichvili et al., 1998). The
result showed that successful entrepreneurs at VG have greater involvement with
training and developing staffs so that the employees are able to help sustain and
grow the company in the long term. In addition, by providing a clear career path
and career development helps to retain the employees. Having proper performance
appraisals and compensating employees appropriately allows the employees to be
more satisfied with their jobs and thus, they will stay with the organization.
Motivating employees through providing them with the vision and mission of the
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companies and how these employees are fitted into the bigger picture again ensures
that these employees will continue to grow and stay with company.
Variable SC_Group which stands for social group support has a value of p=.476,
SC_Group was not significant to VG, this indicate that the concept of “who do you
know” is important may only apply for entrepreneurs during startups (Eisenhardt
and Schoonhoven 1996), while other studies found no significant relationship
between social network and business performance (Butler et al., 1990; Merenda et
al., 1994; Aldrich, Reese and Dubini, 1993).
Government Support Programs
Variable GS1 which stands for government support programs was found not
significant to VG. It was found that entrepreneurs expressed their frustration in
applying such loans, as most of the procedures and requirements pertaining to the
loan were the preoccupied with internal bureaucratic concerns rather than the
entrepreneur's needs (Dana, 1987).
Personal Initiative
Personal Initiative which represented by RELTPI was found significantly related to
VG with a value p=.003. It was the intention of this research to examine whether
entrepreneur with high PI is significantly related to venture growth as employee
with high PI performed better in a job situation (Frese and Fay, 2001). The result
indicated that entrepreneurs with high PI which also mean the ability to self-start,
proactive attitude and capability to overcoming barriers, contributed to the success
and the growth of their companies.
Many start-up entrepreneurs do have the necessary skills and opportunity to create
a giant “in the making” company, nevertheless, concerns such as the lack of
education, experience, moral and financial support have always been the few major
stumbling blocks or rather mental blocks holding them back from their journey to
success. From this research, it has been made clear that a large number of
entrepreneurs affirmed personal initiative as one of the major key to success. It has
also illustrated that entrepreneurs with high personal initiative will further enhance
their management, improve business operation skills, and embark in a continuous
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learning and development attitude. High personal initiative entrepreneurs are
typical “go-getters” and persist in all their work until results are achieved. This
attitude will serves them well in areas such seeking funds and supports, and to keep
themselves motivated, these so-called “lacks” in them will be overcome with their
pro-active and self-starter personality.
Entrepreneurs know that their focus in the areas of competency changes in order to
grow their company. However, entrepreneurs at times found to be reserved when
they are unclear or anticipating involvement of higher level or different aspects of
competency. To assist them to grow the company, the research has also provided a
clear indication as to which area of competency the entrepreneurs should focus on.
Sound knowledge and expertise of the following competency must be acquired and
employed. Human resource is a clear distinction to be focused on, as all areas of
HR are found to have significant relationship with venture growth. This includes
areas such as recruiting and retaining employees, HR policies and compensation
plan, training and development of staffs, delegating and relinquishing control,
develop performance appraisal and motivate employees.
As the company grows, the founding entrepreneurs must be attuned to promoting
company and its product and services, understanding market needs and customer
feedback. Knowing the trends and what comes next as accurately as possible will
allow long term continuation for the business. In addition to knowing what the
customers’ needs and expectations are, entrepreneurs naturally pay close attention
to quality of products or services, competitive strategies and planning and the
improvement of product and services. Founding entrepreneurs must also be
involved in strategic planning pertaining to competition, because this ensures the
future and the survival of the company. While moving away from the day-to-day
accounting tasks, the entrepreneurs need to look at the bigger picture as far as the
company’s finance, it is advised to delegate the daily accounting activities to the
professionally hired and concentrate in higher level of financial management such
as raising capital from institution.
Limitations of the study
The cross-sectional research design does not allow the firm establishment of a
cause and effect relationship, and thus post as a limitation to the study. Therefore,
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a preferable longitudinal research which would generate more accurate findings,
however, this would not be possible due to the time and cost constraints. The
sample consists of founding entrepreneurs from the E-50. Thus, the generalization
of the results is limited to entrepreneurs in venture growth only.
Abdullah, M. A. (1999). The accessibility of the government-sponsored support
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Volume II, Issue 3
© 2006, Journal of Asia Entrepreneurship and Sustainability
No reproduction or storage, in part or in full, permitted without
prior permission.
[email protected]
Selvamalar Ayadurai
CB Consultancy
F-06, 1st Floor, Riana Green Plaza,
Jalan Tropicana Utara, Tropicana Golf & Country Resort,
47410 Petaling Jaya, Selangor Darul Ehsan, Malaysia
[email protected]
Wan Rosnah Ahmad
WRA Agency & Consultancy
Kuala Lumpur, Malaysia
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Malaysia is an economy where Small and Medium Enterprises (SMEs) symbolize
a significant element of the national economic agenda. The existence of SMEs not
only promotes home-grown sources of growth but also takes business and
commerce beyond the nation’s domestic borders. The number of SMEs registered
with the Malaysian Companies Commission as at December 2003 was 630, 709.
SMEs in this study will take the definition of small and medium enterprises in the
manufacturing, manufacturing related services and agro-based industries with fulltime employees not exceeding 150 OR with annual sales turnover not exceeding
RM25 million, and small and medium enterprises in the services, primary
agriculture and Information and Communication Technology (ICT) sectors with
full-time employees not exceeding 50 OR with annual sales turnover not exceeding
RM5 million. An increasing percentage of these SMEs are managed by women
entrepreneurs. SMEs in Malaysia serve as a breeding ground for new business
ventures and there is mounting evidence that imply that SMEs, which were usually
subjugated by male entrepreneurs, were now attracting more women entrepreneurs.
Women entrepreneurs in Malaysia are involved in all types of businesses across a
range of industries. However, there is very little research that has been done on
women entrepreneurs in Malaysia. Most of the entrepreneurial research in
Malaysia has focused on Malaysian SMEs and male entrepreneurs in particular. As
women entrepreneurs take center stage in the global entrepreneurial growth, it has
become imperative for Malaysian entrepreneurship researchers to study the profile
of women entrepreneurs in Malaysia to add value to the growth and development
of our women entrepreneurs. This study examines the critical success factors of
women entrepreneurs in SMEs in Malaysia. The 17 critical success factors were
based on factors that were identified by Hisrich, Peters & Shepherd (2005); Buttner
(1993); Lancentte (1999); Bygrave & Zacharakis (2004); and Hitt, Ireland &
Hoskisson (2003), amongst other entrepreneurship scholars. To explore the critical
success factors, a structured questionnaire was sent to 700 women entrepreneurs
based on a sampling frame obtained from the various women associations’ in the
country. 70 responses were received at a response rate of 10%. The following data
were collected: i) the demographic characteristics of the entrepreneurs (age, marital
status, educational level, business experience, number of years in business); ii)
challenges faced by women entrepreneurs; iii) support factors and financial
assistance; iv) motives and reasons for starting a new venture; v) critical success
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factors for women entrepreneurs to become successful in their businesses. Findings
show that the women entrepreneurs of Malaysia scored highly on all the critical
success factors that were considered important for entrepreneurial success except
for 3 factors, that is, poor education background, lack of knowledge in human
resources, and limited management and technical skills. 77% of the women
entrepreneurs rated themselves as successful and they all reflected the dominant
characteristics required in an entrepreneur. Some of the reasons cited for starting
an entrepreneurial venture were: i) wanted to be a success on their own; ii) wanted
to be their own ‘boss’; and iii) had a good business plan for starting the business.
Some of the challenges they faced were: i) cash flow problems; ii) management
problems; and iii) not having enough prior business experience. These women
entrepreneurs were found to hold great potential for future growth and if given the
right assistance and support by the government and the various women and
entrepreneurial associations, these women could be groomed to be at par, if not
better, than the women entrepreneurs of the developed nations.
In Malaysia, Small and Medium Enterprises (SMEs) operate in almost every
industry. Although SMEs are similar to other forms of business, SMEs in Malaysia
symbolise a significant element of the national economic agenda. Their existence
not only promotes home-grown sources of growth, but also takes business and
commerce beyond the nation’s domestic borders. Though there is no universally
accepted definition for an SME, in Malaysia, SMEs are defined into two broad
categories: i) manufacturing, manufacturing-related services and agro-based
industries; and ii) services, primary agriculture and information & communication
technology (ICT). The first category would include small and medium enterprises
in the manufacturing, manufacturing-related services and agro-based industries
with full-time employees not exceeding 150 OR with an annual sales turnover not
exceeding RM25 million. The second category would include small and medium
enterprises in the services, primary agriculture and information & communication
technology (ICT) sectors with full-time employees not exceeding 50 OR with an
annual sales turnover not exceeding RM5 million. For the purposes of this study,
the SMEs in question are largely from the services and manufacturing enterprises
(64%). In Malaysia, SMEs are acknowledged to be the resources of entry for new
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entrepreneurs. They are seen as a breeding ground for new business ventures and
there is mounting evidence to imply that SMEs which are usually subjugated by
male entrepreneurs are now attracting more women entrepreneurs in Malaysia. The
success factors of women entrepreneurs in Malaysia are no different from the other
women entrepreneurs in the other parts of the world. However, this study
examined seventeen critical success factors of women entrepreneurs in SMEs in
Malaysia to highlight the successes of Malaysian women entrepreneurs to other
aspiring women entrepreneurs. Whilst the profile of women entrepreneurs in other
parts of the world have been widely studied and highlighted, the profile of women
entrepreneurs in Malaysia leaves much to be examined. Women are an upcoming
force in the entrepreneurial industry of Malaysia and they have to be highlighted to
motivate other women in the country to become part of the economic growth of the
Numerous studies have been undertaken on women entrepreneurs worldwide but
none of them have focused on the critical success factors of women entrepreneurs
in Malaysia. The entrepreneurial studies in Malaysia have focused on
entrepreneurship and SMEs in general, with emphasis on male entrepreneurs.
There have been no specific studies on the profile of women entrepreneurs in
Malaysia. This study was undertaken to fill the gap on women entrepreneurship
literature in Malaysia.
The objective of this research will focus primarily on the seventeen critical success
factors of women entrepreneurs in SMEs in Malaysia. The seventeen factors were
based on the success factors as defined by Hisrich, Peters and Shepherd (2005);
Buttner (1993); Lancentte (1999); Bygrave and Zacharakis (2004); and Hitt,
Ireland and Hoskisson (2003), amongst other entrepreneurship scholars. These
critical success factors will be examined amongst women entrepreneurs in SMEs a
cross the services, manufacturing, construction, financial, retailing and education
sectors in Malaysia.
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There have been numerous studies on women entrepreneurs worldwide focusing
on the profile of women entrepreneurs, their challenges, problems, success factors
and motivational factors. These studies have given a clear insight into the growth
and development of women entrepreneurs worldwide. However, there has been no
such study on women entrepreneurs in Malaysia and this is the first study of its
kind to examine the critical success factors of women entrepreneurs in SMEs in
Success Factors of Women Entrepreneurs
Buttner et. al. (1997, p. 34-47), identified six measures of success for women
entrepreneurs in order of priority, i) self-fulfilment; ii) achievement of their goals;
iii) profits; iv) growth; v) balancing family and work; and vi) making a social
contribution. His findings based on 129 women entrepreneurs in the United States
indicate that the reasons why these women entrepreneurs started their businesses
were also influenced by the ways they measured their success. A study by
Zapalska (1997, p. 76-83) on women entrepreneurs in Poland revealed the newly
created market incentives in the post-communist Polish economy showed women
entrepreneurs in Poland new opportunities. The keys to success have included
focusing on improving quality, decreasing costs, moving from local to national and
export markets, introducing new products and services, and obtaining supplies
from new sources. These women perceived the following nine factors as primary
causes of business success: i) innovation/creation of something new; ii)
experimentation; iii) market incentives; iv) independence; v) achievement; vi) job
satisfaction; vii) opportunities; viii) professional attitude; and ix) establishment of
business contacts. It is the author’s view that the start-up businesses owned by
women have great potential as independent vehicles for economic growth and for
bringing about the emergence of capitalist economic production as long as the
conditions promoting innovative entrepreneurship continue to improve in Poland.
Another study by Maysami et. al. (1999, p.96-106) revealed that there were various
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factors that led to the success of women entrepreneurs in Singapore. They were: i)
product and service qualities; ii) personal qualities; iii) quality of personnel; iv)
adequate knowledge of products and services; and v) customer loyalty (Teo, 1996).
Other factors reported were the availability of professional advice or government
assistance, technological advantage, and availability of financing and capital. The
nature of their businesses may have also contributed to their success (Teo, 1996).
They generally started small businesses in the service and retail sectors requiring
limited use of technology and little initial capital. Finally, they were also capable
of striving hard for success with insufficient funds. In Maysami et. al.’s study
(1999, p.96-106), the authors had summarised the factors that contributed to the
success of women business owners as researched by Teo (1996), Deng, Hassan and
Jivan (1995), Rashid (1996), Hisrich and O’Brien (1981), Kelly (1985), LeeGosselin and Grise (1990), Bachemin (1989), Woodward (1988) and Kotter
(1982). The fourteen factors identified were: i) family support; ii) knowledge of
culture and language; iii) communication skills; iv) human relations skills; v)
personal qualities; vi) knowledge of product and service; vii) quality of product
and service; viii) customer loyalty; ix) quality of personnel; x) availability of
professional services; xi) technological advantage; xii) availability of finance; xiii)
presence of opportunities; and xiv) desire to succeed. Another interesting study by
Ayadurai and Sohail (2006, p.1-15) on women entrepreneurs in a war-torn area
revealed that most of the women entrepreneurs believed their business was a
success based on five key measures of success: i) self-fulfilment; ii) a balance
between family and work; iii) profit/sales; iv) social contribution and v) employee
Small and Medium Enterprises (SMEs) in Malaysia
Malaysia has put concern over SMEs (especially for the Bumiputera) since 1950s,
however, with mixed results, since the government policy has a bias towards large
enterprises and Multi-National Enterprises (MNEs). It is only in the Second
Industrial Master Plan (1971-1975) that the policy on SMEs became the main
agenda for industrial development (Bakar, Smith and Sapuan, 1997, p.11-17).
According to the Report by SMIDEC (2002), SMEs accounted for 93.8 percent of
all establishments in the manufacturing sector. Of the total number of SMEs, small
enterprises comprised 76.0 percent, while medium companies accounted for 17.8
percent of all manufacturing establishments. Highlights of the performance of
SMEs during the period of 1993 to 1996 showed that gross output attained by
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SMEs grew by 11.1 percent per annum, while that for large scale enterprises
(LSEs) grew by 21.6 percent per annum. Gross output of SMEs was anticipated to
increase from RM94.3 billion in 2000 to RM152.7 billion in 2005. The SMEs in
Malaysia are poised to not only contribute to the development of a balanced
economy but also to complement and support the large-scale, heavy and modern
industries through a network of industrial linkages. The government’s objective is
to integrate both new and existing SMEs into the main industrial base. The Small
and Medium Industry Development Plan (SMIDP), 2001 to 2005, aims to prepare
SMEs for the challenges and opportunities arising from trade liberalisation,
globalisation and advances in information and communication technology (ICT) in
Malaysia. The objectives of the SMIDP are to: i) create a conducive policy
environment to spur the development of SMEs into globally competitive
enterprises; and ii) promote the development of knowledge-based SMEs
(SMIDEC, 2002, p.13). Against this backdrop lies the development of
entrepreneurs in Malaysia. It is evident that SMEs play a significant role in the
economic and industrial development of a country. It is also evident that SMEs
spawn the growth and development of entrepreneurs by serving as a training
ground for developing the skills of existing and potential entrepreneurs. In
Malaysia, the growth of SMEs has given rise to a group of dynamic male and
female entrepreneurs who have capitalised on the incentives given by the
government in promoting SMEs in the country. This study examined the female
(women) entrepreneurs in the SMEs across a wide range of industries in Peninsular
Malaysia. These women entrepreneurs were surveyed to identify the critical
success factors which led to their growth and development. It was found that the
women entrepreneurs’ contribution to the Malaysia economy was growing in terms
of the establishment of new enterprises and the country’s economic growth.
Support Agencies for Women Entrepreneurs in Malaysia
Malaysia is one of the very few countries which has set up a Ministry to enhance
the growth and development of entrepreneurship in the country – the Ministry of
Entrepreneur and Co-operative Development, established in May 1995. This
Ministry oversees the growth and development of existing and potential
entrepreneurs in the country. Besides assisting the male entrepreneurs, government
grants and funds are also allocated for women entrepreneurs. Training programmes
are provided by the Ministry for budding women entrepreneurs and single mothers.
SMIDEC (Small and Medium Industries Development Corporation) established in
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May 1996 offered the ‘Women Entrepreneur Fund’ to assist women entrepreneurs
in their new business ventures. The National Association of Women Entrepreneurs
of Malaysia (NAWEM), the Federation of Women Entrepreneurs of Malaysia
(FeM) and several other state and federal women entrepreneur associations acted
as support agencies for women entrepreneurs in Malaysia. The study however
found that only 20 percent of the women entrepreneurs surveyed found the
associations of any help to their business ventures. 47 percent responded that the
associations were of no help or of little help to them. 33 percent responded that the
associations were of moderate help. Hence it can be concluded that the women
associations in Malaysia did not add substantial value to the women entrepreneurs
in the country.
A survey instrument was developed to capture the information relating to the
research objectives. A structured questionnaire was prepared in English and sent to
700 women entrepreneurs based on a sampling frame obtained from the women
entrepreneur associations in Malaysia. The questionnaires were e-mailed to 300
women entrepreneurs by the NAWEM Secretariat and a response of 1.7 percent (5
responses) was received. Another 200 questionnaires were e-mailed by the
Peniagawati Secretariat – a ‘Bumiputera’ women entrepreneur association, and 4
percent (8 responses) were received. The co-author personally faxed, mailed,
delivered by hand, and e-mailed 200 questionnaires and 62 responses were
received. In total, 75 responses out of 700 questionnaires were received at a
response rate of 10.7 percent.
The data was analysed based on the primary research objective of the seventeen
critical success factors and the accompanying demographic profile of the
respondents. The resulting questionnaire examined the critical success factors
based on a 5-point Likert Scale ranging from 1, being the least important to 5,
being the most important. The women entrepreneurs were asked to indicate, in
their opinion, the critical success factors for women to become successful in their
businesses. The results were tabulated based on frequency counts and percentages
wee drawn to construct graphical representations. The questionnaire comprised of
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17 questions; 11 questions being multiple-choice questions, 4 questions being
dichotomous questions, and 2 questions being 5-point Likert Scale questions. 5
questions had qualitative comments but none of the respondents completed the
qualitative section.
Critical Success Factors
Respondents were examined on seventeen critical success factors based on the
success factors as defined by Hisrich, Peters and Shepherd (2005); Buttner (1993);
Lancentte (1999); Bygrave and Zacharakis (2004); and Hitt, Ireland and Hoskisson
(2003), amongst other entrepreneurship scholars. Table 6.1 reflects the findings. A
“gap” is considered to exist when respondents respond that a particular critical
success factor is moderately important, not important or least important. A
percentage of above 40 percent would indicate that a “gap” exists amongst women
entrepreneurs in that particular critical success factor. From the “gap analysis”
conducted, it was found that there were only 2 critical success factors where a
“gap” existed. They were “having educational background” and “knowledge in
management and technical skills.” Hence, these women entrepreneurs identified 2
areas that they required assistance, namely, educational enhancement and
management and technical skills.
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Scale 1 - 5
1= Least important
5= Most Important
Innovative, creative and 0
far sighted
Table 6.1
(32.8571 14%
Willing to take risks
Table 6.2
Having enough financial
Table 6.3
Having knowledge in
Table 6.4
Matured and having long
life experiences
Table 6.5
Table 6.6
Right attitude in business
Table 6.7
Business minded
Table 6.8
Can work long hours
Table 6.9
(28.5714 (42.8571
(37.1428 (52.8571
(15.7142 (31.4285 (50%)
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(37.1428 (34.2857
Never give up attitude
Table 6.15
4.2857% (28.5714 (64.2857
Having business skills
Table 6.16
(1.4285) (2.8571)
Knowledge of human
Table 6.10
management & technical
Table 6.11
Good networking and a
host of contacts
Table 6.12
Table 6.14
Decisive and
have 0
dominant character
Table 6.17
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Table 6.1: Innovative, creative and far-sighted
1 (0)
2 (2)
3 (3)
4 (23)
Table 6.2: Willing to take risks
1 (4)
2 (2)
3 (14)
4 (20)
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Table 6.3: Having enough
financial resources
1 (0)
2 (4)
3 (13)
4 (24)
5 (29)
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Table 6.4: Having knowledge
in business
1 (0)
2 (0)
3 (11)
4 (32)
5 (27)
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Table 6.5: Matured and having long life
1 (1)
2 (5)
3 (17)
4 (21)
5 (26)
Table 6.6: Having educational
1 (0)
2 (7)
3 (24)
4 (28)
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5 (11)
Table 6.7: Right attitude in business
1 (2)
2 (0)
3 (5)
4 (26)
5 (37)
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Table 6.8: Business minded
1 (0)
2 (2)
3 (7)
4 (21)
5 (40)
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Table 6.9: Can work long
1 (0)
2 (2)
3 (11)
4 (22)
5 (35)
Table 6.10: Knowledge of
human resources
1 (2)
2 (4)
3 (35)
4 (16)
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5 (13)
Table 6.11: Knowledge in management
& technical skills
1 (3)
2 (3)
3 (26)
4 (24)
5 (15)
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Table 6.12: Good networking and a host
of contacts
1 (2)
2 (1)
3 (8)
4 (25)
5 (34)
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Table 6.13:
1 (2)
2 (0)
3 (7)
4 (19)
5 (42)
Table 6.14:
1 (2)
2 (0)
3 (6)
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4 (20)
5 (42)
Table 6.15: Never give up
1 (2)
2 (0)
3 (3)
4 (20)
5 (45)
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Table 6.16: Having business
1 (1)
2 (2)
3 (13)
4 (30)
5 (24)
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Table 6.17: Decisive and have
dominant character
1 (0)
2 (6)
3 (9)
4 (26)
5 (29)
Table 6.18: Success as
Measured by Women
Least Successful (10)
Moderately Successful (54)
Very Successful (6)
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Findings of the Critical Success Factors
92% of the respondents believe that “innovativeness, creativity and farsightedness” was an important critical success factor for women entrepreneurs.
72% of the women entrepreneurs agreed that “willing to take risks” was an
important critical success factor.
75% of the women entrepreneurs agreed that “having enough financial resources”
was an important critical success factor.
85% of the women entrepreneurs agreed that “having knowledge in business” was
an important critical success factor.
67% of the respondents agreed that women entrepreneurs should be “matured and
have long life experiences” as an important critical success factor.
56% of the women entrepreneurs agreed that “having educational background”
was an important critical success factor. 34% felt that education was moderately
important and 10% felt that education was not important.
90% of the women entrepreneurs agreed that “having the right attitude in business
dealings” was an important critical success factor.
87% of the respondents agreed that “being business minded” was an important
critical success factor.
82% of the women entrepreneurs agreed that “working long hours” was an
important critical success factor.
42% of the women entrepreneurs felt that “having the knowledge of human
resources” was an important critical success factor whilst 50% felt that having
knowledge of human resources was only moderately important.
54% of the respondents agreed that “having the knowledge in management and
technical skills” was an important critical success factor whilst 37% felt that it was
only moderately important.
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85% of the respondents agreed that “having good networking and a host of
contacts” was an important critical success factor.
87% of the respondents believed that “being independent” was an important
critical success factor.
89% of the respondents believed that “resilience” was an important critical success
factor for women entrepreneurs.
93% of the respondents believed that “never give up attitude” was an important
critical success factor for women entrepreneurs.
77% of the respondents believed that “having business skills” was an important
critical success factor for women entrepreneurs.
78% of the respondents believed that “being decisive and having a dominant
character” was an important critical success factor for women entrepreneurs.
In the survey, the women entrepreneurs were asked how they rated themselves in
terms of success and 77% of the respondents indicated that they were moderately
successful; 14% indicated that they were least successful; and 9% indicated that
they were very successful.
Business Enterprise Information
Number of Years in Business
< 5 Years
>5<10 years
>10 < 15 years
>15<20 years
>20<25 years
(2 )
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The study found that 36% of the respondents had been in business for less than 5
years whilst another 36% had been in business for 5 to 10 years. This indicates that
women entrepreneurial businesses in Malaysia were still relatively young.
Type of Business
Service business
Manufacturing companies
Financial companies
(4 )
( 11)
51% of the respondents were in the service sector whilst 13% were in
manufacturing, 6% in construction and 7% in retailing. This indicates that women
entrepreneurs were very inclined to start up business ventures in the service
Number of Employees
>5 <19
>5 <50
>51 <150
Majority of the respondents (44%) had less than 5 employees in their workforce.
Only 6% had more than 150 employees. This indicates that women entrepreneurial
businesses were mostly micro-enterprises which employed less than 5 employees.
Yearly Sales Volume
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< 200,000
< 250,000
>200,000<1 million
>250,000<10 million
>10 million < 25 million
> 25 million
> 1million <5 million
( 29)
83% of the respondents had businesses that generated less than RM 1 million in
annual revenue, indicating that they were mostly micro-enterprises and small
Demographic Information
Age Group Category
> 50<60
42% of the women entrepreneurs were in the age category of 40 to 50, indicating
that they were more matured entrepreneurs. 36% of the respondents are between
the ages of 30 to 40 and 17% are between the ages of 20 to 30. Hence 53% of the
respondents are “young” budding entrepreneurs which indicates that more young
women are becoming entrepreneurs.
Marital Status
76% of the respondents are married which indicates that many of them may be
starting new business ventures to supplement the family income.
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Education Background of Women Entrepreneurs
All the women entrepreneurs had some form of educational background with the
majority of them (36%) having a Diploma; 27% having a Degree; and 24% having
secondary education.
Findings of the critical success factors indicate that the women entrepreneurs in the
study have the success factors required of an entrepreneur as defined by Hisrich,
Peters and Shepherd (2005); Buttner (1993); Lancentte (1999); Bygrave and
Zacharakis (2004); and Hitt, Ireland and Hoskisson (2003), amongst other
entrepreneurship scholars. They all agreed that the critical success factors were
either important or most important for their success.
However, on “being matured and having long life experiences”, only 67 percent
felt it was important and most important; 24 percent felt is was only moderately
important indicating that maturity and experience is not critical to the success of
women entrepreneurs. His can be seen in the age group of these women
entrepreneurs; 53 percent of them were below the age of 40. On “having an
educational background” 56 percent of them felt education was important or most
important; 34 percent of them felt education was only moderately important. This
was reflected in their own educational attainment; 63 percent of these women only
had a Diploma or lower level education. When questioned on “knowledge in
human resources”, 42 percent of them responded that it was important or most
important; 50 percent however felt it was only moderately important, thus
indicating their perception on human resource management, development of their
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employees, knowledge-based workers. This is due to the fact that 44 percent of
them were micro-enterprises employing less than 5 employees and these are
normally small entrepreneurial ventures who are more focused on profit and
revenue rather than employee motivation and development. 54 percent of the
respondents agreed that “knowledge in management and technical skills” was
important or most important; 37% felt it was only moderately important. Hence, it
can be concluded that a large percentage of the women entrepreneurs in the study
did not foresee the importance of management and technical skills for
entrepreneurial success. That again because 44 percent of them were microenterprises who did not place emphasis on the long-term development of their
The women entrepreneurs in the study were mostly a “young” group who were
below the age of 40 and been in business for less than 10 years. Whilst they agreed
that most of the critical success factors were important for business success, they
were not aware of the importance of education, human resource development and
management and technical skills for the growth and development of their business
ventures. These are strategic factors that need to be taken into consideration for
strategic development. Since 44 percent of them were micro-enterprises, they were
focusing more on profits and sales rather than on quality of personnel and
technological advantage as stated by Teo (1996) and Lee-Gosselin and Grise
(1990); personal qualities as stated by Hassan and Jivan (1995), Bachemin (1989),
Hisrich and O’Brien (1981) and Kotter (1982); knowledge of product and service,
quality of product and service and availability of professional services as stated by
Teo (1996) and Lee-Gosselin and Grise (1990); communication skills and human
relation skills as stated by Rashid (1996), Woodward (1988), Hisrich and O’Brien
(1981) and Kotter (1982). It was also found that 51 percent of them were in the
service industry. This could be a reason why some of them felt that management
and technical skills was moderately important. Strangely, they also felt that human
resource development was moderately important. This is ironic considering the fact
that service and quality of personnel was of utmost importance in the service
industry. But generally, out of the seventeen critical success factors, more than 70
percent of them unanimously agreed that there were 13 factors out of the 17 factors
that were important or most important for women to become successful in their
businesses. “Gaps” were identified in 4 of those 17 critical success factors, that is,
i) maturity and having life-long experiences; ii) educational background; iii)
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knowledge of human resources; and iv) knowledge of management and technical
skills. These “gaps” were not of grave concern, however, they were important
factors that had to be highlighted and worked at with these women entrepreneurs
for long-term business success. They however agreed very strongly (more than 80
percent of them) on the following critical success factors: i) innovative, creative
and far-sighted; ii) right attitude in business dealings; iii) never give up attitude; iv)
having knowledge in business; v) business minded; vi) being able to work long
hours; vii) having good networking and a host of contacts; viii) being independent;
and ix) being resilient.
The women entrepreneurs of Malaysia are an emerging ‘force’ in the
entrepreneurial sector. These women, if given the appropriate educational
background, management and technical skills and entrepreneurship skills, can
emerge to become a dominant entrepreneurship ‘force’ in the country. In Canada,
821, 000 women entrepreneurs contribute an access of CAD 18, 109 million to the
economy (OECD, 2004, p.13-15); in Germany, 1.03 million women-owned
businesses provide employment for 2 million people (Kay et. al., 2001); in the
United States, there are currently 6.2 million women-owned firms which employ
9.2 million people and generate sales of USD 5 trillion (U.S. Department of
Labour, 2002). The women entrepreneurs of Malaysia can contribute just as well
as the women of Canada, Germany and the U.S., if they are given the assistance
and support by the government and relevant agencies and associations. This study
also found that the women entrepreneurs surveyed viewed importance of women’s
networking and associations as of moderate help, poor help or no help at all. 89
percent of them said that they did not receive any form of support from the
government. The government of Malaysia through its Ministry of Entrepreneur and
Co-operative Development and the various Women Associations and Agencies
have to play a more aggressive and significant role in the development of women
entrepreneurs in Malaysia. At the moment, the majority of the women
entrepreneurs of Malaysia do not exist as professional, well-skilled entrepreneurs.
Whatever skills and experience they have acquired has been through family,
friends and previous experience. There is no evidence of a structured development
plan for the women entrepreneurs of this country. Entrepreneurship training and
skill development is grossly lacking. There must be an initiative by the government
to initiate an organised development plan for the women entrepreneurs such as
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those initiated by the International Labour Organisation and United Nations
Development Programme in the lesser developed countries of Africa, Sri Lanka,
Bangladesh, Mauritius and India. Entrepreneurship has been seen as a competitive
economic tool for a developing nation and women have also been recognised as a
strong dominant force in a growing economy. This combination has to be
recognised in Malaysia to capitalise on the female entrepreneurship spirit for
economic growth and gender equality.
Volume II, Issue 3, 2006
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Ayadurai, Selvamalar and Sohail, M. Sadiq. (2006). Profile of Women
Entrepreneurs in a War-Torn Area: Case Study of NorthEast Sri Lanka. Journal of
Developmental Entrepreneurship 11(1), 1-15.
Bachemin, T. (1989). Good Entrepreneur, Bad Manager? Black Enterprise 19(8),
Bakar, A. H., Smith D. J. and Sapuan, S. M. (1997). The Roles of Small and
Medium Enterprises (SMEs) To Support the Large Industries in the Context of
Malaysian Economy. Malaysian Management Review, December 1997, 11-17.
Buttner, E.H. (1993). Female Entrepreneurs: How far they have come? Business
Horizons, 36(2) pp.59-65.
Buttner, E..H and D. P Moore (1997).Women’s organizational exodus to
entrepreneurship: Self-reported motivations and correlates with success. Journal of
Small Business Management, 35(2), 34–46.
Bygrave, W.D. & Zacharakis, A. (2004). The Portable MBA Entrepreneurship.
John Wiley & Sons Inc., Hoboken, New Jersey. 3rd Edition.
Deng, S., Hassan and S. Jivan. (1995). Female Entrepreneurs Doing Business in
Asia: A Special Investigation. Journal of Small Business and Enterprise, 12, 60-80.
Hisrich, R. D, Peters, M.P. & Shepherd, D.A. (2005). Entrepreneurship. McGraw
Hill, Irwin.
Hisrich, Robert D., and Marie O’Brien. (1981). The Woman Entrepreneur from a
Business and Sociological Perspective. Frontiers of Entrepreneurship Research.
Ed. K.H. Vesper. Wellesley, Mass,.: Babson College, 21-39.
Hitt, M. A., Ireland, R. D. & Hoskisson, R. E. (2003). Strategic Management and
Globalization (Concepts and Cases). 5th Edition. Thomson Learning, United States.
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Kelly, Isabel A. (1985). Speech given to the Asia/Canada Women in Management
Conference, Canadian Federation of University Women, Alberta, Canada, July 2022.
Kotter, J.P. (1982). What Effective General Managers Really Do. Harvard
Business Review 60(6), 162.
Lancentte, C.D. (1999). Entrepreneur: Wide World of Sports. Entrepreneur Media
Inn, pp.142-144
Lee-Gosselin, H. and J. Grise. (1990). Are Women-Owners Challenging Our
Definitions of Entrepreneurship? An In-Depth Survey. Journal of Business Ethics
(Netherlands) 9(4) and 9(5), 423-433.
Maysami, C et al. (1999). Female business owners in Singapore and elsewhere: A
review of studies. Journal of Small Business Management, 37(2), 96–105.
Rashid, M.Z.A. (1996). Management Practices, Motivations and Problems of
Successful Women Entrepreneurs in Malaysia. Singapore Business Development
Series: Entrepreneurs, Entrepreneurship, and Enterprising Culture. Ed. Tan and
Low. Singapore: Addison-Wesley Publishing Company, 290-298.
Teo, S. K. (1996). Women Entrepreneurs of Singapore. Singapore Business
Development Series: Entrepreneurs, Entrepreneurship and Enterprising Culture.
Ed. Low and Tan. Singapore: Addison-Wesley Publishing Company, 254-289.
Woodward, W. J. (1988). A Social Network Theory of Entrepreneurship: An
Empirical Study. Ph.D Thesis, University of North Carolina at Chapel Hill.
Zapalska, A. (1997). A profile of women entrepreneurs and enterprises in Poland.
Journal of Small Business Management, 35(4), 76-82.
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Volume II, Issue 3
© 2006, Journal of Asia Entrepreneurship and Sustainability
No reproduction or storage, in part or in full, permitted without
prior permission.
[email protected]
Pardeep S. Shehrawat
Dept. of Extension Education
CCS Haryana Agricultural University, Hisar-125004.
Entrepreneurs are encountering a number of constraints pertaining to finance,
marketing, technological and export for smooth running of their entrepreneurial
units. There is urgent need to provide the facilities which facilitate them setting up
of economically viable units and they should be equipped with latest technologies
and skills by organizing different entrepreneurial motivational and skill oriented
programs frequently. The present study was undertaken in the four industrially
leading districts of Haryana state to determine the correlates; the specific training
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needs of entrepreneurs; to make an assessment of problems encountered by
entrepreneurs to facilitate setting up of sustainable units. A total number of 120
entrepreneurs were interviewed for the study.
The study indicated that ‘suitable location of entrepreneurial units’,
‘adequate supply of power’, ‘adoption of quality control measures’, ‘good quality
of raw material’, ‘timely supervision and guidance’, ‘sound managerial ability of
entrepreneurs’, ‘provision of technical guidance counseling,’ ‘proper training of
workers,’ ‘easy availability of finance’, ‘identification and use of mega markets’,
‘attractive packaging’, ‘quality products’, ‘good contact with marketing personnel,’
‘commitment towards enterprises’, ‘high risk taking capacity’, ‘innovative
behavior,’ ‘high degree of motivation’ were found as very much effective
correlates for economically viable units.
The study found that important areas of training preferred by
entrepreneurs were quality management, marketing management, packaging
techniques, marketing techniques, technology up gradation, financial management,
brand promotion, export promotion technique, advertising the products and
personnel management.
The study further revealed that ‘lack of physical facilities’, ‘lack of
sufficient stock of raw material’, ‘lack of managerial competence’, ‘poor attention
on advertisement and publicity of the products’, ‘poor working of various
industrial agencies,’ ‘lack of cooperation and coordination among different
developmental agencies,’ ‘technological gap’, ‘lack of sufficient working capital’,
‘problems in procuring finance from different financial institutions,’ ‘cheaper/
superior competitive substitute,’ ‘inadequate supply of export information’, ‘power
supply inadequate, uncertain and costly’, ‘preparation, identification and
implementation of the project’, ‘licensing and registration’, ‘poor linkage with
marketing structure’, and ‘lack of govt. support and incentives’ constituted very
serious problems encountered by entrepreneurs for a sustainable unit.
As a rapidly growing third world Country, India has been taking careful steps and
measured steps in its diverse development efforts over the years, the small scale
industrial sectors has been accorded adequate importance and constitutes an
importance and crucial segment of the industry sector. The contribution of Small
scale Industrial sector to employment is next only to agriculture.
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After independence, several entrepreneurship development programs have been
started to develop the skill, knowledge, and competence among the entrepreneur.
In spite of various entrepreneurship development programmes launched by the
Govt. and non-government agencies, the entrepreneurs are encountering a number
of problems for establishing economically viable small-scale agro-processing units
like lack of physical facilities like, communication, transport and storage, lack of
quality control measures, selection of products, non-availability of right type of
raw material, lack of managerial competence, poor linkage with marketing bodies,
lack of trained workers, low scale of production, improper communication with
other developmental agencies. Long and complicated procedures to avail
institutional help, lack of Govt. support and incentives, lack of sufficient finance
and working capital and problems in procuring finance as well as loan from
different agencies.
These problems decreased the productivity of the entrepreneurial units.
Therefore, effective entrepreneurship development programmes should be
organized for entrepreneurs to develop and strengthen their entrepreneurial quality,
select the project, select product, formulate projects, acquire the basic management
skills etc. The entrepreneurs should make aware about the modern technology,
latest packaging techniques, better marketing opportunities, selection of raw
material and proper utilization of available funds then they are bound to increase
their present level of operations.
Hence, the study was conducted; (1) To study the factors responsible for
sustainable small scale agro-processing units; (2) To assess the problems
encountered by entrepreneurs to establish their small agro-processing economically
viable; (3) To identify the training needs of entrepreneurs for economically viable
The study was conducted in the state of Haryana (India). A list of smallscale agro-processing entrepreneurs was prepared for each of four districts in
consultation with officials of department of industry of the concerned districts. A
total number of 120 entrepreneurs constituted the sample for the study.
For measurement the intensity of factors affecting the sustainability of the units,
the responses of all the entrepreneurs against each of the 55 factors were measured
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on a 4 point continuum rating scale ranging from very much relevant somewhat
relevant, and least relevant and scores were given 4,3,2,1 respectively. A total
choice score for each factor was worked out after knowing the responses of all the
entrepreneurs based on their degree of relevance, then the total choice scores so
obtained for each factors was converted into weighted mean score. At last, rank
orders were given for each factors based on their weighted mean scores.
The seriousness of the problems encountered by entrepreneurs was measured on a
three-point continuum rating scale ranging from very serious, serious and not so
serious and a weightage of 3,2,1 were assigned, respectively. Based on the
responses obtained from entrepreneurs a total choice score for each problem was
worked out and this total score was converted into weighted mean score. Finally,
'Z' score was worked out to assess degree of seriousness of these problems and
rank orders were given based on the 'Z' values.
A problem was considered very serous with 'Z' score values of more than 1,
serious with 'Z' score values 1 to -1 and not so serious with 'Z' score values less
than -1.
A schedule was developed consisting of 19 important areas of training. The
responses of all the respondents for each training areas was rated on a five-point
continuum scale.
Marketing and financial factors perceived by entrepreneurs for economically viable
Agro-processing units
The marketing and financial factors along with their mean scores and the
rank orders of all these parameters in descending pattern are illustrated in Table 1.
An analysis of data presented in the Table 1 highlights that several important
marketing and financial factors perceived by entrepreneurs in descending order
were easy availability finance (3.3), identification and use of mega markets (3.28),
attractive packaging of products (3.27), quality products to compete the market
(3.25), efficient marketing and selection of products on market demand (3.23), and
good contacts with marketing personnel (3.20).
Easy availability of finance has been ranked at the top position. Credit
should be affordable, adequate, and in time. However, SIDBI (Small Industries
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Development Bank of India) has given guidelines for easy procedural way of
providing the credit facilities to entrepreneurs.
Identification of mega market coupled with attractive packaging of
products also largely affected the sustainability of entrepreneurial units, because
attractive packaging helps in raising the price sale value of the finished products.
Knowledge about mega market is equally important because consumption of
products is directly correlated with production of that product. Hence, Govt. and
non–govt. institutes should provide the marketing assistance and information
regarding the mega market where the entrepreneurs can sale their products. Further
quality of products has its own place in development of entrepreneurship
programs. Latest technology along with required inputs should be provided to
export oriented units to improve the quality because quality products can compete
the market.
Table 1 further reveals that there were some other important marketing
and financial factors perceived by entrepreneurs were easy access to export
information (3.17), proper advertising and publicity of product (3.15), good
demand of product (3.08), availability of finance in time (3.06). These findings
indicated that entrepreneurs should be exposed to import information from time to
time through some magazine, or bulletin, so that they can plan their target of
production for export purposes.
Effective communication with marketing bodies, reasonable rates of
interest on institutional finance, availability of self finance, better finishing of
products, remunerative price of product were some other marketing and financials
factors perceived by entrepreneurs that help in establishing the agro-based units
more economic viable.
Table 1.Marketing and financial correlates perceived by entrepreneurs for economically viable scale agro-processing
Mean score
Easy availability of finance
Identification and use of mega markets
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Attractive packaging of products
Quality products to compete the
Selection of products based on market
Efficient marketing
Good contacts with marketing
Easy access to export information
Proper advertising and publicity of the
Proper packaging of products in
form by weight and volume
Good demand of products
Availability of finance in time
Reasonable rates of interest on
institutional finance
Effective communication with
marketing bodies
Marketing of products at appropriate
Sufficient finance
Better finishing of products
Remunerative prices of products
Owned finance/family finance
20 Proper designing and shape of the
Areas of training need preferred by entrepreneurs
An examination of the Table 2 highlighted that quality management
was the most important area of the entrepreneurs' training need with a mean score
of 3.21 and was ranked at first. It implies that quality may proved very helpful in
increasing the demand of the product in the competitive market and also help in
getting the higher sale price of the product as compared to poor quality product.
Superior quality of the product also provide the stability to units in the market,
hence quality management training is most needed. Marketing management,
packaging techniques for exports and marketing technique were the other
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important areas and were ranked second, third and fourth with a mean score of
3.17, 3.15 and 3.09, respectively.
Problem of marketing and packaging techniques are of very serious nature in
small-scale units as also confirmed by Bandarla (1992), Jairath (1996), and
Malliswari (1996). Therefore, entrepreneurial training programmes related
marketing management, marketing techniques, packaging techniques for the
products should be organized for small entrepreneurs so that they can gain the skill
and knowledge about these aspects.
There were some other important areas of training which were needed
by entrepreneurs were technology up gradation (3.08), financial management
(3.08), material management (3.03), manufacturing techniques of agro-based
products (2.94), administration and supervision techniques (2.90), export
promotion techniques and brand promotion (2.82), advertising the products (2.80),
and organization management (2.79). These findings predicted that sophisticated
technology is mostly needed to entrepreneurs, which help them in manufacturing
quality products at low cost of different designs.
It is also argued that training of entrepreneurs regarding these areas can
enable them how to better manage the finance, technology, materials and
manpower available to them for maximum outcomes with minimum input.
Training can equip the entrepreneurs with skills and managerial techniques used
for production of quality finished product and therefore, they can stable the market.
The Table 2 further indicated that there were some other areas of training,
which were needed by entrepreneurs. There were environmental management and
pollution control (2.78), personnel management (2.75), entrepreneurial motivation,
business opportunities and guidance (2.72), processing of agro-products (2.71),
labour management (2.67), and procurement of raw materials (2.59).
It is concluded that training institutes, like, SISIs, NIESBUD, DICs,
NISIET, KVICs should organize skill oriented and entrepreneurial awareness
training programmes frequently comprising the areas of quality management,
marketing management, sophisticating packaging techniques, marketing
techniques, financial management, resource and manpower management for
economically viable small scale agro-processing units.
Table 2. Areas of Training Need Preferred by Entrepreneurs.
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Areas of trainings
Total choice
Quality management
mean score
Marketing management
Packaging techniques for exports
Marketing techniques
Technology up gradation
Financial management
Material management
Manufacturing techniques of
different agro-based products
Administration and supervision
Export promotion techniques
Brand promotion
12. Advertising the products
13. Organization management
Environmental management
and pollution control
Personnel management
Entrepreneurial motivation,
opportunities and guidance
Processing of agro-products
Labour management
Procurement of raw materials
Table 3. Training Institutional Network for Promotion of Small Scale Industries.
Sr. No.
Nature of assistance
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1. Small Industries Service Institutes
(SISIs) 28 SISIs and 30 branches
Technical support service,
development efforts for SSIs,
entrepreneurship development
programmes, skill oriented and
motivational awareness programmes
2. National Institute for Entrepreneurship
and Small Business Development
Programmes Delhi (NIESBUD)
Training in entrepreneurship
Counseling for SSIs, specialized
training for Trainers, developed
course contact for trainings
3. National Institute for Small Industries
Extension and Training
Hyderabad (NISIET)
Management development raining
for SSIs and variety of consultancy
4. Khadi and Village Industries
Training, guidance, counseling for
Corporation (KVIC)
for SSIs.
5. Entrepreneurship Development
Institutes (EDIs)
Training for entrepreneurship
development, managerial skills,
development of entrepreneurial
culture and environment
6. Indian Institute of Entrepreneurship,
advanced training for resource
persons, skill oriented programmes
Institutes of Entrepreneurship
Development (IEDs)
Development of entrepreneurial
competence, development of
trainers, motivators, managers,
expert services, for enterprise
Problems encountered by entrepreneurs in establishing viable agro-processing
Here we discuss the technological Problems, Institutional problems and financial
problems encountered by entrepreneurs in establishing their sustainable
entrepreneurial units.
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Technological Problems encountered by entrepreneurs
A study of the Table 4 revealed that the technological gap between
different institutions and entrepreneurs (Z=1.41) was found to be very serious
technological problem encountered by entrepreneurs. Perhaps, this technological
gap is due to poor functioning of field functionaries, lack of communication
means, insufficient finance to use latest technology, and lack of specialized skills
to use innovations on their units.
Therefore, it is needed to strength the field functionaries making their receiving
system more adaptive for communicating the technical know-how to the users,
specially, for the export oriented units for their sustainability. Providing latest
technology can improve quality and helps in getting higher price of the products.
Therefore, it is necessary for one to keep him abreast with latest technical knowhow to survive in the competitive market and to decrease the cost of production
and earning the higher profit. The technology should be so simple so that smallscale entrepreneurs can use it at their units. The latest technology developed by the
research institutions should be effectively communicated to fill up gap through
organizing seminars and conferences of the potential entrepreneurs. Recent
developed technologies can be exposed to the entrepreneurs through organizing
exhibition and mini technological fair.
The Table 4 further reveals that lack of specialized skill to the
entrepreneurs (Z score=0.64), non-availability of improved technology (Z
score=0.41), outdated technology (Z score=0.29), non-availability of technology in
time (Z score=-1.00), were perceived as serious technological problems by
entrepreneurs. These findings predicted that untrained workers and unskilled
entrepreneurs in developing countries cannot use the available technologies
effectively and if they were trained and induced skill into them, that outdated
technology can create bottlenecks for economic growth of the units.
A latest technology is of no use if does not communicate to the
entrepreneurs in time. The transfer of improved technology can be done through a
network of institutions concerned with the entrepreneurship development
programme. Hence, diffusion of technology in time to the skilled entrepreneurs can
play a vital role, specially, for the food processing industries for a developing state
like Haryana, where raw material for agro-based industries are available in
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The study also resulted that facilities for maintenance and repair of the machinery
are not lacking and this problems was considered as not so serious. These findings
also got support from Jairath (1996).
Hence, it is realized that latest technology developed at the research labs
should be diffused effectively in time to the entrepreneurs and by doing so, it is
prerequisite to train the entrepreneurs by equipping them skills and managerial
competence so that they can successfully use the available improved technology.
Once the improved technologies are adopted by the entrepreneurs then, they can
use it for developing different designs of the products, improved the quality, lower
the cost, and speed to market and can get stability in the existing market.
Table 4. Technological problems encountered by entrepreneurs for establishment of sustainable units
Mean score
Non availability of improved technology
Outdated technology
5Lack of technical know-how
6Non-availability of technologies in time
7Lack of facilities for maintenance and
1Technological gap between different
Z score
of problems
institutions and entrepreneurs
Lack of specialized skill to the
repair of the machinery
X ( Mean) = 2.17
S.D. = 0.17
S = Serious
NSS = Not so
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Institutional problems encountered by the entrepreneurs
A perusal of the Table 5 shows that lack of cooperation and coordination
among different developmental agencies (Z score=1.33) and poor working of
various institutions related to entrepreneurship such as SISIs, KVICs, EDIs and
DICs (Z score=1.16) were encountered as very serious institutional problems,
specially, in developing countries like India. Lack of coordination between
developmental departments weakens the developmental industrial activities,
particularly, in the case of agro industries. There should be coordination between
research labs, agro research institutions, enterprises and marketing bodies like
Developed European Countries. Improved research based technologies should be
transferred rapidly to the entrepreneurs. Further entrepreneurial institutions should
work effectively for providing the needful scientific techniques to entrepreneurs
frequently. It has been also seen that many of the entrepreneurial institutions have
failed to provide the support and counseling to entrepreneurs and these institutions
are not interested in dealing with small entrepreneurs. These results got support
from Chatterjee (1992).
Lack of Govt. support and incentives (Z score=0.66), long and
complicated procedures to avail institutional help (Z score=0.17), lack of training
to workers (Z score= -0.25), insufficient publicity for impairing the training (Z
score= -0.33), training institute give less attention to the objectives, identification
and selection of entrepreneurs (Z score= -0.58), and trainers do not belong to the
relevant field thus lack competence (Z score= -0.66) were encountered as very
serious institutional problems
(Table 5).
These findings indicate that Government in developing countries are not providing
sufficient support and incentives regarding finance, management, marketing and
export related to entrepreneurs which badly affect the economic viability of their
units, further if there are provision for support and incentives then the procedures
are so complicated and time consuming, and ultimately entrepreneurs failed to
avail these facilities. Again, no more publicity is given about organizing the
entrepreneurial training programmes and entrepreneurs remain unknown about the
scheduling of these training programme organized by different institutes.
It was also found that most of the training institutes are not concerned about the
objective identification, selection of entrepreneurs and they just only fulfill their
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formalities for training. Hence, before imparting training, the objectives, contents,
should be highlighted to the participants and suitable entrepreneurs should be
selected for the trainings after reviewing their project, objectives properly. It was
also reported that resource persons for imparting the training must be experienced
and must have enough orientation to entrepreneurship development programmes.
In addition to training, post training follows up for support and sustaining
services to individual entrepreneur is equally necessary as entrepreneurial
development is a cycle of stimulating support and sustained activities. Such type of
follow up action is taken in developed European countries
Table 5. Institutional problems encountered by entrepreneurs for establishment of sustainable units
Z score
Mean score
of problems
Lack of cooperation and coordination
among different developmental agencies
Poor working of various industrial
agencies such as directorate of small
industries, SISIs, DICs, etc.
Lack of Govt. support and incentives
Long and complicated procedures to avail
institutional help
Lack of training to workers
Insufficient publicity for imparting trainings
Training institutes give less attention
to the objectives, identification and proper
selection of entrepreneur
Trainers do not belong to the relevant field,
thus lack competence
Lack of communication between field
functionaries and entrepreneurs
X (mean) = 2.27
S.D. = 0.12
VS = Very serious
S =Serious
NSS = Not so serious
Financial problems encountered by entrepreneurs
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It is evident from the Table 6 that problem in procuring finance as
well as working capital from different agencies (Z score= 1.12) and lack of
sufficient working capital (Z score= 1.06) constituted the entrepreneurs very
serious financial problems, whereas, inadequate amount advanced through
financial institutions (Z score= 0.18), lack of funds for publicity and advertisement
of the products (Z score= 0.12), and high rate of interest on procured finance (Z
score= -0.62) were found serious financial problems perceived by entrepreneurs.
Difficulty in getting money from buyers after sales (Z score= -1.62) was found not
so serious. The researcher found that many of entrepreneurs were failed in getting
the required assistance from different financial institutes because of their
cumbersome procedures. On the other hand, entrepreneurs had no sufficient
capital, for day-to-day requirement so as to purchase raw material, transportation
and communication liabilities. Further, if loan is sanctioned then amount is too low
to meet the necessary requirement and therefore, entrepreneurs have to take the
money from the moneylender and private financial agencies on high rate of interest
and hence cost of production is increased. Due to lack of sufficient finance they
cannot adopt the proper advertisement for the product and so cannot increase their
sales turn over. Some guarantees have also to be given for drawing the credit
facilities, which is not possible for small entrepreneurs.
Singh and Partap (1987) and Jairath (1996) also reported that main constraints
encountered by entrepreneurs in agro-processing industries were lack of finance
and sufficient working capital and high rate of interest on procured credit facilities.
NABRD (National Agricultural Bank for Rural Development), a national
bank was set up in 1982 to provide credit facilities for promotion of small cottage
and rural industries. Also to meet the financial requirement of entrepreneurs, a
separate bank SIDBI was also been set up whose main function is to refinance to
the different financial network institutes sat as State Financial Corporations
(SFCs), National Small Industries Corporation (NSIC), State Small Industries
Corporation (SSICs), commercial bank etc. There is need to strengthen the network
of these financial institutions to provide the credit facilities in time and in sufficient
amount with out any delay to the entrepreneurs.
Table 6. Financial problems encountered by entrepreneurs for establishment of
sustainable units
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Sr. No. Problems
Problems in procuring finance
Mean score
Z score
of problems
loans as well as working capital from
different agencies
Lack of sufficient working capital
Inadequate amount advanced through
financing agencies
Lack of funds for publicity and
advertisement of the product
High rate of interest
6 Difficulty in getting money from
buyers after sales
VS = Very serious
X ( Mean) = 2.35
S = Serious
NSS = Not so serious.
Bandarla, Amarnath. 1992. Problems of agro-based industries. Khadi Gram Udyog
35 (5):183-187.
Jairath, M. S. 1996. Agro-processing and infrastructure development in hilly area:
A Case study of fruit and vegetables processing. Indian Journal of
Agri. Marketing. 10 (2): 28-46.
Malliswari, M. N (1996). Mango processing in Andhra Pradesh. Potentials,
infrastructure and constraints. Indian Journal Agri. Marketing 10
(2): 19.
Chatterjee, Anjana. 1992. Entrepreneurship development programme and selfemployment. Yojana. 36 (16): 12-15
Singh, Anil and Partap.1987. Diagnosis and treating industrial sickness. Yojana.
31 (12) : 12-13.
Volume II, Issue 3, 2006
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Volume II, Issue 3
© 2006, Journal of Asia Entrepreneurship and Sustainability
No reproduction or storage, in part or in full, permitted without
prior permission.
[email protected]
Associate Professor Dr. Ernest Cyril de Run, Miss Malar Subramaniam and Mr.
Michael Wong Sing Lung
Email: [email protected]
Deputy Dean (Research and Postgraduate), Fakulti Ekonomi dan Perniagaan,
Universiti Malaysia Sarawak, 94300 Kota Samarahan, Sarawak.
This study identifies the current motivation and entrepreneur characteristics of the
second / third generation Foochow Chinese in Sarawak as compared to their
forefathers. This is then compared to determine what has been lost or gained in the
Foochow entrepreneurial spirit. Data was obtained through in-depth interview of
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thirty Foochow entrepreneurs. The study utilizes Evolutionary Psychology
Paradigm and is analyzed using frequency and Crosstabulation. The findings
indicate specific generation based perception and motivators of entrepreneurship.
Key Words: Foochow, Sarawak, Entrepreneurship, Perception, Evolutionary
Psychology Paradigm
The success of Foochow Chinese businessmen, particularly in Sarawak, is
attributed to their industry, thrift, innovation, enterprise, resourcefulness, ambition,
hard work, adaptability, and cooperative characteristics (Freedom, 1979). Among
the contributing factors for Sarawak’s success in trade and commerce was partly
because of the arrival of Chinese immigrants, particularly the Foochow community
from Mainland China in early 1990. Most of the Chinese dialect groups in these
two provinces i.e. Foochow and Hakka are represented in Sarawak. It is believed
that there had been some form of business contacts between the Chinese and
Sarawak as early as the 11th century. Subsequently, waves of Chinese immigrants
came to Sarawak until the Second World War where new immigration restrictions
were imposed (Chew, 1941; Chin, 1981; Lee & Tan, 2000).
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The emigration of the Chinese to Sarawak was in response to their desperate
reaction towards the harsh living conditions, such as poverty and overpopulation,
in their homeland. This push factor when coupled with the pull factor of the
opportunities offered to them by the Sarawak government then, work opportunities
and the presence of relatives resulted in mass migration. By the 1960’s, it is
believed that 80% of the Chinese were locally born, depicting the slow-down of
migration. In term of occupation, most Chinese are engaged in service industries,
commerce, manufacturing, timber, construction and agriculture (Leigh, 1988).
The Foochow dialect group migrated to Sarawak from Fujian province during the
early decades of the 20th century. They came to Sarawak to escape the harsh living
conditions in China and to rebuild their lives. In the early days of migration, the
Foochow immigrants adopted a survival mentality and a materialistic or wealth
oriented approach to life in Sarawak as their priority. In order to survive in such a
foreign and hostile environment, they had to be exceptionally hardworking, frugal,
innovative and enterprising.
The Foochow, were considered by the Rajah Vyner Brooke as “assets of the state
of Sarawak,” and much appreciated by the present Sarawak government today.
This is mainly due to their economic contribution to the state, built upon the solid
foundation laid by their forefathers. H. F. Deshon, the 3rd Division’s resident in
1902 stated: “…The Foochow immigrants have proven themselves in every way a
desirable class of immigrant. They are sober, hardworking, law abiding people of
domesticated habits and have readily adapted themselves to their new
surroundings…(Deshon, 1902).”
Fong (1996) accurately highlights some of the reasons behind the success of the
Foochow’s in Sarawak, be it in political, commercial, or in other arenas, as
follows: “Ever since the Foochow Chinese entered into the commercial and
industrial world in 1950s, they have been sensitive to all the commercial and
industrial opportunities and have been successful in their endeavors as a result of
their fore-sight, sincere and committed attitudes to work, their abilities to cooperate and united spirit. They were the descendents of the pioneer settlers who
migrated to the Rejang basin from Fujian in China a century ago. Their success
have been built on the foundation made by their ancestors who led a frugal life of
living from hand to mouth experiencing hardships, sufferings and arduous
struggles”(Fong, 1996).
Their success has outstripped almost all others in its economic potential,
development capacity and professional manpower (Chin, 1981). However, it is not
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obvious whether such well-known motivation and characteristics of the Foochow
community are still the outstanding marks of the current generation. It is the
objective of this research to note the motivation and characteristics of Foochow
entrepreneurs of the first, second, and third generation. This is then compared to
determine what has been lost or gained in the Foochow entrepreneurial spirit. The
findings will also provide an indication of the capacity of the Foochow as
entrepreneurs of the future as well as the trend of entrepreneurship in this specific
This paper addresses some important knowledge gaps by developing a scale of
factors, to diagnose what Foochow’s perceive as their entrepreneurship traits. Most
studies look at Chinese as a whole instead by their dialect groups (Lee and Chan,
1998; Collins, 2002). The data is based on an initial interview of twenty-seven
entrepreneurs from one dialect group, the Foochow’s of Sibu. A further study is
planned by using the data obtained here in a questionnaire format to obtain higher
reliability and generalizability. The rest of the paper is organized as follows: first
discussion of the relevant literature is presented; then the methodology is
discussed; findings presented; and finally the paper concludes with a discussion of
academic and managerial implications and areas for future research.
Sarawak is located on the island of Borneo, with Kalimantan Barat, Brunei, and
Sabah. Together with Sabah, it makes up what is known as East Malaysia as
opposed to West Malaysia, which consists of states in the Peninsular. The people
of Sarawak are mainly indigenous people such as the Iban, Bidayuh, and Orang
Ulu. The Chinese were migrants under the invitation of the Rajahs of Sarawak
(Chew, 1941; Chin, 1981; Lee & Tan, 2000).
The dynamics of the East Asian Economic is built upon by the Chinese family
business (Kao, 1993; Yeung, 1998). In addition, Chinese in East Asia such as
Indonesia have lived in a very volatile environment with political uncertainty.
However, these Chinese have constructed their business strategies in such a way
that provide flexibility to tackle political uncertainty. Also, in many Chinese
establishments today, the founders often grow up in very poor and difficult
backgrounds. Examples of these are the prominent Foochow businessmen such as
Datuk Lau Hui Kang of KTS, Tan Sri Tiong of Rimbunan Hijau and Datuk Wong
TK of WTK Group of Companies. Besides, most Chinese firms have succeeded
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by exploiting market opportunities, using the strategy of guerrilla force (Lam,
1992). They tend to seek out an opportunity for high profit margins in a particular
good, developed formula, and exploit it immediately.
The traditional Chinese culture believes that a successful business depends on three
(3) external factors: Luck, compatible environment and harmonious social relation.
New generation Chinese entrepreneurs nowadays actively pursue strategies that
attempt to “match” with these three factors. They believe that the success of all
enterprise does not depend on sheer luck but on alertness to the opportunity
(Kirzner, 1985). The Chinese culture also regards harmonious relations among
family members as the foundation for a prosperous business. Harmonious group
relations, in view of the Yin-Yang philosophy, give rise to flexibility in business
When Chinese migrants were forced to up root from their homeland to seek their
fortunes overseas, their motivation was fundamentally economic, that is to earn a
decent livelihood (Chew, 1941; Chin, 1981; Lee & Tan, 2000; Leigh, 1988). This
is particularly true to the Foochow Chinese businessmen in Sarawak. The Foochow
faced hardships in China and sought greener pasture in Sarawak. Nobody would
dream of their economic success today. This may be attributed to the of the
Foochow forefathers who had been very hard working, innovative, high-risk
takers, and enterprising, readily to adept to new environment and united. The
question will be will the second-generation Foochow businessmen posses the same
resilience and winning characteristics of their forefathers.
Chinese entrepreneurs were on the whole “successful and innovative” (Level,
Phillips, & Tracy, 1991) with a strong co-operative overseas Chinese network
(Kraar, 1994). The operations of the Chinese business networks, is in fact, an
extension of the Chinese family culture. To ensure that such networks operate
reliably, Chinese business pays special attention to trust in business transactions. In
Chinese practice, trust is limited to partners in the bond. It works on the basis of
personal obligations, maintenance of reputation and face (family name) (Yeung &
Tung, 1996). For older Chinese generation, they trust their relatives absolutely but
trust their friends and acquaintances only to the degree that mutual dependence has
been established (Redding, 1990).
The entrepreneurial advantage of Asians especially Chinese immigrants is because
of their “cultural baggage” and motivation (Stromback & Malhotra, 1994). They
emphasized the importance of this oversea network of ethnic entrepreneurs; links
with relatives and friends in the country of origin were often used to provide a
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reliable source of supply, access to a marker, advice about the market prospects
and to secure credit.
For Chinese business, it is crucial to relate entrepreneurial practices to Chinese
values. The basic value underlying Chinese entrepreneurship is networking,
hardworking and diligence. These personal values will help them to link the past to
the present and the future and are fundamental to the process of alignment and
attainment that define intention action (Bird, 1989). Personal values provide a
powerful explanation of human behavior and often serve as standards or criteria of
conduct (Rokeach, 1973). The academic literature also details characteristics and
traits of successful entrepreneurs that are similar to Foochow entrepreneurs. These
include innovation, creativity, willingness to take risk, aggressiveness, hard work,
competitive, self confident, and superior in conceptual ability (Carland, Hoy,
Boulton, & Carland, 1984; de Vries, 1977; Schumpeter, 1934).
Evolutionary Psychology Paradigm
The psychological view of human kind throughout different generations has been
evolving through various processes of knowledge transfer. Evolutionary
psychology paradigm explains this transfer through the cognitive structure of the
mind evolving over time and that this occurs through adaptive problem solving,
cognitive programming and neurophysiological basis (Cosmides & Tooby, 1990;
Cosmides & Tooby, 1992; Cosmides & Tooby, 1997). The goal of Evolutionary
Psychology Paradigm is to understand human behavior that is universally aimed at
the passing of one's genes into the next generation (Cosmides & Tooby,
1992)(Cosmides & Tooby, 1997). Its basic tenet is that, just as evolution by natural
selection has created morphological adaptations that are universal among humans,
so it has created universal psychological adaptations (Buller, 2006).
A common view among philosophers and scientists has been that the human mind
resembles a blank slate, virtually free of content until written on by the hand of
experience. According to this orthodoxy, all of the specific content of the human
mind originally derives from the "outside" -- from the environment and the social
world -- and the evolved architecture of the mind consists solely or predominantly
of a small number of general purpose mechanisms that are content-independent,
and which sail under names such as "learning," "induction," "intelligence,"
"imitation," "rationality," "the capacity for culture," or simply "culture" (Cosmides
& Tooby, 1990; Cosmides & Tooby, 1997).
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The study of psychology, indeed, the study of any of the behavioral science, is
incomplete without giving serious consideration to the ecological, cultural and
ethnic factors that contribute to human variability (Lonner & Malpass, 1994).
When studying the perception of Foochow’s holding the evolutionary psychology
paradigm as a theoretical framework portrays the reason why there is any change
in their mind set (Cosmides & Tooby, 1987). If the theory applies to our present
study it suggest that there should be some common elements or factors that mould
the generation’s character in a specified time. Finding these elements and studying
how they are related to Foochow’s perception will give an overall picture of
Foochow’s entrepreneur’s perception has remained or changed.
The population of this study consists of all the Foochow entrepreneurs in Sarawak.
In order to develop descriptive terms for perception of Foochow entrepreneur’s
traits, in-depth interviews were conducted. This was followed by an exploratory
analysis of Foochow entrepreneur’s perception of entrepreneurial traits.
In-depth interview
In order to obtain a better answer to the research question, a qualitative method of
data gathering is required. Previous research has suggested that the widest accepted
range for sample size for in-depth interview to be 4 to 15 (Perry, 1998). This will
provide the answers to the ‘why’ as well as providing a richer data that can be used
in understanding the motivation and characteristics of Foochow entrepreneurs of
different generations. Trained enumerators interviewed respondents comprising of
Foochow entrepreneurs in Sibu, Sarawak. The interviews included details such as
demographics, ethnic identification, motivation, and individual characteristics. The
interview utilized a modified word association technique, where respondents were
asked questions and asked to respond with their initial thoughts, which are often
considered to be the most salient and valid one (Friedmann & Fox, 1989; Stafford
& Stafford, 2003; Weeks & Muehling, 1987). Respondents were required to
respond to open-ended questions during the interview.
Twenty seven male respondents were interviewed and most of the respondents
were above 51 years (44.4%) with declared income level of less than RM5,000
(66.7%) who had served for more than 30 years in their line. Refer to Table 1.
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Table 1: Respondent Profile of Respondents Interviewed
Demographic Factor
< 30 years
31 - 40 years
41 - 50 years
> 51 years
Income level
< RM1,000
– 66.67
– 18.52
> RM10,001
< 5 years
6 - 10 years
11 - 15 years
16 - 20 years
21 – 25 years
26 – 30 years
> 30 years
Table 2 provides listing of terms used in the literature to describe Foochow’s and
Foochow entrepreneurs. Table 3 provides an exhaustive listing of the terms used
by the respondents in describing their perception of Foochow entrepreneurs, their
motivations to become entrepreneurs and traits.
Table 2: List of Terms Associated to Foochow Entrepreneur’s Characteristics/traits
From Past Literature
Industrious, Thrifty, Innovative, Enterprising, Resourceful, Ambitious,
Hard working, Adaptable, Cooperative, Frugal, Sober, Law abiding,
Fore-sight, Sincere, Committed attitudes to work, United spirit, Alert,
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Risk takers.
Table 3: Summary of Findings
What are your N
What do you think N
Risk taker
Work hard
Start a business
Risk taker
What do you think N
compared to other
Hard work
Works in group
Risk taker
Management style
Take challenges
Start business
negotiation 2
Meet challenges 3
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Adopt strategies 2
Trustworthiness 1
each Tolerance
Strong belief
Show interest
Sacrifice time
Money minded
Profit seeking
Leadership quality
Meet competition
Endure pressure
Good planning
Young entrepreneurs 1
Research work
Profit orientated
each Opportunity seeker
Never give up
Negative thinking
Expand business
Customer oriented
Table 3: Summary of Findings (Continued)
What do you think N
What motivated you to become N
motivated Foochow’s to
an entrepreneur
become entrepreneurs
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Family business
Hard work
To survive
Standard lifestyle
Expand business
Business opportunity
Risk taker
Profile oriented
Financial support
Financial burden
Better future
Family background
Family business
Hard work
Strong belief
Own decision
Provide employment
Start business
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Table 3: Summary of Findings (Continued)
What do you think are N
What do you think are N
characteristics / traits
characteristics / traits that
Hard work
Hard work
Risk taker
Risk taker
Family business
Expand business
Business opportunity
Own business
Personal value
Financially support
Gain prosperity
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Comfortable life
Strong belief
Straight forward
Profit orient
Good investor
1 each
Table 4 Cross Tabulation of Views of Entrepreneurship By Age
What are your Age Scale
What do you Age Scale
of 39 <
of 39 <
> 40
> 40
Work hard
36.4% 63.6%
Risk taker
Risk taker
What do you
think of
compared to
Never give up
Hard work
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Age Scale
39 <
> 40
Risk taker
Determination 50%
Money mind
Start a business
Endure pressure
66.7% 33.3%
Strong belief
Meet challenges
100% 0.0
66.7% 33.3%
100% 0.0
Adopt strategies
Profit oriented
Start business
Profit seeking
Show interest
Sacrifice time
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33.3% 66.7%
Good planning
Table 5 Cross Tabulation of Motivation to Become Entrepreneur By Age
What do you think Age Scale
Age Scale
motivated you 39 <
39 <
> 40
> 40
to become an
Family business
Hard work
30.8% 69.2%
Hard work
22.2% 77.8%
Gain prosperity 0.0
To survive
44.4% 55.6%
Standard lifestyle 66.7% 33.3%
Risk taker
57.1% 42.9%
16.7% 83.3%
Risk taker
66.7% 33.3%
66.7% 33.3%
33.3% 66.7%
Knowledgeable 50%
33.35% 66.7%
Self motivation
Personal value 66.7% 33.3%
100% 0.0
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Profit oriented
Expand business
Financial support
Financial burden
Good investor
Comfort life
Profit orient
Strong belief
Table 6 Cross Tabulation of Entrepreneurial Traits By Age
What do you Age Scale
What do you Age Scale
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think are the
/ traits that
Hard work
Better future
39 <
> 40
think are the
characteristics /
traits that made
39 <
> 40
Own decision
Start business
Strong belief
66.7% 33.3%
Own business
Risk taker
33.3% 66.7%
42.9% 57.1%
33.3% 66.7%
33.3% 66.7%
66.7% 33.3%
Hard work
33.3% 66.7%
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10 0%
A search of the literature has provided some early descriptions of the Foochow in
Sarawak (See Table 2). In the current study, there are 36 different terms associated
to perceptions of Foochow entrepreneurs. Most of the respondents still perceived
Foochow entrepreneurs similarly as those in the past (Hard working, risk taker,
money minded or frugal, innovative, enterprising, thrifty, initiative, good planning
as in fore sight, cooperation and adaptability). Statements such as “One should
work hard to be successful and learn as much as possible (Interview 1), ” “In my
opinion, I think entrepreneurs are those business people with good understanding
of business management, marketing and economics. They also have good ‘yen
guang’ or foresight of the future (19)”, “(Foochow entrepreneurs are...)
Hardworking. Struggle hard to support family. Willing to do anything to get
money. Very outstanding. Never give up. Always work in a group or Association
to formed cooperation among Foochow (10)”, and “(Foochow’s are...)
Hardworking, ambition, ability to adapt to new environment, alert to opportunities,
spirit of cooperation, independence, self confidence, willing and ability to take
risks by finding resources and something to make profit (5)”.
Nevertheless terms such as industrious, resourceful, ambitious, sober, law abiding,
and sincere do not emerge. New terms such as social entrepreneurs, leadership,
knowledge, and determination appear in statements such as “Foochow are great
social entrepreneurs when they are very clear and very driven to bring about
positive social change (4).” There are also terms that indicate a self-confident
attitude, such as independence, initiative and confidence. In contrast, a study on
Chinese entrepreneurs in Singapore indicates them to be achievers, networkers,
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and also hard workers (Lee and Chan, 1998). The similarity lies in only one factor,
hard worker.
An important point to note here is that there is still some form of continuity in how
Foochow’s perceive themselves as entrepreneurs. This continuity hails good
tidings as these traits have held the Foochow in good stead. What is more
interesting is the evolution of how Foochow entrepreneurs see themselves now.
They have become more confident and extrovert yet still careful. They see
themselves as taking challenges yet have good planning. Foochow’s also see
themselves as social entrepreneurs, indicating a more integrated position into the
social fabric in Sarawak as compared to the first generation of Foochow’s.
Another interesting factor is how Foochow’s see themselves against other ethnic
groups. The 29 terms in Table 3 shows an aggressive, determined mentality with
some modern modifications. These include research work and customer oriented.
The aggressiveness is tempered by these modern modifications and realization of
the importance of customers and that the spirit of an entrepreneur is universal.
Statements such as “Foochow entrepreneurs compared to other entrepreneurs, they
have hardworking spirit, thrifty, never afraid to take risks, self motivated, more
ambitious and visionary (5)”, “Foochow entrepreneurs can adapt to situation, they
try to learn a number of Languages and dialects as compared to others (22)”, “They
are very hardworking and not afraid of hardship. They are willing to do all that it
takes to be success despite adverse circumstances. They are more willing to
sacrifice their time and resources to extreme limits to make their company a
success (24)” and “They are no different from other entrepreneurs. In the Sarawak
experience, they came from poor families to start a new life in Sarawak. Thus,
they have the determination to succeed. Comparatively the Foochow appears to
have better networking among relatives and friends (25)”.
The interviews also probed on what are the respondent’s perceptions of motivation
factors to become an entrepreneur. Interestingly the highest mentioned motivator
was that of family business yet when personally asked, respondents indicated
freedom and profit (monetary gain). Statements such as “To earn more money,
learn more business matter and be independence (27)” and “Money. Money is
another reason for starting a new venture for men (3)” support this thinking.
Family business and background as a motivator was a distant 5th and 7th point. This
may tie in with Chinese values of family and filial piety (Yau, 1994). Statements
such as “Firstly, my father encouraged me to venture into hardware business. My
father was doing business related to daily food consumption. He thought that
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hardware business was good in the sense that the hardware goods would not spoil
as compare to food. During childhood, l also actively assisted my father in his
business operations (15)” and “Family business background. Having a parent who
is self-employed provides a strong inspiration for the entrepreneur (3)” support this
view. Issues such as to survive, although mentioned equally by the young and old,
were not personal motivators. Statements such as “I was concerned for my future
income level. With annual increment of RM45 per year on clerical level, how can I
survive with that sort of income level? (16)” support this view. The motivators
may also have been the perception of motivators for earlier generations of
Foochow that have been carried on through generational transference (Buller,
2006; Cosmides & Tooby, 1997).
An important point to note from this research is that there seems to be a common
theme throughout the interviews. Hard work is seen as the cornerstone of
entrepreneurship, be it perception, motivator or characteristic. This may be in line
with the harsh history faced by the Foochow’s in the past (Leigh, 1988).
In line with the evolutionary psychology paradigm, this study found similar and
differing views between the two generations studied as well as with that of the first
generation Foochow’s. Hard work is especially significant as an elderly Foochow
perspective and not that of the younger generation. The younger generation
definition of entrepreneurs include terms such as risk taker, daring, committed,
innovative, money minded, capable, excellent, leadership commitment, research
work and innovative. On the other hand the older generation see entrepreneurship
as work hard, commitment, profit seeking, ambitions, tolerance, cooperation,
business opportunity, work in groups, never give up, opportunity seeker, and work
in groups (Refer Table 4).
The same occurs for motivation and entrepreneurial traits (Refer Table 5 and Table
6). The older generation is motivated by hard work and survival, the younger see a
lifestyle and independence as motivators. The older generation sees hard work,
inspiration, freedom, responsibility, leadership, curiosity, and thrift as
characteristics of an entrepreneur. The young see education, training, family,
confidence, risk taker, discipline, patience, and flexibility as their characteristics.
Nonetheless, there are also similarities between the generations as predicted by the
evolutionary psychology paradigm. These includes perceptions towards
entrepreneurs in statements such as visionary, management, professional, ethical,
knowledgeable, take challenges, successful, aggressive, mission minded, and
independent. Similar terms were also used equally by both generations for
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motivators, such as daring, to survive, learn, innovative, thrifty, independent,
trustworthy, innovative and relationship based motivators. There were less similar
and equally used statements for traits. These included Learn, skills, willingness,
planning, friendly, energy and trustworthiness.
It is evident that there are differences between the generations of Foochow
immigrants and the current generation businessmen. Nevertheless there are also
similarities that have been passed down through the generations. This finding
suggests that the evolutionary psychology paradigm can be used for understanding
the movement of perception throughout generations. The accolades though are not
being echoed and this is worrisome for the future of Foochow entrepreneurship.
This exploratory study has looked into the Chinese values, Foochow characteristics
and discussed the current situation and has now been able to look deeper into these
This exploratory paper provides basis for thought, both theoretically and
managerially. It is shown that it is crucial to relate entrepreneurial activity among
the Foochow in the lines of Chinese values, family, and networking activities. This
can also be correlated with Western values, such as the Protestant work ethic as
well as between generations for comparison.
The brief exploration indicates the need to achieve is high among the initial
immigrants, partly due to the push factors from China and pull factors by the
Brooke government. This external pressures may have disappeared over the
generations because of the very economic prosperity sought by the earlier
generations has been achieved. This allows for further exploration on the creation
of entrepreneurs in a high-income economy, which has been shown to be low (Lee
& Chan, 1998).
Although the sample of this research exceeded the generally acceptable level, a
higher response rate would have further strengthened the research. Nevertheless,
based on the limitations of scale and time, the response rate for the interviews was
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good. By utilizing enumerators and a semi structured interview format, the authors
obtained twenty-seven respondents.
Biases from experience of respondents could have affected the reliability of the
findings. Majority of the respondents in this research are men who have working
tenure of more than ten years. Younger entrepreneurs may not have sufficient
experiences in wide variety of business and entrepreneurial situations and this
could lead to biases in providing feedback. Older entrepreneurs on the other hand
may have other form of biases collected through the years. Nevertheless the
interview allowed for respondents to respond with their initial thoughts, which are
often considered to be the most salient and valid one (Friedmann & Fox, 1989;
Stafford & Stafford, 2003; Weeks & Muehling, 1987). These thought were then
coded and used in the study, thus allowing for some degree of reliability.
Another limitation is that some respondents have doubt with the confidentiality of
the research even after assurance. They feel uncomfortable to respond honestly
about their perceptions. This will pose difficulties in getting the full co-operations
and involvement of all the respondents.
Future Research
Future research will be to identify the current perception, motivation and
entrepreneur characteristics of the second / third generation Foochow Chinese in
Sarawak in a quantitative manner utilizing factor analysis. This will allow for some
form of generalization of the perception, motivation and entrepreneur
characteristics of the second / third generation Foochow Chinese in Sarawak.
Other interesting research that has been raised by this study is the need to
determine other ethnic groups perception, motivation and entrepreneur
characteristics. This then can be quantified and to note whether there exist any
similar or different perception, motivation and entrepreneur characteristics of
ethnic groups in Sarawak. From there, a generalizable model of perception,
motivation and entrepreneur characteristics of ethnic groups in Sarawak can be
created to be tested with current models of entrepreneurship.
Note: This research was funded by Universiti Malaysia Sarawak Fundamental
Research Grant. 03(51)/477/2004(214).
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Volume II, Issue 3
© 2006, Journal of Asia Entrepreneurship and Sustainability
No reproduction or storage, in part or in full, permitted without
prior permission.
[email protected]
The Tsunami of Independent Directors
- How to Handle the Demand Jens Mueller (Waikato Management School, Hamilton, New Zealand)
Leo Paul Dana (University of Canterbury, Christchurch, New Zealand)
Gael McDonald (UNITEC, Auckland, New Zealand)
Sanford Maier (Auckland, New Zealand)
Contact Information:
Associate Professor Dr. Jens Mueller
PO Box 3100 Greerton/Tauranga New Zealand
[email protected]
+64 21 516 326
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Good governance is recognized as a fundamental indicator of the success of a
company. For a small- midsized company, this is particularly so, as such
companies must be able to competitively demonstrate their flexibility in the face of
market forces. This flexibility is the primary advantage they hold over larger firms
(Dalton, Daily, Ellstrand and Johnson, 1998).
Such companies, however, can find it difficult to attract good directors (Daum and
Neff, 2003) and this makes developing improved strategies of governance a
challenge. Taylor, Chait and Holland suggest top directors are not attracted to
small/ medium companies because “the stakes remain low, the meetings processdriven, the outcomes ambiguous, and the deliberations insular” (Taylor, Chait and
Holland, 2001). We suggest that the attraction of quality directors is a uniquely
impacting situation for small and mid-size firms, as it is there where additional
management resources should be needed most urgently.
Directors on the boards of small-medium sized businesses are often lagging behind
directors of large companies in that they are less likely to be independent external
directors and are less likely to represent a diversity of attributes (Dalton, Daily,
Ellstrand and Johnson, 1998). Arthur Levitt, former United States Securities and
Exchange Commission Chair, describes the culture of medium sized business
directorships as a “kind of a fraternity of CEOs who serve on one another's boards”
(Stainburn, 2005). In addition, evidence suggests directors of small- medium
businesses are often insufficiently trained for the role. Uncertain directors may, for
example, be unwilling to ask crucial questions of managers before making major
decisions. “Board members sometimes are made to feel that asking a thorny
question or advancing an alternative opinion is disloyal to the administration”
(Taylor, Chait and Holland, 2001).
Small and medium businesses, however, are a growing contributor to the national
economies of countries internationally. In New Zealand, small and medium-size
firms recording large GDP values, ahead of many large businesses, which makes
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our investigation into good governance practices of SMEs relevant to suggest areas
in which these firms can improve their governance policies and practices.
We have reviewed more than 2,000 directors, executives and investors in New
Zealand, making this one of the largest non-government surveys in governance.
Supported by 16 large corporate organizations, such as KPMG, Business New
Zealand, Simpson Grierson, Brook Asset Management, Porter Novelli, Sheffield
and ‘Management’ Magazine, this work suggests that the current processes through
which directors are selected and trained to serve on Boards of small and medium
businesses needs to be altered. We are also concerned over the lack of director
education and the close involvement of the Chief Executives as members of the
Boards. There is a general concern over the lack of director independence and
whether directors are effective in their roles.
We are recommending an alternative process for SMEs to select directors, which
will hopefully expand the available pool of directors in quantity and quality.
Small and Medium Enterprises (SMEs) are the drivers of the economy in many
countries, yet fall behind larger companies in the area of corporate governance
(Dalton, Daily, Ellstrand and Johnson, 1998). We believe that the focus on
governance processes and policies has been incorrectly placed on the relatively few
large globally active firms where extensive governance regimes are established and
monitored, overlooking the large group of GDP-driving small and mid-size firms
in each country. Likely, this top-down approach has tainted the discussion and
created an environment where governance is largely an audit and compliance tool,
rather than an accepted component of long-term strategy for any sustainable
business and warmly embraced by owners, operators and directors.
The failing of large corporations in recent years (such as Enron) has brought the
issue of corporate governance into prominence and boards are being asked to
improve their performance (Nicholson and Kiel, 2004). Due to the lack of financial
and organizational resources, this call to arms for business operators of any size
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represents a new challenge, and we are wondering how executives, directors and
investors will approach this opportunity to improve the leadership resources of
their firms.
The boards of smaller companies are far less likely to comprise independent
outside directors (Daum and Neff, 2003; Stainburn, 2005). SMEs can find
attracting quality directors difficult, research suggests, because such directors tend
to be repelled by the insularity of meeting procedures and the “low stakes”
involved (Taylor, Chait and Holland, 2001). Whether it is the glamour of large
corporations with the large compensation packages and the news headlines, or the
ability to influence operating results on a large scale, smaller firms seem to have to
work harder to attract quality directors. We have asked directors for the reasons of
joining a smaller firm, and it is clear that remuneration and glitz are not very high
motivators for directors in New Zealand (Mueller, Dana, Taylor and Maier, 2006).
As you would imagine in smaller firms, people work closer together and in many
cases the leadership also performs management tasks – and vice versa. In many
firms the CEO is also a board member. In a smaller but still significant number of
firms, the CEO is also the Chairperson of the board. This raises some obvious
issues of independence and conflicts. How many CEOs, working closely with staff
every day, can make tough staff layoff decisions without thinking about colleagues
and friends? To what extent does a CEO vote for his own pay check and stature
associated with the position, rather than for the shareholder interest (as a director
would be obligated to do…). Notwithstanding the fact that many CEOs in smaller
firms will also be shareholders and thus be expected to be aligned in their personal
interests with those of their shareholders, we are mindful that a certain degree of
schizophrenia is expected from CEOs who are expected to disassociate themselves
from their day-to-day managerial duties when they enter the board room. Is this
overlap of obligations helpful, or should board members all be independent,
drawing on the CEOs expertise as a ‘consultant’ to the board, rather then being a
full voting director?
Most research indicates that Boards function best when the CEO is not also the
Chair of the board (Standard and Poor, 2004; Damodoran, 2004; Petra, 2005;
Whitehead Mann Group, 2005). “Many CEOs don’t have the skills to be Chairman
and certainly not in their own organisation, because they can’t let go” (Whitehead
Mann Group, 2005). Inexperienced directors can feel unconfident about talking
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thorny issues for fear of appearing disloyal (Taylor, Chait and Holland, 2001).
SME Boards tend to lack the diversity of skills and attributes to “enable companies
to evaluate key strategic issues more fully and monitor their performance more
effectively” (Henderson Global Investors, 2003). The training and induction of
new directors is also a cause for concern among SME boards. Boards also need to
be prepared to submit heir own performance, both as a whole and as individual
directors, to self-analysis on a regular basis (Colin, 1994; Wilkes, 2004; Behan,
2004; Petra, 2005). The CEO of a smaller business may find it very difficult to step
back enough to allow the Board to effectively function, and potential conflicts of
interest can arise when the CEO is also the Chairperson of the Board (Petra, 2005).
A CEO’s inability to let go makes them unsuitable candidates for chairship of their
Boards as they do not always have the skills they need to overcome this and
successfully guide the Board. (Whitehead Mann Group, 2005). The Chairperson
should be able to run the Board rather than the organisation, have a positive
working relationship with the CEO, and a clear separation of responsibilities
(Whitehead Mann Group, 2005).
With the help of an MBA team from the Waikato Management Schol, consisting of
six international managers in the final months of their MBA program, we have
developed an online survey ( with questions based on more
than 100 of the most recent governance studies and academic reports in this area.
To reach a widespread level of feedback, we developed questions suitable for
company executives, corporate directors and investors and packaged all of those
into one survey, mitigating confusion through clear separation of the three
segments and instructions. The survey questions were reviewed and edited by
leaders and executive staff of some of the most prominent firms, government
departments and industry organizations in New Zealand, such as KPMG, Simpson
Grierson, Business New Zealand, Brook Asset Management, Sheffield, Bank of
New Zealand, Porter Novelli, NZ Venture Capital Assn, Crown Company
Monitoring Advisory Unit, Business New Zealand, New Zealand Shareholders
Association, New Zealand Institute of Chartered Accountants, New Zealand
Institute of Management, several Chambers of Commerce and Management
Magazine. This group represents one of the largest collectives of leaders and
corporations ever in New Zealand to investigate the status of governance. In
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addition to editing and editorial guidance, all of these supporters distributed an email with the link to the survey to their respective client mailing lists. We have
reviewed more than 2,000 responses to this ongoing survey to date, from directors,
executives and investors.
The survey results were received anonymously, with some of the respondents
completing all sections of the survey (executives, directors, investors), and others
only completing the parts which applied to them. The survey has sensitive
branching sections which only showed pages with questions applicable to the
specific respondent.
The survey was also described on a daily morning business show on the largest TV
station in the country and had long write-ups in national business magazines
(Management Magazine and Director Magazine), business sections of daily news
papers and industry magazines, further encouraging participation and creating a
compelling call to participate.
We conclude that this is a representative sample of New Zealand business, without
material bias as to geographic location, industry, size or other key demographics.
We take notice of the fact that nearly 39% of respondents were women, as that
indicates a reasonable participation of women, who are underpresented as leaders
of business organizations in New Zealand but seem to be better represented as
members of a management team and as investors.
With 75% of the respondents requesting a copy of the summary report and 63% of
the respondents volunteering to make additional 1-on-1 time available on the
telephone to discuss their thoughts about governance, this topic clearly is of more
than just passing interest. We believe this high level of interest in the topic, beyond
the simple completion of a survey, indicates the importance of this discussion, and
since 72% of the respondents were from small and mid-size firms, this issue has
certainly now penetrated the business community beyond the large, publicly listed
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Possibly as a reflection of the large number of small and mid-size firms in this
sample comes the report that 50% of the firms have no independent directors. Nam
and Nam point out that a Board will function best where there is a good spread of
inside/executive and outside/independent directors in order to provide objective
judgments of managerial performance (Nam and Nam, 2004), and it is by now well
documented that independent directors are favoured by investors and regulatory
agencies worldwide. Independent directors can likely not be recruited with
traditional means. As a CEO or as a board director, the tendency in recruiting a
new director is often to focus on individuals where there is an existing personal
relationship or on the stature of the candidate (Conger and Lawler, 2001), and this
inward-looking approach likely excludes competent independent directors. Arthur
Levitt, former United States Securities and Exchange Commission Chair, describes
the culture of medium sized business directorships as a “kind of a fraternity of
CEOs who serve on one another's boards” (Stainburn, 2005), something that may
enable less effective monitoring (Shivdasani and Yermack, 1999).
A search process that is rigorous and takes in a wider range of possible candidates
can offer SMEs access to directors with greater diversity in “background,
experience, age, gender, ethnicity and nationality” (London Business School,
2003). Nominating committees comprising such independent NEDs are more
likely to nominate NDEs to the Board who will challenge the decisions of the CEO
(Shivdasani and Yermack, 1998), and we can confirm that investors are interested
in directors who can vigorously debate issues at board level.
The call for more independent directors seems to have been heard loud and clear
by the business community in New Zealand. In this study alone, respondents have
indicated a need for more than 2,200 independent directors over the next five
years, placing the total number of directors needed in New Zealand at much more
than 10,000. This raises the issue how those directors are recruited, and where
executives and their investors can find qualified directors to take on this important
For SME Boards, there may soon be no choice but to introduce improvements to
the standard of governance. The pressure on Boards to improve their corporate
performance and the ways in which they oversee the company’s management has
led to what Nicholson and Kiel describe as “a series of inquiries and reports”
advocating corporate governance reform (Nicholson and Kiel, 2004).
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For a SME, the task of selecting independent directors becomes crucial to the
credibility of the company, and we will propose alternate ways for SMEs to
identify suitable new directors.
What makes these high quality directors join a Board?
Taylor, Chait and Holland suggest top directors are not attracted to small/ medium
companies because “the stakes remain low, the meetings process-driven, the
outcomes ambiguous, and the deliberations insular” (Taylor, Chait and Holland,
2001), and this raises concerns over how expectations of directors can be met by
We now know from our work that it is not the money or the prestige associated
with serving as a director of a publicly listed firm. Potential directors want to ‘do
some good’, and presumably want to be able to use their talents to help shape the
firm towards achieving better performance. They also are very concerned about the
level of personal risk attached to their directorship position. The backdrop for this
level of importance could be the more stringent personal liability risks for directors
in New Zealand than in many other industrialized countries, and we speculate that
firms with an interest in new independent director will need to demonstrate stable
financial performance with a high degree of transparency and accountability – and
access to director liability insurance.
Of greater concern to us is the reflection of 66% of our respondents that the
reputation of the fellow directors is ‘very important’ to them (Graph 1). This raises
the issue of how firms create diverse boards, bringing in new independent
directors, if these new candidates use the existing make-up of the board as one of
their key determinants for participation. Clearly, investors, executives and directors
must begin to craft a board which is not only effective internally, but also signals
to the pool of prospective directors outside an attractive environment created
through reputable directors.
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Graph 1: If you were offered a Board position now, how important would each of
the following factors be for you?
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Where can we find these thousands of newly needed directors?
It has been advocated that a board of directors is the best bargain in modern
business because it represents a cadre of expert consultants to management, with a
level of talent and experience the company could never hire on a per diem basis
(Charles and Caroline, 2003), and many small business owners will agree that
consultants can be horrendously expensive and may not easily be available to
smaller and less visible firms. If directors might now be available with a
motivation other than of pure income, business leaders and investors might be able
to re-position their needs and objectives to merge their long-term interests of
achievement with those of prospective directors. The process of assembling the
right mix requires a disciplined approach involving a careful assessment of the
needs and challenges of the company (Charles and Caroline, 2003; London
Business School, 2003) and this includes demonstrating to stakeholders that the
company is committed to a rigorous selection process (London Business School,
2003). “Sharing information with shareholders, employees and other customers
demonstrating that a company is committed to such a selection process is likely to
foster greater trust in its NED appointments” (London Business School, 2003). We
know from our work that the current selection process is primarily centered around
recruiting friends and colleagues, rather than opening the funnel wide for the
exposure to new categories and talents of directors.
Diversity and independence of the company are agreed key considerations in
appointing a good mix of directors (Henderson Global Investors, 2003; Petra,
2005; London Business School, 2003; Nam and Nam, 2004), but there is less
accord over what qualities the individual director should have. For some
researchers, the ideal candidate will be a proven leader who has already addressed
the kinds of issues the company is facing and will have financial acumen (Charles
and Caroline, 2003; Petra 2005) while others say/believe a diversity of candidates,
including those without a business background, bring with them different
perspectives to apply to business problems and “enable companies to evaluate key
strategic issues more fully and monitor their performance more effectively”
(Henderson Global Investors, 2003; Taylor, Chait and Holland, 1996). Petra notes
the recommendation that that the mix of talents and skills required be set down in
writing in advance of appointing directors and include “business, finance,
accounting, marketing, public policy, manufacturing and operations, government,
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technology, and other areas the board deems desirable” (Petra, 2005). Nicholson
and Kiel point out that corporate governance will rarely be a function of one
component (such as social capital or human capital) and the challenge for a Board
arises from its understanding of the roles required and its ability to match the
intellectual capital of the board to those roles (Nicholson and Kiel, 2004).
We are concerned that in our population of directors in New Zealand, a large
number of those directors (60%) learned of directorship openings through other
directors (Graph 2), or were large shareholders themselves (32%) or one of the
founders (34%). Although the debate over the suitability of founders and
shareholders to also be effective directors is far from over, it is clearly restrictive
that the vast majority of directorship positions are ‘marketed’ through the existing
directors. This may very well tap into the diverse and rich network of professional
friends and colleagues who otherwise might not respond to invitations from
strangers, but it begs the question whether the recruitment of new directors through
existing directors gives the firm access to the talent set it needs.
Early indications from our continuing work are that there is a large differential of
competence between directors on the same board, and we wonder if the new
directors are recruited more for their compatibility with existing directors than for
their demonstrated competence. In the best case, this recruitment process yields
directors of good compentence and similar reputation. In the worst case, this
process restricts the addition of directors which might not ‘fit’ for other than
competence reasons.
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Graph 2: How did you hear about openings for directorships?
Assembling the right mix of directors is the key to ensuring good governance
(Charles and Caroline, 2003; Conger and Lawler, 2001; London Business School,
2003; Nicholson and Kiel, 2004). Knowing the appropriate mix of directors is not
necessarily a matter of best practice, but depends on the needs of the particular
Board (Felton and Watson, 2002; Nichols and Kiel, 2004). Felton and Watson
describe the process as not a “ ‘checklist’ of the ten best practices” but a “state of
mind – a considered balance between the need for the board to represent
shareholder interests and the need to ensure management feels sufficiently free to
focus on value creation” (Felton and Watson, 2002). In our sample, industry
experience and a professional legal background scored low with investors.
Investors want individuals as representatives with proven, preferably international,
business accomplishments, which experience from outside the industry and
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diversity to the board table. Directors who sit on many boards are less likely to win
investor votes than those who bring a fresh perspective to the party, focused more
on long-term strategic planning than on compliance policing.
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"In the final analysis, it is our view that the best boards comprise high quality,
committed, independent directors; every board has room for more of these types of
directors" (Felton and Watson, 2002).
Our work has shown that thousands of new directors are needed in New Zealand
over the next five years, and investors are predominantly looking for independent
directors with a proven track record outside the industry, creating a diverse board.
Directors are also considering the reputations of the existing board and their own
personal level of risk, before they commit to a directorship where they largely wish
to ‘do some good’.
We are left with the conclusion that the selection process for directors in New
Zealand is inadequate to supply these thousands of independent directors, many of
which would likely not have served as directors before and might be wellperforming executives in other firms. There is a need for a ‘market’ where
prospective directors and firms’ investors and boards can ‘meet’, to connect and
recruit. We propose that the Directions work in several countries can establish
criteria which may guide investors and executives in their search for directors, and
that we can establish a globally valid benchmark score which can easily compare
governance accomplishments across borders.
Note to readers: We are looking for interested academics and institutions who wish
to be the research leaders for this work in their countries. Please contact the author
at [email protected] for more details.
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Behan, B. (2004) ‘Board Assessment: Designing the Process’ The Corporate
from, p.1
Charles, H. K. and Caroline , W. N. (2003) ‘Executive Insight: How to Recruit,
Select and Compensate Board Members’ Korn and Ferry International p 1
Colin, C. (1994) ‘Developing Directors: Building and effective boardroom team’
McGraw-Hill Training Series p.5
Conger, J.A. and Lawler, E. (2001) ‘Building High-Performance Boards: How to
Choose the Right Members’ Business Strategy Review London Business School,
12:3 p. 19
Dalton, D,R; Daily, C,M; Ellstrand, A.E; and Johnson, J,L. (1998)’Meta-Analytic
reviews of Board Composition, Leadership Structure and Financial Performance’
Strategic Management Journal 19 pp 269-290
Damodoran, A. (2004) Investment Fables, John Wiley and Sons, New York.
Retrieved 21 April 2006 from:
Felton, B. and Watson, M. (2002) ‘Director Opinion Survey on Corporate
Governance 2002, The need for informed change in the boardroom’, Data report
2002. Seattle Office, New York Office, McKinsey, p. 6
Daum, J; and Neff, T. (2003) ‘Changes at the Top: What the New Regulations
Mean for Director Recruiting’. Retrieved 12 February 2006 from:
Henderson Global Investors (2003) ‘Response to the Review of the Role and
Effectiveness of Non-Executive Directors’ Data report p. 2
London Business School (2003) ‘The Tyson Report on the Recruitment and
Development of Non-Executive Directors’, Data report 2003.
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Mueller, J.; Dana, L.P.; Taylor, I.; Maier, S. (2006) Good Governance in
Entrepreneurial Organizations/Perspectives of Small/Medium Enterprises from
Executives, Directors and Investors in New Zealand. 6th Hawaii International
Business Conference (refereed), Honolulu, HI, USA, May 24-27, 2006.
Nam, C. I. and Nam, S. (2004) ‘Corporate Governance in Asia: Recent evidence
from Indonesia, Republic of Korea, Malaysia, and Thailand’ Asian Development
Bank Institute p.67-68
Nicholson, G.J. & Kiel, G.C. (2004) ‘A Framework for Diagnosing Board
Effectiveness’ Corporate Governance, 12:4 p. 455
Petra, S. T. (2005) ‘Do outside independent directors strengthen corporate boards?’
Corporate Governance: International Journal of Business in Society 5:1 p.60
Shivdasani, A and Yermack, D (1999) ‘CEO Involvement in the Selection of New
Board Members: an Empirical Analysis’ Journal of Finance 54 pp 1829-1853
Stainburn, S. (2005) ‘Levitt: Humiliate Bad Boards’ Crains Chicago Business,
June 06 2005, 28:23 p.26
Standard and Poor (2004), Standard & Poor's Corporate Governance Scores and
Evaluations Criteria, Methodology and Definitions, McGraw Hill, New York.
Taylor, B.E; Chait, R.P; and Holland, T.P. (1996)’The New Work of the NonProfit Board’ Harvard Business Review Sept – Oct 1996
Whitehead Mann Group (2005) ‘What make a Great Board share. The Change
Partnership’ Data report 2005. London.
Wilkes, J.W. (2004) Corporate Governance and measuring performance,
Measuring Business Excellence, Volume 8 No 4, pp 13-16 p 15
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Volume II, Issue 3
© 2006, Journal of Asia Entrepreneurship and Sustainability
No reproduction or storage, in part or in full, permitted without
prior permission.
[email protected]
Tor Jarl Trondsen, Ph.D., Associate Professor
Norwegian School of Management, Oslo, Norway
The purpose of this paper is to address some aspects of outsourcing with particular
emphasis of offshoring, (also named international outsourcing, international
sourcing, cross border sourcing).
Outsourcing projects are not always successful, whether they are local, regional or
cross border. The paper addresses some of the underlying theoretical fields that
should be taken into consideration to make outsourcing successful for both parties,
with emphasis on the international aspect.
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Competitive pressures among firms in high cost countries (HCC) have forced them
to look for more cost effective ways of operation. An increasingly important source
of competitive advantage is buying components, finished goods and services from
low cost countries in Asia. Strategic issues for HCC firms concerning offshoring
are therefore addressed, as well as the growing political concern about lost jobs in
the outsourcing countries that are in the lead of this trend.
The paper further suggests some underlying requirements for Asian countries to be
able to benefit from offshoring trends in the short and long run.
Finally, some areas for research in the field of offshoring are suggested.
We are witnessing a major shift in value creation that will have substantial effect
both on the HCC and Asian employment and economies. Challenging structural
changes will take place in the work forces in the two hemispheres as the offshoring
trend is reinforcing.
A period of change creates new opportunities for Asian Small and Medium
Enterprises (SMEs), both in market expansion and profit opportunities. The first
due to improved access to HCC by means of digital technology and improved
physical transportation systems. The latter is due to the present cost level
differences, making the buyer willing to pay premium prices seen from the
suppliers’ point of view. Presently, huge savings are apparently possible.
Anecdotal evidence suggests that cost levels at least 50% lower than in HCCs are
common. The actual savings are, however, also dependent on the transaction costs
associated with offshoring. These are unfortunately much harder to quantify.
An understanding of the underlying theories affecting a close relationship between
the parties could aid in both interaction with international partners and making the
co-operation successful.
Surprisingly little material relating to the principal aspects of international
outsourcing has been published in academic journals. Mol et al. (2005) found that
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from 1989 to 2000 only 7 articles contained the words “global” and “sourcing”.
This author found 29 articles containing these words in 2005 alone, suggesting a
substantial increase, but even so, still at a modest level. The general impression is
that the topics in the articles are oriented towards industry issues, dominated by the
finance, IT and manufacturing industries, and very few conceptual topics
discussing underlying theories affecting the success rate.
What is happening?
External procurement of components as input to manufactured goods and
outsourcing of services has become common practice among an increasing number
of firms that are under competitive pressures in HCC. Local or regional providers
that are specialized and thus can deliver goods and services at a lower unit cost
normally perform the greatest part of delivery of outsourcing activities. That is not
unexpected, as that does not require adjusting to a new business environment. The
decision to let outside vendors take over some activities is in itself a change in the
business model that can be difficult, and many outsourcing projects are reported to
be unsuccessful. Lacity and Willcocks (1998) report that the success rate of IT
outsourcing is only 56%. Aron and Singh (2005) state that “According to several
studies, half the organizations that shifted processes offshore failed to generate the
financial benefits they expected to”. Considering the fact that IT outsourcing is one
of the earliest and most widespread outsourcing activities, the success rate is
discouraging. Part of the cause of failures may be lack of understanding of the
underlying theories regarding relationships with entities outside own organization,
in addition to inadequate execution.
Over the past few years, the outsourcing phenomenon is being expanded to include
offshoring of both goods and services, and it is growing at an increasing rate.
Suppliers in countries with favourable factor conditions such as access to raw
materials, lower priced energy, low labour cost and/or high education level are
positioned to benefit from this development. Offshoring of services (business
processes) is becoming increasingly widespread, and there seems to be tendency to
move upward towards higher value creation activities. Asian countries have in
particular benefited from the trend by offering lower cost, a pool well educated
personnel and good language skills.
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To make the transfer of work successful both for the outsourcer and the
outsourcing partner (vendor), good understanding of strategic aspects, underlying
economies and the required competencies is important. In the following, some
aspects of this will be addressed.
Change in strategic thinking
The time of the fully integrated corporation that makes everything from its inputs
to marketing and after sales service of the finished product may be coming to an
end. Current thinking suggests that a concentration in the areas of the
organization’s unique (core) competencies and leaving the other activities to
outside specialists increases competitiveness.
Numerous authors have in the past addressed the topic core competencies. It has
been given several terms, such as invisible assets (Itami 1987) strategic assets
(Dierickx and Cool 1988) meta skills (Klein et al. 1991) skills or competencies
(Hall 1992) capabilities (Stalk et al. 1992).
The common denominator seems to be that a core competence is a unique
organization specific quality. It has value if it gives a customer superior value of
whatever is being delivered. There are two ways by which this is expressed: either
by lower price or by increased performance for the user. In other words, a core
competence has no value unless it can be converted into some form of customer
Identifying and nurturing such core competencies is thus an important issue for the
organization as it is through them that a sustainable competitive advantage evolves.
Most other value creation activities can be outsourced.
Some theoretical perspectives on outsourcing
Outsourcing, i.e. activities that are not considered to represent core competencies
of the organization can be bought from specialized vendors outside the
organization. Quinn (1992) states that if external vendors can perform the task
better, the firm is sacrificing a competitive advantage by carrying it out itself. It
may be added: unless the activity is critical to the business strategy.
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A definition of the concept of outsourcing could be:
“Transfer to an outside entity of responsibility for production of a primary- or
central support activity that formerly has been carried out by the organization”
Strategic aspects of outsourcing
Care should be taken when deciding on what to outsource. Obviously, activities
associated with core competencies should not be outsourced as they are a very
important part of the firm’s intellectual property.
A strategic evaluation must therefore be made even for all outsourcing proposals. It
is of great importance to decide if the outsourced activity could mean loss of future
control of processes and know-how. Even by outsourcing non-core activities, the
company may facilitate transfer of own discretionary systemic competence to a
vendor that will also use this to supply the competitors.
The outsourcer may also lose uniqueness that in the long run will reduce the full
value proposition to the customers. Porter (2003) suggests that extensive
outsourcing also has a tendency to standardize end products and thereby forego a
strategic advantage. In the worst case, the outsourcing vendor develops into a fullfledged competitor over time. In case of a badly handled outsourcing process, the
outsourcer may even be at ransom if their supplier develops a strong bargaining
Potential loss of intellectual property
Intellectual property consists of the rather obvious items as patents, trademarks and
copyrights. But it also extends to trade secrets contained in internal systemic value
creation activities such as planning systems and marketing approaches. The
intellectual property extends in fact to all intangible proprietary information. An
HCC firm may be reluctant to enter into an outsourcing agreement with an Asian
partner for fear that important intellectual property may be diffused, sometimes by
outright theft, but more likely by inadvertent leakage through employees or by
employee attrition. Often, a non-disclosure clause on the part of the goods or
service providing firm and its employees is thus required.
Mansfield (1985) found that the need for intellectual property protection varied
with the intensity of R&D, the speed of technological change and the significance
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of tacit knowledge. A starting point for both the HCC outsourcer and the Asian
partner can be found in “A Guide to Intellectual Property Rights in Southeast Asia
and China” by Deng and Townsend (1996).
A little transaction cost theory
Transaction cost theory assumes that market forces and hierarchies are alternative
forms for control and decisions. Williamson (1979) suggests that the theory can be
used to decide whether a transaction shall take place within the organization or
outside, in the market. The cost is divided into two parts: production cost and
coordination cost. The first is reflecting the direct costs of production, the second
the need for meetings and management attention in a more complex setting.
In addition to the direct cost reduction, outsourcing also reduces the need for
investment in plants or personnel, as well as operating capital.
Theoretically, it should therefore be rather simple to calculate whether an activity
should be carried out internally by the organization, or be outsourced.
Unfortunately, costs are difficult to identify clearly, partly due to allocation
problems and inadequate accounting systems. The question is further complicated
by the fact that human beings are not rational decision makers. Personal
opportunism influences decisions, whether consciously or unconsciously. At best,
the decisions are “intendently rational, but only limited so” (Simon 1976). A good
understanding of the principal-agent theory is therefore useful in connection with
an outsourcing decision.
A little alliance theory
Acknowledging the fact that no organization can be outstanding in all fields, one
mode for compensating for this is establishing alliances with complementary
organizations. An alliance has a greater degree of commitment than for example a
regular supplier-customer relationship.
Hax and Majluf (1991) define a strategic alliance as
“Formal coalitions between two or more firms for short- or long-term ventures,
borne out of opportunistic or permanent relationships that evolve into a form of
partnership among players”.
Alliances are important instruments in the outsourcing context, as outsourcing is
strategic, long term and requires formalized agreements. An outsourcing
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relationship is therefore per definition an alliance. Outsourcing decisions can thus
find a good theoretical basis in alliance theory.
Alliances can be placed on a scale from full ownership (internal alliances) through
part ownership (joint ventures) to no ownership (formalized working relationship
or outsourcing). An alliance contains a strategic component, and is therefore
normally a long-term commitment.
A little relationship theory
This theoretical concept focuses on inter-organizational relations and the content of
the relationship. A viable relationship is based on exchange of commercial, social
and informational activities between organizations. Normally, a contract specifies
the rights and obligations of the partners, and a long-term mutual benefit must
accrue to both parties to make the relationship work.
Three elements of the relationship theory are important to be aware of in an
outsourcing context:
Transaction content
In a commercial relationship, there is a stream of goods and services between the
organizations. The contract that governs these transactions is according to
Williamson (1979), established to avoid opportunism by the partners. Such
contract clauses in an outsourcing relationship may for example be non-disclosure
and exclusivity in addition to the ordinary price and delivery details.
It may be argued that in the long run the contract has diminishing value as the
relationship develops organically, and the contract may even be irrelevant as the
content of the relationship develops and changes.
Communication and information content
Proper communication with relevant content is essential when developing a lasting
relationship. The success of an alliance is dependent on a steady flow of
information to reduce transaction costs. Quality of content is part of this effort, so
as to eliminate ambiguity and misunderstanding.
In an outsourcing situation, communication is of particular importance, as the
partners often are expected to work intimately with each other for adjustments,
information exchange, queries, etc. For many, a close, external cooperation is a
novelty, and particular effort should be placed on establishing proper
communication channels and content. The choice of communication medium (face
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to face, group or individual, written or electronic) must be carefully selected for
each particular relationship.
Social content
The qualitative part of a relationship is, according to Mitchell (1973), based on
trust, norms and values, expectations, and feelings. The social aspect is in many
respects the glue that ties the two partners together, and is of great importance in
the outsourcing relationship. Personal relationships can act as a safety valve in case
of disagreements that could develop into mistrust, and can to a certain extent
substitute parts of the detailed contract that governs the relationship. A prerequisite
for the well functional social interaction means a mutual understanding of the
partners’ cultural setting business ethics and conduct.
A big change took place in the latter half of the last century when offshoring, from
the HCCs to low cost countries expanded in the 1990s.
Sourcing from firms in a totally different culture may yield substantial benefits, but
it also requires different competencies in the outsourcing organization. Kotabe and
Murray (2004) state that “sourcing directly from foreign suppliers requires greater
purchasing know-how and is riskier than other alternatives that use locally based
wholesalers and representatives”. Fear of the unknown due to lack of knowledge
about foreign cultures and business practices can furthermore hold back an
otherwise rational decision to initiate international sourcing.
On the other hand, the offshoring company can benefit from both their own and
their outsourcing partner’s core competencies as well as factor condition
advantages creating a lower cost. Substantial competitive advantages may
therefore obviously be gained from offshoring if it is executed in the right way.
Offshoring of physical input factors
International sourcing of input components for one’s own production process has
been going on for a number of years, and has been well developed. Kotabe and
Murray (2004) sum it up:
“Today, many companies consider not simply price but also quality, reliability and
technology of components and products to be procured. These companies design
the sourcing decision on the basis of the interplay between their competitive
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advantages and the comparative advantages of various sourcing locations for longterm gains”.
It may concluded that offshoring of physical goods has become a common
practice, and seems hesitantly accepted by politicians, the public, management and
employees in the HCC.
This trend has furthermore been developed into multi-nation sourcing (components
bought in several countries and assembled in the HCC company’s home country or
even in a third country). This is particularly evident in the electronic industries
where relatively high value and low weight components can easily be shipped by
Offshoring of services
Offshoring of services (or business processes) is a rather new dimension that is
growing rapidly, and it is definitely not uncontroversial in the home countries.
“Cheap labour is the beginning, not the end ” state Agrawal et al. (2003).
Outsourcing of business processes such as data entry, payroll processing, call
centres and other “back office” activities are among the most common types of
work that are tempting to consider. Transfer of such activities can supposedly cut
costs by up to 50%. More sophisticated applications are being implemented,
however. Pharmaceutical research, engineering, software development and
component R&D are examples of more advanced activities that are on the rise.
By developing the skills needed for the transfer of business processes over time, an
entire dis-aggregation of the traditional value chain may result for the outsourcing
companies. The result is a massive transfer of work and competencies from HCCs
to lower cost (and high competency) countries. The HCC’s economies will benefit
from lower priced products and the countries to which work is transferred will
benefit from competence transfer and increased economic activity.
Models for offshoring of services
Kaka (2003) outlines six models for cooperation between the outsourcer of
business processes and the outsourcing partner within the IT field. The outlined
approaches can suggest solutions (but with different content) for both goods and
service industries.
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The contribution of the offshoring partner in the IT industry may be:
To supplement staff. This is mainly to cover peak demand on a temporary
To build turnkey projects or provide ongoing support.
To assist in building permanent offshore centres.
To build and operate a facility
To provide specialized assets, human or physical.
To enter joint ventures, i.e. to be joint owners of a to exploit a business
Information and Communication Technology (ICT) is the key
The success of both physical and business process outsourcing is dependent on
ICT. Until a few years ago, ICT was reserved for the large, resourceful companies
because of the high cost of equipment and software and the associated highly
skilled personnel required to operate the systems.
This situation has changed dramatically. The PC revolution and extreme
competitive pressures have brought down the price of hardware and software. The
systems have been easier to operate (although the man-machine interface is still
rather primitive) and networks have become available to everybody. Today, the
cost of ICT is no longer an issue, as virtually unlimited capacity is available at low
price. The question is now who can make use of ICT in the most innovative way.
The starting point is that anything that can be digitalized can be carried out over
distance by means of ICT. Time and distance have been eliminated, as all
authorized recipients will have the information at the same time regardless where
they are located. It does not matter whether the recipient is a next-door factory or
service provider or one thousands of kilometres away. Information exchange can
be made continuous and seamless, keeping the processes uninterrupted except for
the disadvantages (and sometimes advantages) of time zones.
By means of the Internet, suppliers of goods and services can easily be reached by
interested HCC buyers, ranging from the largest corporations to SMEs. Buyers can
receive physical goods within acceptable delivery times either by rapid ocean
shipping services or by air. Services are delivered by means of digital networks.
The groundwork is ready for rapid development of offshoring.
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Political considerations in HCC
Globalisation is nothing new in the world of commerce. Goods have always been
bought from where they have a cost advantage, and have been part of the economic
growth in HCC countries. The new aspect is, however, that the rapid growth is
made possible by ICT and improved delivery systems (logistics).
Projections indicate vast transfer of work with assumed loss of jobs in the home
countries. Globalisation has in many countries been associated with
unemployment. The impact of both physical and service outsourcing to low cost
countries is becoming a touchy issue in HCC, and some countries are
contemplating establishing barriers to transfer of work.
What is the magnitude of offshoring?
McKinsey and Company, a consulting firm, estimates the value of offshoring to
between $25 and $32 billion in 2002. Agrawal et al. (2003) refer to a consensus
estimate between three consulting firms showing a projected growth of 30 – 40%
per year. They further estimate that 400.000 US jobs have been transferred already,
and that by 2015, 3.3 million jobs have been transferred. The figure will
undoubtedly be substantially higher if all HCC are added.
The win-win proposition
The fact that work can be carried out at a lower cost means that the outsourcing
company enjoys higher profits that can be used for profitable investments which
again creates wealth and associated benefits for the home country.
Many of the tasks such as call-center work, data entry and basic accounting that
can be offshored are considered unattractive in HCC. In low cost countries it may
be an attractive and rather highly paid job. Motivation and quality of work can thus
be better than in the originating country. Low cost countries also offer high
competency capabilities in several fields that may be equal or better than in the
HCC countries. Offshored activities may in turn develop into new business
opportunities abroad that create repatriated earnings.
There seems to be a certain movement toward better acceptance of offshoring. The
Economist (2004) quotes Gregory Mankiw, the US president’s chief economic
adviser, saying that if a ting or a service could be produced more cheaply abroad,
then Americans were better off importing it than producing it at home.
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The economy of HCC countries must be assumed to be able to convert the
increased value creation into new economic activity that absorbs the employment
made redundant by offshoring. Any HCC’s ability to convert its workforce to new
activities is the key, and activities such as education and re-training programs must
be developed to ease the transition. The offshoring trend can thus be of benefit
both for the high and low cost countries.
Opportunities for entrepreneurial SMEs
Transitional periods of transition like the one that is experienced presently create
instability until the new structures for value creation are established. This
instability creates a window of opportunity for Asian SMEs as they can more
easily enter the market when it is in flux. It does, however, require determination
and good planning. Even if a firm can deliver a high quality product or service, it is
still obviously a substantial task to be known to potential outsourcers in other parts
of the world. Sometimes a small company may be able to “piggyback” as subcontractor on a more established local firm. But normally a plan for presentation to
potential partners should be created. This can be in the form of participation in
trade shows and delegations visiting HCC countries or at least by creating a good
Internet site presentation.
SMEs in an industrial cluster could potentially form network organizations in
which each partner contributes its core competency and the group is presented
outward as if it were a larger entity. Access to HCC markets can thereby be more
effective and convincing than trying to penetrate them as an unknown SME.
What is required to benefit?
Even local outsourcing is not as easy as it appears. Working closely together with
another organization requires different skills than working with departments within
one’s own. There are indications, however, that the networked organization is
becoming more common. See for example Collins (2003), Jackson and Stainsby
(2000), Schwartz and Brock (1998).
Offshoring is obviously even more difficult. Emotional distance, culture, language
and different modes of conducting business make the transfer of work even more
precarious. Asia is well positioned, however. A. T. Kearney, a consulting
company, has prepared an Offshore Location Attractiveness index based on the
financial structure, business environment, people skills and availability variables,
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and five of the six highest ranking are Asian: India, China, Malaysia, Czech
Republic and Singapore and the Philippines.
To be able to benefit from the offshoring trend, Asian countries must prepare the
ground for transfer of work. The intellectual property issue should also be
addressed in earnest to make potential partners confident that their interests are
taken care of in that matter, as there is little doubt that there will be a fierce
competition between countries to attract high quality outsourcers and expanded
The following suggests some of the issues Asian countries should address to
prepare for a future competitive advantage:
Availability of trained staff
It is obvious that no offshoring can take place without the local skills and
competencies needed to perform the tasks with required quality level. In 2002,
McKinsey and Company carried out survey among 30 executives at companies
using outsourced labour in India. They found that a dominant factor for selecting
an offshore outsourcing location was access to the right human resources.
Adapted educational system
As outsourcing ranges from simple physical labour contribution to business
process activities and highly skilled research work, the low cost country should
make an assessment of how to move up the value creation ladder over time and
what the corresponding national education content should be.
At present, it seems as if the countries with English as one dominant language
(India, the Philippines, Malaysia and a few more), seem able to benefit from the
outsourcing trend sooner than others. English language education should therefore
be high on the priority list for all countries.
Working conditions
Western societies have become increasingly concerned about working conditions
for those who produce on behalf of the national buyers. There are cases where
public opinion has forced offshoring firms to change suppliers due to unacceptable
working conditions in the supplying firms. Even some cases of brand names that
have been adversely affected by unfavourable news coverage are known.
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The consequence is that countries that hope to stay competitive in the long run
must not only have laws that protect employees from exploitation, but must
enforce the laws vigorously.
In most Western countries, it is illegal to pay bribes nationally or internationally. If
the firm paying a bribe is discovered, severe penalties may result. In the long run,
countries with a culture in which smaller or larger bribes are part of the business or
public administration culture will be at a competitive disadvantage.
Political stability
It takes substantial energy and resources to develop a smooth working offshoring
relationship. HCC firms will therefore avoid such investment in countries with a
history of radical system changes. Such abrupt changes may lead to disruption of
deliveries or even endanger the offshoring investment. A well functioning
democracy seems to be the best long- term guarantee for continued growth.
In the McKinsey survey mentioned above, a high quality infrastructure ranked as
the most important factor for selecting an offshoring location. The infrastructure
would encompass physical (air, road and sea) as well as the digital one.
Predictable government policies
Frequent changes in the legal system increase uncertainty for investors in
offshoring relationships. It particularly pertains to unexpected state ownership
(nationalization), taxation or cost increasing regulations. This aspect ranked very
high in the McKinsey survey.
Summing up
Offshoring has the potential to expand the economies in Asian low cost countries
and regions faster than traditional organic growth is able to. At the same time it
increases wealth creation in the offshoring countries by giving access to lower cost
goods or services and re-directing capital to the most efficient use.
As offshoring is not easy, both outsourcer and the partner need to understand the
underlying theories as well as practical processes involved to make it successful.
This may develop into a core competence in itself and thereby be a source of
competitive advantage.
Aggressive and flexible SMEs in low cost countries have a unique opportunity to
establish themselves as outsourcing partners for HCC firms. That takes, however,
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good planning and systematic execution to succeed. The potential rewards are
substantial for those who understand the somewhat difficult theoretical and
practical aspects of offshoring processes.
Asian countries wishing to attract business from HCC need to satisfy a number of
underlying conditions that are required to compete successfully, as price is not by
any means the only determining factor.
Suggestions for areas of research
It must be anticipated that as offshoring trend continues, academia and
practitioners will focus on understanding the processes and developing the skills
needed. That will increase the success rate of offshoring activities and further
stimulate international transfer of work.
The following may be of interest to investigate further to aid Asian SMEs in
exploring the offshoring opportunities:
Awareness of offshoring opportunities among Asian SMEs
Information sources and support for Asian SMEs regarding access to HCCs
What can be learned from Asian firms with ongoing offshoring business?
Intellectual property protection attitudes among Asian SMEs
How are post contract operating relationships between the partners in an
offshoring relationship evolving?
Effect of transaction costs on profitability of offshoring
Agrawal, V., Farrel, D., and Remes, J. K. (2003) Offshoring and Beyond
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McKinsey Quarterly, Special Edition, pp 25 – 35
Aron, R: and Singh, J. V. (2005) Getting Offshoring Right
Harvard Business Review, December 2005, pp 135-143
Collins, Ph. (2003) Going Virtual
Management Services; Vol. 47 Issue 6, pp 8 – 13
Deng, S; and Townsend, P. (1996) A Guide to Intellectual Property Rights in
Southeast Asia and China
Business Horizons, vol. 39, Issue 6
Dierickx, I and Cool, K. (1988). Competitive Advantage
INSEAD Working Paper No. 88/07
Hall, R. (1992). The Strategic Analysis of Intangible Resources.
Strategic Management Journal, 13, 135-144
Hax, A. C. and Majluf, N. S. (1991) The Strategy Concept and Process, a
Pragmatic Approach
Prentice Hall
Englewood Cliff, NY
Itami, H (1987). Mobilizing Invisible Assets
Cambridge, MA: Harvard University Press
Kaka, N. (2003) The Next Hurdle for Indian IT
McKinsey Quarterly, Special Edition, pp 46 – 47
Klein, J. A., Edge, G. M., and Kass, T. (1991) Skill Based Competition
Journal of General Management, 16, (4) pp 1-15
Kotabe, M. and Murray, J.Y. (2004) Global Sourcing Strategy and Sustainable
Competitive Advantage
Industrial Marketing Management, Vol. 33, Issue 1
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pp 7–14.
Lacity, M. C. and Willcocks, L. P. (1998) An Empirical Investigation of IT
Sourcing Practices
Management Information Systems Quarterly, 22 (3) pp 263-408
Mansfield, E. (1985) How Rapidly Does New Industrial Technology Leak Out?
Journal of Industrial Economics, December 1985, pp 217-223
Mitchell, J. C. Networks, Norms and Institutions (1973)
in Network Analysis, Boissevain, J. and Mitchell, J. C. (eds.)
Mouton The Hague
Mol, M. J; van Tulder, R. J; Beije, P.R. Antecedents and Performance
Consequences of International Outsourcing
International Business Review, Volume 14, Issue 5,
October 2005, pp 599-617
Porter, M. Strategy: The New Learning (2003)
Lecture at Norwegian School of Management, June 11,
Schwarz, G. M., Brock, D. M. (1998) Waving Hello or Waving Good-bye?
Organizational Change in the Information Age.
International Journal of Organizational Analysis, Vol. 6 Issue 1,
pp 65-93
Simon, H. A. (1976) Administrative Behavior
New York
The Economist: The Great Hollowing Out Myth
February 21, 2004, pp 27-29
Williamson, O. E. (1979) Markets and Hierarchies: Analysis and Antitrust
The Free Press
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New York
Quinn, J. B. (1992) Intelligent Enterprise
The Free Press
New York
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Volume II, Issue 3
© 2006, Journal of Asia Entrepreneurship and Sustainability
No reproduction or storage, in part or in full, permitted without
prior permission.
[email protected]
Sales Challenges In China As A Dynamic Competitive
Dr. Tony Carter
Christos M. Cotsakos College of Business
William Paterson University
Russ Berrie Institute
1600 Valley Road
Wayne, New Jersey 07474
Email: [email protected]
China is an important market for sales organizations because it is the fastest
growing economy in the world. In addition, China has overtaken Japan as the
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leading exporter to the United States at $110 billion and the standard of living has
improved dramatically. From a selling standpoint, Customer Relationship Building
and “Quanxi” which is networking, trust and giving back are recurring selling
Why Rapid Growth?
In 1997 80-90% of the traffic in the streets in Beijing, China’s capital city, were
full of bicycles like a third world country. Now, the percentages are reversed and
those same streets are full of cars, and in some cases they are better cars than in the
U.S. The mushrooming traffic, the growing number of cell phones at Chinese ears
and pagers in Chinese pockets, the new Beijing airport and the proliferation of
Western-style clothes are all symbols of the phenomenal economic expansion in
China in recent years and the standard of living is improving dramatically.
The keys to sales growth in China have been the increased manufacturing and
availability of high quality technology and quality products at affordable prices.
World Trade Organization membership has also promoted foreign investment,
sales activity and has opened up more sectors for investment. Joint Ventures have
been the most common mode of sales entry, Free Trade Zones have also facilitated
foreign entry and the Chinese Banking Industry is more actively extending credit
to large companies there.
Since 1978, when the late ruler Deng Xiaping began the opening of the Chinese
economic system, China has seen unprecedented growth. The average personal
income rose nearly four times, from $200 to $300 per year in 1978 to $1100 per
year in 2003. That is still very low, of course, but represents huge progress in a
relatively short time. The economy on the whole has grown nearly 10 percent per
year in the last two decades.
In China, in 1997 most people had never heard of the Internet. Now, there are 30
million Internet e-mail accounts in China. The big word in China is e-commerce
and nearly $92 billion of revenue in business-to-business transactions is expected
this year alone. By 2004, that figure is expected to top $1 trillion so that if you
compare all those figures, you get a sense that something’s happened from 1978 to
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Foreign investment is responsible for much of the economic expansion and driving
a lot of the growth in China. One very successful U.S. company in China is
Motorola, which in 1986 made a $1.5 billion investment in manufacturing and
marketing, building a factory for cell phones and pagers in a coastal city not far
from Beijing in an effort to capture the Chinese. Motorola saw $20 billion in sales
revenue from 1995 to 1999 and their return on investment is phenomenal. So, there
are tremendous opportunities for American sales organizations in China. There is
no reason that companies from the U.S. should not take advantage of increasing
trade with the nation of more than 1.3 billion people.
For example, Motorola is the largest foreign investor in China and in 1986, they
invested $1.5 billion to enter the market and $3 billion in total since. Their sales
practices are relationship building, trust building, ads and Customer Advisory
Boards. From 1995- 2003, they generated $40 billion in revenue, making China
their most profitable market and accounting for 27% of their overall revenue.i
“Open Door Policy”
The “ Open Door Policy” which began in 1978, made growth reforms that witched
the emphasis from a central planning system, to a market oriented system. This
change resulted in an increase of 200 million industrial jobs in China, economic
growth of 9% each year from 1978-2003. Also, individual income grew from $300
annually in 1978 to $1,100 in 2002 and 250 million people at the poverty level in
1978 decrease to 80 million in 2005. The education levels went from an average of
5 years in 1978 to 10 years in 2006 and foreign investment has noticeably
increased, from $40 billion per year in the 1990’s to $53 billion in 2005.
Sales Role
In order for a corporation to be a player in the global economy it is hard for them
to ignore the China market. Two decades after China initiated market driven
economic reforms, its appeal to foreign investors is still strong. In recent years,
Motorola, Sony Corporation, Intel Corporation and Matsushita Electric Industrial
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have invested billions of dollars in China. General Motors alone is investing $1.5
billion to build a new auto factory in Shanghai. What attracts these corporations is
growth of the economy, size of the population at 1.2 billion and Chinese
consumers that prefer and trust foreign products. Consumer spending in China is
increasing with retail sales in 2006 up 13% over 2005 levels. While the average
urban Chinese consumer per capita income of $700 per year is low by western
standards, it still reflects a rise in average urban household income and has driven
increased household spending. At $40 billion, China has attracted more foreign
capital than any other developing country in 1996. China is now the world’s 11th
largest trading nation and a commercial export power.
Future economic growth in China will be favorable because there is still a lot of
investment opportunity, especially in many basic industries, such as
manufacturing, transportation, services, communications and electronics. Many of
the foreign firms entering China are using joint venture arrangements which allow
them to share costs and risks, as well as complementary assets and skills with host
country partner firms. By doing so, these firms are able to reduce the long term
investment uncertainty at a lower cost than through pure hierarchical or market
Understanding how to reconcile the structural balance in Chinese economy
between potential high market growth and a sizable low income consumer base is
important. The rapid growth of China’s population minimizes the average per
capita income level because there are enough of Chinese citizens with very high
income levels that still provide significant consumer income potential. For
example in the Wang Fu Jing Street shopping district in Beijing the Civic Store
which sells high priced commodities still makes a profit even if only 2%-3% of its
potential customer base shops there, because in China this still represents many
Sales effectiveness is playing a big role in China. For example, Qing Shue, which
is a liquor company in Tianjin, had marginal annual sales. They started to use
television ads in 1995 which cost $7.5 million. This was the highest amount spent
on commercials in that year in China. However, in 1996 their sales revenue
increased to $125 million and they are continuing to buy television commercial
time and will spend $413,000 on advertising. While the actual use of advertising,
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to this extent, is a relatively new phenomenon in China, it can have significant
sales potential. Not only has advertising been an underutilized form of promotion,
but using the government organized television stations viewed by the whole nation
can provide broad exposure. Coca-Cola is an example of a firm that has
commercials on television that are more popular than regular television
Other American companies that have used Sales to drive their efforts in China are
McDonald’s and Kentucky Fried Chicken. The various reasons for their success is
that they use the product, price, place and promotion strong points of marketing
through good food, affordability, convenient and visible locations. With China’s
“one child” policy, every child that is treated by a company like a king or queen
can be rewarded with customer satisfactions. Core competencies are very
important because of the level of competition in China. Many firms are also using
Customer Advisory Boards which are groups made up of senior executives or
consumers that are current or prospective customers, as a way to monitor customer
Sales Process In China
Selling in China means developing friendships and trust. It is important to get to
know customers and let them get to know the sales force responsible for customer
development. This takes time and it can mean attending functions, joining
organizations, pursuing memberships and doing the things that demonstrate
interest, involvement, reliability and trust. These are the things that must occur first
before business activity will take place. The key factor to reach and sell to Chinese
customers is the ability to identify product or service needs and affordability. Firms
must conduct customer research prior to entering China to understand the nature of
the market and those factors that will help reach and sell to Chinese customers. It is
also important for sales organizations to have a strategy and a long term plan and
ensure that the product or service meets standards and customer expectations.
Further Growth
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Newly built highways opened to traffic totaled 4,740 km, including 1,895 km of
expressways. A total of 1,005 km of newly laid railway tracks and 547 km of
double-track lines were opened to traffic. 35.6 million - The number of e-mail
accounts in China at the end of last year. Of these, 26.7 million are Web-based
free e-mail accounts. 5% - The average income increase Beijing Mayor Liu Qi
promises his fellow Beijingers this year. In 1999, the annual per capita income of
workers in the capital was 13,500 yuan (US $1,625), while the average farmer
pulled in just 4,316 yuan (US $520). The financial crisis that wracked the region
beginning in mid-1997 forced many companies in manufacturing and trade to
retrench. But it had a surprising positive effect: It spurred the emergence of ebusiness, according to international research firm Gartner Group. The crisis did
slow the region’s adaptation to the new “e-conomy”, though. That is set to change,
with regional businesses now “rapidly” adopting e-business practices.
In 1999, revenue from B2B – or business-to-business – e-commerce in the region
was just US $9.2 billion. But by 2005, revenue is expected to be closer to US $1
trillion – an annual growth rate of 155%. Of course, even newly imposed
government regulations can barely dampen the enthusiasm here for investing in the
Net and the enormous opportunities it represents. According to government
figures, e-commerce turnover in China leapt to US $400 million in 1999 from US
$8 million in 1998. Investing in China’s Internet industry is not without its
headaches, though, particularly ones induced by the government, which fears being
unable to control the Net. While Beijing is actively seeking high-tech investment,
its actions seem also to be discouraging investors. In February, the government
banned the discussion of “state secrets” on the Web. These could include anything
from discussions of the weather to the mention of statistics and figures released by
the official China News Agency.Last year the government tried but failed to
prevent foreign companies from owning a piece of the country’s Internet industry.
Foreigners can now own up to 50% of an Internet or telecoms-related venture on
the mainland.
The listing of PetroChina in Hong Kong and New York in spring, 2006, provides a
vivid and successful example of how China’s cumbersome State monopolies can
be remolded. Even though Petrochina’s current performance on securities markets
is far from what was originally expected, the listing should be regarded as an
overwhelming triumph. PetroChina was spun off from its parent firm, the China
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national Petroleum Corp., a wholly owned State oil giant. The listing has helped
PetroChina diversify its shareholdings, to break a State monopoly in such a way as
to open the way for other investors. This lies at the core of China’s lingering Stateowned enterprise reconstructing program. The listing cements PetroChina’s efforts
to form a truly effective “corporate governance” structure the Chinese Government
and State-owned enterprises have yearned for a long time.
The new mechanism will help PetroChina take full advantage of its potential on
stock markets in the future. The listing provides a good opportunity for China’s
leaders to better understand capital markets and to rethink the country’s overall
plan for reform.ii
Motorola in China 2005
Motorola is a global leader in advanced electronic systems and services. It
liberates the power of technology by creating software-enhanced products that
provide integrated customer solutions and Internet access via wireless and satellite
communications, as well as computing, networking and automotive electronics.
Motorola also provides essential digital building blocks in the form of embedded
semiconductors, controls and systems. By the end of 1998, Motorola had already
committed more than US $1.5 billion in China. The largest American investor in
China, Motorola has a wholly-owned venture in Tianjin, a holding company
registered in China, and is involved in six equity joint ventures, more than 20
branches and dozens of other significant investments.
Due to the nature of its investments, its technology innovation and development
and its good corporate citizenship, Motorola has enjoyed solid support from the
Chinese government at all levels. In 2005, the company was presented with two
certificates by the Chinese government: the Advanced Technology Enterprise
Status Certificate and the High-Tech Enterprise Status Certificate. These awards
are tangible evidence of the government’s recognition of Motorola’s on-going
commitment to prosper with China. Motorola was cited specifically for its
achievements in research, development, production, sales and after-sales service in
China. In 2005, Motorola was second among the Top 500 Foreign-Invested
Enterprises in China.iii
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A four-point strategy guides every Motorola investment in China
Investment/technology innovation and development: Motorola has not only
committed US $1.5 billion in China, but reinvested all profits from its China
operations back into the country. Motorola manufactures only world-class
equipments in China with the highest technology available.
Management localization: Motorola is committed to localizing the staff of its
operations in China as quickly as possible. To this end, the company provides
intensive training to its employees and requires that every single employee attend
at least five days of training each year.iv
Local sourcing: Motorola spent US $750 million in China last year on locallysourced materials, components and services. By the year 2000, the company
expects to purchase US $1 billion in locally-sourced materials each year in China.
Motorola works actively with local Chinese suppliers to help them reach topquality standards.
Joint ventures and cooperative projects: Since 1995, Motorola China has
established 6 joint ventures and 10 cooperative projects with some of China’s best
enterprises and research facilities.
Investments and technology transfer
Motorola first opened a representative office in Beijing in 1987. Since then the
company has enjoyed rapid growth and has been an active participant in China’s
transition to a market economy. Motorola (China) Electronics Ltd. (MCEL), a
wholly-owned corporation, was incorporated in March 1992. In June of that year,
Motorola broke ground on its first major manufacturing facility in the Tianjin
Economic Technology Development Area. The facility became operational in
March 1993 and manufactures pagers, cellular phones, two-way radios,
communications components and semiconductors, largely for sale in China and
other markets in Asia.
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In November 1995, Motorola began construction of a large integrated circuit wafer
fabrication plant, also in Tianjin. The semiconductors manufactured at the plant
supply makers of automotive, communications, personal computer, peripherals and
digital products. In addition, Motorola’s investments in China include branch
offices in Shanghai, Guangzhou, Tianjin, Harbin, Shenyang, Nanjing, Xian, Dalian
and Chengud, as well as the Motorola service shop and software center in Beijing
and Motorola University training centers in Beijing and Tianjin. Future plans call
for opening sales and service offices in other 20 cities throughout China.
R&D in China
Motorola has spent a total of US $48 million on research and development in
China to date. This investment is expected to reach US $108 million by 2001. The
company has set up 14 research and development centers in China with 435
researchers. By 2003, 20 research and development centers were established to
include 900 research staff.
Major research items included:
semiconductor materials, microprocessors, CDMA & Will systems, cellular phone
chips and software development.
Local Sourcing
Motorola is committed to identifying local suppliers for the key components of all
equipments manufactured by the company’s ventures in China. In 1998, Motorola
spent a total of US $750 million on locally sourced components, materials and
services, a figure that represents 42% of total expenditures. The company expects
to spend US $1 billion annually on locally-sourced products at the start of the
Motorola has accomplished this by forming partnerships with Chinese suppliers
and helping them improve their management, efficiency and quality control
systems. In addition, Motorola provides suppliers with designs and new
technology, helps them secure credit for necessary capital improvements and
facilitates advantageous joint ventures with appropriate foreign suppliers.
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This approach has helped Motorola develop a pool of local suppliers that has
already grown to 200 across China. With Motorola’s help, these suppliers were
able to export US $247 million worth of products in 1998, Motorola has also
helped local companies grow and improve their technology, an initiative that
dovetails with the Chinese government’s strategy for upgrading state-owned
Joint development: joint ventures and cooperative projects
Since March 1995, Motorola has formed 6 joint ventures with local partners in
China to manufacture a range of high-tech products from pagers and multi-media
computers to CDMA infrastructure and semiconductor products. These joint
ventures afford opportunities to manufacture advanced equipments, in partnership
with China’s strongest high-tech companies, using world-class technology.
Motorola brings cutting edge technology and new technical and management skills
to its partners in order to manufacture the highest quality products for the Chinese
and oversea markets.
During the last four years, Motorola has provided some 3,000 scholarships to
Chinese students at major universities throughout the country. The company has
established three micro-processors/micro-controller laboratories at universities in
China, and will expand this program to 20 additional universities over the next five
years. Motorola has supplied electronic kits and technical manuals to some 30
universities throughout China over the past three years.v
With contributions of more than US $1.44 million to date, Motorola is one of the
largest donors to China’s Project Hope. This foundation has built hundreds of
Hope Schools in impoverished areas in China, and has helped more than one
million underprivileged rural children go to school. Motorola funds have built 24
Hope Schools and provided training for teachers of those schools. Motorola
employees in China have contributed additional money and support to encourage
children to go to school.
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All of MCEL’s products, equipments and management systems are designed to be
of the highest quality, in line with Motorola’s worldwide standards. At the end of
1996, ISO9002 quality certification was awarded to the semiconductor, pager,
cellular communications and land mobile products sectors of the Tianjin facility.
In addition, four of MCEL’s units, the Paging Products Group, the Finance
Department, the Human Resources Department and the Land Mobile Products
Sector Materials Department were awarded Motorola’s CEO Quality Awards, and
the Paging Products Group won gold medals in Motorola’s Worldwide Total
Customer Satisfaction Competition early this
Sales Training
Motorola evaluates each employee based on results and performance on the job. In
order to ensure that its sales and marketing staff have the skills necessary to
succeed, Motorola University has developed a sales curriculum, customized for the
specific needs of the Chinese market. This course helps equip its sales and
marketing staff with modern marketing skills that translate into tangible results for
the company. Motorola believes that everyone who has a role in selling the
company products must be well trained. For this reason, it offers to train its
distributors throughout China.
Alcatel in China
Alcatel is a French firm that builds next-generation networks, delivering
integrated, end-to-end voice and data network solutions to established and new
carriers, as well as enterprises and consumers worldwide. It is one of the world’s
leading telecommunications solutions providers. With 120,000 employees and sale
of EURO 23 billion in 2003, Alcatel operates in more than 130 countries.
In anticipation of the explosive growth of the data/Internet business worldwide,
Alcatel has adjusted its strategy in time to maintain and strengthen its competitive
edge in the new telecommunications world. In the past 18 months, Alcatel has
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purchased seven new companies including DSC, Packet Engines, Xylan, assured
Access, Internet Devices, Genesys and Newbridge, further consolidating its
position as a leading global provider of broadband data/Internet solutions.
Partnering with China
Alcatel has been a highly successful partner in China’s telecommunications
market. It has consistently applied a proven, two-pronged strategy of early
introduction of new technology and timely formation of industrial joint ventures.
Alcatel came to China in 1983. So far, it has set up 17 joint ventures and 5 wholly
owned companies to produce and supply the full range of telecommunications
systems and services, including public switching system, SDK/WDM optical fibre
transmission system, radio communications network, intelligent network and
network management system, space and business communications system.
Besides, Alcatel is able to provide turnkey services to its customers by offering
integrated telecommunications solutions across space, land and sea.vii
Fully aware of the growing importance and great potential of the China market in
the world economy, Alcatel has greatly increased its investment in China in recent
years, especially in the field of R & D. More and more Alcatel R & D institutions
have been set up, offering tailor-made telecommunications solutions and services
to Chinese customers as well as customers from the neighboring countries and
Public Switching
Alcatel was among the earliest providers of digital switching systems and
technology to China. From the early 1980s until the end of 1998, Alcatel,
including the activities of its joint venture Shanghai Bell, has sold units totaling the
equivalent of 54 million lines of public switching equipment to China. Shanghai
Bell – officially recognized as one of China’s top 10 foreign joint ventures from
1989 to 1994—has evolved into one of the world’s largest switching
manufacturers, with an annual output of 7.8 million lines in 2005.
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Alcatel is taking the lead in the world SDH/WDM market. In China, Alcatel’s
leading technology in SDH and WDM is bringing benefits to its customers in a
wide scope. So far, Alcatel has carried out more than 60 different optical
backbone transmission projects based on SDH, WDM, digital cross-connect and
video products. Alcatel has also supplied microwave transmission systems for
many important backbone and inter-provincial links, with a total length exceeding
23,000 km.viii
Major projects implemented by Alcatel over the past two years include:
 Qingdao-Jinan-Shijiazhuang-Taiyuan SDH project
 Chongqing-Chengdu WDM project
 Shijiazhuang-Jinan SDH microwave transmission project
 Cross-connect project for the landing of the Sino-US submarine link
Besides, Alcatel is the number one submarine network supplier in the world. In
1994, Alcatel signed a significant contract with China Telecom and Korean
Telecom to supply an international submarine cable connection – a 450 km optical
submarine link between China and South Korea. In 1997, Alcatel was awarded the
major part of a US $950 million contract for a new submarine telecommunications
network across the Pacific, linking China with the US. This link, with a total
length of 30,000 kms, is the largest capacity transoceanic undersea system
operating in the world.ix
Radio Communications Network
As a provider of the latest technology, Alcatel entered the mobile communications
market in China with digital GSM technology, and was the first to deliver a GSM
cellular mobile network to China in 1994 – in the city of Jiaxing in Zhejiang
Province. The project has remained the study object for Chinese experts for
several years.
Shanghai Bell Alcatel Mobile Communications Systems Co., Ltd. (SBAMC),
Alcatel’s joint venture with Shanghai Bell, was set up in 1994 and has so far
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implemented GSM networks in 11 provinces and cities, including Gansu, Guizhou,
Jiangsu, Chongqing, Jilin, Ningxia, Shanghai, Shanxi, Zhejiang, Liaoning and
Tibet. It remains a major supplier of GSM networks in China with a total
contracted capacity of over four million subscribers.
As a world leader of the mobile high-speed Internet technology, Alcatel
implemented the world’s first commercial WAP and GPRS network in France. It
is also the first to run WAP applications on the GPRS system. Alcatel, through
SBAMC, is now actively introducing its state-of-the-art WAP and GPRS solutions
to Chinese customers. In November, 1999, SBAMC successfully opened a trial
WAP network in Hangzhou, paving the way for the future commercial
implementation of the Alcatel mobile Internet solutions.
Alcatel has recently set up its third global R & D center in SBAMC, with a focus
on the development of the 3G mobile communications technology.
Alcatel’s fixed wireless access technology, particularly catering to the rural but
densely populated areas in developing countries, has been well accepted by
Chinese customers. In early 1998, Alcatel signed a US $50 million contract with
Sichuan PTA to supply 100,000 lines of wireless access equipment to the vast rural
areas of the country’s most populated province. In November, 1999, Alcatel was
selected by Hubei PTA as the supplier of US $20 million WLL (Wireless Local
Loop) systems to the province.
Alcatel has an unparalleled world leading position in the ADSL market, with 50%
of the market for ADSL infrastructure systems and a 33% market share for ADSL
In September 1998, Alcatel and Guangdong Post and Telecommunications
Administration (PTA) signed a multi-year framework agreement on the
deployment of up to 50,000 Alcatel ADSL lines across the province. By selecting
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Alcatel’s leading end-to-end ADSL solution, Guangdong PTA is able to provide a
wide range of interactive multi-media services, such as Internet visit, data access,
video-on-demand, home working and distance learning, via copper telephone lines
at a high speed 100 times that of the ordinary analogue modem.
Other Alcatel ADSL successes in China have been achieved with Fujian PTA,
Shanghai PTA, Jiangsu PTA, Beijing Telecom and Heilongjiang PTA. The recent
acquisitions have further strengthened Alcatel’s competitiveness in the data field.x
Other Areas
In the business systems sector, Alcatel started the sales of PABX via Shanghai Bell
and later set up a joint venture – Shanghai Bell Alcatel Business Systems Co., Ltd.
(SBABS) – dedicated to PABX manufacturing and sales. Alcatel 4400, the latest
PABX product range, is getting popular among the Chinese customers for its
strong capabilities and unique features. In the newly emerging Intelligent Network
(IN) market, Alcatel was the first company to receive such a contract in China,
which is to build up the national toll switching network for the former Ministry of
Post & Telecommunications. As one of the largest satellite communications
suppliers in the world, Alcatel is now seeking opportunities to cooperate with
Chinese partners in this promising area.
Alcatel’s full range of cabling systems, including high-speed specialized data
cables, connectors and terminations, have equipped hundreds of intelligent
buildings and networks in China. Alcatel started to introduce its mobile terminal
products to China only four years ago, and its One Touch range of handsets
enjoyed great popularity as soon as they were launched. In order to meet the high
demand from the Chinese market and other nearby countries, Alcatel has recently
established a manufacturing base in Suzhou.xi
With more than US $420 million investment and 5000 employees in China, Alcatel
seeks to grow together with its Chinese partners and customers with a long-term
commitment to the high speed construction of China’s telecommunications
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Global perspectives are an important dimension of doing business and customer
dealings. It is important for the sales force to examine strategic issues for an
international sales effort because it cannot only point to new market opportunities,
but can also show different creative and effective sales methods used in other parts
of the world. Besides using “face to face” selling techniques, knowing “How To
Select Target Countries” and “How To Enter Target Countries” can help penetrate
international markets. A market, in particular, that can pose exciting dynamic sales
challenges is China.
American companies can be even more aggressive in taking advantage of China’s
economy. There are plenty of lucrative opportunities to base a business venture in
China. A key selling factor is building relationships, trust and demonstrating value.
To sell effectively in China you must get to know the Chinese people, their culture
and customs. You must also be patient and tolerant when it comes to developing a
business relationship because it can take time. Even table manners and etiquette
during meals become an important criteria to establish a business relationship in
Business opportunities are not the only consideration in pursuing customer
development in China. Some of the problem issues range from the aftermath of the
1989 Tiananmen Square massacre, reports that orphans are systematically allowed
to die, possible threats of military action with maneuvers off the Taiwan coast,
poor treatment of its own citizens and the imprisonment of U.S. Human Rights
Activist Harry Wu. According to the International Intellectual Property Alliance,
piracy in China of intellectual property music, compact discs and software totals
$2.5 billion. Should U.S. firms “carte blanche” rush in to do business in China
despite these dilemmas?
By taking a socially responsible position while doing business in China, some U.S.
firms may actually serve as a catalyst in helping China face their various
dilemmas. It could also facilitate China’s economic transition from a planned
economy to a market mechanism. For example, Motorola has developed a
supporting educational program called “Project Hope.” This helps the 200 million
illiterate people in China, which accounts for 25 percent of the illiterate population
in the world. The “Project Hope” program also helps the one million children in
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China, annually, who cannot afford to go to school. In addition, Motorola has
launched the Employee Home Ownership Program to facilitate home ownership
for their employees in Tianjin and Beijing, and they have invested over $300,000
for fellowships in universities in China in the past three years.
In China, the concept of “quanxi” not only means developing a network of good
connections, but giving something back to the community. As Motorola has
demonstrated, this should be a part of a customer development strategy in China
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there is far more at stake than sales revenue.
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i G. Zhou, Personal Interview, Motorola July 20, 2005 and W. Xiadu, Personal Interview, Beijing
University, April 17, 2004.
ii Z. Peiyan, “Report on Economic and Social Development 2000, Beijing Review, Vol. 43 No. 15, April
10, 2000 p. 16-17.
iii W. Xuewen, “By the Number”, China International Business, Vol. 150, April, 2000 p. 10.
iv J. Irwin, “China’s Net Interest Blossoms”, Asian Business, Vol. 26 No. 4, April, 2000 p. 46.
v Giuseppe DeFilippo, Jun Hou and Chris Ip, “Can China Compete in IT Services? ”, the McKinsey
Quarterly, No.1, 2005, p.10-11.
vi Daniel Altman, “China: Partner, Rival or Both?” The New York Times, March 2, 2003, p. 11-12.
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vii Tony Carter, “Strategic Customer Development In China,” Columbia Journal of World Business, Vol.
31 No. 4, Winter, 1996. p. 56-64.
viii Tony Carter, “Customer Driven Sales Strategies In China and Poland,” Journal of Customer Service in
Marketing and Management, Vol. 5 No. 3, Fall, 1999, p. 13-30.
ix China’s Business Summit 2000, “China’s Emerging Global Role: Impact, Opportunities and
Challenges”, Beijing, China, April 16-18, 2000.
x Ajit Kambil, Victor Wei-teh Long, Clarence Kwan, “The Seven Disciplines for Venturing in China”,
MIT Sloan Management Review, Vol. 47, No.1, Winter, 2006, p.85-89.
xi William McEwen, Xiaoguang Fang, Chuanping Zhang and Richard Burkholder, “Inside the Mind of the
Chinese Consumer,” Harvard Business Review, Vol. 84 No. 3, March, 2006, p. 68-76.
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