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ENTREPRENEURIAL STRUCTURE FROM A REGIONAL PERSPECTIVE
ARIZONA STATE UNIVERSITY
ECN 212 - MICROECONOMIC PRINCIPLES
WEEK 2
3.1 INTRODUCTION:
In the 1950s, economists began to pay attention to the factors that influence economic
growth. Abramovitz, Solow and Swan were probably the first authors to analyze the causes of
an increase in an economy's GDP, with regard to the aggregate production function.
According to their theory, the factors that determine the growth process on the supply side are
basically two: labor and capital. On the demand side, the goods produced are destined to be
used by three basic variables: consumption, savings and investment.
These approaches have a neoclassical and symmetric character and are based on
Klein's approach, the so-called "aggregation problem in the production function" (Klein
1946). They are based on a certain level of technology and, therefore, do not consider
technological change as a variable to be taken into account. Logically, this lack of realism of
the original neoclassical approach led to several criticisms, even Robert Solow admitted it in
his speech at the official ceremony of receiving the Nobel Prize in Economics. Indeed, the
lack of consideration for technological progress was a serious flaw in the original neoclassical
model. It is understood that the technological variable is something that is outside the scope of
economic activity, i.e. it is a variable that is imposed from a context outside the scope of
economics alone. This is why the neoclassical economic growth model of the time was often
called "exogenous" instead of the "endogenous" economic growth model developed since the
1980s.
As a result of the lack of consideration of technological factors in "exogenous"
models, and also in an effort to combat the growing problem of unemployment on an
international scale, new theoretical growth models were developed in the 1980s and 1990s.
These efforts aimed to include technology, not as a specific variable, but rather as a factor
internal to the system (Romer 1994). On the other hand, they also, directly or indirectly,
considered the Schumpeterian innovation approach as the basis of the technological process.
This fact has led to new concepts, such as human resources, research and development,
technological change, etc., being incorporated (Durlauf and Quah 1999). All these concepts
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are, ultimately, different derivatives of what is now known as "knowledge".
As mentioned earlier, the neoclassical economic growth model is symmetric and
essentially seeks a balance between the supply-side and demand-side components. This is
based on the assumption that economic agents are completely rational, meaning that they
maximize profits and provide perfect information regarding the market. Given this highly
simplified formal equilibrium approach, the neoclassical viewpoint leaves no room for
variables Other. However, it seems to be important to explain the process of economic
growth, such as the role of institutions and firms (Felipe 2006).
Of course, in order to explain the phenomenon of economic growth, it appears necessary to
considering levels of corruption, institutional performance, democracy, and enterprise. These
factors, ultimately, are the wealth creators in any market economy. If this is the case in any
economy, especially in a country-specific context, then entrepreneurial factors are of
particular relevance at the regional level. This is because the working of political and social
institutions is usually homogenized within the boundaries of a particular country. Various
aspects, such as uncertainty, new ideas and entrepreneurial initiatives, are elements of factor
entrepreneurship. These have no place in traditional approaches (Wennekers and Thurik
1999), and have only started to be taken into account in economic growth analysis in recent
years.
3.2 ENTREPRENEURSHIP LEVEL ANALYSIS
When considering entrepreneurial factors, it is necessary to distinguish three
categories in the analysis: micro, meso, and macro (Table 3.1).
Table 3.1. Entrepreneurship Level Analysis
Level of analysis
Dominant interest
Micro
Individuals
Meso
Firm
Macro
Economy
At the first level, the micro level, the goal is primarily concerned with the
entrepreneur's personal framework. Theories developed at this level aim to maximize the
economic profit of the entrepreneur. This is for example the case with the following theories:
personal profit theory developed by Cantillon and Max Weber, among others; F. Knight's
entrepreneurial risk theory; and various psychological theories that focus on optimizing
entrepreneurial behavior.
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Furthermore, at the meso level, the analysis relates to the goals of the company, not
the personal interests of the entrepreneur. This field of analysis is broader than the first. It
includes, among others, transaction cost theory; network theory; enterprise incubation theory;
and all branches of management, such as financing and investment theory, human resource
theory, organization and production theory, marketing theory, accounting theory and so on.
All these theories form a series of specializations that form the essential content of business
schools. While embracing the self-interest of entrepreneurs, they also pursue the profitability,
maintenance and growth of enterprises which, in turn, affect not only the individual interests
of enterprise owners, but also the entire stakeholders (executives, employees, and suppliers,
clients and all kinds of institutions related to the enterprise in question).
In addition to the personal and entrepreneurial goals achieved at the micro and meso
levels, the macro level focuses on benefiting the economic system as a whole. This macro
approach of course includes the interests of entrepreneurs and firms, but the main objective of
the analysis is the development of the economy in which the productive unit is located. It is
therefore within this aggregate economic framework that the main purpose of this chapter lies,
and, although its relationship with the micro and meso levels is very close, fundamental
attention will be placed on questions such as what entrepreneurial activity should look like in
order to optimize economic growth.
3.3 ENTREPRENEURIAL FUNCTION AND ENTREPRENEURIAL STRUCTURE:
In all economic growth processes, there is a mechanism that is assumed to be
automatic by traditional theories: savings productive investment economic growth (Figure
3.1). However, this mechanism, which is divided into two phases and leads to the
transformation of financial resources into economic growth, is not fully automatic at any
given time and place. The lack of automation can be explained by two fundamental reasons:
•
There are not always entrepreneurs who are able, aware or willing to convert existing
savings into productive investments.
•
Not all productive investment actions contribute equally to the process of economic
growth.
Based on these reasons, we can distinguish two components in the entrepreneurship
factor: (a) the entrepreneur (referring to the entrepreneurial function) and (b) the firm
(referring to the entrepreneurial network or structure). As shown in Figure 3.1, each of these
components is projected on each phase of the savings - investment - growth mechanism.
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Therefore, from a regional perspective, a macro analysis of entrepreneurial factors should
consider, on the one hand, how entrepreneurial networks need to be structured, so that
ultimately the regional economy achieves the highest possible growth rate. On the other hand,
since entrepreneurial organization is the result of the entrepreneurial figure and
entrepreneurial capacity presents different profiles in different geographical frameworks, it is
necessary to qualitatively analyze the functions developed by entrepreneurs. Based on these
factors, the different degrees of dynamism and entrepreneurial culture that can affect regional
economic growth can be identified.
In the following two sections, the qualitative characteristics of the entrepreneurial
structure and the main elements that make up the entrepreneurial function are analyzed
separately, from a growth-focused point of view.
3.4 QUALITATIVE CHARACTERISTICS OF ENTREPRENEURIAL STRUCTURE:
From the perspective of modern endogenous growth theory, it can be said that each
firm contributes to economic growth in different proportions. Not all productive units
contribute equally to increasing the economic competitiveness of a region. This is due to the
fact that, for example, different sectors of the economy do not have the same growth rates, or
the same potential bottlenecks, or the same capacity to create jobs or higher levels of value
added.
From an endogenous point of view, i.e. from "inside" the productive system,
technological/innovative variables are not the only variables that can explain the "macro"
behavior of firms. In addition to the technological base and innovative behavior, other
variables can also be mentioned, such as the education level of executives, profitability level,
collaboration level, export level, and output quality. All of these certainly help explain the
level of competitiveness of a region or area. However, these variables are essentially placed at
the "meso-economic" level, and their analysis is aimed at the specific interests of the firm,
although indirectly, it also has consequences for the common interests of the regional
economy. Logically, while variables such as innovation, education, collaboration, quality,
exports, etc. do in fact contribute to overall economic growth, they are only dependent on
management decisions, i.e. at the "meso" level. On the other hand, in the same
macroeconomic context, it is possible to find firms whose innovation rate, for example, is
very high, but can be countered by the low innovation rate of other firms.
These entrepreneurial variables are fundamental elements of the management
approach, but at the same time, they are interwoven in a set of structural characteristics of the
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entrepreneurial network that, in turn, determine and shape the causal relationship between
entrepreneurial actions and macroeconomic outcomes. In particular, the same amount of
investment, given the structural quality of the Different entrepreneurial networks can have
very different consequences for regional economic growth. Among the qualitative features
that make up the entrepreneurial structure, at least the following can be distinguished:
Entrepreneurial Density:
One of the first variables that explains the strength or weakness of a regional
productive network is the number of firms located in the region. Theoretically, the higher the
number of firms compared to the population, the more likely it is that the production of goods
and services (regional GDP) reaches a higher level. This simultaneously leads to higher levels
of employment, investment, exports, and so on. Therefore, entrepreneurial density is a
necessary but insufficient basic variable needed to create a competitive entrepreneurial
network in any economy, not only at the regional level, but also at the national level.
There are many national and regional economies for example in Southern Europe, as
well as in underdeveloped regions that have a high density of entrepreneurs in relation to the
population, but the entrepreneurial structure is also highly atomized. This leads to a high
percentage of small firms whose establishment is motivated more by the "need" motivation of
unemployment than by the "opportunity" motivation. Logically, these small firms make only a
very low contribution to economic growth and, in most cases, belong to the informal sector of
the economy.
Average Company Size:
Firm size has been, and continues to be, an element of disagreement with respect to
some fundamental aspects, such as the capacity to innovate, to export, to general job creation,
etc. Traditionally, there has been some agreement, or even unanimity, that large firms are
those that contribute most to the dynamism of the economy and its various aspects: value
added, innovation, employment, etc. Traditionally, there has been some agreement, or even
unanimity, in the opinion that large firms are those that contribute most to the dynamism of
the economy and its various aspects: value added, innovation, employment, and so on. An
example of this can be found in the famous British Bolton Report from the 1960s. However,
since the economic crisis of the 1970s, various studies have emerged on the increasing role of
SMEs in the process of economic growth (Birch 1979; Storey 1988).
Nonetheless, although the assumption of an increased role for SMEs is largely based
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on current empirical economic research, the following considerations are also true: First, it is
clear that large firms in any economy will play a dominant role in international trade, in
production levels, as well as in the field of R+D+I. It is no coincidence that most of the largest
multinational companies, which are dominant in the largest markets, belong to countries with
the most developed economies, such as the United States, Japan or the main countries of the
European Union.
In addition, while SMEs play an important and even increasing role in the process of
economic growth and job creation, we need to recognize that SMEs can play an important role
in the process of economic growth and job creation distinguish between SMEs themselves and
microenterprises and entrepreneurs. As mentioned earlier, such small firms are, for the most
part, created by "necessity" motivation - a term used by the Global Entrepreneurship Monitor
(GEM) i.e., solely for survival purposes or as a meaning of life, with little intention to foster
the improvement of entrepreneurial organizations in terms of employment, asset
enhancement, internationalization, etc.
Therefore, it should be underlined that the most developed countries and regions are
characterized by entrepreneurial networks, which not only have a high proportion of large
firms, but also a large number of indigenous SMEs with at least ten employees, according to
the most extensive statistical sources. In contrast, underdeveloped countries, both at the
regional and national level, usually show a high degree of entrepreneurial atomization that is
more reflected in the context of microenterprises and self-employment than in the framework
of SMEs.
Patrimonial Vulnerability:
In empirical analyses of entrepreneurial networks in a given region, the concept of
"enterprise" is often confused with "institution", "factory", or even with "subsidiary" or
"branch". In addition to legal implications, this distinction of concepts related to productive
units may have important economic consequences.
In particular, "patrimonial vulnerability" refers to the ownership of a company and its
geographical location. Patrimonial ownership leads to control and fundamental decision-
making within the firm. Therefore, entrepreneurial networks with high patrimonial
vulnerability have high levels of external investment penetration. This fact always has a
positive impact on economic growth and job creation, especially when internal investment has
serious weaknesses. At the same time, however, it also creates a higher degree of vulnerability
especially when there are few genuine productive networks.
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In the current context of globalization, the lack of control in making fundamental and
strategic entrepreneurial decisions is a real risk for certain regional economies, as it is known
that the geographical location of productive investments can be easily changed. Certainly,
regional economies whose economic growth and job creation rely heavily on external
investment - following a "top-down" rather than an endogenous "bottom-up" model of
economic growth - are at higher risk of delocalization. This fact is more characteristic of
developing countries that do not have a strong productive apparatus.
Dominant Productive Sector:
In the process of producing goods and services, many sectors and subsectors of
activity take part and contribute, to varying degrees, to the growth of the regional economy.
From this point of view, it is possible to point out some ideas that, although known to some
extent, have an economic relevance that deserves further consideration.
First, industrial activities are usually those that require the highest level of technology,
the highest degree of specialization, the largest amount of fixed capital investment, and have
the greatest need for productive equipment. In most cases, traditional service activities
"accompany" the main production process through transportation, machine maintenance,
information provision, cleaning and hygiene in factories, restaurants, personal care, etc.
Activities are also usually located at the final stage of the production chain, i.e. very close to
consumption. Service activities are often performed in stages, such as distribution,
advertising, wholesale trade, retail trade, technical assistance, and so on.
Given this, it becomes clear that, except in certain cases, the transformation stage in
the production process (industrial activity) is the main process of the value-adding
mechanism, while traditional services play an "auxiliary" role whose economic value in trade
even usually depends on the industrial value determined through a fixed percentage margin.
The relevance of industrial activities is more visible in a macroeconomic context
characterized by mature and traditional sectors. With the emergence of the modern
"knowledge economy", certain activities, such as software creation, design or specialized
technological consulting, have become increasingly important. Nonetheless, it should also be
emphasized that these highly specialized services generally do not fulfill a purpose, but rather
are activities linked to the creation of highly sophisticated products and/or to an innovative
presence on the market.
In addition, it is also necessary to consider the contribution of the productive sector to
regional economic growth, which either directly or indirectly affects other sectors related to
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the production chain. Input-output analysis shows that industrial activities generally have the
largest pull and push factors, so that their multiplier effect on the entire productive system is
greater than that of the services sector. This phenomenon is due not only to the closer
proximity of service activities in many cases to final demand, but also to the higher level of
complexity of industrial activities that require a large amount of inputs (raw materials and/or
intermediate goods) and the assistance of a large number of supporting services, both
advanced and traditional.
Thus, developed regions are characterized by the presence of strong industrial
networks. Recently, however, there has been a clear tendency to favor the third sector
(services) in the economy, as a result of the increasing role of "knowledge" in the modern
economy, which does not diminish the importance of industry.
Of course, industries must increase their innovation and productivity, thus requiring
advanced technology services. As a result of the impact of advanced technologies and
services, industrial activities can be grouped into at least three categories: (a) advanced
technology subsectors i.e., aerospace, computing, semi-conductors, communications,
electronic products, pharmaceuticals, (b) mid-level technology subsectors e.g. chemicals,
plastics, aluminum, etc. and (c) basic technology subsectors e.g. textiles, food, paper, wood,
steel, etc. Means that the importance of industry is diminishing in the overall productive
network. It is no coincidence that developed countries such as the United States, Japan,
Germany, etc. - are countries that have the largest industrial activities, have the largest
multinational industrial enterprises, and are commonly called "industrialized economies".
Functional Dependency:
Another variable to consider regarding the qualitative profile of the entrepreneurial
structure is the role of the firm in the productive process. What is called "functional
dependence" here is a concept closely related to the value chain approach (Porter 1985;
Gereffi 1994), to the "value stream" (Womach and Jone 1996) or to the old French concept of
"filière". However, in contrast to these analytical approaches, so-called "functional
dependence" has no primary purpose in the analysis of governance or domain relationships
between firms, nor the relationships between sectors of activity included in input-output
analysis.
"Functional dependence" belongs to the territorial framework of analysis. The
Economics literature has so far only considered the hypothesis that there is a higher degree of
interconnectedness between SMEs and suppliers or clients in a given geographical context
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than between large firms and those suppliers or clients (Florio 1996). However, it is also
possible that SMEs in disadvantaged areas specialize in finding markets for the products of
large firms. From this perspective, we can distinguish two types of firms (Guzmán et al.,
2006):
1. So-called "market maker" companies, most of which are located in developing regions.
2. The so-called "product maker" companies, most of which are located in developed
regions.
From an empirical point of view, given detailed information on the flow of purchases and
sales of each firm to local, regional, national and international markets, we can calculate the
relationship between the territorial origin of inputs and the territorial destination of outputs.
Thus, the maximum value in the "functional dependence" index for a given firm means that all
purchases come from the international market and all sales are destined for the local market.
Conversely, the minimum value in the "functional dependence" index means that all inputs are
obtained in the local market and all outputs are made for international export.
The most illustrative example of a "market-making" company can be found in the activities of
certain services, such as the distribution of beverages, office supplies, medicines, etc.;
concessions of automobiles, and machinery; franchises of clothing, food, etc. However, it is
possible that there is a functional dependence, to a greater or lesser extent, on other sectors of
activity, such as wholesale trade, retail trade, repair work or even industrial activities, as there
are firms that specialize in making certain labels, packaging or designs, in order to introduce
the products of large firms in regional or local markets.
Logically, when the functional dependency of a particular region reaches a high level
compared to the economies of other regions around it, this indicates a weak entrepreneurial
network that impacts economic growth and/or employment.
Productive Dependency:
In an important report issued by the OECD in the 1990s, new business opportunities
for SMEs were highlighted as a result of the tendency of large enterprises to downsize and
outsource (OECD 1996). These trends certainly presented new business opportunities for
SMEs, as they could utilize some of the business that had been utilized by large enterprises.
However, these positive aspects for SMEs clearly belong to the "meso" level of analysis,
which is concerned with what may benefit certain entrepreneurial interests, but not necessarily
the entire entrepreneurial network.
From the perspective of a "macro" level analysis, the relationship between SMEs and
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large companies may have another meaning. In this analysis, the concept of "productive
dependence" relates to the degree of concentration exhibited by an enterprise with respect to
the number of suppliers, on the one hand, and with respect to the number of clients on the
other. A maximum value in the index of "productive dependence" on suppliers means that all
the company's inputs come from only one supplier. On the other hand, the maximum value of
"productive dependence" on clients means that all the company's sales go to only one client.
This can be the case for companies that work exclusively for other companies on a
subcontracting basis.
Logically, excessive "productive dependence" on clients or suppliers implies a high
level of risk for an enterprise, as much of its output depends on the decisions of others, or
circumstances beyond its control. In many cases, high "productive dependence" not only
weakens a firm's negotiating power, but even jeopardizes its survival. But beyond the
particular interests of a firm, from a "macro" level, excessive "productive dependence"
indicates weaknesses in the entrepreneurial network. An expanded "productive dependence"
index means that there are a large number of firms - perhaps very small - whose growth, or
even survival, depends heavily on decisions and policies made by one or a few large firms.
3.5 QUALITY-BASED ENTREPRENEURIAL FUNCTION AND ORIENTATION:
The profile of an entrepreneurial network is ultimately determined by the profile of the
entrepreneur. The entrepreneurial agent is not only the person who establishes the enterprise
with its ideas and tools, but also the person who directs, manages and sustains it. There is no
consensus on the economic definition of entrepreneurship. Indeed, for entrepreneurship
experts, Kilby's famous line is quite telling: it is comparing the entrepreneur to a Heffalump
(large animal), "All those who claimed to have seen him reported that he was very large, but
they disagreed about his peculiarities" (Kilby 1971).
Key Functions Performed by Entrepreneurs:
Economic thought prefers to work with the theoretical stereotype of the entrepreneur
as a rational utilitarian agent, and most academic thought tends to assume that this is the case.
Authors who have adopted a more objective empirical approach to the analysis of the
entrepreneurial function such as Cantillon, Say, Schumpeter, and Knight (Hebert and Link
1989) are exceptions to this general attitude, rather than the norm. Sometimes, these
alternative views on the role of the entrepreneur are reinforced by various social sciences such
as Weber's (1969) sociological contribution, Sombart's (1993) historical perspective, and
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McClelland's (1961) psychological approach. Unfortunately, each of these approaches, while
valuable, was developed without considering the others. As a result, diverse ideas still coexist
about the function of self-employment in promoting entrepreneurial success (Hebert and Link
1989; Wennekers and Thurik 1999).
Even so, several attempts have been made in the last twenty years to achieve a
synthesis (Hebert and Link. 1989; Wennekers and Thurik 1999). Nevertheless, a brief survey
of each of the main theories reveals some fundamental components of the entrepreneurial
function that can be synthesized with a view to developing a taxonomy of entrepreneurial
concepts.
In short, these fundamental components can be summarized as follows (Guzmán
1994): the capitalist or financial function, which is performed by the entrepreneur when
providing capital to the enterprise; the managerial function, which consists of directing,
organizing, negotiating, or controlling the operations of the enterprise; and the booster
function (Figure 3.2) which means the implementation of a series of initiatives essential not
only to start the enterprise, but also to help it survive market pressures and achieve expansion.
In contrast to managerial and financial functions, booster functions have a very
dynamic character and are very difficult to formalize. The result does not depend on the
application of certain technical knowledge of management, however complex it may be (this
relates to the managerial function). Rather, it depends on the qualities both psychological and
sociological of the entrepreneur, who must decide on the basic initiatives to be undertaken in
the business, for example: to develop new innovative projects, to look for new profit
opportunities on the market or to remain alert to possible changes in demand. As will be
explained later, the performance of the booster function will be a consequence of the cognitive
creative process that some scholars focus on today to explain how the process of opportunity
recognition and new venture creation is carried out. By potential entrepreneurs and
consolidated entrepreneurs (Kirzner 1997; Shane 2000).
In this way, it is necessary to distinguish between two main sub-functions that, in our opinion,
make up the booster function (Guzmán 1994):
•
The "promoter sub-function" that entrepreneurs perform when they set up new businesses.
Therefore, it clearly concerns "potential entrepreneurs" who have not yet created a
business but have a high propensity to do so.
•
The "energizing sub-function" performed by the entrepreneur during the life or existence
of the enterprise, promoting its development or, at least, keeping it going. As such, this
sub-function is directly related to the work of "active or existing entrepreneurs".
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Quality-based Entrepreneurship Orientation:
If we focus on existing entrepreneurs, the energiser sub-function is manifested by the
presence of certain qualities. The literature refers to these qualities as "entrepreneurial
orientation" (Lumpkin and Dess 1996). Such qualities are not to be confused with
management qualities (which refer to the activities of managerial and, therefore, routine
functions), but refer to the initiative and behavior of entrepreneurs to energize their business.
Among the elements that make up "Entrepreneurial Qualities", the three most relevant
are the need for independence, entrepreneurial motivation, and encouraging behavior
(Guzmán and Santos 2001). The first one may be
is the most obvious psychological feature of an entrepreneur and was first alluded to by
Collins and Moore (1964). The second is the most important cognitive feature of
entrepreneurship as it takes on a set of factors that influence the performance of certain
behaviors in certain situations (Krueger 2003). Among the various taxonomies of motivation,
the one that distinguishes intrinsic/extrinsic types is particularly interesting. Intrinsic
entrepreneurial motivation means that the entrepreneurial activity is developed not to obtain
economic rewards, but because of the interest and pleasure in performing it (vocation,
personal development needs) and extrinsic entrepreneurial motivation means the opposite.
Both elements influence the behavior of the energizer which
are external and more visible factors that determine entrepreneurial quality. In fact, the
performance of these energizer behaviors indicates the level of quality-based entrepreneurial
orientation as it drives the entrepreneur's actions to improve or not the business performance.
The following behaviors lead us to this kind of entrepreneur (Santos and Liñán 2007):
•
Ambitious (as opposed to conformist), which can be understood as the entrepreneur's
need to grow the business through various investments in new production resources (fixed
assets or labor), through taking risks and showing competitive aggressiveness (Davidsson
1991; Lumpkin and Dess 1996).
•
Innovative (as opposed to routine), which can be broadly understood as Schumpeter's
five new combinations, i.e. creativity (Schumpeter 1944). Innovation reflects the
entrepreneur's tendency to engage in new ideas, novelty, and creative processes such as
technological or product market innovation.
•
Proactive (as opposed to reactive or passive), which refers to behavior that aims to
anticipate and act on future needs through taking different dynamic initiatives in an effort
to energize the business (Lumpkin and Dess 1996). This behavior is the opposite of
passivity, which is indifference to leadership in the market. Some specific behaviors, such
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as investing in employee training, putting it into practice, planning long-term activities, or
being alert to new opportunities are ways to identify a proactive attitude.
•
Cooperative (as opposed to individualistic), which can be understood as the behavior of
seeking contacts with other people, entrepreneurs or not, and different organizations with
the aim of strengthening the company's competitive position in the market and achieving
higher levels of flexibility and growth. Cooperative behavior can be both formal, through
agreements with other businesses or economic actors in the same or related sectors of
activity, and informal, through personal social networks that are particularly important
both at the pre-business start-up stage and at the business start-up and ongoing stages
(Curran et al., 1993; Johannisson 1995). An important source of this behavior is social
capital in the form of trust, reciprocity, shared values and bridging contacts.
As a consequence of the above four behaviors and when personal and environmental
factors do not provide severe constraints, firms should in theory have good performance. This
performance can be measured through growth in turnover, number of employees or fixed
assets (Davidsson et al., 2006). Clearly, every entrepreneur will not achieve the same
performance. Each will score differently on each of the different energizing behaviors. Only a
few will achieve significant growth in their firms. However, the greater the number of
entrepreneurs who achieve significant growth in their firms, the greater the growth of the
regional economy in terms of income levels and economic development. In this way, as
argued in sec. This chapter, the quality level of entrepreneurial orientation ultimately
determines the type of firm in terms of its performance and, thereafter, the type of regional
economic growth in terms of its income level.
3.6 ENTREPRENEURSHIP MODEL AND REGIONAL ECONOMY:
As is well known, the regional economics literature in recent years has focused on
endogenous development theory as opposed to the top-down development theory that
dominated the scholarly debate until the crisis of the 1970s (Vazquez 2002). This new focus
in regional economics emphasizes solving regional development imbalances, not on the lack
of capital or labor mobility between regions, but on the lack of internationalization, innovation
and entrepreneurial capacity. In other words, the main emphasis is on the intangible
endogenous resources of a region, of which the entrepreneurial function is one of the most
important.
Endogenous Development Model and Entrepreneurship Structure:
Based on available empirical evidence, the theory of endogenous development led to
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important changes in various locations and productive sectors of the world economy: an
evolution from the Ford model of production towards a flexible model of specialization. This
new production model is complex and diverse, as the world economy has evolved since the
eighties. In fact, based on the competence-cooperation binomial equation, flexible
specialization models usually end up as different types of local productive systems, ranging
from local SME networks to large corporate groups, both local and exogenous to the region.
In this regard, the literature on industrial parks, firm systems and local clusters has
emphasized the role of inter-firm linkages and cooperation within a region (Pyke et al., 1992;
Markusen 1996; Porter 1998). This literature has also paid attention to local production
models organized around large firms, pointing out the importance of linkages between large
firms and local SMEs acting as their suppliers.
In this sense, an example of a typology of different compositions of local productive
systems is that proposed by Markusen (1996). In particular, Markusen identifies five local
productive systems: the Marshallian industrial district, the Italian variant industrial district,
the linking and connecting district, the industrial satellite platform, and the industrial district
anchored countries. This typology is elaborated on the basis of several criteria, among which
are highlighted: breakdown of firm size, type of industrial relations (functional and
productive), entrepreneurial network, innovative capacity and production organization.
However, there is also a large body of literature that focuses on types of firms that are
widely dispersed in different regions, with different local productive systems, and with
different levels of development (Hardy 1998; Bellandi 2001; Audretsch 2003). Typically,
such prevalent firms are defined based on several variables, such as size, relationship to the
region (either productive or functional) or productive specialization. One of the most recent
ones is the one that shows the following firm model (Romero and Santos 2006):
1. A 'domestic' enterprise is a production unit whose activities, due to the nature of the
productive process and/or the business strategy developed, are limited to a regional area in
terms of sales and purchases of inputs.
2. A 'dependent' SME is a small or medium-sized enterprise whose suppliers are mostly
located outside the region, and whose production is primarily sold in the regional market.
3. An 'exporting' SME is a small or medium-sized enterprise whose production is mainly
sold in external markets, but whose main suppliers are in the region where the SME is
located.
4. An 'extravert' SME is a small or medium-sized enterprise whose activities are oriented towards
external markets, both in the sale of its products and the purchase of its inputs.
42
5. A large 'push' company is one that has strong backward linkages with regional suppliers,
but is essentially oriented towards external markets in terms of its sales.
6. A large 'enclave' company is a corporation whose main suppliers are located outside the
country.
region and basically commercialize its products in the outside market.
7. A 'market-oriented' large company is one whose location is due to its proximity to the
market, while its main suppliers are mostly outside the region.
As mentioned earlier in Sect, where the main features of the entrepreneurial structure are
proposed, both the consideration of different local productive systems and different firm
models allow us to detect some strengths and weaknesses of an economy, and to approach, in
a certain way, the "quality" of the entrepreneurial structure (Guzmán et al., 2000; Santos
2004; Romero and Santos 2006).
Regional Entrepreneurship Mode l:
However, despite the important role of entrepreneurs in endogenous development
models, there is no reference to entrepreneurs in endogenous development models. In fact, we
consider that there is no link between the different quality levels of entrepreneurial orientation
and the typology of entrepreneurial structures, local productive systems or firm models. A
territorial analysis should include the quality level of entrepreneurship as a important
explanatory variables. In this way, a model of regional entrepreneurship can be built.
In fact, by considering the quality degree of entrepreneurial orientation and
type of entrepreneurial structure, the general hypothesis can be concluded as follows: the
higher the quality of entrepreneurial orientation, the higher the quality of regional
entrepreneurial structure, the higher the economic growth of the region. To establish the
quality level of entrepreneurial orientation, the construct mentioned in the previous Sect. 5.2
can be used. However, to establish the quality level of the entrepreneurial structure (Table 2),
these three different options can be used: features of the local productive system, typology of
firms according to different territorial criteria, or specific features described in Chapter 4 of
this chapter. 4 of this chapter.
In this case, the latter seems to be more in line with the objectives of this chapter. The
reason for this is that all the above-mentioned variables (firm density, firm size, dominant
productive sector, productive and functional dependence, as well as patrimonial dependence)
form the qualitative profile of the entrepreneurial structure and it is important to take those
variables into account when considering the macroeconomic impact on job creation, economic
43
growth and development. Each variable represents a different analytical approach with respect
to entrepreneurial networks. However, it is also true that there may be complete or partial
overlap between these analytical factors. This is for example the case for most of the car
concessionaires who, at the same time, have a traditional micro-enterprise and service profile,
as well as a high functional and productive dependency on the supplier side.
From a comparative point of view, it cannot be concluded that a large number of
companies with these negative "parameters" can coexist in economically developed regions.
The difference regarding underdeveloped regions, where there is a common weak point
profile, is that, in addition to these kinds of enterprises, there are also large enterprises and
indigenous industrial SMEs with a high degree of ownership, functional and productive
dependency.
As can be seen in Figure 3.2, each quality level of entrepreneurial orientation exerts an
influence on the specific entrepreneurial structure; that is, the level of entrepreneurial
orientation is an important explanatory variable for economic growth as it is one of the main
characteristics of the entrepreneurial structure.
In the model, two extreme possibilities can be found:
•
The first is the combination of high levels of quality entrepreneurial orientation (which
relates to entrepreneurs with high ambitious, proactive, innovative and cooperative
behavior) with entrepreneurial structures in developed regions. This would occur in the
wealthiest regions of the EU, such as northern Italy, southern Germany or south-eastern
England.
•
The second is the combination of a low-quality entrepreneurial orientation (which
corresponds to entrepreneurs with high levels of conformist, reactive, routine and
individualistic behavior) with entrepreneurial structures in disadvantaged regions. This
would be the case in most central and eastern European countries such as Poland, Checz
Republic or Hungary.
Between these two extremes, there are many different cases. In fact, regions that have features
of both configurations can be found, depending on different productive activities, regional
history or institutional organization. For example, most Spanish regions, especially in the
central and southern parts, are characterized by a mix of high and low quality entrepreneurial
structures. Nevertheless, perhaps Ireland, considered a unique region within the European
Union due to its small size and population, is the most ambiguous case as different quality
levels in entrepreneurial structures coexist. On the one hand, some regions, such as the region
around Dublin, have entrepreneurial structures that correspond to rich regions and other
44
regions, such as the western region, have entrepreneurial structures that correspond to
underdeveloped regions.
Conclusion:
In this chapter, the importance of an entrepreneurial approach to regional economic
development has been explained. Depending on the level of analysis, whether micro, meso, or
macro, the primary importance of entrepreneurship lies with the entrepreneur, the firm, or the
economy as a whole, respectively. Nevertheless, from a regional perspective, a macro analysis
of entrepreneurship factors should pay attention to how entrepreneurial networks need to be
structured in order for the regional economy to achieve the highest possible growth rate. On
the other hand, since entrepreneurial organization is the result of the entrepreneurial figure
and entrepreneurial capacity presents different profiles in different geographical frameworks,
it is necessary to qualitatively analyze the functions developed by entrepreneurs.
As already explained, only endogenous development models allow regional
economies to consider the quality of entrepreneurial functioning (entrepreneurial orientation)
and the quality of entrepreneurial structure as important factors that are influence on the
economic development of a region. In fact, some typologies of enterprises or regional
productive systems refer to different characteristics of entrepreneurial structure and quality of
entrepreneurial functions.
Besides some traditional characteristics of entrepreneurial structure such as firm size,
firm density and dominant productive sectors, three different entrepreneurial dependencies
have also been described in this chapter: productive, functional and patrimonial. These three
dependencies are very important to determine the degree of quality of a region's
entrepreneurial structure because, as reality shows, the more developed a region is, the more
autonomous firms it will have, regardless of the influence that foreign investment certainly
has in this era of globalization.
Finally, it is important to emphasize that the quality of entrepreneurial orientation is a
factor that is considered prominent in influencing the main characteristics of the
entrepreneurial structure. In addition to other factors, such as wage rates, tax rates or labor
formation, entrepreneurial behavior that shows ambition, creativity, proactivity and
cooperation can help develop more autonomous firms and attract foreign investment in non-
traditional sectors. This would be a way to improve the quality of the entrepreneurial
structure.
