Entrepreneurship and Ethnic Entrepreneurship: A Literature Review

Entrepreneurship: Definitions and Opportunity Recognition

Entrepreneurship studies have consistently pointed out that opportunity recognition is an essential characteristic of all entrepreneurs. In fact, the most commonly cited definitions of entrepreneurs use opportunity recognition as their benchmark. For instance, Bygrave and Hofer (1991, p. 14) define an entrepreneur as one "who perceives an opportunity and creates an organization to pursue it." Similarly, Shane and Venkataraman (2000, p. 218) in their management review defined opportunity recognition as a benchmark of entrepreneurship, writing: "We define the field of entrepreneurship as the scholarly examination of how, by whom, and with what effects opportunities to create future goods and services are discovered, evaluated, and exploited."

Two distinct attributes of opportunity recognition have been the major focus of research in the field of entrepreneurship: (1) multiple stages of opportunity recognition, and (2) complex and intricate procedures. Scholars have been particularly keen to uncover the dynamics of the latter. The underlying reasons for this heightened interest are twofold: it acknowledges the versatility of opportunity recognition, and it helps in the discovery of the dynamics of entrepreneurship.

Long and McMullan (1984) presented a conceptual model of opportunity recognition based on four dimensions: pre-vision, point of vision, opportunity elaboration, and the decision to proceed. They assert that pre-vision is dependent on a number of variables, both internal and external — for instance, environmental forces, job forces, business alertness development, moonlight venturing, and job selection. Similarly, Ardichvili et al. (2003) propose that the commencement of an entrepreneurial journey depends on two sequential factors: (1) identification of features in the area of proficiency, which results in recognition, and (2) a complete evaluation of the probable opportunities of a successful business venture.

Christensen et al. (1989) gave a twofold definition of opportunity recognition: recognizing an opportunity to start a new business venture, and recognizing opportunities to enhance existing business activity. Bhave (1994) defined entrepreneurship as a process stimulated either internally or externally. Internal stimulation refers to the process where an individual sees a gap, identifies an unfulfilled need, and decides to pursue a business venture. External stimulation refers to the need to pursue a business venture initially, and then exploring ideas and opportunities thereafter. Kaish and Gilad (1991) identified that entrepreneurs give special attention to risks associated with new business ventures before embarking upon them. Cooper (1981) recognized intuition and casual perception of the environment as two features of opportunity recognition. Stevenson et al. (1985) assert that the primary driver of all entrepreneurs is opportunity recognition, while Stevenson and Jarillo-Mossi (1986) define entrepreneurship as a procedure where individuals combine all their available resources to create higher value in order to capitalize on an existing opportunity.

Csikszentmihalyi (1996) presents a four-dimensional model of preparation comprising: preceding experience, acquired knowledge, heightened interest in the specified area, and increased effort based on self-interest. Shane (2000) identified prior experience and acquired knowledge as strong characteristics of entrepreneurs. Similarly, Bygrave (1997) and Ronstadt (1988) found that prior experience was the underlying reason for starting a business venture in more than 50% of the cases they studied.

Csikszentmihalyi (1996) identifies incubation as a process of contemplating an idea — "ideas churn around below the threshold of consciousness" — and recognizes two features of incubation: intuitive and non-intentional. Schumpeter (1942) asserts that incubation leads to the discovery of various new relationships that had previously gone unnoticed. In the field of entrepreneurship, Gaglio and Taub (1992) recognize incubation as an inherent attribute of entrepreneurs, defining it as the simmering of opportunities that have been recognized over time.

Personal Characteristics and Traits of Entrepreneurs

Insight is considered an inherent characteristic of all entrepreneurs. It occurs when there is a conscious recognition of a profitable opportunity. Gaglio and Taub (1992) define insight as an emotional and mental experience at the moment of opportunity recognition. Long and McMullan (1984) signify insight as a "point of vision," while Gaglio and Katz (2001) define it as a discovery that ruptures the present means-ends perception. Hills (1995) recognizes heightened levels of confidence as a distinct feature of entrepreneurial insight once an idea is discovered. Amabile (1988) recognizes creativity and innovation as inherent attributes of entrepreneurial insight, and Singh (1998) views the influence of social networks as a key driver for entrepreneurial insight.

Business formation is inherently dependent on the outcome of evaluation. De Koning (1999) provides a two-dimensional model of evaluation: testing of ideas by talking to people, and refining of ideas by consulting social networks. Bhave (1994) and Gaglio and Taub (1992) also recognize evaluation as a two-dimensional process consisting of preliminary market testing and financial viability analysis. Long and McMullan (1984) identify two distinct attributes of entrepreneurs in the evaluation phase — creative thinking and preparation — both of which greatly assist in overcoming risks and objections. Vesper (1996) found that failure to comprehensively evaluate every aspect of a business is the major reason many entrepreneurial ventures fail.

Csikszentmihalyi (1996) asserts that elaboration is the most difficult part of the entire entrepreneurial process. He identifies four distinct aspects of successful entrepreneurs in this phase: extended business planning covering every aspect of the business, constant brainstorming to find solutions to problems, constant feedback and testing of ideas, and actual startup of the business venture. Bhave (1994) recognized two salient attributes of entrepreneurs in the elaboration phase: focusing on customer feedback to initially create and steadily formalize organizational procedures, and focusing on trial-and-error in order to constantly change business procedures to enhance value. Both Hills (1995) and Hills and Shrader (1998) identified failure to quickly adapt to market conditions as the main reason for business venture closures.

Creativity is the essence of entrepreneurship. Many scholars have emphasized that strong creative skills lead to effective problem solving, and many entrepreneurs place a great deal of emphasis on creativity (Senge, 1990). Barron and Harrington (1981) present a six-dimensional model of creativity that has been used as a benchmark in several entrepreneurship and leadership research studies. The dimensions of creativity include: imagination, spontaneity, self-confidence, resourcefulness, enthusiasm, and independence. Senge (1990) asserts that a creative business environment can be extremely beneficial for entrepreneurs, but notes that forming such an environment is not straightforward. He identifies two attributes of a creative environment: being open and friendly to creative thought, and being free of disapproval and favorable to out-of-the-box thinking.

Experimentation in entrepreneurship refers to the trying of new ideas that have yet to be tested in the real world. Vesper (1996) found that many successful entrepreneurs proceeded with experimentation by actually starting up a business, citing five reasons for this behavior: they were motivated by low start-up expenses and low downside risks; they found market research and product testing more expensive than launching a business; they were not afraid to make mistakes; they considered business failures and ambiguous launches as part of the entrepreneurial process; and they regarded the knowledge gained from such experience as priceless and applicable to future ventures. Ronstadt (1988) similarly found that entrepreneurs were not afraid to start a business because they believed that even failure would yield knowledge and experience to aid future endeavors.

Domain knowledge is considered more important than technical skills for entrepreneurs. Prior knowledge and experience in a chosen field is regarded as vitally significant. When venture capitalists were asked to explain the sudden bust of dot-com ventures, they cited lack of domain knowledge as the single most destructive factor in the failure of new startup ventures (Shane, 2000). Research shows that successful entrepreneurs possess two distinct qualities: they acknowledge the rules governing a venture in a particular environment and have the business wisdom to compete in that environment, and they have high levels of prior experience in their chosen field (Csikszentmihalyi, 1996).

Successful entrepreneurs have the ability to refine their initial ideas and investigate feasibility before pursuing them. Timmons (1994) presents a three-dimensional model of practical application: comprehensive evaluation of the opportunity, comprehensive evaluation of one's own expertise and inclination, and comprehensive evaluation of the resource-gathering process to sustain the launch. Long and McMullan (1984) propose that the application of a good idea depends on elaboration and evaluation. Singh (1998) found that entrepreneurs who spend more time studying the pros and cons of an idea before pursuing it tend to set up fewer businesses overall, but that the higher majority of successful entrepreneurs are those who invest more time in elaboration and evaluation.

Wright et al. (1997a) studied the motivational drivers of entrepreneurs and divided them into two groups: the craftsman, driven by the desire for independence and freedom, and the opportunist, driven by the desire for monetary gains. Research has also identified multiple types of entrepreneurs — serial, habitual, nascent, novice, and portfolio — whose personality traits vary significantly, though all share certain common characteristics. Cowe (1998) studied serial entrepreneurs and identified four common attributes: being extremely effective at business startups, fairly good at sustaining ventures, outstanding communicators, and highly visionary.

Westhead and Wright (1998a) assert that almost all entrepreneurs are concerned with gaining recognition and accumulating resources. Other common traits include the will to succeed, a love of responsibility, a desire for control, outstanding leadership qualities, an extremely strong work ethic, experience in a volatile industry, and a record of early success. In terms of motivation, Carland et al. (2000) identified three forms: a strong inclination towards innovation, a strong inclination for risk-taking, and a strong desire for accomplishment. Wright et al. (1997a) write that while entrepreneurial motivations change over time, they revolve around monetary success, risky business ventures, personal achievement, and innovation. Ucbasaran et al. (2000) added two further motivational drivers: the desire to work closer to family, and the desire to benefit from tax breaks. Birley and Westhead (1993) further identified job satisfaction and personal independence as additional motivators of successful entrepreneurs.

Ethnic Entrepreneurship: Definitions, Culture, and Identity

Fairlie (1996) asserts that ethnicity is the background of the entrepreneur and impacts a number of business processes, including the products being sold and the experience of conducting business activities. He observes that most ethnic entrepreneurs are moving away from the typical corner-shop business model towards more profitable sectors of the economy, such as computers, electronics, estate agencies, and entertainment — a trend increasingly visible among ethnic youth. Light (1972) was the first to distinguish between minority entrepreneurs, immigrant entrepreneurs, and ethnic entrepreneurs. Immigrant entrepreneurs are individuals who migrated to another country and established a successful business. Ethnic entrepreneurs are individuals whose parents had migrated to a specific country before their birth. Minority entrepreneurs encompass both categories. Chaganti and Greene (2002) more recently defined the ethnic entrepreneur in terms of the strength of an individual's identification with an ethnic community, regardless of generation. This review adopts the definition given by Light (1972).

Van Delft et al. (2000) observed that various ethnic groups are moving towards self-employment at a rapid pace, a trend that has grown consistently over the past three decades. Choeni (1997) distinguishes ethnic entrepreneurs from mainstream entrepreneurs by four attributes: orientation towards ethnic products, focus on ethnic markets, orientation towards ethnic customers, and orientation towards ethnic business strategies. Greenwood (1994) studied the cultural factors that influence the success of ethnic entrepreneurs, arguing that these individuals have specific skill sets and cultural attributes that facilitate entrepreneurial success. He highlights the most common cultural factors: strong unity, loyalty, and trustworthiness within the community; higher levels of flexibility; personal factors influencing motivation; strong work ethics; casual and informal social networks with community members; and accommodating financing provisions.

Scholars have found that ethnic entrepreneurs have taken the lead in setting up new business ventures over local entrepreneurs. For instance, Van den Tillaart and Poutsma (1998) discovered that a higher percentage of the Turkish ethnic group in the Netherlands had set up new business ventures than the indigenous population. An important finding regarding the role of culture and identity is the structural theory presented by Waldinger et al. (1990), which holds that society plays a major role in driving entrepreneurship among ethnic groups. Their three-dimensional model includes: opportunity structure (e.g., entrepreneurship access and market conditions), predispositional factors (e.g., levels of aspiration, language deficiencies, and migration motives), and source mobilization (e.g., social networks, and commitment to religion and culture).

Bates (1997) and several other researchers studied the target markets of ethnic entrepreneurs (see, for example, Deakins et al., 1997; Deakins, 1999) and identified two distinct patterns, leading to a classification of entrepreneurs into two groups. The first group has limited technical skills and a strong social network, maintains an internal orientation, and targets the local ethnic community. The second group has strong technical skills and targets people beyond the local ethnic community.

In the UK, Asian entrepreneurs form the bulk of the ethnic entrepreneurial population. Shanmuganthan et al. (2003) assessed trends among British Asians and found the following: they are structured into several smaller groups, each with different languages and rituals; together their earning potential is estimated at £5 billion annually; the majority (60%) are below the age of 30; a small number (12%) are university students; they have a higher inclination towards saving profits; they risk unfavorable market trends; they consider family values to be very significant; many still live with their parents; and most are well-educated.