Entrepreneuship and the internationalisation of asian firm

1.1 Entrepreneurship studies in the twentieth century 61.2 Entrepreneurship in international business studies 8 1.4 The embeddedness of business firms in their national institutional and

Internationalisation of Asian Firms

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Entrepreneurship and the Internationalisation of Asian Firms

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Henry Wai-chung Yeung

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Entrepreneurship and the Internationalisation

of Asian Firms

An Institutional Perspective

Henry Wai-chung Yeung

Associate Professor in Economic Geography

National University of Singapore

NEW HORIZONS IN INTERNATIONAL BUSINESS

Edward Elgar

Cheltenham, UK • Northampton, MA, USA

© Henry Wai-chung Yeung 2002

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Library of Congress Cataloguing in Publication Data

Yeung, Henry Wai-Chung.

Entrepreneurship and the internationalisation of Asian firms: an

institutional perspective

Henry Wai-chung Yeung.

p cm — (New horizons in international business)

Includes bibliographical references and index.

1 Entrepreneurship—Asia 2 International business enterprises—Asia.

3 Corporations, Asian 4 Investments, Asian I Title II Series.

entrepreneurship in international business studies

1 An institutional perspective on entrepreneurship in

2 Transnational entrepreneurship in two contrasting Asian

3 City-states and their global reach: outward investments from

4 Entrepreneurs in international business 151

5 Empowered managers: intrapreneurs in international

1.1 The institutional structuring of entrepreneurship in specific

1.2 Transnational entrepreneurs and actor networks at different

3.1 Sectoral distribution of Singapore’s direct investment

3.2 Ownership structure of parent companies in Singapore 1203.3 Sectoral distribution of parent companies in Singapore 1213.4 Turnover of parent companies in Singapore 1223.5 Motives of transnational operations by host region 1263.6 Mechanisms of overseas operations by companies from

5.1 The location of Singapore industrial parks in Wuxi and

viii

1.1 Entrepreneurship studies in the twentieth century 61.2 Entrepreneurship in international business studies 8

1.4 The embeddedness of business firms in their national

institutional and ideological structures 221.5 Summary table of data collected on Hong Kong and

2.1 Key macro-economic indicators on Hong Kong and

2.2 Inward direct investments in Hong Kong by country of

2.3 Evolving comparative advantage and major strategies of

industrial development in Hong Kong, 1950–1999 562.4 Cumulative equity investments in Singapore by country of

2.5 Net investment commitments in manufacturing in

Singapore by country of origin, 1963–1999 602.6 Principal statistics for all establishments in all sectors by

number of persons engaged and percentage shares of small

and medium enterprises in Hong Kong, 1960–1998 642.7 Comparing business systems and entrepreneurship in

2.8 Local and foreign ownership of selected sectors in Hong

2.11 Principal statistics for all establishments in all sectors by

number of persons engaged and percentage shares of small

and medium enterprises in Singapore, 1960–1998 862.12 Financial markets and institutions in Hong Kong and

2.13 Number of establishments in all sectors and establishment–population ratios in Hong Kong and Singapore, 1960–1997 93

ix

2.14 Distribution of the labour force by activity status in Hong

3.1 Estimated flows and stocks of foreign direct investment from

3.2 Trade involving Hong Kong’s outward processing in

3.3 Cumulative outward direct investment from Singapore by

3.4 Foreign equity investment of Singaporean firms by industrial

3.5 A partial list of top TNCs from emerging markets ranked by

3.6 The top 25 TNCs from developing countries ranked by

3.7 Global geographies of transnational operations by

indigenous companies from Singapore and Hong Kong 1233.8 Importance of different factors of globalisation assessed

by indigenous companies from Singapore by region 1283.9 Modes of foreign entry by 204 indigenous companies from

3.10 Comparison of the characteristics of transnational

corporations from Hong Kong and Singapore 1343.11 Composition of manufacturing exports of three Asian NIEs

3.12 Agencies of the Singapore state in the regionalisation effort 1453.13 Assistance schemes and programmes of the Economic

4.1 Profiles of transnational entrepreneurs by gender and

4.2 Influence of home country conditions on the establishment

of foreign operations by host region and transnational

4.3 Influence of host country conditions on the establishment offoreign operations by host region and transnational

4.4 Influence of global conditions on the establishment of

foreign operations by host region and transnational

4.5 Mechanisms of establishing foreign operations and the role

of entrepreneurial vision by transnational entrepreneurs 1744.6 Case studies of transnational entrepreneurs and their

4.7 Competitive advantages in establishing foreign operations by

4.8 Major problems faced and solutions adopted by indigenous

4.9 Attributes of entrepreneurship in overcoming problems in

foreign operations by transnational entrepreneurs 2045.1 Case studies of transnational intrapreneurs from government-linked companies and their entrepreneurial endowments/

6.2 Activities by the Trade Development Board to promote

Singapore’s trade and investments outside Asia 1993–1998 272

4.4 Managing traditional Chinese family firms across borders:

four generations of entrepreneurship in Eu Yan Sang 1825.1 Teck Wah Paper: trust and intrapreneurship in a Chinese

Preface and acknowledgements

International business has become one of the most important fields of nomic activity in today’s globalising world economy When business firmsextend their operations across borders to become transnational corpora-tions, they are often entering into host business environments that are fun-damentally different from their home countries in terms of institutionaland market structures, industrial organisation, social relations, and culturalpractices To overcome these barriers to globalisation, transnational cor-porations (TNCs) need actors who are creative, proactive, adaptive, andresourceful in different countries; these are all aspects of transnationalentrepreneurship that pushes international business activities beyond justmanaging across borders Sometimes, these actors in TNCs are the owners

eco-or founding entrepreneurs themselves They often participate actively in the

establishment and management of foreign operations More commonly,

these actors in transnational operations are intrapreneurs or professional

managers who are neither founders nor owners, but are given much omy to initiate new practices and to manage transnational operations Theymay be equally entrepreneurial in their approach to ensuring successfulcross-border operations Engaging in international business poses a seriouschallenge to founders and managers of TNCs It is clear that an under-

auton-standing of the nature, modus operandi, and performance of these

entre-preneurs and/or intraentre-preneurs is vital to the success of internationalbusiness operations by any TNC

If conducting business across national boundaries is rather difficult, it isperhaps even more difficult to write a book about what makes some entre-preneurs more successful in their international business activities I havealways been interested in why some people are more successful than otherswhen they go abroad to establish their businesses As I read from leadinginternational business journals, I found it hard to accept that most existingstudies focus on the firm rather than the individual entrepreneur The more

I read in international business studies, the more disillusioned I got Theoutcome of this disillusionment then is this book! I was so frustrated aboutthe lack of attention to entrepreneurs in international business studies that

I end up writing a book about it

Although the intellectual performance of this book remains to be judged

by readers, I am indebted to many people and organisations, just like any

xiii

transnational entrepreneur reported in this book First of all, I am verygrateful to my university, National University of Singapore, for generouslyfunding this research (RP960045 and RP970013) The highly efficient andable research assistance by Wan Menghao and Elen Sia was critical to thecompletion of this project My publisher, Edward Elgar Publishing, hasalso been very encouraging and forthcoming I must admit that the projectwas invigorated immediately after a memorable discussion with MrEdward Elgar in my office in Singapore! An anonymous reviewer has also

offered important comments that resulted in significant restructuring andrevisions of the original book manuscript The editorial and marketingteam in Edward Elgar has been highly professional My thanks go toJoanne Betteridge, Julie Leppard, Emma Meldrum, Karen McCarthy and,last but not least, Dymphna Evans I would like to thank Peter Buckley forputting my book in his highly successful series on New Horizons inInternational Business

Moreover, the ‘suppliers’ of this project, our interviewees, have played anindispensable role in its successful completion I thank all those corporateexecutives and relevant people for sharing their views and information gen-erously with us I hope what I have written about them and their companiesdoes in no way cause any embarrassment or difficulty for them

Many scholars and researchers have also commented constructively onvarious portions of the book on various occasions I thank them all here:Kerstin Sahlin-Andersson, Peter Buckley, Tim Bunnell, Mark Casson, NeilCoe, Peter Dicken, Leo Douw, Ho Kong Chong, Philip Kelly, Lily Kong,Roger Lee, Constance Lever-Tracy, George Lin, Liu Hong, Linda Low,Tai-lok Lui, Luo Qi, Anders Malmberg, Ron Martin, Andrew Marton,Terry McGee, Kris Olds, Rajah Rasiah, Henrik Schaumburg-Müller, DeoSharma, Erik Swyngedouw, Nigel Thrift, Adam Tickell, Noel Tracy, EricTsang, Lai Si Tsui-Auch, Dick Walker, Wang Gungwu, Michael Webber,Brenda Yeoh, and Yue-man Yeung My friends in the EntrepreneurshipDevelopment Centre at the Nanyang Technological University have kindlyencouraged my endeavour into their monopoly: Fock Siew Tong and LeoPaul Dana Mrs Lee Li Kheng has kindly drawn the maps

Earlier versions of parts of this book have been published elsewhere I

am grateful to the following publishers for their permission to reproducesome materials from articles I previously published in their journals/books.Parts of Chapter 1 were first published in Review of International Political Economy (Taylor & Francis, London), Vol 7(3), pp 399–432, 2000 Parts

of Chapters 2 and 3 first appeared in Political Geography (Elsevier Science, Exeter), Vol 17(4), pp 389–416, 1998; International Journal of Urban Sciences (University of Seoul, Seoul), Vol 2(1), pp 24–47, 1998; Antipode

(Blackwell Publishers, Oxford), Vol 31(3), pp 245–73, 1999; and

Competition and Change (Overseas Publishers Association, Amsterdam),

Vol 4(2), pp 121–69, 2000 Parts of Chapter 4 came from my chapters in

David Ip, Constance Lever-Tracy, and Noel Tracy (eds), Chinese Businesses and the Asian Crisis, Aldershot: Gower, pp 87–113, 2000, and in Leo Douw, Cen Huang, and David Ip (eds), Chinese Transnational Enterprise

in Prosperity and Adversity, Surrey: Curzon, 2001 Parts of Chapter 5 were published in my article in Political Geography (Elsevier Science, Exeter),

Vol 19(7), pp 809–40, 2000

Finally, my intellectual debt goes to Peter Dicken from the University ofManchester, England For his crucial role in inspiring my intellectual entre-preneurship, the book is dedicated to him (and his wife Valerie) Of course,

as the Chinese saying tells, there is an important woman behind every cessful man (and vice versa, I suppose) I am extremely grateful to my wifefor tolerating my absence from home to conduct overseas interviews and topresent various papers in conferences, and providing me her unfailingsupport and well wishes that go beyond my wildest imagination To Weiyuand our new born daughter, Kay, who provide all the joy and excitementfor my intellectual projects, I dedicate this book

suc-Henry Wai-chung Yeung

SingaporeDecember 2000

Preface and acknowledgements xv

1 An institutional perspective on

entrepreneurship in international business

To undertake such new things is di fficult and constitutes a distinct economic function, first, because they lie outside of the routine tasks which everybody understands and, secondly, because the environment resists in many ways that vary, according to social conditions, from simple refusal either to finance or to buy a new thing, to physical attack on the man who tries to produce it To act with con fidence beyond the range of familiar beacons and to overcome that resistance requires aptitudes that are present in only a small fraction of the pop- ulation and that de fine the entrepreneurial type as well as the entrepreneurial function This function does not essentially consist in either inventing anything

or otherwise creating the conditions which the enterprise exploits It consists in getting things done (Joseph Schumpeter, 1942: 132)

INTRODUCTION

Entrepreneurship is a well-known and well-studied phenomenon today

Since the inception of the term entreprendre in French in the Middle Ages

when it was translated as ‘between-taker or go between’ (Hisrich, 1990: 209;see also Hébert and Link, 1988), entrepreneurship has received continuousand enormous attention in both scholarly and policy circles Why then do

we need another book on the topic? More specifically, why is a book onentrepreneurship that takes place across borders useful? Consider a busi-nessperson who is confronted with a saturated market in the home country,

or another businessperson who stumbles upon an opportunity to expandinto foreign markets It takes great courage and other exceptional qualities,

or ‘aptitudes’ in the words of Joseph Schumpeter, for this person to act on

these situations and to get things done This person may be an owner and/or

a manager of an evolving transnational enterprise In the former situation,the businessperson may take the business across borders by establishinganother operation or several other operations abroad in order to tap intohost country business opportunities In the latter situation, a new interna-tional venture may be formed from the inception of business such that thebusinessperson has an international business without going through any

1

successive stages of business establishment and internationalisation (cf.Johanson and Vahlne, 1977; Buckley and Ghauri, 1993; Björkman andForsgren, 1997) In both cases, the businessperson is bound to be con-fronted with the inherent difficulties of operating in a foreign land of which

he or she has less information, experience, and knowledge, and faces a

different set of institutional contexts These difficulties of engaging in national business activities can be overcome, sometimes, by sheer luck Butmore likely they can only be handled with great initiative and capabilitiesembedded in the social actor and his/her repertoire of institutionalresources and relations

inter-How then do we account for these rather exceptional phenomena ofengaging in cross-border business activities? They are exceptional notbecause they are relatively rare in today’s globalising era Rather, they areexceptional because these businesspersons have taken an unusual route toorganise and produce economic activities in different countries and/or

regions They are clearly entrepreneurial in that they have taken

extraordi-nary risks and calculations to engage in businesses differently In theSchumpeterian tradition, these businesspersons have created ‘new combi-nations’ of locating production facilities and/or gaining access to markets

in different countries and/or regions Entrepreneurship is therefore morethan the initial quality of owners to start business venturing; more impor-tantly, it is about the exceptional qualities required in the processes of both

creating and sustaining particular business ventures, irrespective of whether

these ventures operate across national boundaries Entrepreneurship is not

a ‘thing’ or ‘ingredient’ in the making of business firms To borrow fromSchumpeter, entrepreneurship is an everlasting process of ‘creative destruc-tion’ and reconstruction through which the entrepreneur continually dis-places or destroys existing products or methods and organisation ofproduction with new ones

In this book, these businesspersons are termed transnational eurs because they are engaged in entrepreneurial activities across borders.

entrepren-Not all entrepreneurs, however, can become transnational entrepreneurs.Clearly many existing entrepreneurs fail to establish foreign ventures intheir internationalisation processes The challenge of international busi-

ness to transnational entrepreneurship is the key issue to be tackled

empiri-cally in this book This issue explains why another book onentrepreneurship is needed Indeed, this is not a book on entrepreneurship

per se Entrepreneurship has been extensively theorised and studied in

almost every single discipline in the social sciences for over a century now(see recent reviews in Casson, 1990a; Bull et al., 1995; Livesay, 1995;Westhead and Wright, 2000) Instead, this book is about explaining trans-national entrepreneurial activities and the internationalisation of Asian

firms in their social and institutional contexts To accomplish this

analyti-cal task, I propose an institutional perspective1on entrepreneurship in national business by arguing that transnational entrepreneurs are notmerely driven by historical mechanisms of change I take a different view

inter-of the entrepreneur from Schumpeter (1934: 61) who apparently saw theentrepreneur as ‘merely the bearer of the mechanism of change’

This book takes the conceptualisation of transnational entrepreneurs

differently – as businesspersons who take specific proactive action to come inherent problems and difficulties associated with international busi-ness activities Their action, however, is both facilitated and constrained

over-by ongoing processes of institutional relations in both home and host tries These institutional relations may be defined by the social and busi-ness networks in which these transnational entrepreneurs are embedded,political–economic structures, and dominant organisational and culturalpractices in the home and host countries Collectively, these institutional-ised patterns of social and organisational structuring form different busi- ness systems Whitley (1992a: 13) defined business systems as ‘distinctiveconfigurations of hierarchy-market relations which become institutional-ized as relatively successful ways of organizing economic activities in differ-ent institutional environments’ Different business systems are distinctiveand enduring ways of structuring market economies that are wide-rangingand long-term in nature Once established in particular institutional con-texts, these business systems may develop considerable cohesion andbecome resistant to major changes In this sense, the transnational entre-preneur is conceptualised as more than a bearer of mechanisms of change(cf Schumpeter) He/she is embedded in ongoing institutional processesthat significantly shape, but do not determine, his/her fields of action in

coun-different countries of business operations This institutional perspective istherefore centred on social actors – transnational entrepreneurs themselves,and their embedded structures of institutional relations In this sense, theperspective aims to resurrect the importance of social actors in entrepren-eurship and, to paraphrase Baumol (1968: 66), to give prominence to the

Prince of Denmark in the discussion of Hamlet It also gives significanttheoretical weight to the role of social and institutional contexts in shapingthe outcomes of entrepreneurial activities across borders

The theoretical focus on entrepreneurship and institutional relations inthis book is, however, different from Baumol’s (1993) book on entrepren-eurship in which he specifically aimed at drawing attention to ‘the nature ofthe institutional arrangements that encourage the exercise of entrepreneur-ship and that provide incentives for it to take productive directions’(Baumol, 1993: 15) By altering the structure of payoffs or ‘rules of thegame’, Baumol argued that one can redirect the flow of entrepreneurial

An institutional perspective on entrepreneurship in international business 3

efforts that are productive to the economy His theory is therefore

primar-ily concerned with the supply of entrepreneurs, not the processes of

entre-preneurship that remains the key issue of this book Baumol’s economicframework is also deterministic in that he believed that ‘the nature and

intensity of the productive activities of entrepreneurs are determined by

current economic circumstances and, in particular, by the relative size ofthe rewards offered to different allocations of entrepreneurial activity’(Baumol, 1993: 260; my emphasis) This deterministic and, in the words ofGranovetter (1985), ‘undersocialised’ framework of entrepreneurshipassumes that prospective entrepreneurs are informed and capable enough

to take advantage of differences in the reward systems, thereby ignoring therole of specific historical and/or social circumstances unique to individualentrepreneurs that explain their behaviour

In the remaining four sections of this introductory chapter, I will firstassess whether the study of transnational entrepreneurship can become anew horizon in entrepreneurship and international business studies Here, Iwill define the nature of transnational entrepreneurship and identify some

of its key attributes and characteristics The discussion will be situated inthe context of the theoretical impasse in entrepreneurship and internationalbusiness studies The second section develops an institutional perspective

on transnational entrepreneurship I draw upon the various strands of retical literature in the social sciences and integrate them with new theoret-ical insights from institutional analysis In particular, I build myinstitutional perspective upon such concepts as ‘business systems’ (Whitley,1992a; 1999), ‘embeddedness’ (Polanyi, 1944; Granovetter, 1985; Aldrichand Zimmer, 1986; Dacin et al., 1999), and ‘networks as strategic resources’(Jarillo, 1988; Ghoshal and Bartlett, 1990; Larson, 1992; Grandori, 1999;Gulati, 1999; Gulati et al., 2000) Collectively, Brüderl and Preisendörfer(1998) have termed this ‘the network to entrepreneurship’ This section endswith some key analytical questions for this book The third section intro-duces the comparative analysis of transnational entrepreneurship and theglobalisation of transnational corporations (TNCs) from two Asian NewlyIndustrialising Economies (NIEs) – Hong Kong and Singapore Thefinalsection outlines the structure and organisation of this book

theo-TRANSNATIONAL ENTREPRENEURSHIP: A NEW HORIZON IN ENTREPRENEURSHIP AND

INTERNATIONAL BUSINESS STUDIES?

International business activities clearly pose serious challenges to tional entrepreneurs and their TNCs These challenges are pertinent in the

transna-areas of overcoming barriers in host country political and authority tures, competing and co-operating successfully in host country economicsystems, and adapting well to host country social and cultural milieus.Meeting these challenges of international business requires transnationalentrepreneurship, defined simply as the exceptional qualities required in the processes of creating and sustaining particular business ventures across national boundaries by social actors These social actors are, of course,

struc-defined as transnational entrepreneurs To this effect, I have chosen to use a

process definition of transnational entrepreneurship and an agency tion of transnational entrepreneurs (see more in the following section) Tounderstand more about both transnational entrepreneurs and transna-tional entrepreneurship, we need to revisit decades of entrepreneurship andinternational business studies My argument here is that the study of trans-national entrepreneurship can offer a new horizon to integrate these tworather disparate strands of theoretical and empirical literature

defini-Integrating Entrepreneurship Studies and International Business Studies

To date, a theoretical impasse clearly exists in the entrepreneurship andinternational business studies that are summarised in Tables 1.1 and 1.2 Inthe twentieth century, entrepreneurship studies have evolved as a distinctand disparate field of intellectual enquiry In particular, this field ofresearch is associated with studies of entrepreneurship and economicdevelopment, entrepreneurship and (international) business venturing,entrepreneurship and business history and ethnicity, and internationalentrepreneurship Whereas development economics tends to dominate thesub-field of entrepreneurship and economic development, other social sci-ences are actively involved in research on business venturing (e.g manage-ment studies), business history (e.g history), ethnic entrepreneurship (e.g.sociology and anthropology), and international entrepreneurship (e.g.management studies) In Table 1.1, I have assessed the relevance of thesesub-fields of entrepreneurship studies for the study of transnational entre-preneurship in this book First, as a collective body of literature, entrepren-eurship studies have illustrated some of the most important dimensionsand attributes of entrepreneurship Second, the literature has shed light onthe role of networking in enhancing entrepreneurship Put in specific socialand institutional context (adversarial or encouraging), these studies haveshown that entrepreneurship canflourish and prosper Third, a more recentemphasis of the literature is on the international dimensions of entrepren-eurship This proves to be an extremely fruitful avenue for research in anera of accelerated globalisation It also helps to bring entrepreneurshipstudies, which no doubt have a much longer history of existence, closer to

An institutional perspective on entrepreneurship in international business 5

Relevance to Transnational

Entrepreneurship and • Development • Schumpeter (1934) • entrepreneurship as a process • definitions of the entrepreneur economic development • economics • Baumol (1968; 1990; 1993) • of creative destruction • the nature of entrepreneurship

• Leff (1978; 1979) • the entrepreneur as a disruptive • historical specificity of

• Leibenstein (1966; 1968) • force to create market • entrepreneurship

• disequilibrium

• Kirzner (1973; 1985) • the entrepreneur as gap-filler to

• create X-e fficiency and market

• equilibrium

• unproductive entrepreneurship Entrepreneurship and • Management • Rothwell & Zegveld (1982) • formation and growth of small • international dimension of (international) business • studies • Garavan et al (1997) • businesses • entrepreneurial activities

• Scaperlanda (1994) • international expansion of small

• McDougall (1989) • performance of international new

• McDougall et al (1994) • ventures

• McDougall & Oviatt (1996) • entrepreneurial values and the

• Moon & Peery (1997) • implementation of international

• new ventures Entrepreneurship and • History • J Brown and Rose (1993) • specific psychological and social • the social and institutional business history and • Sociology • Aldrich & Waldinger (1990) • attributes of entrepreneurs • context of entrepreneurship

• B Wong (1998) • entrepreneurial tendencies • entrepreneurship

• Werbner (1999) International • Management • McDougall (1989) • entrepreneurs in a comparative • comparative analysis entrepreneurship • studies • Birley & MacMillan (1995; 1997) • and international context • international dimension of

• Hisrich et al (1997) • entrepreneurship across • entrepreneurial activities

• Thomas and Mueller (2000)

a relatively young sub-field of management studies – international businessstudies.

International business studies have grown significantly in the past fourdecades since Stephen Hymer’s path-breaking theoretical work (see Table1.2) There are now a number of theoretical perspectives in internationalbusiness studies When it comes to the role of the entrepreneur and entre-preneurship in TNC activities, however, received theories in internationalbusiness studies seem to be rather silent or unfit in explaining the entrepre-neurial outcome This may have something to do with the nature of entre-preneurship studies itself, i.e lack of precision and largely driven byinductive studies There are, however, at least three emerging areas in inter-national business studies that hold promise for integrating entrepreneur-ship and international business studies: the entrepreneurial decision model

of TNCs, corporate entrepreneurship and subsidiary initiatives, and theimpact of TNCs on domestic entrepreneurship

In Table 1.2, I have outlined the relevance of these three areas of national business studies for the study of transnational entrepreneurship.First, the entrepreneurial decision model of the TNC is likely to inform myconceptualisation of the nature of the transnational entrepreneur as a

inter-social actor in control of resources in di fferent countries (see the next

section) Second, the study of corporate entrepreneurship and subsidiaryinitiatives has demonstrated the need for proven resources within the TNC.This further testifies the relevance of a resource-based view of transna-tional entrepreneurship (Penrose, 1995; Garnsey, 1998), a theoretical pointconsistent with my definition of the transnational entrepreneur later in thischapter Finally, studies of TNC impact on host countries have shown theimportance of understanding the institutional context of host countries inwhich TNC subsidiaries are located This focus on the host country insti-tutional context is relevant to the institutional perspective on transnationalentrepreneurship to be developed later in this chapter It is also important

to our understanding of what exactly shapes the entrepreneurial processes

of those subsidiaries

Despite decades of entrepreneurship research since Richard Cantillon,Joseph Schumpeter, and others (see recent collections in Casson, 1990a;1995; Livesay, 1995; Low and Tan, 1996; Westhead and Wright, 2000), we

still know very little about the real actors and their behaviour in these TNCs.

First, entrepreneurship studies tend to assume that the entrepreneur willbehave and act in the same manner irrespective of the geography of his/herbusiness operations In this literature, there seems to be no difference in thesocial, political, and economic contexts of different countries in which anentrepreneur operates Indeed, most entrepreneurship studies are primarilyuni-locational in their spatial unit of analysis Only very limited studies have

An institutional perspective on entrepreneurship in international business 7

Relevance to Transnational Themes Main Disciplines Major Studies Analytical Focus Entrepreneurship

Entrepreneurial decision • Economics • Casson (1982; • the entrepreneur as a specialist in • the role of exceptional qualities in the model of transnational • 1985; 1990b) • making judgmental decisions • entrepreneur to overcome risks and corporations • international business activities as a • uncertainties in international business

• result of entrepreneurial decisions

• and information asymmetry Corporate • Strategic • Birkinshaw (1997; • dispersed corporate entrepreneurship • entrepreneurial activities at the entrepreneurship and • management • 2000) • focused corporate entrepreneurship • subsidiary level

subsidiary initiatives • International • subsidiary initiatives as dispersed • the role of intrapreneurs in TNC

• business studies • corporate entrepreneurship • subsidiaries

• the role of proven resources in • the role of resources to

• enhancing subsidiary initiatives • intrapreneurship Impact of transnational • Development • Jesudason (1989) • crowding out of domestic • the role of host country institutional corporations on domestic • studies • H Tan (1991) • entrepreneurship by foreign TNCs • contexts in shaping the impact of entrepreneurship • International • DiConti (1992) • potential spin-o ff and linkages from • TNCs on domestic

• business studies • R.A Brown (1994) • TNCs to promote domestic • entrepreneurship

• entrepreneurship • the role of TNC subsidiaries in

developing intrapreneurship of host country nationals

been done to offer a comparative analysis of entrepreneurship in differentcountries (e.g DiConti, 1992; Birley and MacMillan, 1995; 1997).

Second, most entrepreneurship studies tend to focus on the actors in

their domestic setting.2These studies are concerned with the role of preneurs in innovations, new business start-ups, and the economic develop-ment of their home countries As concluded by McDougall and Oviatt(1996: 36), the internationalisation of new ventures ‘does not appear to be

entre-a simple mentre-atter of entre-applying estentre-ablished strentre-ategies entre-and procedures oped for a domestic arena Successful internationalization appears to beaccompanied by changes in venture strategy’ Although certain theories inentrepreneurship studies have been proposed to explain the international-isation behaviour of entrepreneurs (e.g Oviatt and McDougall, 1994;Scaperlanda, 1994), the research field is still very much in its infancy, withlittle direct emphasis on the entrepreneur Even Casson’s (1990b: 44, 82)theory of entrepreneurship in international business focuses on the innova-tive capabilities of the entrepreneur by arguing that ‘the scale of interna-tional business activity is inextricably linked to the innovativeness of thesource economy To explain fully the size and timing of FDI acrosssource countries, it is therefore necessary to explain the rise and decline ofentrepreneurial activity within such countries’ The theory is concernedwith how crucial aspects of home country culture are incorporated into theTNC through the decision-making activities of its entrepreneurs, ratherthan through the entrepreneurs themselves

devel-With a few exceptions (e.g McDougall, 1989; McDougall et al., 1994;McDougall and Oviatt, 1996; 2000; Birkinshaw, 1997; 2000; Moon andPeery, 1997), entrepreneurship research has little interaction with main-stream research on international business and organisational behaviour

The latter is preoccupied with the firm as the central unit of analysis One

needs only a glance at most articles in recent issues of major internationalbusiness studies journals3to realise that the unit of analysis is overwhelm-ingly thefirm and the TNC, not the human actor and the entrepreneur Thisheavy bias towardsfirm-level analysis reflects the methodological individu-alism of most international business studies in which predictive statisticaltools are used to quantify international business activities Human actorsand entrepreneurs do not seem to have a place in this quantitative metho-dology, perhaps because their behaviour and action cannot be consistentlyquantified and predicted The net result is that the baby has been thrownout with the bath water altogether We end up with highly ‘scientific’ studies

of global corporations without human actors and entrepreneurs For

example, Hébert and Link (1988: 158; see also Ripsas, 1998) reflected on thereasons why the entrepreneur has been squeezed out from modern main-stream economics through the introduction of mathematics to economics:

An institutional perspective on entrepreneurship in international business 9

Since there was not then, and is not now, a satisfactory mathematics to deal with the dynamics of economic life, economic analysis gradually receded into the shadows of comparative statics, and the entrepreneur took on a purely passive, even useless, role.

In one of the earliest contributions to the study of international preneurship, McDougall (1989; also McDougall et al., 1994; McDougalland Oviatt, 1996; 2000) focused almost exclusively on international newventure firms and compared their strategic behaviour and industry struc-ture with domestic new ventures Firm-specific and industry-specificfactors were presented as the critical dimensions to explain and differen-tiate firm behaviour There was neither a theoretical nor an empirical rolefor the individual entrepreneurs who have propelled the firms into an inter-national arena This is not surprising because as recently as 1994, transna-tional entrepreneurship (or international entrepreneurship) was stillconsidered as an ‘even newer thrust of research activity’ in internationalbusiness research (Wright and Ricks, 1994: 699) Moon and Peery (1997:11) also argued that ‘[e]ntrepreneurship is very important in internationalbusiness There are some noteworthy, new international ventures that, frominception, seek to derive significant competitive advantage from the use ofresources and the sale of outputs in multiple countries’

entre-In short, while entrepreneurship research tends to ignore entrepreneurs

in international business, studies of international business and tional behaviour focus overtly on the nature and organisation of TNCs atthe expense of those actors and individuals who are creating and manag-ing the worldwide network of transnational corporations – the entrepren-eurs and intrapreneurs themselves As noted by Livesay (1995: xi), theentrepreneur is ‘an individual at work in the private sector of the economy,not a department of afirm, nor a government agency, though both of thesemay attempt to produce entrepreneurial results’ The lack of integrationand cross-fertilisation between entrepreneurship studies and internationalbusiness studies has been the main obstacle to a fuller understanding of thenature and processes of transnational entrepreneurship A casual onlinekeyword search of the Social Sciences Citation Index published by theInstitute for Scientific Information is instructive here In 1988 and 2000,there were respectively 1070 and 1319 articles published in about 1600 jour-nals that contain the keywords ‘entrepreneurship’ and ‘entrepreneurs’(http://www.isinet.com/products/citation/citssci.html, accessed on 13December 2000) Only 6 and 11 articles contained respectively such key-words as ‘transnational entrepreneurship’4 and ‘transnational entrepre-neurs’ A further 42 and 68 articles contained the keywords ‘internationalentrepreneurship’5 and ‘international entrepreneurs’ These crude statis-tics show that while a lot has been published on entrepreneurship and

organisa-entrepreneurs per se during the past decade, the fields of ‘transnationalentrepreneurship’ and/or ‘international entrepreneurship’ are still emergingand relatively young in the historiography of entrepreneurship studies (seealso Hébert and Link, 1988; Casson, 1990a; Chell et al., 1991; Livesay,1995; Westhead and Wright, 2000) How then should we define transna-tional entrepreneurs and transnational entrepreneurship? Withoutknowing our subject of analysis, how can we proceed to conduct a compar-ative study of transnational entrepreneurship in different Asian economiesand/or countries?

The Terminological and Conceptual Jungle of Entrepreneurship Studies

Though I have offered a very simple set of definitions in the introduction

to this section, defining the nature of transnational entrepreneurship isnever easy for at least three reasons First, it is always problematical to

define the term ‘entrepreneur’ As noted by Baumol (1993: 7; originalemphasis):

Any attempt at rigid definition of the term enterpreneur will be avoided

assidu-ously here, because whatever attributes are selected, they are sure to prove sively restrictive, ruling out some feature, activity, or accomplishment of this inherently subtle and elusive character.

exces-Baumol (1993: 8) defined the entrepreneur in such a way as to encompassall non-routine activities by those entrepreneurs ‘who direct the economicactivities of larger or smaller groups or organizations’

Second, the definition of the entrepreneur and entrepreneurship hasbecome such a terminological jungle that virtually anyone can plant his/herown tree Most existing definitions of entrepreneurship are based on either

the outcome of entrepreneurial activity or process based on the creation of

new enterprises or organisations This state of definitional chaos has led toBull and Willard’s (1995: 2) claim that ‘[w]riters in the field of entrepren-eurship seem somewhat obsessed with defining the word “entrepreneur” The term has been used for more than two centuries, but we continue toextend, reinterpret, and revise the definition We suggest that this desire toinvent a better definition has misdirected research efforts away from auseful theory of entrepreneurship’ Instead, they suggested the adoption ofSchumpeter-based concepts of the entrepreneur

Third, very different views of the entrepreneur exist in different academicdisciplines.6To a large extent, this divergence in disciplinary views of theentrepreneur results from ‘disciplinary closure’ as evident in Leff’s (1979:58) remark in his review of the problem of entrepreneurship in economicdevelopment:

An institutional perspective on entrepreneurship in international business 11

Sociologists and psychologists may be better able to answer such questions as the social conditions and personality traits that a ffect the capacity for bearing risk and uncertainty But economists are needed to take account of the economic conditions under which preferences are transformed into actual investment behavior.

There are basically six views of the entrepreneur In historical sequencethese are: (1) the ‘great person’ school; (2) classical and neoclassical eco-nomics; (3) psychology; (4) sociology; (5) management; and (6) intrapren-

eurship (see Table 1.3) The ‘great person’ school takes the entrepreneur as

an exceptional individual who is born with certain entrepreneurial cies and attributes This individual is viewed as possessing special abilitiesand traits that enable him or her to make entrepreneurial decisions From

tenden-a mtenden-acroeconomic perspective, the concentrtenden-ation of entrepreneurs is simply

a random process of birth and death of entrepreneurs These entrepreneursare associated with the rapid proliferation of start-up firms in a particulareconomy

In classical and neoclassical economic models, the firm is essentially

‘entrepreneurless’ The role of the entrepreneur has been relegated in classical economics to an indivisible and non-replicable input Baumol(1968: 66; footnote 2) famously observed that ‘[t]he theoretical firm is entre-preneurless – the Prince of Denmark has been expunged from the discus-

neo-sion of Hamlet There is one residual and rather curious role left to the

entrepreneur in the neoclassical model He is the indivisible and able input that accounts for the U-shaped cost curve of a firm whose pro-duction function is linear and homogeneous How the mighty have fallen!’.Interestingly, this observation remains in his 1993 book (Baumol, 1993),indicating the marginalisation of the subject in mainstream economicsduring the 1970s and the 1980s In his important theoretical contribution

non-replic-to entrepreneurship in economic theory, Casson (1982: 9) recognised thisgap in economic theory right at the beginning:

It may be said quite categorically that at the present there is no established nomic theory of the entrepreneur The subject area has been surrendered by economists to sociologists, psychologists and political scientists Indeed, almost all the social sciences have a theory of the entrepreneur, except economics.

eco-More recently, Baumol (1995: 17; original emphasis) made another

appar-ently contradictory observation that ‘their does exist a body of

entrepren-eurship theory in economics It even provides a rich store of insightspertinent both for the understanding of behavior and for the formulation

of policy’

The psychological view of the entrepreneur was popularised by McClelland’s (1961) study and his concept of n-achievement (see Low and

‘Great person’ • born with intuitive ability • entrepreneurship is born and • intuition, vigour, energy, • start-up

school • and traits and instincts • pre-given • persistence, and self-esteem

Classical and • innovation • entrepreneurship is doing • innovation, creativity, and • start-up and early

Psychological • unique values, attitudes • people behave in accordance • personal risk-taking, need for • start-up

• needs and characteristics • with their values values • achievement Sociological • family and environmental • early childhood influences • shared resources and networks • start-up

• dynamics • a ffect career decision Management • planning, organising, • entrepreneurs can be • production planning, people • early growth and

• leading and control • developed and trained • organising, capitalisation and • maturity

• budgeting Intrapreneurship • venture teams within • entrepreneurs e ffect change • alertness to opportunities, • maturity and change

• organisations • within organisations, lead to • maximising decisions

• development of independent • organisational building and

• units to create, market, and • become managers

• expand services

Sources: Garavan et al (1997: Figure 2.1); Bridge et al (1998: Table 2.1).

MacMillan, 1988; Hisrich, 1990; Chell et al., 1991; Bridge et al., 1998) Inthis view, several classical dependent variables defining the entrepreneurhave been uncovered: the need for achievement, risk-taking propensity, andlocus of control The entrepreneur is seen as someone who possesses expe-rience, flexibility of thought, high norms, long-term view, progressiveoutlook, self-reliance, and attitudes of deliberation (Casson, 1990b: 57–8).Numerous clinical experiments and statistical tests have been conducted inorder to ascertain specific traits and personality of entrepreneurs Does itmean then that only certain people can be entrepreneurs? Gartner (1988)argued that this limited view of the entrepreneur is not very useful Asnoted by Moon and Peery (1997: 15), ‘anybody can become an entrepren-eur, if he or she can create supernormal values in any area of business with

an appropriate strategy’ This view of the entrepreneur is consistent withSchumpeter’s (1934) original argument that an entrepreneur ceases to beone if he/she does not create value through ‘new combinations’ or, intoday’s terminology, continuous innovation

The sociological view of the entrepreneur has its origin in Max Weber’s

[1904] (1992) theory on the origin of the entrepreneurial spirit as a culturalaccount of individualism and the Protestant ethic Sociological studies ofentrepreneurship are particularly prominent in the area of ethnic entre-preneurship (see Aldrich and Waldinger, 1990; Thornton, 1999) Twomodels have been advanced to explain the relatively high incidence of entre-preneurial activities among certain ethnic groups The misfit modelexplains why immigrants tend to be unable to fit into the labour market inthe host economies, thereby propelling these immigrants to start their ownbusinesses The disadvantage model puts the blame on the inherent bias inthe economic structures of the host economies and shows how thesesystematic biases force certain ethnic groups to venture into businesses.Together with earlier models in psychology, these sociological models ofethnic entrepreneurship have found some audience among economists.Concluding their empirical study of patterns of self-employment in theUSA between 1968–1987, Evans and Leighton (1989: 532) noted that ‘[t]hesociological and psychological literature on entrepreneurship containsmany insights that economists might consider incorporating in theirmodels’

The last two views of the entrepreneur are found mostly in managementliterature It is sufficient to point out that entrepreneurship is conceptual-ised as value creation activities by management scholars:

Entrepreneurship can now be formally de fined as an activity of creating

super-normal values for individuals, organizations, and society by increasing reward

minus risk, i.e., increasing reward, reducing risk, or both (Moon and Peery,

1997: 8; original emphasis)

On the other hand, the management view on intrapreneurship was firstpopularised by Pinchot (1985) and subsequent studies of corporate entre-preneurship (Duncan et al., 1988; Guth and Ginsberg, 1990; Hisrich, 1990;Fulop, 1991; Block and MacMillan, 1993; Mosakowski, 1998; Barringerand Bluedorn, 1999; Mourdoukoutas, 1999).

The Nature of Transnational Entrepreneurship

In this book, I define a transnational entrepreneur as a social actor capable

of bearing risks and taking strategic initiatives to establish, integrate, andsustain foreign operations This transnational entrepreneur is more than abearer of mechanism of change at the abstract level He/she has internal-ised certain exceptional qualities (cf the psychological view) and his/herstrategic action is facilitated by the repertoire and network of resources inwhich he/she is embedded (cf the sociological view) A transnational entre-preneur is therefore defined by three interrelated attributes that must besimultaneously present in the entrepreneurial process: (1) control ofresources in different countries (e.g capital, information, and knowledge);(2) capabilities in strategic management in different countries (e.g innova-tive and creative deployment of resources); and (3) abilities to create andexploit opportunities in different countries This process-driven definition

of transnational entrepreneurship points at its time- and place-dependentnature An entrepreneur may not forever be an entrepreneur because he orshe may lose entrepreneurship over time or in different places This time-and place-specificity of entrepreneurship has already been recognised bySchumpeter (1934: 78) and Baumol (1990: 894)

In thefirst place, the control of resources in different countries allows a

transnational entrepreneur to overcome the inherent disadvantage ofengaging in international business activities when competing with incum-bent competitors in the host countries The use of the word ‘control’ is inten-tional here to avoid the necessary implication that control means ownership

A transnational entrepreneur can effectively control certain sets of resourceswithout actually owning them For example, a transnational entrepreneurmay obtain particular information or knowledge about a potential marketopportunity through personal contacts or other means This intangible andtacit knowledge cannot be clearly defined and is not accompanied by par-ticular ownership The ‘network factor’ becomes very important herebecause strong social and business networks can serve as the institutionalfoundations for transnational entrepreneurship Social and political institu-tions significantly shape the attitudes and behaviour of transnational entre-preneurs These networks and institutions provide the necessary strategicinfrastructure to enable the success of these transnational entrepreneurs

An institutional perspective on entrepreneurship in international business 15

Transnational entrepreneurship is a process because it evolves from

experi-ence and learning gained through progressive involvement in foreign ations Through these cross-border operations, transnational entrepreneursnot only learn how to deal with unexpected contingencies in the host coun-tries, but also develop deeper understanding of the realities of these hostcountries

oper-Moreover, the utilisation of these cross-border resources is certainly arisk-taking act In this sense, I disagree with Schumpeter’s (1934: 137) viewthat the entrepreneur is not necessarily a risk-bearing person, but rather thecapitalist is the risk-bearer Since there are opportunity costs associatedwith the control of cross-border resources by transnational entrepreneurs,there are risks involved in different combinations of utilising and exploit-ing these resources Of course, not all risk-taking is good, at least from afirm’s point of view But transnational entrepreneurs must have certaininherent capabilities in absorbing calculated risks, i.e the kind of risks thatgenerate potential gain This risk-taking behaviour is particularly criticalbecause operations in a foreign land are often filled with uncertainties andpotential business risks In fact, the risk-taking capacity of an entrepreneurtends to increase with his/her experience with the host countries (see myempirical analysis in Chapters 4 and 5)

This definitive attribute of the transnational entrepreneur, however,excludes most managers of TNCs who do not control resources in differ-ent countries As shown below, some managers of TNC subsidiaries abroadhave taken specific initiatives to create ‘new combinations’ through strate-gic deployment of their available resources and information/knowledgerepertoire They are conceptualised as ‘transnational intrapreneurs’ whoare professional managers empowered to manage transnational opera-tions.7 This empowerment may come from the founding entrepreneursthemselves through a process of socialisation It may also be institutional-ised within the organisation itself when top management from headquar-ters delegates power and control to professional managers abroad Thiscreates what are known as ‘intra-firm’ networks that tend to facilitate head-quarters’ control and co-ordination of overseas subsidiaries through infor-mal mechanisms The role of heterarchy in encouraging intrapreneurship

in international business operates through the flattening of corporate archy Geisler (1993: 55) argued that ‘[i]n the new amorphous organization,the middle managers are again in the middle of affairs This time they func-tion less as linking mechanisms in a vertical flow and more as centralfocuses for multidirectional interfaces with internal as well as externalstakeholders, such as clients and suppliers’

hier-Second, not everyone who controls resources in different countries can

be a transnational entrepreneur because he or she may not be able to deploy

these resources effectively to establish and sustain cross-border operations.

A necessary condition to define a transnational entrepreneur is capabilities

in strategic management in different countries Once again, a new marketentrant can only succeed in a foreign country if he or she deploys available

resources di fferently from competitors in the host countries and/or from

other countries This attribute of transnational entrepreneurs explains whythey are able to break away from routinised patterns and norms of businessactivities found among domestic competitors Baumol (1968: 65) notedthat an entrepreneur is ‘the Schumpeterian innovator and some more He

is the individual who exercises what in the business literature is called ership.” And it is he who is virtually absent from the received theory of thefirm’ How then does a transnational entrepreneur ‘get things done’ differ-ently in host countries? These are empirical issues that will be addressedfurther in later chapters

“lead-Third, since transnational entrepreneurship refers to ongoing processes

of successful foreign business venturing, it is important to appreciate a

transnational entrepreneur’s abilities to create and exploit opportunities in

different countries Indeed, the existence of opportunities and their rential exploitation are the central assumptions in Holmes and Schmitz’s(1990) economic model of entrepreneurship It is therefore one thing tocontrol and deploy resources effectively in different countries, but quiteanother thing to explain why only certain international business venturesare successful and sustainable over time I believe this contextual factor has

diffe-something to do with foresight in foreign ventures This aspect is important

at least from the perspective of strategic management and transaction costeconomics As Williamson (1999: 1089) acknowledged, ‘[t]ransaction costeconomics ascribes foresight rather than myopia to human actors’ Thefactor also distinguishes domestic entrepreneurship from transnationalentrepreneurship because an entrepreneur is often well entrenched inhis/her domestic market There is a strong sense of inertia against ventur-ing abroad, given his/her comfortable home market share A transnationalentrepreneur therefore needs to possess strong vision and foresight in order

to position the future of his/her firm in an era of global competition.Though often assisted by professional analysts and strategists, he/she must

be able to identify market opportunities abroad and tap into them Thisrelentless search for direct investments in foreign markets is important intoday’s global economy because market presence remains the fundamentaldrive for an entrepreneur to venture abroad, whether he/she runs a manu-facturing or a service firm If successful, this transnational entrepreneurwill enjoy ‘first-mover’ advantages unavailable to other firms and theiractors Every foreign venture, therefore, may appear as a new business start-

up synonymous with the process of new firm formation so well documented

An institutional perspective on entrepreneurship in international business 17

in most entrepreneurship studies The difference here, of course, is that once

a foreign venture is established, a transnational entrepreneur must continue

to resolve operational and management problems in a business context that

is often fundamentally di fferent from his/her home country.

TOWARDS AN INSTITUTIONAL PERSPECTIVE ON TRANSNATIONAL ENTREPRENEURSHIP

The institutional perspective on entrepreneurship in international businesstherefore assumes that transnational entrepreneurs and intrapreneurs must

be endowed with control of resources, capabilities in strategic management,and abilities to create and exploit opportunities in different countries Astransnational entrepreneurship refers to the exceptional qualities required

in the processes of creating and sustaining particular business venturesacross national boundaries by social actors, my analytical tasks are (1) to

explain both the sources and variations of entrepreneurial endowments

(resources and capabilities) enjoyed by transnational entrepreneurs and (2)

to explain how these transnational entrepreneurs capitalise differently ontheir endowments through cross-border business ventures In its essence, aninstitutional perspective on transnational entrepreneurship postulates thatsignificant variations in institutional structures of home countries explain

variations in the entrepreneurial endowments of prospective transnational

entrepreneurs Institutional structures are defined as enduring and ised sets of relations among ‘prevailing institutions dealing with the consti-tution and control of key resources such as skills, capital, and legitimacy’(Whitley, 1999: 5) These institutional structures form established systems

organ-of economic co-ordination and control in specific market and non-marketeconomies They inherently shape the logics governing economic decision-making, actions, and the market processes through establishing and enforc-ing conventions, values, views, norms, practices, and the so-called ‘rules ofthe game’

Once embedded in these transnational institutional structures,

transna-tional entrepreneurs should be better able to exercise their home country

endowments in the host countries This important difference between thehome country endowments of transnational entrepreneurs and their abil-ities in exercising these endowments explains why domestic entrepreneursfrom the same home countries may experience differential entrepreneurialoutcomes even if they operate in the same host countries Similarly, this

differential ability to exercise home country endowments due to differentialembeddedness in cross-border actor networks can also explain why a trans-national entrepreneur from a home country with weaker institutional struc-

tures (e.g a restricted home market) may perform better in the same host

country vis-à-vis a transnational entrepreneur from another home country

with stronger institutional structures (e.g a more competitive homemarket) There is therefore a place for individual entrepreneurs and theiractor-specific initiatives in this institutional perspective on transnationalentrepreneurship Through their actor-specific cross-border networks,some domestic entrepreneurs are more predisposed to become transna-tional entrepreneurs by successfully establishing and sustaining theirforeign operations Their entrepreneurial action, however, is constrained byhome country endowments that are explained by variations in homecountry institutional structures

These are the basic theoretical premises of my institutional perspective

on transnational entrepreneurship that will be explained in greater detail inthe following subsections Casson (1990b: 44–5) noted that an institutionalperspective on entrepreneurship can provide ‘a vision of the firm as a coali-tion of individuals who have contracted to fill prescribed roles within aninstitutional structure The creative activity of the firm stems ultimatelyfrom the co-operative creativity of the individuals within it’ Instead ofstarting with the internal attributes of the entrepreneur, my institutionalperspective begins its analysis with comparative institutional structures inhome and host countries It then proceeds to analyse the entrepreneurialcapacities of individual actors in international business – the transnationalentrepreneur – and their embeddedness in cross-border actor-specific net-works These transnational entrepreneurs and intrapreneurs draw uponresources and endowments from the cross-border institutional structures inwhich they are embedded This process of embedding in transnationalinstitutional structures is known as the institutionalisation of transnationalentrepreneurship

Varieties of Capitalism and the Institutional Structuring of Business Systems

It is beyond the scope of this book to explain different varieties of ism and their business systems8(see Whitley, 1992a; 1992b; 1999; Berger andDore, 1996; Whitley and Kristensen, 1996; 1997; Crouch and Streeck, 1997;Hollingsworth and Boyer, 1997; Porac and Ventresca, 1999) Suffice to arguethat variations in institutional structures and business systems significantlyexplain the sources and variations of resource and capability endowmentsenjoyed by transnational entrepreneurs from different home countries Thedivergent forms of capitalism can be explained by their different configura-tions of institutional structures and their different institutional structuring

capital-of organisational forms An example is the late twentieth century British

An institutional perspective on entrepreneurship in international business 19

economy, which had strong international capabilities infinancial servicesand architecture but relatively weak ones in complex assembly manufactur-ing and construction Another similar example is the strength of theJapanese economy in complex assembly manufacturing (e.g automobilesand electronics), but not so much in precision engineering or media busi-nesses.

In his formulation of a more general approach to economic developmentand competitiveness, Lazonick (1991; see also Chandler, 1990; Whitley,1999) highlighted three varieties of capitalism in accordance with their

variations in the con figurations of economic institutions and competitive strategies: proprietary (e.g the UK), managerial (e.g the USA), and collec-

tive (e.g post-war Japan) Proprietary capitalism is dominated by verticallyand horizontally specialised firms that co-ordinate their inputs and outputsthrough market contracting (see also Sako, 1992) These firms have littledistinctive organisational capacity to pursue innovative strategies and typ-ically delegate control over labour processes to skilled workers who aremanaged through piecework-based reward systems Managerial capitalism,

in contrast, is dominated by large, vertically integrated and often tally diversified firms run by salaried managers organised into authorityhierarchies (Chandler, 1977; 1990; cf Best, 1990; Sabel and Zeitlin, 1996).These firms often developed their own innovation capabilities throughestablishing R&D laboratories and competed for much of the early twenti-eth century through innovation-based strategies for mass markets Theyalso tend to exert strong managerial control over work processes throughformal rules and procedures and mechanisation High levels of managerialintegration in such firms do not extend to the manual workforce, or to sup-pliers and customers Finally, collective capitalism exhibits even higherlevels of organisational integration of economic activities through exten-sive long-term collaboration between firms in business groups and net-works, both within sectors and across them Additionally, integrationwithinfirms is greater in this form of capitalism because loyalty and com-mitment between employer and employee extend further down the hierar-chy than in either of the other two types This investment in manual workers

horizon-is crucial to the development of innovative organhorizon-isations since it ages employees to improve products and processes on a continuing basis.How then do these different configurations of capitalism shape theorganisation of economic co-ordination and control systems? This diverse

encour-institutional structuring of organisation systems is evident in the substantial

variations in ownership patterns, business formation and co-ordination,management processes, and work and employment relations across coun-tries and/or regions For example, the ways in which industrial capitalismdeveloped in Britain, Denmark, and Germany differ significantly as a result

of variations in their political systems and the institutions governing cultural production and distribution To a large extent, the structure andpractices of state agencies, financial organisations, and labour-marketactors in these countries continue to diverge and to reproduce distinctiveforms of economic organisation (Whitley, 1999) Table 1.4 provides asummary of the embeddedness of business firms in their national institu-tional and ideological structures I shall extend my analysis here by consid-ering each aspect of this institutional structuring of organisation systems.

agri-First, ownership patterns of firms in particular countries can be

signifi-cantly structured by existing institutions in those countries These existing institutional arrangements may control sources of capital andother initial inputs to production in ways that promote or discourageprivate entrepreneurship and private ownership of business establishments.Late industrialising countries, for example, typically have poorly developedcapital and stock markets The lack of capital and other inputs to produc-tion (e.g human resources) has often led to strong involvement of the state

pre-in early pre-industrialisation pre-in these emergpre-ing countries (see the case of HongKong and Singapore in Chapter 2) In other industrialised economies,however, significant variations in state policies and industrialisation pro-cesses may shape the behaviour of national firms in terms of their corpo-rate financing (e.g reliance on capital markets) and corporate governancepatterns (see Table 1.4) American firms, for example, have significantlyshorter-term shareholding and higher reliance on capital markets thanGerman and Japanese firms

Second, institutional arrangements may influence the patterns of ness formation and co-ordination This is important insofar as entrepreneur-

busi-ship studies are concerned because business formation and venturing havebeen key research focuses in these studies In countries with highly compet-itive markets institutionalised through specific deregulation policies andthe establishment of market procedures, firms tend to be established byprivate entrepreneurs on the basis of their perceived benefits from ‘newcombinations’ of production, marketing, and distribution methods Recentempirical studies of technological innovations based on patent data haveshown that the conditions of home countries influence levels and trends ofR&D activities, and technological innovations among national firms Thetechnological activities of global corporations are firmly rooted in homecountries, as indicated by the location and nature of R&D activities Thesefirms derive their firm-specific technological advantages from homecountry institutional environments (Cantwell, 1989; 1995; Lundvall, 1992;Patel, 1995)

Based on patenting records of some 686 of the world’s largest firmsfrom 1981 to 1986, Patel and Pavitt (1991: 11) concluded that ‘in spite of

An institutional perspective on entrepreneurship in international business 21

Institutional Structures

1 Political • liberal democracy • social democracy • developmental democracy • often hostile or unfavourable

1 institutions • divided government • weak bureaucracy • strong bureaucracy • host country environment

• highly organised interest • corporatist organisational • ‘reciprocal consent’ between • strong centralisation

• groups • legacy • state and firms • tradition in China

• merchant insecurity

2 Economic • decentralised, open markets • organised markets • guided, bifurcated, di fficult • family-based corporate

2 institutions • unconcentrated, fluid • tiers of firms • to penetrate markets • organisation

• capital markets • bank-centred capital markets • bank-centred capital markets • networks of small and

• anti-trust tradition • universal banks • tight business networks/ • medium firms

• certain cartelised markets • cartels in declining industries • strong inter-personal

relationships and business networks

3 Dominant • free enterprise liberalism • social partnership • technonationalism • familialism

1 economic

1 ideology

TNC Structures and Strategies

1 Direct • extensive inward and • selective/outward orientation • extensive outward • extensive outward

• inward

2 Intra-firm trade • moderate • higher • very high • moderate

3 R&D • fluctuating and diversified • narrow base/process, • high, steady growth • low, but recent growth

• innovation oriented • di ffusion orientation • high-tech and process • product adaptation

• orientation • customer-based innovation

4 Corporate • short-term shareholding • managerial autonomy except • stable shareholders • long-term shareholding

4 governance • managers highly constrained • during crises • network-constrained • control within family

• by capital markets • no take-over risk • managers • members

• risk-seeking, financial- • conservative, long-term • take-over risk only within • constrained by family

• centred strategies • strategies • network/aggressive market • ideology

• share-centred strategies • more reliance on ‘network

capital’

5 Corporate • diversified, global funding • concentrated, regional • concentrated, national • diversified, network funding

5 financing • highly price sensitive • funding • funding • high price sensitivity

• limited price sensitivity • low price sensitivity

Sources: Based on Pauly and Reich (1997: Tables 1 and 4); Yeung (1997a; 1997b; 1998b).

considerable variations amongst the large firms based in different countries,their technological activities remained far from globalised’ Moreover,entrepreneurs in highly competitive industries and markets are more prone

to risk-taking behaviour because of perceived payoffs from market-drivenprocesses (see Baumol, 1993) In countries with highly regulated marketsand strong state ownership offirms and industries, however, private entre-preneurship tends to be inhibited and the formation of business establish-ments tends to occur in sectors and industries in which there is least stateinvolvement In other words, private entrepreneurship serves as ‘gap-filler’

to improve the overall efficiency of the economy This is very much an ment in support of Leibenstein’s (1966) X-efficiency theory of entrepren-eurship (see also Landa, 1991)

argu-In terms of business co-ordination,firms in competitive market mies are more likely to engage in arm’s-length transactions and to holdadversarial relationships with customers and suppliers This is a story welltold in theoretical terms by transaction costs economics (Williamson, 1975;1985) It is interesting, however, that there are still substantial variations inthese business co-ordination and control mechanisms among competitiveeconomies in the world today (Hamilton and Feenstra, 1995; Biggart andGuillén, 1999; Feenstra et al., 1999) In countries where ownership andcontrol of firms are more interconnected, firms co-operate as well ascompete, and where they are able to share risks with financial partners, itbecomes highly difficult and problematic to define precisely the boundaries

econo-of firms (hierarchies) and markets This apparently disorganised ing of markets and hierarchies (e.g in Continental Europe) contrastssharply with their institutional counterparts from the Anglo-Americanworld (Whitley, 1999) In economies that are significantly dominated bystate involvement, business co-ordination and control tend to evolve in theforms of business groups, conglomerates, and networks (see Chapter 2).These organisational forms and processes are characterised by co-operativerelationships with customers and suppliers based on trust and social ties.Third, different configurations of home country institutional arrange-

structur-ments have important implications for intra- firm management and/or preneurial processes The institutionalisation of capital markets in the USA,

entre-for example, has put tremendous pressures on top management to seekshort-term returns and to practise financial-centred corporate strategies.Under this condition of capital market discipline, strategic managementtends to be much tighter in resource allocation within thefirm, and long-term investment in productive and/or innovative activities may be discou-raged Financial management becomes the primary instrument of intra-firmmanagement among most American companies In contrast, in countriespractising ‘co-operative capitalism’, stable and enduring relationships