Entrepreneurship development in China : a multilevel approach

In: Zhang , Y 2013 , ' Entrepreneurship development in China : a multilevel approach ' , Doctor of Philosophy , Industrial Engineering and Innovation Sciences , Eindhoven . https://doi.org/10.6100/IR748517

Abstract

Studies of entrepreneurship focus on one of three areas: entrepreneurship as an engine to drive national economic growth, CE as an instrument to facilitate corporate performance, and individual EI as the source of entrepreneurial behavior. There has been rapid development and corporate catching-up in emerging economies, such as BRIC, but there are few studies of entrepreneurship in this environment. In the context of China, the largest emerging country in the world, this dissertation addresses the research question: How does entrepreneurship develop in China at the national, corporate, and individual levels? Entrepreneurship has played a significant role in China's rapid growth; Huang (2010) presented evidence for this. However, China's entrepreneurship development cannot be isolated from its transitional environment, which has involved political and economic reforms. To explore entrepreneurship development in the recent economic transition stage, in chapter 2, I first asked: what stage has entrepreneurship in China reached? To answer this question, one must select the transitional pillars that are important in the context of Chinese reform. As explained in Chapter 2, I chose four: GDP per capita to reflect the standard of living and poverty reduction, educational resources to reflect reform in the national institutional system (the heavy investment in higher education), FDI to reflect the open economy, and the unemployment rate to reflect the consequences of reform in state-owned sectors. Before evaluating the impact of these four factors on entrepreneurial activities in China, I discussed the Chinese entrepreneurship environment, beginning at the start of the economic reform at the end of the 1970s. I then showed the evolution of entrepreneurial development, with its lower-case-v shape. GDP per capita increased from 1996 (the year that private entrepreneurship was formally acknowledged) to 2008. This corresponds to China's economic transition: from the factor-driven phase to a transitional stage between the factor-driven and efficiency-driven phases, and then to the efficiency-driven stage. Taking this into account, I focused on the most recent transition stage (the efficiency-driven stage) and analyzed the impact of economic transition (in terms of the four pillars) on entrepreneurship development. The results reveal the positive impact of China's economic transition on entrepreneurship development. Typically, GDP per capita has a significant inverted-U-shaped impact on entrepreneurship, which reflects the government's focus on state sectors and urban infrastructure since 2007 (to reduce the marginal rate of increase in self-employment). Educational resources and economic openness are positively related to entrepreneurship (and have a positive interactive impact economic growth), corresponding to GEM's report (GEM Global Report, 2008), which states that Chinese entrepreneurs are likely to be highly educated. Unemployment has a positive push effect and a negative interactive effect on GDP per capita, demonstrating that China's entrepreneurship had developed (by 2008) into a transitional phase between necessity-based and opportunity-based. Unemployed people are likely to prefer wage employment to self-employment, which is consistent with the efficiency-driven development stage of that time. This study contributes to empirical studies on the relationship between the economic-development stage and entrepreneurship development. It provides another view of entrepreneurship development in a transitional economy. Moreover, this study contributes to the debate on the Beijing consensus versus the Washington consensus. In terms of the former, this study indicates that entrepreneurship development in China is government-led and owes much to the governmental initiation of institutional transition. However, the results suggest that the ex ante dimensions of entrepreneurship development correspond to the requirements of the Washington consensus (at least in terms of economic openness). Hence, I take a middle position in this lively debate: I believe that China's development is driven by both scenarios. At the political level, which I argue is the framework level, China follows the Beijing consensus, because it has long-term political decision-making (by a single political party) and experimentation-based policy development (defined by Deng Xiaoping). At the micro level however, economic development is driven by the Washington consensus. China is trying to build up a formal institutional framework that supports private property rights, economic openness, financial reforms, macroeconomic stability, and political liberalization. There is a contradiction between the political liberalization defined by the Washington consensus and the current situation in China. However, I still argue that, as a result of the government's proactive behavior, quiet progress is being made on every disputed issue (including liberalization). Chapter 2 investigated Chinese entrepreneurship development at the macro level. I explored corporate entrepreneurial development and its impact on corporate catching-up. The catching-up concept originated in the economics field at the national level. The investigation of corporate catching-up, especially for emerging countries, is challenging because there is a theoretical deficit. National catching-up theory indicates that innovation is essential for catching-up and social advance is a necessary precondition for catching-up (Abramovitz, 1986). I assumed that similar arguments would apply to corporate catching-up, and I wanted to explore the underlying mechanism. I used CE theory, resource-based theory, dynamic-capability theory, and network theory to explain my corporate catching-up framework. I tested the framework in chapter 3 with a case study of Huawei Technologies Co., Ltd. The results show that social capability helps a firm to acquire social capital, diffuse technology and knowledge, improve its social status, address resource gaps, and explore opportunities. Moreover, the results indicate that catching-up firms are similar to entrepreneurial firms in terms of growth-orientation, innovation, and alertness. CE strategies, particularly collaboration-based networks, facilitate corporate catching-up. Huawei's growth indicates that networking improves social capability and allows a company to exploit and explore new technologies and new opportunities. I also made peripheral findings. For instance, the integration of the three network layers is an overall approach for corporate catching-up. This is because of the structural, relational, and cognitive social capital gained from networks for knowledge acquisition, transfer, sharing, and creation internally and externally. Structurally, a sparse interfirm network with increased network composition and strong ties can coexist with a cohesive intrafirm network. This facilitates external opportunity exploration and internal opportunity exploitation. Moreover, the industrial-district network provides a snapshot of intrafirm and interfirm networks in a particular location. Theoretically, this work supports corporate catching-up theory, enriches social network theory, and provides support for the aggregation of strategic alliances, M&As and corporate venturing in an open-innovation paradigm. This study provides empirical evidence for the process by which people exploit opportunities within existing organizations (Shane, 2012). Practically, this work has many strategic implications for latecomer catching-up firms. Chapters 2 and 3 presented a partial picture of China's entrepreneurship development. Chapter 2 indicated that China's entrepreneurship is moving from necessity-based to opportunity-based, and higher education now plays a role. Chapter 3 showed that corporate catching-up is closely associated with individual EI and behavior. Any entrepreneurial behavior can be traced down to the individual level. Krueger (1993) indicates that intentionality is a predictor of entrepreneurial behavior. Therefore, it is important to understand the determinants of EI endogenously and exogenously. Given the results of chapters 2 and 3 and the observation that the emerging generation of entrepreneurs has more education, I predicted that there would be several influential factors. These are the perceived desirability, the perceived feasibility, and the entrepreneurship cognition developed through education or exposure to entrepreneurial activity. Therefore, chapter 4 aimed to identify the role of education in shaping individual entrepreneurial intention. It indirectly contributes to the discussion about whether entrepreneurs are born or made. I used a conceptual framework (Fig. 4.1) based on Ajzen's TPB and Shapero's EEM. The data were collected via a survey of ten Chinese universities. The results show that education is the major source of entrepreneurship knowledge and has a significant positive impact on EI. However, exposure to entrepreneurial activity has a negative impact on EI in China. More interestingly, the results show that males and students with technological backgrounds have higher EI than females and those without this background. These results are strengthened by the moderate impact of entrepreneurship education, which indicates that such education is more likely to have positive consequences for technological universities and majors than for other universities and majors. This work makes contributions in two areas. (1) By adapting the TPB (Ajzen, 1991) and the EEM (Shapero & Sokol, 1982), this study contributes theoretically by integrating the two streams of theory. I have shown the role of entrepreneurial knowledge in the EI model and compared the impact of different variables on EI. (2) This study contributes to empirical knowledge by providing supporting evidence. Entrepreneurship research should focus (Mitchell et al., 2007) on person, situation, cognition, and motivation. This study provides evidence for the source of individual entrepreneurial cognition in the Chinese context. Shane and Venkataraman (2000) argue that entrepreneurship should be seen as a process and not as the embodiment of a type of person. Following this, I argue that in terms of opportunity identification, evaluation, and exploitation this process is important not only at the individual level but also at the corporate and national levels. Recently, Shane (2012) has claimed that existing studies of entrepreneurship do not provide a sufficient understanding of how the context influences the identification and exploitation of opportunities. However, we do have a better understanding of the process by which people exploit opportunities within existing organizations. I have provided evidence for and insight into this topic in the context of emerging and transitional economies. Regarding the process perspective of entrepreneurship (Shane, 2012), the three core chapters of this dissertation loop as a reciprocal process between (1) the EI-formation process, which can be the ex ante step of identifying and exploiting high-potential opportunities (Chapter 4), (2) the process of identifying and exploiting catching-up opportunities in existing organizations (Chapter 3), and (3) the process of understanding the impact of institutions and corporate characteristics on entrepreneurship (Chapter 2). This loop can be explained as follows: first, process (2) cannot work without process (1), because corporate identification and exploration are carried out by individuals. Secondly, process (1) depends on process (2), because process (2) involves actors in process (1). The relationship between process (3) and process (2) is similar, meaning that if process (3) at the national level is entrepreneur-friendly, the development of process (2) is facilitated, and this leads to more efficient entrepreneurial progress. Meanwhile, process (2) helps to drive process (3) at an aggregate level.