Research on Entrepreneurship in Developing Countries

Entrepreneurship has been continuously linked to economic development of countries and has often been championed as a key path for transforming developing countries toward greater economic growth, innovation, competitiveness and alleviation of poverty.[1] However, researchers have bemoaned the fact that, as described by Lingelbach et al., “. . . entrepreneurship in developing countries is arguably the least studied significant economic and social phenomenon in the world today”.[2]  For example, while as of 2004 there were literally hundreds of millions of “entrepreneurs”, generally defined as owners of managers of new firms, in developing countries as opposed to just under 18 million entrepreneurs in the US[3], leading books on entrepreneurship research often had no more than a handful of pages on entrepreneurship in important developing countries such as China and India.[4]  Research on entrepreneurship in developing countries is important for a number of reasons, not the least of which is providing policymakers with a better idea of how to encourage entrepreneurship as part of an overall strategy for private sector development in developing countries.  A strictly Western model of entrepreneurship is not apt to work well in developing countries due not only to differences in societal culture but also the distinctive nature of entrepreneurship in emerging markets where resources readily available in developed countries are scarce or even non-existent.[5]

Decolonization was the trigger for the first attempts to study entrepreneurship in developing countries and most researchers have, until recently, focused their attention on small-scale industrialization[6] and microenterprises.[7]  As time has gone by, and initiatives such as the GEM were launched, the analysis of entrepreneurship in developing countries has become more nuanced and it is now recognized that entrepreneurial firms in those countries can fall into one of several different categories such as newly established, established by not growing, established but growing slowly, and graduates to a larger size.[8]  This movement has opened the door for studying a small, yet very important, subset of businesses in developing countries: new firms formed with a growth-orientation and strategies tied to entry into global markets.  It is apparent that there are now a number of promising areas for further research with respect to entrepreneurship in developing countries, all with important policy implications for governments looking to stimulate economic growth and development.[9]  Lingelbach et al., for example, offered up the following list as a suggested research agenda for entrepreneurship in developing countries[10]:

• Increased focus on new and growth-oriented firms in developing countries, which are important given that these firms are most likely to contribute to economic growth and provide new sources of higher quality employment in developing countries;
• Analysis of the dynamics of firm creation and destruction in developing countries;
• Analysis of the strategies used by entrepreneurs in developing countries to overcome poor access to finance including the use of funds provided by personal savings and intra-familial financial linkages;
• Further exploration of the link, if any, between the general business environment and the level of entrepreneurial activities in poorer countries;
• Development of more information on “models of success” among entrepreneurs in developing countries in order to provide a better picture of the common features of successful entrepreneurship in developing countries and the extent to which those features differ from successful entrepreneurship in the US and other developed countries;
• Development of strategies for designing markets for entrepreneurial finance in developing countries including introduction of various methods for managing risk such as hedging and insurance;
• Application of behavioral economics and finance to entrepreneurship in developing countries to determine how cognitive biases identified by researchers in those fields vary in entrepreneurs in developing countries; and

Development of models of entrepreneurship that adequately take into account how entrepreneurship is carried out in developing countries.[11]

This post is part of the Sustainable Entrepreneurship Project’s extensive materials on  Entrepreneurship.

[1] D. Landes, The Wealth and Poverty of Nations (New York: W.W. Norton, 1998).

[2] D. Lingelbach, L. De La Vina and P. Asel, What’s Distinctive about Growth-Oriented Entrepreneurship in Developing Countries? (San Antonio, TX: UTSA College of Business Center for Global Entrepreneurship Working Paper No. 1, March 2005), 1.  For detailed discussion of the scope of research conducted in the field of international entrepreneurship, see “Entrepreneurship: A Library of Resources for Sustainable Entrepreneurs” prepared and distributed by the Sustainable Entrepreneurship Project (www.seproject.org).

[3] P. Reynolds, W. Bygrave and E. Autio, Global Entrepreneurship Monitor: 2003 Executive Report, 2004.

[4] A. Bhidé, The Origin and Evolution of New Businesses (New York: Oxford University, 2000).

[5] For discussion of the influence of societal culture on entrepreneurship, see “Entrepreneurship: A Library of Resources for Sustainable Entrepreneurs” prepared and distributed by the Sustainable Entrepreneurship Project (www.seproject.org).

[6] See, e.g., H. Schmitz, “Growth Constraints on Small-scale Manufacturing in Developing Countries: A Critical Review,” World Development, 10(6) (1992), 429-450.

[7]   See, e.g., M. Robinson, The Microfinance Revolution (Washington: World Bank, 2001-2).

[8]  C. Liedholm and D. Mead, Small Enterprises and Economic Development (London: Routledge, 1999).

[9] See, e.g., M. Harper, “The role of enterprise in poor countries”, Entrepreneurship Theory and Practice, 15(4) (1991), 7–11; A. Gibb, “Small business development in Central and Eastern Europe—Opportunity for a rethink?”, Journal of Business Venturing, 8 (1993), 461–486; D. Audretsch, The role of small business in restructuring Eastern Europe (Vaxjo, Sweden: 5th Workshop for Research in Entrepreneurship, 1991).  Other studies that have identified entrepreneurship as a critical factor in national economic development include S. Birley, “New ventures and employment growth”, Journal of Business Venturing, 2(2) (1987), 155-165; P. Reynolds, “New firms: Societal contributions versus survival potential”, Journal of Business Venturing, 2(3) (1987), 231-246; M. Morris and P. Lewis, “Entrepreneurship as a significant factor in societal quality of life”, Journal of Business Research, 23(1) (1991), 21-36; and S. Shane, L. Kolvereid and P. Westhead, “An exploratory examination of the reasons leading to new firm formation across country and gender (Part 1)”, Journal of Business Venturing, 6(6) (1991), 431-446.  For further discussion of research activities relating to entrepreneurship see “Research on Entrepreneurship” in “Entrepreneurship: A Library of Resources for Sustainable Entrepreneurs” prepared and distributed by the Sustainable Entrepreneurship Project (www.seproject.org).

[10]  D. Lingelbach, L. De La Vina and P. Asel, What’s Distinctive about Growth-Oriented Entrepreneurship in Developing Countries? (San Antonio, TX: UTSA College of Business Center for Global Entrepreneurship Working Paper No. 1, March 2005), 7-8.

[11] Lingelbach et al. commented that most of the models of entrepreneurship, such as the uncertainty/investment/profit diagram developed by Bhide, are based primarily on research conducted in the US and other developed countries.  Id. at 2 (citing A. Bhidé, The Origin and Evolution of New Businesses (New York: Oxford University, 2000)).