Excerpt
TABLE OF CONTENTS
List of Abbreviations
Abstract
List of Tables
CHAPTER ONE
PROBLEM SETTING
1.1 Background to the study
1.2 Youth Entrepreneurship
1.3 Government effort in facilitating youth entrepreneurship
1.4 Statement of the Problem
1.5 Research Objectives
1.6 Specific Objectives
1.7 Research Questions
1.8 Hypotheses
1.9 Significance of the Study
1.11: Scope of the Study
1.12 Limitation of the Study
CHAPTER TWO LITERATURE REVIEW
2.1 Introduction
2.2 Theoretical perspectives
2.2.1 Various Concepts Discussions
2.2.2 Youth Entrepreneurship and Entrepreneurship
2.2.4 Can entrepreneurs be created?
2.2.5 Entrepreneur
2.2.6 Role of the Entrepreneur and Entrepreneurship in Development
2.2.7 Creating an environment to unearth talents
2.2.8 Youth barriers to entrepreneurship
2.2.8.1 Access to finance
2.2.8.3 Poor education and Training
2.2.8.4 Business operating environment
2.2.8.5 Barriers due to other cross cutting issues
2.2.8.6 Excessive or unnecessary regulation
2.2.8.7 Poor infrastructure development
2.2.8.8 Poor access to government support
2.2. 9 Entrepreneurial intentions
2.2.9.1 Theory of Entrepreneurial Event (TEE)
2.2.9.2 Theory of planned behavior (TPB)
2.2.9.3 Comparing and contrasting the TPB and TEE models
2.3 Empirical review
CHAPTER THREE
RESEARCH METHODOLOGY
3.0 Introduction
3.1 Research Philosophy
3.2 Research Design
3.3 The Pilot Study
3.4 The Research Strategy
3.5 Study Area
3.6 The Study Population
3.7 Sampling Frame
3.8 Sample Size
3.9 Sampling technique
3.10 Type of data collected
3.10.1 Primary data:
3.10.2 Secondary data:
3.11 Respondents
3.12 Research Instrument
3.13 Data collection and analysis procedure
3.13.1 Research assistants
3.14 Outliers and Missing management
3.14.1 Dealing with outliers
3.14.2 Missing Data Management
3.14.3 Normality
3.15 Validity and Reliability
3.15.1 Reliability
3.15.2 Validity
3.16 Descriptive data analysis
3.16.1 Qualitative data
3.16.2 Quantitative data
3.17 Measures
3.17.1 Operationalization of the demographic characteristics
3.17.2 Factor analysis
3.17.3 Regression analysis
3.17.4 Significance level
3.18 Ethical issues
CHAPTER FOUR DATA PRESENTATION, ANALYSIS AND DISCUSSION
4.0 Introduction
4.1 Distribution by location
4.2 Age of the Business
4.3: Age of the entrepreneur
4.4: Distribution by gender of the owner
4.5 Firm size (Number of employees)
4.6 Educational background
4.6.1 Vocational education
4.7 Experience
4.8 Family background
4.9 Firm growth
4.10: Type of business
4.11 Entrepreneurial motivation
4.11.1 Start-up motives
4.11.2 Current motives
4.12 Business barriers encountered by young entrepreneurs
4.12.1 Barriers during the Start-up
4.12.2 Other Barriers: Lack of Modern Production Equipment/Technologies
4.13 Measures of Success
4.14 Self-fulfillment
4.15 Financial Achievement
4.16 Family security and wellbeing
4.17 Recognition
4.18 Testing the hypotheses
4.18.1 Age
4.19 Education
4.20 Experience
4.21 Family Background
4.22 Entrepreneurial attitude
4.23. Entrepreneurial motivation
4.23.1 Start-up motives
CHAPTER FIVE
CONCLUSION AND RECOMMENDATIONS
5.0 Introduction
5.1 Conclusion regarding research hypotheses
5.1.1 Demographic characteristics
5.1.2 Attitude towards entrepreneurship
5.1.3 Entrepreneurial motivations
5.2 Conclusion regarding growth measures used in this study
5.3 Theoretical implications
5.4 Practical implications
5.5 Policy implications
REFERENCES
APPENDICIES
List of Abbreviations
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Abstract
This research study evolved in response to my desire to find out more about the issues of young entrepreneurs. In particular, it discusses what triggers them to form business ideas, how they enter into business, the barriers they face and ways to overcome these barriers. The researcher used descriptive design, a sample of 385 respondents was used to select respondents; the researcher also used simple random sampling techniques to select the respondents with the help of questionnaires which were used to collect the primary data. The data collected was analyzed using content analysis, descriptive statistics, cross tabulation and hypothesis testing .Content analysis was used to analyses the in depth interviews. For the survey questionnaires, descriptive statists and cross-tabulation were used to analyses the responses given by the prospective entrepreneurs. The data from the questionnaires was captured coded and exported to statistical programme for social science (SPSS) which was used for analysis.
Based on study findings and an insight gained from theory, the study proposes some strategies for dealing with the barriers identified in the research. Since it has been found that young people in start-up or growth modes who require start-up financing or financing beyond their current capital are seriously restricted by their inability to obtain loans from financial institutions because they are unable to meet the loan conditions pertaining to security, the study proposes that private sectors dealing with entrepreneurship development and entrepreneurs’ associations establish viable SACCOs.
According to literature review, study objectives and study findings the researcher, recommended that the Business Council of Tanzania should lobby the policy makers to:- Formulate an immigration policy which favors the entry of entrepreneurs who would create jobs. A policy allowing Tanzanian entrepreneurs who emigrated and obtained citizenship in other countries to retain dual citizenship would be very attractive here because they now automatically forfeit their Tanzanian citizenship. It also recommends that the Business Council of Tanzania discuss with the University of Dar es Salaam Centre for Entrepreneurship Development (CED) the establishment of a program in retailing, which the council would be asked to sponsor. That would help to develop a retailing class of entrepreneurs. More so to establish Export Processing Zones (EPZ) development areas that multinational corporations would find attractive to use for light manufacturing and Provide tax incentives to enterprises that employ trainees in jobs in which they can learn essential infrastructure skills like plumbing, electrical work, auto mechanics, machining, welding, and woodwork.
List of Tables
Table 1.1 Types of NGOs
Table 3.1 Operationalization of the demographic characteristics
Table 3.2 Ethics checklist
Table 4.1 Distribution by location
Table 4.2: Firm distribution by age in business
Table 4.3 Age of the entrepreneur
Table 4.4 Distribution by Gender
Table 4.5 Firm size
Table 4.6 Education levels
Table 4.7 Experience
Table 4.8 Family members with business
Table 4.9 Firm growth
Table 4.10 Types of business
Table 4.11.1 Startup motives
Taböe 4.11.2 Current motives.
Table 4.12.1 Barriers at startups..
Table 4.12.2 Other Barriers: Lack of Modern Production Equipment/Technologies.
Table 4.13 Measure of Success
Table 4.14 Hypothesis decision
Table 4.15 ANOVA test age & firms growth in a 3 years period
Table 4.16 ANOVA test age & firm growth in a 5 years period
Table 4.17 Regression on education & firm growth – 5years period
Table 4.18 Regression on education& firm s growth (3years period)
Table 4.19 Regression on experience & firms growth (5years period)
Table 4.20.1 Regression on experience & firms growth (3 years period)
Table 4.20.2 Regression on family background & firm growth (5years period)
Table 4.21 Regression on family background & family growth (3 years period)
Table 4.22 Regression on Attitude towards entrepreneurship & firm growth ( 5 years period)
Table 4.23 Regression on Attitude towards entrepreneurship & firm growth ( 3 years period)
Table 4.24.1 Motives for starting own business & firm growth (5 years)
Table 4.24.2 Motives for starting own business & firm growth (3 years period)
CHAPTER ONE PROBLEM SETTING
1.1Background to the study
The analysis of the reasons for starting a business initially focused on psychological traits of the entrepreneurs but later, the background characteristics like previous employment; family background; gender and education were found to have a profound influence (Volery, 2004). However, Fayolle & DeGeorge (2006) urge that starting a business is influenced by career preference, interest and the intention of the entrepreneur.
Van-Vuuren & Groenewald (2007) distinguished five factors which affect the starting up of a business and these include; the social environment looks at the impact of networks and supports of sociopolitical elites, along with cultural acceptance; the economic environment studies focus on capital availability, aggregate economic indicators, economic recessions and unemployment. The political environment concerns mainly with the support of public or semi-public agencies. Infrastructure development encompasses numerous variables such as the education system, nature of the local labor market, incubator organizations, information accessibility and availability of premises; The market emergence factor integrates both concepts of niche emergence and technological innovation Triggers and barriers influence the intention, and ultimately the decision “To start a business” triggers must prevail over barriers OR, “To give up the idea” barriers must prevail over triggers (Kouriloff, 2000).
Africa has experienced little in the way of growth for many years, especially due to poor economic growth during the 1980s; Africa lags behind all the other major continents. This state of the economy cannot be attributed to lack of resources, for the continent is endowed with abundant natural resources. Therefore the poor economy in Africa and Tanzania in particular, is caused by poor post-colonial government policies. However, some African scholars (Rugumamu & Mutagwaba, 1999) argue that the poor economic growth is due to European colonialism. I agree to some extent but the larger part of economic underdevelopment is due to bad policies and regulations.
The Tanzanian Arusha Declaration of 1967 is one in question. The declaration was set to control the national economy, distribute wealth fairly among individuals, and control both prices and investment planning (Nyerere, 1967). To add salt to the wound, in 1969 the Tanzanian government institutionalized the Leadership Code in which government employees, political and government leaders were not allowed to- Hold shares in private companies, Own rental property, Employ wage labor and receive more than one salary. The net effect of the Arusha Declaration and the Leadership Code was to inhibit the development of entrepreneurship. The policies, declarations and codes were followed by enactment of laws which crippled entrepreneurship, like the Organized Crime Control Act of 1984 – in this act, hoarding commodities, money, and etc. is an offense. The Human Resources Deployment Act of 1983 required Tanzanians to carry official employment cards. Those who could not produce one were rounded up and forcibly moved to the countryside. The unlicensed, entrepreneur entrepreneurs were lumped together into the same category as hooligans, beggars, prostitutes and suspected thieves (Rugumamu & Mutagwaba, 1999).
Although agriculture is the backbone of Tanzania’s economy it employs 75 per cent of the population, contributes 48 per cent to the GDP, and amounts to 80 per cent of exports it was not spared by the Arusha Declaration (Kahama’s Report, 2001).The adaptation of Socialist principles, as outlined in the Arusha Declaration of 1967, required the development of cooperative organizations in the country to be conducted on Socialist principles – village cooperative societies were to be used to support Socialist ideals (Mwaibasa, 2004)
The changes resulted in:-Farmers were required to sell their crops to the crop Marketing Boards which were bureaucratic, inefficient, and corrupt and failed to pay farmers in time and their dues. The central government established a price commission for setting crop prices and in several cases without considering production costs. The outcome of the Arusha Declaration was as follows:abject poverty, Erroneous belief ingrained in the minds of most of our compatriots that our poverty is God’s will, Young people have developed a tendency to look to the government for provision of financial and material resources needed for their economic development, Inability to identify and, over time, properly plan for exploitation of the lucrative endowments provided by Mother Nature, Inadequate management skill – the education system did not inculcate entrepreneurial expertise, a failure that inevitably led to the inability of young people to turn resources into fruitful outcomes (Kida,1999).
The objective now is to change this attitude of hopelessness among the young people in Tanzania, to change the mindset of the young people by instilling confidence and convincing young people that they are able, and should be ready and willing to succeed, to create wealth and be rich that poverty is NOT God’s will, and being poor is NOT being a saint.
1.2 Youth Entrepreneurship
Youth entrepreneurship is provoked from an intrinsic ‘entrepreneurial spirit’ that is said to exist in the youth (Kourilsky & Walstad, 2007). Scholars argue that development strategies fail without the entrepreneur as part of their overall framework because development processes are fed by the innovative and leadership characteristics found distinctly in the entrepreneur. Youth are perceived as calculated risk takers, collaborative, globally focused, intrinsically urgent to succeed and innovative/creative thinkers (Motts, 2000). An entrepreneurial driven strategy is aimed at redefining how youth identify within their socio-political and cultural surroundings (Delgado, 2004). Arguably, doing so redefines youth values and reintroduces them into society by establishing meaning and belonging into their lives (White & Kenyon, 2000).
Therefore, the emergence of youth entrepreneurship in development is largely due to a combination and integration of ‘youth’ and ‘entrepreneur’. Literature relevant to youth entrepreneurship illustrates a number of ways in which successful strategies must be approached. Arguably, institutions should focus on fundamental policy reforms to empower youth (Rother, 2006). Youth are faced with limits when starting a business, (White & Kenyon, 2000) and moreover, their businesses viability is questioned due to a lack of financial opportunity. Four avenues of finance have been suggested: grants, soft loans, conventional banking and finance and support networks (White & Kenyon, 2000). When these enterprises show their value, private equity and venture capital is said to accumulate for purposes of increasing operations and creating long-term benefits. Developing relevant knowledge and skills through entrepreneurial education is also important. Arguably, these should be fostered from an early age through educational institutions (Kourilsky & Walstad, 2007).
Literature specific to youth entrepreneurship exemplifies relevant, yet generic approaches to understanding the topic. Frameworks that speak to how programs should run and what issues they could address have been provided. Yao et al. (2007) argue that entrepreneurial programming should be approached with a degree of context specificity. Scholars and policy makers alike must understand the social, cultural, political and economic dimensions before suggesting youth entrepreneurship as a development strategy. Such an approach is a shift from literature (for example: Kourilsky & Walstad, 2007; Rother; 2006; Delgado, 2004) that focuses on the individual as a primary agent in entrepreneurial development and entrepreneurial decision-making and intention. Arguably, an increase in program specific, contextualized studies will increase the knowledge base around how programs run effectively, or ineffectively, and what factors contribute to the outcomes within a given context.
Young entrepreneurs face many obstacles to successfully realize their entrepreneurial ambitions. Therefore, an environment that is youth-friendly, enabling, encouraging and supportive is needed. It is important to keep in mind that young entrepreneurs require a different approach and more guidance might be necessary than would be required for people who have more experience. Information must be available about the nature of the labour market; about the functioning of welfare and health systems as well as the entrepreneurship related knowledge that is required to set up a business.
1.3 Government effort in facilitating youth entrepreneurship
The government of the United Republic of Tanzania (URT), according to the SME policy (2003), has changed its policies by abolishing the Arusha Declaration (AD) and formulated new policies, The Sustainable Industrial Development Policy (SIDP) – places specific emphasis on promotion of small and medium industries by supporting existing and new industries in terms of promotion, simplification of taxation, licensing and registration and improve access to financial services. SIDP enables entrepreneurs with physical disabilities to take part in economic activities.
The National Micro Finance Policy (NMFP) covers provision of financial services to small and micro enterprises in rural and urban areas that are engaged in all type of entrepreneurial activities. Agricultural and Livestock Policy (ALP) aimed at development of entrepreneurs in agricultural and livestock sectors. The Minerals Policy of Tanzania (MPoT) identifies the artisan and small scale mining operations as major targets for promotion through improved access to finance and availability of tools, equipment and consumables, simplified licensing and enhanced marketing. The National Employment Policy, Gender and Women Development Policy, Cooperative Development Policy and National Environmental Policy, National Trade Policy – the policy areas include: Consolidation of financial sector institutions and deepening of financial instruments, Enhancing micro-enterprise financing and long-term finance of SMEs, Improving commercial dispute resolution to lower high risks in lending due to culture of default, Development of a competitive domestic consulting industry, Adapting and taking advantage of technological developments and new products, Capacity building for effective participation in regional trading for entrepreneurs (URT, 2003).
The Small and Medium Enterprise Development Policy– aims at promoting entrepreneurship among the public. It states: About one third of Tanzania’s GDP originates from the SME sector. This sector accounts for about 1.7 millions businesses, which employ about 3 million persons; this is about 20 per cent of the Tanzanian labor force, the annual figure of new entrants into the labor force is about 700,000. The public sector can absorb only 40,000 of the new entrants and about 500,000 young people enter the new labor force every year, after leaving schools at various levels (URT, 2003).
The institutions and programs established in support of the SME sector in Tanzania include: Small Industries Development Organization (SIDO) has training cum production centers that offer simple rural based technologies. In the thirty years of SIDO’s existence, it has assisted more than 2,000 entrepreneurs with machines and working tools and setting up of regional extension services offices that provide advice on setting up in industry, choice of technology, and preparation of feasibility studies, installation feasibility studies, machinery maintenance and marketing of products. Tanzania Industrial Research Development Organization(TIRDO) supports local raw materials utilization; Centre for Agricultural Mechanization Rural Technology (CAMARTEC) promotes appropriate technology for rural development; Tanzania Engineering and Manufacturing Design Organization (TEMDO), machine design; Tanzania Bureau of Standards (TBS) promotes standards; Board of External Trade (BET) promotes exports, mainly through trade fairs; Technology Transfer Centre (TTC), prototype development and promoting prototype commercialization (URT,2003).
Learning institutions like the University of Dar es Salaam;Business Service Centre of the Sokoine University of Agriculture; Entrepreneurship Centre of the Mzumbe University; Vocational Education Training Authority (VETA), all these help to impart entrepreneurial skills. VETA has 630 centers in the country offering training in more than 34 different entrepreneurial activities. Business Environment Strengthening for Tanzania (BEST): this program aims at ensuring that the services being offered by the government to entrepreneurs are efficient and effective. The program addresses the following components: Achieving better regulation, improving commercial dispute resolution, strengthening the Tanzania Investment Centre (TIC) changing the culture of the government from controller to regulator and empowering private sector advocacy (Olomi, 2006).
The government has designed and set up a funding mechanism and schemes to address poverty and unemployment through promoting entrepreneurship. Such funds include: National Entrepreneurship Development Fund (NEDF), Youth Development Fund (YDF) under the Ministry of Labor and Youth Development, Women Development Fund (WDF) under the Ministry of Community Development, Gender and Women’s Affairs. Small Entrepreneurs Loan Facility (SELF) under the Ministry of Planning and Presidential Trust Fund (PTF) under the President’s Office, Small and Medium Enterprises Credit Guarantee Scheme (SME-EGS) – under the Central Bank of Tanzania, Small and medium Enterprise Competitiveness Facility (SCF) under the Ministry of industry and Trade with assistance from the Danish government and establishment of the National Micro-finance Bank (NMB) to cater specifically for micro-enterprises (Olomi, 2006). During the African Socialism era of one-party rule, NGOs were restricted in the country. With the multi-party politics and free market economy, NGOs and other civil societies have been recognized and allowed to operate. There are about 8,837 NGOs in Tanzania dealing with various issues (Tanzania NGO report, 2000).
Table 1.1 Types of NGOs
Abbildung in dieser Leseprobe nicht enthalten
Source: World Bank; World Development Report 1999.
In Tanzania, NGOs are doing a commendable job in promoting youth entrepreneurship. Most of the NGOs are mainly involved in credit delivery, business training, providing general consultancy on entrepreneurship, supporting market linkage and addressing gender and environmental issues. NGOs have to operate at local, national, and international levels, while interacting with large companies and international sponsors on one hand and the target groups –entrepreneurs on the other. That is, NGOs constitute a bridge between the government, the market and the society. NGOs in Tanzania can be divided into two groups: Local and International. Local NGOs; example:
AMKA (Awareness) specializes in export and marketing oriented business development services (BDS), Promotion of Rural Initiatives and Development of Enterprises (PRIDE) Tanzania specializes in funding and capacity building, using the group lending model, Savings and Credit Co-operatives (SACCOs) deal with funding to their members, Tanzania Gatsby Trust (TGT) focuses on credit provision, marketing development, training and technology transfers, Federation of Association of Women Entrepreneurs in Tanzania (FAWETA) advocates on issues facing women entrepreneurs in mainland Tanzania, Association of Women Entrepreneurs of Zanzibar (AWEZA) advocates for issues facing women entrepreneurs in Zanzibar, Tanzania Food Processors Association (TAFOPA) deals with technical and entrepreneurship training, Artisans Development Agency of Tanzania (ADAT) brings together entrepreneurs involved in textile, batik and handloom weaving industries, Mennonite Church Development Associates (MEDA),Business Care Ltd, Community Development Trust Fund (CDTF),Rotating Savings and Credit Associations (ROSCA),International NGOs operating in Tanzania on empowerment of entrepreneurs: Plan International, Care International Action Aids
All in all, NGOs’ intervention in supporting SMEs in Tanzania range from institutional capacity building, direct provision of financial and non-financial services to infrastructure development. The International Finance Corporation (IFC) of the World Bank also makes SME funds available to women entrepreneurs at standing market interest rates Local NGOs that are involved in supporting entrepreneurs are operating without coordination, which results in a low impact on the SME sector. Other factors that contribute to poor growth include: Poor management, too broad objectives, lack of experience, duplication of efforts and outright competition among NGOs and they indulge in piece-meal programs that fail to meet the full range of social and economic needs (Hnyilicza, 2004).
Historically, the standard of living of a nation was measured by its ability to produce goods and services and distribute them widely throughout its population. To this end, it was the individual entrepreneur’s initiative that provided diversity and competition that, in turn, shaped the standard of living; hence the saying: Entrepreneurship is the engine of development. What is required, therefore, is to equip the young people with business knowledge and entrepreneurial skills(Hnyilicza, 2004).
Technical and financial services were formerly the critical factors which impinged on the success or failure of enterprise development. Currently, new avenues are rapidly being explored to see what factors, apart from technical and financial factors, do affect the success or failure of business development. The new approach, according to Hnyilicza (2004), is based on four building blocks, which are:-
Entrepreneurs are mobilized in incubators through networks of academic institutions, private firms and NGOs. Incubation, according Rice (2002 is a dynamic process of business enterprise development. The process nurtures young firms and helps them to survive and grow during the start-up period. Incubators provide hands-on management assistance, access to financing and exposure to critical business and technical support services. They also offer under one roof, office services, access to equipment and flexible leases of office space. Human resource development based on identification of entrepreneurs and entrepreneurial skills development, Technical assistance, training and financial support services, Help entrepreneurs to learn business and management skills and to learn legal issues, especially the law of contract. There is a tradition of addressing the requirement of enterprise development based on the delivery of business services: that is, training, technical assistance and financial service delivery; but not developing entrepreneurs. “Developing entrepreneurs does not end at personnel training and skill-formation; but it entails a qualitative shift that can be described as a transformation; a leap to a higher level of functioning” (Hnyilicza, 2004).
There is still a knowledge gap on how start-up and growth barriers could be worked out so that young people could go into businesses. Policies and programmes have been formulated to overcome the barriers; however, there is a good number of youth who are not running their businesses who would like to start up their businesses.
1.4 Statement of the Problem
Formulating an appropriate intervention for transforming the status of the youth both within and outside their home has been one of the major preoccupations of development practitioners and a number of strategies have been formulated to raise young people’s status through education, trainings and access to information (Spencer, Murtha, & Lenway, 2005). Economically, the most popular strategy has been the participation of young people in micro finance programmes to assist micro and small enterprise owners (Milgram, 2001).
In this regard ILO (2002) found some barriers among youth entrepreneurs in Tanzania including the requirement to seeking permission from their families if they wanted to pledge to start small enterprises but they receive discouragement from their parents and harassment from their colleagues who feel threaten by their fellow business men. It is therefore important to contribute to what has been discussed by finding out the growth barriers and ways to overcome these barriers. While there are many studies on barriers faced by youth entrepreneurs in micro and small enterprises in Tanzania (Rutashobya, 1999), but additional study will widen the knowledge of the same which would be very useful interventions. Government efforts do not bear many fruits on youth entrepreneurship since the number of young people engaged in entrepreneurial activities remains relatively low (Rahman, 2002).
In the European Union, only 13% of young people aged between 15 to 35 years are in businesses, while 87% have a preference for employee status rather than being entrepreneur and that they prefer regular, fixed income; stable employment with fixed working hours and protection by social security or insurances (Vinken, 2005). In addition, evidence suggests that, compared to adults, young people are disadvantaged in various areas with regard to entrepreneurship, for example, young people face problems of access to resources, especially capital. As a result, young people start their enterprises with lower levels of initial capital, are engaged in a narrower range of activities, are more likely to work from home, and are more likely to rely on limited or insufficient equipment. Youth entrepreneurship clearly offers a lot of potential for young people, however, in Tanzania young people are less likely to engage in entrepreneurial activities and the levels of entrepreneurship among young people are the lowest. Why this scenario?
1.5 Research Objectives
The purpose of this explanatory study is to investigate the relationship between growth barriers and firm growth of young entrepreneurs. Essentially, the study examines what motivates young people to start up and how they overcome the barriers to grow their businesses.
1.6 Specific Objectives
1. To identify the barriers faced by young entrepreneurs and how they overcome to ensure growth
2. To examine the business development services (BDS), for example: support from government, the private sector and how networks affect the businesses.
3. To identify the motivation factors or influences for entrepreneurs to start a businesses
4. To develop and recommend strategic options to improve the entry and development of business in Tanzania.
5. To examine the relationship between the characteristics of young entrepreneurs and firm growth
1.7 Research Questions
1. What are the barriers young entrepreneurs face and how they overcome to ensure growth?
2. What is the impact of business development services to young entrepreneurs?
3. What is the motives of young people to start businesses
4. What are the strategic options to improve the entry and development of business in Tanzania
5. What are the relationship between the characteristics of young entrepreneurs and firm growth
1.8 Hypotheses
H.1: The age of entrepreneurs has a relationship with the growth of firms
H.2: Education of entrepreneurs positively influences the growth of firms.
H.2.1: Formal education of entrepreneurs positively influences the growth of firms
H.2.2: Vocational education of entrepreneurs positively influences the growth of firms
H.3: Previous experience of entrepreneurs positively influences the growth of firms
H.3.1: Entrepreneurial experience of entrepreneurs positively influences the growth of firms
H.3.2: Management experience of entrepreneurs positively influences the growth of firms
H.3.3: Industrial experience of entrepreneurs positively influences the growth of firms
H.4: Coming from an entrepreneurial family positively influences the growth of firms
H.5: Attitude towards entrepreneurship positively influences the growth of firms;
H.6: Entrepreneurial motivations influence the growth of firms
H.6.1: Pull factors related to starting one’s firm positively influence the growth of firms.
H.6.2: Push factors related to starting one’s firm negatively influence the growth of firms.
H.6.3: Pull factors related to continuing with business activities positively influence the growth of firms.
H.6.4: Push factors related to continuing with business activities negatively influence the growth of firms.
1.9 Significance of the Study
Significantly, this study spans to include practical, theoretical and policy issues. The theoretical and practical contribution is mainly through increased awareness of the better underpins, constructs, methodology and theoretical issues which can be implemented to explain how young people firm growth is related to overcoming growth barriers. Furthermore, the framework is best situated to offer better understanding of how to leverage the growth of youth enterprises for firm competitiveness in developing countries. This could as well be useful in explaining such a role among other enterprises. Since poverty reduction is a prime concern in Tanzania, the empirical findings offer better knowledge on how youth entrepreneurship could be developed and participate in the global market place.
Additionally, findings from this study contribute to the scholarly research and literature on the methodologies and theories in the field of entrepreneurship, which can, at the end be useful in segregating entrepreneurial and non-entrepreneurial youth firms, and propose the role that entrepreneurs should play with regard to young people’s entrepreneurial enterprise formation, growth and development.
Findings generated from the empirical study have the potential to provide knowledge and motive which will enable, in a more general sense, SMEs in service and non service business to identify the barriers and facilitators of promoting youth entrepreneurship and join the entrepreneurial career. These findings can be generalized to include SMEs in service industry as well as the non service SMEs (such as manufacturing, construction, agriculture, etc) in young people operates.
1.10: Justification of the Study
Most studies on entrepreneurship have focused primarily on how to foster entrepreneurship to SMEs who are adults (Sarasvathy, 2004). Further, the majority of studies have been on differences between entrepreneurs and non entrepreneurs rather on questions relating to why youth entrepreneurship promotion is critical or worth doing. Two critical questions then emerge about: 1) what are the barriers to youth entrepreneurship, and 2) how entrepreneurial youth can be better supported to design better firms, markets and economies.
1.11: Scope of the Study
The researcher dealt with barriers associated in conceiving business ideas, starting a business, growing and developing business enterprises and ways to overcome the barriers in young adults of 15 to 35 years in Tanzania.
1.12 Limitation of the Study
- The research design and approach adopted in this study were meant to use firm as a unit of analysis. In this case owner-managers were sought to be the main source of information. Thus, data collection tool was designed for this purpose. The experience from the field was however slightly different. In some few cases, the owner-managers of the firm were unable to respond to questions, instead directed other employees to respond. However, this limitation does not pose any serious problem.
- The researcher also faced a number of hindrances in his study that made the research difficult:
- The research topic is uncommon and therefore respondents were unwilling to disclose certain information thinking that the research assistants were government officials asking questions for tax purposes.
- The study had very limited scope due to time and resource limitations.
1.13: Organization of the Study
This study is organized into six chapters .The first Chapter of this study introduces the study and defines important terms used. In particular, this introductory part of the study highlights the prospects of the youth entrepreneurship, and the contribution of the same to the economic and welfare of the country. The chapter also presents the role of entrepreneurship in poverty reduction/employment creation. Furthermore, the research problem, general and specific objectives of the study are presented in this Chapter. The Chapter ends by highlighting the significances and the scope of the study.
Chapter two of the study deals with literature review, in which a synthesis of various theories used to describe entrepreneurship intention are reviewed, discussed, criticized and revisited for the relevancy and applicability in the current problem. The major theories revisited are the Theory of Planned Behavior (TPB) and the Theory of Entrepreneurial Event (TEE). A critical review and discussion of the nature of youth entrepreneurship is found in this Chapter, also it reviews the empirical studies relevant to the current study. Several studies are reviewed in the light of their contribution in attending to the knowledge gap that the current study aims to bridge. Chapter three the research methodology and procedure are discussed. Chapter four describes the findings of the study. These findings give a general characteristic of the sampled firm. Also, in this Chapter, the distribution of variables is tabulated and their frequencies are presented. Chapter five of this study report discusses the main findings of the study. Finally, Chapter six is devoted to conclusions, implications, and recommendations.
CHAPTER TWO
LITERATURE REVIEW
2.1 Introduction
This chapter presents the literature for the study. Section two focuses on theoretical perspectives, under which major concepts are discussed and defined. These include youth entrepreneurship, entrepreneurs and entrepreneurship development. Section three deals with evidence from practice it focuses on findings from previous. Finally, a conceptual and analytical framework for the study is presented.
2.2 Theoretical perspectives
2.2.1 Various Concepts Discussions
When we talk about youth entrepreneurship, a number of concepts play a pivotal role in the analysis. This section begins with some general theoretical explanations on some key concepts related to entrepreneurship literature that underpin this study.
2.2.2 Youth Entrepreneurship and Entrepreneurship
The term youth refers to people within the age bracket of 15 to 35 years. The youth represents 37% of the total population in Tanzania (NBS, 2006), raising concerns for the future with respect to their skills and employability. The word “entrepreneur” is derived from a French word “entreprendre” that describes people who provide a service. The definition of entrepreneurship has evolved over time as the world’s economy has changed as well. There are many definitions of entrepreneurship that can be found in the literature describing business processes. Entrepreneurship is the act of being an entrepreneur, which can be defined as one who undertakes innovations, finance and business acumen in an effort to transform innovations into economically viable operations or goods. To be innovative is an important characteristic for entrepreneurs; nearly every new product in the market is sold as an innovation(Todorovic, 2007).
Some scholars have defined entrepreneurships as the process of initiating a business venture, organizing the necessary resources, and assuming the risks and rewards. While in 1934 Schumpeter who popularized the concept defined it in terms of a person’s ability to be innovative, in terms of goods and services produced, methods of production, markets, sources of supply and industrial organization. The underlying entrepreneurial attitudes and behaviors are three key dimensions: Innovativeness, risk taking and proactiveness (Morris & Heelas, 1992). Innovativeness refers to the seeking of creative, unusual or novel solutions to problems and needs. These solutions take the forms of new technologies and processes, as well new products and services. Risk taking involves the willingness to commit sufficient resources to opportunities having a reasonable chance of costly failure. Proactive is concerned with implementation with doing what is necessary to bring an entrepreneurial concept to fruition.
Entrepreneurship is considered as an approach to management and is defined therefore as a process by which individuals – either on their own or inside organizations pursue opportunities without regard to the resources they currently control in an innovative, risk-taking and proactive manner (Todorovic, 2006).
Saint Louis University (2001) defined entrepreneurship as the combination of skills, aptitude and attitude within individuals resulting in new ideas, innovations and the ability to turn opportunities into reality through the creation of new innovations. The best entrepreneurs invent new ways to live, work, and achieve. Successful entrepreneurship blends independence and collaboration, vision and action, the individual and the community. This definition allows a wider understanding of entrepreneurship. It includes the development of new ideas, such as students in schools or colleges marketing their unique set of skills and aptitudes, innovations like patenting and marketing of intellectual property, and business knowledge.
From the above definitions, entrepreneurship covers an individual’s motivation and capacity independently or within an organization to identify an opportunity and to pursue it in order to produce new value or economic success. This is however, subject to venture or start-up costs, which include costs such as initial capital endowment information and organization and management costs, administrative costs, costs of learning, acquiring and developing a business idea and a business plan suitable to obtain finance. Entrepreneurs pursue opportunities to grow a business by changing, revolutionizing, transforming or introducing new products or services. The three important themes in this definition are (1) the pursuit of opportunities, (2) innovation, and (3) growth link entrepreneurship to industrialization process. For both start-up companies and existing firms, entrepreneurship spurs business expansion, technological progress and wealth creation (Lumpkin & Dess, 1996).
Ma & Tan, (2006), propose an integrative 4 p framework of entrepreneurship to enhance understanding of the subject of entrepreneurship. It highlights the Pioneer, denoting the entrepreneur as an innovator or champion for innovation, Perspective, denoting the entrepreneurial mindset, Practice, denoting the entrepreneurial activities and Growth, denoting the outcome or result of entrepreneurial actions and activities.
2.2.4 Can entrepreneurs be created?
Contrary to the assumption by western-based models that an entrepreneurial career is chosen, in Africa most entrepreneurs are forced into it by the urgent need to earn a. Even under these circumstances, in Africa the expansion of entrepreneurship is curtailed by legal, administrative, socio-economic and political factors rather than the characteristics of the entrepreneurs themselves living (Olomi & Rutashobya, 1999).
Given this background, concerted entrepreneurship development is an imperative in order to cultivate entrepreneurial talents. The objective of entrepreneurship development programmes is to inculcate entrepreneurial behavior in individuals. They are planned interventions aimed at the development of the need for achievement (McClelland, (1990). This is in accordance with the views by McClelland (1987) that the need for achievement is at the centre of the entrepreneurship spirit and that it can be promoted. However, emphasis on stimulating the need for achievement in entrepreneurship development is not shared by everybody. For example, OECD (2001) recommends more input of knowledge and practical skills than behavior modification. There is general agreement that an entrepreneurial career can be developed through entrepreneurial training (Olomi, 2001).
Themba et al (1999) posit that an entrepreneurial culture can be created though, among other things, practical oriented business courses and needs-specific training. They argue that education and training can “strengthen the need for achievement, alleviate fear of failure and enhance self-confidence”. Olomi (2001) asserts that desired entrepreneurial success factors can be learned through properly designed entrepreneurship development programmes. He also points out that there is a general agreement that having entrepreneurship education is positively associated with becoming entrepreneur. In this regard, O’Riordan et al (1997) stress the importance of formal education and business education for micro and small enterprise operators. In the same vein, OECD (2001) sees education and training as key enabling resources for the sustainability of micro and small enterprises. Writing about support systems for micro and small enterprises in Morogoro District in Tanzania, Mbilinyi (1999) found that the successful ones offered a training and credit package with a follow-up component.
2.2.5 Entrepreneur
An entrepreneur is anyone who makes an innovation; it can be a businessperson, an employee or a manager of a firm (Hult, Sonow, & Kandemir, 2003). In this study, the concept of entrepreneur is used to refer to all owners/operators of microenterprises in the sense elaborated by Kristiansen & Inge Jenssen (2004). More specifically, they are micro entrepreneurs who took the initiative of starting microenterprises, who shouldered all the risks as well as financial, administrative and social responsibilities as owner-managers fully in charge of their businesses. an entrepreneur as a person who identifies an opportunity, gathers resource, creates and grows a business venture while bearing the risk and is rewarded with profit from the venture. An entrepreneur is someone who can locate new ideas and put them into effect, he cannot allow things to get into a rut and for him today’s practice is never good enough for tomorrow.
2.2.6 Role of the Entrepreneur and Entrepreneurship in Development
The role of entrepreneurship in economic growth is linked to Alfred Marshall in his acclaimed Principles of Economics of 1890. Marshall acknowledges entrepreneurship as a critical factor in organization. Nevertheless it is essential for entrepreneurs to be knowledgeable in their field of operations he proposes that entrepreneurs ought to be natural leaders who must have the ability to foresee and forecast without complete information. I agree with this view as individuals who possess such abilities are rare but can be taught to be entrepreneurs. Marshall presents the importance of the environment or economic conditions in shaping such individuals (Marshall, 1994).
2.2.7 Creating an environment to unearth talents
Global integration presents several opportunities for the youth which requires them to have the necessary skills and qualifications. Upgrading of skills was found to be key at all levels of the economy especially in the indigenous micro-enterprises found in most developing countries. Policies are being formulated that are focusing on creating an enabling environment that fosters entrepreneurial activity that generates sustainable employment. Substantial resources and energy are increasingly being directed towards youth programs that are to assist in providing access to credit, offer training, and secure prolonged business development services such as mentorship. Interventions designed to support young workers in sub-Saharan Africa and help them integrate into the labour market tend to focus on entrepreneurship and skills development (World Bank, 2008).
Partnerships with the private sector are essential to overcome public financial and resource constraints to execute policies on education and training. Partnerships are also important to obtain feedback on labour market needs and assess the quality of the education a young worker has obtained before entering the job market. The round table discussion by the members of the Evian Group outlined some successful business models that can be used to enhance development of some developing African countries. The group met at a capacity building workshop to discuss the barriers of the youth in the 21st century Africa aimed at creating opportunities through entrepreneurship and education. A major barrier towards entrepreneurship was reaching a larger scale of youth through extension of capabilities. The discussion made a very salient point that market development can only be realized if government policies of any kind address the real issues on the ground than mere drafting of policies. Paramount in the discussion was the issue of preparing the youth for the regional and global markets where they will be protected and talents duly identified and managed (Evian Group, 2008).
2.2.8 Youth barriers to entrepreneurship
The Global Entrepreneurship monitor report of 2006, argues the need to find ways of increasing youth participation in the economy in order to fight the high unemployment. Entrepreneurship is offered as a solution for this, but for the youth the following barriers are identified as a hindrance.
2.2.8.1 Access to finance
This is a barrier common to other cohorts to entrepreneurs. Youth, however, are particularly affected as they have poor or no credit history creating problems for accessing financial support, especially in the mainstream financial institutions. The main reason for this is that they have not yet been involved in economic activity due to studies and have not gained any work experiences. They invariably also lack personal savings for financing of a business (Listerri, et al, 2006). However, Paulson & Townsend (2004) indicate that for over 60% of small businesses, typical of those owned by young entrepreneurs, initial investment in the business is sourced from family and friends, largely due to the uncertainty of the expected profitability of the opportunity or the unproven entrepreneurial skills of the owner, what could be considered a negative often provides the incentive for the entrepreneur to exert themselves more to succeed
Youth do not have access to information regarding the service and support systems available to assist them to become entrepreneurs. These may be generic or specifically targeted to youth. They lack social capital and networks that adults may have accumulated over time (Paulson & Townsend, 2004).
2.2.8.3 Poor education and Training
The current Tanzanian school system does not place strong emphasis on entrepreneurship education that prepares youth to have a basic understand of how to start and run a business through courses like financial literacy, marketing and business skills. The high failure rate means that many youth do not qualify for enrolment into further training and education opportunities and therefore fail to start their businesses (Kessy& Urio, 2006).
2.2.8.4 Business operating environment
Listerri et al (2006) highlight further barriers relating to the business operating environment, namely, lack of access to markets and business advisory services. Access to local and international markets is facilitated through personal and business contacts. Without these networks it is difficult for a business to compete with those with already established networks and more resources for marketing knowledge of organizations or individuals that provide business advisory services is required for success. Theses however, cost a fee or in some cases may be free, especially if supported by a government related organization most young people may not know what organization to approach or these may be located far from reach.
2.2.8.5 Barriers due to other cross cutting issues
The barriers faced by youth entrepreneurs have been discussed in the section above in addition; there are some that relate to, lack of safety due to high crime levels and problems related to HIV/AIDS (Nieman, Visser &Van-Wyk, 2008).
2.2.8.6 Excessive or unnecessary regulation
Rogerson (2005) indicates that specific laws relating to businesses can hinder enterprises growth or prevent new entrants from getting into the sector. These include high costs of licensing, signage restrictions and labor regulations. Compliance to regulation is important to ensure protection of consumers and maintaining positive business environment, over regulation leads to non compliance of some MSMEs leading to an unfair advantage over large businesses.
2.2.8.7 Poor infrastructure development
This relates to both human and physical infrastructure. Poorly skilled youth hinder growth. This may be due to lack of training and education facilities or facilitators. The location of these institutions should be accessible, The majority of unemployed youth are unskilled and lack critical experience and cannot take advantage of opportunities present .Physical infrastructure is a key component that supports businesses The presence of good road networks , electricity and water supply, and air linkages lead to the growth of businesses where these are lacking individuals business owners need to develop this on their own which is expensive and therefore hinders entry of new business (Chigunta, 2002).
2.2.8.8 Poor access to government support
Many youth entrepreneurs fail to access government support that targets them due to long bureaucratic processes or lack of information about the specific interventions. Amongst the organization providing support to the youth entrepreneurs lacks a clear understating of issues facing the youth at local level in order to design and provide relevant information and support (Chigunta, 2002).
Furthermore in discussing the barriers that youth face, White & Kenyon, (2000) asserted that it is more helpful to divide them according to their enterprise age category or enterprise status. Below is a brief discussion of the key barriers facing each category of these youth entrepreneurs:-
Pre-entrepreneurs are on transitional stage, the key barrier facing pre-entrepreneurs who are just starting out in life on their own is choosing what they want to do. They face a barrier of the promotion of awareness of various career options and possibilities for business start-up. Young people in this category largely require awareness and understanding of what enterprise is and what it takes to own and manage a business so that they can consider self-employment realistically as a career option. Then, should a young person decide to explore further, or to start their own business, the second step – the provision of practical support services (such as training, advice, access to finance) – can be provided (White & Kenyon, 2000). Business start-up for pre-entrepreneur youth is likely to involve the following stages:
The Formative Stage: This relates to the various factors (including environmental) that influence the development of the desire to become an entrepreneur as well as attributes and attitudes that are highly correlated with entrepreneurial success. At this stage, it is important to encourage young people to acquire appropriate entrepreneurial skills, motivations, attitudes, attributes, behaviors, and values.
The Developmental Stage: This relates to the more specific learning and targeted skill development that will equip and prepare an individual to move to the start-up and launch of a business venture. These are learning skills and strategic skills. Learning skills relate to the willingness and ability of a person to acquire information, knowledge, and experience from the world around them that is relevant to their entrepreneurial success. On the other hand, strategic skills relate to how a person sees the world, envisions what is possible or desirable, and identifies entrepreneurial opportunities in the world around them.
The Start-up Stage: This refers to the specific skills that are relevant for a successful entrepreneur who is looking to advance an entrepreneurial venture to a period of growth and expansion. These are tactical skills for start-up. Tactical skills are important to conceptualizing a business, developing a business plan and establishing, launching, and operating a business. The start-up stage also requires access to credit or finance for youth entrepreneurs.
Budding entrepreneurs - These young people are just starting to run their own business. The key barrier facing these youth is to increase the rate of survival and success in new businesses. White and Kenyon (2000) observe that growing or expanding an existing business is an aspect often forgotten in enterprise promotion programmes. It requires specific skills, knowledge and attitudes that differ from those of establishing a new business.
This means that budding entrepreneurs have a different set of needs from those of pre-entrepreneurs and potential entrepreneurs. Given that they need to manage the expansion of their businesses, their needs largely revolve around the following:
- Tactical skills for Growth-these are skills that are important to moving a business into and through a period of growth and expansion. They include business management, management of business finances; time management; stress management; improving sales; managing and reducing costs; debt recovery techniques; stock control techniques; marketing; recruitment (employing the right people); risk management, and; negotiation skills (White & Kenyon, 2000),
- Access to working capital, and
- Advice (through such mechanisms as mentoring and business counseling)
Basically, this stage requires multiple competencies. Thus, the key barrier for youth entrepreneurship institutions and programmes is to provide practical support services, in particular business management training and access to working capital, aimed at promoting the growth of the enterprises. The starting point in assisting the budding entrepreneurs to acquire these competencies should aim to build upon their capabilities. The involvement of these young people in business suggests that they have already acquired some experience and skills.
Emergent entrepreneurs - The needs of emergent entrepreneurs aged 26 years and above are largely different from those of lower categories of youth proprietors. Many of the emergent entrepreneurs, especially those operating in low income markets, are likely to be running enterprises that are not growing, with only very few graduating to the formal sector.
The major barrier facing these young adults is to transform their enterprises into commercially viable and competitive small businesses. Thus, their needs largely revolve around the following:
Tactical skills for Growth and transformation, recognizing that certain skills are important for the entrepreneur to have, while others can be accessed or employed, we have divided these skills into two categories:
Skills one should have: capacity to plan, communication, marketing, interpersonal, basic management, quantitative/analytical, personal effectives, team building and leadership.
Skills one can access/employ: specialized management talent, advanced planning, specialized marketing advice/services, record keeping, legal, accounting, research, technical, financial/financing, information management, and so on.
-Access to working capital
-Access to new technologies and equipment, and
-New product development and value addition.
Given the need for the above skills, the key barriers facing youth entrepreneurship institutions and programmes is to provide practical support services, especially advanced business management skills and resources, designed to transform youth entrepreneurship into commercially viable and competitive enterprises. But, as in the case of the budding entrepreneurs, the starting point should be recognition of the capabilities of the emergent entrepreneurs.
2.2. 9 Entrepreneurial intentions
Entrepreneurial intentions can be explained in two models, the theory of planned behavior (TPB) which explains individuals’ attitudes towards an act, and the theory of entrepreneurial event (TEE) which explains entrepreneurial behavior. Entrepreneurial intentions are derived from perceptions of desirability (attractiveness of starting a business) feasibility (capability to start), and a propensity to act (personal disposition) upon Opportunities.
Over the years, the decision to become an entrepreneur has been analyzed using very different methodologies. Authors began looking for the existence of certain personality traits that could be associated with the entrepreneurial activity (McClelland, 1987). Later on, other studies have pointed to the importance of different characteristics such as age, gender, origin, religion, level of studies, labour experience, and so on (Storey, 1994). These are usually called “demographic” variables (Robinson, 1991). Both lines of analysis have allowed the identification of significant relationships among demographic characteristics of the person, and the fulfillment of entrepreneurial behaviors. However, the predictive capacity has been very limited (Reynolds, 1997).
From the theoretical point of view, those approaches have been criticized (Liñán et al., 2002), both for their methodological and conceptual problems and for their low explanatory capacity. From another perspective, since the decision to become an entrepreneur may be possibly considered as voluntary and conscious (Krueger et al., 2000), it seems reasonable to analyze how that decision is taken. In this sense, entrepreneurial intention would be a previous and determinant element towards performing entrepreneurial behaviors (Fayolle & Gailly, 2003). In turn, the intention to carry out a given behavior will depend on the person's attitudes towards that behavior (Ajzen, 1991). A more favourable attitude would increase the intention of carrying it out. In this manner, this “attitude approach” would be preferable to those traditionally used, such as the trait or the demographic approaches (Krueger et al., 2000).
Thus, attitudes would measure the extent to which an individual positively or negatively evaluates something. Attitudes are relatively stable, but they change according to time and situation. This study especially relies on two contributions, due to their influence on research. The first is, Shapero & Sokol’s (1982) theory of the entrepreneurial event and, secondly, Ajzen’s (1991) theory of planned behavior.
2.2.9.1 Theory of Entrepreneurial Event (TEE)
The theory of the entrepreneurial event considers firm creation as the result of the interaction among related factors, which would act through their influence on the individual's perceptions. The consideration of the entrepreneurial option would take place as a consequence of some external change -a precipitating event- (Peterman & Kennedy, 2003). People’s answers to that external event will depend on their perceptions about the available alternatives. There are two basic kinds of perceptions:
Perceived desirability refers to the degree to which a person feels an attraction towards a given behavior (to become an entrepreneur). Similarly,
Perceived feasibility is defined as the degree to which people consider themselves personally able to carry out that behavior (to start a business). The presence of role models, mentors or partners would be a decisive element in establishing the individual's feasibility level. In turn, both types of perceptions are determined by cultural and social factors through their influence on the individual's value system (Shapero & Sokol, 1982). Therefore, external circumstances would not determine behaviors directly, but rather they would be the result of (conscious or unconscious) analysis carried out by the person about the desirability and feasibility of the different possible alternatives in that situation.
The Theory of Entrepreneurial Event (TEE) is implicitly an intention model, specific to the domain of entrepreneurship (Shapero, 1982). In the TEE, intentions to start a business derive from perceptions of desirability and feasibility and from a propensity to act upon opportunities. The Theory of Entrepreneurial Events assumes that inertia guides human behavior until something interrupts or “displaces” that inertia. Displacement is often negative, such as job loss or divorce, but it can easily be positive, such as getting an inheritance or winning the lottery. Displacement precipitates a change in behavior where the decision maker seeks the best opportunity available from a set of alternatives. The choice of behavior depends on the relative “credibility” of alternative behaviors (in this situation to this decision maker) plus some “propensity to act” (without which significant action may not be taken). “Credibility” requires a behavior be seen as both desirable and feasible. Entrepreneurial events thus require the potential to start a business (credibility and propensity to act) to exist before the displacement and a propensity to act afterwards (Shapero, 1982).
In a study by Krueger (1993) perceived feasibility, perceived desirability, and the propensity to act explain well over half the variance in intentions toward entrepreneurship; feasibility perceptions explained the most variance. Shapero offers evidence of how perceptions are critical in this process. Significant life events (job loss, migration, etc.) can precipitate sizable increases in entrepreneurial activity. The founders have not changed, only their perceptions of the “new” circumstances have. Their entrepreneurial potential clearly existed, but the potential required displacement to surface. Shapero also offers examples of company founding where only subjective circumstances had changed, such as approaching one’s fortieth birthday. Perceived Desirability and Perceived Feasibility
Perceived desirability is the personal attractiveness of starting a business, including both intrapersonal and extra personal impacts. Perceived feasibility is the degree to which one feels personally capable of starting a business. Empirically, Shapero proposed a testable eight-item inventory of questions aimed at different aspects of perceived desirability and feasibility. Empirical measures of self-efficacy (antecedents of perceived feasibility) assess beliefs that one can personally execute a given behavior (“I can get 8 out of 10 calculus problems right”).
Propensity to Act
Propensity to act is the personal disposition to act on one’s decisions, thus reflecting volitional aspects of intentions (“I will do it”). It is hard to envision well-formed intentions without some propensity to act. Conceptually, propensity to act on an opportunity depends on control perceptions: that is, the desire to gain control by taking action. Empirically, we must identify a measure closely linked to initiating and persisting at goal-directed behavior under uncertainty and adversity. A well-established conceptualization of this phenomenon is “learned optimism.” This highly valid, reliable measure consistently predicts commitment to goal-directed behavior in many settings (Seligman, 1990).
2.2.9.2 Theory of planned behavior (TPB)
Along the same line, but much more detailed, Ajzen (1991) develops a Theory of planned behavior. This is a theory that may be applied to nearly all voluntary behaviors and it provides quite good results in very diverse fields, including the choice of entrepreneurship career (Ajzen, 2001). According to it, a narrow relationship would exist between the intention of carrying out a given behavior and its effective growth. Intention becomes the fundamental element towards explaining behavior. It indicates the effort that the person will make to carry out that behavior. And so, it captures the motivational factors that influence behavior. If individuals consider the implementation of a given behavior within their reach, this makes them try harder. This theory assumes that human social behavior is reasoned, controlled or planned in the sense that it takes into account the likely consequences of the considered behavior (Ajzen, 2001). This model has been applied for the prediction of many human behaviors (electoral choices, intention to stop smoking, intention to start a business, etc). The first postulate is that intention is the result of three conceptual determinants:
Attitude toward behavior: The degree to which a person has a favourable or unfavourable evaluation or appraisal of the behavior in question (Ajzen, 1991). When new issues arise requiring an evaluative response, people can draw on relevant information (beliefs) stored in memories. Because each of these beliefs carries evaluative implications, attitudes are automatically formed.
Subjective norms: Perceived social pressures to perform or not the behavior (Ajzen, 1991); i.e., the subject’s perception of other people’s opinions of the proposed behavior. These pressures can have, or not, an influential role or not in creation. For example, in France, the failure of a company is negatively perceived whereas in the United States, a person can undergo several failures and yet often undertake new attempts.
Perceived behavioral control: Perceived ease or difficulty of performing behavior (Ajzen, 1991). Perceived behavioral control plays a significant part in the theory of Ajzen. Behavioral achievement depends jointly on motivation (intention) and ability (behavioral control). Perceived behavioral control appears similar to the notion of perceived self-efficacy of Bandura (1997). Perceived self efficacy refers to “people’s beliefs about their capabilities to exercise control over their own level of functioning and over events that affect their lives (Bandura, 1997). Much as self-efficacy predicts opportunity recognition, self-efficacy perceptions are also pivotal to self-employment intentions (Scherer et al. 1989). Self-reported competencies are predictive of entrepreneurial growth (Chandler & Jansen 1992). Entrepreneurship researchers largely ignore the concept of self-efficacy despite its importance and proven robustness at predicting both general and specific behaviors. For instance, role models affect entrepreneurial intentions only if they affect self-efficacy. In addition, self-efficacy has been associated with opportunity recognition and risk-taking (Krueger & Dickson 1994) as well as career choice (Bandura 1997).
