Dr Ute StephanUniversity of Sheffield

Institute of Work Psychology & Centre for Regional Economic and Enterprise Development

U.Stephan@sheffield.ac.ukhttp://iwp.dept.shef.ac.uk/site/staffmember/ute_stephan/

8 Dec 2011, Stavangar Innovation Seminar

Culture's Consequences for Entrepreneurship:

Recent findings and future directions

About me

CEO-Leadershipin Entrepreneurial

Firms (performance,

social innovation, and health outcomes)

Comparative Entrepreneurship:

Culture/informal institutions

and entrepreneurship

Overview

1. Entrepreneurship

2. Past Research on Culture and Entrepreneurship: The ValuesPerspective

3. Current Research: A Cultural Norms Perspective on Culture and Entrepreneurship

4. Future directions

• Comparative Entrepreneurship research (branch of international entrepreneurship & international business)

• Entrepreneurship is significant for national economies as it contributes to employment creation, productivity and economic growth (Van Praag and Versloot, 2007)

• Considerable national differences in entrepreneurship rates and attitudes, – which are stable over time (e.g. van Stel, 2005),

– and cannot be fully explained by differences in formal national institutions such as business regulation (e.g., Levie & Autio, 2008; Van Stel, et al., 2007)

• At least partly attributable to differences in national culture (e.g., European Commission, 2004; Freytag & Thurik, 2007; Hayton et al., 2002; Stephan & Uhlaner, 2010; Uhlaner & Thurik, 2007)

Culture’s role for national entrepreneurship?

Rate of New Business Owners I (less than 3.5 years, mean 2005-08, as percent of adult population)

0,66% to <4%

Most entre

preneurial

developed countries

Rate of New Business Owners II (less than 3.5 years, mean 2005-08, as percent of adult population)

> 4%

The world’s most sustainable businesses (established business owner rate, >3.5yrs, mean 2005-08, % of adult population)

1.33 to >7%

The world’s most sustainable businesses (established business owner rate, >3.5yrs, mean 2005-08, % of adult population)

> 7%

- occupational choice to work for one’s own account and risk (i.e., the self-employed and other business-owners) (Hébert & Link, 1982; Wennekers, 2006)

- new business ownership rate (Gartner, 1989; Reynolds et al, 2005) as a dynamic indicator of entrepreneurship

- established business ownership rate as a static indicator of entrepreneurship, can be thought of as a proxy for the sustainability of entrepreneurship (Bosma, Acs, Autio, Coduras, & Levie, 2009)

Entrepreneurship

- Different types of entrepreneurship (“Quality indicators”):

- economically-motivated, necessity vs. independence-motivated, opportunity entrepreneurship (e.g., Minniti, Bygrave, & Autio, 2006)

- Innovative entrepreneurship based on new products and markets (cf.

Schumpeter, 1934; Koellinger, 2008)

Others:

- Social vs. commercial entrepreneurship (e.g., Estrin, Mickiewicz & Stephan,

2011WP; Zahra et al., 2009)

- Female entrepreneurship (Estrin & Mickiewicz, 2011)

- High-aspiration entrepreneurship (Bowen & DeClercq,2008)

Quality of Entrepreneurship

2. Past Research on Culture and Entrepreneurship

Focus on Cultural Values

Culture is the collective programming of the mind that distinguishes themembers of one group or category of people from another (Hofstede, 1980/2001) Culture resides “in” the person

Cultural values virtually equated with culture, particularly Hofstede value dimensions (Hofstede, 1980/2001): Individualism-Collectivism, Power Distance, Uncertainty Avoidance and Masculinity-Femininity

Values • Respondents’ personal preferences or personally important goals

(e.g., Hofstede, 2001; Schwartz, 1992)

• Culture = mean aggregated score of these individual values

‘Aggregate Trait/Value’Many people per society with

entrepreneurial traits

‘Societal Legitimation’Cultural values are supportive of

entrepreneurship

Main hypotheses how culture influences entrepreneurship?

Davidsson, 1995; Davidsson & Wiklund, 1997; Stephan, 2008

different rationales, but similar prediction:

“the more widespread entrepreneurial values within a country, the higher the rates of entrepreneurship”

• dates back to Weber’s (1930) thesis that protestant values foster entrerpeneurship and form the basis of capitalism

Evidence: Cultural Values and Entrepreneurship? I

• At the individual-level relatively consistent findings (although diverse measurement approaches):entrepreneurs value – individualism (autonomy, independence)/openness to change,

achievement and power, and potentially low uncertainty avoidancewhen contrasted with other occupational groups and population-

representative samples of employees(e.g., Hayton et al., 2002, ETP, also Davidsson & Wiklund, 1997; Noseleit, 2010, Rauch & Frese, 2007; Stephan, Huysentruyt & Van Looy, 2011)

“entrepreneurial personality”

• This was assumed to generalize to the national level (cf. Hayton et al., 2002)

• However, ..

• At the national-level by and large inconsistent findings (and much less research)

• Research uses almost exclusively Hofstede’s value dimension (1980) finds largely inconsistent results

• Cultural values associated with national entrepreneurship:• both individualism & collectivism• both low & high power distance• low & high! uncertainty avoidance• Controlling for GDP

e.g., Hofstede et al., 2004; Hayton et al., 2002; Wennekers et al., 2007

• Uhlaner & Thurik, 2007: Materialism (as opposed to postmaterialism) associated with entrepreneurship

Evidence: Cultural Values and Entrepreneurship? II

Limitations of Nation-Level Research so far:

• Wide range of entrepreneurship indicators used as dependent variable (new firm formation, innovation, self-employment) – makes direct comparison of results difficult

• Mix of regional and national level studies

• Critique of Hofstede’s dimensions (measurement quality, ‘age’/lack of stability – collected 1968-72, e.g. Spector et al., 2002; Smith, 2004)

• Values seem to be mainly individual-level constructs (Fischer & Schwartz, 2011),and relative distal to actual behavior (more closely related to decision-making and attitudes) – thus, values might not be the “right” cultural variable to look at

• Indeed, past research suggests that cultural values are generally only weakly related to descriptions of actual cultural behavior and indices of societal effectiveness (Fischer, 2006; House et al., 2004; Javidan et al., 2006; Peng et al., 1997; van Oudenhoven, 2001).

Evidence: Cultural Values and Entrepreneurship? III

3. Current Research: A Cultural Norms Perspective on Culture and Entrepreneurship

Stephan, U. & Uhlaner, L. (2010). Performance-based vs. Socially supportive Culture: A Cross-national Study of Descriptive Norms and Entrepreneurship.Journal of International Business Studies, 41, 1347-1364.

Back to Definitions of Culture

Culture is the collective programming of the mind that distinguishes themembers of one group or category of people from another (Hofstede, 1980/2001) Culture “in” the person

But culture has also been defined as: • “… a collective creation. It is socially constructed by human beings in

interaction with others”. (Crushner & Brislin, 1996, p. 6) • “… a cultural group's characteristic way of perceiving its social

environment….” (Triandis, 1996)

I suggest a view of culture that bridges cross-cultural psychology, institutional sociology and new institutional economics (e.g., Stephan & Uhlaner, 2010):

• Culture as informal institutions - i.e., patterns or repetitions of common behaviors and practiced codes of conduct - which structure societal interactions (Barley & Tolbert, 1997; Hatch & Cunliffe, 2006; North, 1991).

• Culture influences behavior of its members by providing a ‘dominant logic of action’ (Swidler, 1986).

Cultural Practices/Norms• are characteristic behaviors displayed by most people within a culture as

observed by members of that culture (Fischer, 2006, 2008; Fischer et al., 2009; Shteynberg, Gelfand, & Kim, 2009; Stephan & Uhlaner, 2010).

• Individuals and organizations conform (more or less consciously) to these norms by repeating behaviors which are typical for their own societies(Cialdini, 2003; Cialdini & Trost, 1998; Fischer, 2006; Powell & DiMaggio, 1991; Shteynberg et al., 2009).

• Measurement: Respondents describe actual typical, i.e. shared behavior in their society, need to satisfy statistical tests for “sharedness” (e.g., House et al., 2004)

Cultural Norms

Cultural Norms = important context for individual actions, not yet well researched with regard to entrepreneurship

Which cultural norms relate to national entrepreneurship?

• GLOBE study (House et al., 2004): only measure of cultural norms that is well-validated, conceptually coherent and available for many cultures

• various dimensions, which can be summarized into higher-order dimensions (Peterson & Castro, 2006, also Hofstede, 2006) two relevant for e’ship

• Replication of Peterson & Castro (2006) second-order factor analysis (Gorsuch, 1983), N=40 countries, Varimax rotation:

0.750.86Cronbach’s Alphab

24.1649.15Variance explained (%)0.770.880.07Assertivenessa0.85-0.910.13Humane orientationa0.56-0.10-0.74In-group collectivism0.660.26-0.77Power distance0.66-0.090.81Performance orientation0.810.020.90Uncertainty avoidance0.820.030.90Future orientationh²

Socially supportiveCulture

Performance-BasedCulture

Performance-Based Culture and Socially-Supportive Culture

Performance-based culture • rewards individual accomplishments (vs collective membership, family

relationships or position) and encourages systematic, future-oriented planning as a key way to achieve high performance.

• High: Anglo, Germanic & Nordic Europe, Low: Latin American, Latin & Eastern Europe

Socially supportive culture (SSC)• How people typically interact with and treat one another (e.g., concerned about

others, friendly, and tolerant of mistakes vs. dominant, assertive, and tough, House et al., 2004):

• high SSC=positive societal climate in which people support each other- SSC as a direct measure of social capital as an ‘instantiated informal norm

that promotes co-operation’ (Fukuyama, 2001:7), i.e. a descriptive norm based on repeated experiences of supportiveness and helpfulness

- Consistent with weak-tie social capital view, and earliest social capital research as ‘goodwill, fellowship, sympathy and social intercourse’ (Hanifan (1916:130),

• High: Southern & Confucian Asian, Anglo, Nordic Europe, Low: Germanic, Eastern & Latin Europe

• Performance-based culture and Socially supportive culture (N=61 cultures, based on Stephan & Uhlaner, 2010, drawing on data provided by the GLOBE study, House et al., 2004)

Performance-Based Culture and Entrepreneurship

Performance-based culture- rewards individual accomplishments (vs collective membership, family

relationships or position) and encourages systematic, future-oriented planning as a key way to achieve high performance.

- is a facilitative context for entrepreneurship, because it encourages achievement-striving and planning behaviors

- Entrepreneurship = achievement orientated activity (e.g., McClelland, 1976; Rauch & Frese, 2007), a performance based culture encourages and recognizes the individual achievements of successfully founding and running a firm

- Planning important for successfully founding and running a firm,prevents abandoning of firm formation process and failure of existing firms (e.g., Brinckmann et al., 2008; Delmar & Shane, 2003, Frese et al., 2007; Miller & Cardinal, 1994; van Gelder et al., 2007)

Hypothesis 1. PBC is positively associated with national entrepreneurship rate.

Socially Supportive Culture and Entrepreneurship

Socially supportive culture (SSC)

- entrepreneurs in high SSC are likely to receive more help and support in founding and running their enterprise, i.e. the higher weak-tie social capital of SSCs will facilitate entrepreneurship

- Multiple, mutually reinforcing mechanisms likely at play:

- Nation-level social capital literature suggests: ease of sharing of information (Adler & Kwon, 2002), reduced need for monitoring and formal control (Portes, 1998: 10), and lower transaction costs due to a heightened tendency to cooperate voluntarily (Fukuyama, 2001)

- Individual-level: more resources (information, money, emotional support) available through networks (e.g., Aldrich et al., 1987; Bruederl & Preisendoerfer, 1998, Burt, 1992, O’Donnell et al., 2001, Uzzi, 1997)

Hypothesis 2. SSC is positively associated with national entrepreneurship rate.

Method

Sample: 40 countries (from five continents)Argentina, Australia, Austria, Bolivia, Brazil, Canada, China, Colombia, Denmark, Ecuador, Egypt, Finland, Germany, Greece, Hong Kong, Hungary, India, Indonesia, Iran, Ireland, Israel, Italy, Kazakhstan, Malaysia, Mexico, The Netherlands, New Zealand, Philippines, Russian Federation, Singapore, Slovenia, South Africa, South Korea, Spain, Switzerland, Thailand, Turkey, United Kingdom, United States, and Venezuela

National Entrepreneurship Rates: Global Entrepreneurship Monitor(e.g., Reynolds et al., 2005)

- Based on population representative survey (18 – 64years of age), min. N = 2000- Averaged for years 2005 – 2008 (high stabilities)

1) new business owner rate (actively manage a business for less than 42 months)2) established business owner rate (businesses older than 42 months)3) independence-motivated new business owner rate4) innovative new business owner rate

Method

Cultural Norms: Project GLOBE (House et al., 2004)

• Phase 2 of GLOBE (1994-1997): questionnaires in 62 cultures, N>17,000 middle managers from 951 local companies (three industry sectors)

• Good internal consistency, interrater agreement; multi-level confirmatory factoranalyses, validation etc. (see House et al., 2004)

Control variable/alternative explanation: National wealthGross Domestic Product (GDP) per capita in purchasing power standards, averaged for 2005 – 2008 (International Monetary Fund, 2007)

13,458.6.42.319.1913.17.35.43.74.67 4.46 3.95SD21,421.92.743.3965.6048.473.963.59.97-.098.215.43MEAN(1.00/-).76***.12-.41**-.44**-.34*64***-.24.03-.43**-57*** 11.GDP

(.94/.96)

.46**-.15-.48***-.1172***-.10.12 -.27t-.34*10. Entrepreneurialframework cond.

(.89/.69)

.36*.03.45**.45**.31t.29t.15.18 9. Opportunity existence

(.69/.60)

.45**.52***-.1751***.48** .57*** .64*** 8. Social desirability of entrepr.

(.82/-).33*-.21.34*.41** .56***.55*** 7. Entrepreneurial self-efficacy

(-/.75)

.01.50***.43** .45*** .51*** 6. Socially-supportive culture

(-/.85)

-.11.18-.28t.31t5. Performance-based culture

(.71/-)66*** 69*** .79***4. Innovative new business owner rate

(.83/-)66*** .71*** 3. Independent new business owner (ln)

(.79/-)88*** 2. Established business owner rate

(.93/-)1. New business owner rate

1110987654321

In diagnonal average 4-year retest-reliabilities / cronbach’s alpha for multi-item indices

Results

• Positive effects of SSC but not PBC on Entrepreneurship support for H2 but not H1

The successful entrepreneur may be a tough-minded, autonomous individual (e.g., Rauch & Frese, 2007), but s/he prospers best in a socially-supportive culture, rich in (weak-tie) social capital.

Well, perhaps it’s a bit more “complicated” …

• Some argue: the immediate antecedents of entrepreneurship are through supply- and demand-side factors, and

• National culture is a background variable impacting supply- and demand-side factors e.g., Thornton, 1999, Levie & Autio, 2008, Verheul et al., 2002, Wennekers, 2006

• Commonly discussed supply- and demand- influences on national entrepreneurship rates that are likely impacted by PBC and SSC

Demand

• National framework conditions

• Opportunity existence

Supply

• Social Desirability of Entrepreneurship

• Entrepreneurial Self-efficacy

Demand-Side

• society tends to build institutions that are consistent with that society’s norms (Baumol et al.,2007; Fukuyama, 2001; Levie & Autio, 2008; Licht, Goldschmidt, & Schwartz, 2007; Pryor, 2007).

• high PBC, with emphasis on prediction, efficiency and individual accomplishments associated with clear government regulations for start-up and transparent, fair and equal access to resources (Djankov et al., 2002).

• efficient institutions, in turn, are regarded as the major influence on the existence of entrepreneurial opportunities (Levie & Autio, 2008; Verheul et al., 2002).

H3. PBC is positively associated with a) more favorable national environmental framework conditions and b) higher opportunity existence; and

H4: Environmental framework conditions mediate the relationship between PBC and opportunity existence.

Supply-side

• entrepreneurship as performance- and achievement-oriented activity (e.g., Collins et al.,2004; McClelland, 1976; Rauch & Frese, 2007), consistent with the norms of a PBC

• Thus entrepreneurship may be perceived as socially desirable in a high PBC.

H5: PBC is positively associated with the social desirability ofentrepreneurship.

• socially supportive environments are positively associated with self-efficacy beliefs (Choi & Chang, 2009; Choi, Price, & Vinokur, 2003), because such an environment allows a person to experiment with new ways of doing things ‘‘without fear of appraisal, and frequent and open exchanges of feedback’’(Choi et al., 2003: 360; also Anderson & West, 1998; Edmondson, 1999).

H6. A SSC is positively associated with higher self-efficacy beliefs.

Method

Demand ConditionsOpportunity existence. prevalence of opportunities for entrepreneurship,

independently assessed by GEM Expert PanelEntrepreneurial framework conditions– based on Factor analysis, mean for

seven subindices of quality of entrepreneurial framework conditions, independently assessed by GEM Expert Panel:government policies, governmental regulations, research and development activity, physical infrastructure, services, intellectual property rights protection and formal support specifically for high-growth businesses

Supply ConditionsSocial desirability of entrepreneurship. Based on GEM adult population survey

mean of three items 1) most people consider starting a new business a desirable career choice; 2) you often see stories in the public media about successful new businesses; and 3) those successful at starting a new business have a high level of status and respect.

Entrepreneurial self-efficacy. Based on GEM adult population survey (random half entrepreneurially active and in-active) Do you have the knowledge, skill and experience required to start a new business? (see Arenius & Minniti, 2005; Koellinger, 2008).

Results

• SSC associated with supply-side (entrepreneurial self-efficacy, social desirability of entrepreneurship) and opportunity existence on demand-side

• PBC associated with demand-side (opportunity existence and framework conditions)

• However, only supply-side (not demand-side) variables associated with entrepreneurship rates

• Effect of SSC on entrepreneurship mediated by supply-side (desirability of entrepreneurship, self-efficacy)

Implications I

• First study to relate cultural norms (vs. cultural values) to entrepreneurship• Performance-based culture influences demand-side, but not

entrepreneurship rates, • while socially supportive culture affects entrepreneurship largely

through supply-side

• Demand-side results consistent with research reporting weak to negative relations between entrepreneurial framework conditions and entrepreneurship (Levie & Autio, 2008; Van Stel et al., 2007). – evolutionary perspective would suggest that although efficient formal

institutions create opportunities and access to resources for new firms, at the same time they also create increased competition, thus potentially squeezing out new firms (Aldrich & Martinez, 2001; Swaminathan, 1996)

Implications II

• Societies with a socially supportive culture, i.e. a culture rich in weak-tie social capital in the mid 1990s have higher rates of entrepreneurship (new and established business owners, independence-motivated and innovative) roughly 10 years later

people in these cultures likely receive more support & resources through (larger) personal networks and feel safe to experiment and to take risks, thereby building entrepreneurial self-efficacy

SSC – desirability of entrepreneurship: such cultures are more inclusive and more accepting of minority groups (e.g. Fukuyama, 2001; Uslaner, 2004) and entrepreneurs may be seen as a minority (e.g. 5-10% of adult population on average engaged in entrepreneurship)

Methodological implications

Methodological Implications

• Second-order factor analysis on dimensions of cultural norms and criterion validation with regard to entrepreneurship advances research on culture by reducing dimensionality, and thereby alleviating multicolliniearity issues for comparative reserach

• SSC as a new measure of social capital, consistent with the core defintionof social capital (instantiated norms facilitaing cooperation, Fukuyama), may help advance social capital research plagued with measurement problems

Take home -- First conclusion from Norms and Entrepreneurship research

The successful entrepreneur may be a tough-minded, autonomous individual (e.g., Rauch & Frese, 2007), but s/he prospers best in a socially-supportive culture, rich in (weak-tie) social capital.

4. Future Directions

• Still a young, but significant research field – due to the economic significance of entrepreneurship. – i.e. lots of research opportunities abound!

• Research focus by and large on connecting culture with entrepreneurship (rates), but HOW culture influences entrepreneurship is still very much a black box. – The decision to engage in entrepreneurship is an occupational choice

which can be modelled e.g. with Theory of Planned Behavior (e.g. Iakovleva, Kolvereid & Stephan, 2011)

• Entrepreneurship is a process (occupational decision engaging and sustaining entrepreneurial behavior): Are certain concepts of culture more important for one part than for the other (e.g. values vs. practices)?

• Are different types of entrepreneurial activity susceptible to different cultural influences? E.g. female entrepreneurship to gender egalitarianism

• Is it the dominant culture, or are certain subcultures that are relevant? Is it perhaps the strength/tightness vs. looseness of culture (cf. Gelfand et al., 2006, 2011) that is relevant?

• Clarify further the interplay of culture/informal institutions with formal institutions (e.g. the rule of law) and other antecedents of entrepreneurship

• And the BIG question… How would an intervention look like to make a culture more entrepreneurial? – The underlying question is how to change culture…

• Insights on how culture influences entrepreneurship also feed back to enrich theories of culture on topics such as – Clarifying the culture-behaviour link– Cultural homogeneity vs. heterogeneity – Culture strength– Culture change

Thank you!

U.Stephan@sheffield.ac.uk