Public Policy: Moving Beyond Firm Creation 1. Jeffrey S. Petty Jean-Philippe Bonardi University of Lausanne. Executive Summary

Transcription

1 Public Policy: Moving Beyond Firm Creation 1 Jeffrey S. Petty Jean-Philippe Bonardi University of Lausanne Executive Summary What role does government policy play in promoting and supporting entrepreneurial activity? An increasing number of countries have initiated or modified programs and policies designed to promote entrepreneurship, promote investment in new ventures, or reduce the burden of bankruptcy on firm owners yet, unfortunately, not all of these policies have achieved the desired effects within their respective economies. Although specific policies do appear to promote firm formation and other selected entrepreneurial activities, policy implementation has often been piecemeal in nature. Hence, while many new firms have been created, the needs and challenges that will be faced by these nascent firms in their latter stages of development potentially go unaddressed by the policy makers who seek to support them. Focusing on the promotion of new firm formation and the level of nascent entrepreneurial activity captures the effects of policies at the earliest stage of the process but only provides a partial view of the total entrepreneurship landscape. First, many of the firms that are created as a result of incentives also benefit from, and perhaps come to rely upon, other government initiatives such as tax incentives, access to technology transfer schemes, advisors and subsidized premises yet may not be prepared to cope with the realities of operating as an independent enterprise and do not survive. Second, there is an inherent risk that policies that either lower the entry barriers for new firms or promote start-up activity will attract less productive or marginal entrepreneurs that pursue less viable opportunities and draw resources from more promising entrepreneurs. Additionally, many government policies designed to promote entrepreneurial activity, including the establishment of a business or investing in a new venture, may be compromised by other government policies thereby threatening the survival of new firms and negating the intended positive effects over the longer term. Rather than focusing on the effectiveness of an individual government policy, our research is interested in the integration and overlap of different policy measures including both policies to remove the barriers to entrepreneurship as well as those designed to facilitate business more generally. As such, our approach is to view entrepreneurship as a process rather than as a singular event and thus will incorporate an evolutionary perspective. Our analysis includes policies that affect several critical events over the lifecycle of a firm as well as multiple stakeholders that interact with the firm. In doing so, we seek to determine what, if any, strategy is pursued with respect to the alignment or interconnectedness of a country s institutional framework and policies that are relevant to the broader conceptualization of entrepreneurship. In the absence of such a deliberate strategy policy makers run the risk of creating unintended negative consequences, including but not limited to, investment gaps, misallocation of resources, excessive churn rates, and market bubbles. 1 Research funding provided by the Swiss National Science Foundation is gratefully acknowledged. 1

2 Introduction In an environment of high unemployment, mounting national deficits, and a loss of confidence in big business, there is little wonder that politicians and policy makers are asserting their faith in, and support of, entrepreneurs for a way out the economic gloom. Whether it s David Cameron on a recent visit to Russia asserting that, As governments, we need to support the innovation and entrepreneurship that can drive growth.", or Barack Obama proclaiming his belief that, "Entrepreneurs embody the promise of America entrepreneurs also play a critical role in expanding our economy and creating jobs.", entrepreneurship is at the center stage of the policy agenda of many nations. However, once you look beyond the rhetoric, one is left wondering which entrepreneurs (e.g. imitators, lifestyle driven, innovation driven, etc.) these politicians are addressing and what specific set of measures are they going to take to empower the nation s entrepreneurs to establish and develop viable businesses. This high level interest in and commitment to entrepreneurship may be attracting media attention in the wake of the recent financial crisis but government initiatives designed to promote entrepreneurship is not a new phenomenon. For centuries governments around the world have enacted programs and implemented policies designed to support the development, growth, and protection of new businesses and industries (Spar, 2001). In more recent times, throughout the 1980s and 1990s, many countries initiated and modified programs and policies designed to promote entrepreneurship (Queen, 2002; Wennekers, Uhlaner, and Thurik, 2002). These programs have ranged from attempts to attract investors and entrepreneurs through the modification of tax regimes (Potereba, 1989; Dubocage and Rivaud-Danset 2002; 2

3 Keuschnigg and Nielson, 2003) and bankruptcy laws (Gnyawali and Fogel 1994; Verheul, Wennekers, Audretsch, and Thurik, 2002) to efforts to better educate the entrepreneurs of the future (d Andrea Tyson, Petrin, and Rogers, 1993; Verheul et al., 2002). However, although entrepreneurship has been credited with playing a major role in the global economy and overall totals of global entrepreneurship activity were on the increase for several years (de Soto, 2000; Acs, Arenius, Hay, and Minniti, 2005), not all of these policies have had the desired effects, as evidenced most dramatically by the dot-com bubble in the USA in Taken on their own, new policies and programs focused on entrepreneurship may in fact be appropriate for a specific purpose but, in reality, they are developed within and constrained by the national institutional and policy framework, which embodies the entrepreneurial ecosystem. So, while government interest in supporting entrepreneurship is understandable for many economic and social reasons the attempts to promote new ventures may actually create unexpected consequences for nascent firms, selected industries, or the economy as a whole. Thus, we believe that the role, scope, and impact of various policies related to business, not simply those focused on entrepreneurship, is much broader in terms of both the stakeholders and the activities involved than much of the existing research accounts for. Building upon the insights of previous studies (e.g. Lundström and Stevenson, 2005; Hoffman and Gabr, 2006; Lundström, Almerud, and Stevenson, 2008; Zahra and Wright, 2011), our research aim is to explore the integration and overlap of different policy measures within a country s institutional framework. Rather than focusing only on the effectiveness of an individual government policy, we seek to address the relationships between the collection of 3

4 national-level polices targeting entrepreneurship and business and the effects on entrepreneurship activity over time. This paper proceeds as follows. We begin with a brief overview of the varying definitions of entrepreneurship. In the next section we discuss the roles of institutions and stakeholders within the context of entrepreneurship. We then present a typology of national entrepreneurial ecosystems and selected country examples from our analysis are highlighted. Finally, we discuss the implications for policy makers and entrepreneurs and suggest directions for future research. Defining entrepreneurship. According to the most recent 2011 Global Entrepreneurship Monitor (GEM) annual report there are nearly 400 million entrepreneurs globally who are pursuing opportunities ranging from basic subsistence activities to innovative high tech ventures (Bosma, Wennekers, and Amorós, 2012). Regardless of the complexity of the entrepreneurial context, Venkatraman (1997) highlights the fact that entrepreneurship requires the existence of an entrepreneur and an opportunity. However, entrepreneurship commonly means different things to different people, in both the academic as well as policy arenas. Definitions of an entrepreneur and the field of entrepreneurship more generally reflect a wide range of variability (Gartner, 1985; Low and MacMillan, 1988; Low, 2001; Howorth, Tempest, and Coupland, 2005) so it is understandable that policy makers from country to country may view entrepreneurship quite differently depending upon the definition they select, their own perspective, or their particular objective. Unfortunately, this inherent variability within the context of entrepreneurship policy may be the source of, or exacerbate, the issues and problems that are the focus of this paper. 4

5 Although there is general agreement that entrepreneurship requires an entrepreneur to engage in a series of activities in order to identify and exploit an opportunity, the range of activities that are included in the definition of entrepreneurship is quite broad. At one end of the spectrum we find entrepreneurship being characterized as the exploration for and exploitation of opportunities, which culminates in the mobilization of resources by a newly founded firm or an existing firm that decides to pursue an opportunity (Bird, 1989; Aldrich, 1990; Shane and Venkatraman, 2000). There is little doubt that the start-up activity is a critical event within the domain of entrepreneurship but, when one considers the levels of business failure and the churn rates across sectors (Shane, 2008; OECD, 2011), limiting the analysis to these early stage activities only enables researchers to capture whether or not an opportunity was identified and if a new entity was created to exploit it. At the other end of the continuum are those researchers who have adopted a more longitudinal process perspective (Penrose, 1959; Churchill and Lewis, 1983; Hambrick and Crozier, 1985). This perspective is more contextual in nature and incorporates aspects of the entrepreneurial growth process that are collectively important over time, including the raising of capital, the making of plans for expansion, and the ultimate harvest of the venture. As such, in this paper we adopt the contextual-process perspective of entrepreneurship, which captures the evolutionary aspects and dynamic nature of new ventures. In doing so, this approach allows us to incorporate critical events over the life cycle of a new venture, including the initial exploitation activity, provides for the inclusion of issues (e.g. securing funding, patent protection) that are of importance to the 5

6 entrepreneur and the firm s additional stakeholders, and facilitates the evaluation of a broader range of institutions and policies that impact businesses, established and new. Implications of moving beyond creation Institutional considerations. The impact of institutions on entrepreneurship, particularly as they relate to the exploitation stage, is well documented and has been researched across many contexts ranging from the effects of legal and regulatory frameworks (Freytag and Thurik, 2006; Sobel, 2008) to those focused on the informal institutions of a country (Hayton, George, and Zahra, 2002; Manolova, Eunni, and Gyoshev, 2008). Regardless of the specific measures implemented, one of the implied objectives of government policies focused on entrepreneurship is to reduce the levels of uncertainty for entrepreneurs in the economy so as to generate more start-up activity. The underling logic, and intent, of an adjustment to the institutional framework, or environment, in this overly simplified setting of attempting to promote entrepreneurship is apparent yet the outcomes are often quite varied. On the positive side, assuming an entrepreneur has identified an opportunity they should perceive a more favorable environment for exploitation as a result of the government s initiatives and be more prone to assume the (reduced) risks associated with starting a new venture, which is the intent. However, although the new institutional environment may indeed appear to be more conducive for entrepreneurial activity, the ultimate effect of a firm formation-centric mindset may be the creation of unproductive entrepreneurship. This unintended negative outcome occurs as a result of attracting marginal entrepreneurs to the market, the channeling of entrepreneurial action towards 6

7 activities that have negative consequences, or the misallocation of capital resources by external stakeholders (Baumol, 1990; North, 1990; Minniti, 2008; Shane, 2009). When viewed from an evolutionary perspective there are many aspects of entrepreneurship that may be affected by policies and institutions but one of the most important is perhaps the fact that the rules of the game (North, 1990, 1994) are subject to change as a firm progresses from one stage of development to the next. Once the focus of analysis moves beyond firm formation, the character of a firm s commercial, organizational, and financial environments change dramatically. Specifically, as an entrepreneurial venture evolves from a nascent firm to a more developed commercially viable organization the overarching institutional-policy framework, depending upon the fit or alignment of the policies, may or may not prove to be equally supportive at each stage of the growth process. As nascent firms move from the entrepreneurial stage to the more formalized growth and maturity stages the commercial or business challenges tend to increase and the need to focus on issues related to organizational control, structure, and growth becomes more central to the organization (Churchill and Lewis, 1983; Quinn and Cameron, 1983). However, firms that have benefited from, and perhaps have come to rely upon, government policies such as tax incentives, access to technology transfer schemes, advisors, and subsidized premises may not be prepared to cope with the realities of operating as an independent small to medium sized enterprise (SME). Hence, rather than focus solely on policies that promote entrepreneurship and motivate entrepreneurs to form a new venture, there is a need to consider additional policies and the institutional framework that support start-ups as they transition through the various life-cycle stages. 7

8 Regardless of the industry, the market conditions, or the country, a fundament question policy makers need to consider is whether or not the institutional framework supports or hinders the movement of a nascent firm from a less complicated, start-up, environment to a more complicated one. A network of stakeholders. The importance of the relationships between businesses and multiple stakeholders has become a common topic of inquiry within the international business literature (Gilpin, 1975; Dunning, 1981; Zhang, 2001) and corporate social responsibility (Doh and Guay, 2006; Jamali, 2008) literature but the focus has generally centered on stakeholder s interaction with and influence on larger mature firms. Like these larger established firms, entrepreneurial firms and their respective networks of stakeholders operate within the framework of the institutional systems model (Preston and Post, 1975) wherein policies are formed to promote or limit activities as the result of the feedback from the various agents making up a society (Freeman, 1984; Jawahar and McLaughlin, 2001; Lundström, Almerud, and Stevenson, 2008). An individual entrepreneur may be the sole, or key, actor during the exploration and initial exploitation activities but when viewed over a longer period of time the role of other stakeholders in relation to the on-going success of the entrepreneurial firm becomes more pronounced. However, when government policies are developed and evaluated in relatively narrow terms they fail to incorporate the roles of many of an organization s stakeholders, which may include the employees, investors, other government agencies, etc. A limited amount of research has examined the effects of networks in entrepreneurial contexts (Birley, 1985; Hansen, 1995), yet the impact of government policy on these networks, and the corresponding perception or reaction to the policies 8

9 by its members, remains to be explored. Notably, the one aspect of entrepreneurship policy that does appear to be focused on bridging the gaps between the actors in an entrepreneurial network is the effort to promote the involvement of the investment community (Dubocage and Rivaud-Danset, 2002; Harding, 2002; Keuschnigg and Nielsen, 2003; Hoffman and Gabr, 2006). The majority of these initiatives have targeted investors who are interested in highly innovative ventures (e.g. venture capital and private equity investing), which represents a small percentage of ventures in only selected industries, and even though the results of these efforts have been mixed it does demonstrate that policy makers are aware of the need for the involvement of external stakeholders. From artisans to inventors. The role of institutions and stakeholders are equally relevant to contexts largely centered on more basic, lower potential, ventures as they are to contexts that are focused on innovative high growth firms, as presented in the following two examples. The case of Thailand highlights the interconnectedness of institutions and provides evidence of a country that is continually attempting to align its many economic and policies designed to promote business and entrepreneurship. As a result of the severe economic problems experienced during the Asian financial crisis, many Thai companies were facing bankruptcy and existing laws did not provide for corporate restructuring. Thus, the banks were faced with an unprecedented number of nonperforming loans, which limited their ability to provide new loans to entrepreneurs and therefore decreased their overall economic activity and investor confidence across the capital markets. The bankruptcy laws have since been amended on several occasions over the past decades in an attempt to keep pace with Thailand s rapidly changing 9

10 economic landscape and to provide greater security to investors, which should in turn help to close the financing gap for entrepreneurs. One of the most comprehensive government efforts to encourage more entrepreneurship and economic development, specifically in rural regions, resulted in the launch of the countrywide One product, Tambon (OTOP) program in This program was designed to leverage the natural resources and skills in each province and to support the growth of smaller agriculturally and tourism focused industries (Natsuda, et al., 2011). As hoped, the government s support for the production and promotion of locally produced goods did result in an increase in the number of new ventures focused on the production of traditional Thai products. However, in the absence of a healthy and functioning financial sector, due in part to the lack of security for investors, the government remained the primary source of funding for these small and medium sized ventures, of which some became overly reliant on the government s assistance. In an effort to develop an environment that is more supportive of firm growth the government initiated a series of tax incentives designed attract more external private investment in these, as well as more innovative, entrepreneurial ventures; the results of these efforts remain to be seen. While the case of Thailand highlights the need to continually monitor and adjust the institutional framework in order to address inherent gaps and deficiencies, the case of France provides an example of the potential impact of policies on entrepreneurs and their external stakeholders. In an effort to promote continued innovation in the commercial sector the French government has created many institutions and polices to promote entrepreneurship over 10

11 the years. One of the earliest national institutions was The National Agency for the Promotion of Research (ANVAR) which was formed more than 40 years ago to support entrepreneurial, small and medium sized organizations focused on technology. Although this agency provided advice and funding to firms that met certain criteria set by the government they also created hold-up problems for many start-ups searching for private equity and venture capital financing in France. The problem existed in the relationship between the commercial element of ANVAR, which required firms to demonstrate a certain level of innovation to receive government assistance and certification, and the capital markets. In short, in order to reduce risk, many banks and venture capital firms instituted a requirement that they would only invest in ANVAR certified businesses. However, without the external funding many start-ups were unable to achieve the level of technical development required to gain the ANVAR certification so many promising yet unproven technology firms were left without viable funding options, in France. To further complicate the situation on the part of the investors, there were policies that required private equity funds to obtain a co-investor in order to make an investment in a French-based firm. In this case government polices mediated the relationship between the entrepreneur and the capital markets and greatly reduced the potential for smaller firms to receive certain types of funding and also lengthened the time required to raise these much needed funds. In 2005 the French government brought together ANVAR and the SME Development Bank in an effort to provide assistance and financial support to French SMEs and VSEs in the most decisive phases of their life cycle (OSEO, 2006); an effort which is intended to address some of the shortcomings and obstacles experienced in 11

12 the past. Aside from the macroeconomic indicators that commonly plague France, the lack of alignment across institutional framework with respect to policies designed to promote entrepreneurship does not appear to create an environment that supports the needs of entrepreneurial ventures or the interests of key stakeholders. Countries evaluated In order to evaluate more comprehensive policy frameworks that consider activities beyond the creation stage of the entrepreneurial process (Lundström and Stevenson, 2005) we have aggregated data on the country level from the Organization for Economic Co-operation and Development (OECD), the Global Entrepreneurship Monitor (GEM), the World Bank (WB), and other country-specific resources. In an effort to obtain longitudinal data across the different sources we are forced to restrict our initial analysis to a limited number of countries. Thus, our analysis is based upon the following ten countries: Canada, Denmark, Finland, Hungary, Israel, Italy, Netherlands, New Zealand, Spain, and the United States. These countries were selected on the basis of the availability of data over the specified time frame across the different sources. However, the sample includes countries that are classified by GEM as low, medium, and high income level (GDP per capita) countries. We focus on those independent measures that enable us to examine the effects of policy on a start-up firm as it progresses through its respective life cycle stages rather than simply seeking to establish that the existence of policies promote entrepreneurial activity in general. As with many other studies focused on entrepreneurship policy (van Stel, Carree, and Thurik, 2005; McMullen, Bagby, and Palich, 2008), we use the level of total entrepreneurial activity (TEA) in a country, as reported by GEM, as one of our 12

13 dependent measures but also include indicators of performance and the survival of start-up firms, which are available from the other data sources. Typology of entrepreneurial ecosystems Based upon our analysis of the institutional frameworks of the countries, and building upon the results of previous studies (e.g. Lundström and Stevenson, 2005; Lundström, Almerud, and Stevenson, 2008), we have begun the development of a typology of country level entrepreneurial ecosystems (Figure 1). In this section we will discuss each of the classifications and highlight examples of each from our sample, as applicable. Figure 1: Typology of entrepreneurship ecosystems Type B: The Pitch Attracts real entrepreneurs Range of industries Lose potential entrepreneurs Type C: The Sandbox High entrepreneurial activity Attracts marginal entrepreneurs Potential setting for a bubble Institutions Type E: The Maze Situation dependent Ambiguous setting Attracts all entrepreneurs Type A: The Jungle Predominantly SMEs Flight of entrepreneurs Necessity-based activity Type D: The Cliff Selected entrepreneurial activity Risk of opportunism High churn rate Entrepreneurship policies 13

14 Type A (The Jungle): Business environments that are characterized by low levels or the absence of institutions to reduce market uncertainty as well as low or an absence of policies to incentivize entrepreneurship will find it difficult to attract entrepreneurs. However, this does not mean that there will not be any entrepreneurial activity, only that it may be less pronounced and pursued by select individuals. At one extreme we would expect to find necessity-based entrepreneurs who, despite the absence of incentives and increased uncertainty, lack other options and thus will pursue opportunities as a means to improve their current economic situation. At the other extreme would be the truly motivated entrepreneurs who perceive an opportunity that they believe can be exploited in the current, albeit challenging, environment. Over time we would expect to see an inordinate number of sole proprietorships and very small businesses engaged in low growth, subsistence, endeavors. Moreover, in those instances where the entrepreneur successfully exploits a more profitable opportunity there may be an increased incidence of trade sales of these higher potential ventures to larger more established firms that have the resources and capabilities to negotiate the challenging environment or the movement of entrepreneurs (and perhaps their firms) to countries that offer a more favorable institutional-policy environment for growth oriented firms. In our sample, both Italy and Hungary ranked consistently low across the vast majority of the different institutional and policy dimensions while having the highest percentage of small firms in their respective economies. Somewhat surprisingly, according to the expert surveys conducted by GEM, both countries receive ratings that are comparable to the other countries with respect to the training and education received at the university and management training levels but there is no evidence that 14

15 this translates into an increase in TEA. On the contrary, Italy had the lowest TEA score of the sample and although not included in the overall analysis, a January 2011 Economist article reported on an apparent brain drain in terms of the numbers of educated graduates leaving Italy relative to the number of educated foreigners entering the country may provide further support of a perception amongst potential entrepreneurs that the environment for developing a growth business is difficult. Type B (The Pitch): An ecosystem that is characterized by a developed institutional framework that enables entrepreneurs to exploit opportunities and develop a business yet lacks external incentives to pursue the same will be attractive to market driven entrepreneurs while at the same time dissuade bad entrepreneurs seeking to exploit favorable government policies (Shane, 2009). The existence of a well-defined institutional setting will reduce uncertainty in terms of the entrepreneur s perception of their ability to establish and operate a firm as well as other stakeholder s (e.g., banks, venture capitalists, corporations) views regarding potential commercial and investment opportunities in the entrepreneurial venture and, ultimately, the exit or return on investment. This more market-driven environment will attract, and has the potential to support, many types of entrepreneurs, ranging from those seeking wage-substitution to those pursuing high growth high tech opportunities, provided they are willing to assume much of the initial risk on their own. Additionally, given that this environment may be perceived as being less favorable to start-up activity, especially for more opportunistic forays into entrepreneurship, the incidence of firm failure should be less dramatic than in the other ecosystems. More importantly, even though some entrepreneurs may be dissuaded by this somewhat challenging environment this ecosystem is well equipped 15

16 to support growth so successfully established firms should be less inclined to move to another country in search of a more supportive environment. Israel, which is often heralded as a model for entrepreneurship policy measures (Lerner, 2009), actually exemplifies this type of institutional-policy setting. In terms policies to facilitate entrepreneurship, the scores for government assistance for new ventures, access to early stage angel financing, the costs associated with closing an insolvent firm, and the aggregated results of the GEM expert survey all rank in the lower quartiles. Conversely, the ranking of those dimensions focused more on growth and innovation (e.g. the strength of legal protection, technology transfer programs, and enforcing contracts) are much more favorable. In terms of outcomes, we find that despite an average TEA rate, Israel is one of only two countries in the sample to have a significant percentage of larger firms as well as the lowest churn rates and the lowest overall firm death rate by a significant margin. Type C (The Sandbox): In the presence of incentives to pursue entrepreneurship combined with a commercial and financial setting that is supported by a strong institutional framework a country is likely to attract more entrepreneurs from a wider range of the population. As such, in the short term this ecosystem would be expected to produce an overall above average rate of entrepreneurial activity and the pursuit of opportunities across a variety of sectors. Over the longer term the strength of the institutional environment should, like in the Type B, facilitate the growth of small businesses beyond the level of sole proprietorships and lifestyle pursuits. However, as a consequence of an increased TEA level, countries with this profile will also be expected to experience at average to above average churn rates, with above average rates 16

17 resulting from the increased risk that a greater number of marginal entrepreneurs will be attracted to pursue potentially less viable opportunities. From the outside, this institutional-policy environment may be perceived as an idealized state for both the entrepreneur and the overarching economy but, in reality, this apparent panacea is a potentially double-edged. On the one hand, the increase in TEA has the potential to benefit the level of employment, the advancement of technology (at least in selected fields), and provide investors with new investment opportunities. On the other hand, widespread entrepreneurial euphoria has the potential to fuel unbridled start-up activity, a herding of players around the hot sectors in the market, and wide scale foolhardy investment in unproven ventures, which in turn result in an economically devastating (yet avoidable) bubble, as experienced by the USA during the dot-com era. Canada, Finland, New Zealand, and the United States are the countries that appear to best satisfy the criteria along both the policy and institutional dimensions, albeit each with their own unique character. As would be expected, New Zealand and the United States, and to a somewhat lesser degree Canada, have comparatively high TEA rates; Finland is a notable exception in terms of entrepreneurship activity with a TEA score that is significantly below average. However, an increase in TEA does not guarantee the quality or sustainability of new ventures so it is not surprising that firm failure rates for all four countries are equivalent to the average across the sample. Type D (The Cliff): The fourth, and potentially most counterproductive, institutional context is one in which governments may attempt to incentivize entrepreneurship within an otherwise weak or underdeveloped institutional setting, In 17

18 short, the incentives offered by the policies promoting new ventures have the potential to attract an above average number of entrepreneurs, including individuals with identified viable opportunities as well as the marginal entrepreneurs and market opportunists who seek to exploit the system. Unfortunately, these entrepreneurs will be operating in a market that has reduced the perceived risks and cost of the initial exploitation activities but has actually widened the gap between the formation and the survival/growth phases of a firm, which creates a proverbial cliff for the unsuspecting entrepreneur. Hence, the challenges of developing and managing a business within this environment, combined with normal market forces, may well claim the lives of a large percentage of nascent firms. On the positive side, experienced entrepreneurs who know how to exploit incentives and navigate the institutional environment and/or established firms that can support corporate venturing opportunities may benefit and thrive, to a point, in this misaligned ecosystem. Even though none of the countries in our current sample can be attributed to this type of environment, all counties run the risk of creating this context by initiating policies that promote the exploitation of opportunities in a specific industry or by a specific subset of entrepreneurs (e.g. clean tech, social ventures) that cannot, at that point in time, be supported in their development over the long term by the institutional context. Type E (The Maze): This setting is the most ambiguous, and in some instances contradictory, in terms of the perceived institutional-policy context. Countries representative of this type will have made efforts to develop policies to promote or reduce the barriers to entrepreneurship but there is little evidence that this environment is overly conducive for business and lacks an overarching logic or objective. 18

19 Accordingly, the same country may be perceived quite differently depending upon which indicators the entrepreneur or stakeholder assesses. Unlike the other four contexts that provide a more obvious setting for particular types of pursuits, the ultimate success of any entrepreneurial venture in this environment may greatly depend upon timing, the focus, and the flexibility of all stakeholders. The remaining countries in our sample, Denmark, The Netherlands, and Spain all exhibit this mixed, inconsistent, institutional-policy environment. Focusing on Denmark as an example, the mixture of polices and institutions do not appear to be overtly encouraging nor discouraging entrepreneurship or business in general. Several dimensions of policies that are designed to promote entrepreneurship are ranked above average while an equal number fall below the average scores. The character of the business environment is similarly mixed and although the TEA rate is below average the death rate of firms is above average, ranking second highest in the sample. We believe that this entrepreneurial context may actually be quite widespread because of the manner in which many governments have approached their policy making with respect to promoting business. In the absence of a clear strategy or in the all too risky cases where a country attempts to imitate selected aspects of another country, the propensity for developing a mismatch of policy measures is increased. Conclusion Despite the many efforts of researchers focused on entrepreneurial policies to incorporate a wider range of relationships and variables, the impact of polices have yet to be examined with respect to the strategic management of a start-up venture over time. We believe that viewing governmental policies and initiatives promoting 19

20 entrepreneurship longitudinally, within the context of the broader business environment would motivate both practitioners and researchers to take a more strategic view of these efforts. Specifically, policy makers would benefit from gaining an understanding of the potential barriers to growth of entrepreneurial firms that are inherent within the institutional environment or unwittingly created by other policies, especially those not consciously included in the overarching entrepreneurship policy agenda. Of the many potential limitations associated with this study we believe that, given our primary objective, the greatest limitation is our inability to analyze the evolution of polices and outcomes of a cohort of countries over a longer time frame. (We continue to collect data from a variety of sources in order to address this shortcoming in our ongoing research.) At this stage of our research we have consciously not included selected informal institutions, namely cultural influences, but we acknowledge that this limits our ability to address certain aspects of the entrepreneurial ecosystem. We also recognize that with our limited number of observations spanning a limited time frame it is not possible to generalize these initial findings. Do policy makers have an articulated strategy that targets a specific group of entrepreneurs or a specific, long-term, outcome? Or is the majority of decision making simply a case of reactions to current demands and perceived needs that result in an environment that may be perceived by entrepreneurs as one with ill-defined rules of the game, and a constantly moving goal post? These are questions that remain to be addressed but are important to entrepreneurs and policy makers alike. The results of our analysis would seem to support the view of other researchers who have cautioned that one size does not fit all when it comes to developing national 20

21 level entrepreneurship programs (Bosma and Harding, 2007; Minniti, 2008). Any country may initiate policies and programs developed in another country and succeed in attracting entrepreneurs but if the individual institutional environments are not considered then, ultimately, they may fail to establish a sustainable entrepreneurial environment that benefits the economy over the long term. In the absence of a deliberate strategy, policy makers run the risk of creating unintended negative consequences for entrepreneurs and the wider economy, including but not limited to, investment gaps, misallocation of resources, excessive churn, and market bubbles. References Acs, Z., Arenius, P., Hay, M., Minniti, M Global Entrepreneurship Monitor 2004 Executive Report. Babson Park, MA: Babson College and London Business School. Aldrich, H Using an Ecological Perspective to Study Organizational Founding Rates. Entrepreneurship Theory and Practice 14(3): Baumol, W.J Entrepreneurship: Productive, Unproductive and Destructive. Journal of Political Economy 98 (5), Bird, B. J Entrepreneurial Behavior. Glenview, IL: Scott Foresman. Birley, S., The Role of Networks in the Entrepreneurial Process. Journal of Business Venturing 1: Bosma, N and Harding, R Global Entrepreneurship Monitor 2006 Global Report. Babson Park, MA: Babson College Bosma, N., Wennekers, S. and Amorós, J.E Global Entrepreneurship Monitor 2011 Global Report. Babson Park, MA: Babson College. Churchill, N.C. and Lewis, V.L The Five Stages of Small Business Growth. Harvard Business Review 61(3): d Andrea Tyson, L, Petrin, T, Rogers, H Promoting Entrepreneurship in Eastern Europe. Small Business Economics 6: DeSoto, H The Mystery of Capital: Why capitalism Triumphs in the West and Fails Everywhere Else. London: Black Swan. Doh, J.P. and Guay, T.R Corporate Social Responsibility, Public Policy, and NGO Activism in Europe and the United States: An Institutional-Stakeholder Perspective. Journal of Management Studies 43(1): Dubocage, E., and Rivaud-Danset, D Government Policy on Venture Capital Support in France. Venture Capital 4(1): Dunning, J International Production and the Multinational Enterprise. London: George Allen and Unwin. 21

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