Engines of Economic Prosperity: Creating Innovation and Economic Opportunities through Entrepreneurship 3030760871, 9783030760878

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Engines of Economic Prosperity Creating Innovation and Economic Opportunities through Entrepreneurship Edited by Meltem Ince-Yenilmez Burak Darici

Engines of Economic Prosperity

Meltem Ince-Yenilmez · Burak Darici Editors

Engines of Economic Prosperity Creating Innovation and Economic Opportunities through Entrepreneurship

Editors Meltem Ince-Yenilmez Department of Economics Ya¸sar University ˙ Izmir, Turkey

Burak Darici Department of Economic Theory Bandırma Onyedi Eylül University Bandırma / Balıkesir, Turkey

ISBN 978-3-030-76087-8 ISBN 978-3-030-76088-5 (eBook) https://doi.org/10.1007/978-3-030-76088-5 © The Editor(s) (if applicable) and The Author(s), under exclusive license to Springer Nature Switzerland AG 2021 This work is subject to copyright. All rights are solely and exclusively licensed by the Publisher, whether the whole or part of the material is concerned, specifically the rights of translation, reprinting, reuse of illustrations, recitation, broadcasting, reproduction on microfilms or in any other physical way, and transmission or information storage and retrieval, electronic adaptation, computer software, or by similar or dissimilar methodology now known or hereafter developed. The use of general descriptive names, registered names, trademarks, service marks, etc. in this publication does not imply, even in the absence of a specific statement, that such names are exempt from the relevant protective laws and regulations and therefore free for general use. The publisher, the authors and the editors are safe to assume that the advice and information in this book are believed to be true and accurate at the date of publication. Neither the publisher nor the authors or the editors give a warranty, expressed or implied, with respect to the material contained herein or for any errors or omissions that may have been made. The publisher remains neutral with regard to jurisdictional claims in published maps and institutional affiliations. This Palgrave Macmillan imprint is published by the registered company Springer Nature Switzerland AG The registered company address is: Gewerbestrasse 11, 6330 Cham, Switzerland

Words can not express how grateful I am to my mother, father, mother-in law and father-in-law for all of the sacrifices that you’ve made on my behalf and whose love and guidance are with me in whatever I pursue. They are the ultimate role models. I wish to thank my sisters for whom I have no words to describe the meaning of their love and support. Most importantly, I owe my deepest gratitude to my loving and supportive husband, Özgür and my wonderful beloved son, Bryan Poyraz who provide unending inspiration and being such a good boy always cheering me up. You are the best thing that is still happening to me. —Meltem Ince-Yenilmez It is hard to combine sentences exactly how thankful I am for my family and everything they’ve ever done for me. I was truly blessed with the most amazing family in the world. We have been through a lot in our lives, but without each other we would not have made it over lots of obstacles. I could not imagine my life without a family like mine. I would like to present my gratitude to my lovely wife Pervin for helping me fly on my own. And

finally I would like to dedicate all my efforts and success to my beloved son Efe Burak for cheering me up. —Burak Darici This book is for all the women in the world who are the foundation stone and the architect of the society. From Both the Editors —Meltem Ince-Yenilmez —Burak Darici

Introduction

Some parts of our today world are growing old because of how they have advanced in medicine, better nutrition, increased their life expectancy, as well as provided better care for the aged. As such, people can be more active in terms of how long they can work, which means there will be an increase in the value for everyone. During this period of business and social change, entrepreneurship plays a great role in the creation of employment opportunities and wealth, mostly in conjunction with public institutions. That is why the support for entrepreneurship is growing rapidly in the developed world. In the previous years, we have seen how demanding business ventures have impacted the world greatly. We are talking of technology-focused projects that have changed the way people see life. Regarding wealth and job creation, the emerging solutions through such developments, the international and national impact has been massive. Ventures like that are the exception and not the norm irrespective of how relevant they are. That said, they are a subset of the mainstream entrepreneurship, representing where every economy wants to be, and attracting concerns from researchers. As we recognize these ventures, our focus is to unravel the huge opportunities of these entrepreneurial activity, highlighting and exploring the gray areas, so that everyone can benefit from the exposition. It should be stated that when these projects are viewed independently, they don’t pull as much weight. But, when viewed together, you notice an attractive balance, making it a reasonable contributor to

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INTRODUCTION

UN’s proposal for sustainable development. Through this publication, the editors want to open up the frontiers of entrepreneurship research so that new avenues can be leveraged for the collective development of everyone. This book offers a platform for possible uses, as well as contexts for research, study, scholarship, and academic inquiry that can be used by researchers, students, and scholars concerning innovation as well as social capital with organizational setups. It is equally suited for practitioners and policy makers. The book is composed of 19 chapters that are grouped into 4 sections, according to each chapter’s theme. Chapter 1 sums up an updated and academically based study that provides an empirical standpoint considering the later-life entrepreneurship of becoming a single phenomenon that feeds into the debate of ageism and ageing. This comprises a theme-based evaluation of innovation, social capital, and other related concepts. This chapter collates all the discoveries on gender-based barriers that were experienced by people that are normally thought to accommodate collaboration, trust, co-operation, along with the adoption of a qualitative method to look into how entrepreneurial capitals have impacted entrepreneurial actions in older women and men. The main objective of this paper revolves around the reason older women are not matching their male counterparts in the area of creating ventures. While acknowledging the complex nature of other factors that might affect age, this study focuses on the significance of gender and age on people who are considering entrepreneurship in the latter stages of their lives, using data obtained from various sources to emphasize the chances of creating ventures. Chapter 2 takes a peek into smart innovation as it concerns social innovation and eco-innovation dimensions. This chapter presents a great dose of creativity, some criticism, a fraction of the spirit of research, a glimpse of teamwork, a bit of speed, and some pints of managerial bravery. In brief, it presents in a bigger picture—steps & processes that should be actioned to have the concept transformed into the finished product. Chapter 3 x-rays the theoretical aspect of the advanced economic systems we have today. Exploring what are network concepts, adaptive cycles within surrounding panarchy and advanced economic setups, as well as how this system of networks connects with the entrepreneurs. This chapter equally considers the connection between social networks collaboration and adaptive cycles’ orientation.

INTRODUCTION

ix

Chapter 4 carefully examines the present discourse on causation vs. effectuation, particularly by taking a deeper look at the effects of effectuation and causation processes on the rate of survival for new ventures. The investigation offers a theory-based perspective to the argument into the liability for newness by Stinchcombe and effectuation by Sarsyathy, as well as the theory of causation. The chapter equally pries into comments about the old-fashioned literature, with the special attention on entrepreneurial awareness and market and opportunity. Chapter 5 adds to the discussion regarding financial sources for entrepreneurs, as well as the actual financial sources present at the venture’s time. Its view is that each stage of the venture’s lifecycle, different sources of finance are available, while it’s the entrepreneur’s responsibility to look for sources depending on the idea’s life cycle. It insists that angel investorsand venture capital aren’t actually financing sources, because it is difficult to access them at the initial stage. Chapter 6 reiterates that research has shown the relevance of entrepreneurship background history for people and firm-based success like firm innovation and individual promotions. Entrepreneurship research has shown how people can use the present social network and social capital but very little research looks into the generation of capital credit and how they can be accessed. There is a proposition of historical framework in the chapter to examine critically the processes of accessing, generating, and entrepreneurship concerning innovation. Chapter 7 gives a modern perspective of social incubation on the basis of recent research, as well as from a theory-based perspective. This chapter showcases the importance of personal knowledge, skills & qualifications for organization-based outcomes. Social incubation has been looked into as a bridge that connects innovative project and sustainability and startups regarding garnering more managerial methodology. The chapter equally puts forward the critical approach for social entrepreneurs in the area of business and social incubators. Chapter 8 discusses immigration & innovation in the US and EU, investigating the major factors that connect innovation and immigration by talking about the influence of historical and policy processes on how the US & EU connections is developing. The chapter explores the significance of cultural differences in the workplace, cross-cultural innovation teams, as well as perception diversity and cultural sensitivity. Findings within the US and EU are shown to offer proof of skillful immigrants who got employment because of their capabilities and talents, and who have

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INTRODUCTION

been accepted in their societies, end up becoming the biggest contributor of innovation. Chapter 9 digs through Semashko model as it gives special focus to the commercialization process in public healthcare facilities. Privatization of small trade of pharmaceuticals were flanked by privatization of whole trade and production of pharmaceuticals. The same trend was seen in medical devices and products. System based barriers to the development of entrepreneurship within healthcare industry is necessary for understanding the huge indebtedness and long-term entrepreneurial mindset. Chapter 10 explores the connection between entrepreneurship, economy needs, and education on the basis of competencies. This study looks at how trained and educated people run business in a contemporary manner, posing as a factor that develops entrepreneurial capacity. That depends strictly on the unveiling of entrepreneurship hubs and teachers training on the innovational focus of entrepreneurship. This chapter regards entrepreneurship as entrepreneurial spirit, which gives the universities the opportunities to strengthen the needed skills for accomplishing entrepreneurial sustainability. Chapter 11 explores intangible and tangible scopes of cultural heritages, as well as their connection with tourism through interviews with focus groups. The analysis observes everything and looks at how it can become a sustainable project that can impact cultural tourism. This study states that cultural heritage ought not to be handled as a dichotomy and that developing a sustainable heritage of tourism destinations needs more than one stakeholder. The critical factors which include network capital would become relevant in achieving sustainability in the regeneration scheme regarding the developmentinnovation culture-based heritage entrepreneurship. Chapter 12 speaks of the enterprise sustainability which is needed for the bottom up kind of sustainable transition, thereby affecting the whole market and economies. He opines that the aim of sustainable enterprise DNA has to do with explaining how enterprises change when they are faced with sustainability, as well as how much sustainable transition is needed will be will be in support of the changes that happen at the enterprise stage. He equally stated that to create sustainability in an enterprise involves changing the whole value chain, starting from materials for supply to the design of the product, sales & marketing, operations, as well as the management’s end. And it appears to be system-based change but before

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this can be internalized a rich knowledge of sustainable at the enterprise stage will be very essential. Chapter 13 studies social entrepreneurs as it concerns casual performativity and innovation. This comprises system model formation preceding the identification stages of the major structures, components, and relationships, and the theory based and explanations of this new definition. This chapter combines all discoveries on the features of social entrepreneurs regarding the scopes of innovation along with casual performativity, which includes market focused activities, as well as shared value methods. Chapter 14 gives a special explanation of the various formats of personnel empowerments structures employed by managers within restaurant businesses enhance the kitchen personnel’s creativity and potentials negatives of the said practices. The study aids in understanding the empowerment of chefs as one factor that has impeded chef’s culinary creativity within kitchens of restaurants. The organization’s culture that encourages innovation, learning, success, research and teamwork is what is affecting chef’s creativity who are in this business. Chapter 15 talks about sustainable enterprises development relating to implementation consistency and competence, change management that is effective, and top management support. The chapter equally regards the connection between integrated and interdisciplinary approach that adds all the insights and benefits of the different disciplines so that effective development of a sustainable enterprise can be practical. Chapter 16 solidly examines the position of management within contemporary organizations, as it summarizes the difficulties experienced by experts inside the managerial control field to reshape tools and models of managerial control for adaptive, agile, and innovative organizations. This chapter first tackles the transitions of these management control tools, as well as exposing the unknown parts of managerial controls before creating a balance between the European and North American vision using an Asian strategy. Chapter 17 adds to the discussion of conceptual differences along with disparities within in ho women’s gender equality relates with entrepreneurial activity. The investigation offer a possible contribution on the discussion of how women’s gender equality relates to their entrepreneurial activity, as a means of synthesizing that labor markets consider regarding the idea, and pointing out the possible areas of policy and research considerations needed to have the subject developed.

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Chapter 18 restates that the research demonstrates the significance of favorable businesses along with investment climate which includes harmonization of international and national legislation. Kyrgyzstan research has revealed how FDI can offer positive dynamic, though it is only a limited research that has focused on pursuing innovative progressions and acquiring international experience within different socio-economic sections in a bid to attain a green economy. A new blueprint is suggested in the chapter to observe processes of accessing, generating, as well as accumulating entrepreneurial activity regarding legislative regulation and political decision, along with efforts to make sure a balanced economy’ balanced movement by state, civil society, government, and the population is duly achieved. The publication is summed up with Chapter 19, offering a special explanation of the various forms of R&D expenditure, and technology effects, particularly the diffusion of technology on economic progress. The proof of technological diffusion that impacts economic development and growth cannot be avoided. The study develops theoretical and conceptual foundations that can be used to spot different R&D expenditure forms. This chapter presents a special analysis of R&D expenditure, innovation and technology. The book begins by discussing some upstream activities regarding innovation and entrepreneurial activity before addressing the various forms of entrepreneurship, giving rise to more comprehensive investigations that will enable us to keep expanding an important theme as such for our good in the future. The combining of the theoretical and practical issues scripted to academics and specialist undertaking the various interest areas makes up the asset for developing fresh ideas within this field. In conclusion, we will love to appreciate every author whose contribution has made this project a success, as we remain optimistic that readers will be interested in this publication.

Contents

1

The Gendered Aspects of Age Capital for Entering Entrepreneurship Isabella Moore CBE, Judy Scully, and Nick Theodorakopoulos

2

Managing Innovation in Smart Industries Borut Likar

3

Entrepreneurship in Complex Economic Systems: Acting in Networks and Adapting to Cycles Burcu Türkcan

4

5

6

Effectuation and Causation Processes in Countervailing the Liability of Newness: A Systematic Literature Review Cord Siemon and Vincenzo Uli

1

21

37

49

Financing Strategies for New Product Development and Innovation Dilvin Ta¸skın

79

Historical Development of Entrepreneurship in the Literature Duygu Seckin-Halac

93

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CONTENTS

7

Are Social Incubators Social Enterprises? A Study of Italian Social Incubators Filippo Giordano, Alessandro Lanteri, and Laura Michelini

8

9

10

11

The Linkages Between Immigration, Diversity, and Innovation: Mobility of Knowledge and Experiences Mehmet Gökay Özerim and Elif Çetin

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139

Entrepreneurship in the Health Care System in Poland: Selected Issues Jacek Klich

159

The Role of Education for Creation of Entrepreneurship Society Marija Zarezankova-Potevska

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Cultural Heritage as an Engine of Sustainable Development in the Tourism Sector Constantinos-Vasilios Priporas, Shasha Zhao, Marina Papanastassiou, and Simon Best

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209

12

Sustainable Enterprise DNA Mario Svigir

13

Causal Performativity and the Definition of Social Entrepreneurship Alessandro Lanteri and Francesco Perrini

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A Research on the Effect of Personnel Empowerment on Culinary Creativity in Restaurants Ramazan Eren, Abdullah Tarinc, and Ceyhun C. Kilinc

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Three Perspectives for the Development of Sustainable Enterprises Christian Pirker

291

14

15

16

Rethinking Managerial Control in the Contemporary Context: What Can We Learn from Recent Chinese Indigenous Management Research? Thierry Burger-Helmchen and Jean Yves Le Corre

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CONTENTS

17

18

19

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Women Entrepreneurship for Bridging Economic Gaps Meltem Ince-Yenilmez

323

Economics, Legal, Political and Social Environment of Entrepreneurs in Kyrgyzstan Andrei Generalov and Olga Generalova-Kutuzova

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The Impact of R&D Spending and Technology on Economic Development ˙ scan and Gizem Ö˘grü Erhan I¸

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Index

375

List of Contributors

Simon Best Department of Management, Leadership and Organisations, Middlesex University, Hendon, UK Thierry Burger-Helmchen BETA, University of Strasbourg, Strasbourg, France Elif Çetin Department of International Relations, Ya¸sar University, Izmir, Turkey; University of Cambridge, Cambridge, UK Jean Yves Le Corre BETA, University of Strasbourg, France; Xi’an Jiaotong-Liverpool University, Suzhou, China

Strasbourg,

Ramazan Eren Manavgat Tourism Faculty, Akdeniz University, Antalya, Turkey Andrei Generalov Centre International d’investissement, Geneva, GE, Switzerland Olga Generalova-Kutuzova Centre Geneva, GE, Switzerland

International

d’investissement,

Filippo Giordano Department of Law, Economics, Politics and Modern Languages, Lumsa University, Rome, Italy

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LIST OF CONTRIBUTORS

Meltem Ince-Yenilmez Department of Economics, Ya¸sar University, Izmir, Turkey ˙ scan FEAS, Department of Economics, Çukurova University, Erhan I¸ Adana, Turkey Ceyhun C. Kilinc Manavgat Tourism Faculty, Akdeniz University, Antalya, Turkey Jacek Klich Department of Public Economy and Administration, Cracow University of Economics, Kraków, Poland Alessandro Lanteri Hult International Business School in Dubai and London, Dubai, United Arab Emirates; ESCP Business School, Turin, Italy Borut Likar Faculty of Management, University of Primorska, Koper, Slovenia Laura Michelini Department of Law, Economics, Politics and Modern Languages, Lumsa University, Rome, Italy Isabella Moore CBE Aston Business School, Birmingham, UK Gizem Ö˘grü Institute of Social Sciences, Çukurova University, Adana, Turkey Mehmet Gökay Özerim Department of International Relations, Ya¸sar University, Izmir, Turkey Marina Papanastassiou Leeds University Business School, University of Leeds (CIBUL), Leeds, UK Francesco Perrini Department of University of Bocconi, Milan, Italy

Management

and

Technology,

Christian Pirker Christian Pirker KG, Klagenfurt, Austria Constantinos-Vasilios Priporas Department of Marketing, Branding and Tourism, Middlesex University, Hendon, UK Judy Scully Aston Business School, Birmingham, UK Duygu Seckin-Halac Department of Business Administration, Faculty of Business, Ya¸sar University, Izmir, Turkey

LIST OF CONTRIBUTORS

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Cord Siemon Faculty of Business and Law, Frankfurt University of Applied Sciences, Frankfurt am Main, Germany Mario Svigir Policy and Foresight Advisory FMPFA, Fort Myers, FL, USA Abdullah Tarinc Manavgat Antalya, Turkey

Tourism

Faculty,

Akdeniz

University,

Dilvin Ta¸skın Faculty of Business, Ya¸sar University, Izmir, Turkey Nick Theodorakopoulos Aston Business School, Birmingham, UK Burcu Türkcan Department of Economics, Ege University, Izmir, Turkey Vincenzo Uli Faculty of Business and Law, Frankfurt University of Applied Sciences, Frankfurt am Main, Germany Marija Zarezankova-Potevska University of Skopje, Skopje, Republic of Macedonia Shasha Zhao Department of Strategy and International Business, University of Surrey, Guildford, UK

List of Figures

Fig. 2.1 Fig. 2.2 Fig. 3.1 Fig. 3.2 Fig. 4.1 Fig. 4.2 Fig. 4.3 Fig. 4.4 Fig. 4.5 Fig. 5.1 Fig. 7.1 Fig. 7.2 Fig. 9.1

Typology of innovation (Source Likar et al., 2013) Ishikawa Diagram in praxis (Source Košmrlj et al., 2015) An Adaptive Cycle Author’s creation based on Holling, 2001 Key Advantages of Social Networks and Adaptive Cycles for Entrepreneurs Graphical representation of the liability of newness (Source Author) Effectuation vs. Causation (Source Author) Ideal type life cycle and evolutionary learning (Source Röpke [2002: 298]) Entrepreneurial functions (Source Otter and Siemon [2007], Röpke [2002]) Effectuation, causation and evolutionary learning (Source Author) Types and sources of financing used during the life cycle of a venture (Source Author) Type of definitions (Source Lanteri and Perrini [this volume]) Social incubators business models (Source Author’s creation based on different typologies of business models) Independent public health care facilities (Source Author’s own compilation based on data from Ministry of Health, https://www.gov.pl/web/zdrowie/zadluzenie-spzoz. Accessed 18 February 2020)

23 29 42 46 52 56 64 67 69 82 117 133

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LIST OF FIGURES

Fig. 9.2 Fig. 12.1

Fig. 12.2 Fig. 12.3

Fig. 12.4

Fig. 12.5

Fig. 13.1 Fig. 13.2

Fig. 15.1 Fig. 15.2 Fig. 19.1 Fig. 19.2 Fig. 19.3

Number of commercialized hospitals 1999–2013 (Source Compiled by author. Data from the Ministry of Health) Sustainable enterprise DNA scheme; original scheme designed by author, not NASA (Source of data NASA Climate Change Observatory Database) Context of sustainable enterprise DNA (Source of data NASA Climate Change Observatory Database) Evolution for sustainable enterprise DNA, original design by author, not to be credited as NASA source (Source of data NASA Climate Change Observatory Database) Some of the benefits of switching to sustainable enterprise DNA, original design to be credited to author, not NASA (Source of data NASA Climate Change Observatory Database) Sustainable enterprise DNA tools; original design by author, not to be credited to NASA (Source of data NASA Climate Change Observatory Database) Influential actors (Source Author’s creation based on the literature survey) Interrelations between paradigm-builders, social enterprises, and the ecosystem (Source Author’s creation based on the reproduction of the interrelations between paradigm-builders, social enterprises and the ecosystem) Model of Systemic Control (MSC): Goals and orientators (Source Schwaninger, 2000: 216) The KWD-Model of competence (Source Author’s creation based on Pirker, 2019a: 24) Share of the R&D expenditure in GDP for OECD countries (%) (Source OECD.Stat) R&D expenditure per capita OECD countries (USD, Current Prices-PPP) (Source OECD.Stat) Exports and imports of the computers, electronic, and optical industry (Million USD, Current Prices-PPP) (Source OECD.Stat)

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212 213

216

217

224 239

247 295 299 365 366

368

List of Tables

Table Table Table Table

7.1 7.2 7.3 9.1

Table 13.1 Table 14.1 Table 14.2 Table 14.3 Table 19.1

Main literature on business incubators Our 14 case studies: location and year of foundation The identity of social incubators Dynamics of commercialization of public hospitals and indebtedness of public independent health care facilities 2000–2103 Definitions of Social Entrepreneurship by Different Influential Actors General characteristics of participants and restaurants Increasing the creativity of kitchen staff with innovation activities Empowering personnel with training activities Estimation results of the model

120 124 127

171 255 278 280 281 369

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CHAPTER 1

The Gendered Aspects of Age Capital for Entering Entrepreneurship Isabella Moore CBE, Judy Scully , and Nick Theodorakopoulos

Despite an increase in entrepreneurial activity among older people, the gap between male and female rates of venture creation remains. This study has adopted a qualitative methodology to examine the role of entrepreneurial capitals on the formation of entrepreneurial actions between both older men and women. A key aim of this research has been to understand why older women fail to keep pace with older men in venture creation. While recognising the multiplicity of characteristics that intersect with age, such as ethnicity, this study has focused only on

I. Moore CBE (B) · J. Scully · N. Theodorakopoulos Aston Business School, Birmingham, UK e-mail: [email protected] J. Scully e-mail: [email protected] N. Theodorakopoulos e-mail: [email protected] © The Author(s), under exclusive license to Springer Nature Switzerland AG 2021 M. Ince-Yenilmez and B. Darici (eds.), Engines of Economic Prosperity, https://doi.org/10.1007/978-3-030-76088-5_1

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the role of age and gender on individuals contemplating entrepreneurship in later life. By proposing a more nuanced gendered view of later-life entrepreneurship, this research provides an important stimulus to current research, which has largely focused on later-life entrepreneurship as a unitary phenomenon and feeds into debates on ageing and ageism. Findings show commonalities between older men and women in terms of how they are motivated and experience entrepreneurship, as well as gender specific experiences that relate to the contested domain of societal norms. The uniqueness of “hybrid” motivations adds a new level of depth to the topic of entrepreneurship in later life, particularly as it can be disaggregated by gender. As not only personal structures, but also wider external context, play an important role in shaping action and outcomes, it is argued that, to reduce the uncertainties of venture creation, age capital can be further developed by accessing external resources.

Introduction Despite an increase in entrepreneurial activity among older people, the gap between male and female rates of venture creation remains. For those women in later life, however, who decide to set up in business and who have the ideas, energy and health, setting up in business can become a rewarding alternative to unsatisfactory previous employment, a means of supplementing inadequate pension provision, or, when necessary, of providing the flexibility needed for caring for elderly relatives or grandchildren (Logan, 2014). This study adopted a qualitative methodology to examine the role of entrepreneurial capitals on the formation of entrepreneurial actions among both older men and women. A key aim of this research has been to understand why older women fail to keep pace with older men in venture creation. While recognising the multiplicity of characteristics that intersect with age, such as ethnicity, this study has focused on the role of age and gender on individuals contemplating entrepreneurship in later life, identifying from the data both individual-level and externally derived resources, to explain the likelihood of venture creation. (De Clercq, 2013). Findings show commonalities between older men and women in terms of how they are motivated and experience entrepreneurship, as well and gender specific experiences that relate to the contested domain of societies social norms. The study makes several contributions to entrepreneurship studies as well providing understanding of the gendered characteristics of

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gendered entrepreneurship. Theoretically, the study draws on Bourdieu’s (1986) theory of capital, as interpreted by Hill (2018). It is argued that an older individual’s belief in the value of his/her capitals contributes positively to an entrepreneurial outcome. It is further suggested that contrary to common perceptions of ageing as a process of decline, age, as a signifier of the passage of time, gives the space to develop existing experience and skills. These, together with other forms of convertible capital, provide the potential for venture creation. By proposing a more contextually sensitive view of older male and female entrepreneurship, this research provides an important stimulus to current research on older-people entrepreneurship, which has largely focused on senior entrepreneurship as a unitary phenomenon. It is clear from the study that entrepreneurship at an older age is a nuanced phenomenon, dependent on the gender of the individual contemplating entrepreneurship and, with distinctive gendered societal challenges that require very different levels of support. Furthermore, it is suggested that these findings challenge some of the assumptions that are collectively badged as “ageing” and feed into the theoretical debates on ageism. The next section provides brief context for the topic and details of the theoretical framework for this study. A flexible and comprehensive definition of entrepreneurship has been adopted. As such, entrepreneurship is considered broadly as entrepreneurial behaviour that can occur across a range of settings. The activities of the self-employed of both genders are therefore included in this definition (Welter, 2014).

Theoretical Background As the dependency ratio of the population increases (Kibler, 2012), research shows that the life expectancy of individuals in advanced economies has been steadily increasing, placing greater strain upon nation-states. In the United Kingdom, a third of the UK population is expected to be over 55 by 2025 (Kibler et al., 2012; Logan, 2014) and by 2039, individuals between the age of 65 and 69 will constitute nearly 23% of the population (ONS, 2019). The challenges of ageing societies include fiscal problems arising from the future financial viability of adequate state pensions, an increase in the dependency ratio of the population, a diminishing active population, unsustainable pension expectations of a growing population of economically inactive people and rising social costs for healthcare and welfare of older individuals that require

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fundamental changes to accommodate demographic shifts (Kibler et al., 2012; Patel & Gray, 2006; Pilkova, 2014; Wainwright & Kibler, 2014; Wainwright et al., 2011). Particularly, the shrinking tax base reduces the volume of tax revenues needed to fund the care and support of older individuals (Wainwright & Kibler, 2014). It is estimated that the UK economy would benefit by an annual GDP increase of £13bn, if the paid working life of adults was increased by one year (BIS, 2011: 2). Entrepreneurship is considered an important mechanism for economic growth, innovation and welfare effects (Acs, 2011; Hammond & GurleyCalvez, 2012). For an increasing number of older individuals over 50, entrepreneurship is becoming a means of finding new opportunities, fulfilling long held ambitions and of complementing existing pillars of retirement planning by augmenting retirement income (Wainwright & Kibler, 2014). Despite this increase in entrepreneurial activity among older people, the gap between male and female rates of venture creation remains male dominated (GEM, 2019). Across the United Kingdom entrepreneurial activity among the 50–64 age group increased significantly from 5.3% in 2015 to 8% in 2016. However, between 2016 and 2018 the rate overall for this age group has fallen back from 8.0% to 5.9% (GEM, 2019). Societal attitudes and norms impact on perceptions of entrepreneurship validity (North, 1990; Wainwright et al., 2011; Welter, 2014). They also determine a society’s approach to ageing and to the gendered roles within a society that prescribe typical male or female behaviour (Welter, 2014). A review of extant literature reveals, however, an assumption of uniformity about entrepreneurship in later life, only infrequently highlighting gender or age differences in the motives and aims underlying entrepreneurial behaviour (Kautonen, 2014; Hammond & Gurley-Calvez, 2012; Logan, 2014; Sahut, 2015; Levesque & Minniti, 2006). Similarly, within female groups, as highlighted by Marlow and Carter (2004: 140), “there has been a tendency to treat ‘women’ as a universal term denoting an undifferentiated group.” Yet, by acknowledging those gender differences, there is an opportunity for a more nuanced narrative of older entrepreneurship to be developed. Further, if these differences are understood and addressed through economic policy, major welfare gains could be the outcome (Acs et al., 2011). Yet, as argued by Jayawarna, (2014) gendering processes are well established in households in relation to divisions of labour, where men and women are socialised to accept very different roles, with institutions often

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reinforcing these divisions. Hodges (2012: 187) argues that the decision to set up in business for older women should be explored within the context of “gender-biased organisational structures, policies and procedures, as well as stereotypical views of gender roles.” A gendered lens on the research topic has therefore been adopted by comparing the responses of both male and female interviewees (Jennings & Brush, 2013). As Kautonen et al., (2015: 1) suggest “a positive age-based self-image enhances the likelihood of individuals turning their intention to start a business into actual behaviour.” This age-related self-image, however, may be conditional on many factors, one of which is an inevitable reduction of life opportunities in later life. The most unexpected people may be drawn to entrepreneurship (Levesque & Minniti, 2006; Kibler, 2012) but many older individuals may be less keen on this option (Kautonen et al., 2014). Certainly, not all older women will become entrepreneurs (Curran & Blackburn, 2001). Facing the inevitable challenges of setting up in business, many older women will shy away from an experience that others may embrace in fullness (Schabram & Maitlis, 2017). Yet, amidst the economic uncertainties of the early decades of the twenty-first century, ways to tackle the consequences of ageing populations are still unresolved (Stypinska, ´ 2019). Analytical Lens The research draws on the theory of capital, as developed by Pierre Bourdieu (Bourdieu, 1986). According to Bourdieu (1986, 241), it is “impossible to account for the structure and functioning of the social world unless one reintroduces capital in all its forms.” At any single point in time, it is the structure and conversion of the various capital forms that will determine an entrepreneur’s chance of success (Bourdieu, 1986; Stringfellow et al., 2009). The study is also guided by Hill’s (2018) critical review of Bourdieu’s interdependent and underlying concepts of capitals, habitus, personal structure and field. Hill argues that transformation of capitals leads to a “temporary strategic fit” (Hill, 2018: 686). It is argued that it is achieving this strategic fit between the person and the external environment (field structures) that is a key factor for actors in the venture creation process (Hill, 2018). The research identifies three dimensions of entrepreneurship in later life: the similarities and differences in motivations between genders; the potential context in which the processes of venture creation in later life

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are embedded, providing insight into interviewees’ perceptions of how wider society perceives gender roles and the ageing process in relation to venture creation, of how government policy and related regulations impact interviewees and of the impact of the micro-social environment (personal and family levels), in which the interviewees operate. A final consideration is the tangible and intangible resources, both internal and external, upon which interviewees draw in the process of setting up in business (age capital). It also deals with interviewee perceptions of the ease and difficulty of acquiring these resources for venture creation and individual interviewee attitudes in later life towards entrepreneurship, how these attitudes have been formed and subsequently influence the decision to set up in business. To date quantitative research has dominated this topic with counting and identifying the characteristics of individuals considering entrepreneurship in later life, despite e.g. recognition of the importance of support networks and role models for individuals contemplating setting up in business in later life (Kibler et al., 2012; Kautonen et. al., 2008; Kautonen, 2011; Baucus & Human, 1994), where informal institutional contexts can shape the process of venture creation (Kautonen, 2008; Weber & Schaper, 2004). Equally, qualitative studies, which would generate rich, contextual data, are also rare (Ainsworth & Hardy, 2008; Kibler et al., 2011; McKay, 2001) e.g. on both entrepreneurial motivation and on the influence of work history on entrepreneurial intentions, both aspects of interest to the topic of this research (Kautonen, 2010; Stephan et al., 2015). Consequently, there is a need for responsive questioning to unpack the issues related to the gendered barriers faced by individuals in later life considering venture creation. The next section sets out the methodology of this study.

Methodology The study selected a qualitative interpretive approach to conduct semistructured interviews with 32 individuals of both genders (with a mean age of 60.5 years and a female sample of 53%), living in the United Kingdom. The research process engaged in a recursive process of data collection, analysis and induced themes and sub-themes (Gioia, 2012; Locke, 2001). Additionally, the views of seven business support practitioners involved in the delivery and design of business support for individuals in later life, who participated in a focus group. These views

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were used to triangulate with interviewee responses. By choosing semistructured interviews as a method of gathering data, this research acts on the call for more qualitative research on entrepreneurship in later life (Kautonen et al., 2011, 2014; Kibler et al., 2012; Wainwright et al., 2011). Participants were also identified on three other criteria based on their stages of development: (1) considering or have taken active steps to start any kind of business activity that has a commercial objective (4 males/5 females); (2) already in business for more than a year (6 males/7 females); (3) never considered venture creation as an option (5 males/5 females). Individuals who had never considered venture creation were also recruited from between personal friends and colleagues (Bryman & Bell, 2015). The methodological approach for data collection and subsequent analysis were guided by modified grounded theory which focused not only on “what” is happening, but on the “why” and “how” elements of entrepreneurship in later life (Strauss & Corbyn, 1990; Corley, 2015). Given the importance of employing methods that are flexible and allow new insights to emerge from the data, a conscious decision was made that the literature review would only be “a means of gaining an initial impression of the topic area” (Bryman & Bell, 2015: 110; Gioia et al., 2012 The modified grounded theory orientation aligns well with the interpretive approach adopted, which reflects an interest in understanding, from the perspective of the research participants, “ events and situations they encounter” in the process of either embracing or rejecting entrepreneurship in later life (Blaikie, 2014: 118). The development, therefore, of themes has involved interpretive work and analysis which are underpinned by theoretical assumptions of the structures and meanings of the data, which fit the philosophical roots of interpretivism. More widely, interpretivism, which, “in contradistinction to positivism…attempts to understand and explain human and social reality… looks for culturally derived and historically situated interpretations of the social life-world (Crotty, 1998: 66–67). Blaikie (2000: 115) also outlines how interpretivists seek to understand “the social world” people create, and which is continuously reproduced. This everyday reality consists of the meanings and interpretations given by the social actors to their actions, other people’s actions, social situations and natural and humanly created objects.” Questions probed the interviewee’s beliefs about the outcome of venture creation, about what other people want them to do, about their own abilities and the availability of resources that would permit them to

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go ahead with their plan to set up in business. The interview questionnaire was designed to explain the intentions and influences behind the interviewees’ perceptions of entrepreneurship in later life. “The behavioural change had already occurred, and the researcher was seeking to explain why” (Renzi & Klobas, 2008: 5). The interview outline was completed by adding questions to complete each interviewee’s profile. Once defined, the questions were grouped into homogeneous sections. It is vital to consider ethical aspects of the research design in the early stages of developing the interview guide (Robson, 2002). Lewis (2003) discusses four elements of ethics that any research study may raise; informed consent, anonymity and confidentiality, protecting participants from harm and protecting researchers from harm. All of the above elements were relevant to this research. After the first set of interviews (15) in Scotland, two further sets of semi-structured interviews in the West Midlands (9) and Wales (2) were conducted. Fieldwork in Scotland provided then the final set (6). After each set of interviews and reflection on the interview experience small adjustments to the questions were made (Gioia et al., 2012). As the theoretical themes emerged, any uncertainties about the information provided were also clarified, which facilitated efforts to uncover unique insights (Gioia et al., 2012; Lincoln & Denzin, 2005). The research adopted a gendered lens by comparing male and female interview responses. Interview data within the context of the identified three dimensions of entrepreneurship in later life has been analysed from the perspective of responses that were not gender specific (gender neutral). This provided different types of statements. Statements that reflected affirmative views about women in general, and more specifically, women in later life considering venture creation (female dominant) statements that reflected more negative views of women in later life considering entrepreneurship (female subordinate), statements that reflected the dominant position of men in society (male dominant) in relation to venture creation and finally, statements that reflect more negative views of men in later life considering entrepreneurship (male subordinate).

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Findings and Discussion Motivations: Gender neutral and gender differences The interviewees’ motivations for setting up in business reveal a nuanced phenomenon. Findings in this section identify gender differences in the motivations of the interviewees from the perspective, first, of two important dimensions of motivation—motivations that are either opportunity or necessity-driven, and, then, from the perspective of the “hybrid” motivations of two important dimensions of motivation. This is followed by a discussion of the “hybrid” motivations. Gender Neutral The analysis reveals four broad gender-neutral motivations to set up in business. These include: (1) opportunity driven goals: a desire to pursue economic opportunity and to achieve financial success; (2) a desire to give something back to society and the wider community; (3) a desire to achieve recognition and status through venture creations; and,(4) finally, a desire by the interviewees to create greater autonomy and independence in their lives. A gender-neutral motivation for setting up a business relates to the impact of experiencing organisational changes in previous employment. Also, common to males and females is seeing the opportunity and exploiting an existing skill or hobby to turn the opportunity into a business. For example, Peter, who is building an enterprise to manufacture bespoke planter tubs and picnic tables, recalls that he saw the chance to utilise his carpentry skills on holiday. Where the picnic table idea came out of—my wife and I were on holiday, one of the islands of the West Coast of Scotland. Walking along the promenade one day with an ice cream; sat down at the picnic table and I’m eyeing the table and I says, “now that’s what you call a picnic table.” She says, “I can see that; so, what?” I said, “I’m going to make one of them.” Olivia, a long-standing occupational therapist, also explained how an idea, suggested by a family member, of providing a support service for the elderly wishing to downsize and relocate, was the trigger to entrepreneurship: “She actually had the idea and set it up and I agreed that it was a good idea and really just jumped in.” The drive to set up in business is also motivated to achieve the financial success that would enable them to enjoy a more comfortable lifestyle. Kim, who has set up her own hair salon, after many years working for

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others, is very clear in her aim: “Hopefully to be successful to be proud of myself for what I’ve achieved. For hopefully a comfortable lifestyle when I retire…I wanted to earn more money; better lifestyle.” The desire to give something back to society is another form of motivation that is gender neutral. Ian reflects: I’m just doing it because I can see how I can help some people. While Liza sees her prospective business venture as a vehicle to help clients to: …. find their path in life; the path not just doing what they love to do but doing something that they can also be paid for and help them achieve that. Both genders are motivated to set up in business by a desire to feel more relevant in society and be recognised by their peers for their skills and experience. Joyce, who runs a coaching and facilitation business, reveals how empowered she has felt when she is acknowledged for her competence in the field in which she works: It was a huge increase in status because I had always underplayed my strengths and skills in jobs and done jobs… I suddenly recognised even for myself, here I was actually now perceived as the competent person that I was. John, acknowledges: …. the other important driver is that if you are doing something that you really like and feel other people saying that you’re really good at that. But I think that it would be something that would help to drive people on with it. Both genders highlight that their sought outcome from venture creation is a greater degree of control over their lives and their decisions Pamela reflects that: “Flexibility; being your own boss; being able to manage your own time; not having the constraints of large organisations: you know—principles and dictates that sometimes you thought were irrelevant and pointless. To be able to be the master of my own destiny.”

Dominant Female Motivations Findings reveal that the female interviewees dominate with three broad motivations to set up in business, all associated with goals that challenge them to learn the skills they need to run a business. Their male counterparts “generally” do not perceive that they lack the necessary skills. Despite the challenges the women face in the venture creation process, they want to feel they have achieved something significant and learnt new skills. Second, for those female interviewees already in business, they wish to involve family in their venture. Third, more so than their male counterparts, their plans include the growth of their business. This goal is often

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linked with a desire to improve future income streams. The female dominate with the view that, at this later stage in their lives, they are willing to take on the challenge of venture creation, but on their own terms. Their discourse reveals that they perceive the need to meet the challenged. The challenge of setting up and running a business and the resulting satisfaction they feel from being able to fulfil their ambitions was related to a positive mindset. Liza who is in the process of setting up a life coaching consultancy reflects: One could just be sheer boredom and one day they wake up and think, “my life’s going to pass me by, and I’ve not done the one thing I’ve always really wanted to do. If I don’t grab it now, I’m never going to have it.” Notably it is the female interviewees, however, that more frequently than their male counterparts, dominate the discourse on plans for growth of their businesses. Business growth is a definite goal for Janet, for whom the expansion of her business is a clear strategy: Well I want to develop the business; I want to grow the business. My aspiration is to grow the business. Alison is also clear as to what she wants to achieve: I want to be running a successful company; employing a bunch of people; networks all over the place; if I run out of options, I will do history holidays to France which I know quite a lot about and so on and so forth. The findings reveal that, for the majority of the female interviewees, “hybrid” goals prevail. Identifying an economic opportunity is only a first step towards articulating further non-economic motivations. By first spotting an opportunity they can give full vent to their desire to be challenged in later life and notch up new achievements in an environment in which they perceive they can maintain their autonomy and independence. Perceptions of societal norms on gender roles and the ageing process in relation to venture creation Societal gendered roles impact the development of entrepreneurial action and outcomes in later life in different ways; (1) the perceived impact of societal attitudes and norms on the decision process to set up in business in later life: (2) gender roles and ageing; (3) the perceived impact, on interviewees, of their micro-social environment; (4) the perceived impact of subjective norms influencing the interviewees. Based on gender and age, differences are evident in societal perceptions about business creation in later life. Evidence shows that the female interviewees considering or already in business in later life, operate in an environment in which

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prevailing societal attitudes and norms may work against them. This influences women’s motivation to set up in business. Moreover, it impacts older women in business because of the guilt that they feel while working for the success of their ongoing business activities. Despite acknowledgement of the wealth of skills and experience among older women it was suggested that business activities in later life are not taken seriously by business networks, and support organisations. Ambiguous attitudes towards women are evident in the way that business support is perceived to belittle women who want to set up in business by not supporting their efforts: “what happens is the women who are starting small businesses feel that they are denigrated by the business advice groups.” The male interviewees recognised this gendered form of ageism: “They might come up against men who don’t like women in business. There are some of them about: I’m not one of them.” Alan concurred: “there may be a segment of the population who don’t think a woman should be doing ‘that kind of thing’.” Yet there was also evidence of women obtaining business support. Gaining access to generic advice from government funded business support organisations and colleges are common strategies. For example, for Joyce, who runs a coaching and facilitation business, a publicly funded service, available throughout Scotland, has provided her with free business support: …. the very first I did get was the Business Gateway. I did the whole course. Similarly, Alison also received free advice by attending a series of workshops on different aspects of setting up in business: ….the four introductory workshops I actually found really helpful; really useful; lots of good information…. Just concrete stuff about what you needed to do with bookkeeping and what did you need to think about with marketing and those kinds of things. Lack of confidence was raised by women as a barrier to engage in venture creation. Older women who had become successful explained the importance of a positive mindset. Jane, who runs two successful catering outlets, has relied on confidence in her own skills to develop a positive mindset about her ventures: I think there’s always been a belief that I could probably do something really well, which took the risk factor out of it for me. Similarly, Elaine over a period of time has overcome her initial fearfulness about setting up a chocolate wholesale business: I think I’m a better businesswoman than I was twelve years ago. I’ve got a lot bolder, I’m not so fearful.

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Ageism in society is a reason for the entrenchment of roles. Merle explains how ageism is a feature of societal norms that prevail in relation to older women: I realised that other people perceive me differently because of my age. Aileen also reflects: And I’m also aware that if I was in a room with people, men and women, because of my age people will— you’re invisible until you say something that hasn’t been expected. She argues: But people are more likely to not look at you if you’re a woman in her fifties. Societal norms in relation to acceptable activities for older women may colour perceptions about venture creation in later life: Janet articulates this invisible barrier: I don’t know if people think “well I’m not having that old woman coaching me,” you know what I mean? Social attitudes and norms determine whether behaviour is valued, accepted or only tolerated (Welter, 2014). Because entrepreneurship in later life is a relatively new form of economic activity, it can still be perceived as a deviant activity, particularly in relation to older women. This suggests that venture creation is as much influenced by individual attributes as by societal norms and attitudes (Ainsworth & Hardy, 2008; Wainwright et al., 2011; Welter & Smallbone, 2011). While research suggests that entrepreneurship in later life is impacted by societal views on ageing, gaps still exist as to the extent of the impact (Kautonen et al., 2011; Kibler et al., 2012; Wainwright et al., 2011). The interviewees perceive age discrimination not only as a potential barrier to venture creation, but also as a series of distinct practices, which impede their business activities (Kibler et al., 2012). They refer to attitudes and perceptions about ageing that shape their decisions to set up in business e.g. how older men in employment are supported more than older women. Various studies confirm that where the normative environment is accepting and open about entrepreneurship in later life, a strong positive influence prevails on entrepreneurship. In contrast if ageism and rejection of the idea of individuals in later life setting up in business predominates, a negative effect is created (Pilkova et al., 2014; Ting Zhang, 2008; Weber & Schaper, 2004; Kautonen et al., 2008, 2010, 2011). For older women, expectations from significant others about care responsibilities for husbands, elderly parents and grandchildren in the family are perceived as potential barriers to setting up in business. Subsequently female interviewees, in particular, are torn between developing their business idea, and responding and adapting to the needs of their families. Olivia acknowledges that her husband’s expectations regarding her perceived household responsibilities are not being met. Her husband,

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however, is unwilling to change his expectations: he’s a bit of the oldschool and he comes in from work and he’s hungry…I tend not to deliver, very rarely is anything on the table because I’ve got stuff to do. ….. But I will never get tea on the table made by him, it just won’t happen… And quite often if I’m away in the evening, then he has to see to himself anyway. Pressure to adhere to these norms is strong for the female interviewees, and pressure can come from other family members who are female. For Jane, who runs successful catering outlets, feelings of guilt stem from family perceptions about the upbringing of her son: …and to get rid of the guilt to think, I’m doing this but look at her, she’s never at home; she’s doing that. That is my mum—I know she thought “why aren’t you with your child? Why are you there still at 11 o’clock at night? Why does it matter that every drink is turned the right way?” They all think I’m mad, they all think it is too important. Olivia also feels constrained by her wish to comply with societal norms while developing her business: It is quite stressful because I’m constantly having to say, “I can’t do that, I can’t do that, I can’t do that because I’ve got to do this.” As Mary concedes, complying with the expectations of her family, while trying to carve out time to develop her business, is proving difficult: So yes, definitely if he was at home all the time, I’d have less time to myself. The pressure to comply with perceptions that their place should be at home caring for others rather than fulfilling their own dreams and aspirations is a recurrent theme among the female interviewees. Jo sadly reflects: I’m always worrying about everybody else’s needs and not my own. So, I haven’t ever necessarily put myself first in terms of my personal satisfaction.

Accrual of Tangible and Intangible Resources for Venture Creation (Age Capital) The findings show gender age commonalities in relation to the perceived and actual availability of either cultural, economic or social capital for entrepreneurship in later life (Hill, 2018). Cultural capital (Bourdieu, 1997), relates to the individual level skills, knowledge and experience of the interviewees, their accumulated reserves of resilience and perseverance and their physical and mental health. Social capital (Hill, 2018), resonates with interviewee responses about access to social networks, support received from family and friends and access to business support organisations.

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Both genders share aspects of their endeavours to set up in business. In relation to the individual cultural capital both genders believe, that without the determination to succeed and a positive mindset towards venture creation, they are unlikely to generate the confidence to succeed. Although the women identify as having less confidence compared to the men it was also recognised: You’ve got to have some confidence to set up your own business and some opinion that you’re able to do that. Both genders also understand that gaps in the specific skills and experience required for entrepreneurship can be filled by either co-opting the skills of external experts to the business or working in partnership with another organisation, which for some may help to overcome initial misgivings: it might take someone else to kind of nudge me along basically. Equally, both genders acknowledge the importance of mental and physical health for the success of the business: …. general bodily fitness; mental fitness; healthy mind and healthy body. Both genders acknowledge, however, that accumulating sufficient economic capital to finance their business venture is challenging in later life, as they often lack own resources to fund the development of their business activities. They are united in their reluctance to apply for funding through government grants. In view of these difficulties in accumulating economic capital, both genders understand the benefit of limiting the initial outlay required for their business activity and then keeping costs to a minimum, e.g. by working initially from home: It doesn’t need a lot of resources; it doesn’t have a lot of overheads. With regard the impact of the external environment on their business ventures and their ability to develop the social capital they require for their business activities, both genders invest time and effort into identifying a diverse range of sources of business support from both private sector providers and from government supported organisations and colleges. However, they are united again in the view that business support is often difficult to access, and, when eventually identified, is perceived to be either targeted at larger companies or is too generic and not always relevant to their needs: All bloody different and they want different things, so you’ve got to write a completely different thing for every one of them. Support from informal networks, such as from family, friends and other groups, is acknowledged by both genders as important sources of social capital, which boosts confidence to set up in business: This is especially the case when the skills of family members can be deployed in the business or if business advice from friends is available. Equally, both genders

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agree that business contacts acquired, either through previous employment or through local business networks, are most useful for developing social capital.

Conclusions As the motivation factors emerge from the analysis, the significance of the relationship between these motivations becomes apparent. It is demonstrated that the interviewees, in most cases, are driven not by one isolated motivation, but by several that are interrelated. Together with the necessity and opportunity driven motivations, “hybrid” motivations constitute a further strong core aggregate dimension. The uniqueness of “hybrid” adds a new level of depth to the topic of entrepreneurship in later life, particularly as it can be disaggregated by gender. There is no assumption, however, that identified motivations are the sole determinants of the decision to pursue business activity. Personal structures, as well as wider external context, also play an important role in shaping action and outcomes (Stephan et al., 2015). It is argued, therefore, that the identified components of entrepreneurial capital (age capital) of older individuals impact the process of venture creation. To reduce the uncertainties of venture creation, age capital can be further developed by accessing external resources. Women in particular, to minimise feelings of self-doubt and lack of confidence, potentially may augment their cultural capital by finding ways to harness additional resources derived from the external environment. However, an unforgiving social and informal institutional environment decreases for many of the female interviewees their willingness to convert accumulated age capital into business activity (McKelvie, 2011). The issue remains whether the external resources available to them are of a sufficient quality and range to bridge this gap in self-confidence and whether they are prepared to supplement their entrepreneurial capital (age capital) with on-going personal development. Findings also show that a resilience dynamic can play an important role in triggering the decision to become an entrepreneur. The female interviewees balance gendered social norms with their age capital, through resilient positive behaviour. Some, however, find the “difficulties in overcoming discriminating or constraining discourses, such as those related to enterprise and age,” on occasion, too difficult to surmount (Mallet & Wapshott, 2015). It is posited therefore that, because different forms of capital are not always

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available to women to the same extent as to men, the accumulation of age capital can be regarded as a gendered phenomenon. To conclude, these findings have implications for future research. In terms of the methodological choice there is scope for quantitative research, which can yield findings that can be generalised to inform policy. In terms of contributing to a wider range of theory these findings have resonance in relation to debates on masculinities, and entrepreneurial feminism. Furthermore, a key limitation of the research is the lack of understanding of diversity in entrepreneurial capital, particularly how older generations of men and women from different ethnic minorities and from diverse communities approach the accrual of entrepreneurial capital.

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CHAPTER 2

Managing Innovation in Smart Industries Borut Likar

Innovation is vital to European competitiveness in the global economy. The EU is implementing policies and programmes that support the development of innovation to increase investment in research and development, and to better convert research into improved goods, services or processes for the market. As highlighted by EU Industrial Policy, industry is crucial for EU competitiveness and innovation is a key factor in this regard. It is especially important for Industry 4.0.

Developing a Smart Innovation Portfolio First, it should be stressed that companies which are innovating and also addressing various types of innovations, are more shock proofed and easier survive economic recessions. Therefore, it is important not to be limited only to new products development. Innovation activities bring highest value if balanced and address different types of innovations as follows (Fig. 2.1):

B. Likar (B) Faculty of Management, University of Primorska, Koper, Slovenia e-mail: [email protected] © The Author(s), under exclusive license to Springer Nature Switzerland AG 2021 M. Ince-Yenilmez and B. Darici (eds.), Engines of Economic Prosperity, https://doi.org/10.1007/978-3-030-76088-5_2

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• Product (which results in new products or services or enhancements to old products or services) • Process (which results in improved processes within the organisation—for example business process re-engineering) • Marketing innovation (including the functions of product promotion, pricing and distribution). • Organisation (which improves the way the organisation is managed) • Process innovations (improvement of all processes, also R&D and production processes in smart industry) Additional typology of innovations: • Technological and non-technological innovations For smart industry technological innovations are important, e.g. technological breakthroughs based on API-Application programming interface. At the same time, not technological innovations are related with company performance and also with market. • Incremental and radical innovations Even though incremental innovations often represent smaller improvement related with minor financial results, we can expect many of them in company. On the other side, radical innovations can bring huge financial results, but are rare and often risky—e.g. the inventor of turbo reactive motor/airplane was De Havilland (Comet), but the final winner was Boeing, which was actually an innovation follower. • Technology-push and market-pull concept Some innovations are strictly technology-push driven (e.g. electric airplanes, where the bottleneck is high capacity batteries) the other are following the market-pull concept (e.g. development of the digital camera and photo editing software. There are some other types, which are becoming more and more important in the last years. • Eco-innovation It is the production, assimilation or exploitation of a product, production process, service or management or business method that is novel to the organisation (developing or adopting it) and which

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Fig. 2.1 Typology of innovation (Source Likar et al., 2013)

results, throughout its life cycle, in a reduction of environmental risk, pollution and other negative impacts of resources use (including energy use) compared to relevant alternatives. • Social innovations These are new strategies, concepts, ideas and organisations that aim to meet social needs resulting from working conditions, education, community development and health. These ideas are created with the goal of extending and strengthening civil society. For the smart company it is important to have in mind all types of innovations, because each of them can bring benefits. But of course, it should focus on those, which are related with smart company’s core business.

Innovation Management According to the words of management guru Peter Drucker each organisation needs one key competence: innovation. This is the process by which businesses improve their competitiveness and profitability. Innovations result in the development of new products and services, new features in existing products and services and new ways to produce or sell them or a different approach to any other process within the company. Completely new ways of doing business are often called new business models, which

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bring highest value added. We can say, that innovation is not only a process, it is a way of life. If we want to establish or improve innovation within the organisation, there is not a uniform procedure how to do it. But there are many elements and concepts, which can help companies to achieve the innovative performance. Innovation management begins with defining the strategy and setting innovation objectives. Innovation strategy is a strategy of efficient answer to competition. Developing successful innovation strategies is often difficult, which explains why many firms choose not to do so, even though the benefits of innovating are widely understood. The Scope of Innovation The most common innovations goals are the following (Likar & Fatur, 2007): • • • • • • • • • •

Increase added value for customers Reduce product/ service cos Increase innovation hit rate Improve product/ service quality Increase development efficiency Increase rate of product/ service introductions Shorten time to market Develop new product/ service categories Create new business models Improve working conditions for employees Building the Innovative Culture

If the company wants to achieve mentioned and similar goals, building the innovative culture is essential and encompasses: • Leadership by visionary, enthusiastic champions of change. • Top management support and encouragement of creativity, both financial and psychological. • An effective communication system. Leaders share the business vision with their staff and empower them to optimise their potential in achieving the business goals.

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• Flexibility towards new thinking and new behaviour patterns. The creative organisation readily adapts to change and proactively searches for new opportunities. • Customer focus. • A creative culture is outwardly focused, looking for ideas among customers, competitors, academe, suppliers and even industries with a different focus. The culture of innovation can be developed by: • • • • • • • • • • • •

Selecting innovative employees. Training for creativity and innovation. Developing a learning culture. Empowering the employees. Setting up idea capture schemes. Developing managers to support the innovation of others. Making creativity a requirement of the job. Improving employee participation in decision-making. Having appropriate reward systems for innovation. Allowing risk-taking as an acceptable mode of practice. Encouraging investment in research and development. Benchmarking (actively undertaking systematic approaches to locate and assess good practice elsewhere in attempts to improve your own performance). Some Other Important Measures Affecting the Organisational Environment

Responsibility of innovation placed on all staff while some roles will be more directly involved in innovation (e.g. research and development, product development) all staff should have a mandate to act innovatively within their roles. Human resource system that develops and encourages staff to be innovative. This requires a dedication to training, education, mentoring and the rewarding of staff for innovative behaviours. Staff also needs time and resource allocations to stop and think about new ideas, which will not happen while they are giving 100% of their time to the daily

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routine. Especially for smart industries, permanent training focused into new technologies and fast developing sector is essential. Performance measurement system that measures the innovative pulse of a company. Simple measures that are often used include spending on innovation (often labelled R&D expenditure), new product percentage (number of new/changed products introduced this period as a proportion of total product numbers) and number of patents held. Linkages with the marketing function: Understanding the customers, their needs and the competition is critical for targeting resources to the innovation systems. The most successful innovators understand the customer’s needs better than the customers themselves. They are often able to identify and solve problems before the customer has realised that perhaps there is a problem, let alone thought about buying a solution. Knowledge acquisition and management processes that constantly bring into the organisation new ideas, information, concepts and knowledge. This can range from simple things such as receiving trade, scientific, engineering and professional magazines, attendance at conferences and participation in industry networking forums right through to having a comprehensive research capability. Where knowledge is not readily available, polytechnics, universities and research institutes have the capabilities for developing it for you. Intellectual property management systems that identify, protect, value, manage and audit the organisation’s intellectual property (IP). This intellectual property is the new knowledge that arises out of the innovation process e.g. it may be a unique understanding of a production process that facilitates superior efficiency or design in a new product. Some organisations have difficulty in identifying their IP. One way of doing so is answer the question: what do we know that our competitors don’t and that we don’t want them to know? Once identified, it needs to be protected or the competitors will find out! Protecting your IP can range from simply keeping it confidential, not only physically but also electronically through to the more formal means such as trademark protection, patents and plant variety protection. These last are especially important for smart technologies. Last but not least, one of the most important instruments is being fast. Respond to the market needs, develop the novelty, sell it and when competitors succeed to copy it, you have a new one. This is also a concept of Akrapoviˇc, Slovenian manufacturer of exhaust system; one of the best on the world.

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Open innovation is a concept where boundaries between a company itself and its environment have become more permeable; innovations can easily transfer inward and outward between firms and other firms and between firms and creative consumers, academic institutions and researchers resulting in impacts at the level of the consumer, the firm, an industry and society (Open innovation, 2018). At the same time, it enables companies to search for new ways of commercialising their ideas and know-how via selling of intellectual property rights, spin-offs and other forms. Clustering of similar organisations and their support industries is a proven tool for ensuring collective growth by sharing those parts of the innovation and business process where their interests overlap (e.g. European Automotive Cluster Network—an initiative that reunites nine of the most important cluster initiatives in the automotive sector from seven European countries). Flexible, organic structure, which encourages team work and also acts as a stimulant to people to be more creative. Having an elastic business definition helps to ward against protectionist instincts and the organisation thus avoids subconscious defence against necessary changes. Management of the organisation should be directed to spend a significant amount of their time looking for opportunities outside the boundaries of the business they are managing. Employees’ motivation: motivating an employee means that he should feel his personal success at work, feel that he positively contributes to the company’s goal, to feel responsibility corresponding to abilities, receive acknowledgement for his or her performance, feel that he acquiring new experience and develops his abilities. Participative leadership style: managers focus both on the task and the subordinates and enable them to participate in the planning and decisionmaking process. Flexible organisational boundaries: It is not necessary to create all innovations internally. Partnerships can be a useful strategy to promote innovation. Also, in addition to development, acquisition can be an effective innovation strategy. Manage the risk: Strategy should not be monolithic; it should be sufficiently varied to allow for organisational agility and flexibility. Remember that most innovation ideas will not pan out, so don’t think big in terms of funding any one innovative idea. The strategy should be to fund a number of ideas. Low-risk experimentation is of key importance—invests in many ventures but start out small. Although most new ventures will

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fail, important learning can be acquired from each. Project risk must be distinguished from portfolio risk—the risk of any new project will be high but if there are enough innovation projects, the portfolio risk will be manageable. Transform organisational strategy: Typical strategic planning is often antithetical to promoting radically innovative business models and strategies. Innovation cannot be held to a scheduled strategic planning timeline; it should be on-going. Also, strategy should not be restricted to the same set of top-level decision-makers. Innovative strategy does not necessarily come from the top but too often not a word about contributing strategically appears in the performance criteria for anyone below the level of senior executive. Other factors, as a systematic collection of all impulses that could lead to innovation, good team work, continued education of employees, the ability to finance the innovation activities. (Likar & Fatur, 2007).

Developing an Innovative Product/service Regarding to the innovative process, it is possible to define key stages, as a route to achieve progresses for the innovation. However, it should be taken into consideration that innovation is a multicausal and notlinear phenomenon, which is defined as a result of a wide range of links, interactions, cycles and feed-backs. (Likar et al., 2013). Attending to these considerations, we can draw main stages: • • • • •

Problem/ opportunity identification Problem redefinition Ideation Pretotyping/Prototyping Idea testing and selection Problem/ Opportunity Identification Concepts

Finding new opportunities may involve: • periodic review of external and internal opportunities of the organisation,

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• establish the proper communication channels (in order to “hear” the opportunities), • develop methodologies to identify trends and insights (e.g. trend in Cryptocurrency), • perception of market opportunities (e.g. big ship cruises) • detection of competition’s weakness (e.g. long response time for pizzas’ delivery), • detection of technology opportunities (e.g. block chain technology), • knowledge form academic institutions (related to Spin-off, e.g. plasma cleaning concepts), • building on our own hobbies (e.g. Pipistrel—Slovenian producer of ultralight airplanes), • legislation requirements (e.g. environmental standards for car engines). Problem Understanding Tools In addition to the mentioned concepts, concrete tools are available, e.g.: Ishikawa Diagram (fishbone diagram) is usually implemented in the context of a group, which is considering the possible causes of a problem which is broken down into several levels of sub-causes. By way of this, we gradually extract and identify the underlying or root causes of the basic problem. We can also expect ideas for solutions (Fig. 2.2).

Fig. 2.2 Ishikawa Diagram in praxis (Source Košmrlj et al., 2015)

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QaDIM (Quick and Dirty Method) is primarily intended for the identification of opportunities for incremental innovations on the already existing product, but in the process of discovering problems and opportunities, an idea for a break-through innovation may also arise. SWOT Analysis. A problem or a challenge is addressed from the point of view of its strengths, weaknesses, opportunities and threats. TRIZ entails a systematic approach to reviewing patent databases. We approach to solving the problem by redefining it with regard to previous related problems, the solutions to which we can find in the patent database. The slogan of this tool is that “someone somewhere has already solved such (or very similar) problem”. Delphi is a lengthy and complex method, which attempts to predict future development in of the field under consideration (e.g. the future of photovoltaics). It is based on individual work of more individuals who are experts or connoisseurs in the field. eMIP. Methodology for mass identification of problems which are present in the company and its environment, yet not sufficiently clearly detected. It is very appropriate for applying the open innovation concept, where also external partners form the value chain are participating. Innovation Cube directs participants systematically towards a broader way of considering and addressing problems and needs, opportunities and ideas for novelties as well as towards finding new markets, also future trends. Understanding the Customer Many innovations are a response to customers’ needs. Therefore, it is crucial to understand the need of the market or concrete customer. Empathy helps to understand them better and to define the problem properly. Empathy helps to be human/customer oriented rather than technology focused which can result in product failure. An example is a Google Glass: while being technologically impressive, it failed to perform well, and a lot of that comes down to a lack of empathy towards the users. On the other hand, the innovation called the Embrace Warmer (new type of incubator for developing countries http://embraceglobal. org/about-us/) has been developed by postgraduate students at Stanford following the empathy concept and became very successful.

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Empathy Based Methods Conduct interviews with empathy. Empathy interviews are the cornerstone of Design Thinking. By entering and understanding another person’s thoughts, feelings and motivations, we can understand the choices that person makes, we can understand their behavioural traits, and we are able identify their needs. This helps us innovate, and create products or services for that person. (Empathy methods, 2018—pls. see link within paragraph Literature for more info). Use photo and video user-based studies. Photographing or recording target users, like other empathising methods, can help you uncover needs that people have which they may or may not be aware of. Other useful methods: Assume a beginner’s mindset. Ask What-HowWhy. Engage with extreme users. (Design thinking, 2018). Problem Redefinition Rather than accept the problem as given, it is important to explore, describe and analyse the problem identified and its context and may re-interpret or restructure the given problem in order to reach a particular framing of the problem that suggests a route to a solution. You can also use the presented Ishikawa Diagram. (For more info pls see: Košmrlj et al., 2015, The art of managing innovation problems and opportunities). Ideation Ideas come from people we know, stories we hear, the work we do, our interests, our opinions and our experiences. Business ideas are all around you. Some business ideas come from a careful analysis of market trends and consumer needs; others come from luck. But how can you find a source of ideas and knowledge? (Likar & Fatur, 2007). A very important base is clear definition of problems and opportunities, which has already been presented. In order to maximise the creative potential of the problem-solving group, the idea generation activity should be collaborative in nature. This can be accomplished in many ways. Idea management and innovation process management often provides collaboration tools, while facilitators

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of brainstorming and other ideation events should promote collaborative idea development. (Schober, 2015). Some techniques for creation of ideas: • • • •

Brainstorming Philips buzz 66 Bionics Six thinking hats

Brainstorming can be viewed as a storm of ideas. It is a team problemsolving method. The basic rule is that all team members are equal and the session should have the character of a friendly meeting. The team is mostly led by a moderator. Criticism or evaluation of suggestions is strictly forbidden. It will be done within the next phases. Philips buzz 66 is very similar to Brainstorming, but very short and appropriate for solving of daily challenges with only few participants. It can be efficiently used by daily coffee. “Six Thinking Hats” is a powerful technique. It is used to look at decisions from a number of important perspectives, e.g. emotional, intuitive, creative or negative viewpoint. If you look at a problem with the “Six Thinking Hats” technique, then you will solve it using all approaches. Your decisions and plans will mix ambition, skill in execution, public sensitivity, creativity and good contingency planning. Bionics or biologically inspired engineering is the application of biological methods and systems found in nature to the study and design of engineering systems and modern technology. Examples of bionics in engineering include the hulls of boats imitating the thick skin of dolphins; sonar, radar and medical ultrasound imaging imitating animal echolocation. In the field of computer science, the study of bionics has produced artificial neurons, and artificial neural networks. Due to its specificity, this method represents a strong tool for smart industries. Pretotyping/Prototyping Pretotyping is a simple way of materialisation of ideas (often made in some hours or a day) before attempting to actually prototype it. Therefore, we get an idea and insight into future challenges—conceptual, development, technology and cost.

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Rapid Prototyping Tools A prototype is an early sample, model or release of a product built to test a novelty concept or process. It should be prepared in the way so that the entire functioning of innovations can be tested or their final version can perform its function. The aim is to be presented to final users or potential buyer. It can be done using rapid prototyping tools, e.g. CAD/CAM, 3D printing, laser cutting, selective laser sintering etc. Often it is possible to use standard electro-mechanical devices and components, “kit” versions, finished completed modules. For technical inventions we can use universal programmable electronic circuit, development “open source” platforms, like Arduino etc. At the same time, work should be done professionally— in terms of functionality and design. The aim of prototyping is to be flexible and fast and have possibility to redesign it after testing. Idea Testing and Selection The phase of idea assessment and selection is one of the critical phases of innovation process. The praxis demonstrates that inventors or companies’ managements frequently fail to consider its value precisely enough. They thus continue with development and the phases which follow while the costs increase dramatically. There are some main filters helping us to choose ideas with highest potential: • test your novelty by your customers/final users • verify various aspects of the new concept Test Your Novelty by Your Customers/final Users Testing means to get feedback from potential users/customers. Instead of describing the idea, a more efficient way is to present a prototype and get a deeper understanding of the users. The most important questions, which should be answered, are: Do the users like the novelty/prototype, Do they understand how to use it, Is the use intuitive enough, Is it user friendly, Does it fulfil the users’ requirements, Are there too many functions available etc.? When undertaken correctly, the testing stage allows you to empathise and gain a better understanding of your users. Even better results can be achieved, if testing is done in real life environment (e.g. testing of alpinist equipment in the mountains). It is also important

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that we track reactions at the usage (emotions, use, understanding, practicality…). Beside non-verbal feedback, it is also useful to talk about the experience. You may ask them what they’re thinking about the novelty. It also makes sense to encourage them to talk about unrelated topics. When you get all the feedback, analyse the responses and use them for the concept/prototype improvement. After that, testing should be repeated. Verify Various Aspects of the New Concept Before starting with pre(o)totyping ideas should be evaluated and selected as well. • Key success factors (we define and evaluate most important aspects, e.g. market potential, feasibility study &technological aspects, financial aspects, production price etc.) • SWOT analysis (see previous text) • Input/Result method (ration between inputs needed and expected results) • Numerical sensitive analysis (make calculation and simulations related financial and other aspects) It is important to select one or more most relevant methods, analyse the results and use them as an input in a decision face. Often it is useful to consider also the results of the previous phase related to problem/opportunity analysis. Design Thinking One of the modern approaches dealing with the idea-innovation process is Design Thinking (also known as D Schools). Design thinking refers to the cognitive, strategic and practical processes by which design concepts (proposals for new products, buildings, machines, etc.) are developed by designers and/or design teams. Compared to the innovation process presented, a strong emphasis is given to the first phase—understanding the problem/need of the final user. It is also very human-focused and prototype-oriented.

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One of the properties of modern innovation development concepts is, that all phases are strongly interrelated—e.g. when prototype is done, we often need to redefine our problem, create new ideas, etc. and prepare a new prototype. Similar situation occurs in other phases (Design thinkingwiki, 2018; Design thinking, 2018). Roadmap to the Final Product Within this chapter (Managing Innovation in Smart Industries), we focused on the innovation process. Therefore, we would just like to briefly present a wider picture—basic steps and processes which should be done to transform the idea into the final market product as follow: • Innovation strategy and goals (see: Innovation management) • Development of innovative organisation and culture (see: Innovation management) • The process of innovation (see: Developing an innovative product/service) • Research and development (especially smart industries are closely related to R&D—see also: Innovation management, Cooperation between Higher Education Institutions and Businesses) • Intellectual property protection (see: Innovation management) • How to finance innovation (e.g. subsidies—EU, national and regional and local programmes, credits, venture capital, tax incentives etc.) • Production (see: Production) • Marketing (see: Business Opportunities) More can be found in other parts of these guidelines and in literature. Instead of conclusion, we prepared a simple recipe for innovation. Basic Ingredients: a large spoon of creativity, a bit of criticism, a healthy measure of the research spirit, a positive thought that also other will love our novelty, a pinch of teamwork, spice of an appropriate speed so that the dish does not dry out, a couple of drops of managerial courage. Stir well together, make it hot and success is guaranteed. Bon Appetite.

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References Design. (2018). https://ecapo.wordpress.com/tag/design-thinking. Accessed November 24, 2018. Design thinking. (2018). https://www.interaction-design.org/literature/art icle/design-thinking-getting-started-with-empathy. Accessed November 26, 2018. Design thinking-wiki. (2018). https://en.wikipedia.org/wiki/Design_thinking. Accessed November 26, 2018. Empathy methods. (2018). https://webdesign.tutsplus.com/articles/tec hniques-of-empathy-interviews-in-design-thinking--cms-31219. Accessed November 24, 2018. Košmrlj, K., Širok, K., & Likar, B. (2015). The art of managing innovation problems and opportunities. Published by Faculty of Management at the University of Primorska https://www.researchgate.net/publication/278404 052_The_Art_of_Managing_Innovation_Problems_and_Opportunities. Likar, B., & Fatur, P. (2007). Managing innovation and R&D processes in EU environment. Korona plus-Institute for Innovation and Technology. https://www.researchgate.net/publication/283463535_Managing_ Innovation_and_RD_Processes_in_EU_Environment. Likar, B., Fatur, P., & Mrgole, U. (2013). Innovation management (1st ed.). Korona plus - Institute for Innovation and Technology. https://www.resear chgate.net/publication/292127499_Innovation_management. Lubiewa-Wielezynsk, P. A. (2012). Innovation: What is open innovation? https://www.eoi.es/blogs/piotradamlubiewa/2012/02/07/innova tion-what-is-open-innovation/. Accessed November 24, 2018. Open innovation. (2018). https://en.wikipedia.org/wiki/Open_innovation. Accessed November 26, 2018. Schober, P., et al. (2015). http://2inno.eu/en.

CHAPTER 3

Entrepreneurship in Complex Economic Systems: Acting in Networks and Adapting to Cycles Burcu Türkcan

Introduction The business formation process is generally conceptualized as a dynamic function of opportunity structures and opportunity-seeking entrepreneurs. In this function, opportunity structures are perceived as the demand side and motivated entrepreneurs are perceived as the supply side. Consequently, it’s critical to examine the essential issues of the entrepreneurship in the economy (Aldrich & Zimmer, 1986: 3). However, the global economy has transformed to a new structure during the recent century. Technological breakthroughs and path breaking innovations have proposed a new industrial revolution for the agenda. Hence, new global economy has a different countenance characterized by complex economic systems. Complexity theory is the theory which tries to examine such systems and tries to propose new policy

B. Türkcan (B) Department of Economics, Ege University, Izmir, Turkey e-mail: [email protected] © The Author(s), under exclusive license to Springer Nature Switzerland AG 2021 M. Ince-Yenilmez and B. Darici (eds.), Engines of Economic Prosperity, https://doi.org/10.1007/978-3-030-76088-5_3

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options suitable for the current situations. Complexity theory underlines that contemporary world is characterized by innovations and they are produced mainly by high technology industries. High-tech production increase range of products, create higher value-added, improve productivity and hence increase the level of complexity in an economy. In this context, economic complexity theory suggests that complexity level is a critical point for economic growth and development. It’s underlined that as the related diversity of productive outputs increase, the cumulative endogenized innovative knowledge increases, too (Hausmann et al., 2011: 18). At this point, know-how and knowledge flows come to the forefront. Companies with higher know-how and higher abilities to adopt new knowledge have superiorities over the other companies in the competition environment. Consequently, evaluating the key facts of complex economic systems is of particular importance for especially entrepreneurs. Complex economic systems are formed by heterogeneous actors. These actors have intense relationships both with each other and the system. These relationships can be highly nonlinear and can produce surprising outcomes. Complexity theory underlines that individual actors are the decision makers whose choices depend directly on the decisions of others in the economic system. Consequently, positive feedbacks may have significant results on aggregate behavior. Positive feedbacks refer to the direct and indirect links between agents and this approach is the background of the network theory (Durlauf, 1998). The network theory suggests that agents are embedded within networks of relationships and they provide opportunities for their actions (Möller & Rajala, 2007: 895). A complex business market is a network where the business units are linked to each other by specific relationships. These relationships create complex interactions and adaptations (Hakansson & Ford, 2002: 133). The adaptations are especially important due to the fact that adaptive cycles are in the spotlight of the contemporary complex world. Adaptive cycles are the fundamental feature of the panarchical economic systems. A panarchical economic system is the system which depends on evolving complex adaptive cycles. Adaptive cycles reflect the potential of a system for change; its internal controllability and its resilience to unpredictable shocks. Consequently, the existence of adaptive cycles as a part of panarchical economic system is critical for sustainable development (Holling, 2001). In this sense, entrepreneurs should have different abilities and priorities in today’s world. Today,

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analyzing the current conditions briefly and choosing the best investment option are more critical than ever. In this context, the main purpose of this study is to draw a theoretical frame for entrepreneurs acting in today’s complex economic systems. The main contribution of this study is expected to be on the point that a brief theoretical analysis would shed some light on the real-life actions of entrepreneurs. In this manner, after a brief introduction, the first section is devoted to the definitions of network concept, adaptive cycles in panarchical environment and complex economic systems. Then, the second section is attributed to the interplay between complex economic systems and entrepreneurs. In this section, the fundamental properties of today’s entrepreneurs that they should have are defined. Lastly, the third section is devoted to the roadmap for entrepreneurs in complex economic systems.

Networks, Adaptive Cycles and Panarchical Environments Network concept has its roots on agglomeration literature. In the Marshallian industrial districts approach, knowledge flows enhanced by the proximity between agents (Boschma & ter Wal, 2007: 179). However, the proximity refers mainly to the geographical proximity in Marshallian view. In this view, geographical proximity of agents in local environment increases the knowledge flows and helps to improve the new knowledge creation. Knowledge creation is generated by basically three ways. First of all, geographical proximity in local networks decreases knowledge transfer costs. Secondly, it provides specialization and hence increases the efficiency. Lastly, it increases the speed of knowledge flows (Antonelli, 2003: 10). Although the importance of geographical proximity has been proved both theoretically and empirically in the literature, there was also a simple fact that some other kinds of proximity—such as cognitive proximity, social proximity, institutional proximity etc.—were also in turn in networks. Consequently, traditional industrial agglomerations view has enhanced by New Economic Geography Theory. This theory was introducing three types of industrial agglomeration models as Pure Agglomeration Model, Industry Complex Model and Social Network Model. First two models were the extensions of the traditional Marshallian view but the third one was the introduction of the network approach (Gordon & McCann, 2000: 515).

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Network concept can simply be defined as a structure where lots of agents are related to each other by specific relationships. It is the integral of the complex interactions within and between the agents over time (Hakansson & Ford, 2002: 133). Agents are embedded within these complex interactions and these interactions bring about both some opportunities for and constraints on the agents (Möller & Rajala, 2007: 895). Networks have become to be on the spotlight of the economic and business researches since 1990s due to the acceleration of globalization process. Incremental technological complexity and the spread of internet have drawn attention on networks (Möller & Svahn, 2004: 220). This accelerating attention of networks has given rise to various classifications of the concept. The one of the most famous classifications has been made by Achrol (1997). Achrol distinguished the networks as Vertical Market Networks, Internal Market Networks, Intermarket Networks and Opportunity Networks. Vertical Market Network is the most fundamental network type which can be defined as industryspecific chain of suppliers. There are direct supply chain relationships starting from a manufacturer in a particular market. Manufacturers supply their products to distributors; they distribute goods to wholesalers and the chain continues with retailers and consumers. Intermarket Networks are the networks organized around a financial institution, trade company or manufacturing company. There exist intense interconnections and collective actions between units of the network (Möller & Rajala, 2007: 896). Internal Market Network is organized within a company with the aim of eliminating hierarchical relationships between internal units of the company. In this type of network, firm units behave like independent profit centers (Ackoff, 1993). Lastly, Opportunity Networks are the networks organized temporarily around a particular customer project. Generally, a marketing company is at the heart of the network and it organizes all the relationships between agents (Achrol, 1997). All these network definitions are based on a single company controlling activities and resources. However further studies have introduced different perspectives for the network classifications. As an example, de Man (2004) has suggested a classification as to the goal of the network. In this sense networks are defined as Quasi-Integration Networks, Supply/Demand/Customer Oriented Networks and Technology Oriented Networks. There are lots of other classifications about networks and each of them has different perspectives. Another branch of network classification has its roots on New Economic Geography Theory.

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Social Network Model has been enhanced in the literature and social networks have been introduced as a fact of the contemporary world. The most important feature of Social Network Approach has been its focus on the social relationships. Social Network Approach tries to explore the ways of interactions between the social entities and assumes that these interactions are more important than the individual behaviors and attitudes. These relationships create opportunities for individuals and also impose some restrictions on them (Wasserman & Galaskiewicz, 1994: xii). All these relationships and their outcomes are also one of the main research areas of Complexity Theory. All types of networks are critical for the knowledge transmission. Today it’s accepted that the amount of knowledge embedded in a society is not simply the total of knowledge that individuals have. The amount of knowledge is determined by the variety of individuals’ knowledge and the combination of various knowledge through complex web of interactions (Hausmann, 2011: 15). In this sense, networks are critical to provide meaningful web of interactions. They exhibit complex interconnections between heterogeneous actors. It’s not a coincidence that Economic Complexity Theory is based on understanding complex systems formed by the heterogeneous agents. This theory mainly adopts the idea that the real world is formed by dynamic networks. The world is an integrated and a never-ending evolving system. Adaptive cycles of growth, accumulation, restructuring and renewal are valid in this process and their existence provides sustainability of the system. In adaptive systems, adapting cycles are in turn for nature, human beings and socio-economic systems. Each element of the system is interconnected to each other and these relationships create complex networks. This complex structure is called as ‘Panarchy’ which is a term used for the description of the evolving nature of adaptive systems. (Holling, 2001: 392). Figure 3.1 exhibits a simple adaptive cycle. The cycle looks like an infinity symbol due to the fact that it shows a never-ending circulation. The vertical axis of Fig. 3.1 shows the potential of the system and the horizontal axis shows the connectedness. Potential reflects the inherent potential of the system that available for change. Connectedness reflects the degree of connectedness between internal units and processes. It also expresses the flexibility of the system in case of change. There are also four areas of figure. Area A is the area of exploitation; B is the area of release; C is the area of conservation and D is the area of reorganization. From A to C both potential and connectedness increase and new resources are

B. TÜRKCAN

D

C

A

B

Potential

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Connectedness

Fig. 3.1 An Adaptive Cycle Author’s creation based on Holling, 2001

exploited or innovations/inventions are created. It’s a long process and can be evaluated as an investment for the future. The transition from C to B is relatively fast and in this process innovations are introduced to the markets. The fastest transition is from B to D. Reorganization of ideas, innovations and relationships are made in this process. Moreover, there is a leakage in area A. It shows exit from the system to a less productive and less organized system. Figure 3.1 is a two-dimensional figure expressing dynamics of an adaptive cycle. Resilience can be thought as the third dimension of such a system. Resilience expresses the vulnerability to unexpected shocks and it provides sustainability of system.

Entrepreneurship in Complex Economic Systems As a traditional definition, entrepreneurs are the ones who start a new business where there was none before (Gartner, 1985). However, today it’s widely accepted that entrepreneurs have more skills than just establishing a venture. Entrepreneurship includes some specific skills such as creation, adaptation and managing a venture (Cunningham & Lischeron, 1991: 46). Hence, entrepreneurship can be defined as process of creating

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new value and managing it successfully in current conditions (Bruyat & Julien, 2000: 169). What is more is that entrepreneurship is directly linked to dealing with uncertainty (Nijkamp, 2003: 397). In today’s complex economic environments entrepreneurship also means management of business networks. Entrepreneurs should invest in social communication, informal bonds, training and education in contemporary world. Generally, acting in network(s) is a necessary condition to sustain a successful business (Nijkamp, 2003: 401). As it’s underlined in the first section, networks provide complex relationships and these relationships are channels through which knowledge is transmitted. New knowledge creates innovations and innovations create value added for both innovators and societies. They are the main sources of high-technology products and this type of innovations support economic growth and development directly. Consequently, taking a part and surviving in a complex network is critical for both entrepreneurs and societies. This reality caused an increasing attention of researchers about this issue. There have been lots of studies examining the emergence of ventures in complex economic environments in the literature such as Roundy et al., 2018; Lichtenstein, 2016; Goldstein et al., 2008; Lichtenstein et al., 2007; McKelvey, 2004; Fuller & Moran, 2001; Anderson et al., 1999. And some of the studies in the related literature have focused specifically on networks such as Huggins & Thompson, 2015; Korsgaard, 2011; Nijkamp, 2003; Hoang & Antoncic, 2003; Larson & Starr, 1993. All these studies underline that the contemporary world is formed by complex economic systems in which networks play a key role. However, being an entrepreneur in this complex world is quite difficult. Entrepreneurs should have some properties in order to create a successful venture and to survive during transformations in nonlinear complex systems. Complex systems bring about some uncertainties and modern entrepreneurs have to cope with these uncertainties. Hence, today entrepreneurship needs more dynamism than before. Moreover, the basic properties of modern successful entrepreneurs can be listed as follows: 1. Entrepreneurs should be flexible in their actions. (They should be ready especially for the loss and they should be able to afford them. Also they should be ready for the changing conditions and environments.)

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2. They should be ready for strategic alliances (This is important to eliminate risks and entry/exit barriers.) 3. They should be ready to exploit the contingencies so they can play the cards in unexpected situations. 4. They should be able to control the future instead of predicting it. (They should focus on the controllable aspects of the future. This will reduce the risks of uncertainties. This property is also called as effectual control.) (Vasconcelos Gomes et al., 2018: 168).

A Roadmap for Entrepreneurs in the Contemporary Complex Economic Systems As a colloquial expression, complexity is frequently understood by a negative meaning like ‘complicated’ but in scientific language, it is not used as a negative term. A system is defined as complex when it has a selforder as a result of interactions between heterogeneous agents (Durlauf, 1998: 157). The system creates more value than simply total amount of agents themselves. The relationships between agents are important tools to disseminate knowledge and hence to create innovations. Thus, economists and business administrators have begun to use the Complexity Theory in order to measure, to understand and to explain environments characterized by many heterogeneous agents. Complexity Theory suggests that individual decisions and behaviors influence directly the aggregate outcomes. It underlines that even most simple actions of individuals can cause important aggregate outcomes (Durlauf, 1998: 158–159). The basic reason behind this idea is the creation of positive feedbacks as a result of interactions. Consequently, web of relationships—in other words networks—are value incubators for complex systems. Entrepreneurs of today’s complex world, face with such complex environments. They have to cope with many difficulties like setting good relationships with other agents, adapting to changes, extracting the information, absorbing the new know-how and dealing with uncertainties. Positive feedbacks are especially important for newly created ventures due to the fact that they cause increasing returns to scale. As an example, when many firms collaborate to make research and development activities, they create more innovative ideas/products than one firm can produce by itself (Durlauf, 1998: 159–160). This is an explicit advantage

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especially for small and medium enterprises. Entrepreneurs with limited financial resources can benefit from taking a part in a complex business network. Such collaborative relationships will also reduce the risks of future. Emerging enterprises can benefit from wisdom of large and matured enterprises in collaboration. As it’s underlined before, complex systems have nonlinear characteristics. Such systems contain uncertainties and risks in themselves. Entrepreneurs who have an ability to adapt changes would face with lower risks. Since adaptation is a critical qualification for modern entrepreneurs, it’s important to understand the characteristics of adaptive cycles. Adaptive cycles are valid for both micro and macro levels. Enterprises face with these cycles both in their own organizational climates and in economic system in which they operate. An entrepreneur, who succeeds to endogenize adaptive changes, can be successful in the complex world. As it’s mentioned before, an adaptive cycle consists of four stages as: exploitation, release, conservation and reorganization (Holling, 2001: 394). If any new venture can sustain this cycle in itself, then it can survive in a competitive environment. However, if it cannot exploit new ideas and resources in a continuous manner, then it will fall through a less productive stage in its production processes. Similarly, if new ventures can adapt the changes in the economic system, then they can benefit the breakthroughs and can develop together with the other agents in the same environment. In short, such entrepreneurs may have competitive advantages. Acting together needs not only good institutional interactions but also needs good social relationships. Contemporary world is characterized by social networks. Although social networks are perceived as web-based networks with its widely used meaning, it’s actually more than that. Social networks are the networks in which social relationships set the rules. Social Network Theory has three basic assumptions: (1) The relationships of agents exhibit interdependence (2) relationships are the transmission channels for all types of assets (3) web of social relationships provide opportunities for agents but also set some limitations on them (Wasserman & Galaskiewicz, 1994: xiii). Consequently, today’s entrepreneurs should have good social skills in order to survive in social networks. Trust, forbearance, collaboration and loyalty are enhanced in social networks and hence tangible and intangible asset sharings increase. All the explained advantages for entrepreneurs are summarized in Fig. 3.2.

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CollaboraƟng in Social Networks

OrientaƟon to AdapƟve Cycles

-

Overcoming uncertanƟes Risk reducƟon PosiƟve feedbacks Increasing returns to scale New know-how CompeƟƟve advantage

Fig. 3.2 Key Advantages of Social Networks and Adaptive Cycles for Entrepreneurs

Conclusions Entrepreneurship is one of the key research areas in modern economics and management literatures. The world has been changing fast and new rules, values, perceptions, institutions and expectations emerge (Drucker, 2014: 16). Today, the world is defined as a complex system in which networks play key roles. What is more is that networks are defined as to the relationships rather than goals or purposes. In this manner, social networks are at the core of the complex contemporary world. In this context, entrepreneurship is defined from different aspects and entrepreneurs are characterized by some emerging properties. In today’s reality, entrepreneurs with high social relationship skills and high flexibilities are seen as the ones who will be able to sustain their ventures in the long run. Consequently, it’s important to understand the new rules of the contemporary world. This study attempted to define the basic characteristics of modern successful entrepreneurs and to specify a roadmap for them. Theoretical evidences indicate that collaborating in social networks and orientation to adaptive cycles are two basic attempts that modern entrepreneurs should definitely have. These attempts are likely to bring about many advantages such as overcoming uncertainties, reducing future risks, increasing returns to scale, new know-how, positive feedbacks and higher competitive advantages.

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References Achrol, R. S. (1997). Changes in the theory of interorganisational relations in marketing: Toward a network paradigm. Journal of the Academy of Marketing Science., 25(1), 56–71. Ackoff, R. L. (1993). Idealized design: Creative corporate visioning. Omega, 21(4), 401–410. Aldrich, H., & Zimmer, C. (1986). Entrepreneurship Through Social Networks. The Art and Science of Entrepreneurship (pp. 3–23). Ballinger. Anderson, P., Meyer, A., Eisenhardt, K., Carley, K., & Pettigrew, A. (1999). Introduction to the Special Issue: Applications of Complexity Theory to Organization Science. Organization Science, 10(3), 233–236. Antonelli, C. (2003). The economics of innovation, new technologies and structual change (1st ed.). Routledge. Boschma, R. A., & ter Wal, A. L. J. (2007). Knowledge networks and innovative performance in an industrial district: The case of a footwear district in the south of Italy. Industry and Innovation, 14(2), 177–199. Bruyat, C., & Julien, P.-A. (2000). Defining the field of research in entrepreneurship. Journal of Business Venturing, 16, 165–180. Cunningham, B., & Lischeron, J. (1991). Defining entrepreneurship. Journal of Small Business Management, 29(1), 45–61. De Man, A. P. (2004). The network economy. Edward Elgar Publishing. Drucker, P. F. (2014). Innovation and Entrepreneurship. Routledge Classics. Durlauf, S. N. (1998). What should policymakers know about economic compleixty. The Washington Quarterly, 21(1), 155–165. Fuller, T., & Moran, P. (2001). Small entreprises as complex adaptive systems: A methodological question? Entrepreneurship and Regional Development, 13(1), 47–63. Gartner, W. B. (1985). A conceptual framework for describing the phenomena of new venture creation. Academy of Management Review, 10, 696–706. Goldstein, J. A., Hazy, J. K., & Silberstang, J. (2008). Complexity and social entrepreneurship: A fortuitous meeting. Emergence: Complexity and Organization, 10(3), 9–24. Gordon, I. R., & McCann, P. (2000). Industrial clusters: Complexes, agglomeration and/or social networks? Urban Studies, 37 (3), 513–532. Hakansson, H., & Ford., D. . (2002). “How should companies interact in business networks? Journal of Business Research, 55(2), 133–139. Hausmann, R., Hidalgo, C. A., Bustos, S., Coscia, M., Chung, S., Jimenez, J., Simoes, A., & Yildirim, M. A. (2011). The atlas of economic complexity – Mapping paths to prosperity. MIT Press. Hoang, H., & Antoncic, B. (2003). Network-based research in entrepreneurship: A critical review. Journal of Business Venturing, 18(2), 165–187.

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Holling, C. S. (2001). Understanding the complexity of economic, ecological and social systems. Ecosystems, 4, 390–405. Huggins, R., & Thompson, P. (2015). Entrepreneurship, innovation and regional growth: A network theory. Small Business Economics, 45, 103–128. Korsgaard, S. (2011). Entrepreneurship as translation: Understanding entrepreneurial opportunities through actor-network theory. Entrepreneurship & Regional Development, 23(7–8), 661–680. Larson, A., & Starr, J. A. (1993). A Network Model of Organization Formation. Entrepreneurship: Theory and Practice, 17 (2), 5–15. Lichtenstein, B. (2016). Emergence and emergents in entrepreneurship: Complexity science insights into new venture creation. Entrepreneurship Research Journal, 6(1), 43–52. Lichtenstein, B., Carter, N. M., Dooley, K. J., & Gartner, W. B. (2007). Complexity dynamics of nascent entrepreneurship. Journal of Business Venturing, 22(2), 236–261. McKelvey, B. (2004). Toward a complexity science of entrepreneurship. Journal of Business Venturing., 19(3), 313–341. Möller, K., & Rajala, A. (2007). Rise of strategic nets – New modes of value creation. Industrial Marketing Management, 36(7), 895–908. Möller, K., & Svahn, S. (2004). Crossing east-west boundaries: Knowledge sharing in intercultural business networks. Industrial Marketing Management, 33(3), 219–228. Nijkamp, P. (2003). Entrepreneurship in a modern network economy. Regional Studies, 37 (4), 395–405. Roundy, P. T., Bradshaw, M., & Brockman, B. K. (2018). The emergence of entrepreneurial ecosystems: A complex adaptive systems approach. Journal of Business Research, 86, 1–10. Vasconcelos Gomes, L. A., Salerno, M. S., Phaal, R., & Probert, D. R. (2018). How entrepreneurs manage collective uncertainties in innovation ecosystems. Technological Forecasting & Social Change, 128, 164–185. Wasserman, S., & Galaskiewicz, J. (1994). Advances in social network analysis. Sage.

CHAPTER 4

Effectuation and Causation Processes in Countervailing the Liability of Newness: A Systematic Literature Review Cord Siemon

and Vincenzo Uli

Introduction When Arthur Stinchcombe (1965) originally introduced the liability for newness construct, the academic community started an intense and prolific conversation about the higher mortality rate associated to the earliest stages of the firm life cycle. The liability of newness predicts, indeed, that the failure rate is higher for startups and then, as time passes by, it monotonically declines to a minimal amount. While scholars mainly devoted their efforts to testing the liability for newness construct until the ‘90s (e.g. Fichman & Levinthal, 1991), the most recent research avenues, although still fragmented, have shifted

C. Siemon (B) · V. Uli Faculty of Business and Law, Frankfurt University of Applied Sciences, Frankfurt am Main, Germany e-mail: [email protected] V. Uli e-mail: [email protected] © The Author(s), under exclusive license to Springer Nature Switzerland AG 2021 M. Ince-Yenilmez and B. Darici (eds.), Engines of Economic Prosperity, https://doi.org/10.1007/978-3-030-76088-5_4

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toward the investigation of those factors that could counteract “New Venture Enterprises” (hereafter NVE) infant mortality. Stinchcombe, indeed, postulated that startups are more liable to early selection pressures because of a mixture of internal and external determinants. Since startups can only exert a limited control of their environment (Abatecola, 2014; Hrebiniak & Joyce, 1985), the perspective entrepreneur firstly has to consider the internal levers at her disposal to face those environmental pressures. Among the theoretical and empirical contribution to counteracting startups’ failure, Eisenhardt and Schoonhoven (1990) found a positive correlation between the resource based view of the firm and the survival probability of US semiconductor ventures. On the same vein, other authors tentatively associated the survival of new venture enterprises with various determinants (Abatecola et al., 2016; Bruton & Rubanik, 2002; Cafferata, 2016; Thornhill & Amit, 2003). Sarasvathy (2001, 2004, 2008), by introducing the effectuation logic in entrepreneurial studies, challenged the extant causation processes about formal structuring and development of the business idea. In this book chapter, the authors endeavor to enrich the current debate on effectuation vs. causation, especially by deepening the question of the impact of causation and effectuation processes on the survival rate of new venture enterprises. In the end, it should have become clear whether one logic will prevail in the practice of entrepreneurial process, thereby examining possible contingencies against the backdrop of different business contexts. Moreover, from an empirical perspective, it aims at compiling a list of “dos and don’ts” that is useful for the perspective entrepreneur or intrapreneur. In this context, the authors will maintain the initial formulation and development of the entrepreneurial idea. Furthermore, this essay contributes to the current debate by providing a comprehensive perspective on the individual contribution of effectuation and causation theories to the survival of the startups. The work also scrutinizing similarities and dissimilarities arising from different geographical contexts, socio-political backgrounds, and the sector of economic activity. By addressing the phenomenon of the liability of newness from an empirical point of view, this essay investigates the factors influencing NVEs’ early failure. In this context, it additionally provides an updated overview of the managerial levers in the hands of the perspective entrepreneurs who want to start a successful business. Indeed, besides meta-analyses based on an extensive data set (e.g. Song et al., 2008), the investigation of the success factors in NVEs through the adoption

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of an evolutionary theory perspective still constitutes an underdeveloped research outlet. The findings of this work, conceived as a systematic literature review, can be integrated in the evolutionary framework, based on Schumpeterian and Hayekian perspectives on entrepreneurial learning on different levels (Otter & Siemon, 2007, 2013; Röpke, 1990, 2002). We structured the work as follows: First of all, in “Theoretical Background”, we will present the theoretical framework, which includes the most valuable insights into Stinchcombe’s liability for newness as well as Sarsvathy’s effectuation and causation theory. Then, in “Methodology”, we shall outline the methodology including the research protocol needed to perform the systematic literature review. In “EO And MO: A Commentary About The Extant Literature”, we will present our commentary about the extant literature, with a special focus on entrepreneurial orientation and market and opportunity. Finally, in “Conclusion”, we shall complete the book by formulating our conclusion on the basis of what we have discussed.

Theoretical Background Over the years, the academic debate focused on the identification of the issues that entrepreneurs may face in the first years of their life cycle. Around this topic, indeed, scholars developed a large number of theoretical and empirical investigations aiming at the description of the concept of organizational evolution. The first attempts in this context focused on the seminal findings related to the product life cycle (Levitt, 1965). In particular, a number of scholars have analyzed the different challenges that firms may encounter during each phase of their own evolutionary path (Burns & Dewhirst, 1983; Pettigrew, 1979; Steinmetz, 1969). The main conclusion was that the highest number of issues emerged during the early stages of a firm’s life cycle, and this transits into a higher mortality rate for NVEs (e.g. Baldwin & Rafiquzzaman, 1995). According to Knight (1921), these stages can be characterized by “true uncertainty”. Furthermore, strong information asymmetries in case of acquiring stakeholders and investors can be stated (Gompers & Lerner, 1999). Soon, scholars began to link NVEs’ high failure rate, especially during the first three years of life, to the “struggle for survival” principle derived from the biological theory of natural selection (Darwin, 1859). Main contribution on this regard is attributable to the American sociologist

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Arthur Stinchcombe who introduced the concept of liability of newness in his work “Social structure and organizations” in order to explain the phenomenon of a high mortality rate within the earliest stages of the firm’s life cycle. Stinchcombe’s trajectories have played a pivotal role for the development of the organizational evolution literature (e.g. Cafferata, 2009; Hodgson & Knudsen, 2010). In synthesis, the liability of newness predicts that failure rates are high in the first years of the organizations’ life cycles and then decline, as it is exemplified in the following Fig. 4.1. This means that firms in the early stage of their life cycles are more inclined to be “selected out” by the environment. After this selection period, the death probability (P(x)) declines monotonically to a minimal amount. The phenomenon is central for NVEs since only one third of newborn enterprises are still active after the third year of life. Stinchcombe identified a number of drivers (either endogenous or environmental) to justify this phenomenon. General environmental factors, such as availability of capital, state of the economy, political revolution, urbanization, general literacy, and so forth, do affect the capacity to form new organizations positively. Like for the internal drivers, the learning process and the “cooperation of strangers” (trust) play a pivotal role in NVEs’ inception. Stinchcombe focused, in particular, on the learning process, maintaining that.

Fig. 4.1 Graphical representation of the liability of newness (Source Author)

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New organizations, especially new types of organizations generally involve new roles, which have to be learned; […] The process of inventing new roles, the determination of their mutual relations and of structuring the field of rewards and sanctions so as to get the maximum performance, have high costs in time, conflict, and temporary inefficiency. (Stinchcombe, 1965: 148)

The previous passage resonates with other investigations on the same topic. Based on Schumpeter’s cornerstones of economic development (innovation, entrepreneurship, and finance), indeed, evolutionary economics has stressed the aspect of entrepreneurial learning as an important theoretical perspective (Bento, 2014; Dopfer, 2005; Metcalfe, 1998, 2002, 2004; Nelson & Winter, 1982; Röpke, 1990, 2002; Witt, 1995, 2003, 2008; Witt & Foster, 1992). This line of thinking can be traced back to Schumpeter’s controversially discussed idea that economic development and business cycles are theoretically connected: They can be explained by the endogenous factor of entrepreneurship (Schumpeter, 1934, 1939). Evolutionaryeconomics reverses this traditional perspective of input logic: There is no need for new inputs due to the fact that new combinations can be realized out of already given production factors. Instead of scarce inputs, entrepreneurial skills—in order to compete for existing resources—are the main scarce resources (“development logic”). Throughout this process, those input impulses are initiated by the dynamic entrepreneur, who releases economic growth as an accompaniment to economic development. Especially during the course of globalization, the question about the origin, emergence and loss of such entrepreneurial abilities arose as a special topic of evolutionary economics (“evolutionary logic”). An evolutionary approach to a Schumpeterian model of entrepreneurial energy combines three elements of successful entrepreneurial action (Röpke, 1977): property rights (law, culture, business charta, etc.), competencies (evolutionary skills, knowledge, “variety”), and motivation (intrinsic motivation, internal locus of control, “need for achievement”). The key factor of evolutionary entrepreneurship is evolutionary learning because the production of knowledge itself cannot be a factor causing economic growth (Otter & Siemon, 2007, 2013; Röpke, 1990, 2002). Evolutionary learning skills are also necessary for every kind of business in order to stay in a market. A view to survival rates of new businesses illustrates typical problems of potential investors and other stakeholders.

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The same evolutionary logic can be stated for the persistence of market, industry, and technology life cycles. Without evolutionary skills, each business system becomes a victim of “creative destruction”. Learning skills are needed in order to gain sustainable competitive advantages which are responsible for entrepreneurial success factors. Thus, an evolutionary setting of new firms’ capabilities is necessary to establish effective techniques that overcome threats of mortality in terms of “true uncertainty” and information asymmetries (Bhidé, 2000; Gibb, 1999, 2002; Otter & Siemon, 2007, 2013; Röpke, 1990, 2002). The fact that evolutionary learning is the cornerstone of entrepreneurship leads us to the role and production of knowledge in a different way. Economic growth theory regards human capital only as a production factor, our evolutionary approach fully accounts for the impact of teaching and qualifying human beings. Given the importance of entrepreneurial learning, we will explain a hierarchic structure consisting of four levels of learning (Röpke, 2002): • Optimizing of given factors, adaptation under given circumstances (learning 0); • Acquisition of professional skills and knowledge (learning 1); • Acquisition of following the vision (learning 2: communication, time management, mind mapping etc.); • Acquisition of the ability to find out: What are a person’s strengths and weaknesses? What is the “vision”? Impact of “values”, “ethics” etc. (learning 3: learning to reflect). The key competence that must be learned (second level of learning) by innovative entrepreneurs seems to be identical with communication capabilities. Therefore, they have to challenge themselves by reflecting on visions, comparative (dis-)advantages, etc. To act and to stay in the field of innovation, one has to be successful in the realm of the evolutionary function (learning 2 and 3). However, learning is like swimming upstream: If one stops, one will fall back. An entrepreneurial team can lose its innovative capabilities by involution and becomes a victim of other peoples’ evolutionary competencies and their “creative destruction” via innovation. Entrepreneurial energy has to be (re-)produced by an entrepreneur again and again. Evolutionary capabilities or their lack are the key for a deeper understanding of entrepreneurial success. According to Popper’s

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framework (1963) of critical rationalism, competition can be regarded as a test of an entrepreneurial hypothesis that serves to fulfil different entrepreneurial functions. In this context, competition can be seen—in terms of Hayek (1945, 1967, 1978a, 1978b)—as an evolutionary learning procedure for discovering facts which will remain unknown (or at least would not be applied, especially in a Schumpeterian context), if the procedure does not exist (Bento, 2014; Otter & Siemon, 2007, 2013; Röpke, 1990, 2002; Witt, 1995). In the following, we will not trace all the methodological struggles whether there are linkages between evolutionary economics and biological evolution or not (Hodgson, 2000; Hodgson & Knudsen, 2010; Nelson & Winter, 1982; Penrose, 1952). We rather refer to Sarasvathy’s outstanding approach (2001, 2004, 2008) that shows some similarities to an evolutionary perspective, since she refers to role of knowledge and learning in order to establish a business concept. Sarasvathy’s framework became famous in theory and practice of entrepreneurship during the last two decades. Sarasvathy focuses on the decision logic of companies in situations that are shaped by “true uncertainty” uncertainty. With regard to the implementation of successful and viable start-up projects, Sarasvathy’s division gains an academic relevance. She demonstrates that innovative start-up projects are accompanied by such an uncertainty that the classical textbook wisdom is not very helpful for a detailed business planning as regards the acquisition of additional resources in the early phase. She subsumes the phenomenon of causal logic, which means that one defines present resource requirements on the basis of existing goals for the future, under the term “causation”. It is a matter of course that she does not exclude the importance of causal logic in toto. However, she connects its relevance to the existence of real effects, which can be achieved by companies in the market situation with the resources that are available. Sarasvathy also defines this decision-making behavior by using a neologism, viz. “effectuation”. The effects of this resource-based decision logic allow us to intensify the probative value and orientation over time so that the “veil of uncertainty” can be lifted. Hence, the decision-making situation becomes more calculable when using business planning instruments. Consequently, the way for causal rationality is paved (see Fig. 4.2). Sarasvathy’s approach is characterized by a world view that regards the future as open owing to the fact that it is in the process of emerging.

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Fig. 4.2 Effectuation vs. Causation (Source Author)

Entrepreneurs who have committed themselves to the approach of effectuation (especially concerning their practical behavior) are not necessarily orientated toward the existing demand they are expected to meet as suppliers. On the contrary, they develop new (or undiscovered) demands—often in direct dialogue with customers and presumptive competitors. For this reason, entrepreneurs systematically make use of existing resources and strategies (comparable to “bootstrapping”).1 The logic of effectuation contains a partial failure of strategies and it is based on the fact that entrepreneurs consciously accept coincidences and paradoxes as an integral part of the founding process, which is characterized by its constant state of becoming and emerging (to use evolutionary formulations). Therefore, on the basis of the visible experience world, the focus on the correlation between visionary orientation, strategic objectives, and operative implementation is sharpened.

1 About the financing approach of NVEs, past research shows that eighty to ninetyfive percent of all innovative start-ups are financed more or less by bootstrapping in order to cover their liquidity requirements (Bhidè, 2000, 1992; Winborg & Landström, 2001). Many new-born entrepreneurs do not want and/or are not able to fulfil the requirements of a bank credit (collateral) or venture capital financing (high lot sizes, large, and realizable growth potentials on short notice). “For the great majority of wouldbe founders, the biggest challenge is not raising money but having the wits and hustle to do without it” (Bhidé, 1992: 110). Friend and family relationships, therefore, play an important role in financing innovation. This confidence-intensive social network is known as “relationship-oriented bootstrapping” (Winborg & Landström, 2001). The three f-components of bootstrapping—founder, family, friends—confirm Sarasvathy’s approach.

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Sarasvathy infers these specific modes of action, which were repeatedly proven successful within the context of an effectual world view, from her scientific survey. With respect to the implementation of start-up projects, the following principles are frequently used (Read et al., 2011: 71–713): • • • • •

The The The The The

bird-in-the-hand principle: Start with what you have affordable loss principle: Risk little, fall cheap crazy quilt principle: Form partnerships lemonade principle: Leverage surprise pilot-on-the-plane principle: Apply non-predictive control.

Sarasvathy’s approach exhibits many significant parallels with Schumpeter’s understanding of an entrepreneur and with the ideas of evolutionary economists. In Schumpeter’s theory, the development dynamics of economic systems are also attributed to innovation, finance, and startup activities in an increasingly unpredictable and complex world. In this context, the development of competences and motivation in a property rights environment is one central bottleneck-factor to successfully deal with uncertainty (Hayek, 1945, 1967, 1978a, 1978b; McClelland, 1965; Röpke, 1977, 1990, 2002). Sarasvathy’s approach of effectuation and causation processes is embedded within a process of evolutionary learning on different levels. On the one hand, this can be regarded as the necessary energy to enforce a new combination of production factors (Schumpeter, 1934, 1939) and as well as the establishment of path dependencies and the life circle dynamics are guaranteed (Dosi, 1982). On the other hand, entrepreneurial learning provides evolutionary fitness with regard to the generation and implementation of hypotheses about competition in the complex interplay between the challenges of competitors within a dynamic environment. From a neo-Darwinian perspective, this can be interpreted as an evolutionary process sequence of variation, selection, and retention, which is attributable to the “bounded rationality” of the actors (March & Simon, 1958; Nelson & Winter, 1982).

Methodology The systematic literature review is a method of conducting research that emerged within the UK medical profession because of the need for better evidence-based research, and it developed across many disciplines,

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including management research (e.g. Thorpe et al., 2005). The aim is to collect and link together as many already existing studies as possible, relevant to the defined topic of research. A joint review panel has been formed between the University of Rome Tor Vergata and the Frankfurt University of Applied Sciences. The panel has helped us in defining the scientific domain and the search criteria required to build a consistent systematic literature review. This involved the careful selection of keywords and databases to be used as well as the development of the inclusion and exclusion criteria. More specifically, the systematic literature review approach adopted in this work is based on early works by David and Han (2004) and Newbert (2007), both are well recognized methodologies within the strategic management domain. The main pillars are the following: 1. search includes only published journal articles; 2. search will be limited only to journal articles published in the last 10 years2 ; 3. search the EBSCO and EconLit databases including only English peer reviewed papers; 4. eliminate substantively irrelevant articles requiring that selected papers must contain at least two of the 17 “substantive keywords”, either in their title or abstract (keywords: surviv*, evolution*, startup*, innovat*, entrep*, fail*, founder*, intang*, valu*, venture*, tech*, capability*, invest*, capit*, manag*, life cycle, ecology); 5. ensure empirical content by requiring that selected papers contain at least one of the 7 “methodological keywords” in their title or abstract. This step ensures that the review is focused on empirical results rather than theoretical contributions (keywords: data, empirical, test, statistical, finding*, result*, evidence); 6. ensure substantive and empirical relevance of the paper selected by reading all abstracts; 7. further ensure substantive and empirical relevance by reading all papers filtered during the previous phase.

2 The research has been carried in 2018, therefore the time horizon took into consideration for this work is 2008–2018.

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Step 1 to 5 yielded 3515 references. The large number of valuable references obtained is attributable to the fact that some studies can address the concept of “survival” referring to it simply as “performance” or “outcome”, while other studies may characterize the same concept through, for example, the framework of innovation theory. In our opinion, an effective literature review about the drivers behind NVE’s early mortality must be broad to reflect the composite nature of the topic. Nevertheless, a discriminating tool is needed to summarize the results obtained through the search string used. In particular, to identify the most relevant citations, we used the impact factor3 of the journal as additional filter, since it is frequently used as a proxy for the relative importance of a journal within its field. More specifically, we imposed that only papers published on impacted journals will be included in the systematic literature review. This skimming procedure reduced the total number of references to 692 citations. After applying step 6 and 7 of the research protocol outlined above, we were left with 58 papers relevant to our research question. The majority of the articles have been published in entrepreneurialrelated publications4 ; the Journal of Business Venturing and Entrepreneurship: Theory & Practice have had the highest relative importance. As a confirmation of the quality of the articles included in this work, the average IF of the papers selected is 2,529. The majority of the studies were of quantitative nature (i.e. statistical computation on large samples, approximately 600 observations on average), while only one third was qualitative, equally distributed between case studies and grounded theory approach. The quantitative studies were aimed at either very specific industry contexts (e.g. IT, manufacture, services) or general NVEs population: indeed, the great majority belongs to the second type, which means that the results reported present a high degree of generalizability. In terms of research domains, the attitude of the founding team toward the two variables i. Entrepreneurial Orientation (EO hereafter) 3 The impact factor (IF) of an academic journal is an index that reflects the yearly average number of citations that articles published in the last two years in a given journal received. 4 Journal of Business Venturing, Entrepreneurship: Theory & Practice, Journal of Product Innovation Management, Journal of Small Business Management, Strategic Management Journal, Small Business Economics, Academy of Management Journal, Organization Science, Journal of Business Research, Journal of Management Studies, International Small Business Journal, Research Policy, Journal of Financial Economics, Journal of Private Equity.

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and ii. Market and Opportunity (MO hereafter) represent the two most investigated research themes. This seems to be consistent with new trends toward the intersection in academic studies between strategic management and entrepreneurship (i.e. entrepreneurial orientation).

EO and MO: A Commentary About the Extant Literature While presenting the preliminary results of this work, we adopt the results obtained in the section of citations’ classification and background theory. We recognize, however, that, because of the time horizon adopted (i.e. our study covers up to 2018), it does not capture the most recent evolution related to the EO research stream. Against this theoretical background, it is possible to find evidence based on two research sub-trajectories, the EO of the founding team and its experience in MO-related problems. Entrepreneurial Orientation The entrepreneurial orientation seems to constitute a very promising trend in academic research. From this perspective, we found studies questioning the type of correlation between EO and firms’ performance (e.g. Keh et al., 2007; Wiklund & Shepherd, 2005). The contribution of entrepreneurial orientation to firms’ performance has been historically perceived as a linear positive relationship, although a number of empirical studies found has mixed results (Tang et al., 2008; Wiklund & Shepherd, 2005). Besides context-specific factors, indeed, it has been demonstrated that the age of the firm also plays a major role in explaining firms’ success. In this regard, Su et al. (2011)demonstrated that a curvilinear relationship between EO and performances does exist; in particular, new ventures enterprises (NVEs’) exhibit an inverse U-shaped relation, while a positive relation has been reported for incumbents. This result is also consistent with the concept of liability for adolescence, described by Fichman and Levinthal (1991), a complementary theoretical perspective on the liability for newness phenomenon. Other empirical investigations try to correlate the management style with new entrepreneurial ventures’ performances in different stages of the life cycle (Brettel et al., 2010). While the effectuation perspective of EO on performances is not negligible (e.g. seeking new opportunities, obtaining the first mover advantage, and facilitating

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innovation), resources, legitimacies and social ties, and role formalization all act as moderating factors for the EO-performance relationship. This implies that NVEs in particular “should make a match between EO and the supporting resources and organization structure. If there is a mismatch, not only can EO not enhance but may also hurt firm performance” (Su et al., 2011: 574–575). This ambivalent aspect of EO on NVEs’ performances has also been explained with regard to the salient dimensions of the firm’s structural social capital (Adler & Kwon, 2002). In particular, interindustry network centrality and the range of extra industry bridging ties seem to have complementary effects on performance. Therefore, internal and external social capital has interactive effects. Indeed, the fewer the bridging ties, the higher the negative contribution of network centrality to the EOperformance relationship (Stam & Elfring, 2008). Again, these findings confirm the importance—especially for NVEs—of an effective match between the social capital resources of the founding team and the unique resource needs associated with EO. The entrepreneurial team cluster can be further divided into several research sub-streams referred to the specific experience of the founding team in terms of industry knowledge and prior start-up attempts (Marino & Noble, 1997), marketing and R&D capabilities (McGee et al., 1995). Other empirical investigations try to correlate the management style with new entrepreneurial ventures’ performances in different stages of the life cycle (Brettel et al., 2010). It has been shown that in NVE a highly involved founding team significantly increases firm’s survival chances, while it seems less relevant for later-stage ventures. This conclusion suggests that these later-stage ventures survived the selection pressures of the natural selection period and entered in their competitive selection period when further competitive levers are needed to compete effectively (Cafferata, 2009). Excessive entrepreneurial optimism, however, could also affect judgment and decision making negatively, thereby, causing early failure phenomena. By adopting a social cognitive perspective, it emerges that individual-level variables such as the skills, motives, experience, attitudes, and other characteristics of individual entrepreneurs do indeed have an impact on NVEs’ performance (Aspinwall et al., 2005; Åstebro et al., 2007; Hmieleski & Baron, 2009). The application of the human capital theory to the founding team constitutes another important research stream when discussing performance in the context of NVEs (e.g. Mosey & Wright, 2007; Packalen,

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2007; Shrader & Siegel, 2007). In this regard, we found a number of studies investigating the relationship between marketing/industry experience of the founding team and the probability of survival of the firm. Since NVEs’ founding teams often do not possess advanced decisionmaking tools to deal with the uncertainty of new market opportunities, they revolve around a combination of trial-and-error and pivoting learning. It has been shown that dividing the overall problem of structuring the venture into sub problems could help in overcoming the problem of liability of newness since it reduces the cost connected to the trial-and-error methodology (Loch et al., 2008). Another interesting work by Zhao et al. (2013)investigates the mediating role of founding team human capital (i.e. marketing capabilities, market-linking capabilities, and service design capabilities) on NVEs performance. These authors conclude that survival is strictly correlated to the ability to create competitive strategic positional advantages in different areas of management (e.g. deployment of technology and equipment, development of barriers to imitation, integration of complex assets into the service delivery process). In the same vein, West and Noel (2009) confirmed that the individual behavior of founding team members can, indeed, generate knowledge resources that can be used productively for the benefit of the firm. This conclusions serve as empirical support for previous qualitative findings and speculation about entrepreneurial resource development (Brush et al., 2001), and respond to one of the greatest challenges in understanding how new ventures overcome perceived risk in order to attract and build resource positions (Gilbert et al., 2006). One of the most valuable contributions of the entrepreneurial team literature is the impact of formal projections and business planning on firm’s success and survival. It is a shared view that writing a business plan will have positive effects on venture performance. However, some scholars (Honig & Karlsson, 2004) believe that written business plans are nothing more than formal devices that serve to legitimate the new venture. Indeed, an empirical analysis on 623 nascent entrepreneurs’ planning decisions during a sixyear period on venture-level performance (Honig & Samuelsson, 2012) shows that neither formal planning nor changes in the business plan increased venture-level performance over the six-year study period. With regard to the same topic, however, Burke et al. (2010) have shown that there is evidence of positive relationship between formal planning and firm’s survival chance depending on the profile of the

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venture and its business context. In other terms: by articulating goals and identifying strategies for exploiting entrepreneurial opportunities, written business plans appear to enhance entrepreneurial decision making even in situations in which improvisation is important. Other scholars (Bhide, 2000) also suggest that the impact of business plans on new venture performance is unlikely to be a generic positive, negative, or negligible effect. These findings deeply resonate with the effectuation and causation logic. Indeed, especially during the introduction and the early growth phases of the firm life cycle, social and human capital contribute to the firm-specific unforeseeable discovery process known as effectuation. In those stages of development, the entrepreneur has to build an own “data cockpit”, ideally derived from the key metrics dominant in the business context in which the firm operates (Croll & Yoskowitz, 2013). It has been demonstrated that during these early phases formal business planning could be redundant, since effectual entrepreneurship (i.e. entrepreneurship style leaning toward the effectuation logic) typically relies upon a low budget approach. A business plan does not represent a success factor in itself, especially if formal planning is not associated with a process of raising up entrepreneurial energy. In the early phases of development, it would be more effective to rely on basic concepts, pitch decks, and on specific patterns of business modeling (Maurya, 2012; Osterwalder & Pigneur, 2010). Furthermore, the transition from effectuation to causation logic is typically embedded within lean start-up processes in which an interactive “build-measure-learn loop” logic is in place (Ries, 2011). By pivoting a minimum viable product entrepreneurial decision becomes increasingly more knowledge based during in the life cycle. An emerging knowledge base can pave the way for growth- and strategy-related decisions (causation logic). A business plan can grow relying on an emerging knowledge base, thereby acting as a leadership tool for normative, strategical, and operative management (acquisition of internal and external stakeholder etc.). Regarding an evolutionary interpretation, Fig. 4.3 shows that EO must be embedded within a continuously process of learning: On the one hand, on an evolutionary level (learning 2 and 3), by raising up and keeping entrepreneurial energy; on the other hand, on a traditional level (learning 1 and 0), by acquisition and application of knowledge. From a resource-based perspective, firm’s dynamic capabilities can be increased by an intensive interplay of these levels of learning (Otter & Siemon,

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Fig. 4.3 Ideal type life cycle and evolutionary learning (Source Röpke [2002: 298])

2007, 2013; Röpke, 1977, 2002; Teece & Winter, 2007; Teece et al., 1997). From a more psychological standpoint, those learning processes have to associate with the need for achievement, volition, and resilience in order to deal with “true uncertainty” and failure experiences (McClelland, 1965; Röpke, 1977, 1990; Siemon & von Wedel, 2020). Market and Opportunity The other very important theoretical framework, in which we contextualized this work, is the one labeled Market and Opportunity (MO). Historically, this research trajectory was of pivotal importance for strategic management studies (Bloodgood et al., 1996; Chamanski & Waagø, 2001; Lee Pennings, 2001; Marino & Noble, 1997; Zahra & Bogner, 2000). The most compelling empirical contributions that we found in this preliminary literature review are linked to the following sub-streams: i. product innovation (Carayannopoulos, 2009; Marion & Meyer, 2011; Marion et al., 2012; Song et al., 2010) ii. competition intensity (Santos & Eisenhardt, 2009); iii. market intensity (Kawakami et al., 2012; Song et al., 2008, 2010); iv. environmental dynamism (Bruton et al., 2010).

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Product innovation appears as the single most important survival factor; being the focus of our research on new ventures, the declination regards new product development methodologies. Moreover, for earlystage firms, successful commercialization of each new product is critically important, given the shortage of financial resources of such firms. For instance, one of the studies (Marion & Meyer, 2011) analyzing a sample of infant firms that develop physical assembled products demonstrated that, when being implemented together, industrial design and cost engineering enhance both the effectiveness and efficiency of new product development in early-stage firms, thus reducing the risk to be selected out by the environment. Also another experiment (Marion et al., 2012) focused on new product development practices (NPD) because of the risks associated with missteps in new product development and the potential for firm failure. In the end, it has been found that small empowered teams leading projects substantial in scope can be extremely effective when roles are expanded, decision power is ground-level, and when there is little emphasis on defined processes. The importance of first-product development has been demonstrated by an empirical investigation about 539 new ventures founded during the decade 1991–2001 (Song et al., 2008). The study primary conclusion was that—indeed—new venture success is highly correlated with first-product success; in addition, the study showed that first-product success—and thus venture success—can be enhanced by introducing the products into markets with emerging market needs, however with established industry standards. Other interesting conclusions were that success probability is significantly higher for products based on founders’ ideas and/or ideas that reflect both technology development and an analysis of customer needs. Another convincing empirical perspective is offered by Carayannopoulos (2009) who has shown that the characteristics that challenge young technology-venture survival are also potential sources of advantage when commercializing disruptive technologies. Discussing market and opportunity in NVEs with Sarasvathy’s approach leads to the question: “In which business context ‘effectual skills’ (i.e. evolutionary dynamic capabilities) can result into NVEs’ survival and success?” Effectual skills would be more effective in all those circumstances where “true uncertainty” is manifest, namely innovation. Typically, entrepreneurial opportunities in the realm of (disruptive) innovation have a two-folded dimension. On the one hand, the level of uncertainty (and thus risk) involved in such Schumpeterian processes is

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tremendously higher than other opportunities. On the other hand, the market perspective is lucrative since its temporarily monopolistic state is accompanied by a low price and high-income elasticity (i.e. first-mover advantage). Therefore, the role of market and marketing experience is an important element of Sarasvathy’s effectuation and causation logic, since it determines the past- and future-oriented perspective on linking the perspective of market potentials to an opportunity (Hills et al., 2008, 2010; Hills & Hultman, 2013; Kuckertz, 2015; Morrish et al., 2010; Stokes et al., 2000a, 2000b). Indeed, marketing activities in the early stage of an innovation process are dominated by different forms of so-called “effectual marketing”, e.g. guerilla, viral, buzz marketing, and other types of bricolage (Kraus et al., 2010; Morris et al., 2002; Nijssen, 2017; Read et al., 2009; Fisher, 2012). The role of Sarasvathy’s causation logic becomes more important at later stages of the innovation life cycle. The growth and maturity phases must be accompanied by entrepreneurial energy manifesting itself in visionaries and actions because the construction of innovation-related opportunities has to be permanently reconsidered and revised within a life cycle of a product. Marketing and business plans become tremendously more essential in order to pave the way for NVE’s path of growth (e.g. acquisition of stakeholders and investors). However, they have to be considered as preliminary and thus as rolling horizons of entrepreneurial leadership. From this standpoint, the following question arises: How can an innovation-oriented perspective on future-based market and marketing activities be maintained within a dynamic system of competition characterized by diffusion of knowledge and a permanent challenge of “creative destruction”? From an evolutionary perspective, MO can be traced back to a functional approach, closely related to the Schumpeterian and the Austrian Economics frameworks. If new venture success is highly correlated with first-product success, Sarasvathy’s approach has to be extended since innovation-related market advantages might be victims of “creative destruction” (by co-innovation) and “diffusion of knowledge” (by imitation) within dynamic market processes. Hence, keeping an innovationoriented market perspective is necessarily connected to the successful fulfillment of an evolutionary function. Evolutionary entrepreneurship focuses on a market-based attitude by reflecting on visions, weaknesses, and strengths within a life cycle process. In this context, it integrates

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Fig. 4.4 Entrepreneurial functions (Source Otter and Siemon [2007], Röpke [2002])

inter- and intrafunctional stability into the routine, arbitrage, and innovation function (Mitra, 2012; Otter & Siemon, 2007, 2013; Röpke, 1990, 2002). Figure 4.4 shows the relationship between these different entrepreneurial functions.5

Conclusion While early studies have mostly been devoted to testing—and eventually integrating or confuting—the liability for newness hypotheses, the most recent research efforts, although still fragmented, have shifted researcher’s attention toward the factors that may counteract NVEs’

5 Entrepreneurial functions of innovation and routine can be traced back on Schum-

peter’s theory of economic development. Kirzner (1973, 2016) added—referring to theoretical insights of Austrian Economics—the arbitrage function to entrepreneurship. Thereby entrepreneurial “alertness” leads the economic system from the state of disequilibrium to equilibrium, i.e. the use of different prices at one point of time (“spatial arbitrage”) or of different prices at different points of time (“temporal arbitrage”).

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early failure. Stemming from this theoretical background, our systematic literature review shows that two specific research sub-trajectories, the entrepreneurial orientation of the founding team (EO) and its experience in market and opportunity (MO), emerged when discussing survival and success in NVEs. The extant literature on EO and MO presents a numerous connection with Sarasvathy’s approach to causation and effectuation processes. In this regard, however, despite the interest in effectuation theory, influential criticisms, especially in recent years, questioned the validity of such constructs (e.g. Garud & Gehman, 2016). In this regard, Sarasvathy presents one possibility to deal empirically with real entrepreneurial issues, such as “true uncertainty” and decision-making process in NVEs. Despite the insightful empirical implications of the method used to analyze the perspective entrepreneur and her founding team, the effectuation/causation approach raises serious epistemological problems.6 On the one hand, effectuation theory meets only a subset of criteria for theory-building (Arend et al., 2015). Chiles et al. (2007, 2008), in particular, reported a lack of acknowledgment of previous works, including those which contradict the effectual approach. On the other hand, the main supporting argument is that the process-oriented representation of the entrepreneurial process (causation) does not explain the varianceoriented dynamic observable in the practice of startups (effectuation) (McMullen & Dimov, 2013). Despite the aforementioned drawbacks, Sarasvathy’s approach has led to a considerably more layered analysis about the relevance of intuitions, emotions, and learning when starting up a business. As a consequence of

6 For instance, Popper (1963)—according to David Hume’s problem of induction— repeatedly points out that we cannot apply a conclusion about a particular set of observations to a more general set of observation or to universal laws. Therefore, only the deductive logic—if principles of falsifiability are consequently used to check the validity of conclusions—drives the evolutionary process of acquiring knowledge. Concerning methods, Sarasvathy’ s concept contrasts with the theoretical and normative approaches that are preferred by decision theory, which applies rational rules of decision making under uncertainty or risk on the basis of a results matrix (“Minimax-Rule”, “Hurwicz-Rule”, etc.) in order to deduce a rational choice from it which must be proven academically. In contrast, a less critical view on this empirical and inductive method is taken by Reichenbach (1938) while endeavouring to develop an exact theory of induction.

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Fig. 4.5 Effectuation, causation and evolutionary learning (Source Author)

Sarasvathy’s approach, the discussion about the discovery and development of new business opportunities and specific mechanisms for improvisation and “bricolage” is intensified (Ventkataraman et al., 2012). In our work, however, in order to integrate these results into the evolutionary framework, we refer to the role of evolutionary learning in the context of effectuation and causation processes.7 As Fig. 4.5 shows, the entrepreneurial orientation of a team (based on an entrepreneurial culture and vision), the marketing experience of a team, innovative products and services are part of a dynamic system, when those topics can be regarded as entrepreneurial hypotheses. They are continuously tested in the market in order to assess the right fit in terms of product (MO) and team composition (EO). With these theoretical lenses, competition can be seen as an evolutionary learning process (on different levels) aiming at discovering opportunities which will remain unknown (or at least unexploited in a Schumpeterian context), if this approach does not exist. In conclusion, Sarasvathy’s framework can be seen as a theoretical lense through which entrepreneurial processes can be observed from a broader evolutionary perspective based on Schumpeter’s and Hayek’s

7 Of course, there are many methodological struggles regarding evolutionary economics as a viable paradigm for entrepreneurship, e.g. whether there are linkages between evolutionary economics and biological evolution.

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(and their followers’) frameworks (Bento, 2014; Röpke, 1990, 2002; Otter & Siemon, 2007, 2013; Witt, 1995; Witt & Foster, 1992).8

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CHAPTER 5

Financing Strategies for New Product Development and Innovation Dilvin Ta¸skın

This chapter focuses on the sources and strategies for financing for new product development and small businesses. It is clear that every venture has different life cycles and it is evident that a different financing strategy is needed in different stages of the life cycle. Despite the general belief that entrepreneurs can find financial resources from angel investors or venture capital firms, we present that these rarely finance new products at the inception. This chapter presents alternative financing sources for new product development and entrepreneurs.

Introduction Entrepreneurship and entrepreneurs are vital for economic growth not only because they create the highest job growth (Wu et al., 2016), but also because they are the main source of innovation. Despite the increasing numbers of entrepreneurial activity, it is now more and more

D. Ta¸skın (B) Faculty of Business, Yasar University, Izmir, Turkey e-mail: [email protected] © The Author(s), under exclusive license to Springer Nature Switzerland AG 2021 M. Ince-Yenilmez and B. Darici (eds.), Engines of Economic Prosperity, https://doi.org/10.1007/978-3-030-76088-5_5

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difficult to finance promising ideas (Cassar, 2004). Beyond the conceptualization of an entrepreneurial idea, an entrepreneur has to promote the new product to find sources of finance (Manne, 2014). Research also revealed that the commercial success of an entrepreneur depends on the outside support for the research idea (Link & Scott, 2009, 2013). Among the many roles the entrepreneur carries as innovator, organizer, coordinator of limited economic resources Hébert and Link (2009), being the supplier of financial capital is noticeably the most difficult one. New product development (NPD) seems a major challenge but what is even more challenging is to raise capital for NPD. Capital is never enough and fund raising is always a difficult and complex process. The best alternative for financing NPDs or innovations is considered as Venture Capital (VC), but it is rarely the case. In an earlier study by Berger and Udell (1998), were noted as principal owner’s equity make up 31% of financing sources for small businesses followed by commercial bank loans (19%), trade credit (16%), finance company loans (5%), and venture capital investments only 2%. Moreover, the banks or the venture capitalists put covenants to control the behavior of the entrepreneur and these covenants sometimes put limitations to use of other sources of finance (Winton & Yerramilli, 2008) Venture capitalists mostly concentrate on later-stage investing, rather than financing early-stage ventures. Thus, it is not that easy to raise funding for NPD. Rao (2010) lists the most attractive sources of finance for entrepreneurs in Forbes magazine and mentions that VCs fund just 3,500 of the 22 million small outfits in the US, and they only tend to hunt for companies with the potential for torrential growth.1 From that data, we can understand the limits of VC for NPD. Angel investors and VC make up a very small percentage of the total finances for entrepreneurs. Thus, this chapter of the book aims to present the sources of finance for entrepreneurs and the source of financing available at different stages of the venture.

Life Cycle of Ventures During the life cycle of ventures, the financing needs of the venture will be different. The venture life cycle begins with the conception stage, has

1 https://www.forbes.com/2010/07/06/best-funding-sources-for-small-business-ent repreneurs-finance-dileep-rao.html.

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various growth stages, and ends in a maturity stage (Leach & Melicher, 2012). The five life cycle stages are: • • • • •

Conception stage Commercialization stage Survival stage Rapid-growth stage Early-maturity stage

Certainly, there are other classifications to the stages of development for the new ventures. For instance, Maurya (2012) defines three stages of development, problem/solution fit, product/market fit, and scale phase. Hermann and Berman, on the other hand, propose six stages for startup development. The first stage is defined as “discovery” and the aim of the entrepreneur at this stage is to check whether the detected problem in the markets is worth solving and whether there are existent parties to use these solutions put forth by the start-up. The next stage is defined as the “validation” stage and the entrepreneur gets confirmation of the customers for their product in the market. The discovery stage lasts about 5–7 months and the validation stage lasts approximately 3–5 months. The third stage is called “efficiency” and in this stage, the aim is to increase the number of users and enhance the business models of the start-up. This stage is assumed to last for about 5–6 months. The fourth stage is called the “scale” stage and in this part the growth and expansion of the start-up take place and thus the need for funds accelerates at this stage. The fifth stage is the “profit-maximization” and is followed by the sixth stage “renewal/decline” (Fig. 5.1). Conception Stage New ventures start with an idea of new product development and that new product is considered as a promising business opportunity. In this stage, the entrepreneur focuses on developing the technology necessary for the product and creates the prototype (Kazanjian, 1988). During this phase, the idea is tested by the entrepreneur, and if the idea is deemed to be profitable the entrepreneur implements a trial process. In the conception phase, the new idea or NPD takes place. Mostly the conception phase lasts one or one-half years, but of course, some ideas

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Fig. 5.1 Types and sources of financing used during the life cycle of a venture (Source Author)

may take less or more time to create, and thus the various periods of the life cycle of the venture may be shorter or longer than its peers. In this stage, the idea is not concrete, so it is almost impossible to find outside financing. The only source of finance available during this stage is called seed financing. Seed financing includes the physical and financial assets of the entrepreneur and funds provided by the family and friends. Mostly in the conception stage of innovation, the entrepreneur has limited funds, for that reason, he/she has to minimize the investment in the physical assets. This approach is termed financial bootstrapping to refer to the position of the innovator to live on a “shoestring” during the conception and start-up stages. Accordingly, we see that most innovative ideas are realized in garages or basement floors. Commercialization Stage The commercialization stage is where the entrepreneur proceeds from the initial idea to the actual product/service (Katz & Gartner, 1988). In this stage, the venture puts forth a revenue model, and the enterprise is organized. The entrepreneur introduces the developed new product and starts its operations and sales. The entrepreneur is involved in a course to provide a product-market fit (Ries, 2011). Usually, government grants

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do not fund new product developments at this stage; rather they lead the entrepreneurs to obtain funds from private investors. Thus, other than the entrepreneurs’ funds venture capitals and angel investors are the main funding source (Fisher et. al, 2016: 391). Venture capitalists and angel investors look for medium-term benefits from the exits of the venture through IPOs and acquisitions. Survival Stage In this stage, the cash inflows increase and thus some part of the expenses can be covered with the operational cash flows. Hence, the entrepreneur still needs financing for the NPD. The financing can be in the form of equity financing or debt financing. Throughout this stage, the entrepreneur starts to witness cash inflows, alongside the outflows. Nevertheless, the financing is only possible if the investors and the lenders condemn the venture to be lucrative—the cash flows from operations of the venture should be large enough to repay the investment and provide incremental returns. In order to attract the necessary financing, formal financial statements and short- and long-term plans are prepared during this stage. Rapid-Growth Stage In this stage, the venture creates and builds value for its products or services. During this stage, operational cash flows accelerate and exceed the cash outflows, which further results in a huge increase in the venture value. Firms that can succeed in the survival stage mostly enjoy substantial gains in market share and profits. The venture meets the economies of scale in production and distribution. The rapid-growth stage is considered highly risky during the early part of this stage and a successful emergence from this stage results in lower risk levels. Firms have large financing needs to look for second-round funding from existing and new venture capital investors. Commercial banks also provide debt financing to the firms at this stage. To finance the working capital investments because of an increase in receivables and inventories mezzanine financing stands as the ultimate form. At this stage, the firms tend to seek new sources of funds, especially through public or private offerings (Leach & Melicher, 2012: 271–272). Besides, the firm may enter into a sale of the firm to an acquirer, which will provide more funding for the venture’s expansion.

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Early-Maturity Stage In the early maturity stage, the acceleration of the operating cash flows slows down and the growth of the revenues reaches a more modest rate. In this stage, the entrepreneur deals with managing ongoing operations, maintain and add value to the existing product or services. The value of the venture continues to increase modestly, though the value of the venture has already been created and documented in the previous stage (Leach & Melicher, 2012: 22). Most of the time merger and acquisition of the venture is carried out during this stage. The entrepreneur and the venture investors consider exiting or continuing the venture. In this stage, private equity funds have an important role.

Financing of the Venture Through Its Life Cycle In the early stages of NPD or ventures, the entrepreneur is mostly undercapitalized. Thus, during this stage, the entrepreneur should seek sources to finance the NPD idea until it reaches its survival stage. When the venture has a successful history, larger amounts of capital can be found. Therefore, it is critical to analyze the financing sources available throughout the life cycle of the idea. During the life of the NPD major types of financing available to the entrepreneur will change and the entrepreneur will use seed financing, startup financing, first-round financing, second-round, mezzanine, and liquidity stage financing, and seasoned financing based on the stage of the NPD. Seed Financing This is the type of financing that the entrepreneur will rely on, during the conception stage of the venture. As the name implies, seed financing refers to the use of the venturer’s sources. These sources can be provided from the sale of an entrepreneur’s personal belongings like an automobile or house, securing a loan by assuring these assets as collateral, or using their financial investments or savings. Other than that, it is also common that the entrepreneur uses his/her credit cards to finance the NPD. Family and friends also serve as an important seed-financing alternative. They might provide the necessary funds for the entrepreneur and they sometimes are

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an equity holder. Not very common but on occasion, angel investors may finance the NPD, if they see a prosperous financial future. Since the amount of funds is very limited in this stage, entrepreneurs use financial bootstrapping to minimize the need for cash (Calopa et al., 2014). Bootstrapping is only possible if the NPD idea does not require a big investment. This is advantageous if the entrepreneur is experienced enough and does not require necessary assistance from partners and contacts. In the literature, bootstrapping is also explained as a method that transforms human capital into financial capital (for more information, refer to Lahm & Little, 2005). Startup Financing Startup financing corresponds to the startup stage of the NPD. Startup financing is for ventures or product ideas that have solid management, business plan, and is ready to generate revenues. Entrepreneurs’ own assets, family and friends continue to finance the venture, however, in this stage; the entrepreneur should seek for venture investors to continue and grow the business. With the startup of the NPD, revenues begin to flow, but since the idea and the venture are in its infancy the cash outflows exceed the inflows creating an increase in external financing needed (EFN). This is mostly external equity financing, such as venture capital. The main sources of formal external venture capital for startups of NPDs are business angels and venture capitalists. Business angels or angel investors are individuals with an excess of funds and they provide funds to ventures or innovations with prospects. Sometimes they invest solely in the venture and from time to time in a joint effort with other investors. Business angels typically invest in technologies, products, and services in which they have a personal interest and previous experience. According to some estimates, these investors are as important for high potential startup investments as are venture capital firms (Sudek et al., 2008). Angel investors are sophisticated investors, who are typically former entrepreneurs that emphasize on the industries in which they are experienced. Business angels understand the risk of their investment in the NPD idea and they are ready to complete loss, hence they are into the NPD ideas that they believe. Nevertheless, US angel

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investors invested about $22.9 billion in 67,000 small businesses in 2012, many of them in start-up or very early stages.2 While business angels are named informal investors, venture capitalists (VCs) are individuals who participate in formally organized venture capital firms to raise and distribute financing to new ventures. These firms diversify their investment funds to various ventures to minimize the risk of their invested capital. First-Round Financing First-round financing is associated with the external equity financing of a venture or NPD idea, mostly provided by the venture capitalists at the survival stage of a venture to cover the cash shortages of the entrepreneur. With the end of the startup stage, the NPD idea should be marketed or organizational investments are required. Consequently, the need for firstround financing occurs with the end of the startup or the beginning of the survival stage of a venture. The survival stage of the venture determines whether the venture will be successful or should be liquidated. Since the operations of the venture continue in this stage, venture capitalists are not the only sources of external finance. Suppliers and in addition to customers become important potential sources of financing for the venture. Suppliers provide trade credit, extend the line of credit, and increase the payment period for the venture. Thus, the venture has longer periods to pay and consequently the need for other sources of finance decreases. Customers of the new product or venture may also be willing to offer capital for future revenues through crowdfunding. PledgeMusic serves as a good example of this (www.pledgemusic.com). The new albums can be financed before recording music fans through pledges before the album is recorded. Thus, the artist finds the sources of capital necessary for the preparation of the album or tour. Another source of finance during the survival stages of a venture is the financing provided by the government. These financing sources can be in the form of low interest rate loans, tax incentives, and other monetary incentives. Commercial banks also provide business loans for businesses, but during the survival stage, it is unlikely to obtain a business loan due

2 https://www.angelcapitalassociation.org/data/Documents/Public%20Policy/Valueo fAngelsFAQ2013.pdf, Accessed on March, 2, 2017.

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to the limited performance of the venture. Thus, it is more possible to obtain loans in the rapid growth and maturity stages of the ventures. Second-Round Financing Second-round financing is for the firms that have successfully passed the start-up and survival stages. The main sources of financing in the rapid growth stage are cash flows from operations, suppliers, customers, commercial banks, and sometimes funds intermediated by investment banks. The operating cash flows will increase in the rapid growth stage, but still due to the need to increase the inventories and as well as the increasing account receivables create a need in external financing. Hence, second-round financing generally becomes venture capital financing. Mezzanine Financing While a typical successful venture continues after break-even, other combinations of financing will be needed from venture investors. Mezzanine financing is necessary for marketing expenditures, working capital, plant expansion, and product and service improvements. Mezzanine financing is a hybrid of debt and equity financing that gives the lender the rights to convert to an ownership or equity interest in the company in case of default, after venture capital companies and other senior lenders are paid. Mezzanine financing, usually completed with little due diligence on the part of the lender and little or no collateral on the part of the borrower, is treated like equity on a company’s balance sheet. If the venture is successful at the end of this stage traditional venture investing form will be left and the venture will be prepared to enter the public and private markets. Liquidity Stage Financing The rapid-growth stage of a successful venture’s life cycle usually provides venture investors (people or businesses who give money to help start businesses) with a prospect to liquidate the return connected with their risk. Moreover, they also mitigate the firm’s access to the public or private capital necessary to increase the size of the firms and reach its mission. A venture may open to the public through the offering of its shares by initial public offering (IPO). The venture may directly sell the founder

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and venture investor shares to the public market in a secondary stock offering. This is a later liquidity for the owners and venture investors. If the venture does not want to be listed in an equity market, may slow to a growth rate that can be supported by internal funds, bank debts, and private equity. For those kinds of firms, investor liquidity may be provided by the repurchase of investor shares, payment of dividends and through the acquisition of the venture by other third parties. Seasoned Financing Seasoned financing occurs throughout the venture’s maturity stage. Mostly, venture investors complete their involvement with the venture before it reaches its maturity stage. During this type of cycle, retained earnings can serve as a major source of financing. Additionally, bank loans, new issues of bonds, and stocks can be used to finance the needs of the venture. A firm that has previously undergone public offering can obtain equity by issuing additional shares of common stock through seasoned securities offerings.

Sources of Finance in Brief Debt Financing Debt is the money that can be borrowed in exchange of the original amount loaned (principal) plus some predetermined amount of interest over a prearranged amount of time. Types of debt involve senior, subordinated, short-term and long-term debt. Senior debt holders are secured creditor who have a claim on the venture before all other creditors. The other creditors will be paid after senior debt holders are fully repaid. Subordinated debt is also called mezzanine financing, because the subordinated debt holders rank after senior debt holders and before equity holders in terms of being repaid. Both the subordinated debt and the senior debt are used to finance working capital, capital expenditures and acquisitions. Debt that has a maturity greater than one year is named long-term debt, whereas debt that has a maturity less than a year is called shortterm debt. Short-term debt can be in the form of trade credit provided by the suppliers and in fact, this is the most costly form of debt.

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The advantages of having debt in the capital structure are the retention of ownership, lower cost of debt, tax advantage of debt and predictable payments. Disadvantages of debt financing are the requirement of personal guarantees, lenders can file for the bankruptcy of the venture, and payments should be done even if the company has negative cash flows. Equity Financing Equity financing is the supply of funds in exchange for ownership in the venture. As the venture increases in value, the equity holders’ net portfolio value increase. The equity investor also receives a percentage of the profits of the venture. There are many advantages of equity financing for a venture. Equity financing does not require personal guarantees, collateral, or regular payment and there is no risk of equity investors to file bankruptcy (Rogers & Makonnen, 2009: 275). Conversely, equity financing might have a replacement risk for the entrepreneur. The partners that arise because of equity financing might have conflicts with the entrepreneur. This form of financing is the riskiest type of investments; thus, it is the most expensive form of finding funds for the entrepreneur. Various equity sources will provide finance for NPD or new ventures. The initial source of funds is the personal savings of the entrepreneur. At the inception, also the funds from friends and family may provide the initial investments in the idea. These two are almost the sole sources of finance for an entrepreneurial idea, since there is always a lack of capital for the early stages of ventures. When the idea becomes more concrete, or after the initiation of the venture, there are more sources available for equity financing. Angel investors, wealthy individuals looking for lucrative business opportunities, prefer to invest as equity investors in a venture, since they want a share in the potential growth of the company. Since they invest at very early stages, they possess a large proportion of the company and they reap very high returns if the business succeeds. Another equity source for a start-up is private capital; among them, probably the most famous one is the venture capital. A private deal takes place between the investor and the entrepreneur and the fund is exchanged for equity in the company. Among the sources of equity

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capital, we can also list national and international private equity firms, small business investment companies. Initial public offerings (IPO) is a way for entreprises to raise capital, which is regulated by Securities Exchange Commissions in almost every country. Through IPOs, firms raise capital by issuing their stocks to the public, but the regulations for the publicly available firms are highly strict. Thus, having an IPO for entrepreneur is the ultimate form of entrepreneurial success. The IPO will provide funds for a company that is required to run the operations. Moreover, sometimes equity capital might be cheaper than debt alternatives, since debt might not be an option or might not be affordable for the firm every time. Sometimes it gives opportunity for the firms to recruit successful employees by offering them publicly available stocks, so their hard work will pay off (Rogers & Makonnen, 2009: 302). Until becoming public, entrepreneur has to rely on many sources like angel investors, at least two rounds of financing from institutional investors and going to IPO leaves a very small percentage of a company, which can be a drawback of going public. This cause the entrepreneur to lose the control over the company.

Conclusion In this chapter, sources of finance and their advantages and disadvantages for new product development, innovation and entrepreneurs are discussed. We have clarified that at every stage of the life cycle of a venture, different financing sources are available. The entrepreneur must look for financing sources considering the life-cycle phase of the idea. In this chapter, we have also demonstrated that venture capital and angel investors are not the sole sources of finance, rather it is very hard to reach them at the inception. Given the conditions we present here, an entrepreneur must be aware of the fact that, beyond initiation of the idea, promotion of the innovative idea to the capital providers is one of the biggest challenges he/she will face.

References Berger, A., & Udell, G. (1998). The economics of small business finance: The roles of private equity and debt markets in the financial growth cycle. Journal of Banking and Finance, 22, 613–673.

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Calopa, M. K., Horvat, J., & Lalic, M. (2014). Analysis of financing sources for start-up companies. Management, 19(2), 19–44. Cassar, G. (2004). The Financing of Business Start-Ups. Journal of Business Venturing, 19(2), 261–283. Fisher, G., Kotha, S. & Lahiri, A. (2016). Changing with the times: An integrated view of identity, legitimacy, and new venture life cycles. Academy of Management Review, 41, 383–409. Hébert, R. F., & Link, A. N. (2009). A history of entrepreneurship. Routledge. Katz, J., & Gartner, W. B. (1988). Properties of emerging organizations. Academy of Management Review, 13, 429–441. Kazanjian, R. K. (1988). Relation of dominant problems to stages of growth in technology-based new ventures. Academy of Management Journal, 31, 257– 279. Lahm R., & Little H. (2005). Bootstrapping business startups: A review of current business practices. Conference on Emerging Issues in Business and Technology, http://paws.wcu.edu/rjlahm/teaching/entrepreneurship/Bootst rapping_Lahm.pdf. Accessed March 12, 2017. Leach, J. C. & Melicher, R. W. (2012). Entrepreneurial Finance, South-Western Cengage Learning (4th Edn.). Link, A. N., & Scott, J. T. (2009). Private investor participation and commercialization rates for government-sponsored research and development: Would a prediction market improve the performance of the SBIR programme? Economica, 76, 264–281. Link, A. N., & Scott, J. T. (2013). Public R&D subsidies, outside private support, and employment growth. Economics of Innovation and New Technology, 22(6), 537–550. Manne, H. G. (2014). Resurrecting the ghostly entrepreneur. Review of Austrian Economics, 27 (3), 249–258. Maurya, A. (2012). Running lean: Iterate from plan A to a plan that works. Octal Publishing. Rao, D. (2010, July 6). The 12 Best Sources Of Business Financing. Forbes. https://www.forbes.com/2010/07/06/best-funding-sources-for-small-bus iness-entrepreneurs-finance-dileep-rao.html?sh=5fcd3b3f4715. Accessed on July 20, 2020. Ries, E. 2011. The lean startup: How today’s entrepreneurs use continuous innovation to create radically successful businesses. New York: Crown Business. Rogers, S., & Makonnen, R. (2009). Entrepreneurial finance: Finance and business strategies for the serious entrepreneur (2nd ed.). McGraw Hill. Sudek, R., Mitteness, C., & Baucus, M. (2008). Betting on the horse or the jockey: The impact of expertise on angel investing. Academy of Management Best Paper Proceedings.

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Winton, A., & Yerramilli, V. (2008). Entrepreneurial finance: Banks versus venture capital. Journal of Financial Economics, 88(1), 51–79. Wu, J., Si, S., & Wu, X. (2016). Entrepreneurial finance and innovation: Informal debt as an empirical case. Strategic Entrepreneurship Journal, 10(3), 257–273.

CHAPTER 6

Historical Development of Entrepreneurship in the Literature Duygu Seckin-Halac

The concept of entrepreneurship, which was seen to be of interest only in economic science in the early periods, attracted the attention of and contributed to several different fields. Following its first pronunciation as an economic term in the 1770s, it is widely associated with economic development today. Indeed, there is still no firm consensus on its definition as being an interdisciplinary, much-debated phenomenon. One of the primary reasons for this is that the concept is discussed with distinct perspectives in a wide range of disciplines. Therefore, definitions vary by the individual’s perspective and scope of the research. This frame is better to understand the development stages in history and literature to discuss the subject. In this context, this book chapter aims to present a brief and precise historical framework by providing readers how the concept emerged, which phases it passed and how it is being discussed under which fields of science today.

D. Seckin-Halac (B) Department of Business Administration, Faculty of Business, Ya¸sar University, Izmir, Turkey e-mail: [email protected] © The Author(s), under exclusive license to Springer Nature Switzerland AG 2021 M. Ince-Yenilmez and B. Darici (eds.), Engines of Economic Prosperity, https://doi.org/10.1007/978-3-030-76088-5_6

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Introduction The concept of entrepreneurship,’ which was observed to be of interest only in the science of economics in the early periods (Baumol, 1993), has attracted many fields’ attention. These fields cover agriculture, history, anthropology, education, finance, history, marketing, strategy, mass communication, and political science, especially sociology and psychology (Bull & Willard, 1993; Hebert & Link, 1989). After its first pronouncement in the 1700s, it was widely discussed in its effects on the economy and as an interdisciplinary study field. However still, it is one of the focal points of the academic world. Even though it is a phenomenon that there is no commonly agreed definition. The reason is that entrepreneurship has been defined within a wide range of different approaches in the literature (Bedi, 2017). Therefore, the definition varies according to the perspective and focus of the person who defines the concept (Bula, 2012). Traditional definitions of entrepreneurship, which consider entrepreneurship together with innovation, referring them as the locomotive of the economy, those definitions continue to emphasize the distinction between entrepreneurs and non-entrepreneurs and highlight entrepreneurs with their “superior” characteristics (Seçkin-Halaç, 2017: 4). The entrepreneur, who has a creative and open-minded personality, has been defined as “the person who observes the environment meticulously, sees the needs of people and brings together the necessary resources by taking risks to meet these needs in an innovative way” (Drucker, 1993). Entrepreneurs are extraordinary people who are appreciated for their beliefs, immense courage, and vision. They bring society to a more livable, productive, and comfortable situation with the business opportunities they create and the products and services they provide. In return, they make a financial gain—sometimes extreme personal wealth. All such proposed features have made entrepreneurship the essence of the “American dream” (Wirtz, June 1, 2008). David Gumpert (1986: 32) attributes entrepreneurship as “the material from which American heroes are produced,” and Ehrlich (1986: 33) ascribes entrepreneurs as people who enjoy their legendary status in America, embodied in the romantic face of capitalism (Hebert & Link, 1989). Robert Litan, one of the executives from Kauffman Foundation, states that: The fame of entrepreneurship began with the founders of companies such as Microsoft and Apple, who were born in the garages of

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the houses in the 1980s and became idols, and exploded with the spread of the internet in the 1990s (In Wirtz, June 1, 2008). While Gartner (1989) opposed defining entrepreneurs with individual/psychological characteristics, he emphasized that the entrepreneur should be considered as something that the individual does rather than something that the individual is. Globalization and economic-social change have brought about a severe change in the definition and scope of the concept of entrepreneurship today (Seckin-Halac, 2017: 4). Therefore, in sum, the development of entrepreneurship as a separate discipline that started in the 1970s continues with ongoing discussions. Therefore, as one of the famous research fields, knowing the origins of entrepreneurship and its development stages in history and the literature is of great importance in future studies. In this context, this book chapter aims to present a brief and precise historical framework by providing readers how the concept emerged, which phases it passed and how it is being discussed under which fields of science today. With this aim, first, the features and the emergence of the concept will be explained. Then, considering Landström (2008), to understand specific characteristics of the dominant disciplines, contributions to literature will be examined in three groups: economic doctrine (1870–1940), social sciences (1940–1970), and managerial sciences (1970– …). This book chapter will be concluded with contemporary issues and future development of entrepreneurship studies.

The Early Period Traces of Entrepreneurship and Its Emergence Agricultural production started with the settled life of people from hunting and gathering in ancient times. In those days, producing more than their food and starting to do commercial activities by barter method is considered as the beginning of entrepreneurial activities in an economic sense. Commercial relations that started in the local area have become intercity with the establishment of city-states. It is known that there are commercial activities that exceed the country’s borders with the use of trade routes such as the Spice Road and Silk Road (Uzuntepe, 2017). In the Middle Ages, individual entrepreneurship was prevented with the feudal structure, which became dominant especially in Europe, and trade was restricted with centralized production activities (Çögürcü, 2016).

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Developments such as reaching India by crossing the Cape of Good Hope and discovering the African Continent brought wealth besides commercial development. While the feudal period disappeared, a new era called the “mercantilist period” entered (Uzuntepe, 2017). In mercantilism, which is based on the state administration, strengthening the treasury has become the primary goal. The way of strengthening the treasury was to create foreign trade surplus by increasing exports, and the country’s wealth was tried to be created with precious metals such as gold and silver purchased by the merchant entrepreneurs of the period (Çögürcü, 2016). In this period, merchant entrepreneurs who strengthened the treasury by using their privileges took political roles and/or had a say in the formulation of government policies (Er, 2013). There have been changes in social life as well. Especially Italian cities have become a pioneer in commercial success among the art and science values created by the Renaissance. Developments such as legal protection of private property and the use of money in trade began to prepare the entrepreneurial environment in the 1700s (Wennekers & Thurik, 2001, in Landstörm & Benner, 2010: 17–18). In the eighteenth century, in France, the free economy view gained importance, which emphasized agricultural production and its place in the economy and the idea that the market would find its balance (Yener, 2018). The physiocrats, the thinkers of this French School, were opposed to mercantilism. They put forward the view of physiocracy (the view that observes the laws of nature) that paved the way for the emergence and development of entrepreneurship economic doctrine. In this period when the effects of the Industrial Revolution were not seen much, one of the essential physiocrats is Cantillon (1680s–1734), who dealt with agricultural entrepreneurship and therefore started to discuss entrepreneurship conceptually over agricultural products and production (Çögürcü, 2016). The banker and businessperson Cantillon, one of the early representations of the market economy that will emerge later, was used the term and described entrepreneurship. Based on individual property rights and economic independence, his work titled “Essai sur la natüre de commerce en general” was first published in 1755 (Bula, 2012). Entrepreneurship is derived from the French words “entre” (to enter, enter) and “prendre” (to undertake) (Çögürcü, 2016). In the first formal entrepreneur concept introduced by Cantillon, the entrepreneur is profitoriented. In this definition, the entrepreneur is the person who undertakes

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the risk of selling the product purchased at a specific price at an uncertain future price, from which he can gain profit or loss (Chrisman & Kellermanns, 2014). Cantillon groups economic actors into (1) landowners, (2) entrepreneurs, and (3) wage earners while defining entrepreneurs as working for uncertain wages or not owning capital. It considers entrepreneurs at the center of the economy with an active role (Cherukara & Manalel, 2011). The entrepreneur’s personality is not concerned with his social status but with his function in the economy. According to him, even beggars and thieves can be described as “entrepreneurs.” For example, a farmer who pays rent to the landowner is an entrepreneur with the risk (s)he takes to reach a non-guaranteed profit under uncertainties such as weather conditions or demand for the product (Hebert & Link, 1989). In short, while Cantillon sees entrepreneurship as taking risks under uncertainty, the essence of entrepreneurship is that people do not have full foresight/knowledge about the future and their economic impacts. Although Hebert and Link (1989) find the concept of entrepreneurship meaningful, they criticize the concept’s handling. To them, Cantillon’s understanding of uncertainty, which is synonymous with risk, is naive. It is a factor for people rather than land/capital owners such as feudal lordships due to their disrupting effects on the market mechanism. Therefore, while the development of the concept and theory of entrepreneurship was needed, many scientists from different economic schools and disciplines participated in research and discussions. Turgot and Say are also considered among the most influential early economists for their contribution to the development of entrepreneurship theory and lay the groundwork for future thinkers such as Schumpeter (Cherukara & Manalel, 2011). Parallel to the capitalist line, Turgot (1727–1781), sees the entrepreneur as a result of the capitalist investment decision. That means if the owner of capital buys land to lease, he becomes a “landowner,” or if he invests in interest with this capital becomes an “entrepreneur” or if one starts a business to buy and sell things, then again will be an “entrepreneur” (Grebel et al., 2001). Jean-Baptiste Say (1767–1832), as an industrial entrepreneur and textile mill manager, described the entrepreneur with her ideas built on Turgot’s view. He positions the entrepreneur as one of the prominent figures of economic life and production; It is defined by asserting that the entrepreneur can use capital to establish a company, but this is unnecessary (Grebel et al., 2001). Unlike Turgot, he was the first economist

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to distinguish between entrepreneur and owner of capital (Cherukara & Manalel, 2011). Say regards the entrepreneur as an input to the production process as synonymous with the company manager, who correctly manages and organizes production factors. Instead of taking risks, he states the essential entrepreneurial feature as thinking and evaluating, and making the right decision, that is, judgment (Bedi, 2017). Therefore, he discussed entrepreneurship’s concept at the organizational level and considered it one of the production factors. With these features, he also touched on the entrepreneur’s behavioral characteristics, which were not encountered in this period (Chrisman & Kellermanns, 2014). In parallel with France’s developments, in the eighteenth century, the classical economic theory was formed by Adam Smith (1723–1790) in England. For the principles he sets, the market reaches its equilibrium. Thus, the entrepreneur is considered a passive and prudent person acting according to changing market conditions. Even though the British economist John Stuart Mill (1806–1873) contributed little to entrepreneurship theory, he is one of the crucial figures because he is the person who gave the word “entrepreneur” in English translation (Çögürcü, 2016). Marshall (1842–1924) is the person who included innovation in entrepreneurship theory by specifying the characteristics of the entrepreneur who continually seeks to reduce costs through innovation in the literature (Bula, 2012). On the other hand, in the same period, developments in the political economy were experienced in Germany and Austria. Economists such as Thünen (1783–1850) have made contributions that distinguish between entrepreneur and manager by defining the entrepreneur as both risk taker and innovative. Moreover, they are also crucial in that they have laid the groundwork for economists who will come to the fore as the Austrian School of thought in the following periods (McFarlane, 2016: 20).

Economic Era in the Development of Entrepreneurship (1870–1940) With the loss of power of the classical economic theory system operating around the balance of supply and demand, economists who came to the forefront with their views on unstable markets in the economic doctrine have been in entrepreneurship studies. Knight (1885–1972) followed the American School first and then left it behind with his name due to his contributions to entrepreneurship theory in his period. Schumpeter

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(1883–1950) who has influenced from Marx, Walras, the German School of History, and the Austrian School, and put forward his unique theory by feeding on them, and Von Hayek (1899–1992), Von Mises (1881–1973), and Kirzner (1930–) of the Austrian School could be listed as prominent names (Chrisman & Kellermans, 2015; Nunes, 2015). It is seen that the ongoing entrepreneurship debates in Europe resonated after the Civil War in the United States. Although there are early American researchers who did not make significant contributions to the field (Landstörm, 2008), Knight’s contributions cannot be denied in this School’s continuation. Knight clearly stated that entrepreneurs are company executives, and they have three essential responsibilities to bear in order to generate positive profits: (1) innovation, (2) keeping pace with changes in the economic environment, and (3) considering uncertainties (Bula, 2012). Although not explicitly stated, he based his views on Cantillon’s, the closeness in his theories is not underestimated in the context of both the three responsibilities imposed on the entrepreneur (Bula, 2012) and the triad of risk, uncertainty, and profit on which they build entrepreneurship (Hebert & Link, 1989). Knight’s most decisive contribution to entrepreneurship theory is that he distinguishes between the concepts of risk and uncertainty (Gerebel et al., 2001; McFarlane, 2016: 20). According to him, while the risk is a concept that can be reduced/eliminated with some insurance, uncertainty is inevitable because production is a time-consuming process in enterprises’ decision-making. After all, while it buys the input at a certain price level today, production is the future. An entrepreneur is a person who can see and predict the future and take responsibility under these conditions (Cherukara & Manalel, 2011). Although Schumpeter stated that he admires Walras’s work, which he influenced in his studies, he mentions the general equilibrium theory’s shortcomings. He adopted the view that economists should understand the psychological basis of human behavior and motivation to understand economic behavior based on the German School of History, including thinkers like Weber. On the other hand, Marx brought forward a unique view by blending her ideas that capitalism’s internal dynamics will bring the system to different points (Kalandiritis, 2004: 23). By stating that it is the banker or the capital owner to bear the risk, Schumpeter distinguishes entrepreneurship from capital ownership and defines the entrepreneur as the person who combines production factors in an innovative way

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(Cherukara & Manalel, 2011). It states the entrepreneur, which he associates with being innovative, as the person who undertakes the following five tasks, regardless of whether they are an individual or owner of the company (Bull & Willard, 1993): 1. Creating a new product or adding a new feature to an existing product 2. Creating a new production method 3. Creating a new market 4. Capturing a new source of supply/raw materials/components 5. Creating a new industry or reshaping the existing industry Schumpeter has marked the economics literature with the concept of creative destruction, which he claims is the driving force of economic development (Bula, 2012). He states that the capitalist entrepreneur, who takes on the five tasks mentioned earlier to consume the old and creates the new always in a dynamic environment, is the person who runs the engine of capitalism and maintains it. That creative destruction is one of the most fundamental issues about capitalism (Schumpeter, 1974: 83). Schumpeter states that beyond the profit they will gain, the entrepreneur’s motivation is the pleasure of creating (Bula, 2012). He compares the entrepreneur’s profit with the wage earned by the workers for the product they produce. Schumpeter sees it as the counterpart of the innovation he creates and claims that with the innovative process’s completion, the entrepreneur’s title “entrepreneur” falls on its own (Bull & Willard, 1993). Schumpeter’s articles on entrepreneurship are divided into two distinct periods. The focus of growth and innovation was replaced by entrepreneurship sociology in the second period after the 1940s (Sciascia & DeVita, 2004: 7–9). Von Hayek and Von Mises, the Austrian School’s essential names, with their heterodox economic views on entrepreneurship in the economic doctrine, made significant contributions to entrepreneurship theory. Von Hayek (1937) emphasized the concepts of information and knowledge rather than the entrepreneur’s decision-making mechanism and stated that people have different information and knowledge in the market economy with their position, experience, and education. Von Hayek defines the entrepreneur as the ability to obtain different information that can be accessed from different sources with the profit motive and

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coordinate it (Cherukara & Manalel, 2011). With an approach that includes humanitarian action in entrepreneurship, Von Mises (1959) defined the entrepreneur as the operational person. According to him, an entrepreneur is a person who calculates economic problems and the person who has the best effort and ability to make use of new opportunities (Grebel et al., 2011). Thus, as an economic actor, the entrepreneur, when (s)he becomes aware of an opportunity in the market, acts against it to adjust his/her position to maximize the benefit of that opportunity (Bula, 2012). As the follower of Von Mises and Von Hayek from the Austrian School, Kirzner appears in the literature as an essential name in the formation of entrepreneurship theory. Kirzner states that complete and accurate information is not always available in the market. There are always opportunities in the market, even if new information and knowledge are not available (Baumol, 1993). He states that any change in the current situation, such as an innovation in production techniques or consumer preferences, will disrupt the market equilibrium, and alert entrepreneurs in the competition can maintain market equilibrium (Bula, 2012). Therefore, in the market that moves away from the equilibrium situation due to the economic shocks caused by external factors, the people who act vigilantly and who can make use of the opportunities created by this situation and turn profits are defined as entrepreneurs (Chrisman & Kellermanns, 2014; Grebel et al., 2011). With their leading roles in the conceptualization and theorization of entrepreneurship, those thinkers from economics have taken their places in the literature. Entrepreneurship studies continued with the contributions of his followers and thinkers from different disciplines.

Social Sciences Era in the Development of Entrepreneurship (1940–1970) By dealing with mathematics and formulas in economics in the mid20th century, entrepreneurship became difficult with models, and entrepreneurship’s interest began to decline in economic theory (Hebert & Link, 1989). However, although not many, it is seen that some social scientist researchers from other fields (such as economic history and sociology) have turned to entrepreneurship studies in line with the Schumpeterian view and Parson’s views since the 1940s. The researchers’ interests in entrepreneurship studies decreased in the 1960s

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within the world-wide modernization process framework. However, some researchers in psychology tend to research the personality and character traits of entrepreneurial individuals. (Landstörm & Benner, 2010: 25). The sociological foundations of entrepreneurship were first seen in Weber’s work in the 1920s and formed Schumpeter’s views. In this early sociology study entitled “Protestant morality and the spirit of capitalism,” Weber investigated the effect of cultural norms formed based on religion on individual behavior. In this study, Weber pointed out the Protestant belief as one of the determinants of the capitalist entrepreneur (distinct from the non-capitalist entrepreneur), with evaluations from different aspects such as the will to work and the financial gain to be obtained from the Protestant understanding of ethics (Kalantaridis, 2004: 46–47). The History of Entrepreneurship Research Center, which was later established within Harvard University, has marked its entrepreneurship studies with its community and entrepreneurship-based research conducted this period. In the context of Talcott Parson’s (1937) structural–functional theory, the work of Cole (1949), Cochran (1949), and Jenks (1949) provide important insights into the role of factors affecting entrepreneurship in social, cultural, and institutional terms and the effects of networks in entrepreneurial choice. It has been revealed that entrepreneurs’ social roles and individuals’ social roles are influential in entrepreneurship choice and success (Landstörm & Benner, 2010: 25–29). On the other hand, based on Sombart’s (1916–1927) views, Hoselitz in the 1960s and Young in the 1970s formed the theoretical foundations of the concept of “social marginality” and its reflections on entrepreneurship. Sombart said that breaking creativity and traditional values is about entrepreneurship; He states that this type of behavior is not seen in the general population but is mostly caused by minorities due to the possibility of social exclusion. Therefore, they concentrated their work on social groups, not individuals. Hoselitz (1963) revealed that individuals belonging to minority groups such as ethnicity are important actors in economic development because they are excluded from the majority’s value system and mainstream views (Kalantaridis, 2004: 49–50). The interest of researchers from psychology in the field of entrepreneurship began around the 1960s. In this area, especially David McClelland’s 1961 study is one of the basic building blocks. McClelland began his research with his curiosity about why some socio-economic groups have a more dynamic structure and are instrumental in paving the

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way for more entrepreneurs. As a result, it was concluded that individuals’ experiences during their childhood—especially within the family— revealed some psychological factors necessary for entrepreneurship, which he defined as the “need for succeeding” (Bedi, 2017). This approach, known as the trait theory, assumes that an entrepreneur has several personal characteristics that effectively recognize opportunities and advantage of these opportunities. It investigates personality and character traits that distinguish entrepreneurs from non-entrepreneurs and successful entrepreneurs from non-successful entrepreneurs (Sincer, 2017).

Management Sciences Era in the Development of Entrepreneurship (1970–…) Entrepreneurship, which had a place in economic doctrine for a period, lost its interest among economists (The Economist, May 12, 2009). Although it has been researched for a while by a small number of researchers in different social sciences, especially economic historians, sociologists, and psychologists, it was far from being the focus of public attention. However, it has suddenly become popular again in America after the 1970s (Hebert & Link, 1989). To understand the reasons for this, it is useful to summarize America’s socio-economic situation in the period briefly. In 1945, with the post-war period, the American economy started to rise very rapidly. The automotive industry has turned from military vehicle production to car production, and there has been a tendency towards production in new fields, especially in aviation and electronics. Such transformations lead to severe changes in the industrial structure. Holding structures were formed with company mergers. While technological innovations are increasing rapidly, the moon has been launched. There has been an explosion in the housing sector and the use of housing loans, an increase in highways and shopping malls, and a shift from city centers to suburbs, affecting social life. Small producers in the agricultural sector have become unable to compete with large-scale production. Growth continued rapidly until the 1960s (American History, The post-war economy). In the 1960s, the state’s share in the budget and expenditures had greatly expanded with increased investments for the Space program and the share allocated for the Vietnam War. Health packages for the elderly and programs against water and air pollution, which the state

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budget will cover, were also added to the budget expenditure items with the increasing social demands of people with the awareness of nature, people, and the environment. On the other hand, low productivity in factories and permanent inflation started to be observed in the economy. The petroleum embargo that emerged in the early 1970s increased prices as well as caused famine. Although the embargo ended until the ‘80s, petroleum prices did not fall, inflation could not be reduced, the state budget increased, unemployment increased, and international competition increased. (American History, Years of change the 1960s and 1970s.). In sum, as the economic reflection of the Arab–Israeli war in the 1970s, the stagnant economic growth, high unemployment, and high inflation and the OPEC member Arab countries cut oil production caused microeconomic instability (Çevik, October 13, 2017). With the American economist Laffer, who defends that the demand-side (Keynesian) economic view is the basis of economic problems, the idea of the “supplyside” economic view has started to gain popularity. Say is the first to put forward the view that “every supply creates its own demand” and the view known as Say’s Laws. Therefore, supply-side economics policy, which is also stated as the expression of classical economics in a modern style (Aktan, 2009), has been described as the rediscovery of classical economics or return to classical economics (Bartlett, 1981: 1). Therefore, economists who share this view argue that the economic trouble’s solution lies in policies that encourage production (Aktan, 2009). As Ercan and Gökdeniz (2009) reported, Von Hayek, who received the Nobel Prize in Economics in 1974, defended the thesis that central economic planning would restrict individual freedoms and that decisions in the economy are shaped according to the values and goals of individuals. Therefore, all obstacles to free decision-making should be removed. During this period, Reagen, who was the United States president, adopted a supply-side economics view that encouraged increased production. Thus, the state has abandoned the role of “economic actor” active in the economy and has taken a position that takes measures to ensure the effective functioning of the market by reducing its intervention. Therefore, the role of the state in the economy has been reorganized (Çevik, 2017). Ronald Reagan in the United States and Margaret Thatcher in England, supporting this economic view and policies, have had significant influences and contributions in developing small businesses and entrepreneurship. “The understanding of freedom of enterprise, which forms

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the basis of the free market economy, has also provided the necessary environment for the flourishing of modern entrepreneurship” (Ercan & Gökdeniz, 2009). Reagan, in his “Address to the Nation” speech in 1985, denoted the period 1980–1990 as the “Age of the Entrepreneur” (Landström, 2008). The executives of corporate firms were most blamed for the rapid collapse of the American economy in the 1960s. In the transition of the American economy from dynamic to static, Burton Klein (1979) referred to the structure that shifted to preserving the status quo instead of new technical and managerial alternatives and explained the generally low productivity in production with the decrease in entrepreneurship (Hebert & Link, 1989). In line with this trend, academics and policymakers have turned to lectures and programs on the management part of entrepreneurship and entrepreneurship in business and management sciences at universities to encourage entrepreneurship. For instance, Babson College first started graduate-level entrepreneurship courses in 1967 and undergraduate level in 1979.1 Initiations of professional organizations such as International Council for Small Business (1955), European Council for Small Business (1988), the Entrepreneurship Division within the Academy of Management (1971), organizing numerous conferences on entrepreneurship for example, 16 conferences held by Babson Research Conference from 1981 to 1986, RENT Conference (1987), Small Firms Policy and Research Conference in the UK (1978), the Nordic Conference on Small Businesses (1980), and academic journals (for instance, Journal of Business Venturing (1985), Entrepreneurship and Regional Development (1989), Small Business Economics (1989)) are some of the actual progress in the field (Landstörm & Benner, 2010: 29–31; Wirtz, June 1, 2008; Wortman, 1987). In this context, entrepreneurship has begun to regain its interest for a long time with its contribution to employment and economic growth. In the beginning, economists Kirzner, Schumpeter, and Knight and then social scientists such as Chandler, Cochran, and McClelland are often encountered as influencers of this era. Especially under the influence of entrepreneurship courses opened by business departments and newly established business faculties in the 1980s, entrepreneurship studies

1 For details, see https://www.babson.edu/academics/centers-and-institutes/the-art hur-m-blank-center-for-entrepreneurship/about/history/.

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became popular again, as if it were a new field, but this time in management sciences. Entrepreneurship has started to be considered as a management style day by day. Especially in the 1980s, in the beginnings of the domination of management sciences, it is seen that entrepreneurship was associated with small businesses, establishment financing, business establishment, innovation, and corporate entrepreneurship, women/minority entrepreneurs, social entrepreneurship, family businesses, entrepreneurship education. (Kuratko et al., 2015). Wortman (1987) defines entrepreneurship as the newest research area of management sciences. The detailed research conducted by Landstörm and Persson (2010) over 14,388 articles published in the SSCI index between 1956 and 2007 and 455 950 citations shown in these articles using the Web of Science database indicates that the field of management sciences has dominated the entrepreneurship studies after the 1980s. As to the results, 42,4% of all entrepreneurship studies are under “Management.” The citations are from Management by 82,3%, from Economics by 33,2%, and from the other fields by 38,9% . When the research eras are examined, it is seen that the influence of Schumpeter (1934) continues in each period. – In the period between 1970 and 1989, the behavioral dimension of entrepreneurship is still frequently investigated (e.g., McClelland, 1961; Chandler, 1962), references to management research (e.g., Burns and Stalker, 1961; Porter 1980; Peters and Waterman, 1982; Timmons, 1977) appear to have begun. When examining entrepreneurship-themed management studies, frequently cited studies of this period are: Porter’s (1980, 1985) industrial organizations, Williamson’s (1975, 1985) transaction costs theory, Jensen and Meckling’s (1976) agency theory, Pfeffer and Salancik’s (1978) resource dependency theory, Miller’s (1983) and Covin and Slevin’s (1989) strategic management theories have been published and attracted attention. Moreover, today they continue to be frequently cited as underlying theories. – When the 1990s are examined, it is seen that the behavioral dimension is again on the agenda (McClelland, 1961; Nunnally, 1967), but the influence of management sciences has increased significantly within the framework of the studies of Porter (1980, 1985), Williamson (1975), Jensen and Meckling (1976). Besides, studies in the context of Resource-based approach (Barney, 1991;

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Cohen & Levinthal, 1990), strategic management-firm performance (Lumpkin & Dess, 1996), strategic management-decision making (Busenitz & Barney, 1997), and theoretical contribution efforts (Storey, 1994, Venkataraman, 1997; Aldrich, 1999) are still among the necessary resources for today’s studies. However, when the studies carried out in this period are examined, efforts to leave management sciences have also begun to occur in entrepreneurship studies as a field peculiar to itself. – When it comes to the 2000s, it is seen that Shane’s works and three fundamental issues came to the fore for the recognition of entrepreneurship as a field in itself. One of these is the studies focused on recognizing entrepreneurship as a research area (Shane and Venkataraman, 2000; Shane, 2000). The second is the internationalization of entrepreneur companies (Zahra et al., 2000; Autio et al., 2000; McDougall and Oviatt, 2000). The third is social capital, social networks and their relationship to startups, performance, and venture capital (Davidsson and Honig, 2003; Shane and Cable, 2002; Shane and Stuart, 2002; Adler and Kwan, 2002; Baum et al., 2000).

Discussion and Conclusion Today, entrepreneurship still displays a fragmented structure, mainly based on management sciences. With its theories, research methods, and conceptualizations, it continues to become a discipline in its own right and breaking away from management sciences (Kuratko et al., 2015). Wortman (1987) summarized the typology of entrepreneurship studies in his study. Accordingly, there are five primary working areas in entrepreneurship studies. The first one is “theoretical studies.” It is divided into four main areas within itself: (a)—corporate and individual entrepreneurship theories; (b)—comprehensive/interdisciplinary, psychological, sociological, economic, political, and social studies according to the field of study; (c)—entrepreneurship definitions; (d)—entrepreneurship models. The second is “historical studies,” consisting of both institutional and individual levels. The third includes “environmental studies,” which includes the macro environment (with two sub-branches including national and inter-country) and microenvironment. The fourth is “functional studies,” which have two fundamental distinctions: institutional and individual. Here, the corporate area includes (1) structure

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(including new company formation, company management, innovation, technology, and public policies) and (2) behavioral research for the whole organization. On the individual entrepreneurship part, there are two subcategories: (1) structure (including new company formation, operations, and partnerships/out-groups); (2) behavioral (including career, personal and job-specific character traits). Fifth and last, it states that there are studies on “the future of entrepreneurship.” When entrepreneurship studies in economics are examined, Schumpeter continues to be the primary bibliography in every era. Looking at the development of entrepreneurship in economics, “entrepreneurship selection models” that investigate why individuals prefer to be entrepreneurs, transaction costs economics, decision-making processes, economic approaches in the establishment, survival, and growth of new companies are often observed. In general, it is seen that studies are concentrated under the title of “small business economics,” but it is not adopted as a dominant field of study (Kalandiritis, 2004: 44). Researchers from the discipline of sociology mostly focus on how the values, culture, norms, and rules created by the society in which the entrepreneur lives affect and shape their entrepreneurial behavior and activities. Accordingly, the impact of entrepreneurs’ social networks should also be addressed in entrepreneurship discussions (Sincer, 2017). Especially in recent years, the emphasis on entrepreneurship has increased as a social phenomenon, and the need to consider the concept in this direction is has highlighted. While growth and employment concepts are dominant in entrepreneurship studies, the other categories are also accepted. Thus, entrepreneurship becomes an umbrella concept (Haas & Hwang, 2009), and it has begun to be widely accepted that different goals, motivations, and obligations expand the definition of entrepreneurship. Nowadays, entrepreneurship is mostly considered a research field where the questions of how and why some people realize opportunities and decide the feasibility of those opportunities will turn this opportunity into profits. At the same time, the others cannot do the same. Besides, they are looking for answers to how these opportunities reach the point of generating product, firm, industry, or wealth (Shane & Venkatraman, 2000). On the other hand, in today’s conditions, the idea that entrepreneurship does not only emerge with opportunities. On the contrary, in many countries, the necessity pushes people to be entrepreneurs is also accepted.

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The Global Entrepreneurship Monitor (GEM), which regularly measures the entrepreneurship levels of countries at the international level since 1999, defines entrepreneurship as “an individual or a team’s efforts to expand a new business or venture or an existing enterprise” (Amoros & Bosma, 2013: 17), and this definition is widely accepted. Kauffman Foundation’s survey research findings reveal that an ordinary entrepreneur’s profile is a white, well-educated man in his 30s, the last child of a wealthy family, with a reasonable income from his own business (DeMers, May 10, 2018). The book of Scott Shane, Illusions of Entrepreneurship, states that contrary to popular belief, a typical entrepreneur is less like Bill Gates and is more like the person someone comes across in the neighborhood or sitting next to an ordinary people in a church: In his 40s, married, previously a working employee, born and raised in America, established his own business where he can use his industry and business experience in the city where he spent most of his life, he is concerned about maintaining his livelihood rather than high growth and profit and psychologically just an ordinary people with no difference from other people (Simmons, July 12, 2009). People may have to turn to entrepreneurship not only to be a “hero” in an “American dream” but for personal necessity or, more fundamentally, to “work for peanuts” because they have only one choice. According to the 2013 Global Entrepreneurship Monitoring reports, entrepreneurship is associated with needs rather than growth in many countries. The most common entrepreneurial motivation in real life emerges as “need,” not “opportunity.” In other words, entrepreneurs can be people who do not even have the ambition to grow, rather than being innovative and risktaking, extraordinary individuals chasing their dreams (Amaros & Bosma, 2013: 6). New research fields consisting of women’s entrepreneurship, social entrepreneurship, immigrant entrepreneurship, intrapreneurship, technology entrepreneurship have been in focus. Besides, the concepts and discussions on entrepreneurship seem to be continued for a while.

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CHAPTER 7

Are Social Incubators Social Enterprises? A Study of Italian Social Incubators Filippo Giordano , Alessandro Lanteri , and Laura Michelini

Social Incubators as Social Entrepreneurial Initiatives Social incubation is a recent phenomenon, but it is rapidly growing on an international scale in response to the expansion of the social economy and the increased awareness that social enterprises can play a pivotal role

F. Giordano · L. Michelini Department of Law, Economics, Politics and Modern Languages, Lumsa University, Rome, Italy e-mail: [email protected] L. Michelini e-mail: [email protected] A. Lanteri (B) Hult International Business School, Dubai, United Arab Emirates ESCP Business School, Turin, Italy © The Author(s), under exclusive license to Springer Nature Switzerland AG 2021 M. Ince-Yenilmez and B. Darici (eds.), Engines of Economic Prosperity, https://doi.org/10.1007/978-3-030-76088-5_7

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in reforming the welfare system and in underpinning sustainable development. Some early experiments with social incubation date back to the year 2000, on an input from public institutions trying to foster a more managerial approach to the third sector (Carrera et al., 2009). Social incubators proper—by which we mean organizations designed to support socially innovative projects and startups—began to appear in 2010. The academic literature on this topic is still in its early days. Research on social incubators has so far focused on their uniqueness (Aernoudt, 2004) and on specific case studies (Casasnovas & Bruno, 2013; Hmayed et al., 2015; Nesta, 2014; Sfeir, 2015). These contributions also report on the main existing models of social incubation. However, detailed investigations of whether these organizations embrace sustainable business models are still missing. Consequently, we do not yet know whether social incubation creates value in a sustainable manner and, if so, how to maximize and optimize the creation of such value. Understanding the sustainability and the overall viability of social incubation is both important and timely, as the phenomenon consolidates and expands internationally (Nesta, 2014). This chapter offers a preliminary, but systematic study of this issue.

Research Questions and Structure of the Chapter Social incubators aim to generate positive social impact on the community by incubating and delivering services to enterprise for social change. But can they also be considered social enterprises? Social enterprises are different from traditional profit-maximizing ones (Austin, 2006; Santos, 2012). They face the challenge to balance social goals and financial sustainability in their business models, as ‘the combination of resources and activities that allow an organization to create, deliver, and capture value’ (Zott et al., 2011). These organizations may have different sustainable business models based on their approach to value creation for society and, thus, to their pursuit of social impact. Starting from these premises, the chapter analyses social incubators as socially entrepreneurial initiatives, to identify their distinctive business models. More specifically the study aims to answer the following research questions: RQ1. Are social business incubators social enterprises? RQ2. What kind of social incubators business models can be identified? Due to the novelty of this field of research, this study is both explorative and descriptive. The main theoretical contribution is the conception

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of a new theoretical framework. In doing so, it moves from the emerging state of the art in two literature steams—social entrepreneurship and social and business incubators. It therefore contributes to both. A secondary, empirical contribution is the first systematic mapping of social incubators across Italy. While the existing literature provides a starting point for our conceptual framework that is useful to analyze the business models and other characteristics of social incubators, the main source is a unique set of primary data. The empirical research is based on the multiple-case (holistic) model, which is best suited when the research domain is broad and complex and the context is important (Yin, 1989, 2003). The insights from the empirical investigation, within the structure provided by this novel framework, afford interesting implications for the strategic planning and the management of social incubators. The chapter is organized as follows. It first reviews the literature on the definition of social entrepreneurship and identifies a definition that is both sufficiently demanding and sufficiently agreed upon. It then reviews the literature on both business and social incubation. These two literature streams offer a strong foundation to our framework. Next, the empirical study is described and discussed. Several insights and implications are highlighted in the concluding paragraph, as well as the limitations of the current study and directions for future research.

The Definition of Social Entrepreneurship Many scholars engaged in the search for a definition of social entrepreneurship, proposed that it is best understood as a (modest) variant within traditional entrepreneurship. For example, one of the founding fathers of the academic field of social entrepreneurship, the late Gregory Dees (1998: 2), suggested that ‘social entrepreneurs are one species in the genus entrepreneur.’ Zahra and coauthors (2009) apply three consolidated traditions in entrepreneurship research to social entrepreneurship. Dacin, Dacin, and Matear (2010) suggest that the theories of entrepreneurship, with some adaptations, are sufficient to understand social entrepreneurship. This approach also resonates with Chell’s (2007) recommendation that the entire notion of entrepreneurship should require the creation of both social and economic value and with Kosgard and Anderson’s (2011) suggestion that value creation in entrepreneurship is intrinsically social. Newbert and Hill (2014) offer

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a comprehensive definition that captures all enterprises, including social enterprises. Nonetheless, research in social entrepreneurship is different from that in traditional entrepreneurship (Lehner, 2013). This is arguably because social enterprises are in some way different from traditional profit-maximizing ones (Austin, 2006; Jamali & Lanteri, 2015). Social enterprises primarily pursue social or environmental missions and whatever profits they earn are not immediately appropriated by shareholders, but at least in part reinvested in the missions (Agafonow, 2014; Santos, 2012). Embracing a social mission is a fundamental characteristic of social entrepreneurship. One could therefore define social entrepreneurship based on the sociality of its mission, often referred to as a ‘big-tent’ définition (Light, 2009). However, there are many other entities (e.g., charities, NGO’s, associations…) that embrace similar social missions. So, a definition that only focuses on sociality would be too broad (Light, 2009; Martin & Osberg, 2007; Newbert & Hills, 2014). A definition should serve the practical purpose of keeping together some elements of interest, but leave out those that are not relevant. In this case, keeping together all the entities that pursue social missions, would not serve well the field of social entrepreneurship. Indeed, while every definition of social entrepreneurship does include the primacy of a social mission (Hervieux et al., 2010), no definition is limited to it (Choi & Majumdar, 2014). Many scholars (Martin & Osberg, 2007; Perrini, 2006) agree on three key features of social entrepreneurship: ‘sociality,’ or a central focus on social and environmental outcomes (e.g., health, education, environment, …); ‘innovation’ in the form of new products and services, new processes, or new markets; and a ‘market-orientation’(e.g., market-based solutions, business-like organizations, earned income, financial sustainability….). Lanteri and Perrini (this volume) called a definition with these three elements a ‘minimal’ définition. Despite this emerging consensus among academics, the most influential actors in social entrepreneurship have clustered around two, and different, main definitions (Anderson & Dees, 2006; Luke & Chu, 2013; Teasdale, 2012). One locates social entrepreneurship within social change at large and celebrates the revolutionary individuals variously saluted as ‘hero entrepreneurs,’ ‘social engineers,’ or ‘institutional entrepreneurs,’

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who upset a current equilibrium that they perceive as unjust and establish a new one that is fairer and more socially acceptable. The second emphasizes the marketization of welfare and prioritizes social business models, which result in organizations that pursue social impact through market-oriented activities and which could accommodate corporations pursuing ‘shared value’ strategies (Porter & Kramer, 2011) and ‘social bricoleurs’ who profitably leverage scarce resources to address local issues, sometimes replicating models and methods championed elsewhere by other social entrepreneurs. Lanteri and Perrini (this volume) call these two definitions ‘civic’ and ‘market’ respectively. The supporters of the civic definition, characterize social entrepreneurship through the two elements of sociality and innovation, without market-orientation. On the other hand, there are supporters of the market definition, according to which social entrepreneurship is characterized by sociality and market-orientation, without innovation. Figure 7.1 summarizes the four definitions mentioned (see Lanteri & Perrini, this volume).

Fig. 7.1 Type of definitions (Source Lanteri and Perrini [this volume])

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This academic debate has reached a point where the two major areas of consensus are that there is insufficient consensus to establish one prevailing definition and the search for a definition of social entrepreneurship is showing diminishing returns (Grimes et al., 2013). Nonetheless, a rigorous definition of social entrepreneurship is necessary for practical purposes. For instance, including or excluding candidate incubates in social incubation programs calls for a clear definition, albeit one is very hard to come by in practice (Dart et al., 2010). What Lanteri and Perrini (this volume) call the ‘minimal’ définition amounts to the summation of the defining features of two distinct concepts of social entrepreneurship. Such definition requires socially innovative initiatives to also be profitable and social businesses to also be innovative. In this chapter, we embrace this definition precisely because it is the most restrictive. If an instance of social entrepreneurship meets the requirements of the minimal definition, indeed, it automatically meets the requirements of every other definition as well.

Business Incubator: A Literature Review For business incubators, just like for social entrepreneurship, there exists no universally accepted definition. These organizations are rather heterogeneous and differ in terms of their structures, goals, and services (Von Zedwitz & Grimaldi, 2006). Incubators have evolved over time, adjusting and updating their services to meet the changing needs of startups (Bruneel et al., 2016). While initially incubators emphasized the provision of physical infrastructure and logistic services, their value proposition eventually changed to stress higher added value services, like mentoring and networking. In actual use, the term ‘business incubator’ refers to a range of organizations that in various ways help entrepreneurs develop their enterprises. For this reason, the term has been called ‘an umbrella word’ (Aernoudt, 2004). In this broader sense, it includes science and technology parks, innovation hubs, and co-working spaces. These organizations share the ultimate purpose of supporting entrepreneurship. Science and technology parks and innovation hubs differ from incubators for the stage of enterprise they support. Incubators support early stage enterprises, whereas focus on the later stages, when enterprises are already developed (Aernoudt, 2004; Grimaldi & Grandi, 2005; Hackett & Dilts, 2004).

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Within the more general research field on business incubation, three main areas of analysis can be identified: (1) studies that aim to classify different types of incubators, (2) researches that investigate the characteristics of the incubators and related business incubation process, and (3) those that are mainly focused on the process of incubation (Table 7.1). As an example of studies of the first type, Aernoudt (2004) categorizes incubators according to: main philosophy, main and secondary objectives, sectors involved. The author identifies five different types of incubators: mixed incubators, economic development incubators, technology incubators, social incubators, and basic research incubators. Carayannis and von Zedtwitz (2005) propose an alternative taxonomy and identify five incubator archetypes, depending on their competitive scope and strategic objectives: the university incubator, the independent commercial incubator, the regional business incubator, the company-internal incubator, and the virtual incubator. As for the studies dealing with both the characteristics of the incubators and the incubation process, one of the first frameworks was developed by Smilor (1987), who shows the relevant dimensions of the process, namely: incubator affiliation, support systems, and tenant companies. Vanderstraeten and Matthyssens (2012) conducted an in-depth qualitative study of incubation processes and systems, assets knowledge and capabilities, and culture, in order to investigate incubator differentiation strategies, through the function of customer value creation. Finally, some recent researches focused on the components of the incubation model: selection process, infrastructure, support, mediation, graduation (Bergek & Norrman, 2008; Peters et al., 2004), aiming to identify success factors and areas of value creation. One of the most comprehensive benchmarks on the role of incubators in the European context is that by the Center for Strategy and Evaluation Services for the European Commission (2002). The study identifies best practices, pinpoints critical success factors, and suggests key actions that should be undertaken in setting up and operating business incubators. The proposed framework is based on the input–output model. Inputs are provided by stakeholders (e.g., providing finance), management resources, and projects put forward by entrepreneurs, while outputs refer to successful companies graduate. This model combines the incubator input–output process—characterized by target, tenant selection criteria, exit criteria, and

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Table 7.1 Main literature on business incubators Author/s (year)

Main focus

Objective/s

Banca d’Italia (2014)

General

To identify the characteristics of the incubation process in Italy

Bergek and Norrman (2008) and Peters et al. (2004)

Process

Carayannis and Von Zedtwitz (2005)

Classification

Grimaldi and Grandi (2005)

Classification

Aernoudt (2004)

Classification

Commissione Europea (2002) Vanderstraeten and Matthyssens (2012)

General

Smilor (1987)

General

General

Dimensions/variables

Incubators identity, cost-revenue structure, services, performance indicators, tenant selection process, incubation process To identify successful Selection process, factors and the areas of infrastructure, value creation support, mediation, graduation To synthesize elements Competitive scope and best practices and strategic emanating from the five objectives incubators archetypes To highlight the main Institutional mission, differences between the industrial sector, fourtypes of incubators location, market, and to describe the origin of idea, phase incubating models of intervention, incubation period,sources of revenue, services, management team To identify the Main philosophy, different typologies of main and secondary incubators objectives, sectors involved To develop a Input–output model benchmark analysis To identify Incubation process differentiation strategies and system, assets knowledge and capabilities, and culture Incubator affiliation, To identify the support systems, and dimensions of the tenant companies incubation process

Source Authors’ creation based on survey for the literature on business incubators

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graduation—together with the operational dimensions—training, business advice, financial support technology support, physical space, and networking. Since the empirical part of this chapter investigates social incubators in Italy, we reviewed the literature that specifically focuses on Italy. Italian incubators have seemingly attracted the interest of both researchers and public institutions. One of the first study on the role of incubators in Italy was developed by Von Zedtwitz and Grimaldi (2006). The authors use five incubator archetypes (university, regional business, companyinternal, independent commercial, and virtual incubators) to identify key services and describe their implementation. A more recent study on business incubators based in Italy was developed by the Italian central bank (Banca d’Italia, 2014). The research—that identifies 61 organizations, 58 of which took part in the empirical research—investigates the following dimensions: identity, cost-revenue structure, services, performance indicators, tenant selection process, incubation process. Furthermore, the research explores the tenant perspective by analyzing the characteristics and the role of incubators, the sources of funding, and the obstacles.

What is a Social Incubator? Despite the growing relevance of social incubators, research on this topic is still in its early days. The first studies exploring the social perspective in incubation processes date back to the Nineties, but were confined to the not-for-profit world. Some researches explored how traditional incubation models could support the birth, growth, and long-term survival of notfor-profit organizations in the USA (Vinokur-Kaplan & Connor, 1998). Aernoudt (2004) defines social incubator as an actor aiming to stimulate and support the development, growth, and survival of enterprises that employ resources with limited abilities. The goal of incubators is to fill a social gap, improving employment opportunities for disadvantaged citizens (e.g., disabled, unskilled, long-term unemployed, refugees…), by means of business support and logistic services, for beginners and startups. With the growth of third sector and the increasing attention on social entrepreneurship, incubators began specializing in the social sector. Consequently, the definitions and the features of social business incubators are ever more similar to those of traditional incubators. A social incubator thus becomes a tool to support socially entrepreneurial activities both in the early stage (that is, incubation proper) and growth stage (what

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is usually called acceleration), through consulting and training services (Carrera et al., 2009). Within social business incubation, the British National Endowment for Science, Technology and the Arts (Nesta) singles out the support offered as the critical factor to differentiate between: impact accelerators, co-working spaces, social venture academies, impact angel networks, and social innovation prizes (Nesta, 2014). In an in-depth analysis of the case study of the largest social incubation program in the Middle East, Hmayed et al. (2015) identify the value proposition of social incubators and classify each of the stages of the incubation process according to whether it provides the incubates with financial (e.g., investment, free resources…), human (e.g., training, experts…), or social (e.g., network, local embeddedness, legitimacy and credibility…) capital. The research also discusses the value added of the social incubation process. Another study related to the same social incubator reveals the importance of responding to local conditions and of financing for the success of social enterprises (Lanteri, 2015). Although the existing literature is rather limited (Carrera et al., 2009; Casasnovas & Bruno, 2013; Nicolopoulou et al., 2016), a few clear features of social incubators have been identified: – They support enterprises that tackle a social issue, with an innovative, market-based solution; – They may combine incubation and acceleration programs; – They are strongly connected to the local ecosystem and have strong relationships with several actors in the ecosystem; – They raise awareness, sensitivity, and knowledge of local actors (particularly investors) with respect to the role and the potential of social enterprises; – They either specialize vertically (e.g., within a sector) o by activity (e.g., education); and – They generally perform several activities, like training, tutoring, mentoring, consulting, networking, access to funding and facilities— and all these co-exist with incubation programs strictly speaking. This last feature is arguably the most unique, besides the focus on enterprises with a social mission. Indeed, incubation programs are rarely the core business of these organizations. Instead they are blended with a variety of other services. Social incubators are organizations that promote

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and support innovative and socially or environmentally impactful enterprises, through a broad range of activities and services. We therefore opt for the term social incubator, which emphasizes the mission and the goal of generating positive social impact, common across these organizations, instead of social business incubator, which would limit the scope of activity to a subset of target organizations, on which there is no definitional agreement anyway.

Research Methods In the literature review section, we showed that previous research investigated the profile of the traditional incubators (i.e., mission, legal status, services provided, types of organizations incubated etc.…), the characteristics of the incubation programs, and the process of incubation. Literature on social incubators is scant. Some theoretical contributions aimed to point out the differences between social incubators and traditional incubator in terms of target served and services offered and to provide a definition of what is a social incubator. Starting from these premises we analyze social incubators as social enterprises, and draw implications for both their management and for future research. Consistent with our research questions the study analyses two features of social incubators: the identity of this organizations (legal status, mission, and team)and their business models. The research proceeded as follows. First, we mapped 16 social incubators across Italy. In the second step (i.e., crafting instruments and protocols) information on the chosen case studies are gathered using: – Semi-structured interviews with high-level managers or founders of the incubators; – Multiple sources of secondary information (e.g., corporate documents, websites, and press releases, which provide more accurate and unbiased information). Documentary evidences are considered objectives because they are generated outside the influence of the researcher (Johnston et al., 1999). 14 of the social incubators identified accepted to be interviewed and are included in our study (Table 7.2).

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Table 7.2 Our 14 case studies: location and year of foundation

Name

City

Year of foundation

Coopup Fab Fabriq Impact Hub Bari Impact Hub Firenze Impact Hub Milano Impact Hub Roma Impact Hub Siracusa Impact Hub Trentino Impact Hub Trieste Kilowatt Make a Cube Social Fare Sol.Co

Firenze Pordenone Milano Bari Firenze Milano Roma Siracusa Trento e Rovereto Trieste Bologna Milano Torino Catania

2014 2012 2013 2012 2014 2010 2011 2014 2010 2014 2013 2011 2013 2013

Source Authors’ creation based on for the interviewed 14 case studies

The research is based on the multiple-case (holistic) model, which is especially useful when the research domain is broad and complex and the context is important (Yin, 1989, 2003). This approach is also found to be particularly useful in new research areas. It is therefore particularly well suited to exploratory studies, such as this one, as it is typically used to address ‘how’ and ‘why’ questions. The case studies research process has been structured according to Eisenhardt framework (1989) in the following steps: selecting cases, crafting instruments and protocols, entering the field, analyzing data, shaping hypothesis, enfolding literature, and reaching closure. The lack of an official list of social incubators required primarily the need to map the phenomenon in Italy gathering information from a wide variety of external secondary sources (research reports, white papers, industry publications, websites of industry) and the professional and academic networks. Therefore, the list collected in conducting this research is currently the most complete mapping of the phenomenon of social incubation in Italy.

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Empirical Analysis A recent Italian study (Banca d’Italia, 2014) showed that business incubators, both in Italy and in other Western countries, are mainly initiative promoted by public institutions, local governments, and universities, and they aim to promote entrepreneurship and economic development at a local level. The analysis of Italian social incubators reveals a different scenario. Only one social incubator, FabriQ founded by the City of Milan, is public. The other 13 are private entrepreneurial initiative. In terms of legal status 7 are Limited Liability Companies and 6 are social cooperatives. Another interesting feature is the presence of hybrid organizational solutions (Impact Hub Milan and Bologna Kilowatt). Hybrid organizations are characterized by the simultaneous presence of multiple legal entities, both for-profit and non-profit (Kickul & Lyons, 2020). This phenomenon is very frequent in social entrepreneurship. In this way social entrepreneurs seek to maximize the opportunities offered by the different legal forms in order to achieve both financial viability and social impact maximization. Two of the social incubators, SolCo Catania and Fab Pordenone, were established by existing social cooperatives. For the former, it represents a new services line to support new cooperatives and to increase the impact of the organization at local level. For the latter it’s a self-funded project with a strong social orientation to promote self-employment. CoopUp is a project of Confcooperative, the biggest national network of cooperatives. It provides coworking space and mentoring of new business ideas with the aim to promote cooperative economy to young and new entrepreneurs. The analysis of the missions reveals some distinctive and common elements. Albeit with different nuances related to the context and the history of the organizations, the mission of social incubators can be traced to three main areas: – Generating social change and positive impact in the local community; – Promoting sustainable economic development, through the support to entrepreneurial initiativeswith high social and environmental impact; and – Building a community of social innovators.

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In interviews and documents, the emphasis on the relationship with the territory and communities in which social incubators operate emerges very clearly, together with the aim of to enhancing social change. There is the will to be positive agents of social change, a typical aspect of social entrepreneurship, despite of the wide range of activities performed: services for startups, events and public–private partnerships. The goal of creating a network of social innovators or a community of change makers is also central in the mission of social incubators. In traditional incubators networking is the ability to put startups in contact with potential customers, suppliers, strategic partners and, above all, investors (Scillitoe & Chakrabarti, 2010). In the context of social incubation, it is something more: the network is a community of people that share values, skills, know-how, and resources. Sharing and cooperation are critical to generate ideas, innovation, and social change. Other interesting issues emerge from the analysis of the teams that run the social incubators. The founders are aged between 25 and 50 years and the team composition are very heterogeneous in terms of experience and skills. Many have a professional experience in social fields. Some are professionals (architects, engineers, designers, lawyers, journalists, project managers etc. …) with a strong social orientation, others have humanities studies. Few have a degree in business and work experience in traditional business and finance. Very few teams have people that come from both traditional business experience and a social background or have a blended profile. Table 7.3 summarizes these features.

The Business Model The business model is the set of organizational and strategic solutions through which an enterprise acquires competitive advantage and how firms do business, that is how value is created and captured (Zott et al., 2011). In the literature there are different conceptualizations of what is a business model. Teece (2010: 172) states that “the essence of a business model is in defining the manner by which the enterprise delivers value to customers, entices customers to pay for value, and converts those payments to profit.” Starting from this definition we analyze the business models of social incubators as the manner by which they deliver value to customers and to community, entice customers to pay for value, combine financial viability and social mission. In particular, the interviews focused on the value

Legal status

Cooperative

Social cooperative

Public

LLC

Coopup

Fab

Fabriq

Impact Hub Bari

The identity of social incubators

Name

Table 7.3

It is a project of Confcooperative, the biggest national network of cooperatives. It provides coworking and the incubation of new business ideas with the aim to promote cooperative economy to young and new entrepreneurs in less traditional business sectors It is an initiative of Itaca, a social cooperative. It offers coworking and training to potential social entrepreneurs and unemployed people It’s an incubator of social start up of the City of Milano. It is placed in a low-income area of the city. It provides fellowship programs, events and education initiative for the community It’s a coworking space for social innovators. It organizes events and provide consultant services

Mission

(continued)

Social

Blended

Social

Social

Team profile

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Legal status

LLC

Hybrid structure

LLC

Cooperative

Impact Hub Firenze

Impact Hub Milano

Impact Hub Roma

Impact Hub Siracusa

(continued)

Name

Table 7.3

It is part of the Impact Hub network, it pays particular attention to the issue of circular economy.It offers coworking services, training and has a fellowship program The first Italian Incubator with a focus on startup that generate social, environmental and cultural impact. It offers incubation and acceleration programs, consulting services, coworking, networking It is part of the Impact Hube network. It is a space of coworking dedicated to social innovation. It mainly provides consulting services to start-ups, small businesses and non-profit, and performs networking activities It was founded in 2011 as a social promotion association on social innovation themes, from 2013 it joins the Impact Hub network. It delivers a wide range of start-up support services

Mission

Social

Blended

Economic

Blended

Team profile

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Cooperative

LLC

Hybrid structure

LLC

Social Enterprise LLC

Consortium of Social Cooperatives

Impact Hub Trentino

Impact Hub Trieste

Kilowatt

Make a Cube

Social Fare

Sol.Co

Source Author’s creation based on a community of social innovators

Legal status

Name It is part of the Impact Hub network. It manages coworking spaces in Trento and Rovereto and supports start ups with customized support paths It is part of the Impact Hub network. It offers coworking spaces and a network of professionals and social innovators It is a coworking space. It is aimed at small enterprises and professionals active in the areas of design, sustainable development, digital communication, and creativity It is an incubator of start up with a high social, environmental, and cultural value It is a social innovation center. The mission is to develop and implement ideas, solutions, and networks for the Common Good with a multidisciplinary approach Consortium of cooperatives born in 1994, from 2013 it provides consultant services to social start ups, mainly cooperatives

Mission

Social

Blended

Economic

Social

Social

Blended

Team profile

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proposition of these organization, the key activities and revenue streams. While business incubators are organizations and initiatives that facilitate ‘the early-stage development of firms’ (Hackett & Dilts, 2004: 55) by helping, funding, and services to support new ventures, social incubators have broader missions. Three elements qualify their value proposition: – the availability of equipped spaces and facilities for co-working; – the ability to deliver knowledge-based services (consultancy, incubation, acceleration) to social startups; and – the inclusion of social entrepreneurs in a network where to share values and know how. The common element in all of the social incubators is that they were born as a co-working spaces and networking places for social innovators. Unlike business incubators, these spaces are not conceived as mere infrastructure but as inspiring places where social innovators can exchange ideas, skills and develop relationships useful for the success of their social business. This conception of co-working facilitates the development of a network and the construction of a community. The presence and the variety of value added and knowledge-based services (incubation and acceleration programs, coaching, mentoring, …) seems to depend considerably on the age and history of the organization, the local context, the quality of management team in terms of expertise, network, background and, know-how. The key activities of social incubators are: – – – –

Renting spaces together with shared resources; Network development; Events; Value added services to startups and social entrepreneurs (such as training, business support, coaching, administrative and legal assistance, access to source of funding); – Pre-incubation, incubation, and acceleration programs; and – Value added services for companies or public institutions (consultancy). Renting spaces is the main source of revenue for the generality of incubators (the percentage varies between 30 and 60%) with which often

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they cover fixed costs, followed by consulting activities for companies and public institutions on issues of social innovation, social entrepreneurship, and sustainability (i.e., CSR projects, organization of awards and contest to support social entrepreneurship, definition and implementation of local policies in to promote social innovation). The revenues coming from knowledge-based services delivered to startups or entrepreneurs are marginal. Few social incubators consider incubation and acceleration programs as a source of funding. These programs are fellowships mainly funded by third parties (such as companies, foundations, chambers of commerce, local governments) and not paid for by the startups. Many social incubators offer value added services and incubation programs, but very few social startups and social entrepreneurs seem to be willing to pay for them. Consequently, these services generate marginal revenues streams. The difficulty of paying for these services for social startups remains an issue for the sustainability of the organizations, and represents a challenge for these organizations as social entrepreneurial initiatives.

Discussion and Conclusion The ‘minimal’ definition of social entrepreneurship considers innovation, market-orientation, and sociality as the critical features of social enterprises. The analysis of social incubators with this lens brings out some interesting considerations. As for the concept of innovation, social incubators offer novel and unique services, in response to the opportunities offered by local conditions and existing partners and tailored to the needs of the incubates. Consequently, social incubators fully satisfy the dimension of innovation. The sociality of incubators is related to their ability to generate social impact whereas market orientation to their ability to provide market driven service and seek financial viability. These features are at the core of their business models. Each activity carried out by the social incubator has a social dimension, contribution to the missions, and an economic dimension, impact on the income. With regards to basic activities, the empirical analysis shows that the sustainability of many social incubators relies on co-working spaces, an activity with limited social value. Other activities such as events and networking can have different impact on the organizations. There are events with a low social value, organized by social incubators to raise money, and events with high social value that generate only costs for the organizations. Networking doesn’t have an economic

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impact but the social value added depends on the context, the dimensions of the incubator, and the quality of the team. The oldest and biggest incubators (i.e. Impact Hub Milano, make a Cube,) have a vast network and to offer their social entrepreneurs’ access to a large community. Value added services are potentially that ones can generate high social impact. The empirical analysis shows that social enterprises and social entrepreneurs are not willing to pay for them. This can have different explanation (i.e. the local context or social incubators cannot deliver effective value-added services) but it reveals the ‘sociality’ of the target of these incubators: the low-profit business model of the social enterprise cannot allow them to pay for these services. This is why these kinds of services, in particular incubation and acceleration programs, are fellowships programs funded by public institutions and company. For some incubators (i.e. Socialfare, IH Firenze, IH Roma, Make a Cube) consulting activities are relevant in terms of revenues. Yet, while the impact on revenues is substantial, the social impact of these projects varies significantly from case to case. Only for few organizations value added services offer both high social and economic impact. By crossing these two dimensions (sociality and market orientation), we can develop a matrix where different typologies of business models can be defined (Fig. 7.2). The main findings of this research directly address our research questions: RQ1. Are social business incubators social enterprises? RQ2. What kind of social incubators business models can be identified? Social incubators are social enterprises. As such they deliberately pursue social impact, through innovative, market-based solutions. However, only some of them appear to successfully reach these ambitious goals. Some of the social incubators come short of delivering the full extent of social impact they claim to be pursuing. Instead, they seem to focus mostly on the provision of co-working spaces, while they fail to successfully monetize their more socially impactful activities. From the case studies, it also emerges that social incubators managed by social teams generally offer low value-added services or commercial services. The social incubators managed by blended teams seem more successful in providing fellowship and social incubation programmes. Admittedly, this research has some limitations. The cases investigated come from a single country and, as such, possibly reflect local conditions that are not present elsewhere in Europe. Future research should investigate European and international social incubators to measure any

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Fig. 7.2 Social incubators business models (Source Author’s creation based on different typologies of business models)

significant regional effect in their mission and business model. Besides, all of the cases are very young, and as such might still be in the process of fine-tuning their operating models. So, it is possible that our findings will face rapid obsolescence. This is a risk intrinsic in studying a novel phenomenon. The value of this research lies in offering a new framework to investigate the growing phenomenon of social incubation and in identifying some early trends and findings. Moreover, acknowledging that they are social enterprises creates a more rigorous set of expectations for social incubators, against which it is possible to measure success—and therefore long-term viability and sustainability. That social incubators are social enterprises entail that they should be managed professionally and should be held accountable to the same expectations and standards as the social enterprises they support.

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CHAPTER 8

The Linkages Between Immigration, Diversity, and Innovation: Mobility of Knowledge and Experiences

Mehmet Gökay Özerim

and Elif Çetin

Migration has been a heavily debated issue in many of the contemporary societies due to its’ remarkable impact on social, political, and economic spheres both for migrant populations and host communities. However, there has been a growing tendency in recent years as to casting a role for migrants and migration through the lenses of security-based concerns rather than its’ humanitarian dimension and positive outcomes. Meanwhile, this tendency overshadows the contribution of migration to the societies by only spotlighting the side effects and adverse outcomes of

M. G. Özerim (B) · E. Çetin Department of International Relations, Ya¸sar University, Izmir, Turkey e-mail: [email protected] E. Çetin e-mail: [email protected] E. Çetin University of Cambridge, Cambridge, UK © The Author(s), under exclusive license to Springer Nature Switzerland AG 2021 M. Ince-Yenilmez and B. Darici (eds.), Engines of Economic Prosperity, https://doi.org/10.1007/978-3-030-76088-5_8

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migratory flows. Beyond all these debates, there are several studies and reports demonstrating that migration, and also diversity in societies as an outcome of this process, might be a positive factor for development and growth. Within this framework, one of the recently growing research areas, which the studies on the development-migration nexus have been discussing, concerns the connection between immigration and innovation. In this regard, the US and the EU could be listed as the distinctive cases as they both experience the innovative contribution of immigration and seek to develop relevant policies and strategies to keep these processes sustainable. Against this background, this chapter investigates the main factors that create linkages between immigration and innovation by discussing the influence of /policies and historical processes on the development of these connections in the US and the EU.

Introduction Migration has been a heavily debated issue in many of the contemporary societies due to its’ remarkable impact on social, political, and economic spheres both for migrant populations and host communities. However, there has been a growing tendency in recent years as to casting a role for migrants and migration through the lenses of security-based concerns rather than its’ humanitarian dimension and positive outcomes. For instance, immigration continuously appears as the most critical concern of the EU citizens for the last three years (Eurobarometer, 2020) and this is highly interlinked with the anxieties of the public about external borders, security, and social problems. Meanwhile, this tendency overshadows the contribution of migration to the societies by only spotlighting the side effects and adverse outcomes of migratory flows. Beyond all these debates, there are several studies and reports demonstrating that migration, and also diversity in societies as an outcome of this process, might be a positive factor for development and growth. Within this framework, one of the recently growing research areas, which the studies on the development-migration nexus have been discussing, concerns the connection between immigration and innovation. In the relevant academic literature discussing the contributions of immigration flows, foreign direct investments, and qualified—skilled labour force of brain drain have been the most popular issues for many years. Together with these issues, innovation, transfer of knowledge, and

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experience are also worth mentioning in order to present an overall picture by considering the other dimensions of immigration. The nexus between migration and innovation is also highly related to the changing dynamics of migratory flows as much as the transformation of the production and labour systems by the impact of globalisation, technological developments, and social dynamics. Based on the studies, which analyse this nexus, Lissoni (2018) wraps up relevant discussions under three debate areas. The first area juxtaposes the knowledge transfer outcomes of ‘migration and mobility’ by exploring the distinction between these two different processes and by highlighting the differences due to permanency and settlement in the migration process. The second area discusses the ‘direction of the knowledge transfer’ by arguing that the transfer is bilateral (both from origin to destination and destination to origin) rather than unilateral as mostly expected. The third and the last debate area is related to the ‘content of the transferred knowledge’ and questions whether the only content itself is adequate to transform knowledge into innovation. In this regard, the US and the EU could be listed as the distinctive cases as they both experience the innovative contribution of immigration and seek to develop relevant policies and strategies to keep these processes sustainable. The US is an immigration country that attracted around 30 million immigrants just between the end of the nineteenth century and the first quarter of the twentieth century. Pluralism and diversity are accepted as the founding principles of the country, which led to remarkable outcomes for its’ innovation ecosystem. On the other hand, the European Union (EU) presents another notable example of diversity both as a result of intra-European migration and also labour migration from third countries, which fundamentally shaped the post-world war economic recovery years of the many western and northern European countries. In the EU, the contributions of immigration have been mostly discussed in terms of ‘skilled labour immigrants’. A study about the linkage between innovation, migration, and cultural diversity in 20 different European countries (Bosetti et al., 2012) demonstrates that diversity of skilled professions developed through immigration directly and positively affects ‘knowledge creation’. Another study, which is based on the cases of the US, Great Britain, Germany, and Canada lists the major ‘immigrant driven innovation sectors’ in these countries as chemical, communications, medical, electrical, and mechanical, and reveals that the contribution weight of the immigrant inventors in electricity and chemicals sectors of the US, which

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is calculated according to the number of patents, is more than 10 per cent (Akcigit et al., 2017). Against this background, this chapter investigates the main factors that create linkages between immigration and innovation by discussing the influence of /policies and historical processes on the development of these connections in the US and the EU.

What Makes Migration an Element of Innovation? Discussing the Linkages Between Migration, Diversity, and Innovation In the migration literature, there has been a growing interest for understanding and explaining various different impacts of immigration on receiving countries. Yet, as Hunt and Gauthier-Loiselle (2010: 31) note, while the implications of migratory arrivals for receiving countries and societies have been analysed with reference to ‘population growth, skill composition, internal migration, wages, rents, taxes, and the ethnic and income composition of neighbourhoods and schools’, the connection between immigration and innovation has been left relatively unexplored. In a similar vein, Niebuhr (2010: 563) also notes that many of the studies that analyse the economic impact of immigration mostly focused on understanding whether immigrants lower down native workers’ wages and increase their unemployment, without reflecting much on how immigration affects innovative capacity of the receiving country. Despite the tight race among global economies to claim the title of being the ‘most innovative’, there is still a lot to be understood about the dynamics and processes that foster innovation. Therefore, as outlined in the introduction of this chapter, it is both timely and relevant to delve further into the nexus between immigration and innovation. As Venturini et al. (2018: 152) point out, innovation is a ‘very evocative word’ making it difficult to define. In this chapter, we adopt the definition provided in the OECD’s Oslo Manual (2005: 16), which refers to innovation as comprising the ‘introduction of a new product or a qualitative change in an existing product; process innovation new to an industry; the opening of a new market; development of new sources of supply for raw materials or other inputs; changes in industrial organisation’. While measuring the innovative capacity of an industry or a country’s economy, number of patent applications constitutes an important indicator (Bosetti et al., 2015; Parrotta et al., 2012; Venturini et al.,

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2018). On this point, Venturini et al. (2018: 153) note that ‘the number of patent applications is more accurately a measure of potential innovation, because they do not account for the actual market success of an invention’. They add that the growth of Total Factor Productivity (TFP) is another, more commonly referred, measure of innovation as it is closer to a measure of the results of a patented product. While there is limited amount of academic literature that specifically focuses on the relationship between migration and innovation (Bosetti et al., 2015; Fassio et al., 2019; Hunt & Gauthier-Loiselle, 2010; Kerr & Lincoln, 2008; Niebuhr, 2010; Venturini et al., 2018), a commonly emphasised point in these studies is that there is a positive relationship between skilled immigration and innovation. In particular, these studies argue that skilled and highly skilled immigrants appear to boost innovation in receiving countries’ economies (Brunello et al., 2007; Chellaraj et al., 2008; Hunt, 2011; Hunt & Gauthier-Loiselle, 2010; Niebuhr, 2010). For instance, focusing on the US as a case study, Hunt and GauthierLoiselle (2010: 32) investigate the effects of immigration on innovation, which they measure by looking into US patents per capita as an indicator of ‘technological progress, a driver of productivity growth, and … economic growth’. They underline that immigration does not automatically spur innovation and point out the following two important variables that can possibly turn immigration into a catalyser of innovation: (i) the total number; and (ii) type of immigration. Their research results show that skilled immigration to the US led to a boost in innovation during 1940–2000 via ‘positive spill overs on fellow researchers, the achievement of critical mass in specialised research areas, and the provision of complementary skills such as management and entrepreneurship’ (ibid.: 31). Apart from the fact that different groups of migrants have different levels of contribution to receiving country’s economy, there are some variations also when it comes to skilled immigrants’ contributions that boost innovation. In a study aimed at identifying how immigrants take part in activities contributing to the US economy’s productivity according to the type of visas they had when they first entered the US, Hunt (2011) argues that not every migrant contributes to innovation equally. She indicates that post-doctoral fellows, medical residents, and graduate students are the top three groups of migrants that contribute the US innovation the most, who are followed by ‘temporary work visa holders, college

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students, other students/trainees, legal permanent residents, dependents of temporary visa holders, and other temporary visa holders’ (ibid.: 445). Similarly, analysing the impact of skilled migration on innovation in European industries with a specific reference to the UK, Germany, and France as case studies, Fassio et al. (2019: 717) note that skilled immigrants promote innovation, especially in sectors that are more ethnically diverse, have high-level of Foreign Direct Investments (FDIs) and are more open to international trade.

Understanding Diversity as a Factor of Innovation When it comes to understanding how migration could particularly boost innovation, a remarkable point to consider is the synergy created by more ethnically and culturally diverse work environments resulting from migration. In this regard, diversity might be considered as one of the direct consequences of international migration processes, which is highly associated with the discussion on the innovative impact of migratory flows. Migrants, who have a different background than native labour force due to their country of origin and/or ethnic origin, can bring different perspectives to the table when it comes to identifying and addressing a problem (Alesina & La Ferrara, 2005; Audretsch et al., 2010; Berliant & Fujita, 2008; Fujita & Weber, 2004; Niebuhr, 2010; Venturini et al., 2018). The impact of diversity on innovation has been discussed for many years and it is considered as an element that should not be ignored, especially when analysing the effects of labour migration. According to the data of the International Labour Organization, the number of migrant workers is approximately 164 million by 2020. Due to the increasing visibility and importance of the issue, the International Labour Organization published a guide titled ‘Promoting Diversity and Inclusion Through Workplace Adjustments’ in 2016. However, in terms of historical processes, migration might be one of the most important factors affecting diversity, but it is not the only one. It is interesting to note that diversity in the labour market first started to be discussed with the increasing inclusion of women in business life over the concept of gender (Pilati et al., 2015: 4). Over time, its area of usage has expanded in terms of business and started to be used for different groups. As a debated issue in contemporary societies, diversity might be interpreted from different angles in terms of its’ definition. Roughly, it is

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a phenomenon, which is analysed in the context of the social, economic, or cultural realms. In his literature review on the subject, Mirbabayev (2015: 106) similarly reveals that academic studies examining the relationship between innovation and diversity focus on different dimensions of diversity. At the same time, he emphasises the fact that most of the academic studies on this issue focus on economic diversity rather than ethnic or cultural diversity (Mirbabayev, 2015: 109). The definition of cultural diversity includes many different elements and the place of birth, citizenship, religion, ethnic origin, or language might be an underlying cause of this diversity (Özgen et al., 2014: 386). Cultural diversity generated as a result of immigration could be beneficial in terms of leading to innovation and creativity since new products and ideas flourish better in contexts that involve a variety in abilities and knowledge (Alesina & La Ferrara, 2005; Berliant & Fujita, 2008; Fujita & Weber, 2004). Beyond these debates about its’ definition, the concept of diversity is also examined under the concept of ‘workplace diversity’ when it is considered within the scope of business life and management processes. Today, some companies and organisations accept diversity as a basic principle in their recruitment processes. Therefore, apart from the numerical values of the process, there is also a commitment dimension based on mutual respect for different characteristics of individuals (Cletus et al., 2018: 37). Moreover, diversity is often associated with the numbers and presence of different individuals within a given group or population in terms of age, race, ethnicity, colour, gender, religion, economic status, or sexual orientation. Nonetheless, the existence of different individuals and the quantitative aspect composes the only one side of the coin, and at the same time, the concept of diversity implies the inclusion of all individuals with their all differences. Therefore, the concept of diversity is often considered together with the concept of inclusion. Howbeit, to have a positive impact on innovation, certain conditions and factors should be present about diversity. How well a migrant is integrated into the receiving society is one of these factors. Niebuhr (2010) argues that cultural diversity at workplace could be beneficial, if migrants are well-integrated into their host country. On the contrary, if migrants are discriminated or marginalised, then cultural diversity can inflict high costs. Complementarity among different migrants’ talents and skills is another important factor (Lazear, 2000). To give an example, examining the connections between high-skilled immigration and innovation, Venturini et al. (2018: 156) underline that cultural diversity might

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provide an appropriate context for ‘different visions and ideas’ to flourish, and thus can pave the way for innovation. Yet, they also add that for cultural diversity to have a positive impact on innovation there should also be complementarity, meaning migrants should also ‘have different talents that make them productive in different sectors’ (ibid.). Diversity is considered as particularly important for generating critical thinking processes within companies, as it is an element that includes different perspectives in production and creation processes. Özgen et al. (2014: 380) state that the transformation of the company-oriented perspective to the employee-oriented perspective on innovation processes makes diversity more debated as an element of innovation. In this regard, the relationship of diversity with different factors that initiate innovation is an important research topic. Entrepreneurship and competitiveness might be considered as two leading factors. It is argued that diversity is also a factor that creates competitiveness and therefore contributes to innovation by increasing entrepreneurship (Alexandre-Leclair, 2014: 157). In fact, the three predecessors of innovation before innovation are characterised as major achievements of diversity. These factors are increasing productivity, increasing creativity, and profit maximisation (Cletus et al., 2018: 39). Another important issue that might be addressed while examining the relationship between diversity and innovation is the level at which innovation occurs. For example, Lee (2015), examined the effect of the relationship between diversity and innovation at the firm-level and at the city-level. Therefore, the impact on innovation works not only at the state level but as a bottom-up process at a more micro level. However, the studies demonstrate two crucial facts about the linkage between diversity and innovation. Firstly, the positive relationship between diversity and innovation do not occur spontaneously. Well-designed policies on this subject might play an encouraging or restrictive role both at the state level and at the corporate level. Secondly, cultural diversity is not always discussed as an advantage in the current academic literature. Cultural distance and competition are listed as two important barriers while discussing the role of diversity. For this reason, policies of governments and companies that encourage diversity, as well as policies that can establish and encourage dialogue in multicultural work environments, are important. Ozman and Erdil (2013) also examined the concept of cultural diversity in terms of its interaction with the concept of knowledge diversity. In this context, they highlight the effect of social networks

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(networks) and technological opportunities as a remarkable element in creating innovation in the process. This data reveals that cultural diversity does not directly create innovation and certain triggering factors must also be present. In this context, studies on the concepts of ‘cross-cultural innovation teams’ and ‘cross-cultural management’ underline the importance of the management process in order to understand the advantages and prevent the disadvantages of diversity. At this point, the approaches of individuals as well as the policies and practices of states and companies regarding diversity play a determining role. For instance, Bouncken et al. (2008) examined the importance of individuals’ approaches on this issue based on the concept of ‘cultural sensitivity’ and claimed that cultural sensitivity and diversity of perception will develop in different ways in cross cultural teams for innovation. This situation directly affects the innovation potential where it can create diversity. The analysis of the relationship between diversity and innovation is not limited to the discussions in academic literature. The United Nations 2030 Agenda for Sustainable Development also recognises that cultural diversity is one of the key elements of economic development. Within this framework, an important expectation from the targets related to the ‘developing more inclusive cities’ under Sustainable Development Goals is that to benefit from diversity as an incubator for innovation and new technologies. Based on this background, the reminder of this chapter will examine and exemplify the reflections of this linkage by taking two distinctive geographies as cases. These cases are the EU and the US. These two particular cases are selected due to their being the prominent migrant destinations and also due to the impact of migrant labour and innovation in their economies and histories.

Migration and Innovation Nexus in the EU Ageing is a dominant trend within European societies, and it has been having some profound impacts in different spheres of life, including economy. The growing share of the elderly and shrinking of populations create demand for both permanent and temporary immigrant workers in Europe. Europe has already been facing a challenge from the rising World powers such as India and China in the field of economic growth and innovation (Venturini et al., 2018: 152). Migrants, especially the highly skilled

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ones, who are relatively young with longer working lifetime, carry the potential for helping countries to develop a competitive edge by boosting these countries’ innovative capacity (ibid.). For instance, Bosetti et al. (2015) note that skilled migration contributes to knowledge production in Europe. Through an analysis of the impact of skilled migration in 20 different European countries during 1995–2008, they suggest that strategies that aim at attracting skilled migrants to Europe and employing them in sectors in accordance with their skills (i.e. research sector) will help improve the EU competitiveness in innovation (ibid.: 311). They use the number of patent applications and the number of citations to published articles as indicators to measure the impact of skilled migration to the innovative capacity of the selected European countries, and point out that skilled migrants contribute both to the development of ‘industrially applicable innovations and … more general abstract knowledge’ (ibid.: 320). Due to such innovative potential of high-skilled immigrants, there has been a global ‘battle for brains’ (Collett, 2008) where countries have been trying to attract the so-called best and the brightest. On the EU front, these efforts to attract global talent were translated into the Blue Card Directive, or officially known as the ‘Council Directive 2009/50/EC on the conditions of entry and residence of third-country nationals for the purposes of highly qualified employment’. In 2007, the European Commission (EC) noted that by 2050 the total population of the EU would decrease by ‘48 million’ (EC, 2007a), which would eventually limit the potential of economic and GDP growth (ibid.). The same EC document highlighted the growing need for highly skilled workers in the EU labour market, which could hardly be met by relying exclusively on EU labour force (ibid.). Nonetheless, by that time the majority of the highly skilled were attracted more towards traditional settlement countries such as US, Australia, and Canada, instead of the EU. As reflected through the words of some the highest EC officials, such José Manuel Barroso, the then EC President and Justice Commissioner Franco Frattini, the EC was seeking to project a welcoming image towards highskilled migrants (EC, 2007b), and was trying to make the EU ‘at least as attractive as favourite migration destinations such as Australia, Canada, and the US’ (ibid.). Against this background, it does not come up as a surprise that the EC proposed the Blue Card Directive in 2007 in order to make the EU more attractive for highly qualified immigrants. The Directive

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sought to harmonise entry procedures and residency conditions of highskilled migrants arriving to the EU countries and facilitate their mobility through Europe. Given that European states face similar challenges such as ‘demand for skills in a knowledge-based economy, ageing populations, strains on welfare provisions, and public anxieties about the impacts of immigration’ (Boswell & Geddes, 2011: 81), they ‘supported overall the recruitment of high-skilled immigrants and the establishment of common rules’ (EC, 2007a). Nevertheless, it still took 19 months before the Directive could enter into force. One major obstacle resulted due to the fact that the nationals of the Central and Eastern European Countries (CEECs), which joined the EU in 2004, were still largely subject to transitional restrictions in terms of having access to labour markets of the other EU Member States and were not included into the Blue Card proposal. So, limiting the free movement workers from these CEECs while facilitating labour migration of third-country nationals led to some political tensions in the Council (Guild, 2007: 2). When the proposed Commission Directive finally entered into force on 19 June 2009, some viewed it as ‘a positive first step in the direction of fostering European innovativeness and competitiveness’ Bosetti et al. (2015: 321) whereas some took it as a policy move carrying mainly a symbolic meaning (Boswell & Geddes, 2011: 96). In terms of its attractiveness, the Blue Card initiative suffer a number of constraints and ‘has failed to meet its ambitions’ (Bellini, 2016: 5). To begin with, even though the Blue Card was publicised in a way to mirror the American Green Card, it does not ‘offer the security of residence and access to the labour market, and does not create a right of entry for a migrant worker’ (Guild, 2007: 4). As ‘it offers access to only one EU state at a time, not free mobility within the European single market’ (Melander, 2008), its attractiveness and competitive potential with the US Green Card is diminished. Moreover, after the economic depression following the global crisis, European labour market lost its attractiveness as the need for high skilled migrants went down (Bellini, 2016; Cerna, 2014). Furthermore, regarding the implementation of the specific provisions of the Blue Card Directive, Member States continued to enjoy a large space for manoeuvring. Immigration systems of the individual Members States were left intact without any harmonisation taking place ‘in the traditional EU sense, which seeks to break down barriers and differences between the various national regulatory systems across Europe’ (Collett, 2008: 1).

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As a result, Member States are still at the driving seat when it comes to deciding the number and type of immigrants to be allowed to domestic labour markets. National governments are hesitant to share their sovereignty with the EU institutions for a harmonised labour migration system to emerge and, thus, there are still broad differences among them on a number of crucial points. One of the key differences concern the recognition of qualifications and skills of third-country nationals. Even though the European Qualifications Framework (EQF) was set up in 2008, and later revised in 2017, in order to promote ‘the learning outcomes orientation, transparency of qualifications and … mobility across national borders, employment sectors, and educational sectors’ (Bohlinger, 2019: 393), there is ‘little evidence’ that EQF addressed effectively the difficulties it was created for (ibid.). Therefore, a degree that is recognised by one Member State as meriting a Blue Card might be rejected by another Member State (Collett, 2008). Wage levels have been another issue difficult to harmonise. While the recommended wage threshold for the Blue Card is ‘three times the national minimum wage… the minimum wage varies hugely across EU Member States’ (ibid.: 2). Gaps among Member States regarding advancement opportunities available to high-skilled migrants and welfare systems also create additional setbacks to the effectiveness of the Blue Card. To sum up, the Blue Card carries the potential to improve ‘the rights granted to the migrant and to his family as well as to facilitate the conditions for residence’ (Bellini, 2016: 5). Nevertheless, as discussed above, due to the several loopholes involved in its implementation, it has failed to fulfil the aim of turning the EU into an attraction hub for highly qualified third-country nationals. Furthermore, it does not have any influence over some other factors that shape decisions regarding where to migrate such as language, salary level, quality of life, business culture, historical ties, and existing communities (ibid.). Therefore, the EU needs to devise a new and more systematically implemented policy instrument for attracting global talent by truly harmonising economic migration among the Member States. Failure to do so will highlight the ‘weaknesses in European institutions and the limits of further integration’ (Cerna, 2014: 88).

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Migration and Innovation Nexus in the US The US might be considered as an exceptional country when discussing immigration since being a country of immigration and the diversity that migratory flows brought are the constituting elements of the US as the country that hosts the highest number of immigrants in the world. Especially the period called the ‘age of mass migration’ that started around 1870 and lasted until 1920 was crucially important in terms of determining both the US population structure, and the political and economic elements of this country. As a result of the migratory flows within this period, the international immigrant population has reached about 14% of the US population (Campo, 2020: 7). In this period, when approximately 30 million people immigrated to the US, the source of the arrivals was mainly Europe. While dealing with the relationship between innovation and immigrants in the US, the most frequently referred discussions are related to the effect of migration movements on human capital accumulation, and the role of this accumulation as the triggering factor of innovation. Therefore, it is assumed that migration might provide the transfer of individuals with different qualities and their experiences to the US during the nineteenth and twentieth centuries, even including leading inventors such as Alexander Graham Bell, Nikola Tesla, and Thomas Edison (Akcigit et al., 2017). Another important dimension of innovation discussed in the academic literature is entrepreneurship, and innovation can only be realised through direct immigrant inventors and companies that they have established. For instance, the data shows that about half of the company on the Fortune List, and about a quarter of new companies in the US were founded by immigrants or their children (Glennon, 2020). The case of the US does not simply show and exemplify that diversity is a factor that increases innovation. In addition, innovators mostly prefer migrating to the countries where they will feel more comfortable in terms of production, accessing more opportunities, and having a better economic situation. In this context, the US has been an important destination country for foreign scientists for many years, both with respect to its education system and its extensive industrial facilities (Breschi et al., 2017). Therefore, the US might be defined as a country where many different elements such as educational opportunities, infrastructure, appropriate legal regulations, and opportunities come together successfully for the creation of innovation. Consequently, the brain drain

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problem of other countries has turned into brain gain for the US and, in a sense, has been an element that positively affects innovation in the country. Moreover, immigrants contributed positively to the innovation market in the US not only with their own inventions and activities, but also with their effects on domestic inventors (Akcigit et al., 2017). While discussing the relationship between innovation and immigration in the case of the US, the study of Campo and others examining the immigration to the US from 1870 to 1920 is worth noting. The study argues and demonstrates the effect of educated people, whom he calls ‘immigrant inventors’, together with unqualified immigrants, on inventions in the US. Similarly, some other studies claim that between 1976 and 2012, immigrants accounted for approximately 16% of US inventors and 30% of inventions originating from the US (Bernstain et al., 2018). However, these studies also reveal that restrictions and quotas in immigration laws negatively affected the innovation capacity of the US and caused a decrease in the number of patents during the history of the country (Doran & Yoon, 2020). In this regard, one might question the factors that promote the innovation potential of immigrants coming to the US. Campo et al. highlight the fact that the US patent system is less costly and easy compared to European countries which acts as a facilitating factor (Campo, 2020). Therefore, facilitation in the patent systems might be listed as one of these leading factors. Educational opportunities stand out as another factor. Immigration for education still constitutes an important part of immigration to the US. Those who are trained in this education system can stay in the country by settling in certain sectors. In addition to undergraduate education, the US is also a popular country for postgraduate education and post-doctoral research processes. Especially, the naturalisation law, which was adopted by the country in 1802, paved the way to citizenship for those who have resided in the country for more than 5 years, and provided an important opportunity for obtaining permanent citizenship of those who came through education. In their empirical study, Chellaraj et al. (2008) revealed a positive correlation between the international university graduate enrollment at universities in the US and the number of patents issued from that university (Chellaraj et al., 2008). According to their research, a 10% increase in the number of foreign graduate students increases the patent applications of the relevant university by at least 4.5%. Similarly, Özgen et al., based on academic studies and researches on the subject, confirm that the increase

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in foreign students and the increase in patents in the US is parallel to the 1990 Immigration Act has brought a positive effect on innovation in the US (Özgen et al., 2014: 388). Despite the enactment of many laws that restrict immigration, especially by the political decisions of the Trump administration, the attraction of the US education and research market has been still making country one of the most preferred destinations by the arrival of more talented students from different countries. Therefore, the skills and competencies of the immigrants coming through education is effective in innovation in the US by coming together with the structural opportunities in the country such as support for patent processes especially for graduate researchers, advanced research infrastructures, publications, and wide research networks (Siekierski et al., 2018). Another distinctive characteristics and practice of the US to benefit from diversity policies is the ‘Green Card Lottery’, which allows approximately 55 thousand people to gain the right to permanent settlement and work in the US every year. This program, which is mostly known as the ‘Green Card Lottery’, is actually a part of the Diversity Visa Program and has been implemented since 1990. In line with the anti-immigration policies, Trump administration has been working on restrictions on the Green Card application processes while introducing new restrictions on Worker visa in June 2020. However, this program has been seen as a way of contributing to the US labour force as well as preserving diversity as the founding value of the country.

Conclusion Building on these works, we recognise that immigration and diversity, in particular skilled immigration, and diversity emanating from it, can contribute to innovative capacity of a country significantly. Immigration and the resulting diversity could enhance innovation and creativity by creating a variety in abilities and knowledge. However, while the heterogeneity of people is vital for the flourishing of new ideas and knowledge creation, it is not an automatic process that can be taken for granted. For immigration and cultural diversity to be translated into innovative ideas, there should be complementarity where knowledge and capabilities of different individuals would complement each other; and will not completely overlap.

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Furthermore, research shows us that highly skilled immigrants, who are employed in line with their talents and capabilities, and who are also well integrated into their societies, carry the highest potential for fostering innovation. This also highlights the important role played by institutions and regulatory frameworks developed by them in terms of bringing out most of the economic potential of high-skilled immigrants. The EU and the US have been competing with traditional settler countries together with the countries like Canada and Australia for attracting ‘the best and the brightest’, and more recently has also been facing a challenge imposed by India and China in the ‘global war for talent’. Yet, immigration has turned into a highly contentious and politicised topic in most of the immigrant-receiving countries of the Global West. In parallel with growing public support for populist, anti-immigrant political parties, mainstream political parties are becoming increasingly worried about appearing to as too liberal towards immigration in the public eye. The polarised tone of political and media debates on the issue leads to further tightening of immigration controls while at the same time setting barriers to open and honest discussions about job markets’ demand for further immigration. As a result, even though policy initiatives are sometimes introduced in order to attract skilled economic immigrants, putting these policies into practice could turn out to be rather difficult which the EU and the US are recently representative of such a policy conundrum.

References Akcigit, U., Grigsby, J., & Nicholas, T. (2017). Immigration and the rise of American ingenuity. American Economic Review, 107 (5), 327–331. Alesina, A., & La Ferrara, E. (2005). Ethnic diversity and economic performance. Journal of Economic Literature, 43(3), 762–800. Alexandre-Leclair, L. (2014). Diversity as a motive for entrepreneurship?: The case of gender, culture and ethnicity. Journal of Innovation Economics Management, 2, 157–175. Audretsch, D., Dohse, D., & Niebuhr, A. (2010). Cultural diversity and entrepreneurship: A regional analysis for Germany. The Annals of Regional Science, 45, 55–85. Bellini, S. (2016). EU Blue Card: A promising tool among labour migration policies? A comparative analysis of selected countries (Working Paper, No. 76/2016). Hochschule für Wirtschaft und Recht Berlin, Institute for International Political Economy (IPE), Berlin.

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CHAPTER 9

Entrepreneurship in the Health Care System in Poland: Selected Issues Jacek Klich

The aim of the chapter is to identify the main obstacles to entrepreneurial initiatives and activities in the health care sector in Poland after the economic and political transformation of 1989. A review of the literature (desk-top analysis) enriched by statistical data. The chapter starts from a concise picture of Semashko model of health care inherited from the Soviet era. Then key features of the health care reform initiated in 1999 are presented accompanied by the development of the private sector in primary care, ambulatory care, stomatology, and wholesale of pharmaceuticals since 1989. Then commercialization of public independent health care providers (mainly in in-patient care) is presented followed by the current financial condition of those public independent health care providers which were not restructured/commercialized thus remain public. The summary of the development of the private

J. Klich (B) Department of Public Economy and Administration, Cracow University of Economics, Kraków, Poland e-mail: [email protected] © The Author(s), under exclusive license to Springer Nature Switzerland AG 2021 M. Ince-Yenilmez and B. Darici (eds.), Engines of Economic Prosperity, https://doi.org/10.1007/978-3-030-76088-5_9

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sector in the health care system and identification of the main obstacles to entrepreneurial initiatives complete the chapter. Entrepreneurial activities (establishment of private practices) are observed in primary and ambulatory care services as well as in stomatology and wholesale of pharmaceuticals. These segments of the Polish health care system perform effectively and efficiently and are positively evaluated by patients. The opposite can be seen in in-patient (hospital) care. Here public health care providers prevail, their managers are not motivated to act effectively, there is no room for intrapreneurship and/or entrepreneurial undertakings. Consequently, this part of the health care system is heavily indebted and inefficient which takes the form of waiting lists and lower quality of care. Entrepreneurial activities are being undertaken and performed only where property rights are precisely defined and effectively executed, i.e. where basic conditions for setting up private establishments are met.

Introduction Poland with 38 million population belongs to medium-sized European Union countries. As it was diagnosed over decades of economic and political transformation (Jackson et al., 2005), Poland showed considerable entrepreneurial potential (Jackson et al, 1999; Samborska et al., 2007). This was acknowledged by the Polish Ministry of Economy which stated that: “Entrepreneurship plays a crucial role in the economic development. Without the willingness to take risks, eagerness for self-fulfilment, creativity, flexibility, or innovativeness, i.e. without features characteristic of the so-called entrepreneurial spirit, it is difficult to imagine the economic success of a single company or of the entire economy” (Ministry of Economy, 2006: 5). There are several ways entrepreneurship can be measured—among others—by the number of private small and medium-sized enterprises (SMEs), their dynamics, share in GDP and in the labour market. In 2017 there were 2.08 million SMEs as compared to 1.79 million in 2008. Between 2008 and 2017 the number of newly created firms exceeded the number of liquidated ones (Zakrzewski & Skowronska, ´ 2019: 6). As in other European Union countries, micro firms prevail in the structure of enterprises registered in Poland. In 2017 micro enterprises (up to 9 employees) had 96.5% share followed by medium-sized (2.6%), while big enterprises (with 250 employees or more) represented 0.9% of the total number of firms registered in Poland (PARP, 2019: 5).

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The share of SMEs in GDP between 2008 and 2016 showed an increase from 47.2 to 49.8%. Despite the fact that SMEs noticed 57.5% share in the labour market in 2017 they cannot be perceived as dominating on the labour market since big enterprises with their 0.9% share in the number of firms is compared to their 42.5% share in the labour market (Zakrzewski & Skowronska, ´ 2019: 6). SMEs important role in the Polish economy notwithstanding, one should acknowledge a comparatively low level of SMEs innovativeness, especially of micro firms. The condition of the Polish economy (dominated by SMEs) is—generally—positively evaluated. The recent European Commission assessment of progress on structural reforms, prevention and correction of macroeconomic imbalances, and results of in-depth reviews says that “Poland is enjoying good economic times…” and “The Polish economy continued to enjoy strong economic growth…” (European Commission, 2019: 3). Since entrepreneurial activities in (mainly) industry, reduced to SMEs contribution to GDP and labour market can be seen as leveraging economic growth it is interesting to look at other areas where entrepreneurship can contribute to their growth, like for example higher education (Klich, 2002) or health care sector (Klich, 2007). Out of these two, the Polish health care sector seems to be more attractive for analysis (especially for foreign readers). It is because of the scope of the Polish health care sector (it attracts a considerable amount of resources), and the challenges it is facing. As of 31 December 2018, there were over 550 thousand employees working in primary, specialist ambulatory and hospital care alone, including 191,696 physicians and stomatologists, and 333,776 nurses and midwives. There were 926 hospitals with 178,105 beds (CSIOZ, 2019). Extending this into retail sale of pharmaceuticals, wellness and, spa sector and certain branches cooperating with health care sector (for example, outsourcing of security, maintenance, information technology, cleaning, washing, waste management, and food services in hospitals, production of pharmaceuticals and medical devices, etc.). One can end up with more than 1 million people employed. In 2019 PLN 102 billion (app. EUR 25 billion) of public money was spent on financing Polish health care sector. When supplemented by private health care expenditures one can end with approximately PLN 140 billion (over EUR 33 billion). There is a good ground (apart from the facts presented above) to consider the Polish health care system as an important component of the Polish economy.

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This important element of the Polish economy suffers from systemic diseases, the most important of which are its inefficiency and growing indebtedness of public health care providers, mainly public hospitals (as of the end of September 2018 it was over PLN 13 billion, i.e. over EUR 3 billion). Other examples of the outcomes of low efficiency of the public health care providers are waiting lists. Patients needed to see an endocrinologist have to spend 24 months in a queue, almost 12 months to a paediatric cardiologist, 10 months to an orthodontist. Poles are also waiting—but for the shorter time—for a visit to a paediatrician, geriatrician or neonatologist (Tomczak, 2019). Partly because of these the Polish health care system is low in international rankings. For example, in Euro Health Consumer Index 2017 Poland was ranked 32nd (out of 35 countries) (Björnberg & Phang, 2019: 26). Since entrepreneurship plays so important role in fostering economic growth in Poland, it is interesting to analyse the Polish health care system from the perspective of entrepreneurial actions and initiatives undertaken there. Assuming that entrepreneurship facilitates overcoming inefficiencies and the scope of entrepreneurship in the Polish health is limited, one may inquire what are the main obstacles to entrepreneurship development in the Polish health care system? This is the leading research question here. To answer the research question a desk-top analysis (a review of the literature) is used supplemented by official statistics and data obtained from professional associations. The paper is structured in the following way. First in order to set up a scene for further reasoning and argumentation Semashko model is briefly presented. Then the main changes in the Polish health care system implemented in the 1990s and development of the private sector in health care system are introduced followed by the key characteristic features of 1999 health care reform are described. Since public hospitals are responsible for massive indebtedness, the process of commercialization of public hospitals is analysed. In the end, systemic barriers to entrepreneurship development in the health care system are identified. Recommendations with respect to further research end the paper.

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Semashko Model After the Second World War in Poland like in the rest of the Soviet Block countries together with nationalization in industry and agriculture sectors, a Semashko model was implemented in health care systems. The name of the system derives from the name of Nikolai Aleksandrovich Semashko, who after the bolshevik October Revolution, in July 1918 was nominated the first People’s Health Commissioner of the Russian Federal Soviet Socialist Republic (and then the Union of Soviet Socialist Republics). He spent 12 years in the office and was the creator of the Soviet system of health protection and prevention. The features of the Semashko model are: – unrestricted and unlimited availability of all citizens to all health services, – organization and financing of the health system by the state from the state budget, – health care sector employees trained (using the admission limit), hired and paid by the state (based on state rates and pay tables), – centralized health policy, – allocation of financing to health care entities based on resources financing resources mainly number of beds and/or number of employees, according to previous yearly budgets, – public ownership of health care providers (marginal number of private medical and dental practices), pharmaceutical producers, and medical equipment, – low co-payment by patients limited to on the part of patients (only for prescription drugs), and – full control by the government (and indirectly by the communist party), including control of the career paths of health care professionals. Centralization of the health care system combined with a lack of motivation to optimize the use of resources resulted in low system efficiency (Vienonen & Wlodarczyk, 1993). Semashko system had neither any mechanisms to force savings in the use of resources, nor to reward for optimization of the usage of resources. This concerned both the management of health care institutions and their employees.

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One of the consequences of low efficiency of the system were queues (especially to hospitals), which in turn facilitated corruption. One may maintain that very low salaries of medical staff (Nizankowski & Wilk, 2009) can be seen as a factor conducive to corruption and strengthening corruption. It was interesting that corruption seemed to be silently accepted by all key stakeholders: patients, physicians/medical professionals, and the government. Patients paying under the table money had the guarantee that needed services were granted. Physicians, nurses, midwives, and other medical professionals got additional financial sources supplementing their very low salaries. The government had the whole health care system operating at a low cost since there were patients who co-financed the system (officially called as a free-of-charge one). As acknowledged in the literature, the phenomenon of corruption in the health care sector had strong roots not only in Poland but also in other post-communist countries (Rogers, 1997). So deeply rooted in the organizational culture of public health care providers, corruption was observed also after the political transformation in Poland and in other post-communist countries (Bulgaria, 2017; Croatia, 2017; Gugiu, 2010; Hungary, 2017; Ungureanu et al., 2013). It is interesting to notice, that for a large group of patients from Bulgaria, Lithuania, Poland, Romania, Ukraine, and Hungary giving doctors alcohol, sweets, works of art or other items is not seen as corruption, but only as evidence of gratitude (Stepurko et al., 2013). While just after the Second World War Semashko model brought benefits to society (universal and unlimited access to health services for all social groups, widely implemented health promotion programs, nursing, and dentist care in schools, vaccinations, etc.), these benefits have become less and less available for patients. It turned out that universal access to health care is only a statutory provision (Exter & Hermans, 1998) and the whole health care system has lost its financial balance. After the systemic transformation initiated in Poland in autumn 1989, the health care system was reformed.

Development of the Private Sector in the Health Care System Over thirty years ago, on 1 January 1990, the measures to reform the indebted and stagnant Polish economy, which became known as the Balcerowicz Plan (called also as a shock therapy), came into effect,

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modernizing the economy, but with considerable social (registered unemployment close to 20%, growing number of people below poverty line, etc.) and economic costs (rising prices, public enterprises, and farms liquidated, etc.). The value of a shock therapy as a foundation for modern Polish capitalism notwithstanding, one should mention that the door for small private firms development was open (from 1 January of 1989) by earlier reforms of Mieczysław Wilczek, minister of industry in the last communist government and the wave of private firms which opened in its wake supported the Balcerowicz Plan. One may agree with Andrew Kureth (2014) that shock therapy created “lasting entrepreneurial state of mind” in Poland. One component of the Balcerowicz Plan was the plan of systemic changes with the privatization of state-owned firms. Between 1990 and 2011 privatization processes covered 7551 state enterprises out of which 1,761 were commercialized, 2,195 were sold directly, and 1654 were liquidated,1 and assets of 1654 state farms were transferred to Agricultural Property Agency (GUS, 2012: 28). Over 47% of state-owned enterprises were privatized during the first three years of the economic transformation: 1258 enterprises in the years 1990–1991 and 1402 in 1992. In the following years, the number of privatized enterprises dropped to 35 in 2006, and in 2011 only 12 enterprises were transformed (GUS, 2012: 28). The health care sector was practically excluded from privatization. Only state-owned pharmacies and later spa centres were allowed to be privatized. While the privatization of pharmacies started early, the process of spa privatization (which in Poland took the form of commercialization) was delayed by decades. This, in turn, means that the private sector in health care in Poland has been created from scratch. As such, it was initiated by pharmacists who have been taken over state pharmacies and family doctors, specialists, nurses, physiotherapists, etc. who set up their private practices (both individual and group ones). Over the whole 1990s, the legal regulations for the retail sale of pharmaceuticals were very liberal so virtually any investor could set up a pharmacy provided that a certified pharmacist was in charge of running it. This resulted in rapid (or “uncontrolled” according to the Association of Pharmacists of Employers of Polish Pharmacies, ZAPPA, 2019, p. 58) growth of private pharmacies. Despite the limitations imposed by

1 There are three forms of privatization in the Polish law.

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the new Pharmaceutical Law in 2001 the process remained dynamic and was slowed down after amendments in 2017. Needless to add, that such decisions originated from risk acceptance (private money was invested) and were entrepreneurially driven. In 2019 there were 14,420 pharmacies in Poland (ZAPPA, 2019: 7) which means 1 pharmacy for 2635 inhabitants. As compared to other OECD countries, in 2015 there were 35.7 pharmacies per 100 thousand inhabitants in Poland which placed Poland at 6th place among 26 OECD countries (ZAPPA, 2019: 37). According to the Association of Pharmacists of Employers of Polish Pharmacies (Zwi˛azek Aptekarzy Pracodawców Polskich Aptek), there is oversupply of pharmacies in Poland as measured by the density of pharmacies (ZAPPA, 2019: 38), the number of certified pharmacists per pharmacy (ZAPPA, 2019: 31), average revenues (ZAPPA, 2019: 34), and profit margin (ZAPPA, 2019: 47). This, in turn, results in a fierce competition both between individual pharmacies as well as between chains of pharmacies since the pharmacy sector has been undergoing a concentration phase over the last two decades. It should be also added that privatization of retail trade of pharmaceuticals has been accompanied by privatization of production and wholesale trade of pharmaceuticals. A similar trend was observed in medical products and devices. The speed of privatization of primary care services and in dentistry was slower than in retail trade of pharmaceuticals. This was partly because of the delay in reforming the health care system. During the first half of the 1990s, private individual practices of general medical practitioners and dentists were created. This process has accelerated after the introduction of health care reform of 1997. As of 31 December 2018, there were 149,134 certified physicians 41.2% of them working in private practices. Out of 295,464 certified nurses, 38.2% were working in their private practices. As far as dentists are concerned there were 42,282 certified dentists and 69.5% of them were working in their private practices (CSIOZ, 2019). A survey done by Research and Statistical Education Centre of the Central Statistical Office (Centrum Badan´ i Edukacji Statystycznej Głównego Urz˛edu Statystycznego) showed that vast majority of dental services was done in private dentist practices and was paid out of the pocket (GUS, 2018: 42). These numbers taken as a proxy of entrepreneurial potential among medical professionals can be underestimated since even if a physician or

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a nurse is working for a public hospital or any public health care unit, he/she can be treated as an entrepreneur. This is due to the widespread use of outsourcing in public health care facilities aimed at some tax gains. Consequently, a physician sets up his/her own private business (sole proprietorship) and then signs a contract with a public health care facility. In 2018 76.8% of physicians and 40.6% of nurses working in public health care facilities were working on civil law agreements. Running a private practice is obviously associated with risk, but in the case of the Polish health care system, this risk is multiplied by the monopsonistic position2 of the payer which is the National Health Fund.

Health Care Reform of 1997 (Effective in 1999) In the first half of the 1990s attempts were made to partially reform the health care system using decentralization and changes in the financing of the health care system. They were, however, limited in scope and nature. One of the changes should be introduced here since it had and still has some far-reaching consequences. This was the introduction to the Polish system of an independent public health care facility3 (samodzielny publiczny zakład opieki zdrowotnej ). Pursuant to the Ordinance of the Minister of Health of 18 May 1995, a public health care facility operating as a budgetary unit (zakład budz˙ etowy) could be transformed into an independent public health care facility. In practice, independence meant and the necessity of covering expenses from own revenues and maintaining financial liquidity. Independent health care facilities had more freedom in making decisions about the use of resources (human, capital, and technical) and could decide upon the distribution of net income if it appeared. At the beginning the transformation process was voluntary, so the founding body (i.e. the owner, in most cases a local authority or a city) could initiate it anytime (with the consent of the employees of a given health care facility). One of the incentives for transformation was a liquidation of the transformed budgetary unit’s debt (a vast majority of 2 National Health Fund is a governmental agency responsible for purchasing (on a competitive base) health services from health care providers (both public and private). NHF possesses legal monopsonic position in the system. 3 Health care facility (zakład opieki zdrowotnej ) is a broad concept and covers as different institutions like primary care centers, ambulatory care centres, hospitals, clinics, long term care facilites, etc.

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health care facilities were indebted) so that it would start operating as an independent unit without debt. The foundation of the fundamental health care reform was the Act of 6 February 1997 on the universal health insurance which entered into force on 1 January 1999. The main features of the reform were: 1. introduction of an insurance system; 2. separation of the provision of health services from their financing (provider—purchaser split) and establishment of a purchaser which was a health insurance institution called a sickness fund (kasa chorych); 3. transformation of all public health care facilities into independent public health care facilities. This was an administrative decision (imposed by law) and facilities were transformed despite their financial standing. This meant that indebted budgetary units became indebted independent public health care facilities; 4. introduction of competition mechanisms for public funds among service providers (both private and public through a bid for contracts with the purchaser); 5. creating opportunities to expand the scope of the private sector in the health care system; and 6. moving away from financing resources (employees and infrastructure) towards financing tasks i.e. paying for a specified amount of health care services (amounts specified in contracts with the payer). The act on the universal health insurance replaced the tax-financed system based on budgetary rules with a system of financing from health contributions, based on social health insurance rules. This also meant that not all Polish citizens were granted free access to health services but only insured. A network of 16 sickness funds for each voivodeship (region) and a separate, 17th sickness fund for the uniformed services (members of the police, the military, and the state rail) were established. The sickness funds were contracting health care services from public and private health care providers on a competitive base (open bid). The lack of both common contracting principles for the sickness funds and the application of various payment mechanisms for contracted services resulted in substantial regional disparities in the access and quality of health services and got a lot of criticism in media.

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After the parliamentary election of 2001, the new government in 2003 replaced the regional sickness funds system by a single central insurance institution, the National Health Fund (Narodowy Fundusz Zdrowia—NFZ). Regional sickness funds were transformed into 16 regional branches of NFZ (Wojewódzkie Oddziały NFZ ). To eliminate regional differences in access to health care, the law introduced uniform contracting procedures and point limits for contracted services. The new law specified a list of services excluded from public financing (Bukowski & Pogorzelczyk, 2019: 11–12). Apart from the changes in the organization of the financing system, the second important change in the Polish health care system was a transformation of independent public health care institutions, mostly hospitals, into commercial law companies.

Commercialization of Public Hospitals After 1999 Despite the fact that all of the public health care facilities were transformed into independent health care facilities which by definition are responsible for maintaining or achieving financial liquidity, majority of them noticed financial losses. The dynamic of indebtedness of independent public health care facilities between 2003 and 2019 is showed in Fig. 9.1. As of the end of the third quarter of 2019, the level of total 16000 14000 12000 10000 8000 6000 4000 2000 0 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 total liabiliƟes

3Q 2019

Due liabiliƟes

Fig. 9.1 Independent public health care facilities (Source Author’s own compilation based on data from Ministry of Health, https://www.gov.pl/web/zdr owie/zadluzenie-spzoz. Accessed 18 February 2020)

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liabilities amounted to PLN 14,308.3 million (EUR 3,406.6 million) and due liabilities to PLN 2,102.5 million (EUR 500.4 million). This was the primary reason why actions aimed at restructuration of independent public health care units were initiated. Act of 15 April 2005 on public aid and restructuring of public health care facilities was a legal foundation of these changes. The restructuring was focused on reducing debt (or its complete elimination) by changing the legal organizational form of public health care facilities: from an independent public health care facility to a commercial law company (limited liability company, limited partnership, or joint-stock company). This process of restructuration was called commercialization of public health care units. Between 1999 and 2013 there were 579 independent health care facilities restructured. The majority of facilities restructured were ambulatory care centres (376) followed by regional hospitals (148) and individual wards in public hospitals (55). The most often chosen new legal formula was a limited liability company followed by a joint-stock company and then limited partnership. Over 89% of restructured hospitals, 81% of transformed hospitals, and 67% of restructured ambulatory health centres opted for being limited liability companies. It should be noted that the local authorities (founding bodies) retained controlling blocks of shares in these new LLC. One may maintain that commercialization of the health care facilities was rather de iure than de facto. In this respect, commercialization cannot be compared to the only consistent and fully implemented health care reform in Poland so far, i.e. the transformation (starting from January 1999) of all public health care facilities into independent public health care facilities. The dynamic of the commercialization of hospitals is showed in Fig. 9.2. Although it shows ups and downs of the process of commercialization of hospitals one may notice that Act of 15 April 2005 on public aid and restructuring of public health care facilities resulted in speeding up the process in the period 2007–2011 and that the second push was observed after Act of 15 April 2011 on medical activities was adopted. Article 59 of this act stated that when the founder cannot cover the debts of his health care facility, he must either restructure this facility or merge it with another facility, or liquidate it. In other words, owners of indebted independent public health care facilities were forced to solve the problem of growing indebtedness of public health care facilities (see Table 9.1).

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25 20 15 10 5 0 1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

Fig. 9.2 Number of commercialized hospitals 1999–2013 (Source Compiled by author. Data from the Ministry of Health) Table 9.1 Dynamics of commercialization of public hospitals and indebtedness of public independent health care facilities 2000–2103 Year

Number of commercialized hospitals*

Total liabilities of public independent health care facilities (PLN million)

Due liabilities of public independent health care facilities (PLN million)

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

2 6 8 5 14 5 3 9 19 21 22 1 13 20

n/a n/a n/a 7327 9450 10,273 10,384 9563 9979 9627 9963 10,383 10,661 9922

n/a n/a n/a 4543 5872 4933 3723 2666 2357 2241 2138 2316 2474 2015

* compiled by author Source Ministerstwo Zdrowia [Ministry of Health] https://www.gov.pl/web/zdrowie/zadluzeniespzoz

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In 2015 parliamentary elections handed over the authorities to the previous opposition, namely Law and Justice political party, which obtained the majority in Sejm, the Polish parliament. Since 2015 the new government introduces tougher conditions for private entities i.e. by limiting private hospitals and clinics access to NFZ funds, putting a halt to hospital commercialization, and forcing some commercial entities to work under a nonprofit formula. Such changes can be—at least partially—attributed to an increase in the total liabilities of public health facilities from 2015 on as showed on Fig. 9.1. In 2017 the reform introduced a new institution, a chain of hospitals (sie´c szpitali). The chain is built of 594 hospitals, nearly exclusively public, recognized as being of key importance for ensuring access to health services. The rest of the hospitals operating in the Polish health care system, i.e. 355 hospitals are out of the chain. Hospitals constituting the chain of hospitals have guaranteed access to public funding. They do not compete for public funds any longer, i.e. they do not participate in tenders for contracts with the NFZ. For consecutive three years, they receive funds in advance, and the amount of financing is based upon the sum they had in former contracts with NFZ. Consequently, 594 hospitals (62.5% of the total) have been withdrawn from competition for public funds. Keeping in mind rising indebtedness of independent public health care facilities (Fig. 9.1) one may wonder whether de facto budgetary financing of hospitals operating in the chain of hospitals will not only lead to the inhibition of hospital indebtedness, but may additionally strengthen it. This leads us to the role of entrepreneurship in the health care sector in Poland.

Entrepreneurship in the Health Care Sector in Poland Although the scope and the nature of systemic dysfunctions in the Polish health care sector are considerable there is only modest research on this especially from an entrepreneurial perspective. Among appropriate publications one may distinguish between theoretical, macro analyzes (Głód, 2011; Klich, 2007), mezo analyzes (Bukowska-Piestrzynska, ´ 2013, 2014), and micro studies (Wyroz˛ebska et al., 2012). Of special interest are empirical studies showing considerable entrepreneurial potential among medical professionals.

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Bukowska-Piestrzynska ´ (2013) deals with one component of the private health care market which is private dentistry possessing dominant role in Poland. She presents above the average entrepreneurial capabilities of practising dentists and indicates their high commitment. It should be reminded that private dentist practices operate in a highly harsh environment where the payer, NFZ, possesses a monopsonistic position. In many cases, this monopsonistic position takes the form of imposing on private providers prices do not cover costs. Lately, the media reported on price per tooth filling. NFZ offers private dentist practices PLN 39 (EUR 9.28) per case while the same service on the market (i.e. without insurance, paid out-of-pocket, costs at least PLN 100 [EUR 23.80] [Infodent, 2020]). Bukowska-Piestrzynska ´ (2014) also points to family traditions in running private dental practices. She presents above the average entrepreneurial capabilities of practising dentists and indicates their high commitment. While Bukowska-Piestrzynska ´ focuses on existing private businesses in dentistry, Wyroz˛ebska et al. (2012) look into the nearest future trying to assess the entrepreneurial potential (and willingness to start private businesses) of medical students. Between 2007 and 2011 they surveyed 1163 senior students of the faculties of medicine, nursery, and midwifery at the Medical University of Warsaw on the willingness to start own businesses after graduation. They revealed that at average over 27% of respondents were willing to become entrepreneurs, entrepreneurial attitudes being the strongest among students living in medium-sized cities. Consequently, one may maintain that entrepreneurship works out nicely in dentistry as well as in other areas were private ownership prevails namely primary care, pharmacies, ambulatory specialist care and there is considerable entrepreneurial potential among medical students. Why entrepreneurship does not work in public health care facilities? The answer to this simple question lies in ownership rights and their execution. Here the concept of independent public health care facility should be further elaborated. Legally, the owners of independent public health care facilities are either local governments or ministries (Ministry of Internal Affairs, Ministry of Defence, Ministry of Justice, etc.) or the state. Since the positive content of ownership is described in the civil codes of several countries of Central and Eastern Europe with a so-called triad of proprietary rights (Földi, 2009) we may use them here as a point of departure.

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It is unfortunate that the owners of health care facilities in Poland are not able to use three of their rights as defined in Roman private law: – ius abutendi: right to use the thing up, – ius fruendi: right to derive benefits from the thing, and – ius disponendi: right to dispose legally of the thing. Let us start with ius abutendi. According to existing law, the owner is not in a position to refuse complete contracts with NFZ even if prices proposed by NFZ (monopsony) for certain services do not cover their costs. In other words, the owner must sell the services with financial losses. The owner also cannot stop supplying them since the owner of the health care facility is obliged to provide health services. Consequently, the owner is forced to accept deficit structurally embedded into health care financing system. Needless to add, the owner is fully and unconditionally responsible for the debt of the health care facility. Also, execution of ius fruendi is limited because even if a health care facility provides net income, this extra money cannot be spent for paying for an additional amount of services (even if there are ques and waiting lists) since the only purchaser is NFZ. This sad picture can be further extended by the fact that the National Health Fund, when estimating prices for the services it purchases, does not include in its calculations such important price components as depreciation charges and investments. The owner does not have discretion regarding selling the whole or a part of the health care facility. There are examples of cases where owners undertook such initiatives but were very quickly stopped and punished for it.

Summary All these lead to a rather trivial conclusion that since property rights are not guaranteed and executed, there is no room for entrepreneurial initiatives and actions. This, in turn, means that unless independent public health care facilities are not restructured and property rights are not in place, there is less than little chance for curbing their growing indebtedness. This concise picture of the situation in the Polish health care sector shows that:

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1. the iron rule of entrepreneurship according to which entrepreneurship can be born and develop only when ownership rights are protected and executed is (still) valid; 2. the components/subsectors of the Polish health care system like primary care, ambulatory specialist care, dentistry, and pharmacies, where private sector dominates and where property rights are in use perform well; 3. there is entrepreneurial potential among young would-be medical professionals which can be used for the good of the health care system and patients; and 4. indebted public hospitals operating in an environment where property rights are strongly limited create considerable threat for the financial stability of the whole Polish health care system. Here entrepreneurship could be helpful if obstacles to exercising the rights of the owner were removed.

References Björnberg, A., & Phang, A. Y. (2019). Euro health consumer index 2018. Health Consumer Powerhouse Ltd. Bukowska-Piestrzynska, ´ A. (2013). Przedsi˛ebiorczo´sc´ lekarzy dentystów w kontek´scie relacji z pacjentami [Entrepreneurship of dentists in the context of relationships with patients]. Wydawnictwo Uniwersytetu Łódzkiego, Lód´z 2013. Bukowska-Piestrzynska, ´ A. (2014). Przedsi˛ebiorczo´sc´ rodzinna w stomatologii [Family entrepreneurship in dentistry]. Kwartalnik Nauk o Przedsi˛ebiorstwie, 4, 63–70. Bukowski, H., & Pogorzelczyk, K. (2019, April). Polish health care sector. Overview, evolution, and opportunities. Netherlands Enterprise Agency, INNOWO. Bulgaria. (2017). Bulgaria: Country health profile 2017 . State of Health in the EU. OECD Publishing, Paris/European Observatory on Health Systems and Policies, Brussels. Croatia. (2017). Croatia: Country health profile 2017 . State of Health in the EU, OECD Publishing, Paris/European Observatory on Health Systems and Policies, Brussels. CSIOZ. (2019). Centrum Systemów Informacyjnych Ochrony Zdrowia. Biuletyn Statystyczny Ministerstwa Zdrowia 2019 [Center of health information systems. Statistical Bulletin of the Ministry of Health 2019]. Warszawa 2019.

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European Commission. (2019). Commission staff working document Country Report Poland 2019 accompanying the document communication from the Commission to The European Parliament, The European Council, The Council, The European Central Bank and The Eurogroup 2019 European Semester: Assessment of progress on structural reforms, prevention and correction of macroeconomic imbalances, and results of in-depth reviews under Regulation (EU) No 1176/2011 {COM(2019) 150 final}. Exter, A., & Hermans, B. (1998). Constitutional rights to health care: The consequences of placing limits on the right to health care in several Western and Eastern European countries. European Journal of Health Law, 5(3), 261–289. Földi, A. (2009). Historic and dogmatic aspects of the triad of proprietary rights. In A. Palma & G. Melillo (Eds.), Scritti in onore di Generoso Melillo. III (pp. 353–402). Napoli. Głód, G. (2011). Przedsi˛ebiorczo´sc´ publiczna w sektorze ochrony zdrowia [Public entrepreneurship in the health care sector]. In T. Kra´snicka (Red.), Przedsi˛ebiorczo´sc´ w sektorze publicznym. Wybrane zagadnienia i wyniki badan´ [Entrepreneurship in the public sector. Selected issiues and research findings] (pp. 40–60). Uniwersytet Ekonomiczny w Katowicach. Prace Naukowe. Uniwersytet Ekonomiczny w Katowicach. Gugiu, M. R. (2010). Health care reform and informal payments in Central and Eastern Europe (Conference Papers). American Political Science Association, 1–32. GUS. (2012). Główny Urzad ˛ Statystyczny [Central Statistical Office]. Prywatyzacja przedsi˛ebiorstw panstwowych ´ w 2011 r [Privatisation of state owned enterprises in 2011]. Warszawa. GUS. (2018). Centrum Badan´ i Edukacji Statystycznej GUS [Research and Statistical Education Centre. Central Statistical Office]. Raport koncowy. ´ Usługi publiczne w zakresie ochrony zdrowia [Final report. Public services in health care]. Warszawa. Hungary. (2017). Hungary: Country health profile 2017 . State of Health in the EU. OECD Publishing, Paris/European Observatory on Health Systems and Policies, Brussels. Infodent. (2020, February 12). Denty´sci nie chca˛ juz˙ dopłaca´c do leczenia “na NFZ” [Dentists do not want to pay extra “for NFZ”]. http://www.inf odent24.pl/newsdentpost/dentysci-nie-chca-juz-doplacac-do-leczenia-nanfz,113877.html Jackson, J. E., Klich, J., & Poznanska, ´ K. (2005). The political economy of Poland’s transition. New firms and reform governments. Cambridge University Press.

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CHAPTER 10

The Role of Education for Creation of Entrepreneurship Society Marija Zarezankova-Potevska

Introduction The modern world of globalization processes and high application of new techno- logy as an imperative for human progress needs new goals, methods and tools in business activities, new knowledge and business ethics. It means the necessity of new culture of education in social and economic activities. The universities play an important role of establishing the new, entrepreneurial society that means new curriculums, new educative and business centres, laboratories, business incubators, technological parks etc., which lead to the creation, innovative processes, as sine qua non for modern working and life. It is widely widespread understanding and recognition that entrepreneurship is a driving force of the national economy and the society. Entrepreneurship provides parallel positive impulses of social and individual level, through personal achievement and job satisfaction, which

M. Zarezankova-Potevska (B) University of Skopje, Skopje, Republic of Macedonia e-mail: [email protected] © The Author(s), under exclusive license to Springer Nature Switzerland AG 2021 M. Ince-Yenilmez and B. Darici (eds.), Engines of Economic Prosperity, https://doi.org/10.1007/978-3-030-76088-5_10

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reflects the rapid and sustainable growth and development. With the development of entrepreneurship strengthen the interest and the need for proper education in order to increase the competence and expertize of entrepreneurs, to encourage new business and creativity. Only knowledge makes people brave and encourages starting work, creating new values to be successful and valued members in their community. New knowledge is the necessary and important for existing businesses to grow faster and to be present in global markets.

Entrepreneurial Education Education system generally leads to the better understanding of the new processes in the nature, in the society in the world and place where we live and work. New skills and knowledge are capabilities for more creative activities, for innovation as key factor for modern economic activities, for elimination of ethnic differences and poverty, for elimination of cultural differences and different religion groups, for better living. Modern education system means new curriculums, new knowledge of creation of modern technology and new methods of running businesses, acceptance of information technology and entrepreneurial education as a part of modern style of working and living. The EU has accepted a lot of documents for creation of competitive environment for business. Many of them refer to lifelong learning (LLL) as a key factor for successful economic prosperity.

The European Union EU Commission, in order to make the EU a leading and growing economy, has adopted and implemented many documents that highlight the priorities in development. They stressed the need to strengthen the knowledge-based economy, the competitive production, application of new technologies and knowledge gained by increasing the role of formal education, informal education and lifelong learning. Significant strengthening of the entrepreneurial spirit of the population from an early age for EU authorities has primary place. First Lisbon Strategy of 2000, then the European Charter for Small Enterprises (adopted in 2000 and passed in 2002 and 2003) in which education and training for entrepreneurship as a basic knowledge for running businesses and strengthening the entrepreneurial spirit. Also, the Green Paper on Entrepreneurship in the

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EU (2003) emphasized that “education and training should contribute to encouraging entrepreneurship; developing awareness and thinking (mentality) that can make a successful career as an entrepreneur with possession of knowledge and skills”. In 2006, the EU prepared a document titled European Framework for Key Competences for Lifelong Learning, which is accepted by all member states and candidate. The main objective of the paper is the development of entrepreneurial literacy as a condition for a competitive economy by providing sustainable economic growth and development. For additional competencies/skills are outstanding: • • • • • • • •

Ability to communication/language of communication, Ability to communication/communication in foreign languages, Math skills and basic knowledge and skills of science and technology, Digital-abilities, Learning how to learn, Social and civic competences, Sense of initiative and entrepreneurship, Awareness of culture and expression.

Awareness of the need for entrepreneurial learning in the EU continues to evolve, especially with the adoption of the Oslo Agenda for Entrepreneurship Learning in Europe, which are directed educational institutions to introduce curriculum with entrepreneurial education as early as elementary school. These suggestions aim to develop awareness of each pupil and student that should have entrepreneurship competences. It is a key competence that everyone needs to develop and there, whether in the future will become an entrepreneur and businessman or something else. It means way of thinking should be an integral part of every program in all areas of studies. European Framework for Qualifications contains multiple components that indicate a clear provision for the development of national qualifications system integration of entrepreneurial learning as a key capability for every citizen. EU has adopted several documents on lifelong learning (LLL) or permanent education task for all people of every level of age to stimulate the learning process and to develop the sector of education and training in countries all over Europe. Program contains four sub-programs for school

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children, students, adults, teachers and trainers, as well as exchanges between their countries. Notably Comenius program for schools, Erasmus for higher education, vocational education and training Leonardo da Vinci, and the adult education program is designed Grundtvig. In Macedonia the Law on Civil outstanding universities in lifelong learning is adopted. Lifelong learning or permanent education is especially important for business people considering permanent need of refreshment and improvement of the relevant knowledge for getting new, according to the needs of modern business and working requirements imposed by the globalization of the world economy. Only the best succeeds on the global market, the harsh realities of global markets require new knowledge and skills to survive. Hence the efforts of the EU are for permanent education, entrepreneurial learning, the development of consciousness and the mentality of the population. Entrepreneurial mind, spirit and culture are necessary as a manner of life in the interest of their individual development, but also for the development of a wider community and society. The European Commission, together with the Organization for Economic Co-operation and Development (OECD), is launching a new online self-assessment tool for universities to measure how entrepreneurial they are. Under each of the seven assessment areas, the institutions are invited to score themselves from 0–10 in response to statements such as: • Entrepreneurship is a major part of the university strategy; • The university is open to recruiting and engaging with individuals who have entrepreneurial attitudes, behaviours and experience; • The university validates entrepreneurship learning outcomes; • Business start-up education is offered across the curricula and faculties; • The university facilitates access to private financing for its potential entrepreneurs; • The university has strong links with incubators and science parks. The website then generates results for the institution, highlighting areas of strength and weakness. It also helps the institution improve its performance by providing links to customized examples of good practice.

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Entrepreneurship and innovation Program (EIP), adopted by European Commission in 2014 (March 31) is focused in these topics: – – – – –

Access to the Finance, Support to Innovation, Support to Eco-innovation, Business and Innovation Services, Promotion of Entrepreneurship.

The document shows the intention of the Economic Commission for permanent promotion of entrepreneurship as a key factor for fast economic growth and prosperity of the society. Promotion of entrepreneurship include contemporary education component in entire process of raising the entrepreneurial culture and spirit of creation new goods and prosperity as an aim in every society. Modern education system includes experts from different countries to change the experience, new curriculums with modern trend in economy, running businesses, new technology and knowledge. Life Long Learning (LLL) is tool for gather life experience and new knowledge and skills for better running the business activities.

Entrepreneurial Tertiary Education in Macedonia Realizing the importance of the need for entrepreneurial learning as an important factor in the formation of educated and trained people for run the business in a modern way, is adopted a Declaration of the Promotion of Entrepreneurial Learning, in June 2009, which contains the following goals and activities to be reached: • Innovation and entrepreneurship are the basis for increasing the country’s competitiveness, • Entrepreneurs are the engine for the market economy, • Entrepreneurship is growing into one of the key competences for lifelong learning, • Universities are key drivers of economic development, • Education based on competencies play a central role in our society, • Stimulation of high education institution/universities to develop entrepreneurial abilities through:

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– introduction of courses of entrepreneurship and the development of appropriate curriculum, methods; – ensure availability of resources (access to training materials) for students of all faculties; – training of teachers for entrepreneurship; – opening of entrepreneurship centres; – strengthening of relations with the industry and common/joint projects; – sharing of best practices within the university and with other universities. The Declaration complete has accepted the recommendations and guidelines for the development of entrepreneurial learning, provided by the European Commission and the European Training Foundation (ETF) in Turin, Italy. The Declaration emphasized the needs of: • promotion of entrepreneurial learning and favourable business environment for encouraging entrepreneurship and self-employment; • development of national policy for high education, which will be in the; • function of Entrepreneurial Learning; • stimulation of high education institution/universities in that direction. The declaration would be realized through the Ministry of Economy and Ministry of Education. Practice shows progress in the field of entrepreneurial learning, although awareness of the population slowly changing. However, with the introduction of the curriculum in secondary schools and in universities, with trainings etc., the country is making progress in this area. Well known large companies have their own training centres for management and entrepreneurial skills, for its employees, but also for students, unemployed and interested citizens. The future is in getting new knowledge, to create knowledge-based economy, with competences for innovation and implementation of new technology to face people into difficult problems and challenges. This creates an entrepreneurial society in which all creative and inventive people find their place in businesses,

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research and development (R&D) and creation of new values, which strengthen the economy, and lead to prosperity and social welfare.

The Universities’ Function in Raising the Entrepreneurial Spirit and Culture University as an educative institution is a cradle of education, of new knowledge, new technology, research and development (R&D) as well as a place that provides entrepreneurial skills and upbringing young people. The modern university, in terms of globalization of economic life, is necessary quickly and effectively adapts to the needs of the economy and young people and provides the new knowledge for managers, entrepreneurs, employees, prospective entrepreneurs. Nowadays, we talk about the third generation of the University (Wisema, 2009), which suggests co-operation with the industry through joint projects and assistance in running businesses, R&D, education and permanent education of owners, managers, entrepreneurs, employees. Modern universities should raise the spirit of entrepreneurship of the students, their creative ideas for business activities and innovation. The role of the university would be realized through the following issues: A. The curriculum of modern universities must be in the spirit of the new trends in the world economy, the spirit of entrepreneurial learning and new knowledge and technologies in order future business people and their companies to be viable in world markets, to raise its competitive ability. The universities should be prepared in order to meet the future needs of businesses and entrepreneurs. B. Today, in the most developed countries, the universities have special business centres, agencies for entrepreneurs’ help and support in running their businesses, making market and business plans and strategies, export promotion, business information, internationalizations etc. At the same time, from the modern universities is expected to be connected to industrial enterprises and their help in the form of expertize, joint projects, using new technological innovation. Research and development (R&D), modern laboratories as well are very significant for positive role of the universities for economic development.

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C. Current economic trends require entrepreneurs to be educated, prepared and armed with the latest new knowledge and developed skills to successfully run their organizations. The role of universities in this domain is especially great in organization of courses, seminars, trainings, studies and various forms of lifelong learning for business people. In Europe, managers attend training 1–4 weeks annually, employees at least once minimum. D. The Universities in developed countries have an active partnership with the public and private sector, large enterprises and universities, national and local authorities. The results are very positive. The famous models of the development of entrepreneurship and SMEs are based on strong role of the universities and entrepreneurs, the association of businessmen and local authorities, common realization of some project and joint venture. The third generation of the universities means close co-operation between the business community and science. In these processes permanent education of the employees is obliged in purpose for acceptance of new knowledge and skills.

Some Examples of the Universities that Play an Important Role in the Development of Entrepreneurship In the U.S.A. is well known model of development in Pittsburgh. Namely, during the eighties of the twentieth century, when the steel industry crisis hits, the city authorities found a solution for restructuring economy through the support and development of small businesses, with the help of the universities. With its professional and scientific human resources, universities organize the entrepreneurial incubators and technology parks, in which unemployed and laid-off workers were able to make qualification and skills for run new businesses. The new knowledge obtained from the Universities allowed the local enterprises to apply new technologies and methods of work, to help development of creativity of individuals. Today, Pittsburgh is a symbol of a modern city, with widely applied high technology and small enterprises. In each of the universities in the U.S.A., there are business centres (for example John Mason University in Washington) that help local entrepreneurs with advises, making plans, strategies etc. in the field of

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running business and start up. These centres serve the needs of business people preparing business plans, business strategies, and plans for activities in the field of marketing, management, export promotion, quality standards etc. Thus, modern knowledge becomes closer to businessmen or science finds its practical application in the industry and economy. Faculty of Economics at University of Ljubljana, the Republic of Slovenia, has the Centre for Entrepreneurship that works very successfully. Such centres exist in most universities in economically developed countries, but also in less developed countries, where the authorities have understood the role of entrepreneurship in the overall socio-economic development. Well known is partnership with University from Bologna and local community in process of economic development of Emilia Romagna Region in Italy that is one of the 10 most developed regions in the EU. The development of the Region is characterized by the co-operation of national, regional and local authorities with private sector and Bologna University. It provides establishment of the ERVET network that provide a lot of services for the enterprises. In economic literature this example is well known as a model of competitiveness (Porter 1990) of ceramic industry and model of small business development, thankful on the common actions of all relevant institutions and private sector on local level with support of national authorities and institutions. In Berlin, Germany is well known technological park, which is a result of co-operation between the “Humboldt” University and “SIMENS”. There are developing new and innovative start-up companies that develop high technology. In highly developed countries, all universities have centres, agencies to help entrepreneurs, training centres, career centres and bodies that are aimed to help prospective and existing business people. It creates entrepreneurial society that means people with entrepreneurial spirit and culture; there have awareness for entrepreneurial mind and behaviour. The EU countries as well as other high developed countries, like USA, Japan have many magnificent events, institution and “best practices” in promotion activities and support of entrepreneurship learning and developing the entrepreneurship spirit that leads to the creative people and prosperity of the country. It should be the good example for less developed countries and society, like Macedonia and others for fostering spirit and culture for creation,

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innovation as a main factor for economic development and prosperity. In these processes, modern education systems play a significant role.

Some Examples from the Republic of Macedonia In the Republic of Macedonia, the universities still remain out of active involvement in entrepreneurship. Good example in promotion of entrepreneurship (Zarezankova-Potevska, 2008: 690–697) is Mechanical Engineer Faculty at University “St Cyril and Methodius” in Skopje where are many centres for education and start-up businesses including the business incubators for young engineers. The Technical Faculty in Bitola has a Business Centre with Business Incubator. Education system is one of the most important tools for developing entrepreneurship spirit and culture between the young generations at all. It means supporting creation, innovation in order to make more favoured and pleasant environment for living and working, for better economic growth and prosperity.

Business Ethics The contemporary business activities are characterized by the most modern methods of working and management, in which the particular importance is the creation of a favourable organizational culture, as a first step towards successful business results/performances in the short term, but especially in the long term. The era of globalization of economic flows, and the existence of strong competition in the international markets, needs high level of efficiency, devotion, loyalty, ethical behaviour. Under such conditions, in the processes in running the business, the role of the managers is the creation and maintenance of the good and harmonized human relations, stimulation and the motivation for efficient working, favourable business organization’s climate and environment. All activities are necessary to be subordinated to the basic goals of the organization, including moral attitude, good human relations, the favourable and pleasant business environment and culture of the organization. All these issues have strong influence on the organizational performance. In the organization, each individual has his own particular role and obligation to work professionally, conscientiously, ethically. In

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these business activities, in the adoption of important decisions for the future work of each organization, the role of the managerial team is the biggest. The managers should have a strong impact on other employees, stakeholders and other business partners with their personality, loyalty and moral. Therefore, the modern science of management includes the business ethic with particular attention. Ethical behaviour is necessary for successful development of each organization. Managers have to act ethically, to accept the high moral principles, and they have to accept the fact that they have social and public role or function, that they have social responsibility to their organization, but also to the environment in which living and working and society at all. Each organization has own organizational culture that is characterized with fostering the moral norms in the relation with employees, managers, partners, the consumers, Current problems and barriers, temptations and dilemmas, should not be reason for changing the moral norms. They are eternal throughout the centuries. Therefore, modern societies accept business ethics as a very important issue in the life, in running business in economic, social and political activities. The training courses for business ethics are very often present in the big corporation as well as in the small ones. Ethics is included in the secondary schools, in the universities that have intention to be modern and high rated. So, these modern aspects of the education are present in the most developed countries as well as in the countries that have strong economic politics for grows and economic development. Cultural differences, religion, tradition differences should not be barriers for economic activities of the different counties, regions and unions. The education process, formal and informal, especially permanent education, have to accept all modern aspect of learning, new curriculums, including, entrepreneurship learning, principles of ethics, intercultural differences, new techno- logy. All changes of education system should make capable and skilled people to create the entrepreneurial societies, prepared for appearance in the global markets. For that reason, the governments and authorities in the EU and other countries, that are not high developed, have accepted a lot of documents, laws and regulative to be modern and creative, innovative and competitive in the processes of globalization in crude reality.

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Conclusion For promotion and development of entrepreneurial spirit and culture in the society, as a step forward to build one entrepreneurial society, which mean supporting creativity and innovation to incentive people with ideas and programs, for over- come the poverty, for better life is necessary to create at first: • Favourable business climate, that means legislation in purpose to running businesses without barriers; • Realization of the Government’ documents for entrepreneurship development on long term; • Different incentives for start-up businesses; • List of financial instruments and institution for financial support of entrepreneurs, specially start-up businesses; • Appropriate institutions to support and promote entrepreneurship development, including both print and electronic media; • Announcements of “Best Practice” in field of entrepreneurship development in purpose to raise the spirit and culture for entrepreneurship in the society; • Modern educational system, especially universities, have to be in the function of development the entrepreneurial awareness and spirit including new curriculums in running business, ethics, cultural differences, new technology etc. and entrepreneurial knowledge; • Acceptance and applying the LLL in purpose for raising the skills and competence of the people; • Establishing institutional infrastructure for support SMEs and entrepreneurs; • Support public–private partnership including involvement of the universities in industry projects; • Networking as instruments for better communication and cooperation on national and international level. All these activities and measures would be useful for improvement of aware- ness for entrepreneurship as a necessity tool for development the culture and entrepreneurial spirit at all citizens. It is useful entrepreneurship to be developed and to be style of thinking and life in function of better understanding the private sector. Universities should have very important task to educate young people for entrepreneurial activities and

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to prepare them to exist and survive on the global market. The adequate entrepreneurial culture may create a lot of jobs, to support them and exceed poverty and unemployment that are very present in the less developed countries in the world. Only entrepreneurial society is in possibility to create new jobs and better life for their citizens. The education process, formal and informal, especially permanent education, have to accept all modern aspect of learning, new curriculums, including, entrepreneurship learning, principles of ethics, intercultural differences, new technology. All changes of education system should make capable and skilled people to create the entrepreneurial societies, prepared for appearance in the global markets. For that reason, the education system should play significant role. It depends on all relevant factors in the society.

References Porter, E. M. (1990). The competitive advantage of nations. Free Press. Wisema, H. (2009). Towards the third generation university—Managing, the university in transition. Edward Elgar. Zarezankova Potevska, M. (2008, May 8–11). The role of the Macedonian universities in raising the awareness of development of entrepreneurial spirit, culture and support the co-operation with industry and economy, Skopje. In Proceedings of the International Conference for Entrepreneurship, Innovation and Regional Development. Skopje/Ohrid. Zarezankova-Potevska, M., & Solymossy E. (2013). Entrepreneurship. Edited by “2nd August”, Skopje. Zarezankova-Potevska, M., & Taneva-Vesoska, A. (2012). Business communication and ethics. Edited by “2-ri August”, Skopje.

CHAPTER 11

Cultural Heritage as an Engine of Sustainable Development in the Tourism Sector Constantinos-Vasilios Priporas , Shasha Zhao , Marina Papanastassiou , and Simon Best

The term “heritage” seems to have different meanings. Hewison (1987) states that heritage is derived from past images of history transmitted into current reality. Park (2010) describes heritage as an essential part of national representation and linked it to symbolic foundations of the nationhood process and identity. However, heritage is not only a tangible representation of the past, as intangible heritage also plays a role by manifesting diverse symbolic meanings and spiritual embodiments (Park, 1

C.-V. Priporas Department of Marketing, Branding and Tourism, Middlesex University, Hendon, UK e-mail: [email protected] S. Zhao Department of Strategy and International Business, University of Surrey, Guildford, UK e-mail: [email protected] © The Author(s), under exclusive license to Springer Nature Switzerland AG 2021 M. Ince-Yenilmez and B. Darici (eds.), Engines of Economic Prosperity, https://doi.org/10.1007/978-3-030-76088-5_11

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2010). At the same time, cultural tourism refers to a segment of the tourism industry that places special focus on heritage and cultural attraction (Remoaldo et al., 2014). The World Tourism Organization (WTO) describes cultural tourism as the movement of persons due to cultural motivations such as study tours, performing arts and travel to festivals and other cultural events, visit to sites and monuments, travel to study nature, folklore, or art, or pilgrimages (WTO, 1985). In this book chapter, we investigate tangible and intangible dimensions of cultural heritage and their links with tourism by using focus group interviews organised as part of the INHERIT Erasmus+ project which was concluded in 2018 and was entitled “Promoting Cultural Heritage as a Generator of Sustainable Development”.

Introduction Cultural tourism refers to a segment of the tourism industry that places special focus on heritage and cultural attraction (Remoaldo et al., 2014). The United Nations World Tourism Organization (UNWTO) describes cultural tourism as the movement of persons due to cultural motivations (WTO, 1985). In particular, according to the definition adopted in 2017, cultural tourism is: “A type of tourism activity in which the visitor’s essential motivation is to learn, discover, experience and consume the tangible and intangible cultural attractions/products in a tourism destination. These attractions/products relate to a set of distinctive material, intellectual, spiritual and emotional features of a society that encompasses arts and architecture, historical and cultural heritage, culinary heritage, literature, music, creative industries and the living cultures with their lifestyles, value systems, beliefs and traditions” (https://www.unwto.org/ tourism-and-culture; UNWTO, 2018).

M. Papanastassiou (B) Leeds University Business School, University of Leeds (CIBUL), Leeds, UK S. Best Department of Management, Leadership and Organisations, Middlesex University, Hendon, UK e-mail: [email protected]

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The economic impact of cultural tourism is increasingly important: according to the Organisation for Economic Co-operation and Development (OECD) (2009), cultural tourism represented for around 40% of all international tourism, or 360 million arrivals, in 2007 (Noonan & Rizzo, 2017; UNWTO, 2018). Research by the European Commission states that 60% of European tourists are interested in a cultural discovery journey, and around 30% of tourist destinations are chosen based on the presence of heritage sites, which can be visited (EICR, 2004). In this book chapter, we investigate tangible and intangible dimensions of cultural heritage and their links with sustainable cultural-heritage tourism by using focus group interviews. As this is an exploratory study, preliminary results indicate that cultural heritage should not be treated as dichotomised concept and that the development of sustainable heritage tourism destinations requires the collaboration of multiple stakeholders.

Cultural Heritage and (Cultural) Heritage Tourism The term “heritage” seems to have different meanings. Hewison (1987) states that heritage is derived from past images of history transmitted into current reality. Equivalently, Timothy and Boyd (2003) defined heritage as something that displays forms of inheritance passed down to present and future generations. Hence, by its very nature, heritage is not simply part of a past chronological sequence but rather includes various dimensions of culture, identity, language and locality (Timothy & Boyd, 2003). Leighton (2007) defines heritage as history processed through mythology, ideology, nationalism, local pride, converted it into a commodity. Based on this approach, heritage can be conceptualised as a product or marketable commodity, however is a multi-faceted construction, embodying notions of scholarship, culture and personal identity. Park (2010) describes heritage as an essential part of national representation and linked it to symbolic foundations of the nationhood process and identity. However, heritage is not only a tangible representation of the past, as intangible heritage also plays a role by manifesting diverse symbolic meanings and spiritual embodiments (Park, 2010). Cultural heritage, like history, is subject to changes in interpretation and can be defined as the intangible and tangible remains of the historical process (Herbert, 2001) that mark, contribute to and record the sense of belonging, identities and roots, and even the order and continuity of our

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collective in the world (Smith et al., 2010). According to Park (2014: 7), heritage can be defined as contemporary use of the past that encompasses “a wider scope of meanings ranging from cultural and historical significances, political implications, spiritual and intellectual connotations to communications”. Following Williams (2009), Park (2014) understands heritage as a “socially produced, negotiated entity”, whose meanings vary depending on the context. In this context, “heritage is an essential reenactment of the past, which is largely conditioned by the concerns and needs of the present and future” (Park, 2014: 9). Nuryanti (1996) classifies heritage supply into three main categories: built heritage that can be described as historic and artistic heritage such as relics, forts and modern towns; scientific heritage includes elements such as plants, birds, animals, rocks and natural habitats; and cultural heritage that comprises folk, and fine arts, customs and languages. The most wellknown definition of heritage is the one offered by the United Nations Educational, Scientific and Cultural Organization (UNESCO) that was established in 1972 at the World Heritage Convention. According to UNESCO (1972) definition, “cultural heritage” includes monuments, groups of buildings and sites. Natural features, geological and physiographical formations and natural sites shall be considered as “natural heritage”. UNESCO has established a list of World Heritage Sites in its Convention of 1972. In particular, the 1972 UNESCO World Heritage Convention provides a useful framework for deciding both cultural and natural sites to be considered for inscription on the World Heritage (WH) list. It is important to recognise that there is an interrelated relationship between natural and cultural heritage. Many natural heritage sites, such as national parks, have cultural components (Park, 2014). According to the Council of Europe (2020:14): “The concept of cultural tourism emerged between 1970 and 1980, and can be defined as travel with the aim of visiting famous buildings, seeing works of art or participating in events”. “Cultural tourism is a comprehensive, holistic concept. It focuses on resources from the past (tangible and intangible heritage), the present (relating to contemporary cultural production such as the performing and visual arts, contemporary architecture and literature) and even the future (creative industries, fashion design, web and graphic design, film, media and entertainment)” (Council of Europe (2020:20). Tscheu and Buhalis (2016) point out that the cultural tourism sector is increasingly looking for new ways of visitor engagement through the latest technological innovations. Thus, the increase in the level of

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education of the population worldwide, technology advancements and globalisation are some of the key factors that will play a significant role in the rapid growth of cultural tourism in the global market (Jovicic, 2016; UNWTO, 2018). Narrowing the concept of cultural tourism, heritage tourism is characterised by Timothy and Boyd (2006), as one of the most important and widespread types of tourism. Timothy (2011: 4) asserts that heritage tourism is linked to travellers “…seeing or experiencing built heritage, living culture or contemporary arts”. Furthermore, Poria et al. (2003) point out that heritage tourism focuses on heritage and cultural attractions and their attributes that possess importance as tourism products. For Park (2010), heritage tourism assists the creation of not only personal but also national identities and thus creating questionable interpretations (Suntikul & Jachna, 2013). Hence, scholars equally indicate that heritage tourism is viewed to a great extent as experiential consumption (Park, 2010; Prentice, 2001). Although such studies generally impute serious motives to tourists, Ryan and Hsu (2011) have suggested that not all motives involve an interest in things, are historical. For example, they have noted that visits to a museum may be about (a) a search for facts, (b) motives of relaxation, (c) social interaction with family and friends and sometimes (d) simply having a place to take children on a rainy day (Ryan & Hsu, 2011). Nonetheless, many researchers conclude that a key distinction between heritage tourism and other forms of tourism is the presence of a potential learning experience and the greater willingness to learn on the part of the tourist (Prentice, 1993; Prentice et al., 1998). Indeed, Moscardo (1996) noted that a key factor in generating visitor satisfaction is a state of “mindfulness”: that is, knowledge consciously acquired during the visit. Other research on the benefits that tourists gain from a heritage setting has been based on a hierarchal mode of recreation demand consisting of four levels (leisure activities, settings, experience and benefit). In short, current literature (Jovicic, 2016; Trinh & Ryan, 2016, 2017) suggests that the heritage sites are visited for a wide range of reasons ranging from the fulfilment of a need to see something different to the realisation of serious learning objectives. In conclusion, Jovicic (2016) asserts that there are two key groups of cultural tourists: tourists who consume culture because it is their main motivation, and those for whom culture is only a complement, secondary or even accidental. If consumers (tourists)

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make conscious and well-informed decisions, then this could be a reflection of sustainably developed tourist destinations (Angelevska-Najdeska & Rakicevik, 2012).

Methodology and Data Collection Given the exploratory nature of this study, qualitative research was considered ideal since it provides insights and understanding of the problem setting. Focus group interviews were used, since they allow researchers to understand consumers’ everyday behaviour and experiences and how they interpret reality in their own terms (Carson et al., 2001). Focus groups as a method are a very convenient way of interviewing a number of people (Calder, 1977) and excellent for gaining insight into a population of interest and getting their opinions about a particular issue (Bryman & Bell, 2015), especially as these opinions which are not normally accessible with more structured questioning (Morgan, 1996). Although the literature suggests that there is no “ideal size” for a focus group, it is generally accepted that they should be composed of 6–12 participants (Bryman & Bell, 2015). In this study, we employed experts in the heritage tourism. Their group sizes ranged from seven to five participants with a total of 12 participants-experts in 2 focus groups. Each session lasted around 2 hours on average in order to avoid any possible fatigue or loss of interest (Packer-Muti, 2010). In all circumstances, the time was sufficient to allow discussion on all areas of interest that arose. The groups were formed so as to be fairly homogeneous, mainly in terms of age. The sessions were conducted in November 2016 in the facilities of a university in London area, with which researchers are associated with. They were organised as part of the INHERIT Erasmus+ project which was concluded in 2018 and was entitled “Promoting Cultural Heritage as a Generator of Sustainable Development ”. The aim of the project was to increase “public awareness on the economic value of built cultural heritage and its crucial role in generating regional and local development” (https://www.inherit.tuc.gr/en/home/). All four authors of this chapter were members of the UK partner of the project. A judgemental sampling was adopted, since participants were selected based on their relevance to the study and their ability to discuss the research issue. The focus groups followed a semi-structured format with

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participants discussing the open-ended predetermined questions introduced by the moderator. The questions were developed to guide discussion and in order to elicit specific details. A discussion guide was prepared to help ensure that the focus groups covered the topic of interest and were all conducted in a similar manner. The discussions were audio recorded for data analysis to limit the bias, and full transcripts were produced as soon as possible after the sessions. One of the researchers took on the role of the moderator (Calder, 1977; McDonald, 1993) and ensured that all group discussions were constructive and went smoothly without problems (Churchill & Iacobucci, 2002). The sessions ended with participants’ final thoughts and remarks. Finally, the moderator-researcher provided a brief summary of what had been discussed to ensure that their interpretation of the discussion was correct. Participant names were replaced by a code for identification purposes (e.g. P1, FG1 for participant 1 in focus group 1, or FG2 for focus group 2, etc.). The focus groups were then transcribed. A content analysis procedure was then undertaken, in the form of identification of themes and discussions. A substantial amount of data was obtained, resulting in about 50 pages of typescript for analysis. This chapter focuses on the responses of both focus groups, i.e. FG1 and FG2.

Findings and Discussion Data collected from the focus groups can be categorised into four main areas of discussion relating to the phenomenon of cultural-heritage tourism and the co-creation of production and consumption in terms of sustainable tourism destinations. Specifically, the definitions of cultural heritage are explored, then the nature of cultural heritage is argued, followed by the discussion on the role of various stakeholders to better understand their possible contributions to creating sustainable tourism destinations, and finally is assessed whether and how marketing and entrepreneurship can help to shape the effectiveness of the co-creating process. We present some key findings relating to each of these areas next. As we already discussed literature shows a variation of definitions on cultural heritage (Timothy & Boyd, 2003; Leghton, 2007; Park, 2010). When participants were asked “What is Cultural Heritage?”, they offered some diverse views. The following extracts demonstrate these views:

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Cultural heritage is tangible and intangible. Tangible refers to things such as buildings. Intangible refers to people’s lives and skills. It is the cultural related past and refers to how to sustain the past within the present, we have to keep humans to keep heritage alive to make the past into the future. (P6, FG1) Cultural heritage can also be related to religious beliefs this is intangible. Religion is related to creation of a memory e.g. war and how its meaning is interpreted into tradition heritage. ……. From another point of view, Jamaica developed its own culture around Bob Marley. Ideas such as this can be forming a big part of cultural heritage, they can feed industry in respect to the music. (P3, FG1) …events are part of this traditional heritage and so are how crafts are made. For example, a Croatian Island lace making has become part of its heritage. (P2, FG1) …in family history, heritage can come from where parents and grandparents actually came from. (P4, FG1) Value people place on building, the environment, streets, etc. (P3, FG2)

Some key terminologies arose from these responses, including tangible and intangible resources a culture owns, religious beliefs, culture events, family history and music. These findings reflect a phenomenon amongst our understanding of cultural heritage, which is the diversity of definitions based on one’s own experience and knowledge. These responses reflect the historical path of understanding cultural heritage as outlined by Vecco (2010) since the Charter of Venice in 1964 where tangible and intangible dimensions of cultural heritage are explored. In particular, it was recognised that it was important to go beyond the “object’s intrinsic value….and to recognize its aesthetic, historic, scientific, social values etc., or rather, it is society, the community that must recognize these values, upon which its own cultural identity can be built. Gradually, talk is about a heritage that is not just tangible but also intangible, and therefore is not closely linked to the physical consistency of the heritage” (Vecco (2010: 323). This dual identity of cultural heritage was more systematically introduced by the Convention of San Antonio in 1996, then the Krakow Charter in 2000 and eventually is more clearly reflected in Blake (2002). This gradual process of extending the concept of cultural heritage is aiming at embracing the different understanding and importance different cultures give on the tangible and intangible nature of their heritage. On a related question, respondents were asked: “Is cultural heritage a product or a service?”. Different responses were given:

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Went on a private tour around a house, someone says this is only the high society. They were very surprised that we would be interested in the non-high society such as the servants. (P4, FG1) It is a concept. Does it exist without marketing it? (P5, FG1) It is a community activity of what people have done in the past. (P2, FG2) it’s a process rather than a product or a service, a way to represent what they mean by culture. Marketing production theory sees cultural heritage as the core product and the services are the restaurants and the gift shops. Cultural heritage is the core thing and is integrated into the same place and process. (P6, FG1) It is a product because you can market and promote it. (P2, FG1)

These responses can be interpreted that participants perceive cultural heritage (despite the definitions given above) as a “product” that needs to be “serviced” in order to be known or a “concept” or an “object” which nonetheless has or generates value. It can be assumed that without being known, a particular cultural heritage is of limited value and influence. Tweed and Sutherland (2007) in the paper on built cultural heritage closely relate an “object” with sustainable development thus implicitly stressing the dual nature of cultural heritage as both a “product” and a “service” interlinked in generating income for local societies. Nowadays, new cultural tourism is focused on the integration of production and consumption (co-creation), and increasing linkages between suppliers and consumers (Jovicic, 2016) including entrepreneurial co-creation in a heritage tourism context. Thus, cultural tourism is addressed by understanding the role of stakeholders in the creation sustainable cultural destinations. To this end, participants were asked: “To have successful quarter or district of cultural heritage, what [stakeholder] factors should be included?”. Some key findings include the following statements: They include many different stakeholders who all need to be involved. The City council and government thinks of crepitation. The private sector talks about practicality. Without the support of NGO’s and local people cultural heritage cannot be created. Culture mean stakeholder process and all must be included. (P6, FG1) Needs to be someone there who shows you how things are done. For example, someone making the lace. (P2, FG1)

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How often are stakeholders actively involved? For example, people in Walthamstow have been pushed out, it is nothing like how it was created in the 1930’s. (P5, FG1) Importance of local councils, how they interact in terms of deciding what kind of economic activities can make a building survive. (P2, FG2) Depends where it is and who owns what. I went to York and there was a windmill and the council owned it and fell it to disrepair the local people owned it repaired and made it into use. People the windmill take pride in it and that is a big aspect of it. (R3, FG1) Enterprises can sponsor research and then they can sponsor research into cultural heritage making it more sustainable…… The European commission has used cultural roots to link different countries that have similar cultures. This allows for cultural and regional links. (P6, FG1)

These responses reflect high agreement in the need to extensively involve multiple stakeholders, particularly local residents and communities, local governments, individuals linked to local heritage (e.g. through work) and non-government organisations. Similarly, Alberti and Giusti (2012) showed how the interaction of local stakeholders boosted regional growth through the systematic creation of a cultural cluster around the socalled Motor-Valley (Modena region in Italy) integrating the tangible and intangible dimensions of the famed Italian motor industry. This is also confirmed in recent study by Skrede and Berg (2019) on the interaction between culture and urban planning. Further to the role of stakeholders, the role of marketing and entrepreneurship in culture production and consumption was also investigated in the context of cultural-heritage tourism. In terms of possible contributions of marketing and entrepreneurship in the productionconsumption process, participants were asked: “Are there specific places or methods that are designed to sell culture?”. Some key findings are given below: The case of Jamaica it arose spontaneously by Jamaicans being entrepreneurial and now it its packaged as an Island of sun see and sad and the home of Bob Marley. The Bob Marley part of the package Spanish town where he was born has become is like the Mecca who are interested in that part of the culture. Even Obama visited it adding to the appeal. (P3, FG1)

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The lacemaking on the Island has been there for many years and it has helped local community through marketing tools that have been used to promote that type of travel. (P2, FG1) There is a loss of traditional skills, there is a need to educate people on this. (P1, FG2) Films to tell story about history of the field. e.g. “Downton Abbey or Escape to the Country”. Radio and TV can also be used. Because of the history film makers try reinterpreted history. Promotion of film and fashion can be used to promote heritage e.g. Game of Thrones. In Croatia Game of thrones has brought another type of visitor increase number of people form Korea who never came before. This brought another clientele who created a link to see other bits of Croatia. (P6, FG1) It can be a focus on different aspects of the population, for example half term you can put in place children activities. This will bring both parents and children to the site and encourage their involvement. If you focus on certain segment of society you can direct it to them on their own terms. Other activities could be the celebration of national days. (P4, FG1) Maybe cultural heritage should be a subject that children start learning at school, the younger generation needs to be introduced to this subject. (P3, FG2)

These responses show a diverse range of ways to market culture heritage to potential visitors worldwide who may or may not possess any prior knowledge of a particular culture. Participants seem to agree that marketing and entrepreneurship are important in promoting consumption of cultural heritage. Marketing can target both “consumers” and children who can develop into consumers in the future. Traditional marketing tools which are widely available can be good options for attracting tourism, such as music, films and fashion, which can transmit cultural messages to its audience. In this respect, significant is the contribution of Silberberg (1995) who states that for sustainable cultural tourism it is important to define a cultural tourist product or service in collaboration of as many stakeholders as possible. Like any other product, there should be a checklist that evaluates the quality and efficiency of the cultural product in terms of: “perceived quality of the product; awareness ; customer service attitude; sustainability; extent to which product is perceived to be unique or special; convenience; community support and involvement; management commitment and capability” (Silderberg, 1995: 362). Furthermore, the role of education at an early stage can have a long-lasting effect on shaping consumer choices. Ott and Pozzi (2011)

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stressed the importance of ICT in developing cultural-heritage education whilst Barghi et al. (2017) of the importance of introducing culturalheritage education in primary school curriculum. Once these aspects are taken into consideration then a destination can become a targeted cultural destination for consumers (tourists) instead of an “accidental” one (Menor-Campos et al., 2020).

Conclusions According to Mergos and Patsavos (2017), economic development embraces more “anthropocentric” dimensions where the role of cultural heritage can have a significant impact on societal welfare (Nocca, 2017). In turn, the anthropocentric shift of cultural heritage itself departs from the notion of mere exploitation for profit but instead “is recognised as both and an engine and as a catalyst for economic and social development” (Mergos & Patsavos, 2017: 26). The findings of this exploratory study agree with the role of cultural heritage and heritage tourism as drivers of sustainable development. In particular, they reflect that cultural heritage can have individualised meanings and it is important that all key stakeholders are effectively informed and engaged in the process. Thus, addressing cultural-heritage tourism in terms of co-creation is crucial in achieving sustainable development nationally and locally. Our findings agree with Coccossis (2017) who argues that tourism and cultural heritage are interdependent in the pursuit of sustainability. As stated by Best (2017) effective commercialisation of cultural heritage requires that communities offering access to cultural heritage and consumers to converge into common shared values. Our study affirms that marketing and entrepreneurship can promote culturalheritage tourism in a sustainable manner as long as they co-create shared values with consumers. To this end the role of education in cultivating appreciation for cultural heritage can play an additional important role (Ott & Pozzi, 2011). In conclusion, the findings of this study align with the Muscat Declaration on Tourism and Culture in 2017 where synergies amongst various stakeholders as well as responsible management of cultural heritage are considered as the cornerstones for the contribution of cultural heritage tourism to the 2030 Sustainable Development and the Sustainable Development Goals (UNWTO/UNESCO, 2017).

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Finally, although this study provides useful insights, it is not free of limitations. This study employed only two focus groups in UK, making the results and findings difficult to generalise. Future studies can be conducted by employing more focus groups. Future research could include participants-experts from various countries as well as users (heritage tourists) in order to grasp a deeper understanding of the current trends in cultural heritage.

References Alberti, F. G., & Giusti, J. D. (2012). Cultural heritage, tourism and regional competitiveness: The Motor Valley cluster. City, Culture and Society, 3(4), 261–273. Angelevska-Najdeska, K., & Rakicevik, G. (2012). Planning of sustainable tourism development. Procedia-Social and Behavioral Sciences, 44, 210–220. Barghi, R., Zakaria, Z., Hamzah, A., & Hashim, N. H. (2017). Heritage education in the primary school standard curriculum of Malaysia. Teaching and Teacher Education, 61, 124–131. Best, S. (2017). The road to ruins: How to utilise historical and cultural resources for the benefit of the community. In G. Mergos & N. Patsavos (Eds.), Cultural Heritage and Sustainable Development: Economic benefits, social opportunities and policy challenges, Technical University of Crete Blake, J. (2002). Developing a new standard-setting instrument for the safeguard of intangible cultural heritage. Elements for consideration. UNESCO. Bryman, A., & Bell, E. (2015). Business research methods. Oxford University Press. Calder, B. J. (1977). Focus groups and the nature of qualitative marketing research. Journal of Marketing Research, 14(3), 353–364. Carson, D., Gilmore, A., Perry, C., & Gronhaug, K. (2001). Qualitative marketing research. Sage. Churchill, G. A., Jr., & Iacobucci, D. (2002). Marketing research–methodological foundations. Harcourt. Coccossis, H. (2017). Cultural heritage and sustainable tourism: The challenges. In G. Mergos & N. Patsavos (Eds.), Cultural heritage and sustainable development: Economic benefits, social opportunities and policy challenges. Technical University of Crete Council of Europe. (2020). Cultural tourism in the EU macro-regions: Cultural Routes to increase the attractiveness of remote destinations. European Commission and Council of Europe. European Institute of Cultural Routes (EICR). (2004). Cultural tourism or tourism and culture. EICR.

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Herbert, D. (2001). Literary places, tourism and the heritage experience. Annals of Tourism Research, 28(2), 312–333. Hewison, R. (1987). The heritage industry: Britain in a climate of decline. Methuen. INHERIT. (2018). https://www.inherit.tuc.gr/en/home/ Jovicic, D. (2016). Cultural tourism in the context of relations between mass and alternative tourism. Current Issues in Tourism, 19(6), 605–612. Krueger, R. A., & Casey, M. A. (2014). Focus groups: A practical guide for applied research (5th ed.). Sage. Leighton, D. (2007). ‘Step back in time and live the legend’: Experiential marketing and the heritage sector. International Journal of Nonprofit and Voluntary Sector, 12, 117–125. McCain, G., & Ray, N. M. (2003). Legacy tourism: The search for personal meaning in heritage travel. Tourism Management, 24(6), 713–717. McDonald, W. J. (1993). Focus group research dynamics and reporting: An examination of research objectives and moderator influences. Journal of the Academy of Marketing Science, 21(2), 161–168. Menor-Campos, A., Pérez-Gálvez, J. C., Hidalgo-Fernández, A., & LópezGuzmán, T. (2020). Foreign tourists in world heritage sites: A motivationbased segmentation. Sustainability, 12(8), 3263. Mergos, G., & Patsavos, N. (2017). Introduction and overview. In G. Mergos & N. Patsavos (Eds.), Cultural Heritage and Sustainable Development: Economic benefits, social opportunities and policy challenges. Technical University of Crete. Morgan, D. L. (1996). Focus groups. Annual Review of Sociology, 22(1), 129– 152. Moscardo, G. (1996). Mindful visitors: Heritage and tourism. Annals of Tourism Research, 23(2), 376–397. Nocca, F. (2017). The role of cultural heritage in sustainable development: Multidimensional indicators as decision-making tool. Sustainability, 9(10), 1882. Noonan, D. S., & Rizzo, I. (2017). Economics of cultural tourism: Issues and perspectives. Journal of Cultural Economics, 41, 95–107. Nuryanti, W. (1996). Heritage and postmodern tourism. Annals of Tourism Research, 23(2), 249–260. Organisation of Economic Co-Operation and Development (OECD). (2009). The impact of culture on tourism. OECD. Ott, M., & Pozzi, F. (2011). Towards a new era for Cultural Heritage Education: Discussing the role of ICT. Computers in Human Behavior, 27 (4), 1365– 1371. Park, H. Y. (2010). Heritage tourism: A journey into nationhood. Annals of Tourism Research, 37 (1), 116–135.

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CHAPTER 12

Sustainable Enterprise DNA Mario Svigir

What is sustainable enterprise? How we define it? Can we measure its’ existence and to what purpose? And what are broader implications of introducing sustainability DNA1 to an enterprise core and growth mechanism? What this process of internally instigated sustainable change means for its’: purpose, organization, mobilization of resources, usage of technologies, and how it affects its outcomes, goals, and finally profit making? Can we squeeze in sustainability DNA into any enterprise metabolism or architecture and reasonably expect that this new enterprise breed or better said hybrid would either survive or perish in current business and economic environment? Would this enterprise-level change on the other hand instigate sustainability-related changes to overall economic and business environment? Sustainable enterprise DNA is essential for bottom-up 1 DNA or deoxyribonucleic acid is a substance that carries genetic information in the cells of plants and animals. Through rest of the text sustainable enterprise DNA is used as metaphor featuring sustainable substance that carries sustainable information to all internal processes of an enterprise and beyond, to organized markets and entire economies. Expression enterprise is used for a business or company interchangably.

M. Svigir (B) Policy and Foresight Advisory FMPFA, Fort Myers, FL, USA

© The Author(s), under exclusive license to Springer Nature Switzerland AG 2021 M. Ince-Yenilmez and B. Darici (eds.), Engines of Economic Prosperity, https://doi.org/10.1007/978-3-030-76088-5_12

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type of sustainable transition affecting overall markets and comprehensive of societies and economies. This is the missing link to current topdown sustainable development strategies where sustainability concept is more or less accepted globally and a variety of economic policy aimed at sustainability are making their way forward. The purpose of sustainable enterprise DNA is to explain how enterprises do change when exposed to sustainability and to what extent it is reasonable to expect that overall sustainable transition will be supported by changes that occur or are stimulated on the enterprise level. According to one of the major business consultancies Mc Kinsey and Company, with global revenue of over 10 billion $, sustainability does not have to come at a cost. A well-designed sustainability program can help companies increase profits by generating savings, driving growth, and reducing risk. Creating a sustainable enterprise involves transforming the entire value chain from the supply of materials to product design, operations, sales and marketing, and endof-life management. That sounds like a systemic transformation but for any enterprise for this process to become internalized a proper understanding of what sustainability is on enterprise level is necessary. Likewise defining enterprise sustainability would be essential for understanding what sustainable enterprise DNA stands for.

Sustainability and Sustainable Enterprise DNA–Definition The definition of sustainability given by the Brundtland report, Our Common Future (1987) is “development that meets the needs of the present without compromising the ability of future generation to meet their own needs”. Sustainability is concerned with the impact of present actions on the ecosystems, societies, and environments of the future. Such concerns are reflected in the strategic planning of sustainable enterprise forming its DNA. Strategic intentions of this nature are operationalized through the adoption of a long-term focus and a more inclusive set of responsibilities focusing on ethical practices, employees, environment, and customers (Ameer & Othman, 2012). The Brundtland report also challenged the world to envision a future in which the threats of environmental destruction are minimized and the people of the world enjoy economic stability and social equity between and within generations. It recognized that humans are dependent on the environment to meet their needs. The report suggested that the well beings

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of society are linked to the balance between ecology and economic growth. It called for an appropriate balance between exploitation of resources and environmental protection and conservation (Hopwood et al., 2005). Historically, sustainable enterprise DNA has evolved as a result of economic growth, environmental regulation, and adoption of social justice and equity principles as part of entrepreneurship. It has been steered in recent years through the emergence of global interests among industry, governments, and non-government organizations to collaborate to develop methods for sharing responsibility and respecting the laws that preserve and maintain the environment and its natural resources. Sustainability is deemed as an ambiguous and politically charged term (Funk, 2003) yet it could alternatively be defined in general as consumption that can continue indefinitely without the degradation of natural, physical, human, and intellectual capital (Costanza et al., 1991). The contemporary stakeholder perspective, originating with Carroll (1979) and Freeman (1984), suggested that firms embrace expectations beyond those of financial shareholders, and this perspective has emerged as the dominant paradigm in social responsibility research (McWilliams & Siegel, 2000). Economic prosperity maintains that sustainability should lead to economic success as well as enhancement to the firm’s reputation and the ability to generate stakeholder loyalty (Bansal, 2005). Sustainable enterprises pursuing sustainability make decisions based on the three criteria of environmental integrity, social equity, and economic prosperity (Bansal, 2005). Environmental integrity implies a balanced and complete organization that addresses both economic and social interfaces within the natural environment (Fig. 12.1).

Why Stimulating Sustainable Enterprise DNA? The most pressing question for discussion about vitality of sustainable enterprise DNA concept for the future is: why it matters? It matters because enterprises as any other enterprises on Earth are losing ground as we speak. Over the past half century, we have lost a fifth of the world’s topsoil, a fifth of its agricultural land, and a third of its forest (Raven, 2002). We have changed the composition of the atmosphere profoundly, driving global temperatures upward and depleting stratospheric ozone. Habitats throughout the world have been decimated by intentionally and accidentally introduced plants and animals. Most troublesome is the irreversible loss of biodiversity. For the past 65 million years, the rate of

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Fig. 12.1 Sustainable enterprise DNA scheme; original scheme designed by author, not NASA (Source of data NASA Climate Change Observatory Database)

species extinction has remained at about one species per million per year. It has now risen by approximately three orders of magnitude, to perhaps 1000 species per million per year (perhaps 0.1% of all species per year), and it continues to rise as habitats throughout the world are destroyed (Raven, 2002). Negative effects of climate change should be added to that account. All taken together destabilizes ecosystems on which all life on Earth, including our own, depends in such a way as to deprive future generations of many of the benefits that we enjoy now (Fig. 12.2). The emerging academic field that focuses on sustainability addresses complex problems that are characterized by long-term implications and non-linear behavior; cut across economic, social, and environmental domains on local to global scales; and display high degrees of urgency and damage potential (Clark & Dickson, 2003; Kates et al., 2001). Likewise, sustainable capitalism knowledge is often assumed for exclusive association with information about some forms of environmental crises. When

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Fig. 12.2 Context of sustainable enterprise DNA (Source of data NASA Climate Change Observatory Database)

we speak of sustainable and unsustainable, we speak of a systemic crisis of long-term dimension in the economy and business models, on all levels. We talk of local to a global crisis, with detrimental effects on humans and the environment, as well as economic organizations, of various kinds, often forfeiting any economic, social, and environmental future. The long-term crisis is not just a crisis of long-term investment, but also a crisis of human and ecological capital (Svigir et al., 2020).

Brief History of Sustainable Enterprise DNA Evolution As with the human DNA analogy, sustainable enterprise DNA is a product of an evolution of green or responsible enterprise, business or economy awareness, concepts, and practice. In the 1950s and 1960s, concerns in environmental conservation became a subject of interest when the push

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for industrialization increased the awareness of the limits to growth. For the first time in history we realized that our world has limits and that we are very close to that wall. First these issues were expressed by many social scientists like Goyder (1961) who suggested that social audits could provide a management tool that could offer stakeholders a platform to challenge and influence companies in their thinking and decision-making. In a world with limits enterprises were forced to think of their limits at least by social criticism discipline before these ideas were incorporated into business and management and economic concepts and practices. At bottom of this evolution enterprises first started to engage in philanthropy and published these activities through their regular reports. But then scientists like Heald (1970) started to criticize businessmen’s understanding and practice of such corporate social responsibility since their interests and actions were limited to corporate philanthropy and community relations. Johnson (1971) offered a view on expansions of these proto sustainability DNA activities which included employees, suppliers, dealers, local communities, and the nation. Sustainability theorists like Carroll (1999) proposed a four-tier model consisting of four elements: (1) economic (profitability); (2) legal (obedience to the rules of law); (3) ethical and (4) discretional/philanthropic. In light of the environmental disasters of the 1980s and the corruption and economic scandals of the 1990s, socially responsible companies perceived an economic advantage as to whether sustainability programs can be closely associated with better corporate performance (Hopwood et al., 2005). These efforts culminated in the creation of the DJSI World in 1999 by the Sustainable Asset Management (SAM) Group of Zurich and the DJSI. The DJSI covers the top 10% of the biggest 2,500 companies in the Dow Jones Global Index that pursue economic, social, and environmental reporting (DJSIs, 2009). Dow Jones defines corporate sustainability as “a business approach that creates long-term shareholder value by embracing opportunities and managing risks deriving from economic, environmental and social developments.” According to Jeurisen and Elkington (2000) the triple-bottom-line approach to sustainable business defines corporate performance and success via three separate dimensions: “economic prosperity, environmental quality, and social justice. Sustainable enterprise must also mind “their impact on the broader economy, the environment, and on the society in which it operates.” By using this approach in its accounting, sustainable enterprise can measure its financial success as well

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as the extent to which it is “reducing (or increasing) the options available to future generations” during a particular reporting period. In 2000, the GRI was created under the guidance and support of the United Nations Environmental Programme (UNEP) in cooperation with the Coalition for Environmentally Responsible Economies (CERES) and the Tellus Institute to provide the international community with a reporting framework to guide their sustainability efforts and initiatives. It is the world’s leader and largest producer of standards/guidelines to report ecological footprints in sustainability reports. Their guidelines are based on the notion that transparency and accountability about economic, environmental, and social impacts are of interest to a diverse group of stakeholders. This effort gained popularity in recent years, as more and more institutional investors (pension funds, mutual funds, and venture capital funds) increased their ownership of corporate wealth. These institutional stakeholders seek, undeniably, top returns, but they have also practiced responsible management and have been increasingly assertive to sustainability issues. But the making of sustainable enterprise is anything but easy or even straightforward. Just like human DNA information it came to be evolved through a cycle of challenges. Sustainability is not about cutting angles and getting short term and easy results. It is a systematic investment in the potential of sustainable enterprise success in for the future and the future. Kiewiet and Vos (2007) define sustainability at enterprise level as systemic transition aimed at: reducing business risks, increasing market opportunities, and increasing of overall organizational responsibility but the problem is that “green” or “sustainable” business practices can sometimes entail profit sacrifices, particularly in the short term. We still haven’t arrived at a point to say the sustainable enterprise is readily present on the governance agenda as crucial and not as auxiliary function of an enterprise (Fig. 12.3). A conflict thus arises with the commonly held view that corporate directors and officers must strive to maximize shareholder wealth and affirmatively neglect other corporate constituencies like labor, creditors, suppliers, customers, the public, and the environment. This perceived duty to maximize shareholder profits lies at the heart of the conventional law-and-economics-laced view of corporate governance, thus imposing a formidable obstacle to corporations wishing to become more sustainable (Snierson, 2008).

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Fig. 12.3 Evolution for sustainable enterprise DNA, original design by author, not to be credited as NASA source (Source of data NASA Climate Change Observatory Database)

Does Sustainable Enterprise DNA Pay off? Sustainability performance may lead to obtaining better resources (Cochran & Wood, 1984; Waddock & Graves, 1997), higher-quality employees (Turban & Greening, 1997), and better marketing of products and services (Moskowitz, 1972). Better sustainability performance may also function in similar ways as advertising does, by increasing overall demand for products and services or by reducing consumer price sensitivity (Dorfman & Steiner, 1954). Moreover, it has been suggested that positive social performance could reduce the level of waste within productive processes (Konar & Cohen, ; Porter & Van Der Linde, 1995). Stakeholder theory emphasizes that effective management of stakeholder relationships may mitigate the likelihood of negative regulatory, legislative, or fiscal action (Berman et al., 1999; Freeman, 1984),

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while protecting and enhancing corporate reputation (Fombrun, 2005; Fombrun & Shanley, 1990; Freeman et al., 2007) (Fig. 12.4). Corporations voluntarily adopted initiatives to expand the traditional economic objective, which leads to shareholder wealth maximization, to include environmental and social elements sustainability development and reporting have been the result of innovation through corporate practice and guidance from international consortiums, legislators and regulators have also expressed heightened interest to recent socio-environmental issues and concerns. The US Securities and Exchange Commission (SEC, 2010) has formally issued guidelines for disclosure of risks related to global warming. The document issued by the SEC offers several examples of risks that could require disclosure, including changing legislation such as the passing and implementation of an emissions cap and trade policy or the effects on costs or demand resulting from already adopted legislation or international treaties. Efforts to reduce waste and pollution often result in greater efficiency and the discovery of innovative techniques and materials, all

Fig. 12.4 Some of the benefits of switching to sustainable enterprise DNA, original design to be credited to author, not NASA (Source of data NASA Climate Change Observatory Database)

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of which in turn can benefit the firm, its workforce, and the environment in both the short and the long runs. An energy company’s triple-bottom-line efforts might focus on renewable energy sources, an automobile company’s efforts might focus on fuel efficiency and hybrid and fuel-cell technologies, and a food company’s efforts might focus on healthful options and reduced packaging. According to Kolk and Levy (2001) climate change is an international environmental issue that has provoked widespread controversy in the industries that are most involved (Ikwue & Skea, 1994; Levy, 1997). Strong business opposition has contributed to the deadlock in the negotiations, with a US government that rejects particularly the European efforts to proceed with the international approach as agreed upon in Kyoto in 1997. With exception of ExxonMobil BP, Shell and Texaco recognized climate problems during the 90s of the last century toward 2000. But they have abandoned global climate coalitions and have taken precaution stance towards climate change in general and Kyoto agreement in particular. Regardless, with exception of ExxonMobil these companies all have external measurements of their emissions and have pushed forward renewable investment particularly in solar and hydrogen energy. In recent years, many organizations have introduced or changed policies, products, and/or processes to address pollution, minimize resource use, and to improve community and stakeholder relations (Crane, 2000). Environmental performance would induce cost savings, increase sales and thus improve economic performance. According to this revisionist view, an inversely U-shaped curve is the best possible description of relationship between environmental and economic performance (Wagner & Schaltegger, 2004). According to Kiron (2012) many companies have been placing sustainability on their management agenda in recent years. In the past, corporate communications, branding and regulatory concerns might have been the most straightforward explanation. But none of these completely explains the rise in management interest or the increase in the number of companies that say sustainability is important to how they compete in today’s markets. External factors include: regulations, green scorecards and other sustainability metrics, media and nongovernmental organizations, climate change science, resource scarcity, and consumer demand. There are strong indicators that consumer interests in sustainable products have increased in recent years. Internal drivers of development of sustainable enterprise DNA are: benefits related to operating costs, revenue growth,

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branding integrity, and employee engagement. Along with these benefits, other internal drivers could include leadership changes that value transparency, effective internal champions, and organizational structures that help embed sustainability into business processes. The drive for shareholder profits—though not required as a matter of corporate law— has stood in the way of this goal, insofar as misperceptions, market forces, and social norms have discouraged corporate decision-makers from pursuing sustainability. But market forces have seemingly evolved to a point where sustainable and socially responsible business practices either break even or prove profitable and social norms have likewise seemingly come around. As a consequence, corporations should no longer see corporate law, norms, and market pressures as obstacles to sustainable business (Snierson, 2008).

Sustainable Enterprise DNA Tools Kiron (2012) identified corporate features and economic and business benefits arising from early development of sustainability agenda. He calls them harvesters and explains that: a typical harvester organization looks different from a typical non-harvester organization on four important dimensions: organizational support, operations, collaboration, and willingness to change the organization’s business model in response to sustainability-related considerations. Harvesters have a distinctive organizational mindset and design that supports sustainability. Compared to non-harvesters, harvesters are three times as likely to have a business case for sustainability. They are also 50% more likely to have CEO commitment to sustainability, twice as likely to have a separate sustainability reporting process and twice as likely to have a separate function for sustainability. Harvesters are also 50% more likely to have a person responsible for sustainability in each business unit and nearly 2.5 times as likely to have a chief sustainability officer. Harvesters are far ahead of non-harvesters when it comes to measuring sustainability-related key performance indicators and connecting sustainability performance with financial incentives. Also, harvesters are more than twice as likely to say that sustainability has increased their collaboration with internal business units across geographies. Harvesters and non-harvesters approach working with external groups in dramatically different ways. Harvesters are more than twice as likely to say that sustainability has increased their collaboration with competitors. Harvesters are also likely to be

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collaborating more with customers, suppliers, government, local communities, and NGOs as a result of sustainability. Harvesters are twice as likely to change their business model because of sustainability. Harvesters focus on increased competitive advantage, better innovation, access to new markets, and increased margins or market share, whereas nonharvesters focus more on brand-related concerns. According to Khan et al. (2015) the number of companies issuing sustainability reports has grown from less than 30 in early 1990s to more than 7,000 in 2014, while the United Nations Principles for Responsible Investment (UNPRI), as of 2014, had 1,260 signatories with $45 trillion in assets under management. Wagner (2007) proposed an integration framework in which social and environmental aspects are integrated with business management. The sustainable enterprise DNA notion of ‘integration’ in these reports means the links between goals and activities related to sustainability with core managerial processes and functions in those areas which are of strategic importance to the firms, namely corporate strategy, quality management, health and safety, and social issues. He identified four intermediate drivers of economic performance—efficiency-related, market-related, image-related, and risk-related thus integrating social and environmental management with the core processes. This integration leads to cost savings, innovative products, high market share and better profit margins, and reduction in work-related accidents and injuries. As a result, Wagner (2011) concludes, that ‘integration’ of environmental and sustainability aspects with general management have an effect on both, economic performance and environmental performance. But a practical question remains, how to connect sustainability structure with governance and system of rewarding in a meaningful way? According to Schaltegger and Synnestvedt (2002) dynamic theoretical framework, for environmental protection to be rewarding, enterprise management would have to identify the specific set of restrictions, opportunities, threats, and incentives. As a next step, objectives and goals would have to be defined, plans developed and concrete action taken. This new rethinking will then result in a new and different environmental enterprise profile, which in turn may result in cost savings. They postulate and illustrate that, beginning at a certain level of economic success; every environmental protection activity will reduce the economic success, which can be expected to decrease in the short term. As long as companies are able to develop environmentally friendly technologies, which reduces the marginal costs, the economic performance improves. Organizations will

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have to undergo significant cultural change and transformation (Post & Altman, 1994; Stead & Stead, 1992). The central idea is that organizations will have to develop a sustainability-oriented organizational culture when moving toward corporate sustainability (Crane, 2000). An engagement with corporate sustainability practices, particularly the publication of a corporate sustainability policy as well as the integration of environmental performance indicators in employee evaluation, was found to be an important aspect in shaping how organizational actors understand corporate sustainability (Linnenluecke & Griffiths, 2010). The collective and multidisciplinary research efforts resulted in the implementation of accounting methods that record and such results. Its measurement and reporting, however, is at the initial stage of development and has not yet achieved full standardization and enforcement by the accounting standards setting organizations (Christofi et al., 2012). According to Khan et al. (2015) the increasing number of companies has made sustainability investments, and an increasing number of investors integrate sustainability performance data in their capital allocation decisions. They have found that firms with good performance on material sustainability issues significantly outperform firms with poor performance on these issues, suggesting that investments in sustainability issues are shareholder-value enhancing. A large number of companies now identify sustainability issues as strategically important and release a wealth of information in the form of environmental, social, and governance (ESG) data. However, the materiality of the reported sustainability investments for firm value is regularly questioned, with companies releasing an increasing amount of information that might be immaterial from an investment standpoint. Yet connection of sustainable enterprise DNA and quality of corporate governance should be regarded as two-way street. According to Mahmood et al. (2018) presence of corporate governance standards enhances sustainability disclosures. This research showed that board size is positively and significantly correlated with all three dimensions of sustainability reporting: economic, environmental, and social. Sustainability as a corporate governance paradigm includes values, governance, transparency, and ethics, as well as such goals as diversity, social responsibility, supporting human and employee rights, protecting the environment, and contributing to the community. Sustainability includes the bottom line, because financial viability is necessary for organizational survival, but it defines success beyond financial results.

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Sustainable enterprise DNA human resources programs such as performance management, selection, and training necessarily reflect fair treatment, respect for collective association rights, work-family balance and reward not only economic performance but also community involvement or reduced environmental emissions. Sustainable enterprise DNA human resources policies measure sustainability-related knowledge, behaviors, attitudes, and motivation, as well as collective activity, community involvement, and employee health and safety. Within that paradigm, chief sustainability officers have found their way into the upper echelons of many of the world’s largest corporations (Strand, 2014). Studies related to sustainable enterprise HR practices show (Cavazos-Garza & Krueger, 2014) that hiring sustainability officers does payoff particularly over the longer term. But hiring a designated officer is not enough. Identifying pivotal talent pools where the quality and/or availability of human capital make the biggest difference to strategic success. Second, HR and business leaders increasingly define organizational effectiveness beyond traditional financial outcomes to encompass sustainability—achieving success today without compromising the needs of the future (Boudreau & Ramstad, 2005). Today sustainability professionals help organizations achieve their goals by ensuring that their business practices are economically, socially, and environmentally sustainable. Sustainability is a diverse field that includes a wide variety of professionals. Sustainability professionals can be business managers, scientists, or engineers; or they can come from other backgrounds. Although their specific career paths might differ, sustainability professionals promote environmental protection, social responsibility, and profitability (Hamilton, 2012). Sustainability professionals seek to improve an organization’s environmental, social, and economic impact. Some have specific titles such as sustainability manager and director of corporate responsibility. Sustainability professionals in other roles may have had experience as industrial managers, logistics (transportation, storage, and distribution) managers, environmental scientists, civil engineers, or recycling coordinators, among others. Many of these workers are dedicated to sustainability, but some may have sustainability responsibilities, in addition to their primary job duties. Many large corporations, some non-profit organizations, and some government agencies employ sustainability professionals. Some organizations do not employ their own sustainability professionals, but still seek advice on sustainability practices. Such organizations frequently hire consultants from sustainability firms

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to offer specialized skills and services, as well as additional temporary manpower for specific projects for example; a chief sustainability officer is a stand-alone position that coordinates sustainability strategy and activities and a vice president of sustainability is a top leader that is responsible for reducing the environmental impact of a company, its operations, and its products. Some companies use a team-based approach where a crossfunctional team addresses issues of sustainability. According to J. Gregson (2010), green-collar workforce is featured by following skills: stewardship or caring about and caring for, the environment, respect for limits calls for preventing waste, pollution, and unsustainable resource depletion, systems thinking and interdependence addresses not only the ecological relationship among species and nature but also the links among economic and social systems. Jones (2008) and Hawken (2007) have also argued that green-collar work is about fighting poverty as well as pollution— that economic and social injustice are integrally related to environmental exploitation and degradation and that becomes sustainable enterprise interest embedded in its DNA. Hence green-collar workforce development is also about providing good wages, equal opportunities, pathways to success, and job creation (i.e., eliminating “dead-ends” in education through articulation agreements) (Fig. 12.5). There are other fields of operations that are affected by sustainable enterprise DNA as well. There is a systemic impact on project management practices within an enterprise through: recognition of the context of the project, identification of stakeholders, project specifications or requirements and deliverable quality criteria. Sustainable enterprise DNA redefines business case/costs/benefits, dimensions of project success; selection and organization of project teams, project sequencing and scheduling, materials used, procurement, risk identification and management, stakeholder involvement, project communication, project reporting, project handover, organizational learning. This implies a shift of paradigm of project management: from an approach that can be characterized by predictability and controllability, to an approach that is characterized by flexibility, complexity and opportunity. And thirdly, considering sustainability implies a mind shift for the project manager: from delivering requested results, to taking responsibility for sustainable development in organizations and society (Silvius & Schipper, 2014). The dimensions of green informatics are not to be neglected in the age of digital economies and transformation. Green informatics as part of sustainable enterprise

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Fig. 12.5 Sustainable enterprise DNA tools; original design by author, not to be credited to NASA (Source of data NASA Climate Change Observatory Database)

DNA is vested with: reduction of energy consumption, rise of environmental awareness, effective communication for environmental issues, and the environmental monitoring and surveillance systems, as a means to protect and restore natural ecosystems potential (Andreopoulou, 2013).

Conclusion Sustainable enterprise DNA is formed intensely through the last 50 years in waves of sustainability policies awareness and transformations. Today companies just like policymakers acknowledge that the world and economy within which they operate is limited and fragile and that its balancing systems are seriously damaged. We have developed a sophisticated world with no historical precedent but now the maintenance and repairing of this world has become our agenda and legacy to future

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generations to come. We have a duty to leave to them the world that we have inherited from our ancestors. Globalization has connected the entire world and made it smaller. Along the way it has revealed in this globalized world that everything and everyone is connected. Sustainable enterprise DNA is enterprise development that meets the needs of the present without compromising the ability of future generations to meet their own needs. It focuses on impact of present actions on the ecosystems, societies, and environments of the future. It aims to embrace the expectations beyond those of financial shareholders thus broadening definition of enterprise success to goals such as environmental integrity, social equity, and economic prosperity without degradations of natural, physical, human, and intellectual capital. And that is possible. Many enterprises around the world are choosing that path and are evolving in this manner and with no major sacrifices to their profitability. Principally beyond the short term they operate even more successfully when measured even as against existing financial indicators. Through concepts like triple bottom line philosophy and stakeholders’ values reporting, sustainable enterprise DNA affects better results and brings many benefits to companies, better marketing of products and services, increasing overall demand for products and services or by reducing consumer price sensitivity, higher-quality employees, enhancing corporate reputation or mitigating the likelihood of negative regulatory, legislative or fiscal action; just to name a few. There are many sustainable enterprise DNA tools readily available that can stimulate this adoption and development of sustainable tenets at enterprise level ranging from HR tools and adoption of new career green collar or sustainability officers paths, changes adopted to system of corporate governance, connecting commitments with targets and targets with incentives within enterprise structure and its life cycle, from engaging with green informatics to integrating sustainability performance data to their capital allocation decisions. Sustainable enterprise DNA is bringing sustainable practice to enterprise for the sake of enterprise adaptation to and survival in the changed business and economic world repairing it along the way of its damaged replication feature and acknowledging its limited nature.

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Freeman, R. E. (1984). Strategic management: A stakeholder approach. Pitman. Freeman, R. E., Harrison, J. S., & Wicks, A. C. (2007). Managing for stakeholders: Survival, reputation, and success. Yale University Press. Funk, K. (2003). Sustainability and performance. MIT Sloan Management Review, 44, 65–70. Goyder, G. (1961). The responsible corporation. Basil Blackwell. Gregson, J. (2010). A conceptual framework for green career and technical education: Sustainability and the development of a green-collar workforce. Journal of Technical Education and Training, 2(1), 123–137. Hamilton J: (2012). Is a sustainability career on your green horizon? US Bureau of Labour Statistics. Hawken, P. (2007). Blessed Unrest. How the largest social movement in history is restoring grace, justice and beauty to the world. Penguin Books. Heald, M. (1970). The social responsibilities of business: Company and community 1900–1960. Case Western Reserve University Pres. Hopwood, B., Mellor, M., & O’Brien, G. (2005). Sustainable development: Mapping different approaches. Sustainable Development, 13, 38–52. Ikwue, T., & Skea, J. (1994). Business and the genesis of the European community carbon tax proposal. Business Strategy and the Environment, 3(2), 1–10. Jeurissen, R., & Elkington, J. (2000). Cannibals with forks: The triple bottom line of 21st century business. Journal of Business Ethics, 23, 229–231. Johnson, H. L. (1971). Business in contemporary society: Framework and issues. Wadsworth. Jones, J. V. (2008). The Green collar economy: How one solution can fix out two biggest problems. Harper Collins. Kates, R. W., Clark, W. C., Corell, R., Hall, J. M., Jaeger, C. C., et al. (2001). Sustainability science. Science, 292(5517), 641–642. Khan, M., Serafeim, N., & Yoon, A. (2015). Corporate sustainability: First evidence on materiality (Harvard Business School Working Paper, No. 15073). Kiewiet, D. J., & Vos, J. F. J. (2007). Organizational sustainability: A case for formulation a tailor-made definition. Journal of Environmental Assessment Policy and Management, 9(1), 1–18. Kiron, D. (2012). Sustainability nears a tipping point. Strategic Direction, 28(7). Kolk, A., & Levy, D. (2001). Winds of change: Corporate strategy, climate change and oil multinationals. International Journal of Modern Physics. Levy, D. (1997). Business and international environmental treaties: Ozone depletion and climate change. California Management Review, 39(3), 54–71. Linnenluecke, M., & Griffiths, A. (2010). Corporate sustainability and organizational culture. Journal of World Business, 45(4), 357–366.

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Websites NASA Climate Change Observatory Database https://climate.nasa.gov/ https://www.bls.gov/green/sustainability/sustainability.htm

CHAPTER 13

Causal Performativity and the Definition of Social Entrepreneurship Alessandro Lanteri

and Francesco Perrini

Introduction Social entrepreneurship is a dynamic phenomenon (Teasdale, 2012) that is conceptualized differently by different actors (Huybrechts & Nicholls, 2012) and in different contexts (Chell et al., 2010; Kerlin, 2006; Seelos et al., 2011). Often it is loosely defined (Austin, 2006; Cho, 2006; Mair & Martì, 2006; Martì, 2006; Perrini & Vurro, 2006; Weerawardena & Sullivan Mort, 2006) and the numerous attempts at nailing it down have produced dozens of partly overlapping definitions (Bacq & Janssen, 2011; Dacin et al., 2010; Hervieux et al., 2010; Short et al., 2009; Zahra et al.,

A. Lanteri (B) Hult International Business School in Dubai and London, Dubai, United Arab Emirates ESCP Business School, Turin, Italy F. Perrini Department of Management and Technology, University of Bocconi, Milan, Italy e-mail: [email protected] © The Author(s), under exclusive license to Springer Nature Switzerland AG 2021 M. Ince-Yenilmez and B. Darici (eds.), Engines of Economic Prosperity, https://doi.org/10.1007/978-3-030-76088-5_13

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2009) that differ in rigor (Martì, 2006; Martin & Osberg, 2007), in scope (Light, 2006, 2008; Newbert & Hill, 2014; Perrini, 2006) and in focus (e.g., individual motives and character, level of analysis, field of activity, ownership and legal structure, …), sometimes depending on the geographical context (Chell et al., 2010; Jamali & Lanteri, 2015; Kerlin, 2006; Lanteri, 2015; Seelos et al., 2011). This proliferation of definitions is often attributed to the ‘pre-paradigmatic’ (Hmayed et al., 2015; Lehner, 2013; Nicholls, 2010a) and ‘embryonic state’ (Short et al., 2009: 169) the field is in. Yet, many scholars have expressed dissatisfaction with the current situation and have variously argued for the establishment of a unified definition or, as it is sometimes referred to, a common or a universal definition. A unified definition means a single, common definition, universally adopted by all the relevant stakeholders (i.e., social entrepreneurs, scholars, public officers…). The lack of a unified definition has been said to frustrate the theoretical and explanatory ambitions of this emerging scholarly domain, by hindering both empirical research (Short et al., 2009) and theoretical developments (Dacin et al., 2010), and more generally preventing social entrepreneurship from becoming a structured field (Mair & Martì, 2006) with a unified research paradigm (Bacq & Janssen, 2011; Newbert & Hill, 2014), thereby undermining its legitimacy (Martin & Osberg, 2007; Short et al., 2009). In response, some scholars have invoked a ‘rigorous’ definition that marks a clearly separated field of investigation (Martin & Osberg, 2007), while others prefer a less rigoros, ‘fuzzy’ definition that encourages interdisciplinary collaborations (Martì, 2006). Also, non-academic actors (e.g., governments, foundations, impact investors…) have advanced their own definitions of social entrepreneurship. These definitions are not expressly meant to be universally accepted (though perhaps universally imposed), but more simply to align with the internal logics of their proponents (Nicholls, 2010a). The numerous definitions proposed by practitioners can be traced to two main types (Dees & Anderson, 2006; Hervieux et al., 2010; Light, 2006; Nicholls, 2010a; Teasdale, 2012). One locates social entrepreneurship “within a framework of advocacy and social change” (Nicholls, 2010a: 621) and celebrates the revolutionary individuals variously saluted as ‘hero entrepreneurs,’ ‘social engineers,’ or ‘institutional entrepreneurs’ (Dacin et al., 2010; Hervieux et al., 2010; Light, 2006; Nicholls, 2010a; Zahra et al., 2009), who upset a current equilibrium that they perceive as unjust and establish a new one that is fairer and more socially acceptable (Martin & Osberg, 2007).

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The second proposes “business and commercial models as being central to social entrepreneurship” (Nicholls, 2010a: 621) and emphasizes the marketization of welfare and the commercial logics, which result in organisations that pursue social impact through market-oriented activities and which could accommodate corporations pursuing ‘shared value’ strategies (Porter& Kramer, 2011) and ‘social bricoleurs’ (Zahra et al., 2009) who profitably leverage scarce resources to address local issues, sometimes replicating models and methods championed elsewhere by other social entrepreneurs. (These two definitions will be referred to as ‘civic’ and ‘market’ throughout the article.) So far, neither definition has clearly prevailed (Teasdale, 2012) and some “tensions and conflict” (Nicholls, 2010a: 622) persist. This article addresses two main questions: which among the existing definitions is currently prevailing and is such definition good for practice and for research? Inspired by institutional theory, the answers are based on the premise that a dominant definition sets the standards that most stakeholders would expect social entrepreneurs to conform to. Institutional theory (Di Maggio & Powell, 1983; Dowling & Pfeffer, 1975; Powell & Di Maggio, 1991; Scott, 1995; Suchman, 1995) suggests that conformity to stakeholder expectations is the primary organizational goal, which trumps even efficiency and effectiveness. Analyses of the social entrepreneurship field through institutional theory, and specifically those exploring the notion of legitimacy, are now common, either at the field level or with a focus on specific actors (Dart, 2004; Dey & Steyaert, 2010; Hervieux et al., 2010; Nicholls, 2010a; Ruebottom, 2011). This chapter elaborates on such analyses, through the lens of causal performativity. Causal performativity is a property of theories that modify the real-world phenomena they purport to describe and analyze. Together with institutional theory, causal performativity supports specific predictions about the likely evolution of the field, in response to the establishment of a dominant definition. More specifically, the market definition is predicted to emerge as dominant because it resonates both with the current social values (Dart, 2004; Dees, 1998; Dey & Steyaert, 2010; Monaci & Caselli, 2005) and with the internal logics of the most resource-rich actors in the field: governments (Nicholls, 2010a) and, as this chapter argues, impact investors. Furthermore, the prevalence of one definition will predictably have (and is arguably already having) major consequences on the legitimacy of social enterprises and on the field of social entrepreneurship at large (Alvord

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et al., 2004; Lounsbury & Strang, 2009, Nicholls, 2010a), inducing social entrepreneurs to adjust their organizations to the market definition. These predictions suggest some caution when invoking a unified definition. To the author’s knowledge, only Nia Choi and Satyajit Majumdar (2014) have argued against pursuing a unified definition. They propose that social entrepreneurship is an ‘essentially contested concept’ and so “a universal definition, which would be accepted among the different users, is hardly ever possible” (Choi & Majumdar, 2014: 372) in spite of its benefits. This chapter sides with the proposal of abandoning the search for a unified definition, though for different reasons—namely that a unified definition entails potential negative side effects, which have so far been overlooked. Although the arguments for empowering research and for legitimizing this academic field are admittedly compelling, this chapter argues that separate definitions can also stimulate promising research avenues, particularly in the pursuit of finer-grained insights into their differences, and legitimize this academic field both internally, precisely by means of raising interesting research questions, and externally, by pursuing more practicerelevant investigations that would ensure greater recognition and attract resources.

Defining Social Entrepreneurship One of the founding fathers of this field of academic inquiry, the late Gregory Dees (2001: 2), suggested that “social entrepreneurs are one species in the genus entrepreneur.” According to one popular taxonomy, three types of social entrepreneurs can be identified by applying three consolidated traditions in entrepreneurship research (Zahra et al., 2009). Peter Dacin, Tina Dacin, and Margaret Matear (2010) even propose that there is no need for ad hoc theorizing, because the established theories of entrepreneurship already offer a complete framework to understand social entrepreneurship, provided that they are fine-tuned. Scott Newbert and Ronald Paul Hill (2014) take this approach a step forward and suggest a comprehensive definition that could inform all kinds of organizations. Nonetheless, while admittedly lacking its own unified paradigm (Bacq & Janssen, 2011), research in social entrepreneurship differs from that in traditional entrepreneurship (Lehner, 2013), because social enterprises are different from traditional profit-maximizing ones (Austin et al., 2006; Mair & Martì, 2006; Peredo & McLean, 2006; Santos, 2012;

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Steinerowski et al., 2008). They are organizations that primarily pursue social or environmental missions and whatever profits they earn are not appropriated by the shareholders, but at least in part reinvested in the mission (Agafonow, 2013; Santos, 2012). Embracing a social mission is a quintessential characteristic of social entrepreneurship. However, other actors (e.g., charities, NGO’s, associations…) embrace social missions, so a definition that only includes this component (which will be referred to as ‘large-tent’ definition hereafter) would be too broad (Light, 2008; Martin & Osberg, 2007; Newbert & Hills, 2014). Indeed, while every definition of social entrepreneurship does include the primacy of a social mission (Hervieux et al., 2010), no definition is limited to it (Choi & Majumdar, 2014). Moreover, the nature of the individuals, activities, and organizations variously associated with social entrepreneurship is highly “contextual and contingent” (Huybrechts & Nicholls, 2012: 33) and different strands of social entrepreneurship have developed in parallel, each with its own traditions and discourses. Consequently, the phenomenon is conceptualized in different ways in the American and Western European experiences (Bacq & Janssen, 2011; Chell et al., 2010; Defourny & Nyssens, 2010; Kerlin, 2006; Seelos et al., 2011) and arguably so also in the Asian (Idris & Hati, 2013; Kaneko, 2013) and Middle-Eastern and North African (Jamali & Lanteri, 2015; Lanteri, 2015) experiences, with additional intra-regional variations (Dees & Anderson, 2006; Galera & Borzaga, 2009; Jamali & Lanteri, 2015; Williams, 2007), although there are signs of international convergence (Defourny & Nyssens, 2010). Finally, various audiences and stakeholders look at social entrepreneurship in crucially different ways. For civil society actors, social entrepreneurship may represent a driver of systemic social change […], a space for new hybrid partnerships […], or a model of political transformation and empowerment [….] For government, social entrepreneurship (particularly in the form of social enterprises ) can be one of the solutions to state failures in welfare provision [….] Finally, for business, social entrepreneurship can offer a new market opportunity […] or a natural development from socially responsible investment . (Huybrechts & Nicholls, 2012: 33)

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All these accounts of the state of the debate show that no single definition has emerged and try to explain why, but do not reject the notion that a unified definition can emerge and, in fact, often argue that it should. As discussed so far, however, social entrepreneurship can be ‘variously described’ by emphasizing one or more of its different components, it is both a ‘complex,’ multi-faceted, multi-dimensional concept and an ‘open,’ evolving concept that creates the conditions for ‘progressive competition’ over its ultimate meaning. These three features are typical of essentially contested concepts, like art or democracy (Choi & Majumdar, 2014). This implies that a unified definition might be impossible and so that each actor will presumably continue embracing an idiosyncratic perspective of social entrepreneurship, with a corresponding unique definition. Although the debate has reached a point where the consensus is the lack of consensus (Dart, 2004; Perrini, 2006; Nicholls, 2010a), many scholars seem to largely agree on a list of three key features that constitute what this chapter refers to as a ‘minimal’ definition of social entrepreneurship (Huybrechts & Nicholls, 2012; Martin & Osberg, 2007; Newbert & Hill, 2014; Nicholls & Cho, 2006; Nicholls, 2006; Perrini & Vurro, 2006): ‘sociality,’ or a central focus on social and environmental outcomes (e.g., health, education, environment, …); ‘innovation’ in the form of new products and services, new processes, new markets or new framings (e.g., change contextual equilibrium, empower beneficiaries, redefine social issues, …), and ‘market-orientation’ (e.g., market-based solutions, business-like organizations, earned income, financial sustainability….). Paradigm-Building The search for a definition of social entrepreneurship is not only an attempt at capturing an existing phenomenon, albeit seen from an idiosyncratic perspective. Instead, it is sometimes guided by the drive (at least implicitly) to shape it and influence its developments. Alex Nicholls (2010a) identifies four main types of actors actively engaged in this kind of ‘paradigm-building.’ Paradigm-building occurs when “resource-rich actors leverage power over the legitimating process” of a domain “by aligning the key discourses and norms of the field with their own internal logics of action” (Nicholls, 2010a: 612). The four major paradigm-builders are: governments, foundations (e.g., the Skoll Foundation), fellowship organizations (e.g., Ashoka and the Schwab Foundation

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for Social Entrepreneurship) and network builders (e.g., CAN and the Social Enterprise Alliance). In addition to these, Nicholls (2010a: 625 ff.) acknowledges that some academic initiatives (e.g. the Social Enterprise Initiative at Harvard, the Center for the Advancement of Social Entrepreneurship at Duke, and the Skoll Center for Social Entrepreneurship at Oxford) are playing an increasingly important role in defining the field of social entrepreneurship. Recently, a sixth type of resource-rich actors has forcefully emerged: impact investors. Loosely defined, impact investors are the financial institutions and private citizens, which make financial investments that are “intended to create positive impact beyond financial return” (JP Morgan Global Research, 2010: 5). So impact investments are largely—though not exclusively—directed at social entrepreneurs (UN Global Compact & Rockefeller Foundation, 2012). The category includes organizations operating in social venture capital and venture philanthropy, ethical banking, social stock exchanges, and so on (Nicholls, 2010b; Perrini & Vurro, 2010, 2011; Spiess-Knafl & Achleitner, 2012), led by three main actors: the Acumen Fund, the Rockefeller Foundation and the Global Impact Investing Network (GIIN). The size of the market for impact investments is estimated to grow to anywhere between U$ 400 billion and U$ 1 trillion in the near future (Jp Morgan Global Research, 2010), whereas, the funds being spent by other paradigm-builders— some U$ 1 billion for governments, and a few hundred millions by the other actors combined (Nicholls, 2010a)—dwarf by comparison. Since the amount of financial resources available to back a given paradigm will ultimately contribute to its success (Nicholls, 2010a), impact investors can be regarded as bona fide paradigm-builders. Two Types of Practice-Led Definitions The definitions embraced by paradigm-builders in the field can be easily traced to either the civic (characterized by sociality and innovation) or the market (characterized by sociality and market-orientation) typology. Following a common methodology, evidence for these definitions has been found by means of content analysis of internet sites and of the documents made available on those sites (see Table A1 in the Appendix). These two types of definitions do not boil down to mere rhetorical strategies, but reveal an underlying distinctive concept of what social entrepreneurship means.

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For example, Ashoka (2013) considers social entrepreneurs the likes of Florence Nightingale, who founded modern nursing and fought to improve hospital conditions, and Jean Monnet, who championed the establishment of the European Coal and Steel Community to promote a peaceful coexistence between France and Germany after WWII. To be sure, neither of them activated change through financially sustainable, market-oriented mechanisms. On the contrary, impact investors expect to recover “at least nominal principal,” and both “market-rate or marketbeating returns are within scope,” but “donations are excluded” (JP Morgan Global Research, 2010: 7), so the receiver of the funds ought to run a profitable operation and only such an entity is considered socially entrepreneurial. A definition serves the main, pragmatic purpose of drawing boundaries around the scope of the activities of the organization employing it. Therefore, an impact investor needs to embrace some version of the market definition that encompasses only those activities that are profitable, at least in the long run. Conversely, innovative organizations without or with insufficient income-generating activities will be left out of the scope of its activities. On the other hand, according to the civic definition, market-oriented social initiatives, if lacking in novelty, should be left out. This depends on the notion of innovation one embraces, but a small microfinance institution (MFI) operating in Latin America is hard to describe as an organization which “comes up with new solutions to social problems and then implements them on a large scale” (Ashoka, 2013) or one that advances a “powerful new, system-change idea” (Drayton, 2002: 123), “challenging the stable state’s hegemony” (Martin & Osberg, 2007: 35) and “changing the world’ (Bornstein, 2004), as required by the civic definition. The Prevailing Definition The literature on social entrepreneurship has been very concerned with definitions, albeit “with a heavy focus on conceptual over empirical research” (Dacin et al., 2010: 38). This chapter attempts to overcome in part the limits of abstract theorizing by engaging with practice-led definitions and with the underlying motivations for embracing them, in the attempt of predicting which definition is the most likely to prevail.

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Fig. 13.1 Influential actors (Source Author’s creation based on the literature survey)

(Fig. 13.1 brings together the four definitions of social entrepreneurship reviewed so far.) A unified definition universally employed by, if not all, most stakeholders would naturally become the prevailing definition. Since paradigmbuilders respond to different internal logics in the pursuit of different organizational goals and, which is a consequence of the former, social entrepreneurship is an essentially contested concept, such a unified definition does not currently exist and is unlikely to emerge. As seen above, both the civic and the market definitions poorly align with the interests of certain influential actors. Also, the large-tent definition would be inadequate, both to meaningfully capture the phenomenon as it is currently studied and practiced and to promote the initiatives of individual actors and the development of the field as a whole. On the one hand, it raises the question whether the concept of social entrepreneurship uncovers anything new that is worth investigating and so it poorly serves the interest of a scholarly audience. On the other hand, according to such definition, social entrepreneurs should be perhaps best seen as a species of the genus social activist (Haugh, 2006; Steinerowski et al., 2008), thus compromising their ability to draw upon the legitimating power of the label of social entrepreneur (see also below).

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For scholars the minimal definition identifies the most interesting cases for research—the ones Dees and Beth Battle Anderson (2006) call ‘enterprising social innovations’ —because the market and the civic definitions are already the provinces of established academic domains. However, it does not perfectly map over the definitions actually employed by important practitioners. The minimal definition proves not so minimal, after all, because it amounts to the summation of the defining features of two distinct concepts of social entrepreneurship. The minimal definition would limit the scope of the activity of foundations and fellowship organizations to those socially innovative initiatives that are also profitable and that of governments and impact investors to the social businesses that are also innovative. So, it would not serve either their particular interests, or that of social entrepreneurship at large. So, which definition is the most likely to prevail? A definition might become paradigmatic, in a Khunian sense, “based upon its ability to problem-solve for dominant actors” (Nicholls, 2010a: 614). This entails the prediction that the dominant definition is that which responds to the interests of the most resource-rich actors (Nicholls, 2010a). At the present moment, the most likely scenario is that the market definition will prevail because it benefits from the support of the more resource-rich paradigm-builders. Indeed, although scholars can leverage a reputation for impartiality and rigor which can give legitimacy to the minimal definition, we cannot deploy resources on a scale comparable to the other paradigm-builders. Incidentally, a definition aligned with general societal values is more likely to prevail, because it engenders legitimacy to those who embrace it. The growing “social fascination with market-based solutions and mechanisms” (Dart, 2004:419) imply a broad-based expectation that social issues should be addressed through the market, therefore legitimizing market-oriented social ventures (Miller et al., 2012) and putting pressure on traditional nonprofits (Seedco Policy Center, 2007). Besides, the language and principles of business are slowly permeating the discourse of social entrepreneurship, as more executives come to it from a business background and as they find such language and principles useful in communicating with donors and board members from the for-profit world (Kylander & Stone, 2012). These examples reinforce the prediction that market-oriented social entrepreneurship is “likely to both retain and expand its […] legitimacy” (Dart, 2004: 419) as is arguably already happening (Dart, 2004; Dees, 1998; Dey & Steyaert, 2010; Monaci & Caselli, 2005).

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Legitimacy The emergence of a prevailing definition does not boil down to the adjudication of a methodological or political squabble among influential actors; it entails major repercussions on the actual practice of social entrepreneurship, to the point that it might heavily shape the field (Alvord et al., 2004; Lounsbury & Strang, 2009; Nicholls, 2010a). A fundamental tenet of institutional theory is that, in order to survive and prosper, organizations must attain some ‘legitimacy.’ Legitimacy can be considered as a system of beliefs and institutions (Di Maggio & Powell, 1983; Powell & Di Maggio, 1991; Scott, 1995) organizations must be coherent with, in order to be perceived as desirable (Suchman, 1995) or at least acceptable (Kostova & Zaheer, 1999). Alternatively, it can be regarded as a resource for survival and success (Ashfort & Gibbs, 1990; Dowling & Pfeffer, 1975; Tornikoski & Newbert, 2007), instrumental in attracting other viable resources (Zimmerman & Zeit, 2002), which can be strategically pursued by organizations. This chapter takes “a middle course” (Suchman, 1995: 577) between these two approaches, because doing so affords a better understanding of the interplay between environmental factors (e.g., existing rules and policies, prevalent social values, …), organizational characteristics (e.g., goals, methods of operation, and outputs), and the legitimation process (e.g., shared beliefs about appropriateness and desirability), which jointly influence legitimacy (Kostova & Zaheer, 1999). Each of these elements operates as a ‘constraint’ (Dowling & Pfeffer, 1975) on the options available to organizations. This predictably results in a high degree of homogeneity across organizations within a field, what is called isomorphism (Di Maggio & Powell, 1983). For example, Nicholls (2010a: 616) lists three main types of isomorphic pressures affecting individual organizations (Di Maggio & Powell, 1983; Kostova & Zaheer, 1999; Scott, 1995): COERCIVE ISOMORPHISM captures the process by which powerful external factors, such as the state or resource providers, forces organizations toward uniformity. MIMETIC ISOMORPHISM encourages organizations to imitate other models to counter the risks of organizational uncertainty in underdeveloped fields. In terms of NORMATIVE ISOMORPHISM, the influence of professional bodies and standards was shown to exert influence.

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Mimetic and normative isomorphisms are clearly at play in the field of social entrepreneurship, which is still very new and dominated by uncertainty, as increasing numbers of established and nascent social entrepreneurs absorb and reproduce the best practices derived from case studies detailing success stories (Lounsbury & Strang, 2009). The celebration by mass media of successful social entrepreneurs also triggered a bandwagon effect, producing waves of imitators in response to mimetic pressures (Miller et al., 2012). As paradigm-builders disseminate these exemplar stories, they legitimize those models and—to the extent that such models align with their internal logics—they also legitimize themselves and their own notion of social entrepreneurship. This is an example of what Nicholls (2010a) labels ‘reflexive isomorphism,’ or the process through which resource-rich actors impose their own internal logics as a paradigm for other organizations to conform to. Also evident is coercive isomorphism, which occurs for instance when corporate or tax laws grant special benefits to certain organizational structures, like social cooperatives in France and in Italy, or when organizations like Acumen require that an organization has proven financially sustainable in order to benefit from its funds. Therefore, the definitions embraced by such actors are paradigm-building as they induce individual organizations to adjust to their canons. Besides responding to isomorphic pressures from the ecosystem in which they operate, organizations can strategically adapt to social values. Raymond Dart (2004: 416ff.) elaborates on three forms of strategic legitimacy identified by Mark Suchman (1995, see also Scott, 1995 and Zimmerman & Zeitz, 2002), which are pursued by organizations: PRAGMATIC LEGITIMACY is the most basic form of legitimacy, based on a kind of exchange calculation [… which] could be paraphrased as ‘if we get anything out of this, then we consider it legitimate.’ MORAL LEGITIMACY refers to legitimacy that is normative and based on whether an activity of a focal organization is the proper one (relative to external norms). COGNITIVE LEGITIMACY refers to legitimacy at the level of takenfor-grandness rather than the level of evaluation. In a pragmatic sense, adapting an organization to a dominant structure is a legitimating option if it generates a net benefit to any of the relevant stakeholders (e.g., beneficiaries, donors, volunteers…) over and above those of alternative structures. In a broad sense, this remains very difficult to evaluate, although several promising attempts at measuring

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social impact besides economic value (Clark et al., 2004) are being developed. In a narrower sense, however, individual organizations might directly benefit from meeting the criteria of admission to awards and other programs, because this earns them credibility, financial resources, and access to a network of experts and peers (Hmayed et al., 2015). In this sense, the greatest benefits are to be found in responding to coercive and normative isomorphic pressures and in associating with the most resource-rich paradigm-builders, which—as discussed above—support the market definition. Doing so often requires adopting reporting techniques that demonstrate both social and financial results (Grimes, 2010; Nicholls, 2009) and therefore imposes organizational approaches that pursue both, reinforcing the desirability of market-oriented social enterprises. This way, social enterprises attain legitimacy by identifying with legitimating symbols (Dowling & Pfeffer, 1975), like affiliating with credible organizations and networks or embracing specific scripts like impact measurement and reporting (Grimes, 2010; Miller et al., 2012; Nicholls, 2009). Moral legitimacy is the main type discussed in Dart (2004) and it reflects prevalent sociopolitical values. For example, John Dawling and Jeffrey Pfeffer (1975) discuss the case of the American Institute for Foreign Studies (AIFS), a social enterprise (before the label was coined) that organized study tours abroad. The sociopolitical values of the time strongly opposed the idea that an educational organization would respond to a commercial logic. Therefore, AIFS operated in tandem with an affiliate for-profit entity to ensure financial sustainability, but was established as a non-profit to ensure legitimacy. Nowadays, the disillusionment with the traditional solutions of the social sector (Miller et al., 2012; Zahra et al., 2008, 2009) and the growing “pro-business zeitgeist” (Dees, 1998: 56; Dey & Steyaert, 2010) entail the opposite prediction: namely, that solutions to social issues ought to be activated through market-oriented initiatives. As for cognitive legitimacy, it “is subtler, more profound and more self-sustaining once established” (Suchman, 1995: 585). It consists of largely unaware assumptions about what is normal and appropriate, which become particularly evident when violated, when—that is—one is confronted with their negation. For example, market orientation is becoming a taken-for-granted feature of social entrepreneurship. This explains why Dees (2003) thought that the Schwab Foundation for Social Entrepreneurship surely “confused many people” when it awarded a prize to Habitat for Humanity and Teach for America because “[n]either of

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them is known for its earned income strategies.” The market definition, indeed, automatically assumes earned income. An organization without earned income should then not count as a social enterprise. Hence, people are ‘confused’ when they find out that such an organization has won a prize for social entrepreneurship. Therefore, the legitimacy of social ventures derives from both being associated with social entrepreneurship in general (Dart, 2004; Miller et al., 2012) and with market-oriented social activities in particular. Causal Performativity In a static world, the prevalence of the market definition would marginalize civic-like initiatives. In a dynamic world, however, social enterprises evolve. So, as one definition prevails, the initiatives that are left out react and adapt to the requirements of the prevailing and legitimating definition. For example, the Seedco Policy Center reveals a lucid awareness of the emergence of the market definition as a new paradigm, when it observes that: it is easy to see why [a nonprofit] organization might make a bid for a new business venture—or at least feel the need to present a more entrepreneurial face to those holding the purse-strings. And indeed, many organizations have been drawn down the path to social entrepreneurship not because an idea meshed perfectly with their mission, or because an earned-income project was truly the best use of their resources, but because […]“There is all this pressure on nonprofits to be innovative, [but there is] no reward for just doing what they do well.” (Seedco Policy Center, 2007: 2)

A definition, therefore, does not simply have a descriptive relationship with the phenomenon of social entrepreneurship, but also—and crucially—a performative one. Performativity is usually associated with the linguist John Langshaw Austin (1962), who was the first to acknowledge that some acts are performed by means of using certain words, and so those uses can be defined as performative, because they effectively amount to performing acts. For example, when a colleague says: “I promise to read the early draft of your paper”, he thereby makes a promise. Uttering a specific

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sentence performs and constitutes the act of promising. This is an instance of constitutive performativity (Mäki, 2013). The notion of performativity embraced here is that used in the contemporary sociology of economics and championed by Michael Callon and Donald MacKenzie (e.g., Butler, 2010; Christophers, 2014; MacKenzie et al., 2007). The basic idea is that the academic discipline of economics has a performative relationship with the economy. Instead of simply describing and explaining the economy, economics shapes it, or performs it. Performativity occurs when an element of economic theory (e.g., a model, a concept, a data set, …) is used by economic actors or when such use has direct consequences on economy activities (MacKenzie et al., 2007). A yet more interesting case is when “the practical use of an aspect of economics makes economic processes more like their depiction by economics” (MacKenzie et al., 2007: 56). The most conspicuous example of this kind of performativity dates back to the ‘70s, when Fischer Black and Myron Scholes and Robert Merton published two influential papers on the pricing of financial options (MacKenzie & Millo, 2003). Their formula made it possible to estimate the present monetary value of financial derivatives (e.g., options), although some of the parameters influencing the price are unobservable (e.g., the volatility of the underlying stock). At first, the formula was quite inaccurate: theoretical predictions often deviated as much as 30–40 percent from the option prices observed on the Chicago Board Options Exchange. The Black–Scholes formula nonetheless had a tremendous impact, because investors needed some way to make sense of the complexity of the market for financial derivatives and started employing it. By the early ‘80s, the predictions of the Black–Scholes formula had converged to deviations of 2% or less from the observed prices. This astonishingly improved performance occurred because, as ever more investors used it to calculate their evaluations, they made its predictions true. So, financial economics had created in practice the theoretical market it advocated in theory. Performativity can therefore be defined as a property of theories that interfere with the real-world phenomena they analyze. In the literature on the performativity of economics, this is typically a concern of scholars. In the emerging field of social entrepreneurship, which is rich in crossfertilization between research and practice, resource-rich actors play a role as “first-order theorizing practitioners” (Schultz & Hatch, 2005: 1) alongside scholars.

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Admittedly, indeed, the distinction between the scholars’ and the practitioners’ definitions drawn above is largely artificial. In a minimal sense, there would exist no scholarship on the subject if there existed no distinct phenomenon deserving of investigation under the separate header of social entrepreneurship. In a more substantial sense, non-academic actors positively contribute to the development of social entrepreneurship theory. On the one hand, as they affect the types of social entrepreneurial efforts we witness in the field, they automatically affect the phenomena scholars investigate. On the other hand, it is only natural that nonacademic actors resort to academic sources for inspiration and guidance in designing their initiatives and policies, including definitions. This is particularly evident in the case of close collaborations like that between the Skoll Foundation and Oxford University or in the cases of scholars offering training and consulting services for practitioners (Hervieux et al., 2010). Finally, “scholarship in social entrepreneurship has also been subject to the influence of resource rich providers either as direct or indirect funders or as gatekeepers to case study materials, key social entrepreneurs, and other data sources” (Nicholls, 2010a: 626). It is worth noting, however, that stating a definition of social entrepreneurship does not suffice to influence its practice, just like it would not have been enough for Black, Scholes, and Merton to declare that “the value of option X is $100” to make it such, as constitutive performativity requires. A more complex flow of connections ought to be set in motion. In their various roles (as policymakers, students, investors, entrepreneurs , workers, consumers) people are exposed to the results of economic inquiry and they learn, directly or indirectly, about the contents of economic theories, explanations and predictions, and are inspired by them, perhaps by being persuaded by the proponents, so as to modify their beliefs and perhaps their motives. These modified beliefs and motives make a difference to their behavior, and this has consequences for the economy. The flow of these complex connections is a matter of indirect causal influence rather than direct constitution. (Mäki, 2013)

The process that results in causal performativity also requires meeting certain ‘felicitous’ conditions, including the uttering of the right words by individuals with the appropriate status in the right circumstances (Austin, 1962). To establish a successful definition of social entrepreneurship,

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similarly felicitous conditions must be met, like enjoying a certain prestige and being able to leverage substantial resources, as is the case for paradigm-builders. Appropriating causal performativity to the field of social entrepreneurship underlines that there is no exogenous notion of social entrepreneurship that can be captured within a definition. Instead, scholars and practitioner’s theory developers are embedded in the broader ecosystem of social entrepreneurship, which they contribute to modify, but which also enables and constrains them (Giddens, 1979, 1984). Therefore, to understand social entrepreneurship, we must understand the process through which various mechanisms create the realities of social enterprises (Butler, 2010). Figure 13.2 reproduces the interrelations between paradigm-builders, social enterprises and the ecosystem at large. Paradigm-builders set out definitions, embodied in criteria, rules, and laws that reflect their internal

Fig. 13.2 Interrelations between paradigm-builders, social enterprises, and the ecosystem (Source Author’s creation based on the reproduction of the interrelations between paradigm-builders, social enterprises and the ecosystem)

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logics (reflexive isomorphism), therefore exercising coercive pressures on social entrepreneurs, who in turn strategically adapt to these requirements (pragmatic legitimacy). Paradigm-building also has an indirect effect on the practice of social entrepreneurship, through its repercussions on the set of concepts, criteria, and values that characterize the broader ecosystem (causal performativity). Social enterprises respond to these repercussions by conforming to the legitimating standards of the professional acclaim of success stories (mimetic and normative isomorphism), identifying with legitimating symbols, and more generally aligning to ecosystem-wide values (moral and cognitive legitimacy). Elaborating on and expanding institutional theory, this analysis reinforces the theoretical prediction that (and fleshes out some of the mechanisms through which), if a given definition of social entrepreneurship gains sufficient support and popularity, most current and future social entrepreneurs would adapt their organizations to meet the description.

The Consequences of Paradigm-Building As a definition and its related conception of social entrepreneurship become dominant, the actors involved in the field will change their understanding of and expectations about what is a social enterprise and so, by extension, of what it should be. Thus, the prevalence of the market definition engenders the prediction that more social enterprises will focus on market-oriented activities. This could be problematic. To be sure, the literature on performativity is dominated by a critical undertone. Yet, scientific knowledge is performative not by accident, but by design. We fund research in medicine not in the hope that doctors will observe and accurately describe the patterns of contagion of a new virus, but that they will understand how to stop it, and we are sometimes willing to encourage experiments with solutions that reflect an imperfect understanding of the illness. Also for the scholarship on social entrepreneurship, both academics and practitioners hope that a deeper understanding of the phenomenon will in fact result in a positive impact on the world outside the ivory tower. Why would this be problematic? Because causal performativity does not simply suggest that a definition functions as an arbitrary convention that becomes self-fulfilling when enough actors agree to it, therefore adjusting their organizations to match such definition, which—incidentally—makes the definition true. The notion of truthfulness is upstaged by the notion of success. A theory

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is performative when “the world it supposes has become actual” (Callon, 2007: 320). Obviously, the market definition entails its own world of distinctive concepts and materials. As traditional philanthropic channels of unidirectional funding are replaced with impact investments that require greater accountability and discipline (Acumen, 2013; Miller & Wesley, 2010; Moody, 2008; Perrini & Vurro, 2011), also informal approaches to reporting (Grimes, 2010; Miller & Wesley, 2010) must be replaced with more rigorous techniques (Clark et al., 2004, GIIN, 2013). An abstract concept like impact must become measurable and it must be commensurable with monetary values. Therefore, double bottom-line accounting techniques (e.g., Clark et al., 2004) and softwares are developed and new methodologies are introduced that allow the estimation of the economic value of social outcomes (e.g., SROI, 2012). In such a world, financial capital even acquires the human trait of patience in order to scale impact. These market-inspired funding and reporting logics ultimately affect the organizational identity of social enterprises (Grimes, 2010). A similar phenomenon occurred when general practitioners in the UK reacted to the increased focus on market-oriented activities in the early 1990s. Even if they prioritized medicine over business and felt “unaffected by [enterprise culture] values and claims,” they inevitably reproduced it “through their involvement with the daily practices which are imbued with the notion of enterprise” (Cohen & Musson, 2000: 31). The example of Seedco Policy Center (2007: 2) above shows how the market definition is already performing a world in which the notion of social entrepreneurship held by “those holding the purse strings” creates the type of organizations it defines, irrespectively of their desirability and despite the resistance of practitioners (Seanor et al., 2013). In such a world, “[t]he differences between nonprofit organizations and for-profit enterprises [are] increasingly viewed as flaws in the nonprofit paradigm that could be cured by a more businesslike approach” (Seedco Policy Center, 2007: 2). This chapter does not argue that influential actors should refrain from paradigm-building efforts tout court, but it warns that the causal performance of social entrepreneurship—and particularly the emerging one consonant with the market definition—would result in four specific negative consequences on the field, that have been so far overlooked. Managerial issues. As the field is still developing, social entrepreneurs are experimenting with novel types of organizations. This is reflected

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in the acknowledgment that their organizational models cover a very broad spectrum of incompletely understood ‘hybrid’ forms (Alter, 2007). Precipitating the predominance of one definition would accelerate the process of institutionalization of the field, allowing fewer types of organizational experiments and so constraining the range of options that can be legitimately explored in the attempt to effectively tackle a social issue and to do so efficiently (Nicholls & Cho, 2006). This raises a managerial question that, while not exclusive to social entrepreneurship, nonetheless ought to be considered. When social entrepreneurs adapt their organizations to prevalent organizational forms out of legitimacy-seeking, they may not be maximizing social impact (Young et al., 2010). A dominant market definition might drive out both the organizations that do not conform and those that do conform, but fail, either because they cannot conform successfully or because they can no longer succeed after conforming. In its one of a kind case study of the failure of a social enterprise, the Seedco Policy Center (2007: 1–2) also “found that nonprofits driven to meet a double bottom line […] have far more typically led to frustration and failure, drawing attention and resources away from the organization’s core work—and that even the oft-cited success stories are less cut-and-dried than they appear.” Economic issues. On a larger scale, the efficiency of the whole economic systemwould be affected, because the very reason why certain social issues have become dominated by nonprofits is that marketoriented solutions were unable to satisfactorily address them. Filipe Santos (2012, see also Austin et al., 2006) even identifies market failures as the natural domain for social entrepreneurial ventures. By definition, market-orientedinitiatives imply the inefficient allocation of resources when competitive markets fail. Ethical issues. For the critics of the market definition, its prevalence would also have the undesirable consequence of reinforcing pro-market arguments as normative standards and exacerbating the ethical slips caused by ambition and egoism (Zahra et al., 2009) as well as the more general issues concerning the ethics of entrepreneurs (Blundel et al., 2010; Harris et al., 2009). Moreover, social entrepreneurs do not always think of entrepreneurship in a mainstream way. For example, Caroline Parkinson and Carole Howorth (2008: 305) analyzed how social entrepreneurs talk about their work vis-à-vis ‘mainstream’ entrepreneurs and observed that they “draw their legitimacy from other (social and moral) sources

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than the entrepreneurship discourse.” When they talk about commercial entrepreneurship and when they use ‘business’ language, social entrepreneurs do so mainly to establish a negative, ‘ruthless’ reference from which they distance themselves. Moreover, social entrepreneurs entirely ignore “building blocks of entrepreneurship that might be associated with a conventional reading of the enterprise discourse, including innovation, risk, proactiveness, market and opportunities, profit and personal drive” (p. 303). Therefore, the market notion of social entrepreneurship seems poorly aligned with the notion embraced by social entrepreneurs themselves. This way, as paradigm-builders impose discourses aligned to their internal logics, we will continue to witness the “marginalization of social entrepreneurs, their peers and- critically- their beneficiaries from the processes of legitimation” (Nicholls, 2010a: 626, see also Lounsbury & Strang, 2009). Social entrepreneurs and other stakeholders might even oppose an excessive emphasis on market orientation and income generation. For example, a heated debate exploded after the Banco Compartamos’ stock market floatation raised $450 million for its shareholders (Carrick-Cagna & Santos, 2009; Chu & Cuellar, 2008; Lewis, 2008). Banco Compartamos was created as an NGO with the goal of alleviating poverty in rural Mexico, but was later turned into a for-profit financial institution that proved very profitable, partly because its business model rested on charging poor people interest rates in excess of 100 percent per year. Suddenly, the morality of the ‘two Charlies’—as the founders of Banco Compartamos were known in the microfinance field—was questioned. Banco Compartamos has been accused of having a “socially, economically and politically dangerous” business model that “should be condemned,” and it has even been suggested that the two Charlies deserved a spot in “the depths of the MFI hell, if one existed” (Carrick-Cagna & Santos, 2009: 9). By allegedly prioritizing profits over the interest of the beneficiaries, Banco Compartamos was no longer a bona fide social enterprise. The two Charlies tried to repair legitimacy by declaring that their decisions were solely directed at achieving the scale necessary to serve more beneficiaries. Nonetheless, Mr. Yunus challenged the legitimacy of Banco Compartamos and branded it an enemy, like the other money lenders and loan sharks MFIs were created to defeat, warning that such conduct might eventually compromise the legitimacy of microfinance at large. Compliance with market values might therefore generate a negative legitimacy

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spillover (Kostova & Zaheer, 2002) for other social enterprises and backfire altogether. Although this is certainly an extreme case, it raises urgent questions for the definition of social entrepreneurship we are willing to embrace. Theoretical issues. Related to the issues above is also the concern that a dominant definition might not be the better definition available, as discussed below. Could the Better Definition Prevail? Ideally, one would not hope that the prevailing definition is the one on which more resources are invested, in the attempt to promote the interests of the actors investing them. One would hope instead that the better definition prevails. But which definition is better? It depends on how better is defined. Ideally, some concept of better can be imagined that can be subjected to empirical investigation, which would allow a more impartial adjudication, as the rigor and impartiality that dominate the internal logic of academic research require. From a descriptive point of view, perhaps the better definition is the one that more accurately describes the current landscape of social entrepreneurship. Unfortunately, it would not be easy to empirically investigate which definition captures more actual examples of social enterprises, because for the test to be even conducted one would already require some criteria to select the social enterprises to be included in the study (Dart et al., 2010)—and so a definition. Nonetheless, some research design can be attempted that overcomes such methodological quandary and investigate the interesting research question of which definition is the most descriptively accurate. From a normative point of view, the better definition is possibly the one that ensures the greatest generation of ‘total wealth’ (Zahra et al., 2009), measured through some metrics that might include both longterm social impact and financial outcomes. Such an empirical investigation would be challenging—because there does not exist a consensus on which are the appropriate metrics to investigate social impact and because the methodologies employed in such measurement still need refinement—but very promising. Neither kind of proof has been advanced so far and so the contest for the better definition remains open. Missing—for the time being—both

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tests, the better definition probably remains that which satisfactorily solves the pragmatic problem of choosing the right kind of social entrepreneurial initiatives for the actors employing it. As seen above, for some actors these pragmatic concerns are solved by the civic definition, for others by the market definition, and for scholars by the minimal one.

Concluding Remarks So far, this chapter has implicitly endorsed the common and rather plausible assumption that only one paradigm—and so only one definition—can and will prevail. In general, there is a presumption that there exists only one ‘normal science’ à la Kuhn, and that “[p]aradigms are inherently exclusionary” (Nicholls, 2010a: 614). For example, the critics of the market definition sometimes lament that it puts forward “the untrammeled pursuit of a messianic social vision” (Nicholls & Cho, 2006: 106), which requires “a high level of univocity, unambiguousness, one-sidedness as well as a quasi-religious makeover” (Dey & Steyaert, 2010: 88) and imposes a monological perspective (Cho, 2006). However, “this notion of a single hegemonic […] discourse overshadowing the competing narratives […] is overplayed” (Teasdale, 2012: 101). To this day “no one actor has managed to capture the social enterprise construct for themselves” (p. 117) and the concept remains essentially contested (Choi & Majumdar, 2014). Subscribing to only one definition, however, is not the only option. For example, Frances Westley “makes distinctions between ‘social innovation’ and ‘social enterprise’ [… because] lumping everything that looks or feels socially motivated into one category is analytically problematic for an emerging field or category of scholarly inquiry and training” (Weber, 2012: 417). In other words, a unified definition might ultimately undermine the alleged advantages of empowering theoretical advances and empirical investigations for which it has been invoked. Instead, two (or more) distinct definitions allow answering some interesting research questions, like those concerning their relative descriptive and normative merits mentioned above. For another example, Shalei Simms and Jeffrey Robinson (2009) developed a theoretical model of nascent social entrepreneurs that considers two types of identities and two types of opportunity recognition. Social entrepreneurs see themselves as both entrepreneurs (as in the market definition) and activists (as in the civic definition), but one of these identities

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is “more salient” (p. 17). Furthermore, they can identify opportunities either predicated on the response to social needs (‘issue-based opportunity’) or on the exploitation of the economic value available in solving social issues (‘value-based opportunity’). Simms and Robinson (2009) further argue that these factors are predictors of the organizational form (i.e., for-profit or not-for-profit) nascent social entrepreneurs will choose for their organizations. Professor Westley also explains: “[o]ver the years that I have been working with and teaching people who are interested in social innovation, I have come to feel that social innovation and social entrepreneurship are two distinct sets of activities, and educators would do well to think of them as such” (Weber, 2012: 411). This seems to suggest that social entrepreneurship remains poorly defined largely because one definition has been stretched to cover at least two distinct concepts. Yet, social entrepreneurship is a complex phenomenon with a plurality of manifestations that do not easily lend themselves to characterization through a unified definition, however loose. The differences between the market and the civic definitions are substantive: they capture observable and distinct real-world phenomena, are aligned with the peculiar agendas and the pragmatic concerns of different actors in the social entrepreneurship field, and are also relevant concepts to guide both teaching and research. The upshot is that addressing interesting research questions results in academic publications, responding to the existing interests of resource-rich actors attracts funds, and drawing implications that are directly relevant for practice brings notoriety and influence. These are all manifestations of and conducive to increased legitimacy. Although scholars would benefit from a rigorous variant of the minimal definition (e.g., Newbert & Hill, 2014), this chapter contends that we should not attempt to instate it as a unified definition. On the one hand, such an attempt will encounter resistance from practitioners and is probably doomed to eventually fail. On the other hand, allowing two (or more) definitions to coexist might also lead to increased legitimacy for the field, which was the goal a unified definition was invoked to pursue in the first place (Table 13.1).

Skoll Foundation

Social entrepreneurs are “individuals with • innovative solutions to society’s most pressing social problems” who “find what is not working and solve the problem by changing the system, spreading the solution, and persuading entire societies to take new leaps” (i) Social entrepreneurs are the “innovators • who have developed, tested and proven their approach” (ii). Among them, some have “earned revenue and/or for-profit business models” (ii). They are “society’s change agents, creators of innovations that disrupt the status quo and transform our world” (iii)

Ashoka

Sociality

Definition

Actor

Table 13.1 Definitions of Social Entrepreneurship by Different Influential Actors

•

•

Innovation

(continued)

Market-Orientation

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Social entrepreneurship is “a unique approach to economic and social problems” that consists in “applying practical, innovative and sustainable approaches to benefit society in general, with an emphasis on those who are marginalised and poor” (iv). A social entrepreneur is someone who “[f]ocuses first and foremost on the social and/or ecological value creation” and only subsequently “tries to optimise the financial value creation” (iv) Social enterprise is “[a] business with primarily social objectives whose surpluses are principally reinvested for that purpose in the business or in the community, rather than being driven by the need to maximise profit for shareholders and owners” (v)

Schwab Foundation for Social Entrepreneurship

U.K. Department of Trade and Industry

Definition

Actor

Table 13.1 (continued)

•

•

•

Innovation

Sociality

•

Market-Orientation

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Rockefeller Foundation

Acumen

• A social enterprise is “an organisation that combines commercial trading with a social, cultural or environmental mission. The defining feature of a social enterprise is that it trades in order to fulfil its social mission rather than trading only to create a profit for private benefit” (vi) • Acumen “has a high tolerance for risk, has long time horizons […] and is unwilling to sacrifice the needs of end customers for the sake of shareholders” (vii). However, it “ultimately demands accountability in the form of a return on capital: proof that the underlying [social] enterprise can grow sustainably in the long run” (vii) Social enterprises are “Double Bottom • Line businesses” (viii) “that aim for positive social or environmental outcomes while generating financial returns” (ix)

Social Enterprise Development and Investment Fund

Sociality

Definition

Actor

•

Innovation

•

•

•

(continued)

Market-Orientation

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Social enterprises generate “measurable social and environmental impact alongside financial return” (x)

Global Impact Investing Network

•

Sociality

Innovation •

Market-Orientation

Source Author’s creation based on the literature survey on social entrepreneurship; (i) Ashoka (2013); (ii) Skoll Foundation (2013); (iii) Skoll World Forum; (iv) Schwab Foundation for Social Entrepreneurship; (v) UK Department of Trade and Industry (2008); (vi) Social Enterprise Development and Investment Fund (2013); (vii) Acumen (2013); (viii) Clark et al. (2004); (ix) UN Global Compact & Rockefeller Foundation (2012); (x) GIIN (2013)

Definition

Actor

Table 13.1 (continued)

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References Acumen. (2013). Patient capital. http://acumen.org/ideas/patient-capital. (accessed on June 21, 2013). Agafonow, A. (2013). Toward a positive theory of social entrepreneurship. On maximizing versus satisficing value capture. Journal of Business Ethics, forthcoming. Alter, K. (2007). Social enterprise typology. Virtue Venture LLC. Alvord, S., Brown, L., & Letts, C. (2004). Social entrepreneurship and societal transformation: An exploratory study. Journal of Applied Behavioral Science, 40(3), 260–283. Ashfort, B. E., & Gibbs, B. W. (1990). The double-edge of organizational legitimation. Organization Science, 1, 177–194. Ashoka. (2013). What is a social entrepreneur? www.ashoka.org/social_entrep reneur (accessed on June 21, 2013). Austin, J. W. (1962). How to do things with words: The William James Lectures delivered at Harvard University in 1955. Edited by J. O. Urmson & M. Sbisà. Clarendon Press. Austin, J. E. (2006). Three avenues for social entrepreneurship research. In J. Mair, J. Robinson, & K. Hockerts (Eds.), Social entrepreneurship. Palgrave Macmillan. Austin, J. E., Stevenson, H., & Wei-, J. (2006). Social and commercial entrepreneurship: Same, different, or both? Entrepreneurship Theory and Practice, 30(1), 1–22. Bacq, S., & Janssen, F. (2011). The multiple faces of social entrepreneurship: A review of definitional issues based on geographical and thematic criteria. Entrepreneurship and Regional Development: An International Journal, 23(5– 6), 373–403. Blundel, R., Spence, L., & Zerbinati, S. (2010). Entrepreneurial social responsibility: Scoping the territory. In L. Spence & M. Painter- (Eds.), Ethics in small and medium sized enterprises: A global commentary (pp. 123–145). Springer. Bornstein, D. (2004). How to change the world. New York: Oxford University Press. Butler, J. (2010). Performative agency. Journal of Cultural Economy, 3(2), 147– 161. Callon, M. (2007). What does it mean to say that economics is perfomative? In MacKenzie et al. (2007), pp. 311–357. Carrick-Cagna, A. M., & Santos, F. (2009). Social vs. commercial enterprise: The compartamos debate and the battle for the soul of microfinance. Case Study no. INS105. INSEAD Case Publishing. Chell, E., Nicolopoulou, K., & Karatas-Ozkan, M. (2010). Social entrepreneurship and enterprise: International and innovation perspectives. Entrepreneurship & Regional Development: An International Journal, 22(6), 485–493.

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CHAPTER 14

A Research on the Effect of Personnel Empowerment on Culinary Creativity in Restaurants Ramazan Eren , Abdullah Tarinc , and Ceyhun C. Kilinc

Introduction In the last decades, gastronomy in academic literature has been a popular subject due to its significant social, educational, economic, and environmental ramifications. The food and beverage industry, which services different foods and goes beyond to feed people and provides enjoyable experiences, has become a leading force in the world of tourism and gastronomy. Gastronomic experience has become a new niche segment in the tourism industry (Eren, 2019), and high-class restaurants and hotels are the main establishments that attract travelers for gastronomy. In this

R. Eren · A. Tarinc (B) · C. C. Kilinc Manavgat Tourism Faculty, Akdeniz University, Antalya, Turkey e-mail: [email protected] R. Eren e-mail: [email protected] © The Author(s), under exclusive license to Springer Nature Switzerland AG 2021 M. Ince-Yenilmez and B. Darici (eds.), Engines of Economic Prosperity, https://doi.org/10.1007/978-3-030-76088-5_14

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period when gastronomy was at its peak in the academic and social fields, the food items and service quality offered by restaurants started to make a significant difference. Restaurants focus on developing innovations to stand out in this new popular and competitive environment. The development of the gastronomy world is directly proportional to the development of innovative and creative characteristics of restaurants. Innovative ideas and practices in the field of gastronomy are the results of the hard work of the chefs. The fact that the cooks improve the quality of their meals by adhering to the traditional cuisine and reveal new products, techniques, and values with their creativity has made both chefs and food and beverage establishments very popular. In the modern society and globalized world gastronomy and culinary process have become a barometer for innovation and creativity. The creative personalities of chefs and the support for creative implications by restaurants are behind the innovative trend in the field of gastronomy. There are several factors that influence the chefs’ creativity in the kitchen. There is no definite and agreed model in the literature regarding what these factors are and how they are categorized. However, in terms of serving the purposes of this study, we can evaluate the factors affecting the creativity of chefs under at least two different categories. The first heading (individual factors) (social and organizational factors) may be individual factors. The chefs’ knowledge of cooking methods, knowledge of foodstuffs and spices, knowledge of world cuisines, interest in food and its composition, following the industry, following other restaurants and chefs (without the purpose of copying), tacit knowledge and skills that are defined as intuition and creativity but difficult to fully describe, can be considered as individual factors affecting the chefs’ creativity. Social and organizational factors can be considered as follows: Employment of well-qualified chefs in the business, encouraging individual and group learning, business openness to innovation, support for innovation, supporting chefs to participate in training and other activities that will affect their creativity, allowing them to do cooking activities for trial and error, supporting research and development in the kitchen, providing human and financial resources for food quality, empowering chefs to make research for new and qualified foodstuff (visits to suppliers, farmers, etc.) and encouraging customers to try new flavors. This research examines chef’s empowerment as one of the factors affecting culinary creativity of chefs’ in restaurant kitchens. The organizational culture, which encourages learning, innovation, research, success and working

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together, created by staff empowerment activities in restaurant businesses, affects the creativity of the chefs working in the business. In the food and beverage industry, where innovation in kitchen, food service, and beverages is seen as an important competitive advantage, the creativity of employees is very important to achieve these goals.

The Literature of Empowerment Empowerment of the personnel, which is defined as the process of increasing and improving the decision-making effects of personnel through helping, sharing, training and teamwork, (Koçel, 1998; Vogt ve Murrel, 1990) has made it compulsory for today’s businesses to closely follow personnel empowerment practices and trends with the increase in the value that is given to knowledge and people. For this reason, it has become inevitable for the enterprises to increase the mental and creative energy of the personnel, as well as to strengthen the personnel by improving their skills and competencies specific to their areas of expertise (Kiernan, 1998). Empowerment’s decision-making authority and responsibility is given to employees at the forefront (Klidas, 2001) and support in various ways on service quality and customer satisfaction (Brown et al., 1996; Cacioppe, 1998; Conger and Kanungo, 1998; Zemke & Schaaf, 1989). will provide great benefit to their businesses. Advocates of staff empowerment (Chiang & Hsieh, 2012; Sahoo & Das, 2011) state that harmonization of organizational needs and character of staff will increase employee satisfaction. It is stated that the personnel who are motivated in their fields of expertise will have the desire to take the initiative toward solving the problems they encounter (Smitley & Scott, 1994; Spreitzer, 1995). Increasing the creative productivity and efficiency of the personnel, who are empowered by giving responsibility together with organizational improvements (Conger ve Kanungo, 1998; Leslie ve Holzhalb, 1998), will make the organizational communication process more effective as well as realizing job satisfaction and guiding other employees (Ayupp & Chung, 2010; Erstad, 1997; Kruja & Oelfke, 2009). It has become inevitable for restaurants, which have an important place in the service sector, to evaluate and develop their process designs in a way to focus on innovations. With the effective management of organizational control, it has become possible to develop more innovations (NaranjoValencia et al., 2011) through products and services in the process.

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Also, the development of creative activities as a result of ensuring the internal motivation of the service personnel supported by the establishment of the organizational climate and personnel empowerment practices (De Stobbeleir et al., 2011; Hammuda ve Dulaimi, 1997) will provide valuable contributions to the business. Besides creating promotional network activities specific to the restaurant, including social media and smart mobile communication applications, empowering the personnel supported by in-service training programs for personnel will provide many advantages to the business (Hjalager, 2010; Ottenbacher & Gnoth, 2005). Applications created for the determining organizational goals and the strengthening of customer services (Lewis, 1995), relational marketing (Evans & Laskin, 1994) activities, total quality management (Baldacchino, 1995), and service culture (Grönroos, 1990) are shown among the contributions to the organization. For this reason, it is important that the process is supported by personnel empowerment practices, as well as focusing on strategies toward the goals set in the managerial sense. Supporting service providers, which have an important place in the service sector, with reinforcement applications will provide the business with the flexibility to meet customer expectations and high service standards (Chiang & Jang, 2008). It will allow employees who are in close contact with customers to control and evaluate service quality. It will also help improve the competencies of employees in the areas of authority and responsibility by ensuring the participation of employees in management (Dewald & Sutton, 2000; Klidas et al., 2007). With the strengthening activities that Harvester restaurants have implemented, it has been seen that the employees determine the new members to join the team, share the works among themselves, and provide the necessary training. For this purpose, it can be said that chefs and waiters order the material stocks they need individually and manage customer problems and payments as well as providing hygiene controls (Lashley, 1995). Positive improvements will be observed in customer satisfaction by improving the employees’ skills, who are empowered with innovative and supportive training approaches (Ottenbacher & Gnoth, 2005).

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Definition of Culinary Creativity Academics and the food and beverage industry point out creativity as a base for innovation and value creation in every organization. In today’s competitive environment creativity and innovation are essential for restaurants to gain an advantage by producing treasured services. This importance has encouraged scholars and professionals to investigate creativity and process. Amabile et al. (1996) define creativity as “the production of novel and useful ideas”. To identify the distinction, innovation is defined as “the successful implementation of creative ideas within an organization” (Amabile et al., 1996; Bouty & Gomez, 2013). Creative thinking is related to some abilities that can roughly be categorized under two topics: “Divergent-production” abilities define idea generation, flexibility, and variation in different situations. “Transformation” abilities define the production of new forms by the revision process of one’s experience and knowledge. In this sense, motivation is a general source of creative thinking and creative events. This study is also related to providing an understanding of the motivation factors (needsinterests-attitudes) that help chefs to be more productive (Guilford, 1967). Jeou-Shyan and Lee (2006) expressed that creativity is a function of expertise, intelligence, way of thought, personality, motivation, and the environment. Creativity is a mechanism by which a concept can be produced and used. In this respect, creativity is a precedent for innovation. Creativity is important to culinary advancement, and so, the preservation of this creativity is also essential. There are two primary aspects of culinary imagination. The first of these is the generation of the idea of what gastronomy will be. The second aspect refers to the adaptation of this idea in such a way that it can be used by the chefs and therefore, can become one of their dishes. The involvement of the rest of the team is important in this process (Stierand & Dörfler, 2016; Stierand et al., 2009).

Literature Review on Culinary Creativity The economic factor is obviously very important in practical-life-based arts like fashion designing and the design of delicacies. The artistic part of culinary depends on the food and beverage or tourism industry; it is also closely linked to the rising popularity of gastronomy. The interest

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in gastronomy provides an opportunity for developed and also developing countries with exotic culinary cultures. Chefs worldwide create new dishes, use traditional technics, and combine all the sources from the culture of the world to increase their creativity and innovative works (Jeou-Shyan & Lee, 2006). Culinary creativity literature has limited studies, and some of them are focused on innovation. Both culinary innovation and culinary creativity are the fields that need comprehensive researches. There are different tendencies to investigate culinary creativity and innovation processes. Before summarizing the literature, it is important to highlight the only consensus is that creativity is the sine qua non of innovation. Amabile et al. (1996) stressed that creativity and innovation are highly related and different phenomena, and, in this relationship, creativity is the core of innovation and there are organizational conditions that affect the creativity like mindless activities and moderate workloads. Very important and an early attempt has been made by Ottenbacher and Harrington (2007), and this study presented a seven-step innovation development process consisting of idea generation, screening, trial and error, concept development, final testing, training, and commercialization. In the culinary innovation development process offered by Ottenbacher and Harrington (2007) the business-related elements of the creativity of the chefs are mentioned only in the 5th and 6th steps. Factors related to the interaction between the business and the chefs, such as the opinions/support of restaurant managers, ideas of other staff, and the training of the staff, are mentioned. It would not be wrong to say that this model lacks in some aspects. Creativity and art, which are the most important innovation factors, are not included in this model. In addition, if there is no organizational culture and management to encourage creativity and innovation in a business, it will be very difficult to be innovative in a restaurant. Bouty and Gomez (2013) argue that chefs need to create recipes and menus to maintain their place, and the culinary creativity of a chef is highly valued in the food and beverage industry. The results of the study have indicated that inspiration could be found everywhere, but chefs also devote effort and time for the idea work in the kitchen. Moreover, creativity occurs while working on ideas with a small team, and chefs prefer to work together with the special team during silent hours to avoid from other occupations (Bouty & Gomez, 2013).

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Vargas-Sánchez and López-Guzmán (2018) aimed to investigate the influence of different factors on the protection of knowledge in restaurants. Their study was conducted in Spanish restaurants with Michelin stars in 2016. The results of the study revealed that two factors trigger the protection of knowledge; (a) innovative application process and (b) gastronomic experiences. This research also contributes to understanding the management of creativity. Creativity management in restaurants refers to “business model, organizational culture, management, and creative process”. This multi-dimensional construct is shaped by two factors, namely, disruptive and incremental creativity management. Vargas-Sánchez and López-Guzmán (2018)’s study mentioned different factors affecting creativity, especially the management of creativity. However, their research was not without limitations, and the conclusion part addressed the organizational factors that should not be ignored. An important inference at this point is that organizational variables are generally ignored in culinary creativity studies. Culinary creativity is influenced not only by the knowledge and skills of the chefs but also by the importance and support that the business devotes to chefs and creativity (Horng & Hu, 2008). Stierand et al. (2014) proposed a model for creativity and innovation in the food and beverage business that consists of four elements; the creativity of the chef, customers, gastronomic culture, and gastronomic guides. The chef’s creativity is the fundamental axis for innovation, and customers play an abounding role between chef and commercial relations. Stierand and Dörfler (2016) expressed that the cognitive process of creativity and problem-solving are seen as similar but also cause a conflict about the relationship and scope of these constructs. But a wide belief advocates that the core processes can be examined under an idea generation phase an idea evaluation phase. The researchers indicated that their study participants have reported that their thoughts frequently appear when engaging in ordinary daily practices, such as hiking, watching a video, smelling spices and herbs or sometimes working with a beautiful food item. The findings of the study revealed that it is not easy to define intuition and express in very exact words because it is a way to know without knowing how. From the view of chefs, intuition is described as a kind of “sensory knowing” (Stierand & Dörfler, 2016). Stierand and Dörfler (2016) aimed to identify the role of intuition in culinary creativity by gathering data through in-depth interviews with chefs from different EU countries. The effect of intuition on creativity is a phenomenon that needs to be understood and explored in the culinary

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research area. Intuition is generally described as a judgment resulting from quick, unconscious and holistic associations and intuitive insight considered as synthesizing the knowledge in a novel way and creation of new knowledge that that didn’t exist before. Stierand and Dörfler (2016)’s study is important in terms of working on the culinary creativity process. In this research, descriptive level themes were identified for exploring the process and the factors that affect creativity. The idea creation of chefs is affected by “freedom at work”. The freedom of chefs at the workplace is created by the management and can be supported with employee empowerment. Chefs feel freedom when they are allowed to make mistakes, trial and error, and trying crazy things. These factors can be affected by empowerment and affect the idea of creation in the culinary creativity process. Albors-Garrigos et al. (2013) analyzed the innovation process in restaurants and conducted a survey in Valencia with 60 chefs and managers. The results of Albors-Garrigos et al.’s (2013)’s study indicated that the most relevant and important recourses of innovation are; restaurant staff, cooperation with other chefs, cooperation with universities. As the facilitator of innovation chefs mentioned that the most important factors are chef’s leadership, creativity culture, and motivation to be different. Chefs use a place dedicated to innovative activities, but mostly chefs develop creative and innovative practices while they are working with the team during their normal working hours. Stierand and Lynch (2008) expressed that there is a need for a deeper understating of the art side and sociology of chefs in the culinary innovation process. The creativity in the gastronomy world is an important element and should be considered and analyzed from different perspectives. This study aims to look from a new perspective for the deeper analyses that need to be done in the field of culinary creativity.

Relationship of Creativity and Empowerment Lashley (2000) stated that empowered staff is more responsible for their own success and professional development. Inherent abilities and talents among staff can be realized and used by the company. This, in essence, would increase customer satisfaction, revenue, and profitability. Employees who are empowered should feel more control (Conger, 1989), have a better sense of personal strength, along with the right to use that

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power (van Oudtshoorn & Thomas, 1993), feel a sense of personal effectiveness, and self-determination (Alpander, 1991). They’re expected to know like they have power and that they can make a difference. They have options, and they will make choices (Johnson, 1993). Empowered employees are supposed to feel greater control (Conger, 1989), have a greater sense of personal power together with the freedom to use that power (Van Oudtshoorn & Thomas, 1993), a sense of personal efficacy and self-determination (Alpander, 1991). They are supposed to feel that they have power and can make a difference. They have choices and they are free to choose (Johnson, 1993). Unlike disempowered or powerless employees, empowerment provides employees with a sense of autonomy, authority, and control (Johnson, 1993), together with the abilities, resources, and discretion to make decisions. Therefore, empowerment claims to produce an emotional state in employees from which the additional commitment and effort stem. Culinary creativity is a generation of ideas for new recipes and technics. Culinary creativity is related to and depends on personal characteristics and organizational support. In the culinary creativity literature, the factors related to the business that affect the creativity process can be listed as follows. • • • • • • • • • • • • •

Freedom at work The innovative team in the kitchen Encouraging individual and group learning The restaurant’s openness to innovations The restaurant’s support for innovations Opportunities for chefs to participate in training and other activities that will affect their creativity. Allowing chefs to cook for trial and error Provide human resources and financial resources for research and development in the kitchen Supporting researches for providing food in good quality The restaurant encourages its customers to try new flavors. Leadership styles of the restaurant manager and executive chef. Opportunity to visit other chefs and restaurants Participate in gastronomic fairs and events.

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The Importance and Aim of the Research While restaurant businesses in the service sector continue their activities in a highly competitive environment, they need to develop innovative and creative ideas in order to gain an advantage over their competitors and increase their business performance. Employee motivation and customer satisfaction can be increased by implementing personnel empowerment practices, which are one of the ways to improve business performance in the kitchen sections of restaurants. In this context, a suitable working environment can be prepared for the development of creative thinking and creative application skills of motivated kitchen chefs. The fact that the research results provide applicable data and information in restaurant businesses and their contribution to the restaurant businesses reveals the importance of the research. In addition, a reason that makes the study important; there are not many studies in the literature on the effect of personnel empowerment practices on kitchen creativity in restaurant businesses. This study aims to learn the perspectives of the managers of first-class restaurants in the food and beverage industry toward personnel empowerment practices and to reveal their contribution to staff empowerment practices and the increase of the creativity of kitchen chefs. Within the framework of this general purpose, the sub-objectives of the research are listed below; – Determining the effect of staff empowerment on individual factors in creative kitchen environments. – Determining the effect of staff empowerment on social and organizational factors in creative kitchen environments.

Methodology Whittemore et al.(2001), in terms of the research’s reliability, should be explained with whom, how many questions, where, and when it was conducted. First-class restaurant enterprises operating in Antalya province were determined as the research sample. Although the number of firstclass restaurants in Antalya is not known, the research was conducted on the most rated and followed restaurants on social media platforms and tourism promotion websites. The restaurants for which the interviews were planned were determined using the easy sampling method

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and the interviewed business managers were asked for their references to reach other business managers by making use of snowball sampling. As a result, interviews were conducted with 12 first-class restaurants. First of all, business managers and owners were contacted by phone and requested an appointment. Interviews were held in their own businesses between June–July 2020, with the approval of the participants. In the restaurants included in the sample, the data collection process, semi-structured indepth face-to-face interviews were conducted with business owners or business managers who participated voluntarily. During the interviews, a semi-structured interview form was presented, and voice recording permission was obtained, and interviews lasting between 15–30minutes were also recorded in writing. The study is for due diligence and is a case study as a research strategy. The qualitative descriptive analysis method was used as the analysis method. Case study analysis is a detailed description of the situation and environment (Creswell, 2013). The research questions prepared within the scope of the research were made to provide detailed and efficient information suitable for the research purposes by taking the opinions of expert academicians. While creating the research questions, four elements of personnel empowerment were focused on: “participation in management and decision authority”, “innovative approach”, “authority and responsibility”, and “talent development and training”. How and to what extent the practices carried out within the framework of these elements affect the creativity of the kitchen personnel are included in the last data collection tool with the questions prepared for the purpose of the research. According to Creswell (2013), themes should be created in order to create a common idea in the analysis process in qualitative research. In this context, the research findings were evaluated within the framework of five themes. Also, direct comments of the participants were given in the research findings.

Results General information about the enterprises and participants participating in the interview is presented in Table 14.1. Most of the business managers participating in the research are business managers (58.3%), middle-aged and above, and 25% are university graduates. Besides, although there are six different types of businesses, it can be said that most of the restaurants have been opened recently.

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Table 14.1 General characteristics of participants and restaurants Participant’ Title Kod

Age Education status

R1

48

R2 R3 R4 R5 R6 R7 R8 R9 R10 R11 R12

Restaurant manager Restaurant manager Restaurant manager Restaurant owner Restaurant owner Restaurant owner Restaurant manager Restaurant manager Restaurant owner Restaurant manager Restaurant owner Restaurant manager

Restaurant type Year Number of of kitchen staff activity

56

Undergraduate Traditional restaurant Undergraduate Fast-Casual restaurant Undergraduate Ala carte restaurant High school Ala carte/Grill restaurant High school Fish restaurant

45

High school

44

Primary school High school

26 39 29

49 44

45

Primary school Associate Degree High school

30

High school

49

6

11

3

5

3

9

6

8

4

5

Fine dining restaurant Cafe restaurant

5

6

4

14

Fish restaurant

18

16

Fish restaurant

19

13

Fish restaurant

1

8

Fish restaurant

28

9

Ala carte restaurant

21

6

Source Author

Innovation Innovation can be defined as the introduction, acceptance, and application of new ideas, processes, products or services (Kanter, 1983). In the Oslo Guide (OECD, 2005), innovation is expressed as the realization of a new or significantly improved product (good or service), or process, a new marketing method or a new organizational method, in internal practices, workplace organization or external relations. Within the framework of the definitions mentioned above, it is thought that directing employees from the personnel empowerment elements to innovation activities will affect increasing creativity. In the research, encouraging restaurants to create

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new products and services by taking an innovative approach to develop kitchen personnel’s creativity was mentioned. Looking at Table 14.2, it is seen that the enterprises participating in the research generally adopt an innovative approach and support their kitchen personnel in innovation and creativity. It can also be said that R8 is less open to innovation than other restaurants participating in the research. It is observed that the restaurant visits, participation in festivals and fairs are carried out by the restaurant manager or owner in order to learn about innovations in the market and follow the competitors and learn innovative practices. R1 participant stated that they support kitchen chefs in providing financial resources for kitchen and new product research. We send five people to different restaurants every year to taste and report the food, and we cover all costs. Before that, there is a research period of 2 months. We choose restaurants based on certain criteria. For example, last year, five people went to 17 restaurants in Istanbul in 3 days and tried the food. After returning, we asked them to report their views on what they ate and what they were impressed with, along with visuals. We are researching what is being consumed in the market and how people’s eating habits are there anything new. R1 We encourage kitchen chefs to visit other restaurants, we want staff to send them to different restaurants and report their likes there, and we cover the fee. R12

Training and Development Training and development is any attempt or action to improve current and future employee performance by increasing employees’ ability to do their job effectively. Training and development will increase employees’ skills, help them gain self-confidence, and reach high standards (Murphy & Cleveland, 1995). In this context, it is thought that training and development activities as performance enhancement in restaurant enterprises will increase kitchen chefs’ creativity. Table 14.3 shows the methods of organizing training activities of the restaurants participating in the research. According to the data obtained in the study, it is seen that restaurant enterprises attach importance to in-service training and individual and group learning in terms of training and development of kitchen

X X X X X X X X

Freedom to work for kitchen staff The restaurant is open to innovation Restaurant supporting innovation Encourage to try new products Encourage to try new products Funding to research new food Providing the opportunity to visit other restaurants Providing the opportunity to participate in festivals and fairs

Source Author

R1

Criteria to increase kitchen creativity with innovation activities X X X X X X -

R2 X X X X X X X

R3 X X X X X X -

R4

Table 14.2 Increasing the creativity of kitchen staff with innovation activities

X X X X X X X -

R5 X X X X X X X -

R6 X X X X X X -

R7

X X X -

R8

X X X X X X X X

R9

X X X X -

R10

X X X X X X -

R11

X X X X X X -

R12

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Providing in-service training Outsourcing education Encouraging individual and group learning

X X X

X X X

X X

X X

X X

X X

X X X

X X

X X

X X

X X

X

Criteria to increase culinary creativity with educational activities R1 R2 R3 R4 R5 R6 R7 R8 R9 R10 R11 R12

Table 14.3 Empowering personnel with training activities

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personnel. However, it can be said that outside professional organizations are not generally used. R1 stated that they have been working with a professional company for four years with the professional training of the kitchen personnel, while R2, R6, and R7 stated that the kitchen personnel received help from professional companies on “occupational health and safety” and “personal development”. Each department organizes a hierarchical training within itself. We can call the training process from master to apprentice. Every day there is a training in the kitchen. We can call it the hand of the master to his apprentice. In addition, we provide financial and moral support to our personnel who have not completed their education, such as High School and University. In addition, we have a budget for vocational training. We send them to the courses when requested by the kitchen staff. R9

The Free and Autonomous Work Environment One of the efforts to empower staff that will help improve kitchen staff’s creativity is to provide a free and autonomous working environment in the enterprise. In particular, designing the physical conditions of the working environment according to the employees and encouraging them to organize their work environment can increase employee motivation and support their creativity. Most of the enterprises participating in the study stated that they attach importance to the opinions of the kitchen chefs regarding the design of the kitchens in order to provide more comfortable and fast service. Only the R7 participant stated that the kitchen design was made by professional teams at the business establishment and that they do not allow kitchen chefs to make any changes. Each cook designs his own space due to the nature of the job. Fixtures such as countertops, ovens, refrigerators and sinks do not change in the kitchen. We have the kitchen designed by those who know the business. It is regulated according to international norms. The countertop can change. When the shifts change, each cook prepares his own setup. No management intervenes in this, it is entirely up to the order of the person. R3

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Power to Participate in the Management and Make Decisions Giving employees the power to participate in the management and make decisions can create the perception that employees are given importance to themselves and their opinions. Together with this, the commitment and belonging of the employees to the company is strengthened and they reach an environment that can develop their creativity. However, looking at the research data, it is seen that the kitchen chefs are not included in the business management, and only their suggestions and opinions about the kitchen and the menu are received. It is stated that only in smallsized enterprises participating in the research, kitchen managers directly participate in the management. Since our business has a small structure, we are in a constant exchange of ideas. We do not have a staff system and departments with strict rules, we are not in an institutional structure, so everyone can be involved in management in some way. We are constantly brainstorming, and now it has become a daily routine. R3

The basic meaning of empowerment is the spread of authority and responsibility to all organizational levels where the work is undertaken. Employees at all levels of the organization should be duly equipped in terms of authority and responsibility. Each of our staff has enough authority to feel important and responsible, and we have made these authorities in writing, we did not want it to remain only verbally. We have created areas where they can make decisions without asking their manager or senior management. I think this is very trueand we have seen its benefits. You discover people’s talents by giving authority within the team; otherwise, it will be a civil service job; income will do its job. An authorized employee becomes aware of his / her own abilities, works more efficiently, and seeks a new performance to improve his / her abilities. Therefore, here everybody wins, gains customers, gains staff, departments, and institutions. R6

Suppliers and Menu Preparation Another practice that will increase the creativity and innovation of kitchen chefs is to meet and purchase one-on-one with suppliers. Thus, the

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kitchen chefs can be supported and empowered in the creative and innovative product development process. All of the enterprises participating in the research stated that the kitchen chefs conducted the interviews about the supplier and that the kitchen chefs were supported in this regard. Suppliers make company visits at certain intervals and conduct demo studies. We ensure to participate in demo studies with the maximum number of personnel. We supply products and materials liked by kitchen chefs. We offer the freedom to negotiate with other suppliers. R8

In restaurant businesses, preparing a menu that will meet customer demands and provide customer satisfaction is one of the factors that directly affect business success. It is seen that the opinions and suggestions of the kitchen chefs about creating the menu and making changes to the enterprises in the research are taken into consideration and have a say. It has been determined that businesses generally focus on the bestselling/salable meals while creating the menu, and the costs of the meals do not affect the business profitability negatively. In fact, the renewal and change of the menu is mostly the responsibility of the kitchen chef. As a business, we identify the most preferred and undesirable menu items during the season. During the season, we see the rising costs of the dishes and the dishes that we have problems in product supply. As a result, from the end of the season, the kitchen chef and his team start their menu studies and research. We decide on the final shape together. R6

Conclusions In the service sector, where change is experienced quickly, businesses need to adopt the most appropriate marketing and management practices to be sustainable and competitive. The intense competition environment requires businesses to be one step ahead of their competitors and to differentiate. With personnel empowerment, enterprises strengthen their employees and increase their entrepreneurship within the company, while at the same time trying to benefit from this by revealing their creativity. In working environments where personnel empowerment is encouraged, managers transfer the necessary power, authority, and responsibility to employees,

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granting the authority to participate in the management and making decisions. Offering training and development activities cause employees to feel competent and confident. Empowerment of staff enables employees to take more initiative in the business and behave more creatively and innovatively. It is only possible to activate the employees’ creative and innovative aspects, ensure their development, and encourage them by empowering them. Creating a work environment where employees can make their own decisions and make employees independent and free can increase creativity of the employees. The research on first-class restaurants operating in Antalya focuses on the personnel empowerment practices implemented by business managers to increase kitchen personnel’s creativity. Looking at the research data, it is seen that the enterprises support innovative and creative ideas and applications. Also, they financially and morally encourage kitchen chefs to try new products/dishes. However, it is observed that most of the enterprises do not provide sufficient support to the kitchen chefs in their visits to restaurants, festivals, and fairs in terms of learning new products/dishes, techniques, and applications. This situation is considered to be an important deficiency in keeping up with competitors and innovations. It is observed that restaurants generally adopt the in-service training method in increasing the kitchen knowledge and skills of the kitchen staff, and they do not receive support from professional companies through outsourcing. Undoubtedly, companies and individuals who are experts in the field of the kitchen can contribute to the development of innovation and creativity skills of kitchen chefs with new products/dishes, techniques, methods, and practices. It can be said that businesses’ getting support from consultants/training companies and professionals can directly affect business success. It is thought that restaurant managers and kitchen chefs do not adequately implement personnel empowerment factors such as participation in management, decision-making, responsibility, and authority delegation. Empowering personnel, in this sense, has little effect on the creativity of kitchen chefs. However, leaving the supplier selection, material purchasing, and supply to the kitchen staff’s responsibility is an important strengthening practice. According to the kitchen chefs, the design of the working environments directly affects motivation and work performance. The kitchen

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design created in line with the wishes of the kitchen chefs of the enterprises participating in the research is an element that can help the enterprises to improve their creativity by empowering their personnel.

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CHAPTER 15

Three Perspectives for the Development of Sustainable Enterprises Christian Pirker

Introduction The topic “sustainable enterprise” is exciting, contemporary and still has a great need for clarification and development. In my practice as a management consultant, I am constantly confronted with this in daily business. However, the topic is also playing an increasingly important role in scientific work, research and teaching at University. For example, we have in our working group at the Institute of Systems Sciences, Innovation and Sustainability Research, University of Graz (Austria), a special course format, called “Interdisziplinäres Praktikum” (Interdisciplinary Practical Trainings), which attempt to research and facilitate raising awareness of sustainability among individuals, teams, organizations and especially in society. Here my colleague at the Institute of Systems Sciences, Innovation and Sustainability Research, Ulrike Gelbmann, is one of the central and relentless drivers in the field of sustainable development. Together we are in the process of reflecting on this work and publishing our

C. Pirker (B) Christian Pirker KG, Klagenfurt, Austria e-mail: [email protected] © The Author(s), under exclusive license to Springer Nature Switzerland AG 2021 M. Ince-Yenilmez and B. Darici (eds.), Engines of Economic Prosperity, https://doi.org/10.1007/978-3-030-76088-5_15

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approach in various contributions. The working titles of the contributions are “Management Competences Required to Create a Resilient Social Enterprise”, “Interdisciplinary Practical Trainings as a Contribution of Higher Education to Reframing the Broader Public’s Mindsets Concerning Sustainability” and “Transformative Learning and Sustainable Development.” The development of corporate sustainability must be viewed from at least three perspectives. The first perspective is “effectiveness”. Peter Drucker (1909–2005) described the “Effective Executive” in his book of the same name as early as 1966. According to Drucker, effectiveness means “getting the right things done.” The effectiveness of companies continues to be the central control parameter when it comes to viability and thus also sustainability. Effectiveness also requires learning and competence development. Conversely, according to Drucker, “effectiveness can be learned,” indeed it “has to be learned” (Drucker, 2002). Experience shows that “raising awareness of sustainability” is a key element. In our current research work at the University of Graz (Austria), we are dealing specifically with this topic and its implementation in corporate practice and also in society. So in practice employees, management, teams and the organization as a whole need to be aware of the importance of corporate sustainability. Finally, it is still a matter of “competences.” This is both a matter of a corresponding framework for the entire work and steering of the company (management competence) and the question of learning or the sustainable competence transfer in a learning organization for employees, managers, teams and the organization as a whole. The success for the development of a sustainable company lies in the bundling of these three perspectives. This goes hand in hand with the right understanding of corporate governance, which helps us to master complexity. Following the “categorical imperative” of Immanuel Kant (1724–1804), Heinz von Foerster (1911–2002) formulated the “ethical imperative” that can guide action in terms of sustainable development: “Act always so as to increase the number of choices.” Sustainable Enterprises in Practice “Coping with complexity is at the heart of management and leadership in the turbulent environments faced by the organizations and societies of our day. The systems approach provides transdisciplinary theories and tools

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for dealing with this challenge more effectively than efforts merely based on disciplinary insights or pragmatic recipes” (Schwaninger, 2000: 207). Markus Schwaninger sees the solution to the problem in the concept of intelligent organizations. In his paper he presents a framework for the design of intelligent organizations that links three organizational cybernetic models: the “Model for Systemic Control,” the “Viable System Model (VSM),” and the “Team Syntegrity model” (cf. Schwaninger, 2000: 207). The Viable System Model (VSM) is particularly interesting for the present work. We will probably have to clarify and define the term “sustainable enterprise” more precisely in the coming months and years. For Fredmund Malik, the terms viability and sustainability are to be equated in this context (Malik, 2012). Successful companies are successful because in essential points – and without violating any rules – the way they are managed is altogether at odds to what today’s corporate governance standards suggest. Therefore, a right and sustainable way of doing business requires radical reforms: the present corporate governance theory needs to be turned around by 180 degrees, specifically when the interests of real shareholders – not those of investor-type shareholders – are to be protected and high returns are to be achieved. (Malik, 2012: 23)

Malik assumes that we will have to leave the aberration of “shareholder value” in corporate governance behind us at any rate. We can therefore state that a sustainable enterprise is no longer based on shareholder value. Markus Schwaninger has a similar view on the topic. He first refers to Peter Drucker who said that profits are “the cost of staying in business” (Drucker, 1980). “But if profits are necessary for the survival of a company, profit-mindedness is not apt to ensure its viability and development. On the contrary, the often cited goal of profit-maximization is an obstacle rather than a genuine orientator toward greater organizational intelligence” (Schwaninger, 2000: 212 f.). We need a much higher potential for coping with complexity effectively than the established one criticized here. (cf. Schwaninger, 2000: 213). He first refers to the Model of Systemic Control (MSC) originally by Aloys Gälweiler (1922–1984) in which the two terms “viability” and “development” play a central role as the goals in normative management.

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“Viability, understood as the ability to maintain a separate existence (Beer, 1979), i.e., a distinct configuration that makes a system identifiable, can be assessed on the grounds of structural considerations that are not bound by the orientators of the strategic and operational levels” (Schwaninger, 2000: 218). Markus Schwaninger states that the VSM of Stafford Beer (1926–2002) is “the most advanced theory for assessing the viability of an organization in functional terms” (Schwaninger, 2000: 218). Fredmund Malik calls the work of Stafford Beer as “one of the greatest innovations in management theory” (Malik, 2012: 167). He underlines, that the VSM is an “excellent device for diagnosing the degree of viability of an organization, and for designing it to be viable, as well as independent of the steering criteria of the lower levels (strategic and operative)” (Schwaninger, 2000: 218). It is important, that following Markus Schwaninger the ability to survive is not the ultimate goal of an organization. “From a systemic point of view, it should aim at a viability beyond survival […], i.e., a viability that transcends mere maintenance of a specific identity” (Schwaninger, 2000: 219). Therefore in the Model of Systemic Control (MSC) “development has been distinguished as a higher goal in its own right” (Schwaninger, 2000: 219). Markus Schwaninger refers here to Russell Ackoff (1919– 2009) and notes in connection with development: Development refers to the growing ability of an organization to develop its own and to meet foreign requirements (Ackoff, 1994). This ability includes selfrestructuring, which in borderline cases can lead to a new identity (cf. Schwaninger, 2000: 219) (Fig. 15.1). Their bottom line is not the figures the accountants come up with, but the survival of the company, and their primary objective is the health and viability (though the term sustainability is sometimes used) of their company. (Malik, 2012: 146)

Fredmund Malik “entrepreneurially managed enterprises” strength in “These are the sustainably prosperous businesses. Many of them are market leaders in their fields” (Malik, 2012: 46) they represent the right and effective economy (Malik, 2012: 47). The way to a sustainable enterprise is through appropriate change management (Kotter, 1996), which must pay particular attention to the development of organizational culture. This is about effective learning in

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Fig. 15.1 Model of Systemic Control (MSC): Goals and orientators (Source Schwaninger, 2000: 216)

and from organizations (Pirker, 2019b) and the idea of the learning organization (Senge, 1990). It also makes sense to consider the findings of Jim Collins from “Good to Great” (2001). One of the findings is especially important in times of uncertainty and chaos: “Confront the brutal facts.” As it will be argued later in the text, today it is not the question: Why a company should be more sustainable? Jim Collins put it this way: “There is nothing wrong with pursuing vision of greatness. […] But, unlike the comparison companies, the good-to-great companies continually refined the path to greatness with the brutal facts of reality” (Collins, 2001: 71).

Effectiveness Effectiveness is needed in organizations in management of organizations (Peter Drucker) and in learning of organizations (Christian Pirker). Fredmund Malik distinguishes between right and wrong management and between good and bad management. The first distinction between right and wrong leads to effectiveness, the second distinction to efficiency. Fredmund Malik refers to Peter Drucker. The “founding father of the science of management” (Los Angeles Times) Peter Drucker speaks of “competence in practice.” “But what is

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needed in effectiveness is competence. What is needed are ‘the scales’” (Drucker, 2002: 23). Peter Drucker finds five such essential competences and practices (Drucker, 2002: 23 f.): 1. “Effective executives know their time goes. They work systematically at managing the little of their time that can be brought under their control.” 2. “Effective executives focus on outward contribution. They gear their efforts to results rather than work. They start out with the question, ‘What results are expected of me?’ rather than with the work to be done, let alone with its techniques and tools.” 3. “Effective executives build on strengths – their own strengths, the strengths of their superiors, colleagues, and subordinates; and on the strengths in the situation, that on what they can do. They do not build on weaknesses. They do not start out with the things they cannot do.” 4. “Effective executives concentrate on the few major areas where superior performance will produce outstanding results. They force themselves to set priorities and stay with their priority decisions. They know that they have no choice but to do first things first – and second things not at all. The alternative is to get nothing done.” 5. “Effective executives, finally, make effective decisions. They know that this is, above all, a matter of system – of the right steps in the right sequence. They know that an effective decision is always a judgment based on ‘dissenting opinions’ rather than on ‘consensus on the facts.’ And they know to make many decisions fast means to make the wrong decisions. What is needed are few, but fundamental decisions. What is needed is the right strategy rather than the razzledazzle tactics.” This already shows the close connection between effectiveness and competences with regard to the sustainable enterprise.

The Raising Awareness of Sustainability In this context, there are various initiatives, projects and protagonists who also deal with the topic “sustainability” on different levels. They have one thought in common: the raising awareness of sustainability.

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Another example is Markus Schwaninger who in his contribution “Cybersystemic education: enabling society for a better future” (2020) treats this topic from the cybernetic perspective. One aspect is the call for systemic education. Here, he refers essentially to the University of St. Gallen (Switzerland), which used a system-theoretical approach as early as the 1960s and has developed it further over the last 60 years. Thus, there are numerous graduates and experts who can talk about the advantages of the systemic approach in business practice. Various managers were interviewed in a research project. So for example Mark Schneider, CEO Nestlé S.A.: “Understanding and respecting system-wide implications of our decisions – this is what I learned from day one during my education in St. Gallen. When focused action gets combined with holistic thinking you have the necessary ingredients for impactful and sustainable management choices” (Schwaninger, 2020: 1388). Mark Schneider uses the phrase “sustainable management choices” in his statement. This shows the increasing importance of “sustainable management” and generally speaking the raising awareness of sustainability. Markus Schwaninger also refers in his contribution to the book “Systems Education for a Sustainable Planet” by Ockie Bosch and Robert Y. Cavana. This includes a contribution by Wayne Wakeland entitled “Four decades of systems science teaching and research in the USA at Portland state university,” which shows that systems science research and teaching also exists outside of St. Gallen. In his contribution Wayne Wakeland stresses the term “sustainability education.” This is another reference to the raising awareness of sustainability. Accordingly, enterprises must deal with sustainability and thus become sustainable enterprise. Sarah Underwood, Richard Blundel, Fergus Lyon and Anja Schaefer emphasize that social and sustainable enterprises are changing the nature of business. (cf. Underwood et al., 2012: xi ff.) Rupert Baumgartner sees a close connection between Corporate Sustainability and CSR. He offers a “Conceptual Framework Combining Values, Strategies and Instruments Contributing to Sustainable Development” for “Managing Corporate Sustainability and CSR.” He encourages all enterprises to be sustainable: “Sustainable development can be a source of success, innovation, and profitability for companies. To use this source and to deal with the challenge of sustainability, corporations need a framework they can rely on in order to identify opportunities and threats and to develop, implement, control, and improve corporate sustainability strategies to be bothmore sustainable (for themselves and the society)

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and more successful in economic terms” (Baumgartner, 2014: 258). And more: “Corporate sustainability can be a source of competitiveness, if the chances and opportunities related to sustainable development can be identified in a proper manner” (Baumgartner, 2014: 269). So it is no more the question: Why a company should be more sustainable? but furthermore the new contemporary question: How a company can be more sustainable? (cf. Baumgartner, 2014: 269) Aisma Linda Kiesnere und Rupert J. Baumgartner applied the framework of Baumgartner for corporate sustainability/corporate social responsibility empirically and used the promotor model of Witte from innovation management in the context of sustainability. The findings are not surprising. Enterprises need first top management support and second an open organizational culture regarding sustainable development to integrate sustainability on operational, strategic, and normative management levels. (Kiesnere & Baumgartner, 2019: 1). Thus, it is decided that we will intensively pursue this question in the next questions and offer sustainable models for business practice.

Competences “Competence” is currently one of the international most discussed terms in educational science. Katharina Maag Merki explains this with the findings of teaching and learning research, international developments in empirical educational research (OECD, PISA, DeSeCo), with new instruments for education management, the far-reaching changes in the today’s living and working world, globalization, the development toward a knowledge society and the change of the organization of work. Humans have to react with greater flexibility. (cf. Maag Merki., 2009: 492) However, the term “competence” is no original pedagogical concept. It is important to distinguish between competence and qualifications. Competence is more than qualifications. Qualifications are all knowledge and skills that a person for the successful exercise of their professional task must have. Competence also includes still motivational elements as well as the question of authorization. Thus, competence cannot be exclusive to qualifications. It is important that competence is not a question of applicable knowledge (for this there is already the term “knowledge”), but also about the motivation and dispositions, the own resources, the requirements to use it accordingly. (cf. Pirker, 2019a: 24).

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Fig. 15.2 The KWD-Model of competence (Source Author’s creation based on Pirker, 2019a: 24)

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can want may

disposition for action Definition of competences: Competences are dispositions for action, the ability to act (“can”) and willingness to act (“want”) as well as the responsibility (“may”). Only if all three dimensions are given, one can call it competence. (cf. Pirker, 2019a: 25) These action dispositions are closely related with the term “self-organization” and become by some authors also as “self-organization” dispositions seen. (cf. Erpenbeck & Sauter, 2017) In business practice, it is all about clarity. This clarity can be achieved through the concept of competence according to the KWDModel (Fig. 15.2). A special competence is the management competence. The top management is responsible for the development toward a sustainable enterprise. This requires a sufficient degree of awareness, learning and development ability with regard to their own management competence. In this context, management education plays a decisive role. (Pirker, 2019b: 25 ff.)

Summary We could now take three perspectives on the development of sustainable enterprises. All three are important in themselves, but the development of sustainable enterprises must be integrated and systemic. Overall, the focus is on effectiveness, awareness-raising and competence in sustainable enterprises. It requires clarity, competence and consistency in implementation, effective change management and support from top management.

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For the development of the sustainable enterprises we use some approaches of system theory, systemic management, management cybernetics, management theory, management education organizational development, change management, individual learning, team learning, organizational learning, competences and of course sustainable development. What is probably needed is an interdisciplinary and integrated approach that combines the advantages and insights of the respective disciplines in such a way that an effective development into a sustainable enterprise is possible in practice. In this field, science, management and management consultancy must work hand in hand.

References Ackoff, R. L. (1994). The democratic corporation. Oxford University Press. Baumgartner, R. J. (2014). Managing corporate sustainability and CSR: A conceptual framework combining values, strategies and instruments contributing to sustainable development. Corporate Social Responsibility and Environmental Management, 21, 258–271. Beer, S. (1979). The heart of enterprise. Wiley. Bosch, O., & Cavana, R. Y. (2018). Systems education for a sustainable planet. MDPI. Collins, J. C. (2001). Good to great: Why some companies make the leap … and others don’t. Harper Business. Drucker, P. F. (1980). Managing in Turbulent Times. Heinemann. Drucker, P. F. (2002). The effective executive. Harper Business. Erpenbeck, J., & Sauter, W. (2017). Handbuch Kompetenzentwicklung im Netz. Bausteine einer neuen Lernwelt. Schäffer-Poeschel. Kiesnere, A. L., & Baumgartner, R. J. (2019). Sustainability management emergence and integration on different management levels in smaller largesized companies in Austria. Corporate Social Responsibility and Environmental Management, 26, 1–20. Kotter, J. P. (1996). Leading change. Harvard Business School Press. Maag Merki, K. (2009). Kompetenz. In S. Andresen et al. (Ed.), Handwörterbuch Erziehungswissenschaft (pp. 492–506). Beltz. Malik, F. (2012). The right corporate governance: Effective top management for mastering complexity. Campus. Pirker, C. (2019a). Der Kompetenzbegriff in der Pflege. Österreichische Pflegezeitschrift, 3, 23–26. Pirker, C. (2019b). Effektives Lernen im Management. Wie Sie die Digitale Transformation mit einem menschenorientierten Ansatz, den Eckpfeilern des

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Change Management und entsprechender Managementkompetenz sowie effektiver Managementpädagogik erfolgreich meistern. Arbeitsbereich Schulpädagogik und Historische Bildungsforschung. Schwaninger, M. (2000). Managing complexity—The path toward intelligent organizations. Systemic Practice and Action Research, 13(2), 207–241. Schwaninger, M. (2020). Cybersystemic education: Enabling society for a better future. Kybernetes, 48(7), 1376–1397. Senge, P. (1990). The fifth discipline: The art & practice of the learning organization. Currency Doubleday. Underwood, S., Blundel, R., Lyon, F., & Schaefer, A. (2012). Introducing social and sustainable enterprise: changing the nature of business. In S. Underwood, R. Blundel, F. Lyon, & A. Schaefer (Eds.), Social and sustainable enterprise: Changing the nature of business (pp. xi–xv). Emerald Group Publishing. Wakeland, W. (2018). Four decades of systems science teaching and research in the USA at Portland State University. In O. Bosch & R. Y. Cavana (Eds.), Systems education for a sustainable planet (pp. 68–77).

CHAPTER 16

Rethinking Managerial Control in the Contemporary Context: What Can We Learn from Recent Chinese Indigenous Management Research? Thierry Burger-Helmchen

and Jean Yves Le Corre

In this chapter, we revisit the role of managerial control in modern organizations and summarize the challenges faced by experts in the field of managerial control today to rethink managerial control models and tools for agile, adaptative and innovative organizations. For some good reasons, managerial control has often been criticized for not creating value in organizations and being bureaucratic or counter-effective. It is most likely, from our point of view, that managerial control theory will need to

T. Burger-Helmchen (B) · J. Y. Le Corre BETA, University of Strasbourg, Strasbourg, France e-mail: [email protected] J. Y. Le Corre e-mail: [email protected] J. Y. Le Corre Xi’an Jiaotong-Liverpool University, Suzhou, China © The Author(s), under exclusive license to Springer Nature Switzerland AG 2021 M. Ince-Yenilmez and B. Darici (eds.), Engines of Economic Prosperity, https://doi.org/10.1007/978-3-030-76088-5_16

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embrace new concepts and paradigms in the future if it wants to bring real value to modern, innovative organizations (Stefani et al., 2019). In particular, the underlying concepts of rationality in a traditional approach to managerial control would need to be clarified in regard to increasing uncertainty in the business environment (Weber & Schäffer, 2019). Some progress has been made recently in indigenous research to provide a research framework that could also be applied advantageously in the field of managerial control (Van de Ven, 2007). We provide several examples in this area. We explain the definition of modern indigenous research based on most recent publications and provide examples of using such research methods.

Introduction Balanced Scorecard, Economic Value Added, Activity-Based Costing … For twenty years, new managerial control tools have been appearing regularly. Their promoters present them as managerial revolutions that should overturn a management method theorized in the 1960s by R. N. Anthony. Do these new tools fundamentally change the managerial control process, are those approach proposed in an Anglo-Saxon context also helpful in a European or Asian context or are their social, philosophical differences that decrease the helpfulness of those methods? In this chapter, we revisit the role of managerial control in modern organizations and summarize the challenges faced by experts in the field of managerial control today to rethink managerial control models and tools for agile, adaptative and innovative organizations. For some good reasons, managerial control has often been criticized for not creating value in organizations and being bureaucratic or counter-effective. It is most likely, from our point of view, that managerial control theory will need to embrace new concepts and paradigms in the future if it wants to bring real value to modern, innovative organizations (Stefani et al., 2019). In particular, the underlying concepts of rationality in a traditional approach to managerial control would need to be clarified in regard to increasing uncertainty in the business environment (Weber & Schäffer, 2019). Some progress has been made recently in indigenous research to provide a research framework that could also be applied advantageously in the field of managerial control (Van de Ven, 2007). We provide several examples in this area. We explain the definition of modern indigenous research based on most recent publications and provide examples of using such

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research methods. For this, we first discuss some Western philosophicalbased tools and then we look at differences with the Asian philosophy and their implication. Contemporary Challenges in Managerial Control Theory and Models Strategic management has been criticized for being too “rational” and “bureaucratic.” For example, the concept of business model as a strategic management tool has increasingly occupied a preeminent position in recent management literature, as being a management tool to help organizations adapt to a more complex environment and “navigate” in turbulent times. This new environment is most often described with the term VUCA (Volatility, Uncertainty, Complexity, Ambiguity) (Elkington, 2018). This raises the question about what could be the role of managerial control and performance management in this new environment, and in particular, in relation to measuring the performance of the business models. Managerial control and performance measurement are often used in relation to business planning, strategic management and strategy evaluation in a traditional approach; however, business models are more complex and dynamic than classic representations of the organization. It might not be sure that the Balanced Scorecard, for example, would still be effective in reflecting the performance of organizations where performance is mostly driven by the business model itself rather than organizational departments of processes (Kaplan & Norton, 2004). This scientific view of the nature of managerial control is also increasingly criticized by academics and practitioners for being too simple and not representing the real nature of managerial control practices in organizations nowadays. Xi et al. (2012) argued that the scientific approach should integrate more occidental wisdom values because managers face increasing challenges in predicting and controlling things in organizations in the contemporary VUCA environment. The presumed assumption that human beings can control events through their action by rationalizing their environment, i.e., building a rational view of things, which is at the core principle of Western managerial control theory, raises several questions. According to Franco-Santos and Otley (2018), managerial control theory has long been criticized for its undefined theoretical foundations, in particular in relation to the concept of rationality which is a core concept underlying Western managerial control theory. Moreover,

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there is concern that traditional forms of PMS (performance management systems) based on a traditional view may not be effective any longer in the modern context of uncertainly, risk and accelerated change. Despite a large number of publications related to the Contingency Theory of PMSs, several scholars have pointed out that the common body of knowledge on managerial control currently available has not managed so far to embrace the complexity of managerial control systems (Otley, 2016). Rationality in management sciences has come through a number of significant theoretical developments over the past twenty years, including under the influence of March and Simon; however, it is not clear how those developments have been embraced in managerial control theory so far. Rationality has been defined and approached through the lenses of various disciplines, including Behavioral Economics, Psychology and more recently Cognitive Sciences. Several recent studies in management accounting field have attempted to reduce the complexity of PMS by investigating the various components of performance frameworks and by trying to solve the contradictions between them. Evolution of Managerial Control In 1965, Anthony defined managerial control as “the process by which managers ensure that resources are obtained and used effectively and efficiently in the accomplishment of the organization’s objectives” (p. 16) and later he underlines that it is also the process by which managers influence others in the organization to implement its strategies (Anthony et al., 2014). In 1995, Simons clarified that it includes the information-based processes and procedures that managers use to maintain or modify certain configurations of the organization’s activities. Three constants emerge from these definitions: Managerial control guarantees an economic logic and is based on accounting data but is not limited to it; it is linked to the organization and translates strategy into operations; and it is intended for managers. It is, in fact, a tool for managing based on objectives which allows for decentralization, management by exception, motivation, accountability and makes it possible to manage large organizations. As such, it is often presented as one of the organizational innovations that allowed the emergence of the multi-divisional form. Located at the intersection of the accounting and organizational fields, managerial control is, by its very nature, difficult to grasp.

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Yet its main concepts—responsibility, motivation, steering, performance, profitability—pervade organizations of all kinds (from large private companies to administrations, associations and hospitals). Managerial control—real or fantasized—in private companies is becoming an unsurpassable standard, a sign of good management, which other organizations must apply. However this raises the question of how to identify changes in managerial control at the manager level, firm level and across firms. There are many actors involved in the production of managerial control “knowledge”: companies that invent new practices, but also consultants who prescribe, teachers who disseminate and researchers who observe. The comparison of discourses and practices leads us to draw a nuanced picture of the evolution of managerial control. We will attempt to base our analysis on the positions of the various parties by considering that the formal part of managerial control (performance indicators, delegations of power, procedures, etc.) is only the block that has emerged from the iceberg which hides a less visible part: that of the impact of tools on behaviors, organizational and national cultures and representations. This chapter will therefore first deal with the evolution of managerial control tools and then look at the hidden part of managerial control before balancing the North American and European vision with an Asian approach.

Past and Present Challenges of Managerial Control and Accounting In a study on managerial controllers, Simon et al. (1954) distinguish three types of use of accounting data in the firm: problem solving, organizing vigilance and evaluating performance. This typology overlaps the two classic roles of managerial control: decision support (sometimes referred to as management accounting) and behavioral normalization (managerial control is essentially seen as a tool for easing the convergence toward the firm goals). It is around these two axes that the evolution of managerial control tools will be dealt with. Two main movements of criticism have structured—and largely explain—the evolution of accounting and managerial control systems. Johnson and Kaplan (1987) attributed the loss of momentum of the American industry to the excessively strong link between management accounting and financial accounting. They then proposed new tools to rebuild accounting and managerial control that were intended for

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managers and no longer for shareholders. The Activity-Based Costing method, Target Costing or Balanced Scorecard are among the most famous and most popularized of those new methods. At the same time, recurring criticisms of the traditional managerial control model and its tools have led to the questioning of the budget with the approach of “Beyond Budgeting.” Later, in the 1990s, the emergence of corporate governance and the development of financial capitalism favored the implementation of a reverse movement: It was necessary to find the tools to put shareholders back at the center of incentive and control systems. The Economic Value Added (EVA) is an example of this type of tool. Managerial Accounting Approaches Management accounting is the expression of a microeconomic vision of the firm’s activity. The models it mobilizes are based on representations of the organizations controlled and, as these have evolved, so have the models and tools of control. In the 1980s, when the American model seemed to have broken down, two tools were proposed to help American companies deal with Japanese companies: Activity-Based Costing (ABC) and Target Costing. The ABCs: Fairer Costs or New Organizational Modeling? Activity-Based Costing was proposed in the late 1980s by Cooper and Kaplan and supported by a consortium of large, mainly American companies (Cooper, 1990; Cooper & Kaplan, 1988). This costing system is presented as a response to the inability of traditional management accounting to reflect the changing production conditions in American industry and, in particular, the considerable increase in indirect fixed charges in production costs which made the direct costing methods used until then unsuitable. The principle of the ABC method is to establish a traceability of costs in order to allow a better allocation of indirect charges to cost products through activity and cost drivers. The objective is to make full cost calculations more relevant again by means of a process-based representation of the company, described as a value chain consisting of activities. In the Anglo-Saxon countries, the method was widely used by large firms.

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ABC helped to remind companies of elementary principles that had sometimes forgotten them. However seeking to simplify the allocation of indirect costs, the manager gradually emptied the technique of its meaning. Sadly, the proposed next level approach, Activity-Based Management, which consists of putting costs partly aside to engage in activity management, does not seem to have had the expected success (Berg & Madsen, 2020). Target Costing: Cost as a Value Management Tool Target Costing was invented in 1965 at Toyota. It was developed in the early 1970s in Japan, but only spread to the rest of the world in the 1990s. Kato (1993) defines it as an approach that aims to reduce the costs of products throughout their entire life cycle, while meeting consumer demands for quality, reliability and other requirements, by considering all possible ideas for cost reduction during planning, development and prototyping. Technically, the target cost results from the reversal of the equation that made the result the consequence of the confrontation between the selling price (imposed by the market) and the cost (incurred by the company). Indeed, the Target Costing model emphasizes that if the selling price is dictated by the market, the profit is imposed by the strategic choices of the company, in terms of portfolio management, and by its shareholders. The cost then appears as a constraint, a target that the company must reach to satisfy its objectives. The comparison of this objective cost and the cost estimated by the company (under current production conditions) leads the company to deploy optimization techniques aimed at reducing the gap between the two. This involves both the implementation of value engineering to set a target cost as early as the product design phase and the search for continuous and programmed cost improvement throughout the product life cycle (Kaizen Costing). Noting, moreover, that 80% of the costs were already incurred when the actual production phase began, the promoters of the method encourage managerial control to move away from traditional ex-post controls to focus on the central question of upstream choices and on the control of future costs incurred. More than the simple implementation of a technique at the design stage of a new product, Target Costing can therefore be considered as an organizational practice applied to the entire product life cycle and aimed at reducing costs overall. The fame of this technique is relatively low: Few research articles are devoted to it and few studies report on the practices of companies in

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this field, perhaps because the secret is kept around this technique which explains the distinctive know-how, the key factors of success. Perhaps also because novel financial accounting and control techniques who appeared at the same time and their declination into indicators has stopped the generalization of a method based on physical indicators, the long term and cross-cutting approaches. Managerial Control: Between Financial and Operational Measures of Performance The traditional model of managerial control is said to have been invented by Sloan and Brown in the 1920s at General Motors. It revolves around the ROI (Return On Investment) pyramid, which makes it possible to establish a link between the requirements of shareholders and the performance of the company’s various activities, plans and budgets (which make it possible to articulate the short and long term), standard costs and budgetary control (which make it possible to make the various players in the organization accountable). The model has been criticized on three points. Firstly, because it places exclusive emphasis on financial indicators that, while they certainly allow a link to be made with shareholders’ expectations, lead to privileging the short term, neglecting what accounting does not measure, and introducing internal competition that can be harmful to the organization as a whole. A response to these criticisms was proposed by Kaplan in the form of a new tool supposed to go beyond the limits of financial performance measurement: the Balanced Scorecard (BSC). Next, the criticism focused on the need to articulate performance measures with shareholders’ expectations. Tools such as the Economic Value Added (EVA) are presented as possible responses to this criticism. Finally, proponents of Better Budgeting and Beyond Budgeting argue that the budget has become inadequate in a changing environment and propose that it be changed or even abolished. BSC: Using Non-accounting Data to Manage the Organization The BSC translates the company’s mission and strategy into a set of performance indicators that form the basis of a strategy steering system (Kaplan & Norton, 1996, 2004). This system combines a limited number of financial and non-financial indicators that should provide managers

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with forward-looking indicators and link strategy to operations. The indicators are grouped around four perspectives: financial, customer, internal processes and learning. A causal performance model must be established to link these different perspectives: Success on the financial axis depends on customer satisfaction, which in turn depends on the efficiency of internal processes and learning capacity. The impact of this tool is uneven from a country to another. For example, this tool has had a fairly low profile in France compared with other countries, probably due to the long-standing use of dashboards that also aimed to supplement financial indicators with non-financial indicators. However, there are a few elements that make the BSC specific compared to dashboards. Firstly, the BSC is described as a general management tool aimed more at evaluating performance than at steering the organization. In addition, it requires the search for causality between indicators of different natures that are supposed to converge over the long term, which presupposes being able to identify the company’s performance model. The implementation of this tool therefore encourages reflection on the company’s strategy and key success factors at each of its levels. EVA: The Return of the Shareholders? The EVA (Economic Value Added) method has become the benchmark for assessing the value created by the company for its shareholders. It has been presented (and registered as a trademark) by the consulting firm Stern, Stewart and co. EVA is equal to operating profit after tax and diminished by the return on capital employed. The method thus takes up the principle of residual profit, used at General Electric since the 1950s, and incorporates the advances of modern financial theory to evaluate the return on capital employed. This is defined as the weighted average of the cost of the various categories of financing (debt and equity), and the return expected by shareholders is calculated according to the level of risk using the financial market asset valuation model (CPAM). This indicator should make it possible to measure value creation at all levels of the company and thus to align managers’ objectives with those of the shareholders. However, there are difficulties with the evaluation of the EVA. For example, restatements of operating income can lead to manipulations, and the calculation of the remuneration expected by shareholders assumes that the company is listed on the stock exchange or can be compared (in terms

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of risk) to a listed company. Since, many other indicators of value creation have been developed in relation to EVA. However, the implementation difficulties common to all these tools limit their dissemination. From Better Budgeting to Beyond Budgeting Since the Argyris (1953) study in the early 1950s, the budget has been the subject of considerable criticism. It has been criticized mainly for giving precedence to the short term over the long term, for making the firm rigid, for neglecting value management, for encouraging bargaining to obtain bonuses, for provoking individualism and stress, for being bureaucratic and for making people forget about competition. Two remedies were proposed in the late 1990s, one by advocates of improving the budget through Activity-Based Budgeting (ABB) and the other by advocates of abolishing it through Beyond Budgeting (BB). Taking up the cost model developed under ABB, the central proposal of the ABB movement is to construct the budget by referring to an activity-based organization model. This approach advocates to precede the elaboration of the budget by an operational phase during which a plan is built thanks to a model of the organization through its activities (operational loop). The financial loop then enables a financial plan to be deduced from the operational plan. The BB approach broadly takes up the ABB proposals, but goes further by stating that the budget should be eliminated. Its primary objective is to avoid the annual performance trap. The echo of these proposals in business practices has remained weak. Indeed, not to take the budget as an immutable reference in a changing environment is to forget the role of reducing the ambiguity that a fixed budget can play in an environment where everything moves (Cools et al., 2017; Knardal & Pettersen, 2015). Here we find a classic paradox: It is all the more important but all the more difficult to make forecasts in a changing environment (Sponem & Lambert, 2016).

Managerial Control, a Language and Philosophical Tool for Managers By first presenting the responses, in the form of tools, to the instrumentation needs of organizations, only the most visible, most immediately perceptible part of managerial control was described. However, this

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cannot be reduced to a sum of techniques and tools. It is in fact a process for which the responsibility lies with the entire managerial line, which must appropriate its tools—and therefore consider that they make sense— and use them. Irreducible to its tools, control must therefore be perceived both as a language for unifying behaviors and as a process for socializing managers. Some may argue managerial control depends on a philosophical approach of the firm. A Common Language Between Managers to Ease Dialogue Too often, managerial control is perceived as a measurement tool that states indisputable facts. However, managerial control is first and foremost a language, a system of signs that constitutes a transmission belt for the information it produces and receives. There is no managerial control, no steering of an organization without an information system at the service of the “decision-makers,” without a language that enables the latter to communicate with the entire hierarchy. Managerial control as language can change as organizations change— or depending on the organization in which the control system takes place—the language character of these systems is one of their most permanent features: Control has always been a language; it will remain one. Sociologists have shown that a language carries within it a vision of the world and thus contributes to unifying behavior. It is language that makes it possible—through a common vocabulary, a particular syntax and identical acronyms—to build the identity of an organization and to coordinate the actions of its various members by forging homogeneous attitudes. A language carries within it a vision of the world that is necessarily adopted by those who speak it. Managerial control translates a representation of the company at a given moment, but behind the technical choices of representation are hidden ideological dimensions, preferences that say something about the way the designers of control systems perceive the organization and its goals. These choices will produce effects on the behavior of the actors. For example, managerial control, by formalizing the links between the strategic level and the operational level, provides middle managers with a reading of the organization’s goals and an interpretation of their role in the structure. It specifies the paths that will have to be taken to achieve organizational objectives and unifies concerns and behaviors. In this way, it ensures a degree of coherence in the organization.

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Manager adapt control to internalize specific constraints but also to forget certain elements of reality. The managerial control system, because it is based on a model of the company, imposes to reduce the complexity and thus the richness of the organization by privileging certain aspects of reality to the detriment of others. Managerial control thus privileges what can be quantifiable and often induces, as a result, perverse effects. When performance measurement, for example, is reduced to financial results, this leads actors to change their behavior to favor actions that produce a positive effect on financial results, even if this means playing their own game to the detriment of the company’s interests. Moreover, the monetary language of managerial control can help to influence existing organizational modes. By giving managers and financiers greater powers, managerial control tends to generalize its system of reference to all decision-makers and thus to change the balance of power between groups. For these other “values,” cost analysis and managerial control is a poorly chosen area for confrontation, but it is the only one that has acquired sufficient legitimacy in the eyes of the majority of share and stakeholders. Management techniques have acquired an appearance of unity, simplicity, logic and universality which is their strength. In other words, through its language, managerial control imposes a way of seeing the organization that benefits accountants, controllers and financiers and allows them to reach the top of organizations by giving them the illusion that everything can be managed by numbers. This empowerment can have positive results. It can also lead companies to disaster by giving their managers an illusion of control or by making them neglect more qualitative aspects of management. A Socialization Process for Managers Managerial control proposes norms of result through which it seeks to induce norms of behavior. At the heart of this process is the notion of responsibility: Managerial control must make it possible to delimit responsibilities, make them visible and sanction or reward those in charge by relying essentially on accounting data. In fact, managerial control is a paradoxical process, since it is inspired by mechanistic cause-consequence models while knowing that the reality does not fit with such a model. The observation of practices shows that, too strictly applied, such type of managerial control leads to irresponsible behavior, overvaluing the short term and forgetting the needs of coordination and the interests of the

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company in favor of local interests. Once the learning period is over, managers know how to manipulate the tools of control to achieve a flattering short-term result, even if this means sacrificing the investments that will make long-term profits. Recent research suggests that large organizations today have more or less equivalent formal managerial control systems. What differentiates them is the way these control systems are used. Simons (1995) proposes to distinguish between control systems used diagnostically and control systems used interactively. This distinction is since widely used (Martyn et al., 2016). Diagnostic control systems are the information systems that managers use to monitor the organization’s results and correct deviations from predefined performance standards: They are thus part of the classic and coercive logic of managerial control. Interactive control systems are the information systems that managers use to become regularly and personally involved in the decisions of their subordinates: They should encourage discussion and learning. All control tools can be used in a diagnostic or interactive way, and successful companies are those that manage to articulate, according to their strategy and the constraints of their environment, diagnostic and interactive controls in order to compensate for each other’s perverse effects. The key would be here. Beyond making each individual accountable within a coercive and disciplinary logic, managerial control would only lead to performance if it is also seen as a tool for socializing managers, making them aware of economic requirements and the strategic and human implication of their choices. It is clear that control then moves away from a mechanistic vision of the organization. Taking into account the interplay of actors, formal (e.g., hierarchical and administrative) and informal (e.g., clan, culture, socialization) control systems that must guide its implementation is the challenge for a more creative control adapted to the contemporary environment.

Some Thoughts on Asian Approaches to Managerial Control The tools of managerial control have, on the surface, evolved considerably over the last twenty years, but the problems they must be able to cope with remain the same. What needs to be made visible? How to reconcile control and motivation? How can constraint and autonomy be reconciled? How can routine and innovation be encouraged? The problems of managerial control repeat themselves and the evolution of techniques and

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IT support systems does not allow, any more today than yesterday, to give universal answers. Managerial control is thus a paradoxical edifice which owes its performance to carefully managed instability and whose visible part, the tools, cannot make us forget the informal dimension. Asian approach of managerial tools is specifically built on the resolution of those instabilities and the search of a, almost philosophical, equilibrium. Harmony-Oriented Managerial Control In this section, we review both East Asian and Western approaches to harmony and its application in corporate management. Western and East Asian societies value harmony (Leung et al., 2011). In the Western countries the notion of harmony is strongly related to Greek Philosophy, and the Confucian philosophy is used in the East Asian area. The difference in the philosophical roots can be found in the type and usage made of managerial control tools. Both approaches recognize that harmony is the integration of dueling forces and tensions. Following the Greek and Confucian views, harmony appears by the long-term interaction of dueling forces and of pressures to negotiate and compromise. While this initial concept of harmony was mostly applied to some arts it developed to many other human activities over time (in a similar way as creativity unfolded from art into business, Burger-Helmchen, 2013). Harmony is interesting for studying managerial control at two levels. Harmony is about the relationship to people (and therefore correspond to the socialization need and communication need of managerial control) and the relation to nature (therefore being adapted to analyzed evolving, Vuca environments). When related to interpersonal relationships harmony might occur in the private and professional relationships. This is stated in several Asian philosophies as remembered by Li (2006): “the most precious thing is to have people who work in harmony with one another” (p. 587). The same view can be found in the lessons of the Greek philosophers, e.g., Plato proposed that different social classes could exist and work in harmony if each class is engaged in its own business (Bauman, 2018). However, Plato added that this harmony is found by the help or designation of a leader henceforth a manager in the modern firm. Thus, striving for harmony affects work ethic as well. Confucianism and the Protestant

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work philosophy have many commonalities (Rarick, 2007). Protestant work philosophy through the work of Weber influenced strongly organizational theory and managerial control, notably with the bureaucratic model (Burger-Helmchen et al., 2019; Ouchi, 1980). Among common values, we can listen that both approaches valuate the notion of self-sacrifice, hard work and devotion to work… Notable differences between the Western approach and the Asian approach emerge here. The Protestant approach concentrates on the individual and the Confucian approach underlines group achievement, harmony at the social level. An additional difference is that, the Asian approach sees that a harmonious relationship can be obtained by the two means: cultivating virtues (e.g., righteousness, wisdom, sincerity, loyalty, responsibility) and by respecting the hierarchical structure of the organization (Chen et al., 2016). Therefore, managerial control influenced by Confucianism supposes that each individual in the firm (and to a broader extent in the society) has a predetermined position depending on the level of seniority. Hence, superiors have to be kind to subordinates and have their welfare in mind, while subordinates have to comply with the decisions of superiors (Wang & Juslin, 2009). Subordinates are authorized to make suggestion, or critics in disguise, under the condition that they respect the group norms and don’t harm the harmony of the group (Qu et al., 2018). In the Western approach conflicts, different opinions are tolerated and sometimes even researched (Burger-Helmchen & Llerena, 2012). The confrontation and the rupture of the equilibrium bring the firm toward a new, better situation (Burgelman, 1991). The notion of harmony can also be found in the business literature on corporate social responsibility (and therefore is also linked to managerial control). This literature addresses the harmony between firms and their stakeholders (Burger-Helmchen & Siegel, 2020). Same analyses can be done with the recent business literature on sustainability and the impact on managerial responsibility and managerial control (Boons et al., 2013; Figge et al., 2002; Jones et al., 2018). Conclusion: The Need for Indigenous Research Methods? Indigenous methods of management research have been advocated in order to reduce Western-centric theories of management built upon the philosophies and values of the West and generate the most effective

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solutions to local problems because of the high compatibility between theory and phenomenon (Leung, 2009). Over recent years, the definition and body of indigenous management research have become clarified, as evidenced by Li et al. (2012). According to these authors indigenous research is “the study of a unique local phenomenon or a unique element of any local phenomenon from a local perspective to explore its local relevance, and, if possible, its global relevance as well.” Indigenous management research with its own corpus of methods can facilitate the emergence of new theories in management, then responding to the complexity as recognized by the scholar’s community both in the West and in the East. Tsui (2004) argued the need for high-quality indigenous research in building the body of global management knowledge, using the influential studies on management in the Chinese context. We believe that the infusion of harmony-oriented management with indigenous research will make researchers and managers able to build better control tools especially for unstable Vuca environments, allowing more innovation and creativity.

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CHAPTER 17

Women Entrepreneurship for Bridging Economic Gaps Meltem Ince-Yenilmez

Introduction The confidence, guidance, and positive success image that mentors and role models create is responsible for many career paths, especially in the field of entrepreneurship. However, a wholesome entrepreneurial climate cannot exist without the active involvement of both genders. According to Verheul et al. (2006), high entrepreneurial activity rates are synonymous with high female entrepreneurial activity rates. This is equally critical for economic development because entrepreneurship contributes to job creation and diverse well-being aspects. Schumpeter further postulates that economic growth and development are heavily dependent on the entrepreneurial process. Furthermore, all nations use entrepreneurial promotions in measurements of innovations in processes, products, organizations, and sustained employment creation (OECD Council Report, 2012).

M. Ince-Yenilmez (B) Department of Economics, Ya¸sar University, Izmir, Turkey e-mail: [email protected] © The Author(s), under exclusive license to Springer Nature Switzerland AG 2021 M. Ince-Yenilmez and B. Darici (eds.), Engines of Economic Prosperity, https://doi.org/10.1007/978-3-030-76088-5_17

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Still, even as females make up about fifty percent of the world population, they are stuck in a position of fighting for what is rightfully there’s—their right to control and decide their lives and future (Revenga & Sudhir, 2012). However, women’s entrepreneurship is growing gradually worldwide, especially within the last decade, because policymakers are beginning to pay close attention to its need. This is even though women’s contributions further depend on gender blind support and gender equality from institutions (Nedelcheva, 2012). Several international organizations, including the World Bank and United Nations, have made constructive moves to bridge the gaping hole in gender disparities and opportunity access. However, these gaps continue to exist as women continue to struggle to achieve their necessary human rights provisions (Sarfaraz & Faghih, 2011). Nevertheless, diverse works of literature have shown that there are many benefits to be gleaned from human resources (both male and female), so the continuous treatment of women as the second gender only undermines those benefits. Real economic development can only be achieved if women were given equal access to opportunities and resources, just as their male counterparts. Although the world is catching up on women’s entrepreneurship’s needs, female participation remains low (Minniti & Arenius, 2003), especially within less developed countries. However, these countries can boost their economic development if the practical solution of equal entrepreneurship opportunities is imbibed. Their high female unemployment rate only increases overall unemployment rates and poverty (Sarfaraz & Faghih, 2011). Research also shows that when female entrepreneurship is supported, gender equality progress becomes definite (Baughn et al., 2006). Entrepreneurship does not only provide a means for these women to meet their financial obligations; its flexibility can help them handle their domestic responsibilities (Bertaux & Crable, 2007). Women’s entrepreneurship remains the most untapped source for economic development within the century (Georgeta, 2012). The GEM Women’s Report in 2012 outlined that over 98 million females were running established organizations of their own while 126 million were starting. However, these entrepreneurial distribution patterns are quite different in particular regions. For instance, while sub-Saharan Africa has 27% of female entrepreneurs and was the highest-rated, the MENA region had only 4% and was the lowest. Furthermore, the MENA/mid-Asia region showed the highest gender inequality in Total Early Entrepreneurial Activity

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(TEA) (one woman for every four men). On average, developing Asia and sub-Saharan Africa had the highest gender equality. To understand the underlying constraints and factors impacting women’s entrepreneurship, it is crucial first to understand the relationship between economic development and women’s entrepreneurship. Still, the GEM 2008 Executive Report states that the overall understanding of entrepreneurship and its relations to economic development is insufficient, even as it is widely acknowledged that entrepreneurship can drive sustainable economies. Nonetheless, comparative research across countries and regions has been fueled by consistent cross-national entrepreneurial activity measurements that the GEM offered independently for women and men. These cross-national evaluations have helped academicians and policymakers understand gender entrepreneurship distributions to create frameworks for women’s entrepreneurship growth. The present study’s objective is to ascertain the relationship between women’s entrepreneurial activity and gender equality. Socially created norms, roles, behaviors, activities, and expectations attributed to men and women are the tenets of gender. However, of the eight Millennium Development Goals, gender equality has been described as the critical goal to accomplish the other several goals (United Nations Population Fund, 2013). Scholars widely acknowledge that females play a highly valuable role in entrepreneurial growth. As long as gender inequality exists, real economic growth is a hoax. Still, studies show a gigantic gender gap in the gender entrepreneurship activity distribution rate globally (Allen et al., 2008). According to a GEM study of 18 economies between 2002 and 2012, there are significant gaps in women’s entrepreneurship in diverse development (Kelley et al., 2011). What is more, the possibilities of women partaking in entrepreneurship are higher for developed nations than in developing countries (Kelley et al., 2011). Therefore, developed countries offer more opportunities for women compared to developing nations. As per capita income increases, various gender equality measures improve (Dollar & Gatti, 1999). This begs the question—can one assume that gender equality and entrepreneurial activities grow in the same direction? Or in other words, do developed countries with higher gender parity display higher women entrepreneurship rates? To answer these questions, Kelley et al. (2013) stated that generally, female TEA rates have the same markings as males, even at lower levels.

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In 2011, the GEM Women’s Report showed that whereas the gender entrepreneurship gap decreased in some nations, it increased in others. Overall, entrepreneurial activities decrease when an economy moves to a higher developmental level regardless of gender. Therefore, in developed economies where women and men can access diverse employment options, people will be more interested in gaining secure positions than building their businesses. However, gaps between men’s and women’s access to entrepreneurial possibilities decrease as economic development moves to a higher level (Kelley et al., 2011). Therefore, when any nation’s economy grows through factor-driven, efficiency-driven, and finally innovation-driven phases, the gap between women’s and men’s entrepreneurship diminishes in sequence 5.2 points, 4 points, and finally 3.4 percentage point, respectively. Therefore, the general assumption is that gender equality drives female entrepreneurship, which further concludes that when any economy provides equal entrepreneurial opportunities for men and women, it will experience a higher rate of women entrepreneurship than economies with higher gender inequality rates. Therefore, this paper contributes that gender equality drives higher women’s entrepreneurship. Previous literature by Baughn et al. (2006) has confirmed the present study’s results stating that the higher proportion of women entrepreneurs cannot be predicted by gender equality alone.

Evaluating Gender Disparities in Entrepreneurship To further deepen awareness of the challenges, barriers, and constraints that female entrepreneurs face, it is vital to evaluate a more concrete feminist theoretical framework. This will provide a further understanding of chances and choices for entrepreneurs within developing economies. Moreover, some feminist scholars have raised concerns that the scope of research on entrepreneurship continues to give precedence to male dominance. Calas et al. (2009), for example, state the need for alternative frameworks and directions, especially the need for individualistic premises of entrepreneurship research. They argue that the gender entrepreneurship gap will continue to be an issue if the entrepreneurship research approach does not change. Therefore, change, or the move toward entrepreneurship growth, can only be possible following alternative frameworks that

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emphasize that entrepreneurship drives economic development and social change. Indeed, taking the feminist approach will heighten awareness of critical matters. Moreover, even as the feminist approach prescribes gender conceptually refers to biological sex “male” and “female” divides socially constructed views on sex, the majority of entrepreneurship research usually only refers to “male” and “female” without looking at the social aspects (Ahl, 2006). Feminist scholars state that such an approach only takes on a liberal view of gender issues by oversimplifying female barriers or looking at those barriers as advantages. Therefore, many current literatures on entrepreneurship do not even consider the gender gap and overlook the fact that women and men work within patriarchal societies and economies, which places the male gender as superior to females. Even when gender bias is understated, the results are still pretty much the same. Contextually, entrepreneurship research continues to value men over women on the tenets of oppression and privilege, resulting in severe outcomes. Therefore, when researchers oversimply or ignore these critical issues, they merely create solutions that reproduce existing systems, limiting academic reach while causing dire consequences in policymaking (Vita et al., 2014). Therefore, Ahl (2006) and Calas et al. (2009) state this persisting gender bias is the real reason while authentic reforms have not been made to create a wholesome environment for female entrepreneurship across many cultures. Overall, feminists argue that a majority of entrepreneurial studies (1) follow the liberal perspective without questioning patriarchal values, (2) fail to study the relationships between individualism and economic development, (3) fail to evaluate the present power and structural barriers that are limiting the growth of female entrepreneurship. Without doing these three things, many of these studies do not provide adequate and realistic solutions that can close the gender gap. Nevertheless, to study the consequences of present female entrepreneurial research design and its impact on policymaking and support programs, it is essential to provide a more robust view of the three arguments. According to Ahl (2006), entrepreneurship is mostly seen as a positive move, innovation, change, or opportunity contributing to economic development. Due to these positive constructs, such views accidentally overlook its potential for real change. Through a quick evaluation of various literature works, it is confirmed that a majority of these studies, articles, and reputable reports only view entrepreneurship as an engine

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for growth with women entrepreneurs fronting this change. Indeed, most contemporary studies focus on the contributions of women entrepreneurship to economic growth and development. According to Horrell and Krishnan (2006), this is primarily because of the role of women within domestic settings as they generally make higher contributions than men, by making more significant investments within the family, and further impacting positively on development standards (Minniti, 2009; Minniti & Naudé, 2010). Therefore, these studies view women entrepreneurship as untapped areas that can fuel economic development, highlighting that such underperformance needs to be solved (Ahl, 2006; Pearson, 2007). So, these expectations only follow the dominant contemporary discourse that economic growth and development are the only advancement measures. Therefore, such practices only render the gender gap an economic performance issue and prescribe solutions only on an individual level without factoring in the political and social criteria. Therefore, such practices exclude the necessary structural change toward gender equality reforms and prescribe inadequate solutions. In sharp contrasts, or what seems a better prospect, other entrepreneurial studies view the gender gap as an issue of “unequal opportunity” arising from partisan obstacles facing female entrepreneurs and their enterprises. Therefore, the solutions prescribed by such perspectives are that when these obstacles are removed, men and women will have equal opportunities to thrive in entrepreneurial growth. For example, it is popularly agreed that lower educational attainment and lack of finances are why more men than women own and manage businesses. On that premise, many projects in the past focused on providing loans and training for poor and uneducated women to close the gender gap (Lakovleva et al., 2013; WEF, 2016). However, the reality is different because provisions for training and finance have not offered adequate solutions because entrepreneurial gender gaps do not depend on those factors but rather the more complex power relations and governmental structures upholding patriarchal views in entrepreneurship.In other words, the right path to alleviate the gender gap in entrepreneurship is looking beyond the economic tenets and focusing on provisions solutions to specific gendered environments.

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Gender Perspectives As defined by Harding (1987), there can be three distinguished entrepreneurship perspectives in research. The first considers male and female as equal, similarly capable of reasoning. When research adopts this perspective, the gender gap in entrepreneurship will mainly constitute structural discrimination barriers (Sullivan & Meek, 2012). Therefore, the idea here is those discriminatory barriers can and must be eliminated or changed. The second perspective considers that though women and men are equal, they are dissimilar. This perspective distinguishes attributes and qualities just as society prescribes. When research adopts these perspectives, it views women entrepreneurs as having more benefits and advantages they can exploit (Schwartz, 1976). Feminist scholars have criticized both gender perspectives because they oversimply the disparities and thereby justify gender bias in society that men and women alike currently face. Therefore, they propose a third gender perspective. The third questions social order from the holistic view alongside its gendered power structures, while eliminating the need to envisage similarities or differences between men and women.

Entrepreneurship Barriers: More Than the Gendered Gap The post-structuralist gender perspective proposed by feminist scholars, therefore, gives rise to the fact that all aspects of political, social, and economic order, including entrepreneurship, are “gendered” (Carter et al., 2007). Still, gender is not the only concept that determines the chances of becoming successful in entrepreneurship. Minniti and Naudé (2010) further suggest that the relationship between gender, ethnicity, and migration is also necessary. Therefore, there is a need for intersectionality, which is a feminist tool for advocacy, analysis, and policy development as it addresses diverse discriminatory levels (Welter, 2011). The third perspective can help one understand how constructed identities’ attributes influence their location, social, economic, and political rights. The intersectional perspective offers a more robust approach to evaluating how gender intersects with other identities, including sexual orientation, religious beliefs, culture, migrant status, educational attainment, ethnicity, age, and many more contributing to privileges or restrictions. Feminists further argue that such constructed identities exist in all

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societies, even as the inclusion, exclusion, and other mechanisms that shape privilege and operation vary across different settings and evolve. The feminist concept of gender was developed in the ‘1970 s, and intersectionality much later in the ‘1990 s. Both provide a comprehensive view of constructed identities and their effects on accessibility and control over rights, representation, and resources (ILO, 2016; Jennings & Brush, 2013; Robb et al., 2014). Thus, feminist theory is concerned with identity constructions and its power relations to ascertain societal roles and responsibilities within inequity settings (Foss, 2010). Therefore, as Ahl (2006) prescribed, “Gender is something that is ‘done,’ ‘accomplished,’ or ‘performed,’ rather than something that ‘is.” In other words, backgrounds can influence roles, activities, attitudes, and behaviors appropriate to one’s constructed identities and further shape interactions and relations with others. Feminists also aimed to make propositions about alternative policies, economies, and social orders that can help transform societies. When used as socially constructed identities, which is the original definition, gender is a “political” concept, used to criticize and make calls for change. Therefore, it provides a relevant theoretical model for studying, understanding, and assessing. For instance, the issues surrounding household and care responsibilities are widely discussed as “women’s problem” and only show up in women’s entrepreneurship research on entrepreneurship. Therefore, it is as though scholars only perceive domestic issues as women’s problems and the responsibility as part of her identity while leaving her male companion out of the picture (Fenwick, 2008). Such instances ignore the fact that women’s entrepreneurship is a part of entrepreneurship and can further challenge the predominantly patriarchal society, thereby driving social change and reinventing the wheels behind seeing the females as caretakers and males as breadwinners. Suppose that women’s participation in economic activities has doubled globally over the last 30 years (Pearson, 2007)and that women are developing more businesses than men (Caliendo et al., 2017; Shaw & Carter, 2007) are brought into account. In that case, it becomes more apparent that it is crucial to evaluate women’s entrepreneurship carefully. Feminist scholars argue that such careful evaluation will deal with the erroneous claims that female entrepreneurship growth can automatically lead to women’s empowerment and gender equality. In other words, even if the male are left unquestioned, women entrepreneurs will possibly continue to face the same challenges that

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hinder their ability to compete as equals with their male counterparts in order to improve the performances of their businesses. As long as gender bias persists, with entrepreneurship seeing men as superiors, her business will always seem like an alien concept and be even positioned as secondary, complementary, or trivial because it only serves to continue the traditional gender norms that the female’s responsibility is to the family alone (Blau & Khan, 2000; Borghans et al., 2014). Feminist scholars suggest the need to focus on the more extensive scene to implement great programs and policies that will benefit both the male and female gender.

Impact of Women Entrepreneurship Promotion Policies on Alleviating the Gender Gap To thoroughly explain the gender gap in entrepreneurship, it is crucial to integrate the multi-level framework Tof analysis on the multi-level framework of analysis on consistent and dependable gender-segregated statistics while paying attention to normative entrepreneurial context, extraeconomic, and work-family relations. All of these alongside following the feminist gender perspective. This further implicates creating a successful support program or establishing excellent policies. There is a need to address the gender gap in entrepreneurship is at least one part of that framework. Hence, questions will arise on the different support programs and policies presently in place (alongside who conducts them) and their effects, and causative outcomes. What vital attributes and conditions are needed to implement successful policies and support interventions? The subsequent session provides an excellent guide and assessment of present support programs and policies for promoting women’s entrepreneurship.

Preventing “Slum” Identity In recent decades, females have often worked in positions without status, remuneration, social security, or retirement perks, particularly within family businesses. Gender-specific business statistics give rise to the knowledge of the much preferable phenomena of “co-entrepreneurship.” Such businesses often have couples behind them. The women entrepreneurs placed in positions were repeatedly stating that their partners and families are the reasons behind their successful ventures. This loosely translates to two different perspectives: (1) successful women entrepreneurs refuse to focus on the gender dimension, (2) the need to implement policies for

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women’s entrepreneurship to prevent developing a “slum.” Thus, it is as though when they make it to the top, it is not because of their qualities and hard work, but because they are women or despite being women. The research and development community is taking on the challenge of assessing and closing the gender gap in entrepreneurship, mainly because it promises to help drive economic growth. Everywhere—the media, conferences, studies, and even research materials, headlines stating that women entrepreneurs are better “Foreign investments than Foreign Aid,” outlining innovative entrepreneurship as “the women’s movement” and captions like “The Rise of the Female Entrepreneur” further undermines what must be done to eliminate barriers. Nevertheless, there are tons of support programs created by policymakers, stakeholders, and development practitioners on these tenets to alleviate those barriers. Some programs out there are even interventions created by private companies, social entrepreneurs, NGOs, charities, religious organizations, international (public) institutions, civil society organizations, and public–private associations. Therefore, it is worthy to note that these entities’ interests are based on the fact that women’s entrepreneurship grows concerning entrepreneurship roles in economic development and growth. These entities assign women a unique role as development drivers due to their expenditure patterns (Bourne & Calás, 2013; McGee & Peterson, 2017; Stead, 2017).

Concluding Remarks Therefore, the underlying question persists—do promoting and developing women’s entrepreneurship transform females into successful ventures, create employment opportunities, and contribute to economic development? Do women’s entrepreneurship also change the existing gender bias that restricts entrepreneurship and creates gender equality or social change? As such, how does that happen? Finding answers to these questions requires a holistic and historical analysis of the rationales stated and ommitted to develop concrete programs and policies in developing nations. Furthermore, there is a need to thoroughly and critically analyze the diverse programs and policies provided and established by regional, national, and international entities to help envisage their coherency and influence in prompting and developing female entrepreneurship in developing nations. However, while such endeavors have not been made, some evaluations can be drawn from

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the general scene. Some case studies to ascertain how effective the already established gender development programs have been to help develop an analytical framework for systematic impact assessment. For example, as Pearson (2007) postulates that many of the existing policies and programs are based on assumptions that income generation and market engagement can automatically drive women’s economic empowerment and change gendered normative practices in domestic settings. Therefore, such perceptions lead to erroneous inferences. However, this has become a widespread notion in both literature and practice. There is no doubt that women individually benefit from microcredit loans offered through these programs, but the extent of such benefits is inconclusive. However, some scholars continually claim that micro-finance schemes give women independence and autonomy. In contrast, others state that it only makes the women responsible for credit even as their husbands are still the sole decision-makers. The issue with these contextual inferences is that social change is often overlooked, and measurements are only made based on economic indicators. These inferences do not fully state how the individual-level benefits can make significant contributions to macroeconomic change, drive political decision-making, and improve societies’ views on gender equality. Looking at this issue from the country level, almost all international entities and NGOs promoting micro-credit as an avenue for economic empowerment have overlooked that it does nothing to change or challenge poverty witnessed among women. However, the women who are beneficiaries of these schemes live in informal economies and therefore prescribe these schemes out of necessity and survival. Therefore, they request credit from these schemes for their predominantly home-based petty trading and micro-businesses. Their activities only generate cash, but there is no structural evidence that their activities create jobs, economic growth, or development. Furthermore, there is almost no proof that increasing economic activities or income generation through entrepreneurship can revolutionize gendered familial videos, reproduction, or care work. This means there is no evidence that such activities make significant contributions to social change or gender equality. At the time, no systematic evidence exists or confirms that such entrepreneurship promotion programs and economic development have changed the place of the female gender in societies. Overall, an important but necessary area is overlooked and must be thoroughly evaluated to create better ways to transform women’s place in society. Therefore,

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more research should examine the roles successful women entrepreneurs can play to influence and radicalize political, normative, and economic entrepreneurship contexts.

References Ahl, H. (2006). Why research on women entrepreneurs needs new directions. Entrepreneurship Theory and Practice, 30(5), 595–621. Allen, E., Elam, A., Langowitz, N., & Dean, M. (2008). Global entrepreneurship monitor, 2007 (Report on Women and Entrepreneurship). The Center for Women’s Leadership, Center for Entrepreneurship. Baughn, C. C., Chua, B. L., & Neupert, K. E. (2006). The normative context for Women’s participation in entrepreneurship: A multicounty study. Entrepreneurship: Theory and Practice, 30(5):687–708. Bertaux, N., & Crable, E. (2007). Learning about women, economic development, entrepreneurship and the environment in India: A case study. Journal of Developmental Entrepreneurship, 12(4), 467–478. Blau, F. D., & Khan, L. M. (2000). Gender differences in pay. Journal of Economic Perspectives, 14(4), 75–99. Borghans, L., Gielen, A. C., & Luttmer, E. F. P. (2014). Social support substitution and the earnings rebound: Evidence from a regression discontinuity in disability insurance reform. American Economic Journal: Economic Policy, 6(4), 34–70. Bourne, K. A., & Calás, M. B. (2013). Becoming “real” entrepreneurs: Women and the gendered normalization of “work.” Gender, Work & Organization, 20, 425–438. Calas, M. B., Smircich, L., & Bourne, K. A. (2009). Extending the boundaries: Reframing ‘entrepreneurship as social change’ through feminist perspectives. Academy of Management Review, 34(3), 552–569. Caliendo, M., Fedorets, A., Preuss, M., Schroder, C., & Wittbrodt, L. (2017). The short-run employment effects of the German minimum wage reform (IZA Discussion Paper No. 11190). Bonn. Carter, D. A., Simkins, B. J., D’Souza, F., & Simpson, W. G. (2007). The diversity of corporate board committees and financial performance, SSRN , 1–30. De Vita, L., Mari, M., & Poggesi, S. (2014). Women entrepreneurs in and from developing countries: Evidences from the literature. European Management Journal., 32(3), 451–460. Dollar, D., & Gatti, R. (1999). Gender inequality, income, and growth: Are good times good for women? Development Research Group, The World Bank. Fenwick, T. (2008). Workplace learning: Emerging trends and new Perspectives. New Directions for Adult and Continuing Education, 119, 17–26.

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Foss, L. (2010). Research on entrepreneur networks: The case for a constructionist feminist theory perspective. International Journal of Gender and Entrepreneurship, 2(1), 83–102. Georgeta, I. (2012). Women entrepreneurship in the current international business environment. Cogito-Multidisciplinary Research Journal, 1, 122–131. Harding, S. (1987). Feminism and methodology. Indiana University Press. Horrell, S.‚ & Krishnan, P. (2006). Poverty and Productivity in Female-Headed Households in Zimbabwe. Journal of Development Studies, 43(8)‚ 1–32. ILO. (2016). World employment and social outlook: Trends. ILO. Jennings, J. E., & Brush, C. G. (2013). Research on Women entrepreneurs: Challenges to (and from) the s? The Academy of Management Annals, 7 (1), 663–715. Kelley, D. J., Brush, C. G., Greene, P. G., & Litovsky, Y. (2011). Global entrepreneurship monitor: 2010 women’s report. The Center for Women’s Leadership at Babson College and London Business School. Kelley, D. J., Brush, C. G., Greene, P. G., & Litovsky, Y. (2013). Global entrepreneurship monitor: 2012 women’s report. The Center for Women’s Leadership at Babson College and London Business School. Lakovleva, T., Solesvik, M., & Trifilova, A. (2013). Financial availability and government support for women entrepreneurs in transitional economies: Cases of Russia and Ukraine. Journal of Small Business and Enterprise Development, 20(1), 314–340. McGee, J. E., & Peterson, M. (2017). The long-term impact of entrepreneurial self-efficacy and entrepreneurial orientation on venture performance. Journal of Small Business Management, 57 , 1. Minniti, M. (2009). Gender issues in entrepreneurship. Foundations and Trends in Entrepreneurship, 5(7–8), 497–621. Minniti, M., & Naudé, W. (2010). What do we know about the patterns and determinants of female entrepreneurship across countries? European Journal of Development Research, 22(3), 277–293. Minniti, M., & Arenius, P. (2003). Women in entrepreneurship, presented at the symposium of: The entrepreneurial advantage of nations, first annual global entrepreneurship symposium. United Nations Headquarters. Nedelcheva, S. (2012). Female Entrepreneurship in Denmark (MSc Thesis). International Business, Aarhus University, Business and Social Sciences. OECD Council Report. (2012). Gender equality in education, employment and entrepreneurship (Final Report to the MCM 2012 Meeting of the OECD Council at Ministerial Level). Pearson, R. (2007). Reassessing paid work and women’s empowerment: Lessons from the global economy. In A. Cornwall, E. Harrison, & A. Whitehead (Eds.), Feminisms in development: Contradictions, contestations and challenges (pp. 201–2013). Zed Books.

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Revenga, A., & Sudhir, S. (2012). Empowering women is smart economics. Finance & Development, 49(1), 40. Robb A., Coleman S., Stangler D. (2014). Sources of economic hope: Women’s entrepreneurship. Ewing Kauffman. Sarfaraz, L., & Faghih, N. (2011). Women’s entrepreneurship in Iran: A GEM based-data evidence. Journal of Global Entrepreneurship Research, 1(1), 45–57. Schwartz, E. (1976). Entrepreneurship: A new female frontier. Journal of Contemporary Business, 5(1), 47–76. Shaw, E., & Carter, S. (2007). Social entrepreneurship: Theoretical antecedents and empirical analysis of entrepreneurial processes and outcomes. Journal of Small Business and Enterprise Development, 14(3), 418–434. Stead, V. (2017). Belonging and women entrepreneurs: Women’s navigation of gendered assumptions in entrepreneurial practice. International Small Business Journal, 35(1), 61–77. Sullivan, D., & Meek, W. (2012). Gender and entrepreneurship: A review and process model. Journal of Managerial Psychology, 27 (5), 428–458. United Nations Population Fund. (2013). Gender equality: A cornerstone of development. Verheul, I., Van Stel, A., & Thurik, R. (2006). Explaining female and male entrepreneurship at the country level. Entrepreneurship & Regional Development, 18(2), 151–183. Welter, F. (2011). Contextualizing entrepreneurship-conceptual challenges and ways forward. Entrepreneurship Theory and Practice, 35(1), 165–184. World Economic Forum. (2016). The industry gender gap: Women and work in the fourth industrial revolution.

CHAPTER 18

Economics, Legal, Political and Social Environment of Entrepreneurs in Kyrgyzstan Andrei Generalov

and Olga Generalova-Kutuzova

Introduction Economic and socio-political development of Kyrgyz Republic (Kyrgyzstan), especially measures to improve its entrepreneurial and investment climate and the chosen vector for the implementation of transformations may be interesting for scientists and businessmen, politicians and practitioners of other countries, which has developed quite close economic and cultural ties with Kyrgyzstan. Kyrgyzstan was one of the least developed republics of the former Soviet Union, located in the Central Asian region with a GDP of $ 1,374 per capita in 2019. The country became one of the first in the postSoviet territory to move to the market economy, and was one of the first countries in the region to join World Trade Organization (WTO) in 1998. Despite the not very favorable geographical location, Kyrgyz Republic has serious potential for economic development and remains on the chosen path toward the course to democratization and progressive implementation of market reforms. Despite the not very favorable geographical

A. Generalov (B) · O. Generalova-Kutuzova Centre International d’investissement, Geneva, GE, Switzerland © The Author(s), under exclusive license to Springer Nature Switzerland AG 2021 M. Ince-Yenilmez and B. Darici (eds.), Engines of Economic Prosperity, https://doi.org/10.1007/978-3-030-76088-5_18

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location, the country has serious potential for economic development. Kyrgyzstan is currently an active participant in many international integration projects: with China—“One belt- one way”, with the Eurasian Economic Union (EAEU), with the European Community—a free trade zone (GSP + mode). In May 2017 Kyrgyzstan had signed an agreement with the United Nations Development Assistance Framework (UNDAF), highlighting the main priority identified by UNDAF as “sustainable and inclusive economic growth”. The advancement of market reforms is slower than expected, but the country is demonstrating stable economic growth and a tendency to sustainably attract foreign direct investment flows (FDI). In 2018 in Kyrgyzstan was adopted an ambitious national development program—the National Development Strategy of the Kyrgyz Republic for 2018–2040. The Strategy is declaring measures to ensure sustainable development, including issues related to the economic and investment climate, development of small and medium-sized businesses, as well as fight against corruption, achieving environmental safety and balanced development of the country. The development strategy of the Kyrgyz Republic has been supported by the World Bank, UNDP and other international institutions. In accordance with the strategy, were selected several priority economic sectors: mining, development of significant reserves of non-metallic mineral raw materials, agro-industrial complex and cooperation, light industry clusters, as well as sustainable tourism development. One of the important goals, highlighted in the strategy, is the formation of an open digital society, which provides introduction of digital state and municipal services for citizens and businesses throughout the country. It will include digital government, parliament and justice system. Economic projects related to digital commerce, digital finance, digital agriculture will be developed and supported. The above-mentioned circumstances are already beginning to bear fruit. Despite the fact that a large percentage of the Kyrgyz population is still forced to work abroad (which gives the national economy approximately $ 3 billion in additional income), the qualitative composition of labor migrants is beginning to change. Previously, the majority of people leaving to work abroad were higher educated personnel, but now this category starts to find employment opportunities in their own country, and people with a lower level of education and lacking professional qualifications have begun to move abroad instead of them. Thus,

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the experience of economic and socio-political development of Kyrgyzstan may be of interest to other developing economies in terms of taking a set of measures to create favorable conditions for the development of entrepreneurship, innovative development in the framework of stable progress along the path of democracy and market reforms.

Brief Analysis of the Current State of the Kyrgyzstan Economy Until 1991, Kyrgyzstan (Kyrgyz Soviet Socialist Republic) was one of the 15 national republics within the Soviet Union. It is a landlocked mountainous country located in the eastern part of the Central Asian region, bordering with Kazakhstan in the north, China in the east, Uzbekistan in the west, China and Tajikistan in the south. The total area of the country is 199.9 thousand square kilometers with sharp mountain peaks, valleys and glaciers prevailing in the country’s relief. The climate is continental with significant changes in various regions. In 2020, the population of the Kyrgyz Republic amounted to 6.5 million people. The average population density is 31 people per square kilometer. Two-thirds of the population lives in rural areas, and onethird (about 34%) in urban areas (Worldmeters, 2020). UNFPA forecast estimates population growth in Kyrgyzstan to 8 million people by 2050 (UNFPA, 2020). After the collapse of the USSR in 1991, Kyrgyzstan experienced a difficult transitional period. The complex system of interregional economic, industrial, commercial and financial cooperation was destroyed. The republic found itself left without financial assistance of an elder brother represented by budget of the USSR and was forced to rebuild national economic and financial mechanisms. By 1994 in Kyrgyzstan were privatized 82% of state assets, 68% of real estate, and 40% of manufacturing entities. Despite all the economic and political difficulties, the country was the first of the post-Soviet republics to implement deep reforms on the path to creating a market economy: Kyrgyzstan became the first country in the region to join the WTO in 1998. The open economy of the Kyrgyz Republic has significant potential. Despite the lack of access to the sea, the country occupies a strategic geographical location, having the opportunity to benefit both through access to the market of the EAEU, and participate in the framework of China’s large-scale initiative “One Belt, One Road”.

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On January 27, 2016, a resolution of the Commission of the European Union on granting the Kyrgyz Republic the status of a user of the GSP + scheme came into force, and as a result, Kyrgyzstan was able to supply to the EU markets under duty-free regime more than 6,000 commodity items, but the requirements for safety, quality, packaging, labeling of goods remain very strict. Therefore, despite significant preferences from the European Union regarding Kyrgyzstan goods and services, the underdeveloped certification system and lack of specialists do not allow Kyrgyzstan to fully utilize these advantages. Today, Kyrgyzstan supplies to Europe less than 100 commodity items, mainly food: honey, nuts, meat. On August 12, 2015, the Treaty on the Accession of the Kyrgyz Republic to the Treaty on the (EAEU) of May 29, 2014 entered into force. All customs procedures on the Kyrgyz-Kazakh border have been canceled, a single customs tariff and single commodity nomenclature of the EAEU foreign economic activity, unified product requirements established by the technical regulations of the Union and other norms and provisions of the EAEU Agreement have entered into force on the territory of the republic. National legislation has been adjusted according to the provisions of the EAEU Treaty. The structure of Kyrgyz economy is based on the extraction of natural resources (primarily gold, crude oil, natural gas and coal), metallurgy, production of mineral fertilizers, textile and leather goods, and also a significant role play agriculture and food processing. Moreover, if in 2018 the textile industry gave the bulk of industrial growth, in 2019 the palm passed to the mining industry, namely to gold mining. The country’s mining sector is developing rapidly, providing sufficient foreign currency earnings, and large investments in hydropower will not only solve permanent problems with the reliability of power supply, but also provide opportunities for exporting excess generated electricity. Since the country has a number of nature attractions and resort centers such as Lake Issyk-Kul, the developing tourism sector takes advantage of the growing demand from the region, China and the rest of the world. According to the UNCTAD (2020), FDI flows to Kyrgyzstan in 2019 amounted to 209 million US dollars, which is a significant increase compared to 139 million US dollars in 2018. Most FDI flows were directed to mining activities and other sectors, such as finance, petroleum production, but in general FDI to activities not related to mining remain weak.

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The main investors in Kyrgyzstan are Canada, China, UK, Russia and Kazakhstan. In the 2020 Doing Business report published by the World Bank, the country ranks 80th out of 190 countries, which represents a decline of 10 spots compared to the previous year (World Bank, 2020). The GDP growth rate of the Kyrgyz Republic from 2015 to 2019 had averaged 4% a year (NSC, 2020). Certainly, 2020 is not the best year for business, from the point of view of the development of the national and world economy, due to the entire pandemic of the coronavirus COVID-19, which has caused many production entities to be suspended or reduced, social and business life in all countries is limited, which, of course, entailed a decrease in business activity and a decrease in trade and industrial production. The National Statistical Committee of the Kyrgyz Republic noted that the decrease has mainly affected manufacturing, construction and services. Compared to January–May 2019, the decrease in the growth of commodity production sectors was 1.2% and provision of services has lowered 7.3%. At the same time, in Kyrgyzstan was observed an increase in mining (by 13%), production of metals and finished metal products (by 8.6%) and chemical products (by 6.5%). Thus, we see that economy of Kyrgyzstan shows a certain stability in the conditions of the global economic crisis. The foreign trade turnover of the Kyrgyz Republic in January–December 2019 amounted to 7 billion US dollars and decreased by 3.6% compared to January–December 2018, while export increased by 7.0%, while import, on the contrary, decreased by 7.3%.

Analysis of the National Development Strategy of Kyrgyzstan In 2018 in Kyrgyzstan was adopted an ambitious national development program—the National Development Strategy of the Kyrgyz Republic for 2018–2040 (DPCC, 2020). According to this document, the sustainability of democratic institutions in Kyrgyzstan is the basis for the country’s prosperity and the issue is not only about social development, but primarily economic growth, which, combined with socio-political events, will allow raising the well-being of citizens to an acceptable standard of living. Sustainable development of the country requires availability of plans for economic and social development. Kyrgyzstan, with the help of specialists from international organizations, has elaborated several long-term and

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medium-term programs for the country’s socio-economic development. The most significant documents of this kind include two documents: National Development Strategy of the Kyrgyz Republic (approved by Decree of the President of the Kyrgyz Republic of October 31, 2018, UP No. 221) (hereinafter: the Strategy) and the Development Program of the Kyrgyz Republic for the period of 2018–2022 “Unity, Trust, Creation”, which was approved by the resolution of the Jogorku Kenesh (Parliament) of the Kyrgyz Republic dated April 20, 2018 No. 2377-VI (hereinafter: Program). The Strategy is a fundamental document that defines the direction of development for the Kyrgyz Republic during the next 20 years in the fields of economy, politics, local government, legislation and other issues, including various aspects of attracting foreign investments and creating a favorable investment business climate. Although currently regulation issues of investment relations in the Kyrgyz Republic have a stable legislative base, it will be of undoubted interest to potential investors to highlight provisions enshrined in the Strategy, defining the vectors of development of investment relations and the investment climate in the country for the next 20 years. During this period, Kyrgyzstan plans to form industrial, energy, financial, transport and logistics, information, as well as social ecosystems and build a new model of the economy based on harmonious coexistence with nature. The country’s economy will be well-diversified, integrated in the international labor force, with high added value, clean energy and organic agriculture. In accordance with the Strategy are selected several priority development sectors: mining, development of significant reserves of nonmetallic mineral raw materials, agro-industrial complex and cooperation, light industry clusters, as well as sustainable tourism development. One of the important tasks, outlined in the Strategy, is the formation of an open digital society, which provides introduction of digital state and municipal services for citizens and businesses throughout the country, which will include e-government and digital local government, e-parliament and a digital justice system. Economic projects related to e-commerce, digital finance, digital agriculture will be developed. It is planned to carry out the creation of a national spatial data infrastructure and stimulate the development of local digital content in the online environment. Determining directions of development helps donors and investors to identify areas for the beneficial projects and provision of technical and financial assistance. For example, the World Bank supports two main

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strategic goals, outlined in the Strategy: “Regional development and digitalization” and “Supporting integrated regional development through transformational investments” to accelerate economic growth. These are key elements in the framework of the World Bank Framework Partnership for 2018–2022. Equality of opportunities for citizens, enterprises and territories is planned to be ensured through the widespread development of all types of physical and digital infrastructure created on the basis of public–private partnerships, affordable and sufficient to make the implementation of business projects in Kyrgyzstan the most attractive in the EAEU by the year of 2025. The Strategy stipulates that by 2040, Kyrgyzstan should become a digital hub on the Great Silk Road. A network of data processing centers (DPC) of regional importance will provide ICT services to the entire region, and will also connect information and communication points of Central Asia, the EAEU, the Middle East, China and Europe. One of the most important tasks facing the country, according to the Strategy, is to improve the investment climate and export growth. Developing the export direction, Kyrgyzstan intends to actively use the GSP + status, which provides the country’s businessmen with huge opportunities for expanding exports to European countries. In the Strategy is also highlighted that a special condition will be created for investors who carry out their activities in the extractive industries and energy sector. The state intends to clearly identify all revenues from natural resources coming to the treasury, while ensuring transparency in the functioning of special environmental protection funds and regularly publishing comprehensive reports on compliance with environmental standards. The state aims to expand the export of goods and services, so for these purposes will be formed a separate financial institution for lending to export-oriented and high-tech industries. It is planned to expand ties with international financial institutions, with the possibility of using Islamic principles of financing, as well as venture financing institutions. One of the most important tasks stipulated by the Strategy is the formation of a quality infrastructure, including improvements in the energy sector. It is planned that in the electricity sector, Kyrgyzstan will be a major producer of electricity in the region, while ensuring the country’s energy security, energy efficiency of the real sector of the economy and the availability of energy resources for each consumer. These plans are based

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on the smart use of natural resources of Kyrgyzstan, including water resources, as the country has more than 30,000 rivers. Attention is paid to the development of environmentally friendly energy sources (small hydropower plants, solar and wind power plants, solar collectors, heat pumps, the use of biogas, etc.), whose share should be at least 10% in the country’s total energy balance. The economic development strategy, recovery and subsequent sustainable functioning of the energy sector requires a transition to economically sound tariffs, which should include key costs for the generation and delivery of electricity and heat to consumers. Attractive investment tariffs should stimulate the emergence of alternative suppliers of electricity and heat. For this, widespread use of public–private partnership (PPP) mechanisms is possible, including attracting private investors to the construction and management of strategic facilities in the energy sector. In the field of transport infrastructure, efforts will be directed to ensure freedom of movement of the population and to lead the country out of the transport deadlock. Kyrgyzstan should become a transit country with safe and sought-after corridors for the transit of passengers, goods and cargo. The development of the regions will be based on the formation of “growth points”, which will provide preferences on behalf of the state, depending on the success achieved. Considering the priority areas of development, the task was set to achieve growth in the efficiency of mining, the important target is introduction of modern mining technologies with minimal environmental impact. The high dependence of Kyrgyzstan on the import of fuels and lubricants, the lack of sufficient reserves of hydrocarbon raw materials necessitate a policy to encourage the growth of extraction and production of fuel of high environmental quality standards. Development of significant reserves of non-metallic mineral raw materials will be subject to environmental requirements and the interests of local communities. Production of high-quality modern building materials will create conditions for the accelerated development of the construction industry. Conditions will be created for developing the potential of the jewelry industry with the key objective of entering international markets. The basis of industrial policy will be localization of foreign industrial enterprises, entry into intercountry value chains and creation of favorable conditions for access to production infrastructure. The development of industrial zones in various regions will be encouraged.

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In the sphere of agriculture, the main policy is to provide the population of the Kyrgyz Republic with quality food and to turn the industry into a supplier of high-quality environmentally friendly, organic products to the world and regional markets. It should be noted that the Strategy defines as the most promising areas the development of light and manufacturing sub-sectors that make maximum use of local raw materials and labor: textile, clothing, knitwear, leather, design and fashion services, and others, based on cluster approach. The tourism industry focuses market efforts on promoting types of tourism based on factors of uniqueness of the offer: resort and recreational tourism, mountain adventure tourism, cultural tourism. An instrument for harmonizing demand and tourism development is the formation of tourist clusters, including new winter recreation clusters. One of the country’s priority development programs is the Taza Coom (Smart Country) program. It is the National Digital Transformation Program to create an open, transparent and high-tech society at the level of citizen, competitive business, stable state and reliable international relations. The long-term goal is to attract international manufacturing companies to Kyrgyzstan, the effectiveness of which largely depends on the practice of customs and technical regulation (pharmaceuticals, consumer goods manufacturing, industrial assembly). The Strategy sets the task of strengthening protection of foreign investments to ensure development by providing increased guarantees of security, stability of the regime, ease of regulation, and use of public– private partnership mechanisms. The total investment should be 25–30% of GDP. This aim is supported by creation of a “strategic investor” regime for large-scale investments into national development entities, exceeding 10 million US dollars, and provision of special preferences. It is also planned to implement a package of measures to liberalize the land market, which will contribute to business development and attract foreign investors to the economy of the Kyrgyz Republic. At present, foreign companies and individuals are practically deprived of the right to acquire land in Kyrgyzstan in private ownership. On the one hand, in the presence of limited land resources in the country, this issue is quite sensitive from an economic and socio-political point of view, on the other hand, with a positive decision, investors will have additional incentives and guarantees for economic development activities.

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Analysis of the Legislative Regulation of Entrepreneurship The basis of all the country’s legislation is the Constitution of the Kyrgyz Republic, which declares the diversity of forms of ownership, their equal legal protection and guarantees protection against arbitrary deprivation of property against the will of the owner. On the basis of the Constitution of the Kyrgyz Republic, a number of laws have been adopted that directly or indirectly regulate entrepreneurial activity in the Kyrgyz Republic, in particular: the Civil Code, the Tax Code, the Land Code, the Law “On the Licensing System in the Kyrgyz Republic”, the Law “On Joint-Stock Companies”, the Law “On Free Economic Zones in the Kyrgyz Republic”, the Law “On Customs Regulation in the Kyrgyz Republic”, the Law “On Public–Private Partnerships in the Kyrgyz Republic”, etc. The legislation of the Kyrgyz Republic on the regulation of entrepreneurial, innovative and investment activities is constantly evolving and has a general tendency to simplify the procedures for state regulation of economic activity and simplify tax administration. Due to strong cultural and economic ties of Kyrgyzstan with Muslim countries, it is important to mention such legislative innovation as introduction the principles of Islamic law into the codified system of Roman law, which is currently used in legislative regulation in the Kyrgyz Republic. In total, a very large block of norms has been introduced into the Civil Code: 57 articles on the implementation of financial and business transactions based on the principles of Islamic law. The Civil Code of the Kyrgyz Republic in 2016 was supplemented by Chapter 341 “Financing in accordance with the Islamic principles of financing. Article 738-1 on the Mudarabah Agreement” (IIBF, 2020). One of the essential distinguishing features of Islamic legislation from European legislation in terms of entrepreneurial and other economic activities is the prohibition of obtaining interest on loans, therefore, an investor (as well as a bank), when investing in a project, bears the risks of economic activity along with the owner of the enterprise. If the project succeeds, a proportional distribution of profits occurs. Thus, the legislative branch of the Kyrgyz Republic is trying to expand the field of legal regulation of economic activity, taking into account the particularities of various legal systems to create a favorable investment and business climate in the country.

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One of the significant advantages available in the legislative regulation of entrepreneurial activities in the Kyrgyz Republic is the provision for foreign investors of national regime, similar to legal entities and individuals of the Kyrgyz Republic, according to the Law of the Kyrgyz Republic “On Investments in the Kyrgyz Republic” dated March 27, 2003 No. 66 (amended on December 16, 2016). In accordance with the Law of the Kyrgyz Republic No. 15 of February 1, 2001. “On the Protection of the Rights of Entrepreneurs” (in the latest edition of April 16, 2015, No. 83) in the Kyrgyz Republic are allowed any forms of entrepreneurship carried out under the law. Entrepreneurship may be carried out: • based on personal labor; – using hired labor; – without forming a legal entity; • with the formation of a legal entity. Special forms of entrepreneurship are: • entrepreneurial activity carried out by the person managing the enterprise on the basis of a contract with the owner of this enterprise; • entrepreneurial activity based on a concession agreement and a comprehensive entrepreneurial license (franchising). In the Kyrgyz Republic may also be carried out entrepreneurial activity based on intellectual property, which includes rights related to literary, artistic and scientific works; performing activities of artists, sound recordings, radio and television broadcasts; trademarks, service marks, company names, commercial designations. In order to start activities in the country, a legal entity must be registered with state bodies. The registration procedure (paperwork) can take up to 7 business days. Foreign persons and legal entities engaged in entrepreneurial activity in the Kyrgyz Republic, in their activities are guided by the legislation of the Kyrgyz Republic and international treaties and have equal rights and obligations provided for citizens and legal entities of the Kyrgyz Republic. The most common types of business entities in Kyrgyzstan are individual entrepreneurship and limited liability companies. The tax regime is quite

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competitive, compared with other countries, especially for foreign companies, given the low standard income tax rate of 10% and various allowable deductions. The standard rate of value-added tax (VAT) is kept at a relatively low level of 12%, and most SMEs whose income is below the threshold level are exempt from VAT. Enterprises are taxed on the sale of goods, works and services at rates of 1.5%, 2.5% or 3.5%, depending on the type of transaction and the procedure for paying VAT. There is also a sales tax, which is expected to be abolished in the coming years and integrated into VAT. The clerical work in the Republic of Kyrgyzstan and legal regulation is conducted in the Russian language, which is important from the point of view of deepening the processes of economic integration within the framework of the EAEU. Along with the general provisions of tax legislation, there are special tax regimes that apply to activities on the basis of a special patent by individual entrepreneurs who are not registered for VAT purposes, as well as in relation to certain types of enterprises (in particular, SMEs) or “zones”, such as free economic zones (SEZ) and high-tech parks. Most special regimes provide certain incentives for enterprises that meet the relevant criteria, and serve to attract investors or entrepreneurs. Special legal regimes have been established for the SEZ, thanks to which business entities are offered tax and other benefits. The Special Law on SEZ (adopted in 2014) exempts entities operating in the framework of the SEZ from paying customs duties, as well as certain taxes and non-tariff measures, when working in these SEZs and (or) carrying out export operations. When production in the SEZ exceeds a certain level, it is allowed to sell products on the same conditions in the domestic market. Free economic zones charge a percentage of their turnover from residents to cover administrative and other expenses. Currently, five free economic zones are functioning in the Kyrgyz Republic. High-tech parks also provide preferential tax conditions: according to a special law, residents are exempt from income tax, sales tax and VAT, and their employees are subject to special income tax at a rate of 5% (the standard corporate income tax rate is 10%). The High-Tech Park has been created in the Kyrgyz Republic, which specializes in IT services (Orozalieva, 2012). There are special tax benefits for both domestic and foreign companies whose activities are related to R&D and innovation, in particular the possibility of deducting 100% of R&D expenses when

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calculating taxes. Kyrgyz standards and technical regulations are at the stage of transition from the Soviet system of state standards (GOST) to international standards. Since joining the EAEU, this process is consistent with the process of harmonization of standards within the union. The competition policy is carried out in accordance with the Law “On Competition”(amended in 2016) and under the supervision of the State Antimonopoly Regulation Agency. Currently, the supreme coordination body in the field of innovation is the Council on Science, Innovation and New Technologies under the Government of the Kyrgyz Republic, headed by the Prime Minister. In addition, the national governance system includes Public Councils of government bodies, within the framework of which participants in innovative activities, including business, academia and non-governmental organizations (NGOs), can advise the government on issues of perception by the parties of a political course and lobby their interests. At the executive level, the main state bodies for promoting innovative projects are the Ministry of Economy, Agency for the Promotion and Protection of Investments, and Kyrgyzpatent, whose functional responsibilities, along with protecting intellectual property rights, include implementation of innovation policy and promotion of innovative development.

Investments in Productive Sectors of the Economy In Kyrgyzstan, the distribution of female and male employment by type of economic activity has significant differences due to both different physiological capabilities, established cultural traditions and gender stereotypes. The share of women among the employed population is highest in the services sector and especially in the areas of healthcare and provision of social services (80%), education (77%), provision of hotel and restaurant services (71%), social and personal services (57%). High proportion of men is observed in such fields as construction, mining, production and distribution of electricity, gas and water, as well as in public administration. Women are mainly employed in areas with a low level of wages (Orozalieva, 2012). Among the industries of the Kyrgyz Republic, the largest employment of women (92%) has historically been observed in the textile and clothing industry, which is considered one of the five main economic sectors, along with metallurgy, energy sector, processing industry and production of construction materials. More than half (57%) of sewing industry workers come from rural areas. Women make up the

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majority at all levels of the clothing industry: they work as managers, process engineers, designers, craftsmen and seamstresses (ILO, 2012). For investment projects, the sewing and textile industries are of interest in terms of subcontracting for the production of light industry products, mainly due to the low wages of personnel, but this also requires the supply of modernized equipment and training of workers for its operation. A lot of competition in this area comes from Chinese and other Asian manufacturers allow local producers to rely mainly on transport accessible markets, among which Russia and Kazakhstan have predominated historically. For private entrepreneurs, small and medium-sized businesses, textile and clothing industry can serve as an attractive sector in terms of investment, but here it seems promising to focus on the tourism and souvenir markets, using traditional technologies and design, as well as producing small series of products from natural materials and selling it using e-commerce tools. The situation is somewhat different in agricultural sector, which also demonstrates the high employment rate of women in the Kyrgyz Republic (about 50%). Unfortunately, women in this sphere of production do not occupy leadership positions, but rather perform the most labor-intensive and low-paid, often seasonal jobs. They have lower qualifications and combine this work with a large amount of housework. However, investments in the agricultural sector are considered one of the most promising in terms of demand growth, including for environmentally friendly products and, therefore, have good payback. Women in agriculture, with additional education in both organic production and entrepreneurial skills, can significantly increase the investment attractiveness of the industry, even from the point of view of generating investment flow in small businesses in the regions. Thus, it is necessary to include a gender aspect in the program of attracting investments, especially in agriculture, processing of agricultural products and agro-tourism. In connection with the growing demand for IT technology products and the growing number of women with higher education, it seems appropriate to highlight the gender aspect in the field of innovative technologies, attracting women to work in new directions and providing them with additional opportunities for advanced training. The state policy of Kyrgyz Republic regarding the employment of women is based on three components in different combinations: compensation for their objectively difficult position in the labor market; combating discrimination against women, measures to increase their

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objective competitiveness in the labor market. Only the solution to these problems will protect the economic rights of women. Alignment of gender bias in the labor market, when these measures are carried out by business owners or managers, can serve as an example of social responsibility of business. It is a relatively new trend, more characteristic of foreign investors, which is used to build relations with the local community, including such aims as prevention of possible conflicts and establishing of effective cooperation. This becomes necessary when, for example, the development of new mineral deposits is started. In this case, land is seized from the local community, and, even if it occurs legally, within the framework of agreed procedures, this activity may cause dissatisfaction of local residents. The emerging conflict has two aspects, psychological and economic. The psychological aspect is that in connection with the advent of a new production, the prevailing centuries-old way of life is disrupted both from the point of view of managing one’s own economy and from the point of view of the integrity of the natural territory where people live. The economic aspect is that the land is withdrawn from the economic activities of the local community. Moreover, this can happen not only directly, but also indirectly. Even when mining is carried out in a safe way, new roads are constructed, permanent or temporary settlements for workers are built, dumps of rock are stored. Economic harm can also be caused when using chemicals or other aggressive components in the mining process, as it happened near the Solton-Sary deposit in the Naryn region, where in 2019 had aroused a massive conflict between local residents and workers of a Chinese gold mining company. Local residents accused the company of using dangerous chemicals in the industrial process, which caused the mass death of domestic animals (Bacchi, 2019). The conflict had to be resolved with the help of the top government officials, including the Prime Minister. Despite the fact that in various countries the concept of social responsibility may differ, in general, among the most effective mechanisms for resolving contradictions, the following measures can be used: • It is necessary to work together with local self-government, to develop mechanisms for involving representatives of the local community in activities to localize the investment project and reduce the negative impact on natural sites;

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• Provide timely and accessible information to local people about planned activities, completed work results, rules for hiring employees, purchasing local products and services, etc.; • Develop and publish corporate policies and principles related to the hiring of employees and the procurement of goods and services that take into account the interests of local communities, including vulnerable groups, and bring these principles to the public; • Take into account the interests and opinions of local residents when hiring workers; • Develop training and retraining of specialists in the industry. To attract young people from local communities for specialized trainings to be held near industrial sites; • Increase the level of knowledge of local people on environmental issues, subsoil use and industrial safety through training and other information activities; • Carry out social projects, paying particular attention to socially vulnerable groups of the population: people with disabilities, women, children and senior citizens; • Develop a communication strategy to disseminate information about the company’s social responsibility strategy; • Participate in the cultural and social life of the local population. All these measures will allow, if not completely eliminate possible conflicts with the local community, then at least avoid its acute stage.

Prospects for the Development of Entrepreneurship in the Kyrgyz Republic For the Kyrgyz Republic transition to sustainable development is an urgent need, since the country’s socio-economic development is largely based on the consumption of natural resources. The country faces challenges that pose a threat to its future sustainable development, and the most important of them are: spending of natural resources without creating effective alternatives, loss of basic natural ecosystems and stagnation of human capital. Development of innovation-based green economy is a solution to nurture entrepreneurship for strengthening national economy of Kyrgyzstan.

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The expected climate change will have a significant impact on the living conditions and health of the population, but the water resources of the republic will be the most vulnerable. Lack of water could reduce the possibility of developing hydropower stations and agricultural production (PAGE, 2017). International experts propose the following measures to successfully develop the economy of the republic: • Integration of inclusive green economy issues into strategic documents on sustainable development, including gender issues and strengthening mechanism of interaction between government bodies; • Reviewing fiscal policies, tariffs, public procurement systems, subsidies and other incentives for the transition to a green economy with transparent mechanisms for assessing and controlling public expenditures, and related work on assessing costs and reviewing expenditures (including a review of public environmental expenditures); • Prevention and reduction of negative environmental consequences during economic growth through environmental impact assessment, strategic environmental assessment and environmental impact assessment of economic and other development projects; • Creation of favorable conditions for the introduction of resourcesaving, low-waste and non-waste technologies; modernization of production, development of new methods and technologies, reproduction of natural resources, increase in the share of use of secondary resources and waste management; • Conservation and restoration of natural ecosystems. Development of measures for the development of the territory, “smart” and “green” cities. Development of measures to develop a green economy through the private sector; • Raising awareness and knowledge of the green economy among parliament, government, business sector, non-governmental sector and general public. Integration of the green economy principles in the system of formal and non-formal education. It needs to be mentioned that these recommendations are reflected and consolidated in decisions at the state level in various strategic and regulatory documents, in particular, in the Development Program of the Kyrgyz Republic “Unity, Trust and Creation. 2018–2022”.

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According to the leadership of the Kyrgyz Republic, the main problems in small and medium-sized businesses are the insufficient training of potential entrepreneurs, lack of real long-term financial support from the state, excessive regulation and interference of state bodies, poor information support, and frequently changing rules. In order to ensure systemic development of SMEs, the Government of the Kyrgyz Republic plans to implement a comprehensive state program for the development of small and medium-sized enterprises in the Kyrgyz Republic. Particular attention will be paid to the support of small and medium-sized enterprises in regions and remote settlements. The Government of the Kyrgyz Republic sets the task to increase the share of SME enterprises in the country’s economy to 50% by the year of 2022. This task can be accomplished while maintaining the focus and increasing the rate of economic growth of the country in the coming years. It is also facilitated by a significant change in the structure of labor migration processes. Observations show that in the last 3–4 years the qualitative composition of migration flows from the Kyrgyz Republic abroad, including labor migration to Russia, has changed. Previously, a significant proportion of migrant workers were people with higher education, and now many professionals find jobs in their own country. The average monthly salary in Kyrgyzstan currently reaches over 17 thousand soms, which corresponds to the average salary in Russia at about the same size (about 17 thousand rubles, equal to approximately $250/month). The Kyrgyz government intends to take measures aimed at balancing the tax burden between large, medium and small businesses. And it will strive to ensure that the share of state revenues from small and mediumsized businesses will be at least 50% of budget tax revenues. The new system of taxation of small and medium-sized businesses should be based on the principle of “1 entrepreneur- 1 accounting, 1 tax, 1 budget, 1 fiscal authority and 1 audit”, which will allow taking steps to bring certain segments of the economy of small and medium-sized businesses from the shadow field. The other novelty proposes that reinvested portion of the profits will be exempt from income tax. According to the tasks defined in the National Strategy of the Kyrgyz Republic for 2018– 2040, legislative changes are expected to improve the business climate in the Kyrgyz Republic, in particular changes in tax policy. It provides for the development and adoption of measures to create fair taxation, regardless of the form and size of the business. It was planned

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that from 2020 the tax burden will not exceed 20%, including social security contributions. The total amount of taxes will be reduced to 2— value added tax and income tax. The aim of development of the court system is to expand the mechanisms of extrajudicial and pre-trial processes through the development of the institution of mediation. It is necessary to introduce it, especially in tax and customs disputes, as well as develop arbitration courts. All disputes of an economic nature will be considered both by the non-commercial arbitration and by the court. In order to increase the functioning of the judicial system and increase the transparency of the mechanism and the essence of judicial decisions, automation of the judicial system is introduced. It includes simplified procedures for filing statements of claim in electronic form for civil, economic and administrative cases, electronic complaints, obtaining copies of documents. According to the National Development Strategy of the Kyrgyz Republic for 2018–2040, it is planned to increase the punishment for corruption. It should also be noted that among the population of the Kyrgyz Republic intolerance to corruption cases is quite high, especially for cases of senior officials. This is confirmed by mass manifestations in Bishkek about the fact of corruption by the head of State Customs, as well as a recent court decision against the former. President of the Kyrgyz Republic, Almazbek Atambayev, was sentenced to 11 years in prison for corruption in June, 2020. Such actions, both on the part of civil society and the judiciary, give hope for the creation of a stable socio-psychological behavior of society as a whole, aimed at the development of democracy and free market relations. In September 2020 will be held elections of the Members of the new Parliament, who will lead Kyrgyzstan on a difficult path toward the real establishment of a democratic state and market economy.

Conclusion The economic, legal, political and social environment of entrepreneurship in Kyrgyzstan currently has a fairly stable basis for development. The statehood and economy of the country, having gone the hard way from one of the poorest countries of the world after the collapse of the Soviet

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Union, through political and economic upheavals, through the revolutions of 2005 and 2010, found the strength and resources for sustainable democratic development. There is still a fragile balance of power in society and economy and a certain drift from the parliamentary republic to the presidential republic. Despite the existing difficulties, consistent policy of the state to create favorable business and investment climate brings its results, including harmonization of national legislation with international. The positive dynamics in the flow of foreign direct investment over the past ten years is an important achievement. Creating of favorable business environment in the republic serves not only as an economic basis for development, but also allows to engage young people in the production process and use high level of education in the country. It also allows to pursue innovative developments and gain international experience in various socioeconomic areas in the move to green economy. Structural changes in the economy of Kyrgyzstan in recent years: a decrease in the share of agriculture, a slight increase in the share of industry and a significant increase in the share of services led to a certain shift in the structure of employment. The labor force, previously employed in agricultural sector, had either moved to low-paid jobs within the country or emigrated. At the same time, a high proportion of selfemployed workers remains in rural areas, especially women (67%), and in a large share of the shadow sector of the economy. All these circumstances require a reaction from the part of the state to change the structure of the economy and find answers to new challenges related, in particular, to labor resources in rural areas (primarily, women). This requires political decision and legislative regulation of emerging problems, as well as efforts to ensure a stable progressive movement of the economy both by the state, government, and by civil society and the population. Only through the combined efforts of the state and society will be possible to successfully solve the problems that Kyrgyzstan will face in the coming decades, using the resources of international organizations and the international business community.

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References Bacchi, U. (2019, August 7). Kyrgyzstan halts work at Chinese gold mine after clashes. Reuters. https://www.reuters.com/article/us-kyrgyzstan-protestsmining/kyrgyzstan-halts-work-at-chinese-gold-mine-after-clashes-idUSKC N1UX200 Development Partners Coordination Council. (2018). Development program of the Kyrgyz Republic for 2018–2022. http://www.donors.kg/images/DEV ELOPMENT_PROGRAM_OF_KR_Unity_trust_creation.pdf Development Partners Coordination Council. (2020). National development strategy of the Kyrgyz Republic for 2018–2040. http://donors.kg/en/str ategy/5174-national-development-strategy-of-the-kyrgyz-republic-for-20182040 Institute of Islamic Banking and Finance. (2020). Islamic economic thought. https://www.islamic-banking.com/explore/islamic-finance/shariahrulings/question-answers-shariah-rulings/mudarabah International Labor Organization. (2012). Skills for trade and economic diversification in the Kyrgyz garment sector. https://www.ilo.org/wcmsp5/groups/ public/---ed_emp/documents/publication/wcms_182791.pdf National Statistical Committee of the Kyrgyz Republic. (2020). National accounts. http://www.stat.kg/en/statistics/nacionalnye-scheta/ Orozalieva, A. S. (2012). Women in the labor market of the Kyrgyz Republic. Journal of Manas. http://journals.manas.edu.kg/reforma/oldarchives/20122-54/9_1895-5090-1-PB.pdf PAGE. (2017). Inclusive green economy in the Kyrgyz Republic: Overview report. https://www.un-page.org/files/public/zelenaya_economica_kg_5.pdf UNCTAD. (2020). World Investment Report 2020. Geneva. https://unctad.org/ system/files/official-document/wir2020_en.pdf UNFPA. (2020). Population of Kyrgyzstan in the beginning of XXI century. https://www.unfpa.org/data/transparency-portal/unfpa-kyrgyzstan World Bank. (2020). Doing business in Kyrgyz Republic. https://www.doingbusi ness.org/en/data/exploreeconomies/kyrgyz-republic Worldmeters Database. (2020). http://www.worldometers.info/world-popula tion/kyrgyzstan-population/

CHAPTER 19

The Impact of R&D Spending and Technology on Economic Development ˙ scan Erhan I¸

and Gizem Ö˘grü

Introduction The last three decades witnessed significant technological progress and increase in innovation. In particular, this exponential change in technology after the 2000s has rebuilt the global economy. Besides, innovation activities in recent years have had a great impact on the performance and competitiveness of nations. The Fourth Industrial Revolution became the key driver for economic growth by inducing the innovative capacity of the countries. The impact of R&D spending and technological progress is seen as an especially important way to innovate. Therefore, increasing R&D expenditures and technological progress that promoted innovation has become an important competitive strategy and contributed to economic growth and development. For this reason, it is essential to

˙ scan (B) E. I¸ FEAS, Department of Economics, Çukurova University, Adana, Turkey e-mail: [email protected] G. Ö˘grü Institute of Social Sciences, Çukurova University, Adana, Turkey © The Author(s), under exclusive license to Springer Nature Switzerland AG 2021 M. Ince-Yenilmez and B. Darici (eds.), Engines of Economic Prosperity, https://doi.org/10.1007/978-3-030-76088-5_19

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understand that the technologies owned and the new technologies led by R&D expenditures contribute to the welfare of the country. On the other hand, understanding the determinants of economic development is more important as it includes economic growth. Economic development includes both economic growth and factors such as healthy living and good education. In the long run, it is important to analyze economic development as it represents the growth of the country’s economy and the welfare of the citizens (Haller, 2012). Economic development is the advancement of the factors that contribute to the progress of society through the realization of potential. The main measures of economic development are the steady increase in innovation, the use of fewer resources, an increase in the production of goods and services, a healthier life, and a better education. Briefly, economic development is an increase in welfare and quality of life. With the development of information and communication technologies, the increase in the transboundary flow of information and the complementarity of technology with capital stock and workforce has accelerated global technology diffusion. In this framework, the main aim of this study is to analyse the impact of R&D expenditures and technological progress on economic development and to offer a framework for designing policies for policymakers. The findings of the study will be a source for new studies that are investigating the contribution of R&D expenditures and technology to economic growth and development. Other sections of the study are as follows. In the second section, the theoretical framework is discussed. The empirical evidence will be presented in the third section. The fourth section will discuss the policy framework. In the fifth section, suggestions for future studies will be made. In the sixth section, the conclusion will be presented.

Theoretical Framework Economic development, including economic growth, is one of the important explanations that can describe the welfare of the country. Economic growth refers to an improvement in welfare indicators such as Gross Domestic Product (GDP) and GDP per capita. However, economic development includes both economic growth and elements such as healthy living and good education. Therefore, it is very essential to analyze the impact of technological progress and innovation on economic development as it includes these elements that represents the

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growth of the country’s economy and the welfare of the citizens as a whole. Economic development indicators range from per capita income, distribution of income and wealth, life expectancy, crime statistics, and environmental quality. In this framework, economic development differs from economic growth as it looks at it from a broader perspective. Economic development is the advancement of the factors that contribute to the progress of society by enabling the resources of the countries. Economic development means producing more goods and services by using lower resources, enduring a healthier life for society with better education, and having a cleaner environment. According to this broad framework of economic development, technological progress and innovation became important for economic development. Therefore, understanding how technological progress and innovation affect economic development became very essential. Technological progress and innovation affected economic development through many channels, and understanding these channels will give us a basis for designing policies. According to the World Economic Forum’s (WEF) “The Global Competitiveness Report,” enhancing competitiveness is the main channel for improving living standards (Schwab, 2019). This basic finding of the report reveals an important channel that technological progress and innovation affected economic development. Porter (1990b) identified the importance of the competitive advantage of the nation for the nation’s prosperity. Especially, at the beginning of the article Porter stated, “National prosperity is created, nor inherited” (Porter, 1990b: 73) and pointed out the innovation capacity to increase competitiveness. Similarly, WEF stated that proactive choices are the determinant of countries wealth (Schwab, 2019: 1). These are very clear and still valid statements for the importance of competitiveness for both economic growth and development. Many of the researcher based their study on this framework of Porter (1990a). Berger (2008) provided an overview of national competitiveness and defined four concepts for the national competitiveness based on this framework. These four concepts are “ability to sell,” “ability to learn,” “ability to adjust,” and “ability to attract,” and it is clear that all of them are very sensitive to technological progress and innovation. Moreover, Berger (2008) discussed the Porter’s Diamond Model and the Generalized Double Diamond Model as concepts of competitive advantage. In Porter’s “Diamond Model” (Porter, 1990b: 78), four elements are interrelated. These four elements are Firm Strategy, Structure and Rivalry, Factor Conditions, Demand Conditions, and Related

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and Supporting Industries that are called Diamond. Besides, Chance and Government are the two additional variables that can influence the system. “Generalized Double Diamond Model” is a model that broadens the framework of Porter’s model and presented by Moon et al. (1998). Many researchers based their studies on this framework, and Kordalska and Olczyk (2016) stated that WEF’s approach of the Global Competitiveness Index in “The Global Competitiveness Report” is closely related to this “Diamond Model” (Kordalska & Olczyk, 2016:123). This Global Competitiveness Index is named GCI 4.0 and computed with the indicators under 12 pillars. These pillars are Institutions, Infrastructure, ICT Adoption, Macroeconomic Stability, Health, Skills Product Market, Labour Market, Financial System, Market Size, Business Dynamism, and Innovation Capability, and they are related directly or indirectly to technological progress and innovation (Schwab, 2019). This view of GCI 4.0 pointed out the impact of technological progress and innoıvation on competitiveness through many channels, and an increase in competitiveness will lead to economic development for achieving the United Nations Sustainable Development Goals. The impact of productivity as another channel on economic growth has been widely discussed in the economic growth literature after Solow’s (1957) great contribution, and some researchers like Romer (1990) extended the framework. Jorgenson (1991) presented the impact of productivity on economic growth in his seminal study, and subsequently, many of the researches in the literature assessed productivity as a main channel that is affecting economic growth. Total factor productivity is a measure of productivity that is increasing the performance of an economy. Therefore, many studies assessed the impact of total factor productivity on economic growth and found various results that are mainly supporting the positive relationship between them. Due to the importance of the total factor productivity, researchers focused on the determinants of the total factor productivity and conducted studies to explain these determinants. Danquah et al. (2014) stated that determinants of total factor productivity could be grouped into six categories (Danquah et al., 2014: 232). These categories are macroeconomic variables, trade openness, and knowledge creation and transfer variables, factor supply variables and institutional variables and geographic and demographic variables. They conducted a detailed analysis by using selected OECD and selected nonOECD countries to explain the determinants. They found that GDP and trade openness are the main determinants of the total factor productivity

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growth for all countries, following the literature, and it is very clear that technological progress and innovation are interrelated within these determinants. Therefore, increasing the R&D expenditures and promoting technological progress are essential for increasing total factor productivity through various channels. Human capital as a driver of productivity is another channel that technological progress and innovation affect economic development through. Many studies discussed the role of human capital in economic growth and development in the theoretical and empirical literature with two types of view. Cinnirella and Streb (2017) stated that the first view is interpreting the human capital as an independent factor of production while the second view is defining the human capital as an input in the innovation process and as a complement to technology (Cinnirella & Streb, 2017: 194). The second view is very important for understanding the impact of technological progress because this view implies that higher levels of human capital will enable the new technologies that will foster economic growth and development. Mankiw et al. (1992) presented that differences in per capita income between different nations are depending on human capital (Mankiw et al. 1992: 432). This contribution of Mankiw et al. (1992) to the economic literature initiated many discussions, and empirical studies mainly found a positive impact of the human capital on economic development as well as economic growth. In this context, revealing the determinants of human capital has become important and researchers have demonstrated the effect of technological development in particular. Many researchers identified the impact of human capital on different indicators and found a positive relationship between them. Human capital affects total factor productivity and increases economic growth due to its complementary nature to technology. For instance, Banerjee and Roy (2014) stated that domestic technology capability building and foreign technology spillovers are promoting India’s long-run growth while human capital is the most important factor. As a result, the level of R&D expenditure and technological progression can be assessed as the main promoter of human capital.

Empirical Evidence There is very comprehensive literature on the impact of technological progress and innovation on economic growth. These theoretical and empirical studies in the literature have shown the impact of technology

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and innovation on economic growth very well. However, there are only limited theoretical or empirical researches about the impact of them on economic development and sustainable development. In this study, the effects of R&D expenditures and technological progress on economic development will be analyzed by using the System Generalized Moments Method estimator (GMM) that is presented by Arellano and Bover (1995) and Blundell and Bond (1998). In this framework, a model was established to examine the effect of R&D, technological progress, and diffusion of technology on economic development with a detailed analysis of the studies in the literature. In this framework, the dynamic panel equation of the established model is as follows: log[HDIit ] = β0 log[HDIit−1 ] + β1 log[R&Dit ] + β2 log[TPFit ] + β3 log[TEIit ] + ηi + ϕt + ϑit

where HDI is the Human Development Index which measures economic development, R&D is the Research and Development Expenditures, the TPF variable is Triadic Patent Family as a proxy for technological progress, and the TEI variable is the sum of exports and imports of the computer, electronic, and optical industry as a proxy for the diffusion of technology. The United Nations Development Program, using Sen’s (1984, 1985) approach, as an attempt to provide a total measure of life expectancy, education, and income, has published the Human Development Index since 1990 (Anand & Sen, 1994) and this index became a common variable to measure economic development. Gross Domestic R&D expenditure is used as an R&D variable (OECD, 2015). This the most common R&D variable that is used in the literature. Figure 19.1 shows the share of R&D expenditures in GDP. As can be seen in the figure, the share of R&D is increasing every year. Figure 19.2 shows R&D expenditure per capita and points out the main reason for the high economic performance of OECD countries. In particular, per capita expenditure has increased continuously in a relatively short time. R&D expenditure per capita, which was 521 USD in 2000, increased to 1.072 USD in 2018. Especially, the increase in R&D expenditures may be the reason for the increase in the economic performance of OECD countries.

Fig. 19.1 Share of the R&D expenditure in GDP for OECD countries (%) (Source OECD.Stat)

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Fig. 19.2 R&D expenditure per capita OECD countries (USD, Current Prices-PPP) (Source OECD.Stat)

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On the other hand, the Triadic Patent Family is an important indicator of technology and innovation. However, this group of patents has an important difference and this difference enabled the variable to use as a proxy of technology and innovation. The Triadic Patent Family refers to patents registered by the same applicant or inventor for the same invention by the European Patent Office, the United States Patent and Trademark Office, and the Japan Patent Office. The total number of triadic patents for OECD countries which was over 20,000 in 1985 increased to over 60,000 in 2004 and remained over 50,000 in 2018. The total of exports and imports of computers, electronic, and optical industry (technological products) are included in the model to represent the diffusion of technology. The assumption that technology trade will cause technology spread is the rationale behind this variable. Export and import of technological products for OECD countries can be seen in Fig. 19.3. Export and import increased year by year, and this increase can be interpreted as an increase in technological diffusion. The addition of sum of the export and import of technology products to the model represents the diffusion of technology and it is one of the most important indicator that can express also innovation, although it is included in a few studies. Importing of technology products from abroad spread the technology domestically. Likewise, exporting of technology products to abroad will spread technology to other countries. In this context, the increase in trade will contribute to the cross-border spreading of different technologies. All of the data used in this study were obtained from OECD.Stat and includes the annual data of 25 selected OECD countries between the 2000 and 2018 period. The GMM framework is used to cope with the endogeneity problem for a more efficient and accurate estimator. Table 19.1 presents the estimation results of the model with Wald and Sargan test. Besides, there is no autocorrelation in the second order. This GMM model is identified correctly, and the results can be interpreted. The estimation result of the model presented that R&D expenditures, triadic patents, and total of exports and imports of technology products have positive and significant effects on the Human Development Index, which represents economic development. All variables have a positive and significant effect on economic development. This result is very important to understand the effect of technological progress after the 2000s when the leap in information and communication technologies was experienced. As it is known, important changes and

Fig. 19.3 Exports and imports of the computers, electronic, and optical industry (Million USD, Current Prices-PPP) (Source OECD.Stat)

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Table 19.1 Estimation results of the model Dependent Variable: Economic Development

Constant L1 R&D expenditures Triadic patent Total of tech. exp. & imp.

Coef.

P.

0.0219717 0.9105715 0.0025616 0.0003501 0.0014093

[0.000] [0.000] [0.000] [0.004] [0.001]

Wald Test Sargan Test AR(1) AR(2)

Sta.

P.

24.23189 −3.379 −1.9353

[0.000] [1.000] [0.000] [0.053]

Source Author’s creation based on GMM model

developments have been experienced in information and communication technologies in the new millennium. As a result of these changes and developments that have emerged, the diffusion of technology has started to increase rapidly. For example, the spread of the Internet all over the world and the increase in its usage have especially trigerred the spread of technology. The empirical findings obtained from this model showed us why the growth and development patterns of the OECD countries differ from other countries. When the results are evaluated, technological progress, innovation, R&D, and diffusion of technology have a significant effect on economic development. It has been determined that OECD countries assign importance to the advancement of technology and R&D, especially after the 2000s.

Designing Policies for the Future This study highlighted important implications for policymakers. First, the estimation results implied that R&D is very essential for economic development. In the literature, many studies offered many tools that will promote the R&D. Grants, subsidies, loans or equity financing, direct subsidies, longer-term funding for research and growth, indirect financing, social insurance system support, and R&D tax programs will support R&D activity. These supports and programs that are designed within this framework are especially likely to encourage long-term applied research and increase innovation. Thus, economic growth and development can be supported.

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On the other hand, the second important factor that policymakers should include new tools in policy design that will increase the number of patents. The patent refers to the recording of an invention that was never before on earth. It is very important to invest in universities, techno-cities, research institutes, and similar institutions, which are the centers of inventions for increasing the number of patents. There is a simple rationale behind the policies that increase triadic patents. The number of triadic patents is reflecting the potential of innovation. These investments must be long term and continuous rather than short term and one-off. Third, estimation results stated that trade of the technology products contributes to economic development and this is an important result for policy design. In this context, trade of technology products with developed countries should be supported. In particular, policies that are implemented to reduce foreign technology dependency should be carefully considered for technology products trade. Policymakers should be very careful while designing policies to reduce the trade deficit. These policies should not reduce the spread of technology by preventing technology trade. Due to the contribution of technology trade to economic prosperity, it is recommended that imports should not be impeded. According to the empirical findings of many studies in the literature, since the diffusion effect of technology is of high importance, it is important to abandon policy practices that will prevent the spread of technology. It should even be included in the policies to create support for increasing the trade of technology products.

Future Research Directions The effects of technological progress, R&D, and innovation on economic growth and development have been researched by many studies. Mainstreams have been formed in the literature, especially regarding the determinants of economic growth. Sustainable development is the most important debate topic in the literature. Therefore, it is recommended to study within the framework of the United Nations Sustainable Development Goals in future studies. Analyzing the impact of technological progress, R&D, and innovation on Sustainable Development Goals should be the subject of future studies. On the other hand, the negativities that may be created by technological change should be evaluated. For example, with the development of artificial intelligence, discussions about the unemployment problem are

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gaining importance. Another argument is that technology now only benefits a certain group of high-income countries. These discussion topics are suggested for future studies.

Conclusion In the late 1990s and early 2000s, many of the researchers emphasized in the literature that economic growth and development are inextricably linked with a country’s ability to transition to a “knowledge economy.” In particular, countries gained greater benefits from the utilization of natural resources and capital by using knowledge, technological progress, innovation, and highly skilled human resources. Inequalities between OECD and non-OECD countries have increased after the 1990s in terms of the growth rate of GDP per capita, productivity, and Human Development Index. In this framework, it is essential to reveal the reasons for this inequality. There are many studies that researched these reasons, and some of them investigated the effect of technology, R&D, and innovation. Although the theoretical and empirical studies conducted in the last two decades have discussed the impact of technological progress, R&D expenditures, and innovation on economic growth, only few of the studies researched the impact on economic development. Therefore, revealing the impact of technological progress, R&D expenditures and innovation is very essential to design policies. This study contributed to the current literature by examining the impact of technological progress on economic development. The most important evidence that emerged from this research is very remarkable. The result of the estimation revealed that technological progress, R&D expenditures, and innovation have a positive effect on the economy. Especially considering the variables that are used, it is clear that technology, innovation, use of technology, and R&D expenditures should contribute to economic development. Besides, R&D expenditures, the number of patents, and the export and import of technology products are the most important variable for today and the future. According to the results obtained in the study, if we accept the invention as an indicator of technology, it has been found that technology contributes to economic performance and prosperity. On the other hand, the sum of technology products exports and imports is considered as the diffusion indicator of technology in our study. According to the findings, the increase in technology exports and imports contributes to in economic development.

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Especially, this finding is one of the important points of the study. Technology must be produced and sold or imported and used domestically, that is, increasing the use of technology in countries. Especially for policymakers, this finding may provide a new perspective. That is to say, the import of technology is as important as its export. For this reason, it is predicted that conventional import substitution policies that try to reduce imports will produce the opposite of what is desired. Importing technology is the way of spreading of technology from other countries that contributes to the economic performance and welfare of the country. Supporting and promoting economic growth and economic development is an important goal for every developing country. It is seen that R&D maintains its vital importance for countries to increase growth and, on the other hand, to ensure development. R&D spending is particularly important for boosting growth in low- and middle-income countries. However, boosting growth by R&D requires efficient investment in R&D. Evaluating the quality of R&D is a much-needed policy to determine the activities and areas in developing countries. Short- and long-term effects revealed in various studies and pointed out that there is a difference for each country’s economy in terms of R&D expenditure level. This difference is requiring different policies for each country group. The short-run growth of R&D expenditures in developing countries may affect the economy in the short run because of the cumulative characteristics of R&D. Contrary to this observation, it is seen that R&D expenditures in upper-middle-income economies can have a beneficial effect only in the long run. However, if the R&D expenditure of low- and middle-low-income countries is below a certain level then there will be no effect of R&D expenditures. For this reason, it is necessary to establish R&D-related policies according to the structure of the economy of each country. Some studies obtain empirical findings in this direction. In conclusion, according to the findings of the study, it is clear that one of the ways that policymakers contribute to the economic performance and prosperity of their country in this new century is to increase technology and R&D expenditures. Another important result expressed by these empirical findings is that the diffusion of technology also affects economic growth and development. In this framework, countries’ are increasing their technology by exports and imports and this can be defined as the spread of technology. The last important result is about the positive impact of the triadic patents on economic development. Since

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the way of innovation passes through patents, it is important to increase the number of patents. Briefly, according to the results of this study, technology may increase the income in a healthy and intellectual life. Acknowledgements This study is based on Gizem Ö˘grü’s accepted M.Sc. Thesis that named “Ekonomik Büyüme ve Kalkınma Üzerine Teknoloji ile Ar-Ge ˙ scan. Harcamalarının Yayılma Etkisi” and supervised by Dr. Erhan I¸

References Anand, S. & Sen, A. K. (1994). Human Development Index: Methodology and measurement (No. HDOCPA-1994-02). Human Development Report Office (HDRO), United Nations Development Programme (UNDP). Arellano, M., & Bover, O. (1995). Another look at the instrumental variable estimation of error-components models. Journal of Econometrics, 68(1), 29– 51. Banerjee, R., & Roy, S. S. (2014). Human capital, technological progress and trade: What explains India’s long run growth? Journal of Asian Economics, 30, 15–31. Berger, T. (2008). Concepts of national competitiveness. Journal of International Business and Economy, 9(1), 91–111. Blundell, R., & Bond, S. (1998). Initial conditions and moment restrictions in dynamic panel data models. Journal of Econometrics, 87 (1), 115–143. Cinnirella, F., & Streb, J. (2017). The role of human capital and innovation in economic development: Evidence from post-Malthusian Prussia. Journal of Economic Growth, 22(2), 193–227. Danquah, M., Moral-Benito, E., & Ouattara, B. (2014). TFP growth and its determinants: A model averaging approach. Empirical Economics, 47 (1), 227– 251. Haller, A. P. (2012). Concepts of economic growth and development challenges of crisis and of knowledge. Economy Transdisciplinarity Cognition, 15(1), 66. Jorgenson, D. W. (1991). Productivity and economic growth. In Fifty years of economic measurement: The Jubilee of the Conference on Research in Income and Wealth (pp. 19–118). University of Chicago Press. Kordalska, A., & Olczyk, M. (2016). Global competitiveness and economic growth: A one-way or two-way relationship? Equilibrium. Quarterly Journal of Economics and Economic Policy, 11(1), 121–142. https://doi.org/10. 12775/EQUIL.2016.006 Mankiw, G. N., Romer, D., & Weil, D. N. (1992). A contribution to the empirics of economic growth. Quarterly Journal of Economics, 107, 407–437.

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Moon, H. C., Rugman, A. M., & Verbeke, A. (1998). A generalized double diamond approach to the global competitiveness of Korea and Singapore. International Business Review, 7 (2), 135–150. Porter, M. E. (1990a). The competitive advantage of nations. Free Press, Macmillan. Porter, M. E. (1990b). The competitive advantage of nations. Harvard Business Review, 68(2), 73–93. Romer, P. M. (1990). Endogenous technological change. Journal of political Economy, 98(5, Part 2), S71–S102. Schwab, K. (Ed.). (2019). The global competitiveness report. World Economic Forum. Sen, A. (1984). The living standard. Oxford Economic Papers, 36, 74–90. Sen, A. (1985). Commodities and capabilities. North-Holland. Solow, R. (1957, August). Technical change and the aggregate production function. Review of Economics and Statistics, 39, 312–320. The Organisation for Economic Co-operation and Development. (2015). Frascati Manual 2015: The measurement of scientific, technological and innovation activities-guidelines for collecting and reporting data on research and experimental development. OECD Publishing. The Organisation for Economic Co-operation and Development. (2020). OECD stat extracts. http://stats.oecd.org/Index.aspx.

Index

A Activity Based Costing (ABC), 304, 308 Adaptive cycle, viii, 38, 39, 41, 42, 45, 46 Ageing, viii, 2–6, 11, 13, 147, 149 American dream, 94, 109 Angel investors, ix, 80, 83, 85, 86, 89, 90 Authority and responsibility, 269, 270, 277, 283–285 Awareness, ix, 104, 113, 122, 181, 184, 187, 190, 198, 203, 213, 214, 224, 244, 291, 292, 296, 297, 299, 326, 327, 353 B Benefits of switching to sustainability, 217 Brain drains, 140, 151 Budgeting, 63, 103, 104, 163, 308, 310, 312, 339, 354 Business opportunities, 35, 69, 81, 89, 94

C Cantillon, 96, 97, 99 Causation, ix, 50, 51, 55–57, 63, 66, 68, 69 Commercialization of public hospitals, 159, 162, 169, 170 Competence, xi, 10, 23, 54, 57, 180, 181, 183, 184, 190, 292, 295, 296, 298–300 Complex economic system, 37–39, 42–44 Complexity theory, 37, 38, 41, 44 Control systems, 306–308, 313–315 Cooperation, 35, 52, 126, 185–187, 190, 215, 274, 338, 339, 342, 351 Creativity, viii, xi, 24, 25, 32, 35, 102, 129, 145, 146, 153, 160, 180, 186, 190, 268, 269, 271–280, 282–286, 316, 318 Culinary creativity, xi, 268, 271–275, 281 Cultural diversity, 141, 145–147, 153

© The Editor(s) (if applicable) and The Author(s), under exclusive license to Springer Nature Switzerland AG 2021 M. Ince-Yenilmez and B. Darici (eds.), Engines of Economic Prosperity, https://doi.org/10.1007/978-3-030-76088-5

375

376

INDEX

Culture, xi, 24, 25, 35, 53, 69, 108, 119, 120, 150, 164, 179, 181–183, 187–191, 194, 195, 197, 200–204, 221, 249, 268, 270, 272–274, 294, 298, 307, 315, 327, 329 Culture of innovation, 25 Customer Oriented Network, 40 D Debt financing, 83, 89 Demographic change, 4 Design thinking, 31, 34, 35 Development, vii, x, xi, 7, 11, 15, 16, 21–25, 27, 30, 32, 33, 35, 38, 43, 50, 52, 57, 58, 62, 63, 65, 69, 81, 95–98, 108, 121, 130, 140–142, 148, 159, 162, 165, 180–182, 184, 186, 187, 189, 190, 195, 198, 210, 217–219, 221, 223, 225, 232, 235, 236, 239, 246, 268, 270, 272, 274, 276, 279, 284, 285, 291–294, 298–300, 306, 308, 309, 325, 328, 329, 332, 333, 337–339, 341–345, 349, 351, 353–356, 360, 363, 369, 370, 372 Development strategy, 210, 344 Discrimination, 13, 329, 350 Diversity, ix, 17, 38, 140, 141, 144–147, 151, 153, 221, 346 E Economic development, xii, 53, 67, 100, 102, 119, 125, 147, 160, 183, 185, 187–189, 204, 323–328, 332, 333, 337, 345, 360–364, 367, 369–372 Economic growth, 4, 38, 43, 53, 54, 104, 105, 143, 147, 161, 162, 181, 183, 188, 211, 323, 325,

328, 332, 333, 338, 341, 343, 353, 354, 359–363, 369–372 Economic system, viii, 38, 45, 57, 67, 250 Economy, vii, x, xii, 4, 21, 37, 38, 52, 94, 96–98, 100, 103–105, 113, 125, 127, 128, 142, 143, 147, 149, 160, 161, 164, 179–187, 213, 214, 224, 245, 246, 294, 326, 337–343, 345, 351–356, 360–362, 371, 372 Education, x, 23, 25, 28, 43, 94, 100, 106, 116, 122, 127, 151–153, 161, 179–186, 188, 189, 191, 197, 203, 204, 223, 236, 282, 292, 297, 338, 349, 350, 353, 354, 356, 360, 361, 364 Effective learning, 294 Effectiveness, 65, 150, 199, 222, 233, 275, 292, 295, 296, 299, 345 Effectuation, ix, 50, 51, 55–57, 61, 63, 66, 68, 69 Emerging market, 65 Employment, vii, ix, 2, 9, 13, 16, 105, 108, 121, 148, 150, 268, 323, 326, 332, 338, 349, 350, 356 Empowerment, xi, 235, 268–270, 274–278, 283–285, 314, 333 Entrepreneurial abilities, 53, 183 Entrepreneurial attitudes, 173, 182 Entrepreneurial initiatives, 113, 114, 125, 131, 159, 160, 174, 253 Entrepreneurial learning, 51, 53, 54, 57, 181–185 Entrepreneurial motivation, 6, 109 Entrepreneurial society, 179, 184, 187, 189–191 Entrepreneur(s), viii, ix, xi, 5, 16, 37–39, 42–46, 50, 51, 53, 54, 56, 57, 61–63, 68, 79–86, 89, 90, 94–103, 106–109, 117–119,

INDEX

125, 127, 130–132, 167, 173, 180, 182, 183, 185–187, 190, 232–234, 238, 239, 242, 246, 248–251, 253, 255, 324, 326, 328, 329, 331, 332, 334, 348, 350, 354 Entrepreneurship, vii–x, xii, 2–9, 13–16, 37, 42, 43, 46, 53–55, 60, 63, 67, 69, 79, 94–109, 115, 116, 118, 125, 143, 146, 151, 160–162, 172, 173, 175, 179–191, 199, 202–204, 211, 234, 250, 251, 284, 323–334, 339, 347, 352, 355 Entrepreneurship and gender, 2, 3, 325, 326, 329, 332 Equity financing, 83, 85–87, 89, 369 Eurasian Economic Union (EAEU), 338–340, 343, 348, 349 Europe, 95, 99, 132, 147–149, 151, 173, 181, 186, 196, 340, 343 European Union (EU), ix, 21, 35, 140–142, 147–150, 154, 160, 180–182, 187, 189, 273, 340 Evolution, 51, 52, 55, 58, 60, 69, 214, 233, 307, 315 Evolutionary economics, 53, 55, 69

F Feminist, 326, 327, 329–331 Finance, ix, 15, 28, 53, 56, 57, 80, 82–86, 88–90, 94, 119, 126, 328, 338, 340, 342 Financial instruments, 190 Financing strategies, 79 First-round financing, 84, 86 Foreign direct investments (FDIs), xii, 140, 144, 338, 340, 356 Forms of capital, 16

377

G Gender, viii, 2–6, 8–11, 14–16, 144, 145, 323–327, 329–331, 333, 349–351, 353 Gender bias, 327, 329, 331, 332 Gender equality, xi, 324–326, 328, 330, 332, 333 Gender inequality, 324–326 Global Entrepreneurship Monitor (GEM), 4, 109, 324–326 H Heritage tourism, 195, 197–199, 201, 202, 204 High-skilled, 145, 148–150, 154 I Ideation, 28, 31, 32 Identity, 120, 121, 123, 127, 193, 195, 197, 200, 249, 253, 294, 313, 329–331 Incubator affiliation, 119, 120 Indigenous management, 318 Industry 4.0, 21 Innovation, viii–xii, 4, 21–28, 30, 31, 33, 35, 37, 42–44, 53, 54, 56, 57, 59, 61, 65–67, 79, 80, 82, 85, 90, 94, 98–101, 103, 106, 108, 116–118, 122, 126, 128, 129, 131, 140–148, 151–154, 180, 183–185, 188, 190, 196, 217, 220, 236–238, 240, 251, 253–258, 268, 269, 271–275, 278–280, 283, 285, 291, 294, 297, 306, 315, 318, 323, 327, 346, 348, 349, 359–363, 367, 369–371, 373 Innovation management, 23, 24, 35, 298 Innovation typology, 22, 23 Innovative approach, 277, 279

378

INDEX

Innovative capacity, 142, 148, 153, 359 Intermarket Network, 40 Internal Market Network, 40 Investment, xii, 21, 25, 39, 42, 80, 82–87, 89, 90, 97, 103, 122, 174, 213, 215, 218, 221, 235, 237, 249, 315, 328, 337, 338, 340, 342–346, 350, 351, 356, 370, 372

J Job satisfaction, 179, 269

K Kitchen, xi, 268, 272, 275–279, 282–285 Knowledge, ix, xi, 14, 26, 29, 31, 38, 39, 41, 43, 44, 53–55, 61–64, 66, 68, 97, 100, 101, 119, 120, 122, 130, 131, 140, 141, 145, 146, 148, 153, 179–187, 190, 197, 200, 203, 212, 222, 234, 248, 268, 269, 271, 273, 274, 285, 298, 306, 307, 318, 331, 352, 353, 362 Knowledge economy, 371 KWD-Model, 299 Kyrgyzstan, xii, 337–349, 352, 354–356

L Labour migration, 141, 144, 149, 150, 354 Later-life entrepreneurship, 2 Learning, xi, 25, 28, 52–55, 57, 62–64, 69, 150, 181, 182, 187, 189, 191, 197, 223, 268, 275, 279, 285, 292, 295, 298–300, 311, 315

Legislation, xii, 29, 190, 217, 340, 342, 346–348, 356 Liability of newness, 49, 50, 52, 62 Lifelong learning (LLL), 180–183, 186, 190 Liquidity stage financing, 84, 87

M Management competence, 292, 299 Management education, 299, 300 Management science, 105–107 Managerial control, xi, 304–310, 312–317 Market-oriented, 117, 233, 238, 240, 243, 244, 248–250 Media, 154, 168, 173, 190, 196, 218, 242, 270, 276, 332 Mezzanine financing, 83, 84, 87, 88 Migration, 139–144, 148, 150, 151, 329 Minimum wage, 150 Mobility, 141, 149, 150 Modified grounded theory, 7 Motivation, 2, 5, 9–12, 16, 31, 53, 57, 99, 100, 108, 163, 188, 194, 197, 222, 238, 270, 271, 274, 276, 282, 285, 298, 306, 307, 315

N Natural heritage, 196 New product development (NPD), 65, 80, 81, 83–86, 89, 90

O Older entrepreneurs, 5 Older women’s entrepreneurship, 4 Open innovation, 27, 30 Opportunity Network, 40

INDEX

P Panarchy, 41 Paradigm builders, 240, 247 Patent, 26, 30, 142, 143, 148, 152, 153, 348, 367, 370–372 Performance measurement, 305, 310, 314 Perspective, ix, 7–9, 32, 40, 50, 51, 53, 55, 57, 60, 61, 64–66, 68, 69, 94, 121, 144, 146, 162, 172, 211, 236, 253, 274, 276, 292, 297, 299, 311, 318, 327–329, 331, 361, 372 Planning, 4, 27, 28, 32, 55, 62, 63, 104, 115, 202, 210, 305, 309 Polish health care system, 160–162, 167, 169, 172, 175 Porter, M.E., 106, 117, 187, 216, 233, 361 Positive feedback, 38, 44, 46 Poverty, 165, 180, 190, 191, 223, 251, 324, 333 Privatization of pharmaceutical production, 166 Problem/opportunity identification, 28 Product innovation, 64, 65 Productivity, 38, 104, 105, 143, 146, 269, 362, 363, 371 Prototyping, 28, 32, 33, 309 Public health care reform, 162

Q Qualitative methods, viii, 1, 2 Quasi-Integration Network, 40

R R&D expenditure, xii, 26, 359, 360, 363, 364, 367, 369, 371, 372 Regional disparities, 168

379

Research and development (R&D), 21, 22, 25, 35, 44, 61, 185, 268, 275, 332, 348, 359, 364, 369–372 Research methods, 107, 123, 305, 317 Restaurant, xi, 267–280, 284, 285, 349 S Satisfaction, 11, 14, 197, 269, 270, 274, 276, 284, 311 Schumpeter, J.A., 53, 57, 67, 69, 97–100, 102, 105, 106, 108, 323 Seasoned financing, 84, 88 Second-round financing, 84, 87 Seed financing, 82, 84 Semashko model, x, 159, 162–164 Shock therapy, 164, 165 Smart industry, 22, 26, 32, 35 Social enterprise, 113, 114, 116, 122, 123, 131–133, 233–235, 243, 244, 247–253, 256–258 Social entrepreneurship, 106, 109, 115–118, 121, 125, 126, 131, 231–252, 254, 256, 258 Social Network Theory, 45 Social responsibility, 189, 211, 214, 221, 222, 298, 317, 351, 352 Social welfare, 185 Source: Author’s creation based on Pirker, 2019a, 24, 299 Startup financing, 84, 85 Startups, ix, 49, 50, 58, 68, 85, 86, 107, 114, 118, 121, 126, 128, 130, 131 Suppliers, 25, 40, 56, 80, 86–88, 126, 201, 214, 215, 220, 268, 283, 285, 344, 345 Supply-side economics, 104 Sustainability, ix, x, 41, 42, 114, 116, 131, 133, 203, 204, 209–212,

380

INDEX

214–225, 236, 243, 291–294, 296–298, 317, 341 Sustainable development, viii, 38, 114, 129, 147, 201, 204, 223, 291, 292, 298, 300, 338, 341, 352, 353, 364, 370 Sustainable enterprise, xi, 209, 210, 214, 215, 222, 223, 291, 293, 294, 296, 297, 299, 300 Sustainable enterprise concept evolution, 213 Sustainable enterprise DNA, x, 209, 213, 218, 222, 224, 225 Sustainable enterprise DNA tools, 224, 225 Systemic, 162, 164, 165, 172, 210, 213, 215, 235, 294, 297, 299, 300, 354 Systemic diseases, 162

Training, x, 25, 26, 43, 121, 122, 127, 128, 130, 180–182, 184, 186, 187, 189, 222, 246, 253, 268–270, 272, 275, 277, 279, 281, 282, 285, 328, 350, 352, 354 Trait theory, 103 Typology, 107, 120, 132, 133, 237, 307

T Target Costing, 308, 309 Technological opportunities, 147 Technological progress, 359–364, 369–371 Technology, xii, 22, 29, 30, 32, 38, 54, 62, 65, 81, 109, 119, 121, 161, 180, 181, 183–187, 190, 191, 197, 350, 359, 360, 363, 364, 367, 369–373 Technology Oriented Network, 40 Technology policies, 108 Technology spillover, 363 Time management, 54 Trade, x, 26, 40, 80, 86, 88, 95, 96, 144, 166, 217, 256, 257, 338, 341, 362, 367, 370

V Value management, 312 Venture capital (VC), ix, 12, 35, 56, 80, 83, 85–87, 89, 90, 107, 215, 237 Vertical Market Network, 40 Viability, 3, 114, 125, 126, 131, 133, 221, 292–294

U Unemployment, 104, 142, 165, 191, 324, 370 Unequal opportunity, 328 United Nation (UN), 147, 237, 258, 324 University, x, 26, 102, 105, 121, 125, 152, 179, 182–190, 198, 246, 274, 277, 291, 292, 297, 370

W Women empowerment, 330, 333 Women’s entrepreneurship, 8, 109, 324–326, 328, 330–332 Work environments, 144, 146, 276, 282, 284, 285 Work performance, 285