Individualism, collectivism, and entrepreneurship: A framework for international comparative research

ELSEVIER

INDIVIDUALISM, COLLECTIVISM, AND ENTREPRENEURSHIP: A FRAMEWORK

FOR

INTERNATIONAL COMPARATIVE

RESEARCH JAMES H. TIESSEN

Schulich School of Business, York University, Ontario. Canada

This article presents a theoretical framework and seven related propositions linking national culture-specifically individualist and collectivist orientations-to entrepreneurship. The framework identifies how hoth orientations affect the functions of entrepreneurship. This perspective casts new light on cross-cultural research that, while generally confirming individualism-entrepreneurship ties, has had less success accounting for the entrepreneurial vitality of largely “collectivist” nations-especially Japan. There are two main streams of research on the effects of individualism and collectivism on entrepreneurship. The micro-levelstreamfinds that those who generate variety-founders and corporate entrepreneurs-tend to be individualistic. This work does not identify proclivities for the other entrepreneurial function, leveraging resources. The macro-stream associates both individualism and collectivism with national levels of economic growth and innovation. The framework comprises two dimensions depicting (I) leveh of individualism and collectivism, and (2) the entrepreneurial functions. I conceive of individualism and collectivism as two characteristic orientations distributed in varying proportions within and between cultures and individuals. These characteristics are not polar ends of a continuum, as commonly described. The second dimension recognizes that entrepreneurship requires two activities: generating variety through innovation or new ventures, and leveraging resources internally or by establishing external ties. This paper’s main contribution comes from the recognition that two entrepreneurial functions are

EXECUTIVE SUMMARY

Address correspondence to James H. Tiessen, Policy Area, Schulich School of Business, York University. 4700 Street, North York, Ontario, M3J lP3, Canada. I would like to thank Rein Peterson for his assistance and encouragement in the preparation of this paper. The valuable comments of James Darroch. the editor and two anonymous reviewers are also greatly appreciated. Keele

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very different processes. Variety generation requires mostly individual creativity and initiative; resource leverage depends on eficient relationships that thrive under collectivism, but can be induced contractually between individualists. These differences reveal that individualism and collectivism neither categorically encourage nor discourage entrepreneurship; rather they influence how its functions are accomplished. The propositions outlined in this paper can sharpen future research on individualism, collectivism, and entrepreneurship. In short, the paper claims individualists produce breakthroughs that collectivists implement and improve. Individualists show proclivities for new venture,formation and making major innovations. They tend to leverage their resources through contract-based relations. For example, resources are stretched internally using contingent, performance-based incentives, and outside funds can be acquired through venture-capital agreements. In contrast, collectivists generate variety through groupbased, incremental improvements and changes. Collectivists leverage their own resources by harnessing “clanlike” affiliations, and securing the use of the resources of other firms by building close relational ties, like keiretsu. Theory acknowledging that individualism and collectivism are not negatively related allows us to recognize that both orientations can contribute to entrepreneurship. The framework has key implications for entrepreneur/managers and policymakers. Recognizing that individualism and collectivism both contribute to entrepreneurship can guide decision-makers to examine the inventory of these orientations in their firms or regions, and implement policies to address shortfalls. For example, Americans can concentrate more on building close network ties while Japanese can focus on encouraging individual innovations. 0 I997 Elsevier Science Inc.

INTRODUCTION It is necessary to reassessa cornerstone of entrepreneurship theory and research-the belief that individualist cultures are more entrepreneurial than collective ones-in light of contradictory empirical evidence, especially the economic success of several collectivist Asian (Franke, Hofstede, and Bond 1991) and Scandinavian countries (Peterson 1988). I contend that entrepreneurship is the outcome of both individualist and collectivist orientations. Individualism is associated primarily with variety generation, one of the two entrepreneurial functions. Collectivism contributes mostly to the other, resource leverage. These cultural orientations are important as they affect how the functions are accomplished. Individualism drives the founding of new ventures and innovation, and gives rise to contract-based leverage. Collectivism, in contrast, fosters corporate entrepreneurship and resource leverage, or “stretch” (Hamel and Pralahad 1993), by leading to efJicent internal and external relations. In this paper, I begin by defining its key terms: entrepreneurship, individualism, and collectivism. Notably, individualism, and collectivism are described as two variables, not as end points on a single continuum. Next, I show that though research suggests that individualism is associated with entrepreneurial behavior at the firm level, this correlation does not hold for national indicators of entrepreneurship. In response, I offer a two-dimensional framework and related research propositions that describe how both orientations affect the entrepreneurial functions. Finally, I discuss the implications of this approach for researchers, managers, and policymakers.

DEFINITIONS Clear understanding of the links between entrepreneurship, individualism, and collectivism demands these terms be precisely defined. This is not an insignificant exercise in itself. A consensus definition of entrepreneurship is just emerging. It is, however, agreed that entrepreneurship is associated with three desirable economic outcomes: growth, innovation, and

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flexibility (Stevenson and Jarillo 1990). Though there is general agreement on the meanings of “individualism” and “collectivism,” there is still debate on how these characteristics are related.

Entrepreneurship:

Generating

Variety

and Leveraging

Resources

The term “entrepreneurship” refers to two different functions that are related by the entrepreneurial act. Theorists consistently identify the act’s two critical ingredients: an economic opportunity and resources.’ For example, Kilby (1971: 4), Stevenson and Gumpert (1985: 89), and Block and MacMillan (1993: 5-6) all place the perception of an opportunity and getting use of the resources needed to exploit it, at the core of their descriptions of entrepreneurship.?

Generating

Variety

Economic opportunities arise from technical and/or organizational innovations. often through the making of new combinations of resources (Schumpeter 1968; Kilby 1971; Amit, Glosten, and Muller 1993). These innovations allow firms to earn economic rents in the marketplace (Amit et al. 1993). Opportunities are typically exploited by entrepreneurs in new businesses or corporate ventures (Burgelman 1983; Kanter 1983; Pinchot 1985; Gartner 1989, 1990; Bygrave and Hofer 1991). The pursuit of opportunities generates variety by increasing the population of innovations and related startups at firm, industry, and national levels of analysis. Small business is a key source of entrepreneurship due to the innovation and flexibility demanded by the competitive “market turbulence” in that sector (Acs and Audretsch 1993: l-2).

Leveraging

Resources

An individual’s or a firm’s ability to leverage its own resources lets it “pursue opportunities without regard to the resources they already control” (Stevenson and Jarillo 1990: 23). Hame1 and Pralahad (1993: 78) call this process “creating stretch, a misfit between resources and ambition.” Entrepreneurial firms can stretch their resources by using what they have more efficiently (Hamel and Pralahad 1993; Stewart 1989) or gaining the use of outside resources (Stevenson and Gumpert 1985; Jarillo 1989). External links let firms borrow or co-opt the resources. such as capital, know-how, and markets, of other organizations (Harrigan 1986; Jarillo 1988,1989; Powell 1990; Hamel and Pralahad 1993). New business entrepreneurs especially depend on networks for resources. These networks are not purely instrumental; they are also based on social relationships (Aldrich and Zimmer 1986; Larson and Star 1993). Inter-firm networks allow individuals and ’ The Schumpeter (1986: 116) description of entrepreneurship not only stresses innovation; it also recognizes the importance of leverage. He writes: “Capital is nothing but the lever by which the entrepreneur subjects to his control the concrete goods which he needs, nothing but a means of diverting the factors of production to new uses, or of dictating a new direction to production. Z The Kilby (1971: 4) list also includes implementation: “taking responsibility for the internal management and for the external advancement of the firm in all its aspects.” Block and MacMillan (1993: 4-6) also describe post-startup stages: for an independent venture, “harvesting” or selling all or part of the business, and, in the case of a corporate venture, institutionalizing the venture as part of the parent.

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TABLE 1 Key Characteristics of Individualism and Collectivism Individualism

Collectivism

1. Goals

Self-Oriented Short-term

Group-oriented Long-term

2. Values

Achievement Self-direction Social power Stimulation

Pro-social Conformity Security Tradition

3. Relationships with “in-groups”’ with “out-groups”

Debate, confrontation acceptable Conflict accepted, but not desired many, loose ties

Harmony

Success

due to ability

Failure

from

Success from group effort Failure due to lack of effort

4. Attributions

external

’ An “in-group” is a collection of people who “share the same fate” The term “out-group” refers to people not in the “in-group.” Adapted from Triandis (1993: 166167) and Schwartz (1990: 144).

Conflict Few

factors

(Triandis

close

required expected links

1993). In this paper it refers to the firm.

firms to employ the resources needed for entrepreneurial growth, while retaining organizational flexibility (Jarillo 1989).

Comparing the Two An orientation towards coming up with new ideas is not necessarily compatible with the trust-building associated with close intra- or inter-firm relations. Variety generation is based on creating new concepts, while resource leverage demands efficient implementation. Identifying new concepts requires innovative thought and action; stretching resources involves fostering relationships through open communication and coordination, or creating appropriate formal incentive structures. It follows that proclivities for these behaviors depend on different types of cultural orientations.

Individualism and Collectivism: Two Variables, Not a Continuum Individualism and collectivism are two critical variables used to compare cultures. Individualism describes tendencies to orient values and actions towards independence, competition, and oneself or one’s immediate family. Collectivists perceive themselves as interdependent members of an “in-group,” a collection of people perceived assharing the same fate (Triandis 1993) so they tend to act cooperatively in their group’s interest (Hofstede 1980,1991; Kagitcibasi and Berry 1989; Triandis 1993). This “in-group” may be their extended family, race, religion, or nationality, though this paper focuses on the firm. Individualism does not preclude relationships with others; rather it affects how these interactions are conducted. The collectivist orientation, by definition, motivates people to serve their group’s interest; individualists will do so only if it is seen to benefit herself or himself. Table 1 shows how the two orientations tend to differ in terms of individual goals, values, external and internal relations, and attributions. Theory and research generally consider individualism and collectivism as two contrasting points on a continuum (Triandis 1993; Schwartz 1990). This view is based on the

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“presumed conflict between personal interests and in-groups interests” (Schwartz 1990: 140). The Hofstede (1980,199l) research is a prominent example: His factor analysis found this dimension-along with those measuring power distance, uncertainty avoidance, and masculinity-revealed cultural differences between IBM employees of more than 40 nations.’ The conceptualization of individualism and collectivism as polar opposites has empirical support and is useful for “broad-brush analyses” (Schwartz 1990: 151-152). However, it obscures how each orientation influences the two entrepreneurial functions: variety generation and resource leverage. The main reason is captured by Schwartz (1990: 151). who, in his general critique of the conventional view of the construct, states this “promotes the mistaken assumption that individualist and collectivist values each form coherent syndromes that are opposed to one another.4 Further, researchers who use the dichotomy tend to overlook values that serve both individual and in-group interests. Finally, this approach does not recognize that individualistic and collective orientations are distributed within populations and individuals. (In the following section, I illustrate how these general critiques also apply to entrepreneurship research that uses this construct.)

Individualism

and Collectivism

are Not Necessarily

Opposed

The interest of individuals and larger groups-firms and nations-can be served by the outputs of entrepreneurship: growth, flexibility, and innovation. Individuals benefit when their “in-group-the firm-is profitable. Japanese firms are driven to innovate and seek new business in order to serve a key collective norm: avoiding layoffs. At the national level, cultures that value education will tend to produce an effective, innovative, and therefore wealthy work force. For example, it is suggested that Confucian collective values motivate entrepreneurs in the Asian Tigers to found and develop business to provide for their extended families. Similarly, U.S. individualism does not preclude that country’s firms from pursuing teamwork or building alliances.

Individualism Populations

and Collectivism and Individuals

are Distributed

Throughout

It is clear that individuals and cultures demonstrate different levels of collectivist and individualist behaviors. First, individuals may act collectively or individually, depending on the situation (Triandis 1993). Entrepreneurs and their companies, for example, tend to act both cooperatively and competitively in alliances or networks (Lei 1993: 4041). Second, though proportions vary, populations have both individualist and collectivist members. For example, the Morris, Avila, and Allen (1993) American and the Morris, Davis, and Allen (1994) international surveys found substantial variations in the levels of individualism and collectivism among firms in the same countries. Research portraying “average” levels of these orientations can obscure the presence of both behavior types.’ ’ People in Anglo-American countries (the United States, the United Kingdom, Australia, and Canada) were found to be more individualistic: Latin Americans-notably Guatemalans, Colombians, and Equadorians-and some Asians-Koreans, Thais and Malaysians-were more collective. Japanese people were found to be moderately individualistic; their score fell in the middle of this continuum (Hofstede 1991: 53). ’ The Schwartz (1990) review of four studies showed that subgroups of individualist and collective values held together about two thirds of the time. ’ The Greenfield and Strickton (1979) discussion of a proposed Darwinian population view of entrepreneurship notes, these “averages” cannot account for individual variations introduced by the “entrepreneur.”

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Research

on Individualism,

Collectivism,

and Entrepreneurship

International research on the relations between individualism and collectivism and entrepreneurship is framed by two linked propositions: Individualism gives rise to entrepreneurial behavior and a greater supply of individualism leads to greater levels of entrepreneurial outcomes (Peterson 1980: 69-70). The influence of collectivism, individualism’s “opposite” on the continuum, is relegated to two corollaries: Collectivism inhibits entrepreneurial behavior, so entrepreneurship is negatively associated with levels of collectivism. International research conducted at individual and firm levels lends support to the first claim: entrepreneurs tend to be individualistic. However, studies at the national level suggest that both individualism and collectivism are positively associated with entrepreneurial outcomes. These conclusions differ because mica-level research focuses on variety generation, while macro-studies also capture the outcomes of resource leverage. Following, I review research on the influences of individualism and collectivism on (1) individuals (founders) and firms (corporate entrepreneurship), and (2) national growth, innovation, and small business development.

Individuals

and Firms: Founders

and Corporate

Entrepreneurship

International studies of entrepreneurship at the firm level have focused on business founder characteristics and the determinants of corporate entrepreneurship. The founder research shows a strong link between individualism and entrepreneurship. The links between collectivism and individualism and the incidence of corporate entrepreneurial behavior are not as straighforward. Recent research, though, strongly suggests that these orientations affect how corporate venturing is pursued.

Individualist

Entrepreneurs

Founder-entrepreneurs tend to have individualistic orientations and motives. Most new business entrepreneurs in the Huisman (1985: 13) 12-country study were driven by opportunities to “develop [onelself” and “to lead rather than follow.” Key motives identified by the Scheinberg and MacMillan (1986) 11-country survey were the “need for approval,” wealth, personal development, independence, and escape from an unsatisfactory job. This study did note that what they call “communitarianism,” akin to collectivism, was a significant motive in three countries: Puerto Rico, Portugal, and Norway. McGrath, MacMillan, and Scheinberg (1992), who used the Hofstede (1980) dimensions to compare entrepreneurs with non-entrepreneurs in 8 countries, similarly found entrepreneurs were more individualistic. Research focusing on Japanese entrepreneurs offers conclusions similar to those reached by multicountry studies. Ray and Turpin (1990) discovered that desire for self-actualization and creativity, which are individualist motives, tended to drive founders of Japanese high-technology startups. Ohe, Honjo, and MacMillan (1990) and Ohe, Honjo, Oliva, and MacMillan (1991) linked business-founding to perceived differences from other individuals or companies.

Corporate

Entrepreneurship

Research on corporate venturing similarly links individualism to the incidence of entrepreneurship, though these findings are somewhat ambiguous. A series of studies by Shane and

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his colleagues (discussed below) on preferred modes of corporate entrepreneurship offers more consistent conclusions. The Jolly and Kayama (1990: 263) study of Japanese firms concludes that country’s group-oriented biases, those favoring consultation and seniority-based hierarchies and opposing individual treatment, hinder intrapreneuring; however, proclivity for “self-organizing project terms” and “group accountability” may facilitate it.h Morris et al. (1994) investigated links between corporate level individualism-collectivism and entrepreneurship in three countries. They found a “balanced” level of collectivism and individualism, a midpoint on a continuum, led to greater entrepreneurship in their American and South African samples, but in Portugal these relations were not statistically significant. Morris and his colleagues (1994: 83) conclude the latter result was due either to the small sample size or because “Portugal was one of the most collectivist societies in terms of Hofstede’s scale, and such a strong societal orientation (at least on the collectivist end of the continuum) complicates the relationship between culture and entrepreneurship.” Shane (1994,1995), Shane and Venkataraman (1993). and Shane, Venkataraman, and MacMillan (1995) researched links between cultural characteristics and innovation championing strategies. Their analyses indicate that collectivist orientations were related to preferences for firm-wide, social approaches to corporate venturing. These findings are discussed below as I present my research propositions.

National

Growth,

Innovation

and Small Business

Development

The national-level comparative research on individualism-collectivism levels and entrepreneurial activity pre-dates firm-level comparisons. The major projects, especially McClelland (1976) and Hofstede (1980), are informed by Weber’s theory linking Protestantism to capitalism (Kilby 1971; Peterson 1980). This research connects cultural values of individualism, the need for achievement (McClelland 1976) and collectivism with aggregate measures of entrepreneurship: growth, innovation, and the strength of the small business sector. McClelland (I 976) contends that the individual need for achievement is the source of entrepreneurship. In contrast, the need for affiliation, similar to collectivism, inhibits such activity because it distracts people from productive, achievement-oriented activity.’

Hofstede’s

Dimensions

and Entrepreneurship

The Hofstede (1980,199l) studies, mentioned above, derived four cultural dimensions, including individualism-collectivism, and investigated how they correlated with levels of economic growth. Hofstede (1991: 76) discussed two key findings on the links between individualism-collectivism levels and growth. First, he suggests that increases in economic wealth give rise to individualism, not vice versa: Wealth provides individualist choices-one’s own room or car, for example. Hofstede, at the country level, also found what Morris et al. (1993) discovered within firms: too much of either individualism or collectivism tends to slow economic growth. Hofstede and Bond (1988), building on the work of Hofstede (1980) and Chinese crossh This latter point is addressed in my framework discussion below. ’ McClelland (1976) measured national culture’s need for achievement and affiliation by analyzing the content of children’s stories. Economic development was assessed by the national level of electrical output. Countries whose stories positively and strongly portrayed the need for achievement tended to have greater power output: those high in collectivism tended to be less developed.

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cultural researchers, revealed the existence of a fifth cultural dimension-Confucian Dynamism-not picked up by earlier studies. This dimension contrasts a long-term orientation (persistence, status-based relations, thrift, and shame) with a short-term focus (a stress on stability and tradition, protecting face, and reciprocal exchange of favors and gifts) (Hofstede 1991: 165-166). Their 23-country sample found that nations showing greater long-term orientation-dynamic Confucists-demonstrated better growth from 1965-87. Another study by Franke (1991) which looked at economic growth of 20 countries in two periods, 196.5-80 and 1980-87, again showed individualism was negatively correlated with GDP growth, while Confucian Dynamism appeared to contribute positively. This research recognizes that a type of collectivism, specifically that found in Confucius-influenced countries, can lead to economic growth. Shane (1992,1993) looked at how another entrepreneurial output-the rate of innovation-varies with cultural characteristics as measured by Hofstede (1980). Data for 33 countries indicated a significant positive effect of individualism on levels of patents per capita in four different one-year periods from 1967-80. This correlation remained significant, even when the analysis incorporated the positive and significant effects of wealth. When Shane (1993) used per-capita rates of world and U.S. trademarks granted to measure innovation, the effect of individualism was significant only in one of the years studied, 197.5, but not the other, 1980. Low levels of “uncertainty avoidance” (Hofstede 1980) were positively associated with both innovation measures.

Small Business and Culture Another set of studies relates cultural variables to national levels of small business development as measured by other indicators: startups, job creation, and importance in the economy. While this work explains differences between the United States and Europe, the vitality of Asian, especially Japanese, small business challenges theorists. The data does not unequivocally support the U.S. self-image as the individualist home of the entrepreneur. Studies cited by Acs (1992) show there is limited correlation between national levels of individualism and small business strength. In the United States for example, 73% of employment in the manufacturing sector is accounted for by small or medium-size of less than 500 employees (Acs 1992). This places the United States closer to West Germany (41%) and the United Kingdom (36%) than to more collectivist nations like Italy (80%) and Japan (73%). The Birch (1987) study claims America’s high level of job creation is largely due to its dynamic small business sector. This is the outcome of “pragmatic” American society in which “[a] generalized dislike of authority coupled with pragmatism and informed materialism that has provided the fertile seedbed for entrepreneurial enterprise through American history” (Birch 1987: .92). In contrast, small business has a less-important role in Europe because of over-regulation and a “feudal outlook” that ranks entrepreneurs lower than employees in government or large organizations. Birch recognizes Japan’s small business activity rivals that in the United States. These countries, however, have tended to differ in terms of the type of entrepreneurship: Japanese entrepreneurship has largely been based on efficiently exploiting ideas from the West. Commonly cited examples are Japan’s successesin world VCR, fax machine, and CD player markets, though these products were American or European inventions (Thurow 1986: 68). My framework offers a cultural explanation for this difference.

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TABLE 2 A Framework: Individualism, Collectivism, and the Entrepreneurial Functions Entrepreneurial

Leveraging

Cultural orientations Individualism

Collectivism

functions

Generating

variety

Founders & founding Independent startups early Ford & Apple

Corporate entrepreneurship & team innovation Innovation in large organizations 3M, Canon;

later

Ford

External

Internal

& innovations

& Apple

Contingent teamwork Stretch through joint Magna, Hewlett-Packard The

“clan”

Low internal costs Sony, Toyota

resources

effort

Pragmatic alliances Contractual links Corning Glass Works. AT&T Relational

transaction

ties

Tight, long-run ties, keiretsu Toyota, Matsushita

A FRAMEWORK I propose a two-dimensional framework, shown in Table 2, that sharpens understanding of how individualism and collectivism affect entrepreneurship. Individualism and collectivism, as two variables, rather than a continuum, comprise the cultural characteristic dimension. The other dimension describes the two entrepreneurship functions: variety generation and resource leverage. The resource leverage columns recognize that organizations extend resources through fostering both internal efficiencies and external links. The table summarizes key themes, functions, and specific examples associated with the interaction between these cultural traits and entrepreneurship. The individualism-variety generation section, which represents the prevailing emphasis of entrepreneurship researchers, focuses on independent founders and innovators. The collectivist-variety generation category stresses group processes of corporate entrepreneurship and team innovation. The individualist- and collectivist-resouce leverage columns highlight different ways resources are stretched: through contingent teamwork, pragmatic alliances, clan-type organizations, and relational ties. Following, I discuss the table and present research propositions describing links between the incidence of individualism and collectivism and entrepreneurship. These propositions, as they describe differences between cultures, are made primarily at a national level of analysis. However, recognizing that individualism and collectivism are distributed within cultures means they could be adapted to frame regional, industry. firm, or individuallevel comparisons.

Variety Generation: Founders Corporate Entrepreneurship

and Founding

and

Entrepreneurship theory and research has traditionally focused on variety generation through small-enterprise creation and innovation. The emphasis on small firms stresses the importance of individual founders whose innovations led them to start companies. Innovation is conceived as the “big idea” (Reich 1987), “technology enabled” (Howard and Guile 1992), equilibrium disturbing (Cheah 1990) Schumpetarian type: creating “new combinations” that cause “spontaneous and discontinuous change[s] in the channel of the circular [economic] flow” (Schumpeter 1968: 65). A focus on founders and founding leads researchers to examine the personal traits of entrepreneurs and the characteristic environments that give rise to new business. The as-

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sumption is that new businesses and ideas are born when individualist values-the need for achievement (McClelland 1976) independence, and sense of difference-combine with situational factors, such as opportunity and displacement (Sharper0 and Sokoll982). This view frames the considerable work on founder traits (e.g., see Brockhaus 1982: Hisrich 1990) and founding processes (e.g., Gartner 1989). The stories of founders and their innovations are exemplary examples: Ford and his assembly line; Jobs and Woziak’s personal computers. Stephen Dell, whose innovative direct marketing of computers led to the creation of his successful manufacturing firm, is a recent example of this type of entrepreneurship. This discussion gives rise to the first research proposition: Individualist orientation is positively associated with the incidence of organization founding and breakthrough innovation.

PI:

Corporate

Entrepreneurship

Large organizations can generate variety through corporate entrepreneurship. This is what Burgelman (1983: 1350) calls “autonomous.” as opposed to “induced,” strategic behavior. This innovation arises primarily from a “continuous process of incremental change and adaption,” not the discovery of “big ideas” (Reich 1987: 80-81). It is market-driven and based on improved design and production (Howard and Guile 1992). This type of entrepreneurship is more likely the “Austrian” (Cheah 1990) type: equilibrium restoring and based on “alertness” to opportunities overlooked by others (Kirzner 1985: 7). The functional equivalent of the start-up is the corporate venture, a smaller unit allowed to act relatively freely in an incubator-like environment. Effective corporate entrepreneurship, though often requiring individualist initiative, comes from collective activity.8 Cultural orientations affect how these opportunities are pursued.9 Corporate entrepreneurship research stresses the importance of effective group work, which is facilitated by collectivist orientation. Reich (1987: 81) labels this process “collective entrepreneurship”: innovation from the pooled capacities of individuals. The Hisrich (1990: 217) description of the conditions supporting intrapreneurship emphasizes the importance of “close working relationships...that allow vision and objectives to be accomplished in an atmosphere of trust and counsel.” While individualists may come up with the idea, within the company or not, the collectivist team implements it. The Shane and Venkataraman (1993) work on innovation championing suggests that the degree of individualism in a national culture is related to the degree of preferred autonomy of venture groups in a firm. Their data showed greater preferences for “renegade” over “rational” championing strategies in individualistic cultures.rn This preference reflects the RA Wall Street Journal article on technological innovation lends support, as the writer notes that “as inventions grow in complexity, individual contributions become less important and often impossible to discern altogether. Complex tasks, whether building a new computer operating system or a microchip, require large teams and huge resources. Once the invention is finished, an organization must carry it forward and even then rely on scores of other concerns as it seeks to impose a system around a core innovation” (Zachary 1993: R26). 9 Cultural differences were found in a study by Kim Clark and Takahiro Fujimoto comparing Japanese with U.S. car-maker product development teams. Their analysis showed the former were much more efficient. The American teams required about 1,500 members: the Japanese used only 250 to “produce a more sophisticated design of a comparable product-and completed the task in less time” (cited in the Economist 1992: 69). I0 Under “renegade” championing strategies, internal corporate ventures are promoted outside “organizational norms, rules and behaviours” (Shane and Venkataraman 1993: 85). In contrast, “rational” championing occurs with the formal support of the corporate mainstream.

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COLLECTIVISM,

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ENTREPRENEURSHIP

notion that, where individualism predominates, the development of new ideas requires disassociation from a formal corporate structure that would smother innovation. Researchers have vividly described how corporate entrepreneurship generates variety. 3M is well-known for its commitment to innovation: 30% of its yearly sales are of products on the market for four years or less. Management promotes this by allowing technical people freedom to spend 15% of their time working on their own project ideas and fostering teamwork within the organization (Nicholson 1994). Teamwork “plays a central role” in knowledge creation by Japan’s leading innovators such as Honda, Canon, Matsushita, NEC, Sharp, and Kao (Nonaka 1991). The Kanter (1989: 33-54) descriptions of how “post-entrepreneurial” Kodak and Apple “learned to dance” stresses the importance of teamwork as they exploited synergies in their ventures. This discussion leads to the next proposition: P2: Collectivist orientation is positively associated with the incidence and performance of corporate entrepreneurship.

Leveraging Resources Internally and Externally: Contingent “Clan,” Pragmatic Alliances, and Relational Ties

Teamwork,

the

Resource leverage is the second entrepreneurial function. It is accomplished by effectively deploying available internal resources and/or using those of others to pursue the innovative opportunities described above. Collectivist and individualist orientations affect how these interactions, or transactions (Williamson 1975), are governed. Simply put, collectivism uses socialized group norms to ensure compliance; individualism requires these ties be more contract-based. This is because collectivists tend to accept, or even embrace interdependence within their group; individualists, valuing independence, demand individual incentives if it is to be sacrificed.” The implications for entrepreneurial leverage are given below.

Contingent

Teamwork

Group-oriented behavior is elicited from individualists by linking personal returns to group performance, what I call contingent teamwork. In North America, individualism, along with diversity and mobility, requires firms to employ market-type schemes to get employees to act for the company’s-the group’s-interests (Ouchi 1982: 56). As Shane, Venkataraman, and MacMillan (1994: 171) propose, innovation championing in individualist cultures will tend to depend on providing “personal rewards to the individuals for joining the innovation team.” Stewart (1989: 21) for example, describes how autoparts-maker Magna International leverages resources by “running hot”: promoting joint effort. Under this system, Magna, like other North American firms-Nucor and Lincoln Electric, for example-uses long-run market-based incentives such as stock ownership and profit sharing to encourage individuals to act for the collective-the firm?-interest. The Kanter (1989) study of large company entrepreneurship, cited above, also emphasizes how individual performance and contribution-based pay, balanced with group incentives, fostered innovation in companies such as Kodak and Apple. The related research proposition follows: ‘I Pascale interdependent

and Athos (1982: 194-198) describe and U.S. independent orientations.

the origins

and management

implications

of Japanese

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J.H. TIESSEN

P3: Individualist orientation is positively associated with preferences for contingent

teamwork approaches to leveraging resources internally.

The “Clan” Collectivists, in contrast to individualists, are motivated by the implicit norms of the “clan” (Ouchi 1980,1982; Wilkins and Ouchi 1983). Entrepreneurial leverage in clan-type organizations comes from the intimate ties and shared values and goals of its members (Ouchi 1980; Wilkins and Ouchi 1983). In these firms, trust and commitment, not contracts, move individuals to serve the group interest. Resources are stretched through efficient communications and the lack of the need to monitor contingent agreements between workers and the company (Ouchi 1980, 1982). Collectivist orientation provides a likely disposition to respond to this kind of socialized control (Ouchi 1982: 56). Many Japanese companies, such as Matsushita, Sony, and Toyota, provide the well-known examples of clan entrepreneurship (e.g., see Pascale and Athos 1982). As Shane et al. (1994: 17) contend, new technology champions in collective cultures will link their innovations to the “collective goals of the company.” The Shane (1994) and the Shane et al. (1995) work on corporate venturing adds further empirical backing. Shane (1994: 33) found that people in collective cultures tended to prefer “champions who attract support for the innovation by appealing to group norms and personal ties.“12 The Shane et al. (1995) analysis shows collectivists tended to favor innovation champions who sought broad support across firm functions. The next proposition therefore is as follows: P4: Collectivist orientation is positively associated with preferences for clan-moti-

vated approaches to leveraging resources internally.

Pragmatic

Alliances

Individualist approaches tend to guide firms into multiple, instrumental pragmatic alliances. These alliances involve formal, contract-based agreements that allow both emerging and established firms to share resources. Individualist orientations are likely to drive participants to structure these agreements formally and explicitly. While many of these agreements endure, this is not commonly expected. American managers, while recognizing the need for trusting cooperation, strongly recommend that alliance agreements include formal “divorce clauses” that anticipate the possibility of dissolution (Harrigan 1986; Raben 1992).‘j The Kanter (1994) later study, without making a cultural explanation, notes approaches to alliances differ by region. North American companies approach these relations with a finance-based, “narrow, opportunistic view.” Kanter (1994: 97) claims that Asian firms, because they are more comfortable with these kind of ties, are better at exploiting them, and “European companies fall somewhere in the middle.” Corning Glass Works is an example of a firm that has based its international strategy largely on the exploitation of alliances. In 1987, its partnerships-more than 20--accounted for nearly half of its revenues (Kanter 1989: 172). These are long-run links, dependent on significant investments of resources by parents. These ties are instrumental, but also dependent on trust. Therefore, both individual‘* Shane (1994) and Shane et al. (1995) used the Hofstede and Bond (1988) and the Hofstede (1980) individualism-collectivism scores, respectively. The corollary to their findings is that individualist cultures were less favorably disposed to these approaches. I3 The individualist proclivity for formalized relations has been cited as a problem in alliances between Western and Japanese companies (Hara and Kanai 1994: 491492).

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istic and collectivist orientations are important. Other notable companies employing broad multiple-alliance strategies include AT&T, General Motors, Olivetti, and Samsung (Lei 1993). Growing companies in America, to a greater degree than elsewhere, can also access the resources of venture capitalists. l4Venture capital agreements offer resources in exchange for ownership shares. The return to investors is contingent upon the venture’s performance, as reflected in profits and capital gains. This discussion leads to the next proposition: P5: Individualist orientation is positively associated with preferences for pragmatic

alliance approaches to gaining the use of external resources.

Relational Ties Collectivist responses to the need for external resources are illustrated by the long-term commitment of Japanese keiretsu. Relational links differ from pragmatic alliances because, unlike the latter, they are characterized by long-run mutual commitment based on “relational contracting” (Dore 1983) and often cemented by cross-shareholdings interlocking directorships (Anchordoguy 1990).15Traditionally, Japanese companies have relied heavily on loans from closely affiliated “main” banks, rather than equity investment, to acquire external funds. These loans often involve low levels (5%) of equity investment aimed at solidifying ties, and embedding the firm in a network (Choy 1990; United States General Accounting Office 1993: 89-96). Relational contracts are described by Dore (1983: 463) as “moralized trading relationships of mutual goodwill” in which both sides act to maintain stability. Gerlach (1992: 4) lists five features distinguishing Japan’s alliances from those in the United States: affiliational ties (between vertical integration and markets), long-term relationships. overlapping personal and equity links, extended networks, and deliberate active efforts to “infuse intercorporate relationships with symbolic importance, even in the absence of formal, legal arrangements or contracts.” Collectivism tends to foster keiretsu in Japan, though the degree of its role is debated. Dore (1983: 468-472) claims Japanese prefer relational rather than formal contracts because of three cultural tendencies: a sense of duty in relationships, a perception that contracts indicate conflict rather than integration, and a general dislike of bargaining relations.lh Gerlach (1992: 22-27) counters that keiretsu are, in fact, loose links based on the actions of self-interested organizations operating in response to historical-especially legal-institutional (DiMaggio and Powell 1983) factors. In the end however, Gerlach (1992) does acknowledge the effect of group-oriented “social expectations.“‘7 I4 The Economist (1993) estimated that the value of specialist venture funds in America was $30 billion, but only $7 billion in Japan. ” Imai (1987-88) and Babaand Imai (1993) note Japanese enterprise groups, including keirersu, perform innovative. as well as leverage entrepreneurial functions. Japanese corporate venturing in these groups is characterized as building new combinations through “network editing”-to build a place for generating a new synergy among the components that are present through compounding them, combining them, and bringing in completely new elements” (Imai 1987-88: 28-29). I6 Dore (1983) describes relational contracts as being based on the understanding that a partner’s shortterm sacrifices will eventually be returned. ” Gerlach (1992: 27), writes: “Self-interest is not abandoned as an explanatory tool, in this sense, but it takes place in the context of the slow building up of business relationships, rather than in immediate, conspicuously instrumental behavior.”

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Another form of relational linkage is the huay, described by Choy (1990), which is found in Chinese and other Asian cultures. A huay is an arrangement whereby a group of individuals contribute to a common venture fund. Shares of the fund are, in turn, distributed back to the huay members, some of whom pay a premium for earlier access to the capital pool. The closeness of huay member ties enforces both cooperation and compliance. These types of linkages, though, are more common between partners of the same culture. As stated above, a characteristic of collectivism is a strong identification with an “ingroup,” and a consequential aversion to out-groups. In international alliances, real and perceived cultural differences lead to more contract-based, pragmatic alliance ties. Together, this discussion leads to the final two propositions: P6: Collectivist orientation is positively associated with relational-tie approaches to

gaining the use of external resources from firms of the same culture. P7: Collectivist orientation

is positively associated with pragmatic-alliance approaches to gaining the use of external resources from firms of different cultures, regardless of orientation.

IMPLICATIONS

AND FUTURE RESEARCH

The analysis and proposed framework can guide researchers, managers, and policymakers in their investigations and applications of policies related to links between culture and entrepreneurship. Considering individualism and collectivism as two distinct variables, rather than as one continuous variable, not only reveals how both can contribute to economic growth, innovation, and flexibility; it better reflects the incidence of these behaviors: They depend on the person and situation. Explicit recognition of entrepreneurship’s two key functions, variety generation and resource leverage, further clarifies the picture. The perspective offered here allows researchers to comfortably live with an apparent paradox: It recognizes that collectivism facilitates entrepreneurship, but does not deny the critical role of individualism. The Morris et al. (1993) work suggests my framework is applicable to inter-firm as well as international comparisons. Their study of corporate entrepreneurship in U.S. companies found that “balanced” amounts of individualism and collectivism, at the firm level, were associated with the greater entrepreneurial activity than either more collectivist or individualist orientations.

Directions for Comparative Research International entrepreneurship researchers must continue their move beyond ethnocentric approaches, which assume entrepreneurship is similar in different cultures, and undertake more comparative studies that look for both similarity and differencesIx The approach outlined here proposes entrepreneurship has universal functions-generating variety and leveraging resources-achieved through culturally specific means. The work on championing by Shane (1994) by Shane and Venkataraman (1993), and by Shane et al. (1994, 1995) has established a strong foundation for this kind of research in the corporate-venturing area. These studies offer a more-complete view of the entrepreneurship process because they focus on innovation championing, which involves leveraging ” Adler (1983) provides an overview ent cross-cultural research approaches.

defining

and outlining

ethodological

issues associated

with

differ-

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resources, as well innovation. Further, this stream is significant because it highlights how cultural tendencies affect the ways these tasks are accomplished. Shane and his collaborators’ line of inquiry could be extended to shed light on how culture influences both variety generation and resource leverage by founder-entrepreneurs. For example, research on the roles of small-business networks in different cultures could help explain how largely collectivist nations generate economic innovation and growth. The Choy (1990) discussion of the h~q. mentioned above, is an example of this type of approach. Research can also investigate the implications of different concepts of “collectivism” and “individualism.” For example, the Fukuyama (1995) thesis, that high levels of “social capital” (the proclivity to trust non-kin) have led to the greater size and prominence of German, American, and Japanese multinationals, warrants study from an entrepreneurship perspective. The idea of “social capital” is, of course, related to collectivism. The Fukuyama (1995) claim, though, focuses attention on the definition of the key “in-group”. Is it the family or the firm?

Other Cultural Characteristics and Entrepreneurship This paper’s framework can be adapted to look at how other cultural characteristics-such as the Hofstede (1991) uncertainty avoidance, masculinity, and power distance-affect the incidence and practice of entrepreneurship. Again, the studies by Shane and colleagues Shane and Venkataraman 1993; Shane et al. 1994,1995) can inform further investigations. Besides considering collectivism, this research program looked at how national differences in uncertainty avoidance and power distance were related to corporate venturing. The insights gained can frame related international studies of small-business entrepreneurship. Doing so would help integrate macro and micro levels of research on relations between cultural characteristics and entrepreneurship.

Practical Applications Policy makers and managers wanting to foster entrepreneurship-and who does not?-also benefit from a clearer understanding of the different contributions of individualism and collectivism. At the macro-level, policymakers can understand how their programs can appropriately harness cultural tendencies and address “deficiencies.” Pragmatic networking is facilitated in cultures with more individualism; in largely collectivist societies, it may be necessary to promote these kind of pragmatic ties with “out-groups”-a requirement of modern competition. At the micro-level, managers can assessthe relative contributions of both orientations to entrepreneurship and therefore create implement appropriate policies evoking the desired behaviors (Shane 1993; Shane et al. 1995). This will be crucial as multinationals aim to encourage variety generation and resource leverage throughout their international operations as they drive to become “transnationals” (Bartlett and Ghoshal 1989).

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