AND BEYOND
Institutions and Entrepreneurship
Institutions and Entrepreneurship
• Cognitive, normative, and regulative environment.
– Cognitive: shared perceptions about the boundaries and viability of new kinds of economic activity.
– Normative: normative actors-explicitly shape social norms and values (social movement organizations, professions, industry associations, certification organizations, status hierarchies).
– Regulative/coercive: laws and administrative guidelines that constitute basic rules governing market transactions/Coercive actors. Rule of law, corruption,
Institutional
Environment
New venture structure & processes
Opportunity creation
Opportunity exploitation
Nascent Entrepreneurship• Liability of newness (cognitive)
– Legitimacy– Networks– Reputation
• Liability of size – Limited resources
• May lack normative support (industry associations)
• Powerful incumbents
• Institutional inertia (existing structures favor incumbents)
My Focus
• How does the relative capacity of political institutions to enforce policy enable or constrain entrepreneurial processes and outcomes?
Cocaine processing lab under attack
Alfonso Cotes(2011) & Blockbuster (2009)
Miguel Barrios & Michael Cobb
New Power StructuresThe Tunisian Revolutionaries
Institutional Failure
• Political institutions can have profound impact on fledgling organizations (Weber, 1978)
• The “most remarkable features of institutions” is that “they enable newly organized actors to act” (Fligstein, 2001)
• Political turmoil—local confrontations inspired by or oriented to the wider national political scene—is a salient phenomenon (Carroll, Delacroix, Goodstein, 1988)
Colombian entrepreneur
Institutional Failure• Stichcombe’s call to take into account
impact of political stability and conflict on organizations (1965:169)
• New firms benefit from strong, stable, supportive state infrastructure (Aldrich, 1979; Pearce, 2001)
• Political turmoil favors agile and innovative firms
• Individual and organization rigidifying effects
• In contexts of high uncertainty, entrepreneurs face greater challenges in garnering the necessary support, such as labor, capital, and customers, needed to survive the first few years after founding (Sine, Haveman, & Tolbert, 2005)
Bogotá 1947
Institutional Failure• Increases risk• Decreases trust• Decreases risk taking &
exploration
• 1 standard deviation increase in violence
– Failure of 120,000 new ventures
– Loss of 250,000 jobs
– Increases the probability of failure by 150%
Bogotá 1947
Regime Change• Increases uncertainty
and risk• Changing regulatory
regimes• Reduces benefit of old
regime ties
• • Increases failure by
620%
Bogotá 1947
Corruption• Increases uncertainty &
risk
• Increases the cost of doing business
• Increases failure by 120%
How do these environments affect Entrepreneurial processes & strategies
• Planning
• Networking
Networking
• Network building activity & venture survival
• Political turmoil influences entrepreneur’s sense of uncertainty
• Most research on networks focus on benefits of ties without looking at costs and risks of engaging in network-building activities
• Trust required to reach out to non-redundant ties
• Network-building activities are likely to be perceived as more risky when PT is high
Colombian bootlegger entrepreneur: Licor de panela producer and retailer
planning, network building, and political turmoil
• Network building venture survival
• Political turmoil venture survival
• Political turmoil moderates business planning
• Political turmoil reduces networking, thereby increasing failure
With military ties Without military ties0%
10%
20%
30%
40%
50%
60%
70%
80%
Percentage of Firms that Fail
With military ties Without military ties0%
1%
2%
3%
4%
5%
6%
7%
8%
9%
10%
Percentage of Firms Expropriated
Military ties and venture survival
• Military ties offers new ventures benefits:
– Governmental support, exports – Protection – Business contracts – Credibility
General Than Shwe, Burma
Egypt’s Higher Military Council, 2011
Synd. Condor
• Fritz Hammer, July 1927
• German investors• German
technologists• Brazil’s largest
airline by 1935• Expropriated 1943
Otto Ernst Meyer, April 1927
German investors German
technologists Brazil’s 2nd largest
airline by 1935 Major Alberto Bins Audience w/state
assembly-state tax subsidy
VARIG
Contingency of military ties: Military resources
• Military resources may improve benefits of military ties (Pfeffer & Salancik, 1978)
• Indicator of its influence over civilian government
• Indicator of coercive power
Contingency of military ties: Political instability
• Political instability may increase military autonomy & benefit of ties
• Special protection from criminal networks, violence, heavy handed government responses.
Contingency of military ties: Foreign ownership
• Ventures with foreign ownership experience negative impacts of national sentiment
• Popular way for civilian governments to build political support: Evo Morales in 2006
• Government treatment to domestic vs. foreign
Contingency of military ties: Competitive markets
• Military ties can provide access to scarce resources and information.
• Access to limited credit (Faccio, Masulis, & McConnell, 2006)
Expropriation
Military Tie reduces the rate of expropriation by 86% Foreign ownership increases the rate of expropriation by 10x Having a military tie mitigates the negative effects of foreign ownership
Results: Failure Analysis Military ties reduces the rate of failure by approx. 53%
Regime change increases the impact of military ties
Military ties are more effective in countries in which the military is more powerful
Military ties mitigates the negative effect of foreign ownership
Military ties reduces the negative effect of domestic conflict
Military ties reduces the negative effect of inter and intra industry competition
Conclusion
• Institutional environments shape– Founding– Growth– Entrepreneurial processes
• We need more research that examines how institutional environments shape nascent entrepreneurs
• Institutional theory in sociology– Power is a missing component
– In complex environments with weak political institutions, we need to take coercive actors seriously General Augusto Pinochet
Nascent Entrepreneurship• Liability of newness (cognitive)
– Legitimacy– Networks– Reputation
• Liability of size – Limited resources
• May lack normative support (industry associations)
• Powerful incumbents
• Institutional inertia (existing structures favor incumbents)
Key Question: How does one obtain such affiliations
Affiliations are now a central topic in my international courses.
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