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Far from Silicon Valley
Journal of International Management 16 (2010) 321–327
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Journal of International Management
Short communication
Far from Silicon Valley How emerging economies are re-shaping our understanding of global entrepreneurship T.L. Hill ⁎, Ram Mudambi Fox School of Business, Temple University, United States
a r t i c l e
i n f o
Article history: Accepted 1 September 2010 Available online 15 October 2010
a b s t r a c t In this paper we describe three distinct but interrelated processes — spillover and catch up, brokering and bottom up — that link globalization to entrepreneurship in emerging economies. We then outline an ambitious research agenda concerning entrepreneurship in the emerging economy context. Is most of such entrepreneurship Kirznerian or Schumpeterian? How do brokering processes work in this context? What informal and formal institutions will emerge to govern entrepreneurship? Does entrepreneurship at the base of the pyramid represent just another MNE-inspired spillover, or will the severe constraints lead to truly revolutionary innovations in business models, governance arrangements and social relations? Most fundamentally, will the entrepreneurial processes in emerging economies conform to or transform the organization of entrepreneurship as we know it? © 2010 Elsevier Inc. All rights reserved.
1. Introduction Globalization, typically understood as the process whereby national economies become integrated and interdependent, is increasingly inclusive and polycentric. More and more, trade, knowledge and capital flow as much from and between emerging economies as from and between developed ones (Ramamurti and Singh, 2009). Further, the degree to which a given location is integrated into a global value chain makes the difference between converging to the high living standards of the leading centers and falling behind (Mudambi, 2008). In other words, the single biggest difference between emerging and “pre-emerging” economies seems to be the extent to which the former participate in various global value chains from manufacture to entertainment to financial services (Giuliani et al., 2005). But mere participation is not enough to drive development. As the pathbreaking work of Schumpeter (1911) established, entrepreneurship is the mainspring of value creation. For regions to emerge, innovation and entrepreneurship must flourish (Saxenian, 1994; Porter, 1990). Despite this, there is a persistent dearth of research on entrepreneurship within the context of emerging economies and its linkages to globalization (Bruton et al., 2008). The focus for this special issue is how globalization — which is in part driven by the rapid rise of emerging economies — affects patterns of entrepreneurship, the entrepreneurial process itself, and to some degree, our theories of entrepreneurship. Schumpeter emphasized the role of visionary entrepreneurs in creating the new technologies and businesses that disrupt and replace existing ones and generate new wealth (Schumpeter, 1950). Kirzner (1973) emphasized the complementary role of alert entrepreneurs in recognizing the opportunities extant in disequilibria, thereby driving economic systems back towards equilibrium. For both, entrepreneurship emerges from the confluence of evanescent opportunities and alert, well-prepared
⁎ Corresponding author. EMC Practice Temple University Fox School of Business Alter Hall 538 1801 Liacouras Walk Philadelphia, PA 19122 USA. Tel.: + 1 215 204 3079. E-mail address: [email protected] (T.L. Hill). URL: http://www.fox.temple.edu/emc (T.L. Hill). 1075-4253/$ – see front matter © 2010 Elsevier Inc. All rights reserved. doi:10.1016/j.intman.2010.09.003
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individuals acting under conditions of economic disequilibrium (Shane and Venkataraman, 2000; Venkataraman, 1997). Thus, it is useful to think of entrepreneurship as a “process of creating value by bringing together a unique package of resources to exploit an opportunity” (Morris and Lewis, 1995: 32). And the contemporary world of increasingly global value chains and social networks provide fertile ground for both creatively destructive and equilibrating entrepreneurial processes as entrepreneurs shape the clusters, value chains and networks in which they operate (Humphrey and Schmitz, 2002). In such a world, the regions that close the gap most quickly are those that manage to leverage or establish a cluster of related and interconnected firms (Porter, 2000, 2003), thus generating a virtuous cycle of existing firm growth, new entry and entrepreneurship (Delgado et al., 2010). While entrepreneurship based on new scientific discoveries can create tremendous value (Dillon et al., 2005), even when know-how is copied and little is invested in R&D, clusters of imitative entrepreneurs tied to global value chains can drive dramatic regional growth (Minniti and Lévesque, 2010). Multinational enterprises (MNEs) are a big part of this story, anchoring (Robinson et al., 2007) and even intentionally seeding (Patibandla and Petersen, 2002) clusters in emerging economies. MNE subsidiaries initially undertake local sourcing for inexpensive, standardized inputs; however, in many cases, the MNE unit and its local suppliers co-evolve over time so that local transactions involve increasingly specialized and customized inputs (Manning, 2008). Through such co-evolutionary processes, MNEs both pull and organize goods and services along global supply chains, providing incentives, opportunities and resources for entrepreneurship in various locations. Further, as MNE value chains become increasingly disaggregated across geographic space, and as subsidiaries and their regions play a more prominent role in generating value and even strategy, there are increases in twoway flows of innovation and resources (Cantwell and Mudambi, 2005; Scott et al., 2010—this issue). Reviewing the patterns of globalization, the literature and the contributions to this special issue, we discern three distinct but interrelated processes through which a new generation of entrepreneurship is playing out within emerging economies and beyond. Together, these processes promise to transform the global economy and to propel a growing wave of entrepreneurship.
2. Entrepreneurship processes in emerging economies There are three processes — spillover and catch up, brokering and bottom up — that link globalization to entrepreneurship in emerging economies. Each process both generates opportunities for and is driven by entrepreneurship. Individually and collectively, these processes provide exciting contexts for exploring the dynamics of entrepreneurship deepening our understanding of the entrepreneurial process. Spillover and catch-up processes are two sides of the same coin, or more accurately, two iterative, interrelated processes in which spillover tends to lead and catch up follow. Spillover starts when MNEs set up subsidiaries in emerging economy locations to seek new markets or lower costs. These foreign operations inevitably impact the local economy (Eden, 2009) through nonpecuniary externalities (demonstration effects on and informal knowledge transfers to local firms) as well as market adjustments (competition with local firms for resources, skilled labor, etc.). As these subsidiaries interact with the local economy, they evolve over time. The theory of subsidiary evolution (Birkinshaw and Hood, 1998; Cantwell and Mudambi, 2005) is based on the recognition that MNEs are diffuse coalitions wherein subsidiaries compete with each other for mandates and influence (Mudambi and Navarra, 2004). This intra-firm competition motivates all subsidiaries, including those in emerging market economies to upgrade their capabilities in order to extend their mandates. Subsidiary evolution in MNEs is the outcome of corporate entrepreneurship. Successful MNE subsidiary evolution in emerging market economies leads to increased responsibilities being apportioned to its local business network (Meyer et al., in press). This process results in significant and growing knowledge spillovers into the local economy through employee mobility (Song et al., 2003), learning by the more perceptive local firms (Bathelt et al., 2004) and the spawning of suppliers to the suppliers that support the subsidiaries (Camuffo, 2003). While spillover processes from MNE subsidiaries in emerging market economies spark cooperative work with local firms, they also, over time, stimulate local firms to try to catch up to, or even surpass, their MNE partners. Local suppliers/partners begin to move up the value chain by learning from their customers, investing in the latest technologies and choosing new partners with an eye towards learning more (Giuliani et al., 2005). The more entrepreneurial firms with better international networks even invest abroad to accelerate learning and asset assembly (Makino et al., 2002; Yiu et al., 2007); and those new ventures that synchronize most effectively with their most prominent international customers further improve their global competitiveness and performance (Khavul et al., 2010). Finally, in their efforts to catch up to or surpass their competitors in developed economies, firms and clusters sometimes discover novel paths better suited to local institutional and resource constraints. For example, at the meso level within regional economies, industry associations seem to compensate in part for weak institutions (McDermott et al., 2009) while the architecture of local networks prove critical in shaping industry structure (Lorenzen and Täube, 2008). At the firm level, emerging economy firms can sometimes combine local knowledge and resources with international technologies and markets to jump into sunrise industries like renewable energy. The very newness of these industries helps to level the playing field with advanced economy firms, while local experience and resources can sometimes provide a competitive edge, as in the case of Suzlon (India) and Goldwind (China) in the wind power industry (Awate and Mudambi, 2010). Similarly, in biofuels, firms from emerging economies like Brazil (ethanol) and Argentina (bio-diesel) have been able to combine the experience of competitors with innovations in technology, raw material availability and lower operating costs to become dominant firms in their industries (Mathews and Goldsztein, 2009). And sometimes — floriculture in India is one example — global linkages open the door to entirely new industries
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that provide scope for peasant entrepreneurs not only to participate but to lead technical innovations, supply chain innovation and even institution building (Prakash and Bahadur, 2005). 2.1. Brokering processes The multi-directional flows of innovation and resources that are characteristic of the latest wave of globalization stream along social networks catalyzed by well-traveled, boundary spanning individuals (Saxenian, 2006). The global world is a networked world, and entrepreneurship relies on social networks. In fact there is recent evidence that connectivity is even more important to cluster and regional success than the extent of resource availability (Bel and Fageda, 2008). Networks are composed of nodes (centers, concentrations of resources) and edges (linkages, connections between nodes) (Beugelsdijk et al., 2010). Power and resources accrue both to creative centers and to brokers that span “structural holes” to facilitate the diffusion of information and access to geographically and socially distant resources (Burt, 2004). For entrepreneurs, the development, maintenance and use of such bridging ties, notably across geographic and cultural boundaries, are central to the ability to create or discover opportunities and to assemble resources to take advantage of these opportunities (Light and Gold, 2000; Riddle et al., 2010—this issue). Accordingly, entrepreneurship relies on social processes such as mentoring, and social structures such as professional organizations, both to find and to recognize opportunities (Ozgen and Baron, 2007). Migration has always created social paths for the flow of information and resources around the world, but easy travel and instant communication increase connectivity and increase both the extent and scale of entrepreneurial activities (Saxenian, 2006). For example, local employees of MNEs spin out and undertake start-up entrepreneurship (Klepper, 2001) by utilizing the contacts and knowledge they gained while working for the MNE subsidiary. Returnees from diasporas in advanced economies also play important roles. Many senior scientists, engineers and executives return to their home countries first as part of MNE subsidiaries who value them as much for their legitimacy within the MNE as for their cultural and other advantages in the local milieu (Patibandla and Petersen, 2002; Lorenzen and Mudambi, 2010). Other diaspora returnees come directly from advanced economies, lured by rapidly expanding prospects and the opportunity to live a more prosperous lifestyle in their home country. Typically, returnees outperform local entrepreneurs due to more sophisticated knowledge, international orientation and global networks (Dai and Liu, 2009). Returnees also contribute to cluster development by serving as brokers of knowledge, networks and resources (Saxenian, 2006; Sonderegger and Taube, 2010—this issue). 2.2. Bottom-up processes As much as globalization catalyzes clusters and regions in emerging economies, and as much as educated, mobile actors participate in and benefit from global networks, globalization threatens to leave behind huge numbers of people and places (De Soto, 2000). Still, as MNE market-seeking subsidiaries reach into the base of the pyramid in search of new markets, they often develop new supply chains and distribution networks that stimulate local entrepreneurship. For example, to make affordable beer that was acceptable to local tastes in Uganda, SABMiller invested in a sorghum-based brewing process that stabilized local agricultural prices and spawned dozens of new, small firms (Kapstein, 2009). And at the micro level, Chelekis and Mudambi (2010—this issue) document how selling in the Amazon drives changes in the vaunted Avon direct selling method even as Avon's presence interacts with necessity to spur small-scale entrepreneurship, change the status of women, and even shape notions of beauty. The business models and methods needed to succeed in emerging market economies must be resilient to extreme resource scarcity, poor to non-existent infrastructure, unreliable support services and institutional gaps (Cuervo-Cazurra and Genc, in press). But even when facing almost unimaginable constraints, entrepreneurship operates and sometimes flourishes. Although much entrepreneurship in the least developed areas of the world is necessity entrepreneurship, driven by sheer need — to eat, to generate school fees, to marry and die (Bosma et al., 2009), some entrepreneurship at the “bottom of the pyramid” promises to transform products, business models, industries and even social structures (Prahalad, 2004). Thus, microfinance not only provides capital to the poorest of the poor in a wide variety of settings, it has become a source of profit for the global financial system and has led to a variety of process and information technology innovations related to the profitable handling of many small transactions (Easton, 2005). Further, enterprises that succeed in such settings offer at least partial lessons for enterprise development in peripheral regions of advanced economies, such as inner cities, rural and backward regions, and so on (Schreiner and Woller, 2003). Examples include the adaptations of the microfinance model for inner city use in the USA (Bhatt, 2002). Finally, some examples of bottom-up entrepreneurship, especially those that involve social innovation, challenge established understandings of the entrepreneurship process (Hill et al., 2010). For example, beset by natural disasters, political instability and competition from global firms, some communities in Peru have begun to build entrepreneurial ventures on community — not individual — foundations, leading to new models of firm governance as well as increased control of local economies (Peredo and Chrisman, 2006). 3. MNEs, diasporas and entrepreneurship in emerging market economies The study of entrepreneurship in emerging economies is as yet an immature area of inquiry. The very diversity of the papers in this special issue reflects the range of opportunities available for researchers. Still, in their very different ways, each contribution illuminates one or more of the three globalization–entrepreneurship processes and so extends our understanding of the phenomena.
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3.1. Multi-directional flows, spillovers and catch up Three papers emphasize the multi-directionality of spillover and catch-up processes, showing how MNEs are shaped by the entrepreneurship that they inspire, and how the entire interaction between MNEs, local firms, and entrepreneurial processes is conditioned by cultural and institutional factors. Thus, Scott et al. (2010—this issue) use data from Irish subsidiaries of MNEs to explore how increased entrepreneurial orientation at the subsidiary level (when supported by autonomy, the charter to be external facing, and appropriate rewards) is associated with both increased opportunism at the subsidiary level and increased influence at the MNE level, including influence on MNE strategy. Their paper fits within the broader study of subsidiary evolution as value chains globalize, but is among the first to consider how peripheral players might affect central strategy, not only the firm's knowledge base. In this way, Scott et al. add to our understanding of subsidiary entrepreneurship and the increasingly multi-directional flows of influence, notably from periphery to center. Alvarez and Marin (2010—this issue) shift the focus from firms to economies by conducting a longitudinal study to explore the impact of national systems of innovation on the dynamics of catch-up processes. Their findings suggest that institutional stability and local R&D capacity drive entrepreneurship that in turn attracts MNEs to emerging economies. That is, they indicate that the more developed a region's innovation system, the more proven its local innovation and entrepreneurship, the more likely is the region to attract mergers and acquisitions (rather than greenfield) investment, especially from MNEs seeking to expand their knowledge assets. These findings reinforce the notion that in a globalizing world, valuable knowledge resources are increasingly dispersed in both advanced and emerging market economies, and, at the policy level, that the facilitation of entrepreneurship can be an important tool in developing a globally competitive economy. Finally, Engelen (2010—this issue) provides a timely reminder that entrepreneurial processes are affected by the cultural setting. While a somewhat blunt measure, national culture remains a useful proxy for the ways in which socialization affects entrepreneurs and organization. In this paper, Engelen compares factors affecting entrepreneurial orientation in Germany and China and shows how participation influences entrepreneurship only in Germany, while cross-functional integration and consideration have a stronger effect in China, and other factors — notably aspects of organizational culture — are consistently associated with entrepreneurial association, despite variations in national culture. His findings have implications for policy makers and managers considering how best to catalyze entrepreneurship. 3.2. Cluster evolution and brokering Two papers delve into the evolutionary processes of clusters and regions, paying special attention to the roles of entrepreneurial brokers. Manning et al. (2010—this issue) trace the co-evolution of globalization and cluster development in the realm of professional services. In particular, they argue that as service work becomes more commoditized, relocation to offshore sites becomes more feasible. In turn this leads to the development of groups of firms at offshore sites with the requisite knowledge to successfully compete and integrate with global value chains. These grouping of firms then attract in more investment (as suggested by Alvarez and Marin, 2010—this issue) and facilitate the emergence of new specialized clusters in emerging market economies. Because entrepreneurship, globalization and clustering are all inherently path-dependent and dynamic, this attention to process is particularly welcome and likely to develop theory more fully. At the same time, the global and labor-intensive nature of service clusters draws attention to labor flows and the role of migration and mobility in entrepreneurship both globally and in emerging markets. Sonderegger and Taube (2010—this issue) extend the thinking about clusters as labor and knowledge accumulators to consider how non-local linkages, facilitated by diaspora relations, allow cluster processes such as flows of knowledge, trust and labor to operate over greater geographic distances. Using a longitudinal case study of the growth of the Bangalore IT cluster, they trace how the diaspora roles change as clusters proceed along (idiosyncratic) paths of development and change over time. In particular, Sonderegger and Taube map the evolution of the Bangalore cluster to emergence models of clustering and add the role of diaspora migrants as cluster accelerators. They argue that while nonresident Indian professionals did not help launch the Bangalore cluster, they did play a role early on by helping to build legitimacy in the eyes of the MNEs that employed them, and then later, as catalysts for capital flows. Most recently, they have become less important as the cluster matured in actuality and in the eyes of the world. Once again, the attention to process is suggestive and fruitful, adding both theoretical and policy-making nuance to the growing understanding of migrants' roles in the development of clusters and the process of catching up. 3.3. Catch up and reverse innovation at the base of the pyramid Finally, two papers extend this attention to entrepreneurs and mobility — both physical and cultural — closer to the base of the pyramid, and show how attention to those heretofore ignored by globalization can lead to useful innovations at firm and governmental levels. Riddle et al. (2010—this issue) provide a useful complement to Saxenian's and to Sonderegger and Taube's (2010—this issue) work on high-flying, high-technology, citizens-of-the world “Argonauts” by exploring the lived experience of diaspora entrepreneurs of more modest means. They use a case study of IntEnt, an incubator in the Netherlands, to develop theory around the institutional challenges faced by low-technology diaspora entrepreneurs including labor market voids such as difficulties in
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transferring work experience from a developing economy to a developed one; the lack of risk capital sensitive to the issues and opportunities of trans-boundary small firms; the need for boundary spanners who can translate business culture from country to country; and the changing challenge of achieving legitimacy in the host country while maintaining legitimacy in the home country. Riddle et al.'s study underscores how far down the pyramid globalization now reaches while highlighting the importance of institutional factors — and the potential usefulness of intermediaries such as incubators — in facilitating entrepreneurship and other catch-up processes for a wider swathe of the global population. Chelekis and Mudambi (2010—this issue) reach even further down the pyramid and provide a gripping description of how details of life at the base of pyramid changes a proven business model — Avon's direct selling model — even as the MNE's resources reach and interact with local conditions to catalyze micro-entrepreneurship and to shape local cultural norms. Chelekis and Mudambi's paper demonstrates the usefulness of cross-disciplinary approaches (anthropology, marketing and management) in tracing and beginning to explain how globalization pressures force a market-oriented entrepreneurial economy into non-market areas. While the description can be read cynically as insight into the mechanisms of market and cultural imperialism, it also suggests how lived experience at the base can flow back up the chain to affect, at least partially, the offerings of a large firm and, more dramatically, cultural expectations about women's roles and capabilities. 4. Research opportunities and challenges Consistent across the papers in this special issue is the insight that entrepreneurship is a process that relies on and contributes to disequilibrium. While much research on entrepreneurship has focused on the (stylized) process of entrepreneurship itself, the articles in this issue — and the study of entrepreneurship in emerging markets in general — suggests a new emphasis on the larger processes that facilitate, hinder and shape entrepreneurship in particular contexts. It is not just that context matters, but that by paying attention to how context matters, researchers can deepen their understanding of the fundamental nature of entrepreneurship. Thus, at a deeply theoretical level, it seems that most entrepreneurship in emerging economies seems to be Kirznerian in the sense that for all the alertness and nimbleness it requires, entrepreneurial success often serves to bring local economies into closer alignment with an emerging global norm, thus pushing towards an equilibrium. This seems to be the story, for example, with outsourced professional services (Manning et al., 2010—this issue), wind technologies and biofuels. Only rarely does entrepreneurship in emerging economy clusters lead to entirely new technologies or processes that is the essence of Schumpeterian entrepreneurship. Whether most entrepreneurship in emerging economies is Kirznerian or Schumpeterian is an empirical question. In other words, what kinds of entrepreneurial opportunities are emerging economy entrepreneurs enacting? Are they responding to arbitrage opportunities as Kirzner would suggest? Or are they creating entirely new, disruptive recombinations as Schumpeter would predict? Whether studying spillovers, catch up or brokering, it is important to focus on process. The critical role of brokers in entrepreneurship generally and in emerging economies in particular suggests that cluster theory in this context would be enhanced by the application of insights about how innovation diffuses within industrial districts (Lissoni, 2001). The work in this issue on labor flows and the networks and norms that structure them (Manning et al., 2010—this issue; Riddle et al., 2010—this issue; Sonderegger and Taube, 2010—this issue) seems particularly promising. Together, they highlight the varying roles, at varying times, that influential individuals play and reinforce the notion that cluster boundaries might be as much social as geographical. Such a focus on people and social structure suggests the usefulness of paying attention to the role of networks, associations and government interventions in the evolution of clusters. For example, how might such organizations affect the rate of entrepreneurship and the mix of organizations within a given cluster (Sine et al., 2005)? Or thinking about the process of organizing entrepreneurship, how might contending coalitions (Davis et al., 2005) with competing logics (Lounsbury and Crumley, 2007) shape the actual pathways along which specific clusters evolve? Finally, the experience at the base of the pyramid should continue to intrigue and challenge researchers. One question is whether entrepreneurship at the base of the pyramid represents just another spillover/catch-up process, as MNEs reach for new markets. If so, the question becomes how the resource constraints at the base of the pyramid might change the trajectory of these processes. A more intriguing question is whether the severe constraints at the base of the pyramid may lead occasionally to truly revolutionary innovations in business models, governance arrangements or social relations. All of these questions set up an ambitious research agenda for scholars of international entrepreneurship. This agenda will play out against the backdrop of a fascinating natural experiment concerning the configuration and character of entrepreneurial processes. Institutional regimes (like managerial capitalism vs. classical capitalism) compete and rarely co-exist (Ricketts, 2001), unless separated by substantial barriers. Globalization, as a process that removes or greatly erodes barriers, facilitates competition between institutional systems. All the current trends indicate that emerging economies will become dominant within the world economy over the coming decades (Mudambi, 2010). Will these processes in emerging market economies eventually converge to those in the advanced market economies? Or will they converge to a new orthodoxy influenced by both emerging and advanced economies? Alternatively will entrepreneurial processes develop along a fundamentally different trajectory, changing the organization of entrepreneurship as we know it? Acknowledgment We would like to thank Sara McGaughey for many comments that significantly improved the paper.
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The economic performance of regions. Regional Studies 37, 549–578. Prahalad, C.K., 2004. The Fortune at the Bottom of the Pyramid: Eradicating Poverty through Profits. Wharton School Publishing, Philadelphia. Prakash, A., Bahadur, 2005. From revolutionary peasants to leaders of export revolution: a saga of the 1990s. Vision 9 (2), 67–76. Ramamurti, R., Singh, J., 2009. Emerging Multinationals in Emerging Markets. Cambridge University Press, Cambridge. Ricketts, M., 2001. Trust and economic organization. Economic Affairs 21 (1), 18–22. Riddle, L., Hrivnak, G., Nielsen, T., 2010. Transnational diaspora entrepreneurship in emerging markets: the role of business incubators. Journal of International Management 16, 398–411 (this issue). Robinson, D.K.R., Rip, A., Mangematin, V., 2007. Technological agglomeration and the emergence of clusters and networks in nanotechnology. Research Policy 36 (6), 871–879.
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Journal of International Management
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Far from Silicon Valley How emerging economies are re-shaping our understanding of global entrepreneurship T.L. Hill ⁎, Ram Mudambi Fox School of Business, Temple University, United States
a r t i c l e
i n f o
Article history: Accepted 1 September 2010 Available online 15 October 2010
a b s t r a c t In this paper we describe three distinct but interrelated processes — spillover and catch up, brokering and bottom up — that link globalization to entrepreneurship in emerging economies. We then outline an ambitious research agenda concerning entrepreneurship in the emerging economy context. Is most of such entrepreneurship Kirznerian or Schumpeterian? How do brokering processes work in this context? What informal and formal institutions will emerge to govern entrepreneurship? Does entrepreneurship at the base of the pyramid represent just another MNE-inspired spillover, or will the severe constraints lead to truly revolutionary innovations in business models, governance arrangements and social relations? Most fundamentally, will the entrepreneurial processes in emerging economies conform to or transform the organization of entrepreneurship as we know it? © 2010 Elsevier Inc. All rights reserved.
1. Introduction Globalization, typically understood as the process whereby national economies become integrated and interdependent, is increasingly inclusive and polycentric. More and more, trade, knowledge and capital flow as much from and between emerging economies as from and between developed ones (Ramamurti and Singh, 2009). Further, the degree to which a given location is integrated into a global value chain makes the difference between converging to the high living standards of the leading centers and falling behind (Mudambi, 2008). In other words, the single biggest difference between emerging and “pre-emerging” economies seems to be the extent to which the former participate in various global value chains from manufacture to entertainment to financial services (Giuliani et al., 2005). But mere participation is not enough to drive development. As the pathbreaking work of Schumpeter (1911) established, entrepreneurship is the mainspring of value creation. For regions to emerge, innovation and entrepreneurship must flourish (Saxenian, 1994; Porter, 1990). Despite this, there is a persistent dearth of research on entrepreneurship within the context of emerging economies and its linkages to globalization (Bruton et al., 2008). The focus for this special issue is how globalization — which is in part driven by the rapid rise of emerging economies — affects patterns of entrepreneurship, the entrepreneurial process itself, and to some degree, our theories of entrepreneurship. Schumpeter emphasized the role of visionary entrepreneurs in creating the new technologies and businesses that disrupt and replace existing ones and generate new wealth (Schumpeter, 1950). Kirzner (1973) emphasized the complementary role of alert entrepreneurs in recognizing the opportunities extant in disequilibria, thereby driving economic systems back towards equilibrium. For both, entrepreneurship emerges from the confluence of evanescent opportunities and alert, well-prepared
⁎ Corresponding author. EMC Practice Temple University Fox School of Business Alter Hall 538 1801 Liacouras Walk Philadelphia, PA 19122 USA. Tel.: + 1 215 204 3079. E-mail address: [email protected] (T.L. Hill). URL: http://www.fox.temple.edu/emc (T.L. Hill). 1075-4253/$ – see front matter © 2010 Elsevier Inc. All rights reserved. doi:10.1016/j.intman.2010.09.003
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individuals acting under conditions of economic disequilibrium (Shane and Venkataraman, 2000; Venkataraman, 1997). Thus, it is useful to think of entrepreneurship as a “process of creating value by bringing together a unique package of resources to exploit an opportunity” (Morris and Lewis, 1995: 32). And the contemporary world of increasingly global value chains and social networks provide fertile ground for both creatively destructive and equilibrating entrepreneurial processes as entrepreneurs shape the clusters, value chains and networks in which they operate (Humphrey and Schmitz, 2002). In such a world, the regions that close the gap most quickly are those that manage to leverage or establish a cluster of related and interconnected firms (Porter, 2000, 2003), thus generating a virtuous cycle of existing firm growth, new entry and entrepreneurship (Delgado et al., 2010). While entrepreneurship based on new scientific discoveries can create tremendous value (Dillon et al., 2005), even when know-how is copied and little is invested in R&D, clusters of imitative entrepreneurs tied to global value chains can drive dramatic regional growth (Minniti and Lévesque, 2010). Multinational enterprises (MNEs) are a big part of this story, anchoring (Robinson et al., 2007) and even intentionally seeding (Patibandla and Petersen, 2002) clusters in emerging economies. MNE subsidiaries initially undertake local sourcing for inexpensive, standardized inputs; however, in many cases, the MNE unit and its local suppliers co-evolve over time so that local transactions involve increasingly specialized and customized inputs (Manning, 2008). Through such co-evolutionary processes, MNEs both pull and organize goods and services along global supply chains, providing incentives, opportunities and resources for entrepreneurship in various locations. Further, as MNE value chains become increasingly disaggregated across geographic space, and as subsidiaries and their regions play a more prominent role in generating value and even strategy, there are increases in twoway flows of innovation and resources (Cantwell and Mudambi, 2005; Scott et al., 2010—this issue). Reviewing the patterns of globalization, the literature and the contributions to this special issue, we discern three distinct but interrelated processes through which a new generation of entrepreneurship is playing out within emerging economies and beyond. Together, these processes promise to transform the global economy and to propel a growing wave of entrepreneurship.
2. Entrepreneurship processes in emerging economies There are three processes — spillover and catch up, brokering and bottom up — that link globalization to entrepreneurship in emerging economies. Each process both generates opportunities for and is driven by entrepreneurship. Individually and collectively, these processes provide exciting contexts for exploring the dynamics of entrepreneurship deepening our understanding of the entrepreneurial process. Spillover and catch-up processes are two sides of the same coin, or more accurately, two iterative, interrelated processes in which spillover tends to lead and catch up follow. Spillover starts when MNEs set up subsidiaries in emerging economy locations to seek new markets or lower costs. These foreign operations inevitably impact the local economy (Eden, 2009) through nonpecuniary externalities (demonstration effects on and informal knowledge transfers to local firms) as well as market adjustments (competition with local firms for resources, skilled labor, etc.). As these subsidiaries interact with the local economy, they evolve over time. The theory of subsidiary evolution (Birkinshaw and Hood, 1998; Cantwell and Mudambi, 2005) is based on the recognition that MNEs are diffuse coalitions wherein subsidiaries compete with each other for mandates and influence (Mudambi and Navarra, 2004). This intra-firm competition motivates all subsidiaries, including those in emerging market economies to upgrade their capabilities in order to extend their mandates. Subsidiary evolution in MNEs is the outcome of corporate entrepreneurship. Successful MNE subsidiary evolution in emerging market economies leads to increased responsibilities being apportioned to its local business network (Meyer et al., in press). This process results in significant and growing knowledge spillovers into the local economy through employee mobility (Song et al., 2003), learning by the more perceptive local firms (Bathelt et al., 2004) and the spawning of suppliers to the suppliers that support the subsidiaries (Camuffo, 2003). While spillover processes from MNE subsidiaries in emerging market economies spark cooperative work with local firms, they also, over time, stimulate local firms to try to catch up to, or even surpass, their MNE partners. Local suppliers/partners begin to move up the value chain by learning from their customers, investing in the latest technologies and choosing new partners with an eye towards learning more (Giuliani et al., 2005). The more entrepreneurial firms with better international networks even invest abroad to accelerate learning and asset assembly (Makino et al., 2002; Yiu et al., 2007); and those new ventures that synchronize most effectively with their most prominent international customers further improve their global competitiveness and performance (Khavul et al., 2010). Finally, in their efforts to catch up to or surpass their competitors in developed economies, firms and clusters sometimes discover novel paths better suited to local institutional and resource constraints. For example, at the meso level within regional economies, industry associations seem to compensate in part for weak institutions (McDermott et al., 2009) while the architecture of local networks prove critical in shaping industry structure (Lorenzen and Täube, 2008). At the firm level, emerging economy firms can sometimes combine local knowledge and resources with international technologies and markets to jump into sunrise industries like renewable energy. The very newness of these industries helps to level the playing field with advanced economy firms, while local experience and resources can sometimes provide a competitive edge, as in the case of Suzlon (India) and Goldwind (China) in the wind power industry (Awate and Mudambi, 2010). Similarly, in biofuels, firms from emerging economies like Brazil (ethanol) and Argentina (bio-diesel) have been able to combine the experience of competitors with innovations in technology, raw material availability and lower operating costs to become dominant firms in their industries (Mathews and Goldsztein, 2009). And sometimes — floriculture in India is one example — global linkages open the door to entirely new industries
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that provide scope for peasant entrepreneurs not only to participate but to lead technical innovations, supply chain innovation and even institution building (Prakash and Bahadur, 2005). 2.1. Brokering processes The multi-directional flows of innovation and resources that are characteristic of the latest wave of globalization stream along social networks catalyzed by well-traveled, boundary spanning individuals (Saxenian, 2006). The global world is a networked world, and entrepreneurship relies on social networks. In fact there is recent evidence that connectivity is even more important to cluster and regional success than the extent of resource availability (Bel and Fageda, 2008). Networks are composed of nodes (centers, concentrations of resources) and edges (linkages, connections between nodes) (Beugelsdijk et al., 2010). Power and resources accrue both to creative centers and to brokers that span “structural holes” to facilitate the diffusion of information and access to geographically and socially distant resources (Burt, 2004). For entrepreneurs, the development, maintenance and use of such bridging ties, notably across geographic and cultural boundaries, are central to the ability to create or discover opportunities and to assemble resources to take advantage of these opportunities (Light and Gold, 2000; Riddle et al., 2010—this issue). Accordingly, entrepreneurship relies on social processes such as mentoring, and social structures such as professional organizations, both to find and to recognize opportunities (Ozgen and Baron, 2007). Migration has always created social paths for the flow of information and resources around the world, but easy travel and instant communication increase connectivity and increase both the extent and scale of entrepreneurial activities (Saxenian, 2006). For example, local employees of MNEs spin out and undertake start-up entrepreneurship (Klepper, 2001) by utilizing the contacts and knowledge they gained while working for the MNE subsidiary. Returnees from diasporas in advanced economies also play important roles. Many senior scientists, engineers and executives return to their home countries first as part of MNE subsidiaries who value them as much for their legitimacy within the MNE as for their cultural and other advantages in the local milieu (Patibandla and Petersen, 2002; Lorenzen and Mudambi, 2010). Other diaspora returnees come directly from advanced economies, lured by rapidly expanding prospects and the opportunity to live a more prosperous lifestyle in their home country. Typically, returnees outperform local entrepreneurs due to more sophisticated knowledge, international orientation and global networks (Dai and Liu, 2009). Returnees also contribute to cluster development by serving as brokers of knowledge, networks and resources (Saxenian, 2006; Sonderegger and Taube, 2010—this issue). 2.2. Bottom-up processes As much as globalization catalyzes clusters and regions in emerging economies, and as much as educated, mobile actors participate in and benefit from global networks, globalization threatens to leave behind huge numbers of people and places (De Soto, 2000). Still, as MNE market-seeking subsidiaries reach into the base of the pyramid in search of new markets, they often develop new supply chains and distribution networks that stimulate local entrepreneurship. For example, to make affordable beer that was acceptable to local tastes in Uganda, SABMiller invested in a sorghum-based brewing process that stabilized local agricultural prices and spawned dozens of new, small firms (Kapstein, 2009). And at the micro level, Chelekis and Mudambi (2010—this issue) document how selling in the Amazon drives changes in the vaunted Avon direct selling method even as Avon's presence interacts with necessity to spur small-scale entrepreneurship, change the status of women, and even shape notions of beauty. The business models and methods needed to succeed in emerging market economies must be resilient to extreme resource scarcity, poor to non-existent infrastructure, unreliable support services and institutional gaps (Cuervo-Cazurra and Genc, in press). But even when facing almost unimaginable constraints, entrepreneurship operates and sometimes flourishes. Although much entrepreneurship in the least developed areas of the world is necessity entrepreneurship, driven by sheer need — to eat, to generate school fees, to marry and die (Bosma et al., 2009), some entrepreneurship at the “bottom of the pyramid” promises to transform products, business models, industries and even social structures (Prahalad, 2004). Thus, microfinance not only provides capital to the poorest of the poor in a wide variety of settings, it has become a source of profit for the global financial system and has led to a variety of process and information technology innovations related to the profitable handling of many small transactions (Easton, 2005). Further, enterprises that succeed in such settings offer at least partial lessons for enterprise development in peripheral regions of advanced economies, such as inner cities, rural and backward regions, and so on (Schreiner and Woller, 2003). Examples include the adaptations of the microfinance model for inner city use in the USA (Bhatt, 2002). Finally, some examples of bottom-up entrepreneurship, especially those that involve social innovation, challenge established understandings of the entrepreneurship process (Hill et al., 2010). For example, beset by natural disasters, political instability and competition from global firms, some communities in Peru have begun to build entrepreneurial ventures on community — not individual — foundations, leading to new models of firm governance as well as increased control of local economies (Peredo and Chrisman, 2006). 3. MNEs, diasporas and entrepreneurship in emerging market economies The study of entrepreneurship in emerging economies is as yet an immature area of inquiry. The very diversity of the papers in this special issue reflects the range of opportunities available for researchers. Still, in their very different ways, each contribution illuminates one or more of the three globalization–entrepreneurship processes and so extends our understanding of the phenomena.
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3.1. Multi-directional flows, spillovers and catch up Three papers emphasize the multi-directionality of spillover and catch-up processes, showing how MNEs are shaped by the entrepreneurship that they inspire, and how the entire interaction between MNEs, local firms, and entrepreneurial processes is conditioned by cultural and institutional factors. Thus, Scott et al. (2010—this issue) use data from Irish subsidiaries of MNEs to explore how increased entrepreneurial orientation at the subsidiary level (when supported by autonomy, the charter to be external facing, and appropriate rewards) is associated with both increased opportunism at the subsidiary level and increased influence at the MNE level, including influence on MNE strategy. Their paper fits within the broader study of subsidiary evolution as value chains globalize, but is among the first to consider how peripheral players might affect central strategy, not only the firm's knowledge base. In this way, Scott et al. add to our understanding of subsidiary entrepreneurship and the increasingly multi-directional flows of influence, notably from periphery to center. Alvarez and Marin (2010—this issue) shift the focus from firms to economies by conducting a longitudinal study to explore the impact of national systems of innovation on the dynamics of catch-up processes. Their findings suggest that institutional stability and local R&D capacity drive entrepreneurship that in turn attracts MNEs to emerging economies. That is, they indicate that the more developed a region's innovation system, the more proven its local innovation and entrepreneurship, the more likely is the region to attract mergers and acquisitions (rather than greenfield) investment, especially from MNEs seeking to expand their knowledge assets. These findings reinforce the notion that in a globalizing world, valuable knowledge resources are increasingly dispersed in both advanced and emerging market economies, and, at the policy level, that the facilitation of entrepreneurship can be an important tool in developing a globally competitive economy. Finally, Engelen (2010—this issue) provides a timely reminder that entrepreneurial processes are affected by the cultural setting. While a somewhat blunt measure, national culture remains a useful proxy for the ways in which socialization affects entrepreneurs and organization. In this paper, Engelen compares factors affecting entrepreneurial orientation in Germany and China and shows how participation influences entrepreneurship only in Germany, while cross-functional integration and consideration have a stronger effect in China, and other factors — notably aspects of organizational culture — are consistently associated with entrepreneurial association, despite variations in national culture. His findings have implications for policy makers and managers considering how best to catalyze entrepreneurship. 3.2. Cluster evolution and brokering Two papers delve into the evolutionary processes of clusters and regions, paying special attention to the roles of entrepreneurial brokers. Manning et al. (2010—this issue) trace the co-evolution of globalization and cluster development in the realm of professional services. In particular, they argue that as service work becomes more commoditized, relocation to offshore sites becomes more feasible. In turn this leads to the development of groups of firms at offshore sites with the requisite knowledge to successfully compete and integrate with global value chains. These grouping of firms then attract in more investment (as suggested by Alvarez and Marin, 2010—this issue) and facilitate the emergence of new specialized clusters in emerging market economies. Because entrepreneurship, globalization and clustering are all inherently path-dependent and dynamic, this attention to process is particularly welcome and likely to develop theory more fully. At the same time, the global and labor-intensive nature of service clusters draws attention to labor flows and the role of migration and mobility in entrepreneurship both globally and in emerging markets. Sonderegger and Taube (2010—this issue) extend the thinking about clusters as labor and knowledge accumulators to consider how non-local linkages, facilitated by diaspora relations, allow cluster processes such as flows of knowledge, trust and labor to operate over greater geographic distances. Using a longitudinal case study of the growth of the Bangalore IT cluster, they trace how the diaspora roles change as clusters proceed along (idiosyncratic) paths of development and change over time. In particular, Sonderegger and Taube map the evolution of the Bangalore cluster to emergence models of clustering and add the role of diaspora migrants as cluster accelerators. They argue that while nonresident Indian professionals did not help launch the Bangalore cluster, they did play a role early on by helping to build legitimacy in the eyes of the MNEs that employed them, and then later, as catalysts for capital flows. Most recently, they have become less important as the cluster matured in actuality and in the eyes of the world. Once again, the attention to process is suggestive and fruitful, adding both theoretical and policy-making nuance to the growing understanding of migrants' roles in the development of clusters and the process of catching up. 3.3. Catch up and reverse innovation at the base of the pyramid Finally, two papers extend this attention to entrepreneurs and mobility — both physical and cultural — closer to the base of the pyramid, and show how attention to those heretofore ignored by globalization can lead to useful innovations at firm and governmental levels. Riddle et al. (2010—this issue) provide a useful complement to Saxenian's and to Sonderegger and Taube's (2010—this issue) work on high-flying, high-technology, citizens-of-the world “Argonauts” by exploring the lived experience of diaspora entrepreneurs of more modest means. They use a case study of IntEnt, an incubator in the Netherlands, to develop theory around the institutional challenges faced by low-technology diaspora entrepreneurs including labor market voids such as difficulties in
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transferring work experience from a developing economy to a developed one; the lack of risk capital sensitive to the issues and opportunities of trans-boundary small firms; the need for boundary spanners who can translate business culture from country to country; and the changing challenge of achieving legitimacy in the host country while maintaining legitimacy in the home country. Riddle et al.'s study underscores how far down the pyramid globalization now reaches while highlighting the importance of institutional factors — and the potential usefulness of intermediaries such as incubators — in facilitating entrepreneurship and other catch-up processes for a wider swathe of the global population. Chelekis and Mudambi (2010—this issue) reach even further down the pyramid and provide a gripping description of how details of life at the base of pyramid changes a proven business model — Avon's direct selling model — even as the MNE's resources reach and interact with local conditions to catalyze micro-entrepreneurship and to shape local cultural norms. Chelekis and Mudambi's paper demonstrates the usefulness of cross-disciplinary approaches (anthropology, marketing and management) in tracing and beginning to explain how globalization pressures force a market-oriented entrepreneurial economy into non-market areas. While the description can be read cynically as insight into the mechanisms of market and cultural imperialism, it also suggests how lived experience at the base can flow back up the chain to affect, at least partially, the offerings of a large firm and, more dramatically, cultural expectations about women's roles and capabilities. 4. Research opportunities and challenges Consistent across the papers in this special issue is the insight that entrepreneurship is a process that relies on and contributes to disequilibrium. While much research on entrepreneurship has focused on the (stylized) process of entrepreneurship itself, the articles in this issue — and the study of entrepreneurship in emerging markets in general — suggests a new emphasis on the larger processes that facilitate, hinder and shape entrepreneurship in particular contexts. It is not just that context matters, but that by paying attention to how context matters, researchers can deepen their understanding of the fundamental nature of entrepreneurship. Thus, at a deeply theoretical level, it seems that most entrepreneurship in emerging economies seems to be Kirznerian in the sense that for all the alertness and nimbleness it requires, entrepreneurial success often serves to bring local economies into closer alignment with an emerging global norm, thus pushing towards an equilibrium. This seems to be the story, for example, with outsourced professional services (Manning et al., 2010—this issue), wind technologies and biofuels. Only rarely does entrepreneurship in emerging economy clusters lead to entirely new technologies or processes that is the essence of Schumpeterian entrepreneurship. Whether most entrepreneurship in emerging economies is Kirznerian or Schumpeterian is an empirical question. In other words, what kinds of entrepreneurial opportunities are emerging economy entrepreneurs enacting? Are they responding to arbitrage opportunities as Kirzner would suggest? Or are they creating entirely new, disruptive recombinations as Schumpeter would predict? Whether studying spillovers, catch up or brokering, it is important to focus on process. The critical role of brokers in entrepreneurship generally and in emerging economies in particular suggests that cluster theory in this context would be enhanced by the application of insights about how innovation diffuses within industrial districts (Lissoni, 2001). The work in this issue on labor flows and the networks and norms that structure them (Manning et al., 2010—this issue; Riddle et al., 2010—this issue; Sonderegger and Taube, 2010—this issue) seems particularly promising. Together, they highlight the varying roles, at varying times, that influential individuals play and reinforce the notion that cluster boundaries might be as much social as geographical. Such a focus on people and social structure suggests the usefulness of paying attention to the role of networks, associations and government interventions in the evolution of clusters. For example, how might such organizations affect the rate of entrepreneurship and the mix of organizations within a given cluster (Sine et al., 2005)? Or thinking about the process of organizing entrepreneurship, how might contending coalitions (Davis et al., 2005) with competing logics (Lounsbury and Crumley, 2007) shape the actual pathways along which specific clusters evolve? Finally, the experience at the base of the pyramid should continue to intrigue and challenge researchers. One question is whether entrepreneurship at the base of the pyramid represents just another spillover/catch-up process, as MNEs reach for new markets. If so, the question becomes how the resource constraints at the base of the pyramid might change the trajectory of these processes. A more intriguing question is whether the severe constraints at the base of the pyramid may lead occasionally to truly revolutionary innovations in business models, governance arrangements or social relations. All of these questions set up an ambitious research agenda for scholars of international entrepreneurship. This agenda will play out against the backdrop of a fascinating natural experiment concerning the configuration and character of entrepreneurial processes. Institutional regimes (like managerial capitalism vs. classical capitalism) compete and rarely co-exist (Ricketts, 2001), unless separated by substantial barriers. Globalization, as a process that removes or greatly erodes barriers, facilitates competition between institutional systems. All the current trends indicate that emerging economies will become dominant within the world economy over the coming decades (Mudambi, 2010). Will these processes in emerging market economies eventually converge to those in the advanced market economies? Or will they converge to a new orthodoxy influenced by both emerging and advanced economies? Alternatively will entrepreneurial processes develop along a fundamentally different trajectory, changing the organization of entrepreneurship as we know it? Acknowledgment We would like to thank Sara McGaughey for many comments that significantly improved the paper.
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