Understanding the interplay of cultures, private and public institutions, and local economic conditions is critical to incubating the entrepreneurial spirit in developing countries. That’s the conclusion of a new study “Exploring Country-level Institutional Arrangements on the Rate and Type of Entrepreneurial Activity” by Dr. Robert Wuebker, a postdoctoral fellow at the University of Utah’s David Eccles School of Business.
Not taking those varied, unique factors into consideration when funding, launching and marketing a product can waste the potential for “innovative, high-growth new ventures” in underdeveloped regions of Eastern Europe, Asia, the Middle East and Africa.
Wuebker and colleagues Pekka Stenholm of Finland’s Turku Institute for Advanced Studies and Zoltan Acs, director of George Mason University’s Center for Entrepreneurship and Public Policy, acknowledge that a lack of empirical understanding in those regions “has, to date, produced mixed, muddled results.”
“Despite decades of attention, scholars have struggled to explain precisely why rates of entrepreneurial activity differ across such countries,” says Wuebker. “Researchers were fairly certain that these differences had at least something to do with the things that differ across countries – such as institutions and culture – but research has been surprisingly light on the details.”
“That is not terribly confidence inspiring if you are a policy maker on the hook for finding new businesses that are a good match for a particular nation or region of the globe – and maximizing its future potential for success and growth,” adds Wuebker.
The paper, to be published in a forthcoming edition of the highly-respected Journal of Business Venturing, proposes what Wuebker calls a “fourth institutional pillar” -- in addition to the traditionally considered institutions -- “regulative” (rules, laws, government, etc.), “normative” (values, expectations, duties within a given society), and “cognitive” (culturally based beliefs and ways of thinking, etc.).
That fourth theoretical element would seek to “tease out the relationship” between those institutions and, as a result, the types of ventures that do best. In a nutshell, effective economic development within a given country requires going beyond measuring “quantity” of entrepreneurial activity to understanding how institutions shape the “quality” of those opportunities, says Wuebker.
Such an approach recognizes another truth the paper underscores — different kinds of entrepreneurial activity require “framework conditions” that are multidimensional in order to thrive; there is no one-size-fits-all strategy.
“This particular bit of insight has vast practical applications. If policy makers are interested in merely increasing the rate of entrepreneurial activity in a country, they should focus on regulatory institutional arrangements -- lowering the regulatory burden associated with entrepreneurial activity, providing adequate protection of private property, and making it easy to start a business as well as shut down a business,” Wuebker says.