Economic Crisis And Opportunity For Entrepreneurship - Research Proposal Example

Economic Crisis And Opportunity For Entrepreneurship Table of Contents: Life-cycle model to be followed 15 Specific procedures and formats for Data Collection 15 Formats for Presenting Results/Deliverables 16 Table of Figures Figure Number Description and Word Hyperlink Figure 1 The Conceptual Model of Global Entrepreneurship Monitor (Bosma, Neils and Jones, Kent et al. GEM 2007 Executive Report, 2008) Figure 2 The Job Generation Process (D.J. Storey 1982) Figure 3 Early Stage Entrepreneurial Activity (Bosma, Neils and Jones, Kent et al. GEM 2007 Executive Report, 2008) Figure 4 Early Stage Entrepreneurial Activities in Countries compared with their GDP per Capita – GEM 2007 report (Bosma, Neils and Jones, Kent et al. 2008) Figure 5 Early Stage Entrepreneurial Activities by Country – GEM 2006 report (Bosma, Neils and Harding, Rebecca. 2007) Figure 6 Three factors linked to entrepreneurship that impact economic growth (Friis and Paulsson et al 2002) Figure 7 Michael Porter’s Model of Industry factors that determine Industry Profitability [Ankli, Robert E, 1992] Figure 8 Project Lifecycle to be followed (Maxwell. 2004; Hancock. 2002) Introduction: In the modern world of globalization & stringent competitiveness, an entrepreneur is defined by a number of definitions based on past empirical analytics & researches – an innovator, owner of an enterprise, coordinator of economic resources, a resource manager, an individual ensuring enhanced image of the economy on a global platter, and so on. However, fundamentally an entrepreneur is the person who has the determination & courage to start and run a business as per the ideas generated by innovations. Entrepreneurs in a country impact the local economy by invoking competition, breaking monopolies, creating jobs, managing social empowerment, practicing Change Agentry, increasing tax revenues, improving existing products & services, etc. Hence, the entrepreneur ensures overall value addition to the economic performance, productivity and internationalization of the nation. Entrepreneurs generate new ideas by virtue of innovations which may comprise of: (a) Introduction of a new product in the market (b) Introduction of a new technology in the market (c) Introduction of a new methodology of production in the industry (d) Opening a new business potential & market in the region which has remained untouched largely by other companies (e) Discovery of a new source of supply of raw materials, support & services which is not known to other companies (f) Building a new organization system with innovative business model not tested by other organizations (g) Overall, create new profit opportunities An innovative entrepreneur is expected to possess high risk appetite when starting a venture with clear understanding of the correlation between risk & uncertainty which can be calculated by applying known probabilities and impacts. Knowing the industry dynamics, the entrepreneurs is expected to take calculated risks into account to bear the uncertainty of production & trade. The payoff is the profit earned by the entrepreneur which is the primary motive. In this context, the venture capitalist plays the role of trusting the innovation & risk appetite of an entrepreneur and providing funds for transitioning the ideas into action thus helping in formation of good performing start-ups. A nation having effective framework of capitalists (Banks, Financial Institutions, Private lenders, etc.) ensures better development of entrepreneurship thus boosting the economic growth. [Dejardin, Marcus. 2000; Harry P Bowen & Dirk De Clercq. 2008] Empirical evidences suggest that Entrepreneurship is very closely linked to Economic Growth. The globally accepted model of correlation between Entrepreneurship and Economic growth is the one developed by the Global Entrepreneurship Monitor (GEM) presented in the figure below (Figure 1): Figure 1: The Conceptual Model of Global Entrepreneurship Monitor (Bosma, Neils and Jones, Kent et al. GEM 2007 Executive Report, 2008) The model begins with social, cultural & political context that form the general national & entrepreneurial framework conditions in a country. These frameworks result in the factors that fuel entrepreneurial activity & new establishments in the nation – Primary Economy (established companies), Secondary Economy (small & medium firms), entrepreneurial capacity & opportunities. The National Economic Growth is the final outcome that is shown as function of jobs & technical innovation in the nation. This aim of the proposed research is to critically evaluate the opportunities for Entrepreneurship in the event of an Economic crisis and the corresponding factors prevalent in the region due to the sluggish & poorly performing national economy. Also, this paper intends to look at the various factors that are results of economic slowdown but fuel entrepreneurial activity in a country. [Gleave, 2007; Dejardin, 2001; Friis & Paulsson et al. 2002] The research shall be focussed on discovering, enumerating, analysing and presenting the factors that are outcome of economic slowdown but motivate entrepreneurship growth through some apparent or hidden correlations by virtue of extensive literature review, published data analysis and a short survey among few start-ups. In this context the research questions are proposed herewith: (a) What are the factors that occur due to economic slowdown within a nation but motivate entrepreneurship growth? (b) How do these factors correlate with entrepreneurship development during an economic crisis? (c) Are these factors able to create a supportive environment for Entrepreneurial Activities in the nation? (d) Does economic crisis lead to the generation of new ideas & innovations that are the seeds for entrepreneurship (as argued by the empirical evidences)? The research methodology shall be an intensive analysis of past researches and empirical generalizations by carrying out in depth “Literature Review” using educational and professional resources available in databases. Moreover, a short survey shall be conducted among few new entrepreneurs that have established their start-ups and are running them successfully. Literature Review In the proposed research, the author proposes to discover links between economic crisis and entrepreneurship development in a country. An original legacy theory by D.J. Storey (1982) linked entrepreneurship with small firms. Storey analyzed the role of small firms in global economies as reproduced below: (a) Small firms are the primary factors in breaking monopolies of large companies thus limiting their ability to raise prices and apply caps on innovations & customer service improvements as per their own interest. (b) Small firms generate new jobs (c) Small firms establish the baseline for the giant corporations of the future (d) In developing countries small firms can coexist with large companies and make a valuable contribution to growth (e) Small firms offers better work harmony between the owners and employees (f) Small firms make important contribution in development of rural areas of a country D. J. Storey developed the following model of Job Generation process that is dependent upon industry turbulence (entry of firms, expansion of firms, contraction of firms & exit of firms): Figure 2: The Job Generation Process (D.J. Storey 1982) D.J. Storey carried out an international survey on success of small firms in various countries and discovered some interesting facts pertaining to development of small firms that varies from country to country. Some of his significant findings are high unemployment, substantial re-construction in basic industries, government focus & initiatives in developing small firms, loan programmes by banks & financial institutions with capital repayment & interest payment holidays, and better basic infrastructure. An old theory called Schumpeter Effect (as it is popularly known) is the process of reduction of unemployment due to increase of entrepreneurs. Caree and Thurik (2002) propose that the vice versa is also true. The author suspects that there must be a social balance between emergence of entrepreneurs & intrapreneurs (a term used for managers managing profit centres in a mimicked entrepreneurship mode within existing large corporates that are stable by virtue of their competitive advantages & competencies) and unemployment in an economy. If the markets are strong then individuals probably are more indulged into intrapreneurship, whereas when the markets face slowdown then individuals get into entrepreneurship (against an implied threat of either losing their existing jobs or by actually losing their jobs). [Caree and Thurik, 2002] The Global Entrepreneurship Monitor (GEM) carries out yearly surveys across the globe and works on a concept of Early Stage Entrepreneurial Activity as presented in the figure below: [http://www.gemconsortium.org] Figure 3: Early Stage Entrepreneurial Activity (Bosma, Neils and Jones, Kent et al. GEM 2007 Executive Report, 2008) In their contribution to the 2007 executive report of GEM, Bosma and Jones et al. (2007) argue that the entrepreneurial process begins much before the firm has been established. This is a lengthy pre-entrepreneurial stage in which individuals that are potential entrepreneurs gather knowledge and skills to firm up their belief in a start-up thus finding out the right time to get into action. Also, the individuals that are established business owners remain innovative, growth-minded & competitive in the industry. The GEM executive report of 2007 presents that high income countries, like US & Canada, possesses highest prevalence of “high growth expectation entrepreneurship” because the government policies provide protective environment for entrepreneurship growth (example, social security). Emerging economies like China and India witness early stage entrepreneurship activity more as an opportunity than a planned activity because the risk levels are perceived to be high. Hence, in such countries intrapreneurship is more prevalent given that employment opportunities appear safer compared to entrepreneurship for innovators & managers. The low income countries, however, exhibit high early stage entrepreneurial activity given that stable job opportunities are limited. Hence, it appears that high & low income countries possess more entrepreneurs while emerging economies possess more intrapreneurs. The report presents clear correlation between early stage entrepreneurial activities and the GDP per capita of the countries. The countries with low levels of per capita income have their national economies built by virtue of multiple small scale businesses and when the per capita income grows, the economies of scale allows the companies to grow bigger thus making the economy stable by generating more job opportunities. This effect in turn shifts the accountability of national economy on the larger firms whereby the people of the country prefer to get employed in such organizations rather than experimenting with their own start-ups. This phenomenon reduces entrepreneurial activities while increasing intrapreneurial activities in the country. The GEM report also gives credit to political stability of the countries that is reflected by establishment of strong institutions & financing systems for supporting the entrepreneurs to build start-ups. Hence the report suggests that reduction in entrepreneurial activities in a country that has low income but possesses political stability & presence of strong institutions need not be a bad sign because the existing companies may be growing stronger thus ensuring better employment in the country which in turn is improving the social security of the natives encouraging them to get employed with large corporates rather than experiment with their own start-ups. China and India are ideal examples if analyzed on a time-span of a decade. The figures below show that almost all the sound and emerging economies having less than 10% of early stage entrepreneurship activities in 2007. Figure 4: Early Stage Entrepreneurial Activities in Countries compared with their GDP per Capita – GEM 2007 report (Bosma, Neils and Jones, Kent et al. 2008) Figure 5: Early Stage Entrepreneurial Activities by Country – GEM 2006 report (Bosma, Neils and Harding, Rebecca. 2007) The author intends to study the GEM reports of last five years focussing on some countries to establish if economic challenges have ensured better opportunities for individuals to indulge into entrepreneurial activities. We shall also focus our analysis on the work done by Friis and Paulsson et al (2002) that could establish three links of entrepreneurship with the economy of a nation – Competition, Firm Start-up and Innovation. They could establish links to innovation and competition from theoretical studies by a number of past researchers while empirical studies put a lot of emphasis on firm start ups. Collectively, they proposed the model as shown in the figure below: Figure 6: Three factors linked to entrepreneurship that impact economic growth (Friis and Paulsson et al 2002) Michael Porter presented the following model of the dynamics of an industry: Figure 7: Michael Porter’s Model of Industry factors that determine Industry Profitability [Ankli, Robert E, 1992] He suggested that the barriers for entry of new firms in an economy are – the economies of scale, product differentiation, capital requirements, switching costs, access to distribution channels, cost disadvantages independent of scale, government policy and expected retaliation. The author shall analyze the impact on these factors during an economic crisis in a country [Ankli, Robert E, 1992] To conclude, the author proposes to review GEM reports of the previous five years keeping focus on some specific countries and shall map the factors with the work done in the researches discussed above to arrive at the appropriate answers to the research questions. Methodology In this section, the author proposes the methodology of research to arrive at the answers to the research questions. There are a number of past researches that successfully correlate entrepreneurship with economic growth. Few researches have tried to prove the vice-versa as well. However, the factors leading to growth of entrepreneurial activities during economic slowdown is not covered adequately except for the reports by Global Entrepreneurship Monitor. The proposal is to conduct qualitative research in which the concern is primarily to get opinions, experiences, feelings, etc. of individuals through surveys, interviews, interactions, etc. and the results are subjective, holistic, phenomenological, descriptive, naturalistic and inductive. This method has been chosen because the objective of the research is to arrive at broad factors & phenomenon that boost entrepreneurial activities in a country facing economic slowdown. The author doesn’t intends to arrive at quantitative measures of such factors through scientific or experimentation methods – such measures shall however be recommended as future research on the subject one the factors are clearly understood and modelled at a high level. The Research Approach: The author plans to carry out one to one interviews with selected respondents that are entrepreneurs and have started their ventures recently. Thereafter, the responses shall be collated and analyzed in appropriate response charts that shall be designed. The output combined with the outcome of the Literature Review shall be used to evolve the empirical generalizations pertaining to impact of economic slowdown on the entrepreneurship growth. Life-cycle model to be followed Following Life-Cycle of the research would be followed in this project. Figure 8: Project Lifecycle to be followed (Maxwell. 2004; Hancock. 2002) The research shall begin with the research questions that have been presented in the beginning of this proposal. An extensive Literature Review shall be carried out (much more than what is presented in this proposal) especially focussed on the reports Global Entrepreneurship Monitor in the last five years giving special emphasis to some selected countries. The outcome shall be modelled in the form of hypotheses by taking help from the modelling carried out by past researchers pertaining to various factors that influence entrepreneurship in a country. The hypotheses shall help in arriving at the most appropriate questionnaire that shall be used to carry out interviews with new entrepreneurs that have established their business recently in last one to two years. Specific procedures and formats for Data Collection The questionnaire established after modelling the hypotheses with the help of Literature Review shall be sent to three to five entrepreneurs who have established their businesses in the last two years. It is proposed that entrepreneurs with three different business areas are targeted – example, web enabled business (dot com or portal based), consulting business (like practicing CPAs or business consulting professionals), store owners (owner of a supermarket store that is established during last one to two years), beauty parlours/hair designers, etc. The emphasis shall be to understand the impacts they faced due to the recent economic downturn and the options/restrictions that they encountered. The questions shall be structured such that the phenomenon of impact on entrepreneurial activities during economic slowdown can be understood. No quantitative study is targeted in terms of evaluation of the extent of impact by the factors that shall evolve – the objective is to just know the factors. Formats for Presenting Results/Deliverables The formats shall be designed in which the primary data (responses to questions) shall be populated and presented. The questions shall be arranged in logical groups – like, experience, factual, belief, observation, information, etc. The responses of the questions shall be mapped with a particular dimension of the logical group. Examples are – Strongly Agree, Partially Agree, Partially Disagree, Strongly Disagree, Can’t Say, etc. Example question: Did you choose entrepreneurship as your career due to unavailability of satisfactory & fruitful employment matching your knowledge & skills? Strongly Agree because Entrepreneurship was the only option left for the me Partially Agree because Most of the jobs were not fruitful & satisfactory although had I tried hard, I could have achieved a satisfactory employment Partially disagree because I got some job offers which were quite satisfactory but I didn’t opt for them due to lesser scope of growth, skill & knowledge enhancement, etc. Strongly Disagree because I got a number of job opportunities which were fruitful & satisfactory but I consciously chose the challenge of entrepreneurship Can’t Say because this was never my consideration when I chose entrepreneurship Such questions may not cover all the possible answers but do set a context for the respondent to comfortably be able to arrive at a conclusion. For the purpose of research, such questions shall help in developing a framework where all options come to the table. For example, this question can result in the options as: (a) Individuals may not always consider availability of jobs as their decision making criteria for choosing entrepreneurship (b) Individuals are forced to get into entrepreneurship due to lack of job opportunities during an economic slowdown Such facts are only indicators and may firm up the model only after collective analysis of many such questions is carried out. Response from five entrepreneurs in different businesses is expected to be good enough to achieve qualitative answers to the research questions finally supporting the hypotheses. Respondents are expected to answer the questions because: (a) The questions shall be designed in such a way that a respondent would not need more than 10 to 15 minutes in providing responses (b) The purpose is academic and that too pertaining to a subject which is a hot consideration in today’s economic conditions (c) The confidentiality of information provided by respondents shall be managed professionally (d) No objectionable questions shall be asked which might cause the respondent to be uncomfortable due to business, professional or personal reasons. [Maxwell, Joseph Alex. 2004; Hancock, Beverly. 2002] Resource Requirements The author doesn’t foresee the need for any extra resources at this stage. For this research, the time of respondents is more important compared to any resources as such. The author has a laptop on which the notes would be captured in MS Word and Collation & analysis of results would be carried out in MS Excel. Confidentiality Issues: A formal consent shall be obtained from the respondents before the interview is conducted. The names & other details of respondents shall collected more for the purpose of contacting them later for more clarification, etc. However, special care shall be taken that their identity is not disclosed to anyone in any of the discussions in the paper if they desire so. Moreover, none of the questions shall be targeted towards gender or racial bias and the information disclosed to the author about business, personal views, customers, etc. shall be kept confidential. If required, non-disclosure agreements (or similar written agreements) shall be executed. Conclusion This presentation is a research proposal with high level literature review and research design. This paper is intended to present the proposed research methodology & direction which shall be built upon further by carrying much more in-depth literature review, modelling the hypotheses, formulating the appropriate questions (& multiple choice responses), designing formats for presentation of raw data and finally designing formats for analysis of the raw data. Reference List: Ankli, Robert E. (1992). Michel Porter’s Competitive Advantage and Business History. Business and Economic History. Second Series. Volume 21. Bosma, Neils and Harding, Rebecca. (2007). Global Entrepreneurship Monitor – 2006 Summary Report. Global Entrepreneurship Research Consortium (GERA). Bosma, Neils and Jones, Kent et al. (2008). Global Entrepreneurship Monitor – 2007 Executive Report. Global Entrepreneurship Research Consortium (GERA). Hancock, Beverly. (2002). An Introduction to Qualitative Research. Trent Focus Group. Harry P Bowen & Dirk De Clercq. (2008). "Institutional context and the allocation of entrepreneurial effort," Journal of International Business Studies, Palgrave Macmillan Journals, Vol. 39. Issue.4 Carree, M.A. and Thurik, A.R. The Impact of Entrepreneurship on Economic Growth. International Handbook of Entrepreneurship Research. 2002. Dejardin, Marcus. Entrepreneurship and Economic Growth – An Obvious Conjunction. Institute for Development Strategies. University of Namur. Belgium. 2000. Friis, Christian and Paulsson, Thomas. Entrepreneurship and Economic Growth – A critical Review of Empirical and Theoretical Research. Jönköping International Business School. 2002. Gleave, Bill Dr. Entrepreneurship and Economic Development. School of Entrepreneurship and Business. University of Essex. 2007. Maxwell, Joseph Alex. (2004). Qualitative Research Design – An Interactive Approach. Edition 2. SAGE Publications. Storey, D.J. (2002). Entrepreneurship and the New Firm. Ed. Harry Jones. Science Direct. Storey, D.J. (2003). The Small Firm – An International Survey. Taylor and Francis. Read More