The Impact of Culture on Entrepreneurial Management - Essay Example

Introduction Entrepreneurship is important for the economic development of a nation. It is an act of creating value by seizing opportunity and utilizing human, social and financial resources (Pfeifer, 2003). It involves a certain amount of risk taking on the part of an entrepreneur. An entrepreneur can be described as a person who creates a new business in the face of risk and uncertainty for the purpose of achieving profit and growth by identifying opportunities and assembling the necessary resources to capitalize those (Zimmerer & Scarborough, 2002). Entrepreneurial management is influenced by various elements of which culture is one such factor. Hofstede defines culture as “the collective programming of the mind, which distinguishes the members of one human group from another…. Culture, in this sense, includes systems of values; and values are among the building blocks of culture” (Hofstede & Hofstede, 2005). Culture is learned and not inherited. Individuals are born into and shaped by that culture which has been existing. This culture influences the way we think, behave and act. Culture can be referred as the acquired knowledge that people use to interpret experience and to generate social behaviour (Rugman & Hodgetts, 2002). Cultural differences can be found at the regional, national, ethnic, and organizational levels. Hence, Hofstede (1991) suggested that cultural influences on organizations "are most clearly recognizable at the national level" (cited by Justin, 2002). This has been the most widely accepted definition of culture and this essay will determine the impact of culture on indigenous entrepreneurs, immigrant entrepreneurs and women entrepreneurs. Literature Review Culture influences attitudes and behavior, varies within and across nations and within and across ethnicities, and is strongly embedded in indigenous communities. (Lindsay, 2005). Culture influences the motives, values, and beliefs of individuals (Hayton, George, & Zahra, 2002) that reflects on their attitudes. In term of business, people would view and conduct their business differently according to their attitude, which is derived from their own culture. “If we learn anything from the history of economic development, it is culture makes all difference” (Landes, 1998). Maznevski et al., (2002) state that culture is a group-level phenomenon, but it influences individuals’ perception, values and behaviour, especially with respect to social interaction. It is thus evident that culture is an important factor of economic success. Culture is a big influence on people, which influences how people enhance their value in every aspect of their life. Entrepreneurial attitude can be measured in terms of achievement, innovation, personal control, self esteem, and opportunity recognition (Lindsay, 2005). Lindsay further clarifies that innovation includes recognizing and acting upon business activities in new and unique ways. Achievement can be associated with business start-up and growth results, while self-esteem includes self-confidence. Personal control involves individual perceptions of control and influence over business affairs. Westwood & Low (2003) assume that creativity is one of key characteristics of entrepreneurial and part of the innovation process. Culture and entrepreneurial attitude relationship Some key elements of culture explain behavioral differences among people such as values and attitudes. Rugman & Hodgetts (2002) illustrate that values are basic convictions that people have regarding what is right and wrong, good and bad, important and unimportant. Therefore, values are motivators of individual behaviour (Maznevski et al., 2002). Cultural values indicate the degree to which a society considers entrepreneurial behaviour, such as risk taking and independent thinking, to be desirable (Hayton, George, & Zahra, 2002). According to Lubart’s (1999) observation, culture influences on the very conception, the processes, and the legitimize direction of creativity with the respect to different domains or social groups, and the extent to which creativity is nurtured. It explains why some cultures produce individuals with higher propensity for entrepreneurial activity than others (Busenitz & Lau, 1996) because creativity is differently conceptualized in different countries and/or culture (Westwood & Low, 2003). High levels of innovativeness were associated with high levels of education (Lee, 1990). Various studies have been conducted to determine the impact that culture has on entrepreneurial management. Entrepreneurship means the motivation to start a new business venture or buy an existing one. Max Weber first emphasized the influence of culture on entrepreneurship. While Weber believes that culture is influenced by religion since religions determines a person’s basic values and beliefs, Hofstede argues that religion alone does not shape culture (cited by Basu & Altinay). Hofstede believes that the individual’s social environment and not their genes shape culture. The different elements that affect the entrepreneurial behavior include religion, language, the attitude to education, and family ties and tradition. These create a sense of identity and influence how an entrepreneur would react. Several scholars have highlighted the impact of different ethnic group cultures on entrepreneurship. Bonacich et al., assert that values like thrift, close family and religious enable some immigrant groups to compete successfully in business (cited by Basu & Altinay). Temporary migrants are more likely to be successful than permanent migrants as the motivation to return to one’s own country induces them to achieve the long-term goals in a short time. Studies have indicated that some immigrant groups like Jews, Americans, Chinese and East African Asians enter entrepreneurship wherever they migrate. The influence of culture on entrepreneurship is confirmed when Herman clarifies that Macedonians in California had low-level occupation because they did not have the cultural tradition or appropriate knowledge to be in high-level occupations. Studies on ethnic minorities have revealed that Asian business success in Britain is really an Indian success story. Pakistanis are less successful than Indians in entrepreneurial ventures. The reasons for these are lack of formal skills, education, savings, lack of family ties, lack of family loans on favorable terms and the influence of religion, which prohibits the payment of interest on bank loans. Further studies indicate that Pakistanis are less willing to integrate with the western culture and hence compared to Sikhs they are less successful. Asian Muslim businesses have not performed as well as non-Muslim businesses. Evidence suggest that influence of culture over entrepreneurship amongst immigrant entrepreneurs may change over time. Besides, although family ties and resources play an important role for the initial start-up of business, cultural factors do not have as much influence on the subsequent business operations. Indigenous entrepreneurs are those that create, manage, and develop new ventures by the indigenous people for the indigenous people (Lindsay, 2005). Indigenous entrepreneurship has both economic and non-economic benefits. Hofstede measures culture in terms of the following dimensions: Power Distance, Individualism-Collectivism, Uncertainty Avoidance, and Masculinity-Femininity (cited by Lindsay). He further clarifies that several cultures can exist within a nation. Australia, for example, is a separate nation with at least 573 distinct Indigenous cultures (Murdoch 1963, cited by Lindsay). The indigenous cultural influence is so intense that individual entrepreneurial values merge with it. In other words, there are no significant differences between Indigenous cultural values and Indigenous entrepreneurial values. Hindle & Lansdowne (2005 state that self-determination and the preservation of heritage are integral parts of Indigenous entrepreneurship (cited by Lindsay). The family, including the extended family, the indigenous seniors, community opinion, the indigenous culture, values, and practices, all play a vital role in influencing individual entrepreneurial attitude. Indigenous culture does shape indigenous entrepreneurial attitude. Community harmony is given the highest priority and ideas, change and progress that threaten the cultural values and practice is avoided. Hence, innovative ideas that do not conform to the indigenous culture are not tolerated by the community and thus suppressed. Hence, cultural influences restrict innovation. Opportunity Recognition (OR) is an important aspect of entrepreneurship. In indigenous cultures, OR is community focused. Indigenous entrepreneurs are expected to mirror and progress community objectives. This influences the way the indigenous entrepreneurs interact with their environment, consequently the OR by such entrepreneurs is low. It is not that they are unable to recognize the opportunities but they fear losing the links with the community. An entrepreneur is expected to possess three main characteristics: innovation, risk-taking and proactiveness (cited by Kreiser et al.,). National culture influences the strategic decision making process of an entrepreneurial organization. The key decision makers within such firms determine the strategic orientation. Out come uncertainties exist in taking risks. Managers in societies that are willing to deal with ambiguities would be willing to take risks. Such entrepreneurs are urged by the motivation to achieve, according to Hofstede. They tend to be assertive and ambitious. Hence, Organizational risk-taking is negatively associated with the level of uncertainty avoidance in a culture. Further studies by Morris, Davis, & Allen (1994) suggest that managers in individualistic countries tend to be more autonomous than collectivist cultures (cited by Krieser). Such managers are more willing to violate group norms and will involve themselves in risky situations. They rely on their own judgment rather than taking group opinion. Managers in individualistic cultures also have a tendency to place a higher value on individual accomplishments than collectivist managers (Hofstede, cited by Krieser). Hence, Organizational risk-taking is positively associated with the level of individualism in a culture. In power distance societies, the status in the social order has to be maintained. Managers with a low power distance would be more willing to involve in risky propositions with a view to improving their firm’s standing. Those with high power distance cultures tend to tight control mechanisms and bureaucratic structures. They have less freedom and very conservative in their approach. Thus, national culture has a direct impact on the entrepreneurial management of business. Individualistic values also influence the risk-taking attitude. While men have more entrepreneurial capabilities, opportunity is the greatest motivation for women. Necessity entrepreneurship is prevalent among women in low income countries. Socio-economic factors like age, education, and work experience influence women’s entrepreneurial behaviour. Opportunity recognition, ability to assess them and the motivation to take risks all depends upon the culture that surrounds the women. Researchers have hypothesized that entrepreneurship is facilitated by cultures that are high in individualism, low in uncertainty avoidance, low in power-distance, and high in masculinity (Hayton, George, & Zahra, 2002). Research across cultures on entrepreneurial behavior by Mueller & Thomas (2000), revealed that internal locus of control was dominant in individualistic cultures and that innovativeness and internal locus of control were prevalent in cultures high in individualism and low uncertainty avoidance. These findings led to the assumption that cultures high in individualism and uncertainty avoidance are supportive of entrepreneurship. A high degree of individualism, related to other values such as freedom, autonomy, independence and individual initiative is important for creativity (Jones & Herbert, 2000) as entrepreneurial characteristic that lead to attitude. Hofstede (1980) further claims that greater innovative levels are more likely in high individualistic and small power distances cultures, such as USA, Britain, and Sweden but Lampikoski & Emden (1996), argue that the individualistic values of personal excellence and achievement, risk taking, and entrepreneurship help explain the US capacity for breakthrough innovations. In large power distance culture, the tendency towards rigid hierarchies, centralization, emphasis on rules and regulations, limits the free flow of communication and ideas, all of which limit creative and innovative potential (Jones & Herbert, 2000). It has to be noted that those research were conducted and described a particular culture. Therefore, it can not be adopted for every culture. However, according to Westwood & Low (2003), no one culture is best for innovation and no one culture can claim a superiority of ideas. Entrepreneurs in high femininity/low masculine culture, are more likely to emphasize quality of life (Redpath and Nielsen, 1997). In contrast, in high masculine/low femininity cultures, entrepreneurs tend to give a high priority to work over other aspects of life (Hofstede & Hofstede, 2005). From a western perspective, achievement is measured in terms of quantity of work (Lindsay, 2005). Thus, entrepreneurial attitudes toward achievement will be measured differently depending upon individual culture. A comparative study of Croatian and American entrepreneurs has shown that Croatian entrepreneurs have lower success rates than do Americans (Pfeifer). Management and entrepreneurship in Croatia is significantly lower than other western countries. They lack in capital, experience and professional advice. A Croatian entrepreneur is typically a male, with no entrepreneurial background, and mostly a necessity entrepreneur. Their study revealed that development of entrepreneurship depends upon supportive environment and government programs and policies, but it also requires the subjective mindset of individuals. The mindset is shaped by the cultural framework. Cultural factors can be both at the individual and the societal level. Cultural factors change slowly but can eventually change to encourage entrepreneurship. The study of Eastern Slovenia in Croatia showed how cultural factors have direct effect on the attitudes and values of the entrepreneur. Culturally based factors influence the attitudes among entrepreneurs from different social groups. Nevertheless, all characteristics are subject to change with experience and training. Hunt & Levie (2002) used the data from the 2002 Global Entrepreneurship measuring individuals’ entrepreneurial activity from 37 countries, which indicated that culture only explains a small proportion of the variance in entrepreneurial activity and attitudes. Different entrepreneurial activities are weakly influenced by different set of cultural constructs. The cultural effects can be overshadowed by the role of population growth. Culture is not the key driver of entrepreneurial activity. From the various research and studies, we can conclude that both in case of immigrant entrepreneurship and indigenous entrepreneurship, culture has a very strong influence at least in the beginning. As business grows, the influence reduces. Culture may vary across nations and even within nations, which to some extent do influence the entrepreneurial decisions and management. Risk taking, which is the key quality in an entrepreneur, is governed by cultural factors. Culture does shape entrepreneur’s attitude. References: Basu A & Altinay E (n.d.), The Interaction betwen Culture and Entrepreneurship in Londons Immigrant Business, 13 June 2006 Justin T (2002), Culture, nation, and entrepreneurial strategic orientations: implications for an emerging economy., 13 June 2006 Hunt S & Levie J (2002), Culture as a predictor of entrepreneurial activity, 13 June 2006 Kreiser et al., (n.d.), Correlates of Entrepreneurship: The Impact of National Culture on Risk-Taking and Proactiveness in SMEs, 13 June 2006 Pfeifer S (2003), Modification of entrepreneurial behaviour by cultural factors in emerging economy, 12 June 2006 Read More