cultural influences on entrepreneurship

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Cultural Influences onEntrepreneurshipRobert D. Russell aa School of Business Administration , Penn State-Harrisburg, Middletown, PA, 17057-4898, USAPublished online: 22 Sep 2008.

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Cultural Influenceson Entrepreneurship:

Implications for the Emergenceof New Ventures in Latin America

Robert D. Russell

ABSTRACT. The purpose of this paper is to examine several dimen-sions of culture as described by Hofstede and analyze their potential im-pact on the entrepreneurial process. Differences in scores on Hofstede’svariables between several Latin American countries and Canada and theUnited States are noted and the implications for using a North Americanmodel of entrepreneurship for the economic development of Latin LDCsare discussed. [Article copies available for a fee from The Haworth Document De-livery Service: 1-800-HAWORTH. E-mail address: <[email protected]> Website: <http://www.HaworthPress.com> © 2004 by The Haworth Press,Inc. All rights reserved.]

KEYWORDS. Hofstede, Latin America, culture, entrepreneurship

Entrepreneurship has been accorded a special place in the economicsliterature as a means of generating growth in output and employment.The accepted wisdom regarding entrepreneurial ventures is best ex-pressed by Schumpeter (1934) in his seminal writings. He regards newventures as “engines” that drive economic growth by creating new busi-nesses and revolutionizing industries through the introduction of trans-

Robert D. Russell is affiliated with the School of Business Administration, Penn State–Harrisburg, Middletown, PA 17057-4898 (E-mail: [email protected]).

Journal of Transnational Management, Vol. 10(1) 2004Available online at http://www.haworthpress.com/web/JTRAN

© 2004 by The Haworth Press, Inc. All rights reserved.doi:10.1300/J482v10n01_04 37

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forming innovations. In Schumpeter’s words, entrepreneurs are agentsof “creative destruction” who generate “new combinations” of eco-nomic resources that sweep away old methods and products to createwealth and increase employment within an economy.

Because of its association with growth, entrepreneurship has beenpromoted as a means of stimulating economic development in less de-veloped countries (Morris, 2001; Mueller and Goic, 2002; Pisani andPatrick, 2001; Zahra and Schulte, 1994). The underlying assumption isthat the economic benefits of entrepreneurship experienced by industri-alized nations can be duplicated in the less developed countries (LDCs)by transferring entrepreneurial practices to these regions. If this as-sumption is valid, then the promotion of new entrepreneurial venturesmay prove to be an important source of economic growth for LDCs.Economic transformations require agents that steer the process ofchange in socially beneficial directions rather than towards chaos anddecline. The emergence of local entrepreneurs in less-developed econo-mies may provide the catalyst that unleashes waves of beneficial changethrough the creation of new ventures that generate new and revive mori-bund industries. If this is to be the case, however, three conditions mustbe met: (1) the ideas and practices that constitute entrepreneurship mustbe learned and adopted by potential entrepreneurs in the LDCs, (2) eco-nomic, social and legal institutions that support entrepreneurship mustbe created and accepted in the developing countries, and (3) economicresources must be made available to potential entrepreneurs so that theymay begin the process of creating new ventures. The fulfillment of theseconditions in many LDCs may prove to be a complex and problematicprocess.

The transfer of knowledge related to the entrepreneurial process topotential entrepreneurs in less-developed regions may at first glanceseem to be a simple problem. Knowledge transfer, however, requires aconsensus regarding what behaviors and practices constitute entrepre-neurship. This presents an immediate problem since there is no gener-ally accepted model of entrepreneurship (Bygrave and Hofer, 1991;Meyer, Neck and Meeks, 2002). In fact, Morris (1998) identified sev-enty-seven different definitions of entrepreneurship in a review of sev-eral textbooks and journal articles. Bygrave and Hofer, however, havetaken a large step toward providing the basic elements of a usefulmodel. They describe entrepreneurship as a process but state that theprocess is “initiated by an act of human volition.” This attribute affirmsthe fundamental importance of the individual entrepreneur to new ven-ture creation. According to Bygrave and Hofer, the individual entrepre-

38 JOURNAL OF TRANSNATIONAL MANAGEMENT

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neur is “the essence of entrepreneurship” because of his/her seminalrole in creating and growing new ventures. In creating the new venture,the entrepreneur performs three important functions: (1) recognition ofthe market opportunity for the new business, (2) collection of the initialresources necessary for launching the new venture, and (3) creation ofan organization that makes the realization of the opportunity possible.

Despite the importance of the individual entrepreneur, the success ofentrepreneurial ventures is dependent upon many other factors. Bygraveand Hofer note that the process of entrepreneurship is “dynamic” and“holistic.” New ventures evolve and the course of their evolution is in-fluenced by an array of variables independent of the characteristics ofthe individual entrepreneur. The number of variables that affect the de-velopment of entrepreneurial ventures is large. They include the attrib-utes of the new venture itself as well as the social, cultural and economiccontext of the new venture. The evolution of entrepreneurial ventures isalso “sensitive to the initial conditions of antecedent variables” (Bygraveand Hofer). That is, the conditions of relevant system variables create acontext that influences: (1) the probability that new ventures willemerge, (2) the form that they will take, and (3) the direction in which theywill develop. Variables associated with the “initial conditions” of new ven-tures include infrastructure variables such as access to labor, capital andraw materials, adequate transportation and energy infrastructures and theavailability of suppliers and customers (Reynolds, Hay and Camp, 1999).The existence of legal and political systems supportive of entrepreneur-ship, the recognition of the rights of owners of capital and the validity offree markets as well as reasonable tax policies are other factors associatedwith the emergence of a healthy entrepreneurial system (de Soto, 2000;Russell, 1996). Finally, variables associated with national cultures suchas need for achievement, individualism, collectivism and tolerance forsocial and economic distance are part of the social context that influ-ences the emergence of new ventures (Harzing and Hofstede, 1996;Hofstede, 2005; McClelland, 1961; Tiessen, 1997; Zapalska and Williams,2001).

The development of a process model of entrepreneurship is significantbecause while it recognizes the importance of the individual entrepreneuras the prime mover behind new venture creation, it also highlights a sys-tem of variables that interact to influence the development and success ofnew ventures. Such a model provides an alternative perspective throughwhich the evolution of new ventures can be analyzed. Although individ-ual entrepreneurial behavior may be the “essence” of entrepreneurship, asystems perspective permits the examination of the complex, interactive

Robert D. Russell 39

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forces that motivate the behavior of entrepreneurs and affect the successof new ventures.

It is beyond the scope of this paper to discuss all variables that influencethe process of entrepreneurship. The focus of this work is on the effect ofsocial culture on entrepreneurship. The impact of cultural variables will beanalyzed from the systems perspective provided by Bygrave and Hofer.

Culture was chosen because of its fundamental influence on theemergence and development of entrepreneurial ventures. The entrepre-neurial process is seen as taking place within a cultural context that mayeither support or retard entrepreneurial efforts. Cultural values, beliefsand norms are viewed as a critical determinant of the “initial condi-tions” from which new ventures emerge and evolve.

The impact of culture on entrepreneurship is pervasive. Cultural val-ues determine the social worth assigned to entrepreneurial practices andthereby influence the social status of the entrepreneur and the social di-rection of the entrepreneurial process. Baumol (1990) observes thatthroughout history and across cultures “entrepreneurs are always withus” but their economic and social roles vary depending upon the pre-vailing cultural values that determine social and material rewards pro-vided to entrepreneurs. Different cultures may subject entrepreneurs todifferent “rules of the game” that influence their social status and the le-gitimacy of their actions. Etzioni (1982) reinforces this point when hestates that all aspects of entrepreneurship, including the supply of entre-preneurs and the economic resources allocated to entrepreneurial activi-ties, are influenced by the legitimacy given to entrepreneurial activitiesby the social group. The emergence of economic and legal institutionsthat regulate the entrepreneurial process is culture-bound. These institu-tions express the underlying values and beliefs of the social culture anddifferent cultures may spawn different institutional structures.

Given these observations, the conventional Schumpeterian conceptof the entrepreneur as an agent of benevolent economic change may bevalid only within social contexts that value entrepreneurial behavior.Entrepreneurship cannot be understood solely as an economic phenom-enon; it takes place within a complex matrix of social rules and normsthat influence the generation and evolution of entrepreneurial activities.In the absence of social rules and rewards that value entrepreneurial ef-forts, the attentions of potential entrepreneurs may become focused onless socially productive activities.

There is empirical support for a relationship between cultural variablesand economic outcomes (Begley and Tan, 2001; Mueller and Thomas,2000; Thomas and Mueller, 2000). In a seminal study, Hofstede (1980,


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2005) found a correlation between economic growth and four cultur-ally-related variables: uncertainty avoidance, individuality, power dis-tance and masculinity. Using Hofstede’s variables, Shane (1993) studiedthe rate of innovation within nations and found it to be associated with un-certainty avoidance, power distance and individualism. In a follow-upstudy, he found that support for innovation-championing roles betweencountries was related to the degree of uncertainty avoidance within thecountries (Shane, 1995). Morris (1994) found a curvilinear relationshipbetween entrepreneurship in corporate settings and individualism. Thesestudies indicate that there is are precedents for inferring that cultural vari-ables may influence entrepreneurial practices in general as well as sup-port for Hofstede’s four variables as valid measures of culture.

The purpose of this paper is to examine the dimensions of culture de-scribed by Hofstede and analyze their potential impact on the entrepre-neurial process. Differences in scores on Hofstede’s variables betweenseveral Latin American countries and Canada and the United States arenoted and the implications for using a North American model of entrepre-neurship for the economic development of Latin LDCs are discussed.

DESCRIPTION OF THE CULTURAL DIMENSIONS

Hofstede defines culture as “the collective programming of the mindwhich distinguishes the members of one group or category of peoplefrom another” (2005:4). The mental program consists of shared values,beliefs and norms. These constructs influence how people perceiveevents and help to determine what behaviors are considered appropriateor inappropriate in various social situations. Since cultural program-ming is shared and developed through a long process of socialization, itresults in relatively predictable responses by a cultural community tocommonly experienced situations. These characteristic patterns of be-havior create observable differences between cultures and the influenceof cultural differences on social processes may be predicted if the un-derlying social values and norms are known. Since entrepreneurshiptakes place within a social context, the economic behaviors associatedwith new venture development are subject to the judgement of membersof the cultural community. Judgements regarding the appropriateness ofentrepreneurial activities will be influenced by the values, beliefs andnorms of the culture in which they occur. Cultural communities thatdiffer in values related to entrepreneurial behavior are likely to differ inthe degree of support that they offer to entrepreneurs.


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In a massive study encompassing seventy-two countries, Hofstedeidentified four value-based dimensions of culture that are used to de-scribe and explain behavior in cultural groups. These dimensions are:(1) power distance, (2) uncertainty avoidance, (3) individualism, and(4) masculinity.

Power Distance

Power distance is a measure of the degree of interpersonal influencethat those who have power within a social structure can exert over thosewho lack power. It represents the difference between the extent towhich a superior can determine the behavior of a subordinate in a socialhierarchy compared to the extent that the subordinate can determine thebehavior of the superior in the relationship.

Power distance is seen by Hofstede as being socially determined and,therefore, can be used as a criterion for establishing differences betweencultures. It is a measure of the degree of authoritarianism that character-izes social relations within a country or region that shares a common cul-ture. In high power distance societies, inequality between social groups isexpected as part of a “natural” order; consequently, there tends to be largesocial and economic gaps between those who have power and those whodo not. In addition, movement between high and low power groups is re-stricted, creating a tendency toward distinct social classes with little ex-change between the groups.

In terms of organizational relationships, superiors in high power dis-tance societies tend to exert much influence over the behavior of subordi-nates who tend to be submissive rather than independent. Organizationstend to be highly centralized with a clear-cut separation between whiteand blue collar workers. There tends to be relatively large wage differen-tials between these groups. Opportunities for low-level employees tomove up in organizational hierarchies are limited.

In contrast, low power distance societies attempt to minimize inequal-ity between classes, emphasizing the ideal of equal rights for all membersof the society even if it is not perfectly achieved. Upwards social mobilityis relatively easy in low power distance societies and is often held out tobe an important social value. A large middle class is usually present tobridge the gap between more and less privileged groups.

Organizations in low power distance countries tend to be less hierar-chical and centralized. There is relatively free access to promotions andexpertise and performance rather than social position are the determi-


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nants of advancement. The preferred management style is participativerather than authoritarian or paternalistic.

Uncertainty Avoidance

Future events are inherently unpredictable, creating a sense of ambi-guity and anxiety among those experiencing the changes of time. Cul-tures experience different levels of anxiety when experiencing changeand uncertainty avoidance (UA) is a measure that indicates the level ofanxiety regarding future events. It evaluates the degree of tolerance forambiguity within a culture as it experiences the unfolding of uncertainevents.

Hofstede claims that cultures can be characterized by their tolerancefor uncertainty. Furthermore, he believes that methods for coping withambiguity are at least partially determined by cultural programming. Inorder to ensure predictability and thereby provide some protection fromanxiety, societies attempt to manage uncertainty through rules, technol-ogies, laws and rituals. The degree to which these devices are used tostandardize behavior is related to the level of UA within a society.

In countries characterized by a high degree of UA, social relationstend to be relatively formal, relying heavily on rules and procedures tostandardize behavior. Loyalty to formal organizations tends to be strongsince the organization is perceived to be a buffer against uncertainty.Workers in countries that score high on Hofstede’s UA index tend toprefer larger organizations, seeking the employment security that largecompanies can offer. There is a tendency to prefer the support of groupdecision-making rather than seeking individual responsibility. Conflictand competition among group members is considered disruptive, creat-ing dissension and adding to uncertainty; therefore, it should be avoidedrather than confronted. There is a strong resistance to change in highUA societies accompanied by a low tolerance for risk-taking behavior.

In contrast, low UA societies tend to generate organizations that areless structured with fewer written rules and procedures. Turnover inthese organizations is often higher than in high UA regions since loyaltyas a return for security is not as highly prized. Competition and conflictamong organizational members is more accepted; in fact, they areviewed as positive processes in many organizations leading to innova-tion and improvement. Risk-taking is accepted and often expected. Re-sistance to change is not as great in low UA countries.


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Individualism

The third cultural factor cited by Hofstede is individualism. This is ameasure that indicates the degree to which an individual’s identity andself-concept are linked to groups within society. In individualistic soci-eties, personal values and goals are the prime determinant of behaviorand self-identity. Conversely, in collectivist societies group values andgoals predominate and individual desires are subservient to or derivedfrom group values; consequently, self-identity is derived primarily fromgroup membership rather than individual characteristics.

In collectivist societies, the security that derives from group or organi-zational membership is important and loyalty to social groups is valued.In contrast, individual autonomy is more highly prized in individualisticsocieties and loyalty to social groups is not as highly valued. In general,small organizations are favored in individualistic cultures while large or-ganizations are more desirable in the collectivist orientation.

The process of social change has a different focus depending upon asociety’s orientation on the individualism scale. In individualistic cul-tures, social change is accomplished by converting a large enoughgroup of individuals to new practices or beliefs. The focus of change ef-forts is the individual and change occurs by convincing a large enoughaggregate of individuals, one-by-one, that change is necessary. The fo-cus of change efforts in collectivist cultures is the group which must beconverted en masse; change does not take place unless the collective it-self converts to new beliefs. As a consequence, social change in collec-tive cultures may take a long time but when it occurs it is sudden,dramatic, and comprehensive.

Masculinity

Hofstede’s final cultural dimension is masculinity. Despite its name,this construct is not designed to measure specific differences betweenmale and female; rather, it refers to learned styles of behavior that havebeen stereo-typically applied to males and females. The masculinitymeasure evaluates the general tendency to act either assertively (mascu-line) or in a nurturing manner (feminine).

In high masculinity societies, individuals tend to set high performancestandards and act forcefully to achieve these standards. Achievement mo-tivation is high within these societies and markers of achievement such asearnings, formal recognition and advancement are relatively more impor-


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tant than work climate and relationship issues. Independent rather thangroup decision-making is preferred.

In societies with a low masculinity index, nurturing issues are moreprominent. A desirable work environment is defined in terms of high qual-ity social relationships, friendly organizational climates and employmentsecurity. Achievement motivation is relatively weak and organizational ef-fectiveness is defined in terms of social climate and the quality of humancontact. Group decision-making is preferred over individual initiatives.

ANALYSIS OF COUNTRY SCORES

The data used in this analysis was extracted from Hofstede’s (1980,2005) summary report of a massive study conducted in IBM subsidiar-ies in 72 countries. The scores of Latin American countries for eachvariable were extracted and compared to U.S. and Canadian scores. Theresults are as follows (see Table 1).

In Hofstede’s study, countries are arranged along a power distancescale on which a score of 100 indicates very high power distance and ascore of 0 indicates very low power distance. A review of his results for


TABLE 1. Country Scores on Hofstede’s Dimensions

Power Distancescore rank

Uncertainty Avoidancescore rank

Individualismscore rank

Masculinityscore rank

Argent. 49 18-19 86 36-41 46 28-29 56 30-31

Brazil 69 39 76 29-30 38 25 49 25

Canada 39 15 48 12-13 80 46-47 52 28

Chile 63 29-30 86 36-41 23 15 28 8

Colomb. 67 36 80 31 13 5 64 39-40

Costa Rica 35 10-12 86 36-41 15 8 21 5-6

Ecuad. 78 43-44 67 24 8 2 63 37-38

Guata. 95 48-49 101 48 6 1 37 11

Mexico 81 45-46 82 33 30 20 69 45

Panama 95 48-49 86 36-41 11 3 44 19

Peru 64 31-32 87 42 16 9 42 15-16

U.S.A. 40 16 46 11 91 50 62 36

Urug. 61 28 100 47 36 23 38 12

Venez. 81 45-46 76 29-30 12 4 73 48

Rank number: 1 = lowest; 50 = highest.Source: Hofstede (2005).

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the Latin American countries indicates that all (with the exceptions ofArgentina and Costa Rica) exceed the median score for power distance.Moreover, Guatemala (95), Panama (95), Mexico (81), Venezuela (81),Equador (78), Brazil (69), Colombia (67) and El Salvador (66) scored inthe top twenty of the fifty-three countries of the sample. In contrast, theU.S.A. (40) and Canada (39) scored in the lower one-third of the sampleindicating a relatively low power distance. A t-test to determine the sig-nificance of the difference between the means of these two groupsproved to be significant at greater than the .01 level.

Latin American countries tend to score very highly on Hofstede’s un-certainty avoidance measure. All Latin countries in the survey score inthe top half of the sample (with the exception of Equador) while Guate-mala (101), Uruguay (100), Salvador (94), Peru (87), Chile (86) and Ar-gentina (86) score in the top ten. The remaining Latin nations–Mexico(82), Colombia (80), Venezuela (76) and Brazil (76)–are significantlyabove the median score. Comparatively, Canada (48) and the U.S.A.(46) rest in the bottom twelve with relatively low uncertainty avoidancescores. A t-test revealed that the means of the North and Latin Americangroups differed significantly at greater than the .01 level.

It is not surprising that the U.S.A. leads all countries on the individu-alism measure with a score of 91. Canada is in fourth place with a scoreof 80. In contrast, most of the Latin countries have low individualismscores. In fact, the five lowest scores belong to Latin countries (Colom-bia (13); Venezuela (12); Panama (11); Equador (8) and Guatemala (6)).Only Argentina (46) scores in the top half of countries surveyed with arank of 22/23 out of fifty-six. The difference between the means of thetwo groups was significant at greater than the .01 level.

Unlike the other three measures, there is no clear-cut distinction be-tween North and Latin American countries on the masculinity index.Venezuela (73) and Mexico (69) score relatively high on the index. Co-lombia (64), Equador (63), the U.S.A. (62), Argentina (56) and Canada(52) score moderately high while Brazil (49), Peru (42), Salvador (40),Uruguay (38), Guatemala (37), Chile (28) and Costa Rica (21) score be-low the median. There was no significant difference between the meansof the Latin and North American groups using a t-test. Consequently, itwould be difficult to draw a clear conclusion regarding the impact of themasculinity dimension on differences in entrepreneurship betweenNorth and Latin America.

In summary, the Latin nations in Hofstede’s study are characterizedby high power distance and uncertainty avoidance scores and low indi-vidualism scores. This contrasts to the U.S. and Canada which are char-


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acterized by low power distance and uncertainty avoidance scores andhigh individualism scores. No differences can be reported between thetwo groups on masculinity scores.

In the following section, the connection between power distance, un-certainty avoidance and individualism and the process of entrepreneur-ship will be discussed. The masculinity variable will not be consideredsince there is no significant difference between the U.S. and Canada andthe Latin countries in the sample.

IMPLICATIONS FOR ENTREPRENEURSHIP

As noted above, the process of entrepreneurship does not occur withinan economic vacuum. It is influenced by a wide array of variables that in-clude cultural values and norms. In the culture of the industrialized West(typified by the U.S. and Canada), the individual entrepreneur is cast in ahero’s role. They are generally portrayed as independent, risk-taking mav-ericks who recognize unseen opportunities and boldly organize the peopleand resources necessary for creating new business ventures. Additionally,entrepreneurs are seen as the primary agents for introducing innovation tostagnant economies, thereby re-energizing growth, increasing employmentand creating wealth. In this role, they are agents of beneficial social change.They disrupt the old economic and social order, replacing it with a new, im-proved version.

In order to fulfill these roles, at least two social conditions must exist:(1) the role of entrepreneur must have social acceptance so that the ac-tivities associated with new venture formation are regarded as legiti-mate and socially beneficial, and (2) the entrepreneur must be able toacquire the financial, material and educational resources necessary forinitiating new ventures. Condition one requires that the entrepreneurialrole be validated by a set of cultural values that recognize the legitimacyof the entrepreneurial function (Etzioni, 1987). Condition two requiressocial institutions and processes that provide the entrepreneur access tonecessary resources. How do each of Hofstede’s cultural variables af-fect these conditions and what are the implications for the differencesbetween the two regions? (See Table 2.)

Power Distance

In high power distance cultures, there is usually a wide gap betweenpowerful elites and the majority of the population who have relatively


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little power. In such contexts, access to economic resources and legiti-mate business opportunities may be restricted to the members of theelite. Additionally, access to education, especially higher education,necessary for the acquisition of business skills may be limited to the up-per classes. These conditions may constrain access to legitimate entre-preneurial roles to only those who are members of the social elite.Moreover, when members of the lower classes do engage in entrepre-


TABLE 2. Characteristics of Hofstede’s Cultural Dimensions Related to Entre-preneurship

Power Distance

Low High

* Achieve power through knowledge, merit. * Achieve power through privilege andposition.

* Attempts to minimize inequality. * Large gaps between those in power andthose not in power.

* Decentralized, “flat” organizationalstructures.

* Centralized, hierarchical organizationalstructures.

* Independent employees. * Submissive employees.

* Egalitarian ideals. * Only a few should be independent.

* Trust, co-operation valued. * Latent conflict between classes–othersseen as threat to power.

Consequence: Greater access to resourcesand entrepreneurial opportunities–moreentrepreneurial initiatives generated.

Consequence: Access to entrepreneurialopportunities restricted to the few–fewerentrepreneurs emerge.


Low High

* Informal organizations. * Formal organizations.

* Reliance on individual analysis ofsituations.

* Reliance on rules and procedures.

* Preference for small organizations. * Preference for large organizations.

* Loyalty to employer weak. * Loyalty to employer strong.

* Preference for individual decision-making. * Preference for group decision-making.

* Tolerance for change. * Resistance to change.

Consequence: Increased willingness totake risks–increased scope for individualinitiative–more initiation of entrepreneurialventures.

Consequence: General avoidance of risk-taking; fewer individual entrepreneurialinitiatives begun.

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neurial activities, their participation may be discouraged and devaluedand often perceived as illegitimate or illegal by the members of the up-per class. It is in the vested interest of the elites to maintain the statusquo and lower class entrepreneurs who may threaten historical powerconfigurations are not likely to be viewed benevolently.

A good example of this situation occurred in Eastern Europe underthe Soviet hegemony. The official ideology of the ruling elite in Social-ist Eastern Europe branded entrepreneurial activities as exploitive andcounter-revolutionary, thereby preventing potential entrepreneurs fromoccupying socially legitimate roles within the Socialist economy. AsBaumol notes, entrepreneurs did emerge in Eastern Europe. Their activ-ities, however, focused on illegal, black market operations beyond the


Individualism

Low High

* Collectivist orientation. * Self orientation.

* Identity primarily based on membership insocial groups.

* Identity primarily based on individualexperience.

* Preference for large organizations. * Preference for small organizations.

* Emotional dependence on organization. * Involvement with organization primarilycalculative.

* Individual initiatives discouraged. * Individual initiative valued.

* Group decision-making norm. * Individual decision-making norm.

Consequence: Fewer individualentrepreneurs emerge and fewerentrepreneurial ventures are initiated.

Consequence: Individual entrepreneurialactivities valued–more entrepreneurs andentrepreneurial ventures.

Masculinity

Low High

* Social relationships, security valued in theworkplace.

* Advancement, recognition and earningsvalued in the workplace.

* Value for group decision-making. * Value for individual decision-making.

* Weak achievement motivation. * Strong achievement motivation.

* Achievement defined in terms of humanrelationships.

* Achievement defined in terms ofrecognition and wealth.

* Consequence: Less interest inentrepreneurship as a source ofachievement and wealth.

* Consequence: Greater focus onentrepreneurship as a source ofachievement and wealth.

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boundaries of the official, sanctioned economy. Entrepreneurship didoccur but its practitioners were social outcasts whose activities were notsanctioned by the ruling elite and failed to contribute to economicgrowth in Eastern Europe. The emergence of the powerful drug cartelsin South America may be another example of socially illegitimate entre-preneurship instigated by members of less-accepted social classes whohave few legitimate entrepreneurial alternatives available to them.

In contrast, low power distance societies regard social mobility a vir-tue and relatively easy access to entrepreneurial resources is permittedand even encouraged across a broad range of social groups. For exam-ple, the “Horatio Alger” myth, prevalent in some form throughout theU.S., details the rise to wealth and prominence of an individual of hum-ble origins who succeeds through grit, determination and hard work.These myths serve to legitimate the entrepreneurial role for all membersof the society and point out a path leading from poverty to success.

In low power distance cultures, a greater percentage of individualswill be both attracted and permitted access to the role of “entrepreneur”and entrepreneurship may, in fact, be considered a legitimate means forachieving the ideal of social mobility. Thus, in comparison to highpower distance regions, low power distance cultures are likely to gener-ate a higher level of entrepreneurial activity.

In the U.S., an important source of entrepreneurs are large, bureau-cratic organizations where disaffected employees weary of authoritar-ian management leave the organization to form their own new ventures(“break-away entrepreneurs”). In high power distance cultures, the sup-ply of break-away entrepreneurs may be restricted because, accordingto Hofstede, less-powerful subordinates tend to be “submissive” andprimarily concerned with preserving their position within a rigid hierar-chy. Such individuals are not likely candidates to leave their organiza-tions to become risk-taking entrepreneurs and this provides anotherreason for stating that there may be fewer potential entrepreneurs inhigh rather than low power distance cultures.


Uncertainty avoidance is another cultural dimension closely relatedto entrepreneurship. Schumpeter (1934) associates entrepreneurshipwith the introduction of innovative change into economies. Entrepre-neurship in the Schumpeterian sense always involves a high degree ofuncertainty since the process of developing and commercializing inno-vation is inherently ambiguous and risky. Entrepreneurs cannot be cer-


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tain that they will be able to acquire the knowledge and resourcesnecessary to develop an innovative idea nor can they be sure that themarketplace will accept the idea if successfully developed. Thus, entre-preneurs and those who provide resources for entrepreneurial venturesrequire a high tolerance for ambiguity and a willingness to take risks.These are necessary characteristics for innovative entrepreneurs thatenable them to pursue the risky and highly uncertain process of newventure development.

High uncertainty avoidance cultures value predictability and cer-tainty over ambiguity and risk. Individuals from these cultures willlikely have a relatively low tolerance for ambiguity and an aversion torisk-taking. Such individuals will be less likely to seek out innovativeventures as commercial opportunities; moreover, even new venture op-portunities that do not involve innovation may be shunned since allbusiness start-ups involve some elements of risk-taking. Even if uncer-tainty-avoiding individuals do participate in the development of inno-vative new ventures, they may have a tendency to seek prematureclosure of the inherently ambiguous process and not explore potentialcreative solutions that may lead to “breakthrough” innovations.

According to Hofstede, organizations in high uncertainty avoidanceregions tend to rely on rules and procedures to reduce uncertainty andenforce predictability. Rule-bound organizations tend to resist changeand are not likely to be sources of creative ideas that create entrepre-neurial opportunities in the marketplace. Additionally, because of thevalue placed on loyalty to the organization and the stability of long-termemployment, high uncertainty avoidance cultures are less likely to pro-duce the “break-away” entrepreneurs mentioned above.

The combination of risk avoidance, low tolerance for ambiguity andresistance to change that characterize high uncertainty avoidance re-gions is likely to reduce the number of potential entrepreneurs who arewilling to bring innovative ventures into the economy. The new ventureactivity that does emerge from this social context is more likely to be di-rected toward predictable, stable businesses.

Individualism

Of all Hofstede’s value dimensions, the one most commonly associ-ated with the North American ideal of entrepreneurship is individual-ism. In the economic mythology of North America, entrepreneurs areportrayed as independent mavericks who reject the common view andovercome adversity to persevere in realizing their own unique vision.


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Frequently, the success of the entrepreneurial vision requires that theentrepreneur leave the security of a large organization that has rejectedhis/her ideas to create a new business.

The image of entrepreneur as rugged individualist is supported by thevalues of culture’s that are high on Hofstede’s individualism scale. Indi-vidualistic cultures prize individual initiative and autonomy. Individualneeds and concerns take precedence over group beliefs and needs. Loy-alty to organizations is relatively low and organizational concerns areless important than individual interests. In individualistic contexts, in-dependent entrepreneurial efforts are likely to be valued and supportedby social norms as a means of achieving individual goals. Entrepreneur-ship is likely to become a socially approved means for individualsseeking status and economic security.

Additionally, in countries that score high on the individualism di-mension, there is a preference for working in small organizations. Inthese organizational contexts, more opportunities for displaying initia-tive and acquiring personal autonomy exist since managers are notbound by the bureaucratic constraints of large organizations. Since en-trepreneurial start-ups are most often small, the preference for workingin small firms may benefit entrepreneurial ventures by providing a sup-ply of talented, aggressive managers who can help the venture competewith larger, more resource-rich firms.

In contrast, collectivist cultures tend to discourage individual initia-tive and rely upon the group for taking action. Independent initiative isnot highly prized and often is viewed as disruptive to group harmony. Inthe collectivist context, there is a preference for working in large orga-nizations and an emotional dependence binds the worker to the organi-zation. As a consequence, fewer individuals are likely to aspire to therole of entrepreneur and fewer break-away entrepreneurs will leave ex-isting organizations. The level of individual entrepreneurial activity islikely to be less in collectivist than in individualistic cultures.

DISCUSSION AND IMPLICATIONS FOR POLICY

An analysis of Hofstede’s cultural factors indicates that entrepre-neurship thrives within cultures characterized by: (a) low power dis-tance, (b) low uncertainty avoidance, and (c) high individualism. Thesefactors are characteristic of North American culture and are associatedwith a model of entrepreneurship based on individual initiative within asocial context where social mobility is valued and the resources neces-


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sary to initiate new ventures are available to a relatively broad range ofsociety. In this cultural context, entrepreneurial success is rewardedboth materially and psychologically. Successful North American entre-preneurs can expect to benefit financially and to be respected by mostmembers of society. Moreover, legal and economic institutions exist toprotect the property rights of entrepreneurs and provide a reliable con-text for conducting business. The combination of these factors attractsmany individuals to entrepreneurial endeavors, ensuring a ready supplyof entrepreneurs who generate a steady stream of new businesses.

Virtually all of the Latin countries in Hofstede’s survey score on theopposite pole to the U.S. and Canada on the three cultural dimensions.Entrepreneurship in Latin countries must be practiced within a socialcontext characterized by collectivism, high power distance and a highdegree of uncertainty avoidance. This array of values creates a socialcontext in which personal identity is derived primarily from groupmembership, group rather than individual decision-making is preferred,risk is to be avoided and access to resources by members of the lowerclasses is constrained. In a society where these values and practices areextant, how likely is it that a North American style of entrepreneurshipwill take root? Whereas the entrepreneur as independent “maverick”may be a glamorous image in the United States, it may be a disreputableone in Latin cultures that do not share the same set of values.

It would seem that the relative inequality, low tolerance for ambiguityand collectivist tendencies of Latin countries would stunt the developmentof entrepreneurship within these cultures. Conventional wisdom dic-tates that if entrepreneurship is to prosper in Latin America, socialchange must occur in the direction of greater individualism, increasedtolerance for ambiguity and increased egalitarianism. Cultural valuesand practices, however, are the result of a long history of social develop-ment; members of a culture are socialized into accepting values andpractices as givens that are not easy to change. Hofstede states that so-cialization in a culture creates “mental programming” that is used bygroup members to evaluate situations and define appropriate action. It isnot likely that the mental programming of citizens of Latin countrieswill change easily to assimilate North American ideas about entrepre-neurship. In Bygrave and Hofer’s terms, the network of values, normsand beliefs that constitute the mental programming of members pro-vides the initial conditions that will influence the evolution of entrepre-neurship within a society. Values and norms will be used to evaluateentrepreneurial behaviors and practices and will shape the form that en-trepreneurship takes within a society. Given the significant differences


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between North and Latin American values regarding power distance,uncertainty avoidance and individualism, it may be unreasonable to ex-pect that entrepreneurship would evolve in Latin America in accor-dance with a North American model.

There are four economic benefits that can be derived from increasingthe level of entrepreneurship in a society: (1) wealth generation due toincreased economic activity, (2) increased employment, (3) increasedrate of innovation, and (4) more effective distribution of goods and ser-vices throughout the economy. The question that now must be asked isto what extent are these economic outcomes related to the social valuesthat define the North American model of entrepreneurship or could sim-ilar outcomes be achieved using practices compatible with a differentset of cultural values?

There is no economic law that requires new businesses to be formedby individuals. Morris (1994) notes that a “curvilinear” relationship ex-ists between entrepreneurship in organizations and individualism andcollectivism. Too high levels of both tend to reduce entrepreneurial out-comes. Research on economic development in Asian nations indicatesthat values related to “Confucian Dynamism” (long term orientation)and a collectivist orientation can be associated with high rates of eco-nomic growth and new venture development lending support to the ar-gument that a collectivist culture can generate new businesses (Frank,Hofstede and Bond, 1991; Hofstede and Bond, 1988). One of the meth-ods that China has used to maintain above average growth rates since1990 is the creation of town and village enterprises, a form of group en-trepreneurship. Group entrepreneurship is not uncommon in U.S. hightech industries where new ventures are frequently founded by groups ofengineers or technical professionals around an innovative new idea. Re-search on corporate entrepreneurship indicates that groups are critical tothe effective development of complex innovative ideas (Kanter, 1989;Teissen, 1997). The family business in which the enterprise is ownedand managed by members of the extended family is prevalent in com-munities throughout the U.S. as well as Latin America providing an-other model of entrepreneurship in which groups are prominent. InHispanic communities in the U.S., group entrepreneurship in the formof local food co-operatives has been observed. Some of these co-opera-tives have formed alliances with local food distributors and growers tocreate regional networks designed to produce, transport and distributefood products suited to Hispanic tastes within a geographic region.

All of the above examples provide evidence that alternative forms ofnew business creation based on groups may substitute for individual ini-


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tiatives. In collectivist cultures, individuals may not be encouraged toinitiate new businesses but collaborative groups, formed on the basis ofcommon needs or experience, may be a viable substitute. CollectivistLatin nations that wish to stimulate their economies through entrepre-neurship could identify and support local co-operatives, owned and op-erated by community members, which may become the cornerstones ofnew venture creation and growth. Furthermore, new venture co-opscould be linked with suppliers and customers in regional alliances.These entrepreneurial networks may suit the values of collectivist cul-tures better than individually owned ventures. They would be ownedand managed by community members and their purpose and objectiveswould be responsive to local values and needs. A network of commu-nity-owned co-ops, managed in a collaborative manner, conforms tocollectivist values but also provides the sense of security, focus for loy-alty and a context for group decision-making that are desirable organiza-tional characteristics in a collectivist culture.

Legitimate entrepreneurial networks are not likely to emerge in LatinAmerica, however, without the support of national and local govern-ments and social elites. The relatively rigid social stratification of highpower distance societies may make it difficult for less powerful com-munity groups to acquire the resources or social legitimacy necessary toinitiate entrepreneurial ventures. It is likely that Latin governments willhave to establish policies that support less powerful social groups intheir effort to initiate new ventures. Educational programs to train po-tential local managers in business and financial practices may be neces-sary. Governments may also need to sponsor low interest loans forlocally developed businesses so that community organizations canacquire the capital necessary to start a new venture.

The theme of the above paragraphs is that the consequences of cul-ture may be overcome in the case of collectivism and power distance tocreate uniquely Latin forms of entrepreneurship. Such optimism maynot be warranted regarding uncertainty avoidance and innovative entre-preneurial ventures. Whereas the formation of new businesses may beaccomplished in several modes befitting the cultural values of a society,uncertainty avoidance is intrinsically related to the process of innova-tion. The development and implementation of innovative products andprocesses is inherently uncertain and risky. Entrepreneurs attempting tocommercialize innovation cannot predict the outcome of their venturewith any degree of certainty nor can they identify the appropriate meansto achieve any desired outcome before they become involved in the pro-cess. To successfully navigate the innovation process, entrepreneurs


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and their organizational colleagues must be able to operate under am-biguous conditions. New ventures based on innovation always involvesubstantial risk and participants in the process must be willing to acceptunexpected outcomes.

Cultures that espouse uncertainty-avoiding values and norms are notlikely to produce entrepreneurial ventures that undertake the risks andambiguity of innovation. Reluctance to pursue innovation could be-come a competitive disadvantage to uncertainty-avoiding Latin nationscompeting in global industries that are characterized by rapid, innova-tive change (D’Aveni, 1994). Success in these industries requires theability to generate innovation rapidly either as a means of gaining com-petitive advantage or responding to creative competitors (Porter, 1990).Countries that operate under a set of social values that inhibit innovationmay find their economies lagging as global competitors from nationswith a higher tolerance for ambiguity generate a greater number ofinnovative products and processes.

A possible means of overcoming the problem of uncertainty avoid-ance may be corporate entrepreneurship. Pre-existing business firms inLatin nations could become agents for introducing innovative businessventures. Corporate entrepreneuring has become a “hot” button formany U.S. firms who use it to add innovative new businesses to theirportfolios. This process may be an effective way for Latin countries toinitiate innovation since membership in larger organizations is pre-ferred and participants tend to remain loyal to the organization in Latinsocieties. The larger firm would be the “home” for the new business anda project team would be assigned the responsibility for developing andlaunching the new venture. The project team would operate under theaegis of corporate management but be responsible for making all rele-vant decisions regarding the development of the new venture. In orderto fit the collectivist orientation of Latin firms, group decision-makingwould be the primary style of the new venture development team. In or-der for corporate entrepreneurship to work in Latin American firms,three conditions should be met: (1) new venture teams should be consti-tuted and authorized by top level management in order to conform to therequirements of high power distance organizations, (2) job security ofproject team members should be assured by top management to avoidthe natural reluctance of uncertainty-avoiding employees to participatein risky new business ventures, and (3) project team members should betrained in collaborative decision-making techniques before they are as-signed the responsibility for initiating the venture. Additionally, Latingovernments may need to offer incentives to large firms for developing


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new businesses in the form of tax breaks or other financial benefits inorder to overcome the company’s predilection for uncertainty avoid-ance.

In summary, entrepreneurship is an economic process that emergesin a cultural context whose values and norms influence the direction andshape that entrepreneurial initiatives assume. It is a fundamental error toassume that the practice of entrepreneurship can be instituted independ-ent of its social context. North American models of new venture devel-opment are not likely to fit most Latin cultures, regardless of the adviceof prestigious ideologues who advocate a cookie cutter approach toeconomic development.

At the same time, entrepreneurship is a fundamental activity presentin most societies (Baumol, 1990). In societies with values supportive ofentrepreneurship, new ventures can produce economic growth and vi-tality. In societies where entrepreneurship (according to the NorthAmerican model) is not legitimated, it can take the form of less sociallyproductive illegal or black market activities.

Policy-makers in Latin America who wish entrepreneurship to be ameans of economic growth rather than a disreputable activity must payattention to the cultural climate in which new ventures evolve to ensurethat: (1) activities related to new venture development conform to thevalues and norms of the culture, (2) appropriate social and economic re-wards are available to entrepreneurs engaged in legitimate activity, and(3) appropriate financial and legal institutions and processes are in placeto help legitimize entrepreneurial practices. To the degree possible, pol-icy-makers must help create social contexts that focus the attention ofentrepreneurs on socially productive ventures. This implies that institu-tions and programs designed to support entrepreneurial initiatives mustaccommodate local cultural imperatives rather than copying NorthAmerican models when a conflict exists. In Latin American countries,this means that a uniquely Latin model of entrepreneurship that fits withthe social values of the region must be created.

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RECEIVED: November 2003REVISED: April 2004

ACCEPTED: September 2004


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cultural influences on entrepreneurship

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