**Part 3**

**Social Context & Entrepreneurship** 

168 Entrepreneurship - Gender, Geographies and Social Context

Florida, R., 2004. The Rise of the Creative Class(Chinese version). Beijing: The Chinese

Drucker, P., (2006). *The Effective Executive: The Definitive Guide to Getting the Right Things* 

Fujita, M., Thisse, J.-F., (2002). *Economics of Agglomeration: Cities, Industrial Location and* 

Zhang, J., Wu, G,Y. and Zhang, J.P. 2004. The Estimation of China s provincial capital stock:

OECD and Eurostat, 2002. *Frascati Manual*(Chinese version). Beijing: Xinhua Press

*Regional Growth*. Cambridge, UK: Cambridge University Press

1952—2000. Economic Research Journal (10), 35-44. (by Chinese). Michael E.P. 1990. The competitive advantage of nations. Free Press, New York.

Becher, G. 1964. *Human capital*. New York: Columbia University Press. Aghion, P. and Howitt, P. 1998. *Endogenous Growth Theory*. MIT Press.

people's University Press (2006).

*Done*. Collins.

**7. References** 

**11** 

*Canada* 

**Social Entrepreneurship** 

Lee A. Swanson and David D. Zhang

*Edwards School of Business, University of Saskatchewan,* 

The term social entrepreneurship (SE) describes sustainable ventures that combine "business principles with a passion for social impact" (Wolk, 2008, p. 1). They strive to create social value as a primary organizational objective by employing business concepts to sustain their operations in pursuit of this objective (Weerawardena & Sullivan Mort, 2001). Swanson and Zhang (2010, 2011) positioned SE on a map of organizational forms relative to the ways organizations plan to implement social change and the degrees to which they apply business practices to do so. As shown in Figure 1, organizations in the social entrepreneurship zone might be organized as profit generating entities, not-for-profit enterprises, and some forms of social services agencies and government institutions; but do not include groups that only engage in social activism and organizations that exist to provide social services but do so without demonstrating entrepreneurialism and selfsufficiency (Austin, 2006; Martin & Osberg, 2007; Swanson & Zhang, 2010). This is consistent with a practitioner perspective of SE, which is more concerned with the mission the socially oriented organization is striving to achieve than with its legal form (Lynch & Walls, 2009).

Fig. 1. The social entrepreneurship zone on the map of organizational forms: (Swanson &

**1. Introduction** 

Zhang, 2010, 2011)

## **Social Entrepreneurship**

Lee A. Swanson and David D. Zhang

*Edwards School of Business, University of Saskatchewan, Canada* 

#### **1. Introduction**

The term social entrepreneurship (SE) describes sustainable ventures that combine "business principles with a passion for social impact" (Wolk, 2008, p. 1). They strive to create social value as a primary organizational objective by employing business concepts to sustain their operations in pursuit of this objective (Weerawardena & Sullivan Mort, 2001). Swanson and Zhang (2010, 2011) positioned SE on a map of organizational forms relative to the ways organizations plan to implement social change and the degrees to which they apply business practices to do so. As shown in Figure 1, organizations in the social entrepreneurship zone might be organized as profit generating entities, not-for-profit enterprises, and some forms of social services agencies and government institutions; but do not include groups that only engage in social activism and organizations that exist to provide social services but do so without demonstrating entrepreneurialism and selfsufficiency (Austin, 2006; Martin & Osberg, 2007; Swanson & Zhang, 2010). This is consistent with a practitioner perspective of SE, which is more concerned with the mission the socially oriented organization is striving to achieve than with its legal form (Lynch & Walls, 2009).

Fig. 1. The social entrepreneurship zone on the map of organizational forms: (Swanson & Zhang, 2010, 2011)

Social Entrepreneurship 173

The next section describes the nature of social entrepreneurship research under these four

As yet there is no single, widely agreed upon definition of SE, although it is generally accepted that its goal is to change the social equilibrium to a more desired state (Light, 2008). This is clearly reflected in the Martin and Osberg (2007) definition, which states that a

targets an unfortunate but stable equilibrium that causes the neglect, marginalization, or suffering of a segment of humanity; who brings to bear on this situation his or her inspiration, direct action, creativity, courage, and fortitude; and who aims for and ultimately affects the establishment of a new stable equilibrium that secures permanent

Dees (2001) identified a set of criteria to be used to determine whether the actions of an

• adopting a mission to create and sustain social value (not just private value), • recognizing and relentlessly pursuing new opportunities to serve that mission, • engaging in a process of continuous innovation, adaptation, and learning, • acting boldly without being limited by resources currently in hand, and

• exhibiting heightened accountability to the constituencies served and for the

The emerging definitions of SE have either been *inclusive* in that they are broad enough to include "more individuals, ideas, opportunities, and organizations into the tent" (Light, 2008, p. 11) or *exclusive* when they, for example, exclude for-profit enterprises from being called socially entrepreneurial. In a similar vein, Perrini (2006) distinguished between scholars who take what he called a *limited* view of SE that mainly considers changes in the not-for-profit sector when these organizations strive to enhance their sustainability by generating more revenue, and the *extended* view, which considers SE as something other than simply an enhancement of not-for-profit enterprises. Dees and Battle Anderson (2006) were proponents of an inclusive, or extended perspective on SE based upon the argument that the decision as to what legal form to use for a venture is simply a choice about which tool to use and not a factor

to use to include or exclude an organization from being called socially entrepreneurial.

on to other components requiring investigation and work" (p. 72).

Rather than attempt to define what SE is, some scholars have instead chosen to identify its important parameters. Swanson and Zhang's (2010, 2011) social entrepreneurship zone (see Figure 1), for example, seeks to *position* SE among other forms of organizations "to enable researchers and other stakeholders to move beyond the issue of definitive description and

Some efforts to define or describe SE have focused on how it differs from and is similar to traditional entrepreneurship (Austin, Stevenson, & Wei-Skillern, 2006; Dees, 1998; Mair, et al., 2006; Massetti, 2008; Nicholls, 2008; Thompson, 2002; Weerawardena & Sullivan Mort,

categories representing different ways in which researchers have studied the topic.

**3. The nature of social entrepreneurship research** 

benefit for the targeted group and society at large. (p. 39)

Social entrepreneurs play the role of change agents in the social sector, by:

individual can be considered to be socially entrepreneurial.

outcomes created. (Dees, 2001, p. 4)

**3.1 Defining the field of social entrepreneurship** 

social entrepreneur is someone who:

This chapter describes SE as a developing field of research while presenting some of the most influential literature on this topic. It also presents the results from a new study of social entrepreneurial intentions, including how changes to these intentions influence SE operating missions, and the resultant positioning on the map of organizational forms (Swanson & Zhang, 2010, 2011). The study was based upon a survey of social entrepreneurs and follow-up interviews with SE stakeholders.

#### **2. Social entrepreneurship as a field of study**

Although entrepreneurship has long been acknowledged as a major force for economic development (Schumpeter, 1934), only recently has the important role SE plays in contributing toward both economic and social wellbeing been recognized (Christie & Honig, 2006; Dees, 2001; Harding, 2004; Schultz, 2009). SE is a relatively new field of inquiry (Mair, Robinson, & Hockerts, 2006), and one that is generally following the pattern of the early study of commercial entrepreneurship (Light, 2008). This is not surprising since, according to Surie and Ashley (2008), SE and entrepreneurship are not dichotomous: they occupy different positions along the same continuum. "In fact, just as sustaining economic value in the market necessitates that for-profit firms generate some value for society, creating enduring value in the social domain [as do social entrepreneurial firms] requires value generation of the type that enables participation in the market economy" (p. 238). This view is represented in the positioning of the social entrepreneurship zone shown in Swanson and Zhang's (2010, 2011) map of organizational forms in Figure 1.

Recently SE research has gained much attention as evidenced by, among other things: the growing number of scholars focusing on the topic (Zahra, Gedajlovic, Neubaum, & Shulman, 2009); the launch of new journals dedicated to this subject (Halkias & Okpara, 2011; Nicholls, 2010a); the consideration related journals, like Social Enterprise Journal, have given to social entrepreneurship (Haugh, 2005; Thompson, 2008); and the interest shown by more established journals, like Entrepreneurship Theory & Practice when it published its 2010 special issue on SE (Nicholls, 2010b). SE has also attracted attention from governments interested in promoting this activity in their countries (Defourny & Nyssens, 2010; Nicholls, 2010b). For example, in 2010, the Presidential Summit on Entrepreneurship, intended to "identify ways to advance economic and social entrepreneurship", was held in Washington, D.C. (The White House, 2010a). At this event, President Obama described SE by saying that "real change comes from the bottom up, from the grassroots, starting with the dreams and passions of single individuals serving their communities" (The White House, 2010b).

As described by Nicholls (2010a), although SE research "is still in a pre-paradigmatic state of development .... this challenging context also offers rich opportunity ... [and] provides scholars with both an intriguing research object and a space in which to develop concrete contributions to praxis" (pp. 1-2). Desa (2007) categorized the extant social entrepreneurship research into four broad streams.

First, there is literature that attempts to define the field of social entrepreneurship and differentiate it as a unique phenomenon of study. A second stream focuses on the resource-constrained environments within which social enterprises operate. A third stream addresses the constraining and enabling role of institutions on social enterprise. A fourth stream focuses on performance metrics for social entrepreneurship. (Desa, 2007, p. 2)

This chapter describes SE as a developing field of research while presenting some of the most influential literature on this topic. It also presents the results from a new study of social entrepreneurial intentions, including how changes to these intentions influence SE operating missions, and the resultant positioning on the map of organizational forms (Swanson & Zhang, 2010, 2011). The study was based upon a survey of social entrepreneurs

Although entrepreneurship has long been acknowledged as a major force for economic development (Schumpeter, 1934), only recently has the important role SE plays in contributing toward both economic and social wellbeing been recognized (Christie & Honig, 2006; Dees, 2001; Harding, 2004; Schultz, 2009). SE is a relatively new field of inquiry (Mair, Robinson, & Hockerts, 2006), and one that is generally following the pattern of the early study of commercial entrepreneurship (Light, 2008). This is not surprising since, according to Surie and Ashley (2008), SE and entrepreneurship are not dichotomous: they occupy different positions along the same continuum. "In fact, just as sustaining economic value in the market necessitates that for-profit firms generate some value for society, creating enduring value in the social domain [as do social entrepreneurial firms] requires value generation of the type that enables participation in the market economy" (p. 238). This view is represented in the positioning of the social entrepreneurship zone shown in Swanson and

Recently SE research has gained much attention as evidenced by, among other things: the growing number of scholars focusing on the topic (Zahra, Gedajlovic, Neubaum, & Shulman, 2009); the launch of new journals dedicated to this subject (Halkias & Okpara, 2011; Nicholls, 2010a); the consideration related journals, like Social Enterprise Journal, have given to social entrepreneurship (Haugh, 2005; Thompson, 2008); and the interest shown by more established journals, like Entrepreneurship Theory & Practice when it published its 2010 special issue on SE (Nicholls, 2010b). SE has also attracted attention from governments interested in promoting this activity in their countries (Defourny & Nyssens, 2010; Nicholls, 2010b). For example, in 2010, the Presidential Summit on Entrepreneurship, intended to "identify ways to advance economic and social entrepreneurship", was held in Washington, D.C. (The White House, 2010a). At this event, President Obama described SE by saying that "real change comes from the bottom up, from the grassroots, starting with the dreams and

passions of single individuals serving their communities" (The White House, 2010b).

As described by Nicholls (2010a), although SE research "is still in a pre-paradigmatic state of development .... this challenging context also offers rich opportunity ... [and] provides scholars with both an intriguing research object and a space in which to develop concrete contributions to praxis" (pp. 1-2). Desa (2007) categorized the extant social entrepreneurship

First, there is literature that attempts to define the field of social entrepreneurship and differentiate it as a unique phenomenon of study. A second stream focuses on the resource-constrained environments within which social enterprises operate. A third stream addresses the constraining and enabling role of institutions on social enterprise. A fourth stream focuses on performance metrics for social entrepreneurship. (Desa,

and follow-up interviews with SE stakeholders.

**2. Social entrepreneurship as a field of study** 

Zhang's (2010, 2011) map of organizational forms in Figure 1.

research into four broad streams.

2007, p. 2)

The next section describes the nature of social entrepreneurship research under these four categories representing different ways in which researchers have studied the topic.

#### **3. The nature of social entrepreneurship research**

#### **3.1 Defining the field of social entrepreneurship**

As yet there is no single, widely agreed upon definition of SE, although it is generally accepted that its goal is to change the social equilibrium to a more desired state (Light, 2008). This is clearly reflected in the Martin and Osberg (2007) definition, which states that a social entrepreneur is someone who:

targets an unfortunate but stable equilibrium that causes the neglect, marginalization, or suffering of a segment of humanity; who brings to bear on this situation his or her inspiration, direct action, creativity, courage, and fortitude; and who aims for and ultimately affects the establishment of a new stable equilibrium that secures permanent benefit for the targeted group and society at large. (p. 39)

Dees (2001) identified a set of criteria to be used to determine whether the actions of an individual can be considered to be socially entrepreneurial.

Social entrepreneurs play the role of change agents in the social sector, by:


The emerging definitions of SE have either been *inclusive* in that they are broad enough to include "more individuals, ideas, opportunities, and organizations into the tent" (Light, 2008, p. 11) or *exclusive* when they, for example, exclude for-profit enterprises from being called socially entrepreneurial. In a similar vein, Perrini (2006) distinguished between scholars who take what he called a *limited* view of SE that mainly considers changes in the not-for-profit sector when these organizations strive to enhance their sustainability by generating more revenue, and the *extended* view, which considers SE as something other than simply an enhancement of not-for-profit enterprises. Dees and Battle Anderson (2006) were proponents of an inclusive, or extended perspective on SE based upon the argument that the decision as to what legal form to use for a venture is simply a choice about which tool to use and not a factor to use to include or exclude an organization from being called socially entrepreneurial.

Rather than attempt to define what SE is, some scholars have instead chosen to identify its important parameters. Swanson and Zhang's (2010, 2011) social entrepreneurship zone (see Figure 1), for example, seeks to *position* SE among other forms of organizations "to enable researchers and other stakeholders to move beyond the issue of definitive description and on to other components requiring investigation and work" (p. 72).

Some efforts to define or describe SE have focused on how it differs from and is similar to traditional entrepreneurship (Austin, Stevenson, & Wei-Skillern, 2006; Dees, 1998; Mair, et al., 2006; Massetti, 2008; Nicholls, 2008; Thompson, 2002; Weerawardena & Sullivan Mort,

Social Entrepreneurship 175

same capital markets as commercial entrepreneurs" (Austin, et al., 2006, p. 3). Despite the persistent limitations on resource availability, social entrepreneurs tend to find ways to survive and even thrive. Baker and Nelson's (2005) description of how resource-constrained entrepreneurs applied bricolage, or ways of managing to get along within the means available, is informative. In particular, the resources social entrepreneurs utilize from among the accessible options shape the development patterns and sustainability of SE ventures. At an individual level, Desa (2007) summarized how researchers have examined the role of past experiences, social identity, and the current operating environments in shaping how social entrepreneurs have chosen the types of ventures to develop. For example, many social entrepreneurs have indicated that their decisions to launch their social-mission ventures were influenced by past childhood experiences where they were positively influenced by the high ethical standards of important adults in their lives (Bornstein & Davis, 2010). Simms and Robinson (2006) applied social identity theory and found that "when the activist identity is salient, [socially entrepreneurial] individuals are more likely to yield to a dependent funding stream and establish not-for-profit ventures, while salient

entrepreneurial identities are more likely to lead to profit-making ventures" (p. 5).

& Shamuganathan, 2010).

**3.3 Social entrepreneurship and Institutions** 

Armstrong, 2009; Quarter, Mook, & Ryan, 2010; Wolk, 2007).

Other personal factors social entrepreneurs draw upon to acquire needed resources include their personal credibility as established by their network of contacts, status, and professional histories; framing and reputational effects, which involves persuading others to support their missions by stressing the social values they espouse; and leveraging their social network (Desa, 2007). Certain personality traits of social entrepreneurs have been found to have a positive influence on the starting up and long term success of their SE ventures (Nga

The third category of SE research identified by Desa (2007) deals with the role institutions play in constraining and enabling SE. This category of research includes inquiries into how SE is impacted by the institutions, or the "humanly derived constraints that structure human interaction"(Desa, 2007, p. 12) such as the system of laws and rules or the norms of behaviour and codes of conduct. It examines whether and how institutions promote SE.

SE occurs at the intersection of the three mainly distinct sectors that define many modern societies. The private sector responds to market forces in an effort to provide goods and services to be sold for a profit. A dominant goal of the businesses that operate in this sector is to generate profits for the benefit of their owners. While this sector provides jobs, innovation, and overall wealth, it is not suited to addressing most social problems because there is usually no profit to be made by doing so. The public sector is funded by taxes paid by individuals and businesses. It redistributes this money to provide public goods and respond to market failures, which are needs that are not be met by the private sector. While this sector provides defence, public safety, education and a range of other public needs and social services, it has limited capacity to recognize and solve all social needs. The citizen sector (also called the voluntary or non-profit or third sector) mobilizes individuals to provide goods and services not provided by either of the other sectors. The Red Cross, Habitat for Humanity, and community food banks are examples of the organizations residing in this sector. These enterprises are not owned and run by individuals or by governments, and the resources they generate are used to sustain and grow their operations as they pursue their social missions (Mook, Quarter, & Richmond, 2007; Quarter, Mook, &

2006). Perhaps the most important difference is that SE purposely attempts to correct or alleviate common social problems that mainstream entrepreneurial enterprises largely ignore (Mair, et al., 2006; Nicholls, 2008). We address this particular distinction of SE later in this chapter when we describe our research findings into how and why the social component of SE missions changes over time.

The nature of the differences between SE missions and those of other ventures is one of the topics of intensive debate among researchers in this field. Martin and Osberg (2007) are among the scholars who claim that to be socially entrepreneurial, an organization must take direct actions designed to cause transformational social change – not just incremental change or modest improvements of current situations. Swanson and Zhang's (2010, 2011) social entrepreneurship zone includes a *social transformation region* within which *social transformation entrepreneurial ventures (STEVs)* reside. These organizations match the Martin and Osberg (2007) requirement for SE to cause transformational change. Swanson and Zhang's (2010, 2011) SE zone, however, also includes a second region for *social improvement entrepreneurial ventures (SIEVs)*. SIEVs "do more than simply act in a socially responsible manner because they include social change as part of their missions" (p. 72). Creating positive social change is a *reason for being* for these types of social entrepreneurial ventures although the impact of the change might be less than broadly transformational.

The similarities between SE and traditional entrepreneurship largely derive from the perspective that social entrepreneurs must apply the same basic operating principles as other entrepreneurs in order to sustain their ventures. Both rely on innovation to implement change and they are each primarily motivated by making their visions real (Makhlouf, 2011). In fact, SE is considered by some to be a hybrid form of organization that combines the economic sustainability features of traditional, for profit ventures with the social change ambitions that characterize many not-for-profits, government agencies, and social service providers (Boschee, 2008; Perrini, 2006; Sullivan Mort, Weerawardena, & Carnegie, 2003; Swanson & Zhang, 2010, 2011). The social change component might include elements of social service provision or social activism (Battle Anderson & Dees, 2008; Dees, 1998; Hockerts, 2006; Martin & Osberg, 2007; Massetti, 2008; Nicholls, 2008).

Other types of entrepreneurship that are often considered subsets of SE because of their focus on social issues include indigenous entrepreneurship (Anderson, Dana, & Dana, 2006; Hindle, Anderson, Giberson, & Kayseas, 2005; Peredo, Anderson, Galbraith, Honig, & Dana, 2004) and environmental – or green – entrepreneurship (Neck, Brush, & Allen, 2009).

#### **3.2 The resource-constrained environments of social entrepreneurship**

The second category of SE research identified by Desa (2007) is concerned with the environments in which these organizations operate and the resource-constraints that characterize them. Particularly, the extant literature has identified a number of internal factors that seem to characterize the individual *social entrepreneurs*.

Emerson (2003) suggested that SE organizations could obtain their financial resources from a wide range of sources; from grants and charitable gifts to traditional equity investments. Raising money through the traditional capital market, however, has been difficult for nonprofit organizations (Emerson & Bonini, 2003). "The nondistributive restriction on surpluses generated by nonprofit organizations and the embedded social purpose of forprofit or hybrid forms of social enterprise limits social entrepreneurs from tapping into the

2006). Perhaps the most important difference is that SE purposely attempts to correct or alleviate common social problems that mainstream entrepreneurial enterprises largely ignore (Mair, et al., 2006; Nicholls, 2008). We address this particular distinction of SE later in this chapter when we describe our research findings into how and why the social

The nature of the differences between SE missions and those of other ventures is one of the topics of intensive debate among researchers in this field. Martin and Osberg (2007) are among the scholars who claim that to be socially entrepreneurial, an organization must take direct actions designed to cause transformational social change – not just incremental change or modest improvements of current situations. Swanson and Zhang's (2010, 2011) social entrepreneurship zone includes a *social transformation region* within which *social transformation entrepreneurial ventures (STEVs)* reside. These organizations match the Martin and Osberg (2007) requirement for SE to cause transformational change. Swanson and Zhang's (2010, 2011) SE zone, however, also includes a second region for *social improvement entrepreneurial ventures (SIEVs)*. SIEVs "do more than simply act in a socially responsible manner because they include social change as part of their missions" (p. 72). Creating positive social change is a *reason for being* for these types of social entrepreneurial ventures

although the impact of the change might be less than broadly transformational.

Hockerts, 2006; Martin & Osberg, 2007; Massetti, 2008; Nicholls, 2008).

The similarities between SE and traditional entrepreneurship largely derive from the perspective that social entrepreneurs must apply the same basic operating principles as other entrepreneurs in order to sustain their ventures. Both rely on innovation to implement change and they are each primarily motivated by making their visions real (Makhlouf, 2011). In fact, SE is considered by some to be a hybrid form of organization that combines the economic sustainability features of traditional, for profit ventures with the social change ambitions that characterize many not-for-profits, government agencies, and social service providers (Boschee, 2008; Perrini, 2006; Sullivan Mort, Weerawardena, & Carnegie, 2003; Swanson & Zhang, 2010, 2011). The social change component might include elements of social service provision or social activism (Battle Anderson & Dees, 2008; Dees, 1998;

Other types of entrepreneurship that are often considered subsets of SE because of their focus on social issues include indigenous entrepreneurship (Anderson, Dana, & Dana, 2006; Hindle, Anderson, Giberson, & Kayseas, 2005; Peredo, Anderson, Galbraith, Honig, & Dana,

The second category of SE research identified by Desa (2007) is concerned with the environments in which these organizations operate and the resource-constraints that characterize them. Particularly, the extant literature has identified a number of internal

Emerson (2003) suggested that SE organizations could obtain their financial resources from a wide range of sources; from grants and charitable gifts to traditional equity investments. Raising money through the traditional capital market, however, has been difficult for nonprofit organizations (Emerson & Bonini, 2003). "The nondistributive restriction on surpluses generated by nonprofit organizations and the embedded social purpose of forprofit or hybrid forms of social enterprise limits social entrepreneurs from tapping into the

2004) and environmental – or green – entrepreneurship (Neck, Brush, & Allen, 2009).

**3.2 The resource-constrained environments of social entrepreneurship** 

factors that seem to characterize the individual *social entrepreneurs*.

component of SE missions changes over time.

same capital markets as commercial entrepreneurs" (Austin, et al., 2006, p. 3). Despite the persistent limitations on resource availability, social entrepreneurs tend to find ways to survive and even thrive. Baker and Nelson's (2005) description of how resource-constrained entrepreneurs applied bricolage, or ways of managing to get along within the means available, is informative. In particular, the resources social entrepreneurs utilize from among the accessible options shape the development patterns and sustainability of SE ventures. At an individual level, Desa (2007) summarized how researchers have examined the role of past experiences, social identity, and the current operating environments in shaping how social entrepreneurs have chosen the types of ventures to develop. For example, many social entrepreneurs have indicated that their decisions to launch their social-mission ventures were influenced by past childhood experiences where they were positively influenced by the high ethical standards of important adults in their lives (Bornstein & Davis, 2010). Simms and Robinson (2006) applied social identity theory and found that "when the activist identity is salient, [socially entrepreneurial] individuals are more likely to yield to a dependent funding stream and establish not-for-profit ventures, while salient entrepreneurial identities are more likely to lead to profit-making ventures" (p. 5).

Other personal factors social entrepreneurs draw upon to acquire needed resources include their personal credibility as established by their network of contacts, status, and professional histories; framing and reputational effects, which involves persuading others to support their missions by stressing the social values they espouse; and leveraging their social network (Desa, 2007). Certain personality traits of social entrepreneurs have been found to have a positive influence on the starting up and long term success of their SE ventures (Nga & Shamuganathan, 2010).

#### **3.3 Social entrepreneurship and Institutions**

The third category of SE research identified by Desa (2007) deals with the role institutions play in constraining and enabling SE. This category of research includes inquiries into how SE is impacted by the institutions, or the "humanly derived constraints that structure human interaction"(Desa, 2007, p. 12) such as the system of laws and rules or the norms of behaviour and codes of conduct. It examines whether and how institutions promote SE.

SE occurs at the intersection of the three mainly distinct sectors that define many modern societies. The private sector responds to market forces in an effort to provide goods and services to be sold for a profit. A dominant goal of the businesses that operate in this sector is to generate profits for the benefit of their owners. While this sector provides jobs, innovation, and overall wealth, it is not suited to addressing most social problems because there is usually no profit to be made by doing so. The public sector is funded by taxes paid by individuals and businesses. It redistributes this money to provide public goods and respond to market failures, which are needs that are not be met by the private sector. While this sector provides defence, public safety, education and a range of other public needs and social services, it has limited capacity to recognize and solve all social needs. The citizen sector (also called the voluntary or non-profit or third sector) mobilizes individuals to provide goods and services not provided by either of the other sectors. The Red Cross, Habitat for Humanity, and community food banks are examples of the organizations residing in this sector. These enterprises are not owned and run by individuals or by governments, and the resources they generate are used to sustain and grow their operations as they pursue their social missions (Mook, Quarter, & Richmond, 2007; Quarter, Mook, & Armstrong, 2009; Quarter, Mook, & Ryan, 2010; Wolk, 2007).

Social Entrepreneurship 177

management (Gentile, 2002), blended value investing (Emerson, Spitzer, & Mulhair, 2006), social impact for local economies (SIMPLE) (McLoughlin, et al., 2009), cost-effectiveness analysis, cost-benefit analysis, Robin Hood Foundation benefit-cost ratio, Acumen Fund best available charitable option (BACO) ratio, William and Flora Hewlett Foundation expected return, Center for High Impact Philanthropy cost per impact, and foundation investment

The importance of mission to SE has been acknowledged by both practitioners (Lynch & Walls, 2009) and scholars (Miller & Wesley II, 2010). From a practitioner perspective, Lynch and Walls (2009) referred to "mission versus margin" (p. 29), or the requirement many social entrepreneurs face for sustaining their socially oriented operations by running profitable enterprises. While some researchers have conceptualized the SE dynamic between mission and profits (Massetti, 2008; Swanson & Zhang, 2010) few have studied how and why the

While some research has examined the role of organizational mission on traditional entrepreneurship (Darling, Gabrielsson, & Seristö, 2007; Wickham, 1997) and also on SE (Miller & Wesley II, 2010), little attention has been paid to changing missions. Hoffmann and Cassell (2005) examined mission expansion in a commercial venture context using behavioural choice theory. Miller and Wesley (2010) considered SE missions as a critical element for social venture capitalists to consider while Alter (2008) distinguished between different degrees of focus on social missions. Hockerts (2006) observed a mission drift among some SE ventures which decreased their focus on their social missions over time

In a non-profit context, Watson and Abzug (2005) noted that "mission drift is sometimes seen as one result of hiring key staff who do not share the organization's view on its future direction" (p. 645) while Axelrod (2005) and Smith (2005) both examined missions as related to board governance. While a board's role is to define and advance the mission through

The board may be made up of the founding members of the organization, who have a commitment to a specific mission. They may feel that the executive is trying to take the organization in a direction that violates the agency's spirit as originally defined by the board. The result may be protracted negotiations between the board and staff about the agency's future. Sometimes the outcome is the resignation of some board members or the ouster of the executive as the board and staff try to define the agency's mission.

Salamon (2005) identified other threats to the stability of missions, including one borne from the pressures of having to rely on earned revenue for organizational survival. This requirement generates a natural motivation for organizations to "begin to skew their service offerings to clients who are able to pay. What start out as sliding fee scales designed to cross-subsidize services for the needy become core revenue sources essential for agency survival" (p. 97). Other pressures affecting operating missions might occur when raising capital to expand, and finding that it is easier to do so by locating new facilities where

while Quarter, Mook, and Armstrong (2009) also recognized this phenomenon.

regular reviews and revisions, conflicts over the mission might occur.

bubble chart (Tuan, 2008).

emphasis on the social mission changes.

(Smith, 2005, p. 380)

**3.5 Mission change** 

The environments within which SE develops differs from place to place based upon the level of organizational, or moral legitimacy and the resultant legislative, investment, and other supports this legitimacy affords them (Dart, 2004; Sud, VanSandt, & Baugous, 2009). In some countries the government is expected to assume the responsibility for providing certain services while in other countries the private sector performs these functions. In the United States, for example, health care is largely provided by the private sector while in many other developed countries, such as in Canada, it is a public sector priority. This means that SE, when viewed as something that develops where the private, public, and citizen sectors overlap, will evolve subject to the unique political and cultural environments in which they operate.

Some societies have implemented new legislation to encourage the further development of social enterprises. For example, community interest companies (CIC) have been introduced in the United Kingdom while some states in the United States have passed laws enabling low-profit limited liability companies (L3C) with the expectation these new business forms will make it easier for ventures with social missions to raise needed funding (Swanson & Zhang, 2011). Other societies have strong traditions of volunteerism or dynamic networks of non-profit organizations that serve the social needs left to social entrepreneurs to fill in other regions.

#### **3.4 Metrics for social entrepreneurship**

Desa's (2007) fourth category of SE research focuses on the performance metrics for this type of organization.

Legitimacy and often resource acquisition is contingent upon being able to measure the expected and actual impact of business outcomes. This, however, creates challenges for social entrepreneurs.

The social purpose of the social entrepreneur creates greater challenges for measuring performance than the commercial entrepreneur who can rely on relatively tangible and quantifiable measures of performance such as financial indicators, market share, customer satisfaction, and quality…. The challenge of measuring social change is great due to nonquantifiability, multicausality, temporal dimensions, and perceptive differences of the social impact created. (Austin, et al., 2006, p. 3)

An increasingly common term used to denote attention to both financial performance and social impact is double bottom line. When ecological concerns are also emphasised in measurements of an organization's performance, it is referred to as the triple bottom line (Kneiding & Tracey, 2009). The term quadruple bottom line has emerged relatively recently to refer to enterprises that attempt to measure their success in creating value in each of the financial, social, environmental, and cultural realms (Kabir, 2007). Efforts to develop a commonly accepted measure of these results, however, have so far failed and have been subject to claims of potential statistical manipulation and vague goals that produce suspect measurement results (Urban, 2008).

Some measurement tools, processes, and concepts have emerged that have worked well in particular contexts to measure double – or triple or quadruple – bottom lines. These include the balanced scorecard (Kaplan, 2001), social return on investment (Gair, 2009), social impact

The environments within which SE develops differs from place to place based upon the level of organizational, or moral legitimacy and the resultant legislative, investment, and other supports this legitimacy affords them (Dart, 2004; Sud, VanSandt, & Baugous, 2009). In some countries the government is expected to assume the responsibility for providing certain services while in other countries the private sector performs these functions. In the United States, for example, health care is largely provided by the private sector while in many other developed countries, such as in Canada, it is a public sector priority. This means that SE, when viewed as something that develops where the private, public, and citizen sectors overlap, will evolve subject to the unique political and cultural environments in

Some societies have implemented new legislation to encourage the further development of social enterprises. For example, community interest companies (CIC) have been introduced in the United Kingdom while some states in the United States have passed laws enabling low-profit limited liability companies (L3C) with the expectation these new business forms will make it easier for ventures with social missions to raise needed funding (Swanson & Zhang, 2011). Other societies have strong traditions of volunteerism or dynamic networks of non-profit organizations that serve the social needs left to social entrepreneurs to fill in other

Desa's (2007) fourth category of SE research focuses on the performance metrics for this type

Legitimacy and often resource acquisition is contingent upon being able to measure the expected and actual impact of business outcomes. This, however, creates challenges for

An increasingly common term used to denote attention to both financial performance and social impact is double bottom line. When ecological concerns are also emphasised in measurements of an organization's performance, it is referred to as the triple bottom line (Kneiding & Tracey, 2009). The term quadruple bottom line has emerged relatively recently to refer to enterprises that attempt to measure their success in creating value in each of the financial, social, environmental, and cultural realms (Kabir, 2007). Efforts to develop a commonly accepted measure of these results, however, have so far failed and have been subject to claims of potential statistical manipulation and vague goals that produce suspect

Some measurement tools, processes, and concepts have emerged that have worked well in particular contexts to measure double – or triple or quadruple – bottom lines. These include the balanced scorecard (Kaplan, 2001), social return on investment (Gair, 2009), social impact

differences of the social impact created. (Austin, et al., 2006, p. 3)

The social purpose of the social entrepreneur creates greater challenges for measuring performance than the commercial entrepreneur who can rely on relatively tangible and quantifiable measures of performance such as financial indicators, market share, customer satisfaction, and quality…. The challenge of measuring social change is great due to nonquantifiability, multicausality, temporal dimensions, and perceptive

which they operate.

**3.4 Metrics for social entrepreneurship** 

measurement results (Urban, 2008).

regions.

of organization.

social entrepreneurs.

management (Gentile, 2002), blended value investing (Emerson, Spitzer, & Mulhair, 2006), social impact for local economies (SIMPLE) (McLoughlin, et al., 2009), cost-effectiveness analysis, cost-benefit analysis, Robin Hood Foundation benefit-cost ratio, Acumen Fund best available charitable option (BACO) ratio, William and Flora Hewlett Foundation expected return, Center for High Impact Philanthropy cost per impact, and foundation investment bubble chart (Tuan, 2008).

#### **3.5 Mission change**

The importance of mission to SE has been acknowledged by both practitioners (Lynch & Walls, 2009) and scholars (Miller & Wesley II, 2010). From a practitioner perspective, Lynch and Walls (2009) referred to "mission versus margin" (p. 29), or the requirement many social entrepreneurs face for sustaining their socially oriented operations by running profitable enterprises. While some researchers have conceptualized the SE dynamic between mission and profits (Massetti, 2008; Swanson & Zhang, 2010) few have studied how and why the emphasis on the social mission changes.

While some research has examined the role of organizational mission on traditional entrepreneurship (Darling, Gabrielsson, & Seristö, 2007; Wickham, 1997) and also on SE (Miller & Wesley II, 2010), little attention has been paid to changing missions. Hoffmann and Cassell (2005) examined mission expansion in a commercial venture context using behavioural choice theory. Miller and Wesley (2010) considered SE missions as a critical element for social venture capitalists to consider while Alter (2008) distinguished between different degrees of focus on social missions. Hockerts (2006) observed a mission drift among some SE ventures which decreased their focus on their social missions over time while Quarter, Mook, and Armstrong (2009) also recognized this phenomenon.

In a non-profit context, Watson and Abzug (2005) noted that "mission drift is sometimes seen as one result of hiring key staff who do not share the organization's view on its future direction" (p. 645) while Axelrod (2005) and Smith (2005) both examined missions as related to board governance. While a board's role is to define and advance the mission through regular reviews and revisions, conflicts over the mission might occur.

The board may be made up of the founding members of the organization, who have a commitment to a specific mission. They may feel that the executive is trying to take the organization in a direction that violates the agency's spirit as originally defined by the board. The result may be protracted negotiations between the board and staff about the agency's future. Sometimes the outcome is the resignation of some board members or the ouster of the executive as the board and staff try to define the agency's mission. (Smith, 2005, p. 380)

Salamon (2005) identified other threats to the stability of missions, including one borne from the pressures of having to rely on earned revenue for organizational survival. This requirement generates a natural motivation for organizations to "begin to skew their service offerings to clients who are able to pay. What start out as sliding fee scales designed to cross-subsidize services for the needy become core revenue sources essential for agency survival" (p. 97). Other pressures affecting operating missions might occur when raising capital to expand, and finding that it is easier to do so by locating new facilities where

Social Entrepreneurship 179

organizations, quasi-government agencies, and businesses with stated or implied social

We contacted the owners, or top executives of the organizations in our sample by telephone, informed them the nature of the study, and invited them to participate in our interview. Out of the 413 telephone numbers on our list, we made 282 successful contacts. The other numbers were either duplicates or incorrect. Out of the 282 successful contacts made, 202 people agreed to participate in our interview. Sixty-four percent of the respondents were female, and 36% were male. The majority of the respondents were senior managers (92%),

Following qualitative data analysis on the verbatim answers and quantitative analysis on the balance of the survey responses, we conducted a total of 26 in-person or telephone interviews to acquire more complete data on the reasons why the social component of operating missions might have changed over time or might change in the future. These 26 participants were selected based upon their responses to the survey indicating they were socially entrepreneurial, that their operating missions had changed or might change over time, and on their willingness to do follow-up interviews after the initial telephone survey. We chose to use a qualitative approach to seek further meaning from our quantitative results because qualitative research "uses complex reasoning that is multifaceted, iterative, and simultaneous.... The thinking process is also iterative, with a cycling back and forth from data collection and analysis to problem reformulation and back" (Creswell, 2003, pp. 182-183).

We applied a complexity theory perspective to our study of changes to the social component of organizational missions, particularly those guiding social entrepreneurial ventures. Complexity theory "provides illuminating, even transformative, ways of understanding what is going on in the world. It offers an alternative to the machine model to guide our thinking and practice" (Innes & Booher, 2010, p. 30). Complexity theory represents a departure from traditional ways to study organizations and their environments. Traditional scientific research methods are generally reductionist and deterministic in that they examine a limited range of conditions at a time and assume that systems behave in a controllable, linear, and predictable way and that they settle into states of equilibrium. The more mechanistic the subject of study is, like a car or a computer, the more effective this approach can be. The more organic or social a system is, like an ecosystem or an economy, the more suited complexity theory is for studying it. Complexity theory recognizes the need to consider whole systems, and that these systems and their subsystems emerge in non-linear, dynamical ways as large numbers of individual components interact and behave in semi-autonomous and adaptive manners. When viewed as a whole, these systems and subsystems self-organize into stable states; but do not

Swanson and Zhang (2010, 2011) conceptualized a map of organizational forms on which SE occupies the space where organizations plan to implement social change and apply business practices to support that goal. We used participant responses to our survey questions to determine where their organizations were positioned on the map of organizational forms,

settle at particular points of equilibrium (Battram, 1998).

**4.2.1 The diversity within social entrepreneurship zone** 

and whether they occupied the social entrepreneurship zone.

**4.2 Findings** 

and a small portion of the respondents were the owners of the organizations (8%).

missions.

income can be optimized to finance the expansion. Similar pressures arise when funding sources for existing programs dry up.

Minkoff and Powell (2006) identified four factors which influence changes in nonprofit missions. First, the stage an organization is at in its life cycle, as indicated by factors such as its age, size, and ownership changes, can affect whether its mission drifts from its existing degree of emphasis on social outcomes. Second, if a volunteer-run organization becomes more professionally managed, its mission might become less socially weighted. Third, the social component of an organization's mission might be overpowered by funders or other external bodies imposing a conflicting operating mandate, perhaps one with measurable financial returns. Finally, governments might change the way in which they support the provision of social services. Some may reduce their financial supports and rely more on the market to provide social services while others might consider it to be a government responsibility to deliver these services. These internal and external factors can pressure nonprofits into assuming more conservative and conventional business practices. "As posited by neoinstitutional theory, the need for external legitimacy and survival tends to provide incentives for groups to compromise the missions that may have originally motivated them" (Minkoff & Powell, 2006, p. 594).

#### **3.6 Critical views on social entrepreneurship**

Some scholars have expressed some concerns about the apparent proliferation of SE. Dempsey and Sanders (2010) argued that SE is essentially the marketization of the nonprofit sector, and called for critical examination. Marketization describes the process whereby social domains, such as church, school, and the state, adopt the techniques and logics of the market (or business) (Cheney, 2002; Deetz, 1992). Critics warn that marketization may subvert socially oriented missions and the values of non-profit organizations, thereby threatening their ability to create and maintain a vibrant civic society (Eikenberry & Kluver, 2004). Bull (2008) also called for critical reflections in order to assess different perspectives and provide some challenge to the dominant view on SE.

#### **4. An empirical study of social entrepreneurship**

#### **4.1 Research method**

According to Neuman (2003) researchers applying a triangulation of method – mixing quantitative and qualitative data and methods – can obtain outcomes that are more comprehensive and complete.

The quantitative portion of our study included a comprehensive 44-question telephone survey comprised of 27 closed-ended questions for which respondents provided Likert scale or magnitude estimation answers, two closed-ended questions which also included the opportunity for elaboration through an open-ended verbatim response, eight open-ended questions for which the verbatim responses were recorded and later coded for analysis, and seven demographic and descriptive questions.

We first pre-tested our questionnaire with 30 business leaders in the community. Refinements were made to the instrument based on the feedback. Then, we purposefully assembled a list of 413 companies from databases provided by chambers of commerce and other business associations. Our sample included a cross section of not-for-profit

income can be optimized to finance the expansion. Similar pressures arise when funding

Minkoff and Powell (2006) identified four factors which influence changes in nonprofit missions. First, the stage an organization is at in its life cycle, as indicated by factors such as its age, size, and ownership changes, can affect whether its mission drifts from its existing degree of emphasis on social outcomes. Second, if a volunteer-run organization becomes more professionally managed, its mission might become less socially weighted. Third, the social component of an organization's mission might be overpowered by funders or other external bodies imposing a conflicting operating mandate, perhaps one with measurable financial returns. Finally, governments might change the way in which they support the provision of social services. Some may reduce their financial supports and rely more on the market to provide social services while others might consider it to be a government responsibility to deliver these services. These internal and external factors can pressure nonprofits into assuming more conservative and conventional business practices. "As posited by neoinstitutional theory, the need for external legitimacy and survival tends to provide incentives for groups to compromise the missions that may have originally motivated them"

Some scholars have expressed some concerns about the apparent proliferation of SE. Dempsey and Sanders (2010) argued that SE is essentially the marketization of the nonprofit sector, and called for critical examination. Marketization describes the process whereby social domains, such as church, school, and the state, adopt the techniques and logics of the market (or business) (Cheney, 2002; Deetz, 1992). Critics warn that marketization may subvert socially oriented missions and the values of non-profit organizations, thereby threatening their ability to create and maintain a vibrant civic society (Eikenberry & Kluver, 2004). Bull (2008) also called for critical reflections in order to assess

According to Neuman (2003) researchers applying a triangulation of method – mixing quantitative and qualitative data and methods – can obtain outcomes that are more

The quantitative portion of our study included a comprehensive 44-question telephone survey comprised of 27 closed-ended questions for which respondents provided Likert scale or magnitude estimation answers, two closed-ended questions which also included the opportunity for elaboration through an open-ended verbatim response, eight open-ended questions for which the verbatim responses were recorded and later coded for analysis, and

We first pre-tested our questionnaire with 30 business leaders in the community. Refinements were made to the instrument based on the feedback. Then, we purposefully assembled a list of 413 companies from databases provided by chambers of commerce and other business associations. Our sample included a cross section of not-for-profit

different perspectives and provide some challenge to the dominant view on SE.

sources for existing programs dry up.

(Minkoff & Powell, 2006, p. 594).

**4.1 Research method** 

comprehensive and complete.

seven demographic and descriptive questions.

**3.6 Critical views on social entrepreneurship** 

**4. An empirical study of social entrepreneurship** 

organizations, quasi-government agencies, and businesses with stated or implied social missions.

We contacted the owners, or top executives of the organizations in our sample by telephone, informed them the nature of the study, and invited them to participate in our interview. Out of the 413 telephone numbers on our list, we made 282 successful contacts. The other numbers were either duplicates or incorrect. Out of the 282 successful contacts made, 202 people agreed to participate in our interview. Sixty-four percent of the respondents were female, and 36% were male. The majority of the respondents were senior managers (92%), and a small portion of the respondents were the owners of the organizations (8%).

Following qualitative data analysis on the verbatim answers and quantitative analysis on the balance of the survey responses, we conducted a total of 26 in-person or telephone interviews to acquire more complete data on the reasons why the social component of operating missions might have changed over time or might change in the future. These 26 participants were selected based upon their responses to the survey indicating they were socially entrepreneurial, that their operating missions had changed or might change over time, and on their willingness to do follow-up interviews after the initial telephone survey.

We chose to use a qualitative approach to seek further meaning from our quantitative results because qualitative research "uses complex reasoning that is multifaceted, iterative, and simultaneous.... The thinking process is also iterative, with a cycling back and forth from data collection and analysis to problem reformulation and back" (Creswell, 2003, pp. 182-183).

We applied a complexity theory perspective to our study of changes to the social component of organizational missions, particularly those guiding social entrepreneurial ventures. Complexity theory "provides illuminating, even transformative, ways of understanding what is going on in the world. It offers an alternative to the machine model to guide our thinking and practice" (Innes & Booher, 2010, p. 30). Complexity theory represents a departure from traditional ways to study organizations and their environments. Traditional scientific research methods are generally reductionist and deterministic in that they examine a limited range of conditions at a time and assume that systems behave in a controllable, linear, and predictable way and that they settle into states of equilibrium. The more mechanistic the subject of study is, like a car or a computer, the more effective this approach can be. The more organic or social a system is, like an ecosystem or an economy, the more suited complexity theory is for studying it. Complexity theory recognizes the need to consider whole systems, and that these systems and their subsystems emerge in non-linear, dynamical ways as large numbers of individual components interact and behave in semi-autonomous and adaptive manners. When viewed as a whole, these systems and subsystems self-organize into stable states; but do not settle at particular points of equilibrium (Battram, 1998).

#### **4.2 Findings**

#### **4.2.1 The diversity within social entrepreneurship zone**

Swanson and Zhang (2010, 2011) conceptualized a map of organizational forms on which SE occupies the space where organizations plan to implement social change and apply business practices to support that goal. We used participant responses to our survey questions to determine where their organizations were positioned on the map of organizational forms, and whether they occupied the social entrepreneurship zone.

Social Entrepreneurship 181

Using the results from these two measurements, we categorized the organizations we surveyed by the degree to which social change was a primary component of their missions and the degree to which they applied business practices to achieve their purposes. This enabled us to determine whether they would be positioned within the Swanson and Zhang (2010) social entrepreneurship zone. The results indicated that while there was considerable diversity in the missions of the participating organizations and the degrees to which they ran their organizations like a business, a large majority of the enterprises we surveyed

**Social Change as Primary Mission**

strongly agree 3 21 41 34 99 agree 2 13 37 34 86 disagree 0 1 8 6 15 strongly disagree 0 0 1 1 2

Total 5 35 87 75 202

Table 3. Organizations by Social and Business Emphases in Mission

strongly Total

agree

disagree disagree agree strongly

strongly disagree 2 1.0 1.0 1.0 disagree 15 7.4 7.4 8.4 agree 86 42.6 42.6 51.0 strongly agree 99 49.0 49.0 100.0

Total 202 100.0 100.0

Table 2. Organization is Run Like a Business.

Fig. 3. Organization is Run Like a Business

occupied the SE zone (See Table 3, Figure 4).

Run Like a Business Frequency Percent Valid

Percent

Cumulative Percent

Using a four-point Likert scale ranging from *strongly disagree* to *strongly agree*, we asked our survey participants to respond to a statement regarding whether their organization's primary purpose was to take actions to make social change happen. Just over 80% of the respondents either agreed or strongly agreed with the statement (See Table 1 and Figure 2).


Table 1. Social Change as Primary Mission.

Fig. 2. Social Change as Primary Mission

We also asked our respondents informants whether they ran their organizations like a business. Over 91% indicated they did as represented by their *agree* or *strongly agree* responses (See Table 2 and Figure 3). Our follow-up verbatim response question asked what the phrase *running it like a business* meant to them. Their coded responses included the following:


Using a four-point Likert scale ranging from *strongly disagree* to *strongly agree*, we asked our survey participants to respond to a statement regarding whether their organization's primary purpose was to take actions to make social change happen. Just over 80% of the respondents either agreed or strongly agreed with the statement (See Table 1 and Figure 2).

We also asked our respondents informants whether they ran their organizations like a business. Over 91% indicated they did as represented by their *agree* or *strongly agree* responses (See Table 2 and Figure 3). Our follow-up verbatim response question asked what the phrase *running it like a business* meant to them. Their coded responses included the

strongly disagree 5 2.5 2.5 2.5 disagree 35 17.3 17.3 19.8 agree 87 43.1 43.1 62.9 strongly agree 75 37.1 37.1 100.0

Total 202 100.0 100.0

Table 1. Social Change as Primary Mission.

Fig. 2. Social Change as Primary Mission

• Business standard practices used (n=18)

• Keep goals/plans/values (n=17)

• Financial controls (n=59) • General accountability (n=52) • Financial responsibility (n=21)

following:

Frequency Percent Valid Percent Cumulative

Percent



Fig. 3. Organization is Run Like a Business

Using the results from these two measurements, we categorized the organizations we surveyed by the degree to which social change was a primary component of their missions and the degree to which they applied business practices to achieve their purposes. This enabled us to determine whether they would be positioned within the Swanson and Zhang (2010) social entrepreneurship zone. The results indicated that while there was considerable diversity in the missions of the participating organizations and the degrees to which they ran their organizations like a business, a large majority of the enterprises we surveyed occupied the SE zone (See Table 3, Figure 4).


Table 3. Organizations by Social and Business Emphases in Mission

Social Entrepreneurship 183

supporters from the emerging social capital markets or from government funding agencies might be willing to invest in SE, but they often seek evidence of – or a valuation of – the

A recurring subject from our interviews was the lack of a universally accepted or generally applicable social value measurement process or estimation social entrepreneurs can use to support their requests for resources. This situation is the root cause of many of the problems and difficulties faced by social entrepreneurs who need to acquire resources they cannot generate through their own business operations (Austin, et al., 2006). One high ranking public servant involved with government supports for SE said that a social entrepreneur "can quantify some of the [social] outcomes if it is affordable housing units or something of that nature… but it is obviously a difficult thing to quantify in some spheres". Social entrepreneurs who operate ventures that address localized social challenges may have access to some funding sources those who generate benefits in faraway locations do not because of the difficulties in measuring benefits derived elsewhere or because of the

Most of those we interviewed indicated that a social entrepreneur must often focus heavily on their business operations despite their dedication to the social component to their mission to ensure their own survival or to satisfy requirements for financial accountability placed on them by investors. Those interviewees lamented the lack of a commonly accepted

In terms of potential government supports, one public servant stated that "government can't really consider itself as the solution to every problem .... If social entrepreneurs are able to show that they are generating social outcomes that government wants ... they [will] increase their likelihood of being funded". Our interviews revealed that it has become common practice for governments to place limits on the duration of their financial support to many agencies. One of our interviewees, a former politician turned social entrepreneur, argued that "government had a role to play in helping community-based organizations to establish the capacity they needed to deliver social services that governments would otherwise have to provide. The government should commit to financial support for an initial three years, after which an annual accountability review would be used to determine whether another year should be added". The argument is that funding certainty is important for social

The respondents to our survey indicated that they evaluated their organizations' performance on the basis of financial accountability (91%), social outcomes achieved (88%), cultural goals reached (50%), and improvements to their environmental impacts (24%). The number of organizations that assessed their performance based on all of these aspects – on the quadruple bottom line (Kabir, 2007) – however, was relatively small (n=29, or 14%). This result might be partially explained by the fact that most of the organizations did not have operating missions that addressed all four of those factors. The factors addressed in the

missions of the organizations we surveyed include the following:

• People/community wellbeing (N=96) • Youth and employment (N=27)

• Improve health (N=16) • Develop cultures (N=16)

• Economic & business development (N=23)

and universally applicable measurement method for evaluating social outcomes.

social outcomes generated.

entrepreneurs.

localized mandates of some funding agencies.

Fig. 4. Organizations by Social and Business Emphases in Mission

#### **4.2.2 Defining social entrepreneurship**

We asked our survey respondents whether they considered themselves to be social entrepreneurs and, if so, why. Nearly 83% of our respondents self-identified as social entrepreneurs. The reasons they gave for their assessments included the following:


Overwhelmingly, these respondents considered themselves to be social entrepreneurs because they believed they had accomplished, or at least had intended to accomplish, some social improvement for the benefit of others. Comparing this to Dees' (2001) criteria for accessing social entrepreneurship, the view from the social entrepreneurs themselves seems to be much simpler – they are primarily defined by the outcomes they produce. As one of our interviewees simply stated: "... social enterprise can be used to solve real problems and make money".

#### **4.2.3 Resource constraints and measuring social outcomes**

A dominant theme that emerged from our interviews echoed the existing literature and highlighted the difficulties social entrepreneurs have raising needed financial resources. When seeking funding from the traditional capital markets, the SE priority on generating social outcomes might not be shared by potential funders who prefer to invest in organizations with a focus on creating value for their investors. Investors or potential

We asked our survey respondents whether they considered themselves to be social entrepreneurs and, if so, why. Nearly 83% of our respondents self-identified as social

Overwhelmingly, these respondents considered themselves to be social entrepreneurs because they believed they had accomplished, or at least had intended to accomplish, some social improvement for the benefit of others. Comparing this to Dees' (2001) criteria for accessing social entrepreneurship, the view from the social entrepreneurs themselves seems to be much simpler – they are primarily defined by the outcomes they produce. As one of our interviewees simply stated: "... social enterprise can be used to solve real problems and

A dominant theme that emerged from our interviews echoed the existing literature and highlighted the difficulties social entrepreneurs have raising needed financial resources. When seeking funding from the traditional capital markets, the SE priority on generating social outcomes might not be shared by potential funders who prefer to invest in organizations with a focus on creating value for their investors. Investors or potential

entrepreneurs. The reasons they gave for their assessments included the following:

Fig. 4. Organizations by Social and Business Emphases in Mission

**4.2.2 Defining social entrepreneurship** 

• Provide services to marginalized people (N=9)

**4.2.3 Resource constraints and measuring social outcomes** 

• Fulfill social needs (N=33) • Community involvement (N=25) • Develop social fabric (N=15) • Improve quality of life (N=14)

• Address social needs (N=8) • Youth involvement (N=6) • Financial motives (N=5)

make money".

supporters from the emerging social capital markets or from government funding agencies might be willing to invest in SE, but they often seek evidence of – or a valuation of – the social outcomes generated.

A recurring subject from our interviews was the lack of a universally accepted or generally applicable social value measurement process or estimation social entrepreneurs can use to support their requests for resources. This situation is the root cause of many of the problems and difficulties faced by social entrepreneurs who need to acquire resources they cannot generate through their own business operations (Austin, et al., 2006). One high ranking public servant involved with government supports for SE said that a social entrepreneur "can quantify some of the [social] outcomes if it is affordable housing units or something of that nature… but it is obviously a difficult thing to quantify in some spheres". Social entrepreneurs who operate ventures that address localized social challenges may have access to some funding sources those who generate benefits in faraway locations do not because of the difficulties in measuring benefits derived elsewhere or because of the localized mandates of some funding agencies.

Most of those we interviewed indicated that a social entrepreneur must often focus heavily on their business operations despite their dedication to the social component to their mission to ensure their own survival or to satisfy requirements for financial accountability placed on them by investors. Those interviewees lamented the lack of a commonly accepted and universally applicable measurement method for evaluating social outcomes.

In terms of potential government supports, one public servant stated that "government can't really consider itself as the solution to every problem .... If social entrepreneurs are able to show that they are generating social outcomes that government wants ... they [will] increase their likelihood of being funded". Our interviews revealed that it has become common practice for governments to place limits on the duration of their financial support to many agencies. One of our interviewees, a former politician turned social entrepreneur, argued that "government had a role to play in helping community-based organizations to establish the capacity they needed to deliver social services that governments would otherwise have to provide. The government should commit to financial support for an initial three years, after which an annual accountability review would be used to determine whether another year should be added". The argument is that funding certainty is important for social entrepreneurs.

The respondents to our survey indicated that they evaluated their organizations' performance on the basis of financial accountability (91%), social outcomes achieved (88%), cultural goals reached (50%), and improvements to their environmental impacts (24%). The number of organizations that assessed their performance based on all of these aspects – on the quadruple bottom line (Kabir, 2007) – however, was relatively small (n=29, or 14%). This result might be partially explained by the fact that most of the organizations did not have operating missions that addressed all four of those factors. The factors addressed in the missions of the organizations we surveyed include the following:


Social Entrepreneurship 185

Among other external environment factors that our interview participants said can impact the relative emphasis in operating missions were an increase in the level of awareness of the availability of the services offered and changes in the overall socioeconomic situation in a

More people are realizing that [the program is] there and [are] trying to access it. I don't think there's any more social issues than there were, say, two years ago; it's just the fact that now we can help with those issues and lots of people know that so they're, for lack of a better term, coming out of the woodwork and really wanting to access the

The intensity of those issues has grown over time and so you know you have like a larger disparity between rich and poor in Canada... the rich are getting richer and fewer and the [number of] poor is growing and those kind of caught between the middle are working a lot .... I don't think that the issues of poverty are going away anytime soon. When considered through a complexity theory lens, changes in the variables affecting the emphasis placed on the social component of SE missions may lead to operating adaptations that leave organizations occupying the same general region of the social entrepreneurship zone. Some parameter changes, however, might be game changers in that they result in organizations shifting to another part of the SE zone, or perhaps to a position on the map of organizational forms that falls outside the SE zone. Whether these parameter changes are in the form of new government policies or large scale societal changes, further research is

In this paper, we summarized prior research on social entrepreneurship and presented some of the findings from our study. We explored the diversity of the social missions and the business practices of the organizations that reside in the social entrepreneurship zone. We identified how social entrepreneurs conceptualized their own social identities, and we considered the impact of resource constraints, governance strategies, and social impact measurement methods. Our final section investigated the reasons given by interview respondents for why the emphasis on the social component of operating missions might

Part of our objective was to highlight the uniqueness of social entrepreneurship and describe how both social and economic objectives are embedded in SE missions. We also wanted to explain why SE should be viewed through a complexity theory lens. While prior studies have typically applied a case study method to elaborate on the success stories of extraordinary social entrepreneurs, because of the uniqueness of these individual cases, the results have produced mixed signals in terms of what social entrepreneurship is and what social entrepreneurs do. Our mixed methods approach, combining quantitative and qualitative research components, as applied using a complexity theory lens, provided an alternative view of SE that we hope will lead to a better understanding of the phenomenon. One of the major limitations of this paper is that our study was geographically bounded within a single province in Western Canada. Future studies should test our results against the outcomes from similar research in other regions of the world. Longitudinal studies are also required to shed new light on issues such as how changes to the variables and

required to understand their impact (Swanson & Zhang, 2011).

change relative to the business performance part.

region.

programming.

**5. Conclusion** 

One of our interview participants stated that social entrepreneurs should measure their results by first evaluating their business operations and financial positions. A second step should be to assess whether they have fulfilled their self-imposed social mandate. The assessment of social outcomes is not easy.

#### **4.2.4 Mission change**

One of the major findings from our telephone survey was that the missions of some social entrepreneurial organizations varied over time along a continuum ranging from having a moderate social component to having a mission dominated by social purpose. The results also confirmed that some social entrepreneurial organizations applied more sophisticated business practices than did others, and some were much more focused on earning business profits.

A majority of the organizations we surveyed (83%) maintained a stable balance between the social component of their mission and an organizational imperative to be financially accountable. Seven (7) organizations (3.5%) reported that their social mission had become a stronger component of their mission in the past 5 years and 16 organizations (7.9%) expected their social mission to become relatively more important in the future. In comparison, 27 organizations (or 13.4%) reported that the relative strength of the social component of their mission decreased in relation to the strength of the business operations part during the 5 years preceding the survey, and 16 organizations (7.9%) expect the social mission component to decrease in its relative strength over the next 5 years.

The social versus business weighting, or relative emphasis in operating missions, can shift due to changes in governance parameters, internal capacity, or external environment factors. One of our interview participants said the following about how changes in governance can shift the mission focus away from the social emphasis:

I believe that when the organization was initially set which would be some twenty some years ago, part of its mission was to be an advocacy agency for early learning and childcare and quality of childcare... Yet, that has changed… probably in the last seven or eight years based on strategic planning and board direction…. I think it probably has to do more with the type of leadership and direction we set at the board. You know, years ago with some of the old timers, they were much more focused and trying to lead us in that direction whereas in the last, say, ten years or so the direction from the board has probably been a lot more business focused.

Changes in the internal capacity of an organization can also alter the social versus business weighting in an operating mission. The following are among the insights provided by our interview participants in this regard:

The more successful we get the easier it is for us to do those things [that fall under the social part of our mission] because of credibility in the community and the ability to open doors or to get other people to join us in doing things.

[The relevant strength of the social component of our mission as compared to the business operations part has] as a percentage probably decreased [be]cause ... as a much smaller organization we probably did as much [but] we've grown a lot larger and we haven't really done that much more so I guess as a percentage that would be much less.

One of our interview participants stated that social entrepreneurs should measure their results by first evaluating their business operations and financial positions. A second step should be to assess whether they have fulfilled their self-imposed social mandate. The

One of the major findings from our telephone survey was that the missions of some social entrepreneurial organizations varied over time along a continuum ranging from having a moderate social component to having a mission dominated by social purpose. The results also confirmed that some social entrepreneurial organizations applied more sophisticated business practices than did others, and some were much more focused on earning business profits.

A majority of the organizations we surveyed (83%) maintained a stable balance between the social component of their mission and an organizational imperative to be financially accountable. Seven (7) organizations (3.5%) reported that their social mission had become a stronger component of their mission in the past 5 years and 16 organizations (7.9%) expected their social mission to become relatively more important in the future. In comparison, 27 organizations (or 13.4%) reported that the relative strength of the social component of their mission decreased in relation to the strength of the business operations part during the 5 years preceding the survey, and 16 organizations (7.9%) expect the social

The social versus business weighting, or relative emphasis in operating missions, can shift due to changes in governance parameters, internal capacity, or external environment factors. One of our interview participants said the following about how changes in governance can

I believe that when the organization was initially set which would be some twenty some years ago, part of its mission was to be an advocacy agency for early learning and childcare and quality of childcare... Yet, that has changed… probably in the last seven or eight years based on strategic planning and board direction…. I think it probably has to do more with the type of leadership and direction we set at the board. You know, years ago with some of the old timers, they were much more focused and trying to lead us in that direction whereas in the last, say, ten years or so the direction from the board

Changes in the internal capacity of an organization can also alter the social versus business weighting in an operating mission. The following are among the insights provided by our

The more successful we get the easier it is for us to do those things [that fall under the social part of our mission] because of credibility in the community and the ability to

[The relevant strength of the social component of our mission as compared to the business operations part has] as a percentage probably decreased [be]cause ... as a much smaller organization we probably did as much [but] we've grown a lot larger and we haven't really done that much more so I guess as a percentage that would be much less.

mission component to decrease in its relative strength over the next 5 years.

shift the mission focus away from the social emphasis:

has probably been a lot more business focused.

open doors or to get other people to join us in doing things.

interview participants in this regard:

assessment of social outcomes is not easy.

**4.2.4 Mission change** 

Among other external environment factors that our interview participants said can impact the relative emphasis in operating missions were an increase in the level of awareness of the availability of the services offered and changes in the overall socioeconomic situation in a region.

More people are realizing that [the program is] there and [are] trying to access it. I don't think there's any more social issues than there were, say, two years ago; it's just the fact that now we can help with those issues and lots of people know that so they're, for lack of a better term, coming out of the woodwork and really wanting to access the programming.

The intensity of those issues has grown over time and so you know you have like a larger disparity between rich and poor in Canada... the rich are getting richer and fewer and the [number of] poor is growing and those kind of caught between the middle are working a lot .... I don't think that the issues of poverty are going away anytime soon.

When considered through a complexity theory lens, changes in the variables affecting the emphasis placed on the social component of SE missions may lead to operating adaptations that leave organizations occupying the same general region of the social entrepreneurship zone. Some parameter changes, however, might be game changers in that they result in organizations shifting to another part of the SE zone, or perhaps to a position on the map of organizational forms that falls outside the SE zone. Whether these parameter changes are in the form of new government policies or large scale societal changes, further research is required to understand their impact (Swanson & Zhang, 2011).

#### **5. Conclusion**

In this paper, we summarized prior research on social entrepreneurship and presented some of the findings from our study. We explored the diversity of the social missions and the business practices of the organizations that reside in the social entrepreneurship zone. We identified how social entrepreneurs conceptualized their own social identities, and we considered the impact of resource constraints, governance strategies, and social impact measurement methods. Our final section investigated the reasons given by interview respondents for why the emphasis on the social component of operating missions might change relative to the business performance part.

Part of our objective was to highlight the uniqueness of social entrepreneurship and describe how both social and economic objectives are embedded in SE missions. We also wanted to explain why SE should be viewed through a complexity theory lens. While prior studies have typically applied a case study method to elaborate on the success stories of extraordinary social entrepreneurs, because of the uniqueness of these individual cases, the results have produced mixed signals in terms of what social entrepreneurship is and what social entrepreneurs do. Our mixed methods approach, combining quantitative and qualitative research components, as applied using a complexity theory lens, provided an alternative view of SE that we hope will lead to a better understanding of the phenomenon.

One of the major limitations of this paper is that our study was geographically bounded within a single province in Western Canada. Future studies should test our results against the outcomes from similar research in other regions of the world. Longitudinal studies are also required to shed new light on issues such as how changes to the variables and

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**12** 

**Sustainable Retail Banking and** 

*Strategy & Business Analysis, Leeds Metropolitan University,* 

*Faculty of Business & Law, The Rose Bowl, Leeds,* 

Paul Stanford Kupakuwana

*United Kingdom* 

**Asset Management: Lessons from Challenges Faced by Entrepreneurs in African Economies** 

In today's global banking marketplace, the pressures challenging traditional business practices are many and varied. Competition is fierce, resulting in new opportunities and new risks for entreprenuers. Customers are becoming increasingly well informed and demanding, and the emergence of new financial service providers is transforming the banking industry. Meanwhile, deregulation and the effective disappearance of national boundaries are opening up greater opportunities and an increased portfolio of products and services. Some banks and asset management companies are rapidly identifying and exploiting opportunities. Such institutions meet the market demand by fast developing a

The changing behaviour of customers is a critical consideration for banks. As a result, banks and asset management companies that fail to compete and innovate effectively across all areas may risk losing market share. Innovation in retail banking and asset management companies emphasizes more in organisational and process changes than in new product development in the traditional sense. Organizations that can provide a relatively faster service to customer requirements will benefit from a competitive advantage over those that do not. The need to maximise the opportunities in African economies requires banks and asset management companies to extend access to traditional services such as credit and savings. To service these needs, over the last few years there has been some proliferation of new financial institutions in some African states. It was necessary that these new financial

**2. Purpose and significance of entrepreneurship to retail banking and asset** 

At the centre of entrepreneurship is the need to understand the inter-relationships between strategy and an organisation's business and environmental context, to mitigate associated risks, and to exploit opportunities for value creation effectively (Hamann *et al*, 2010). An understanding of these principles will help retail banks and asset management companies to identify strategic priorities for policy and action. It highlights the potential business benefits

institutions maintained trust in order to remain socially relevant.

**1. Introduction** 

new and inexpensive product.

**management studies** 


## **Sustainable Retail Banking and Asset Management: Lessons from Challenges Faced by Entrepreneurs in African Economies**

Paul Stanford Kupakuwana

*Strategy & Business Analysis, Leeds Metropolitan University, Faculty of Business & Law, The Rose Bowl, Leeds, United Kingdom* 

#### **1. Introduction**

190 Entrepreneurship - Gender, Geographies and Social Context

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In today's global banking marketplace, the pressures challenging traditional business practices are many and varied. Competition is fierce, resulting in new opportunities and new risks for entreprenuers. Customers are becoming increasingly well informed and demanding, and the emergence of new financial service providers is transforming the banking industry. Meanwhile, deregulation and the effective disappearance of national boundaries are opening up greater opportunities and an increased portfolio of products and services. Some banks and asset management companies are rapidly identifying and exploiting opportunities. Such institutions meet the market demand by fast developing a new and inexpensive product.

The changing behaviour of customers is a critical consideration for banks. As a result, banks and asset management companies that fail to compete and innovate effectively across all areas may risk losing market share. Innovation in retail banking and asset management companies emphasizes more in organisational and process changes than in new product development in the traditional sense. Organizations that can provide a relatively faster service to customer requirements will benefit from a competitive advantage over those that do not. The need to maximise the opportunities in African economies requires banks and asset management companies to extend access to traditional services such as credit and savings. To service these needs, over the last few years there has been some proliferation of new financial institutions in some African states. It was necessary that these new financial institutions maintained trust in order to remain socially relevant.

#### **2. Purpose and significance of entrepreneurship to retail banking and asset management studies**

At the centre of entrepreneurship is the need to understand the inter-relationships between strategy and an organisation's business and environmental context, to mitigate associated risks, and to exploit opportunities for value creation effectively (Hamann *et al*, 2010). An understanding of these principles will help retail banks and asset management companies to identify strategic priorities for policy and action. It highlights the potential business benefits

Sustainable Retail Banking and Asset Management:

Lessons from Challenges Faced by Entrepreneurs in African Economies 193

*Hypothesis 2*: "the corruption" effect caused the distress and/or collapse,

*Hypothesis 3*: "the corporate governance" effect caused the distress and/or collapse,

*Hypothesis 4*: "the macroeconomic climate" effect caused the distress and/or collapse,

A benchmark needs to establish "normal" in order to evaluate these hypotheses. To this end, the methodology adopted is that used guidance provided in the *New Capital Accord*, also known as *Basel 2*, which aligns economic principles of risk management with regulatory

Each is addressed in turn, in the process considering the broader macroeconomic impacts, and concludes with some thoughts about what this means for Africa in light of the wider

Many banking crises have been reported around the world within the last few years. For example, more than 140 crises were reported since the 1970s (Reinhart and Rogoff, 2008, 2009: Laeven and Valencia, 2008, 2010). More recently, Reinhart and Rogoff (2008, 2009) reported only 121 banking crises since 1800s till 1970s. By failures to rollover debt during panics or rapid withdrawals of debt, and insolvency, these exogenous shocks introduce pressures on banks, and are associated with the banking system distress (Calomiris, 2008). The collapse of Lehman Brothers in September 2008 is thought to have caused the global economic crisis known as the "Great Recession". Global credit markets froze affecting the letters of credit and other financial instruments that help grease the gears of international trade finance (Mora and Powers, 2009). There is a link between banking and credit problems as revealed by research on historical episodes. Evidence presented in this chapter suggests that decline in global trade finance had a major impact on banking and asset management in Africa. Banking failures not only hurt private investors but also cripple foreign enterprises

The systemic character of financial risks is exactly the normative reason why in banking, unlike in other branches of the economy, the management of economic risk is an issue concerning the state. Legalized duties to build up capital buffers for risk protection and sanctions in cases of rule violations are instruments to establish a regulatory, safety net (Lutz, 2000). Ultimately, the aim is to prevent situations in which the state and thereby its national central bank are forced to intervene as lender-of-last-resort, leaving the taxpayer burdened with the losses created by privately undertaken risks (Lutz, 2000; Goodhart et al., 1998; Herring and Litan, 1995). There have been calls in several quarters for the protection of small investors through a deposit insurance scheme. But critics have equally responded by saying that this might encourage failure in banking, a situation that the deposit insurance is

Corruption permeates governments, commerce and society.

African banks are directly involved in the credit crunch.

capital requirements (Hashagen, 2003; Lutz, 2000).

consequences for banking and asset management.

in their capability to invest and to create new jobs (Lutz, 2000).

**4. Literature review** 

supposed to mitigate.

The central banks are effective in corporate governance practices.

of a systematic and proactive approach to sustainability concerns. Once a retail bank or asset management company has identified the scope and drivers of sustainability, the next step is to understand how to define and implement a corresponding entrepreneurial strategy. A crucial aspect of this is authentic stakeholder engagement and effective cross-sector collaboration (Hamann *et al*, 2010).

After reading this chapter, you should be able to:


The research focuses on risk managing at the firm level as well as performance and productivity improvement. The study draws from the competitive demands and operating realities facing the industry sectors as they pursue competitive excellence. Implications of these results to the study of the broader service sector are drawn, as well as how the collapsing banks (and the different factors behind) impact entrepreneurs or small-tomedium-enterprises (or sme's).

#### **3. Why did some African banks and asset management companies collapse in the last decade?**

There are four leading suspects. Impacts on banking and asset management can be traced through, *inter alia*, four broad channels:


This leads to a focus on the four main hypotheses that have been mooted. To confront these hypotheses, the author looks at the disaggregated historical data on the performance of retail banks and asset management companies within the last decade in select African countries in order to determine the extent to which this proxy for the four main hypotheses.

*Hypothesis 1*: "a plethora of deficiencies" effect caused the distress and/or collapse,

"The natural selection process" determines which member of the two sectors collapse and which ones survive and recover.

*Hypothesis 2*: "the corruption" effect caused the distress and/or collapse,

Corruption permeates governments, commerce and society.

*Hypothesis 3*: "the corporate governance" effect caused the distress and/or collapse,

The central banks are effective in corporate governance practices.

*Hypothesis 4*: "the macroeconomic climate" effect caused the distress and/or collapse,

African banks are directly involved in the credit crunch.

A benchmark needs to establish "normal" in order to evaluate these hypotheses. To this end, the methodology adopted is that used guidance provided in the *New Capital Accord*, also known as *Basel 2*, which aligns economic principles of risk management with regulatory capital requirements (Hashagen, 2003; Lutz, 2000).

Each is addressed in turn, in the process considering the broader macroeconomic impacts, and concludes with some thoughts about what this means for Africa in light of the wider consequences for banking and asset management.

#### **4. Literature review**

192 Entrepreneurship - Gender, Geographies and Social Context

of a systematic and proactive approach to sustainability concerns. Once a retail bank or asset management company has identified the scope and drivers of sustainability, the next step is to understand how to define and implement a corresponding entrepreneurial strategy. A crucial aspect of this is authentic stakeholder engagement and effective cross-sector

• Understand the complexities and opportunities relating to the adoption of a strategic, proactive approach to sustainable retail banking and asset management in

• Understand the debates surrounding the role of corporate governance in sustainable retail banking and asset management, including various related concepts such as

• Identify the key principles and themes associated with the sustainable retail bank and

• Understand the business case for the sustainable retail bank and asset management company, and identify the business-related risks and opportunities associated with diverse aspects of sustainable development, emphasising a strategic entrepreneurial

• Appreciate the opportunities and complexities of adopting a strategic entrepreneurial approach to the sustainable retail bank and asset management company, be it at the

The research focuses on risk managing at the firm level as well as performance and productivity improvement. The study draws from the competitive demands and operating realities facing the industry sectors as they pursue competitive excellence. Implications of these results to the study of the broader service sector are drawn, as well as how the collapsing banks (and the different factors behind) impact entrepreneurs or small-to-

**3. Why did some African banks and asset management companies collapse** 

There are four leading suspects. Impacts on banking and asset management can be traced

This leads to a focus on the four main hypotheses that have been mooted. To confront these hypotheses, the author looks at the disaggregated historical data on the performance of retail banks and asset management companies within the last decade in select African countries in

"The natural selection process" determines which member of the two sectors collapse and

order to determine the extent to which this proxy for the four main hypotheses.

*Hypothesis 1*: "a plethora of deficiencies" effect caused the distress and/or collapse,

asset management company, with an emphasis on the link to core business.

corporate social responsibility and stakeholder engagement.

level of a small enterprise or multi-national corporation.

collaboration (Hamann *et al*, 2010).

entrepreneurship.

approach.

medium-enterprises (or sme's).

through, *inter alia*, four broad channels:

• A plethora of deficiencies; and

• Corporate governance; and • Macroeconomic climate.

which ones survive and recover.

**in the last decade?** 

• Corruption; and

After reading this chapter, you should be able to:

Many banking crises have been reported around the world within the last few years. For example, more than 140 crises were reported since the 1970s (Reinhart and Rogoff, 2008, 2009: Laeven and Valencia, 2008, 2010). More recently, Reinhart and Rogoff (2008, 2009) reported only 121 banking crises since 1800s till 1970s. By failures to rollover debt during panics or rapid withdrawals of debt, and insolvency, these exogenous shocks introduce pressures on banks, and are associated with the banking system distress (Calomiris, 2008).

The collapse of Lehman Brothers in September 2008 is thought to have caused the global economic crisis known as the "Great Recession". Global credit markets froze affecting the letters of credit and other financial instruments that help grease the gears of international trade finance (Mora and Powers, 2009). There is a link between banking and credit problems as revealed by research on historical episodes. Evidence presented in this chapter suggests that decline in global trade finance had a major impact on banking and asset management in Africa. Banking failures not only hurt private investors but also cripple foreign enterprises in their capability to invest and to create new jobs (Lutz, 2000).

The systemic character of financial risks is exactly the normative reason why in banking, unlike in other branches of the economy, the management of economic risk is an issue concerning the state. Legalized duties to build up capital buffers for risk protection and sanctions in cases of rule violations are instruments to establish a regulatory, safety net (Lutz, 2000). Ultimately, the aim is to prevent situations in which the state and thereby its national central bank are forced to intervene as lender-of-last-resort, leaving the taxpayer burdened with the losses created by privately undertaken risks (Lutz, 2000; Goodhart et al., 1998; Herring and Litan, 1995). There have been calls in several quarters for the protection of small investors through a deposit insurance scheme. But critics have equally responded by saying that this might encourage failure in banking, a situation that the deposit insurance is supposed to mitigate.

Sustainable Retail Banking and Asset Management:

Today, 2011).

**7. Kenya** 

dollars (Business Today, 2011).

plus interest (Business Today, 2011).

Lessons from Challenges Faced by Entrepreneurs in African Economies 195

Central Bank of Egypt (CBE) tightly oversaw the sector's lending procedures and improved the management of the exchange rate policy. An interbank foreign exchange market was developed by the central bank, and this kept the black currency traders at bay. After being characterised as fragmented and fragile, Egyptian banking was transformed into a more robust and solid sector (Business Today, 2011). The government assisted in the cleaning of the banks' balance sheets by selling its equities to foreign-led acquisitions. Privatisations and consolidations reduced the number of banks from 57 in 2004 to 39 in late 2009 (Business

Egypt's banking sectors' avoidance of risky derivatives transactions and short selling spared the negative effects of the global financial crisis of 2008-2009. The strictness of the central bank caused the banks to maintain enough liquidity reserves and healthy ratios, which allowed them to weather the storm. The central bank controlled the outflow of liquidity by panicking depositors, and not all bank branches were opened during the same time (Business Today, 2011). The reserves helped the banks to honour all transactions. Foreign currency reserves also played a vital role in supporting the economy, and in maintaining the exchange rate at an acceptable level as the central bank intervened by selling some of its

The central bank made life easier for dealers by offering them a series of repurchase agreements called 'repos'. Such transactions work by having the central bank accepts money market securities from the banks and oblige them to buy back the securities at the sale price

In 1986, the first bank crash occurred when poorly capitalized banks went belly up without the Central Bank of Kenya's (CBK) intervention. One banker ran away to Scandinavia and had his property inexplicably sequestered by government (Maiko, 2003). The next crash was in 1992. This was related to the elections which caused politically linked banks to obtain money from the CBK using devious schemes. Six banks associated with some Asian businessmen were put in liquidation in 1993 (Maiko, 2003). The next one followed the 1997 elections, in 1998. Shareholders and politicians stripped clean banks leaving them on the brink. Disaster struck when the National Bank was made bankrupt putting at the tender mercy of the liquidator before the government injected capital and the National Social Security Fund (NSSF). The Euro Bank went down after the exposure of a scandal involving the disappearance from the institution of US 3.4 million of NSSF money (Maiko, 2003).

The collapse of Trust bank in 2001 threatened to tilt the balance against small banks in the country (Maiko, 2003). On the other hand, the collapse of the Euro Bank with billions of shillings of parastatal money sparked off another flight to safety. The result was a loss of confidence in the regulatory role of the Central Bank of Kenya (CBK). In 2002, the cyclical banking crisis phenomenon benefited large transnational banks, such as subsidiaries of UK banks Standard Chartered and Barclays and the 35 per cent state-owned Kenya Commercial. Their coffers swelled whereas Asian and African–owned banks were on the fringes (Maiko, 2003). By March 2003, 77.5 per cent of the industry's US \$46 billion deposit liabilities was in the coffers of the ten largest banks, against a background of commercial banks dominance following the collapse of indigenous non-bank institutions in the mid 1980s (Maiko, 2003).

The Basel Accords created an international standard on banking regulations (Hashagen, 2003). Basel I was first enacted in the 1980s. Basel II, the second issue of the accords, set up capital and risk management requirements. Thus, banks holding riskier assets now have to have a relatively higher capital reserve than those keeping safer portfolios (SearchSecurity, 2008). Basel II became a worldwide regulation in 2006 (Hashagen, 2003). Basel II requires companies to publish details of risk management practices and risky investments. Three essential requirements of Basel II are (SearchSecurity, 2008):


Basel II resulted in the emergence of a number of strategies which have allowed some banks to make risky investments, such as moving higher risks assets to unregulated parts of holding companies, the subprime mortgage market, and transferring the risk to investors by securitization (SearchSecurity, 2008). More important, however, are the wide range of risk management challenges and business implications that Basel II triggered for banks, their non-bank competitors, rating agencies, regulators, customers and, ultimately, the global capital markets. For example, (Hashagen, 2003):


Implementation of Basel II is a highly complex project (Hashagen, 2003). During a financial crisis, uncertainty is high, liquidity and trust are low, firms and banks rationalise by limiting their exposure to foreign banks and firms (Bernham and Martin, 2010).

#### **5. Case studies**

In most of the banking and asset management crises scrutinised around the world, there appears to emerge a number of common causal factors for entrepreneurial challenges. These studies of failed banking systems routinely point to explicit or implicit causes, and this study is no exception.

#### **6. Egypt**

The banking sector in Egypt witnessed many shocks over the last decade. The banking policies were put to the test and in most cases they proved rather successful (Business Today, 2011). The Egyptian banking sector was however subject to major reforms. The Central Bank of Egypt (CBE) tightly oversaw the sector's lending procedures and improved the management of the exchange rate policy. An interbank foreign exchange market was developed by the central bank, and this kept the black currency traders at bay. After being characterised as fragmented and fragile, Egyptian banking was transformed into a more robust and solid sector (Business Today, 2011). The government assisted in the cleaning of the banks' balance sheets by selling its equities to foreign-led acquisitions. Privatisations and consolidations reduced the number of banks from 57 in 2004 to 39 in late 2009 (Business Today, 2011).

Egypt's banking sectors' avoidance of risky derivatives transactions and short selling spared the negative effects of the global financial crisis of 2008-2009. The strictness of the central bank caused the banks to maintain enough liquidity reserves and healthy ratios, which allowed them to weather the storm. The central bank controlled the outflow of liquidity by panicking depositors, and not all bank branches were opened during the same time (Business Today, 2011). The reserves helped the banks to honour all transactions. Foreign currency reserves also played a vital role in supporting the economy, and in maintaining the exchange rate at an acceptable level as the central bank intervened by selling some of its dollars (Business Today, 2011).

The central bank made life easier for dealers by offering them a series of repurchase agreements called 'repos'. Such transactions work by having the central bank accepts money market securities from the banks and oblige them to buy back the securities at the sale price plus interest (Business Today, 2011).

#### **7. Kenya**

194 Entrepreneurship - Gender, Geographies and Social Context

The Basel Accords created an international standard on banking regulations (Hashagen, 2003). Basel I was first enacted in the 1980s. Basel II, the second issue of the accords, set up capital and risk management requirements. Thus, banks holding riskier assets now have to have a relatively higher capital reserve than those keeping safer portfolios (SearchSecurity, 2008). Basel II became a worldwide regulation in 2006 (Hashagen, 2003). Basel II requires companies to publish details of risk management practices and risky investments. Three

• Mandating that capital allocations by institutional managers is more risk sensitive.

• Reducing the scope of regulatory arbitrage by aligning the economic risk with

Basel II resulted in the emergence of a number of strategies which have allowed some banks to make risky investments, such as moving higher risks assets to unregulated parts of holding companies, the subprime mortgage market, and transferring the risk to investors by securitization (SearchSecurity, 2008). More important, however, are the wide range of risk management challenges and business implications that Basel II triggered for banks, their non-bank competitors, rating agencies, regulators, customers and, ultimately, the global

• Banks are required to implement an organisation-wide risk management framework. • Non-banks are not affected by Basel II but may want to draw important lessons as it is a

• Bank clients will need to collect and disclose new information – and likely will face new

• Rating agencies became visible under Basel II and thus could experience new

• Regulators are asked to provide a level playing field as the Basel Committee's

• The global banks could experience extended trends towards securitization as financial

Implementation of Basel II is a highly complex project (Hashagen, 2003). During a financial crisis, uncertainty is high, liquidity and trust are low, firms and banks rationalise by limiting

In most of the banking and asset management crises scrutinised around the world, there appears to emerge a number of common causal factors for entrepreneurial challenges. These studies of failed banking systems routinely point to explicit or implicit causes, and this

The banking sector in Egypt witnessed many shocks over the last decade. The banking policies were put to the test and in most cases they proved rather successful (Business Today, 2011). The Egyptian banking sector was however subject to major reforms. The

recommendations are implemented by legislatures in various countries.

their exposure to foreign banks and firms (Bernham and Martin, 2010).

essential requirements of Basel II are (SearchSecurity, 2008):

regulatory assessment.

competitive benchmark.

competition.

**5. Case studies** 

study is no exception.

**6. Egypt** 

capital markets. For example, (Hashagen, 2003):

risk structures as a result of increased transparency.

institutions adapt to Basel II requirements.

• Separating operational risks from credit risks and measuring both.

In 1986, the first bank crash occurred when poorly capitalized banks went belly up without the Central Bank of Kenya's (CBK) intervention. One banker ran away to Scandinavia and had his property inexplicably sequestered by government (Maiko, 2003). The next crash was in 1992. This was related to the elections which caused politically linked banks to obtain money from the CBK using devious schemes. Six banks associated with some Asian businessmen were put in liquidation in 1993 (Maiko, 2003). The next one followed the 1997 elections, in 1998. Shareholders and politicians stripped clean banks leaving them on the brink. Disaster struck when the National Bank was made bankrupt putting at the tender mercy of the liquidator before the government injected capital and the National Social Security Fund (NSSF). The Euro Bank went down after the exposure of a scandal involving the disappearance from the institution of US 3.4 million of NSSF money (Maiko, 2003).

The collapse of Trust bank in 2001 threatened to tilt the balance against small banks in the country (Maiko, 2003). On the other hand, the collapse of the Euro Bank with billions of shillings of parastatal money sparked off another flight to safety. The result was a loss of confidence in the regulatory role of the Central Bank of Kenya (CBK). In 2002, the cyclical banking crisis phenomenon benefited large transnational banks, such as subsidiaries of UK banks Standard Chartered and Barclays and the 35 per cent state-owned Kenya Commercial. Their coffers swelled whereas Asian and African–owned banks were on the fringes (Maiko, 2003). By March 2003, 77.5 per cent of the industry's US \$46 billion deposit liabilities was in the coffers of the ten largest banks, against a background of commercial banks dominance following the collapse of indigenous non-bank institutions in the mid 1980s (Maiko, 2003).

Sustainable Retail Banking and Asset Management:

24 banks are healthier (Daily Trust, 2011).

and all withdrawals stopped (Lamprecht, 2002).

controversial policies.

**9. South Africa** 

**10. Swaziland** 

Lessons from Challenges Faced by Entrepreneurs in African Economies 197

such a turbulent macroeconomic climate characterised by structural change driven by

Before July 6, 2004, 25 banks and those with interconnected liabilities almost collapsed (Financial Nigeria, 2006). Following consolidation in 2005, The Nigerian banking sector, however, took off to become the largest in sub-Saharan Africa outside South Africa. Nigerian banks aggressively expanded in Africa and Europe (Business Monitor International Ltd, 2009). The reform that began in 2009 is paying off and that the country's

South Africa's economy is very vulnerable to what happens on Wall Street. South Africa has a highly concentrated banking sector. There was legitimate fear of severe spillover effects of the escalating inflation and banking sector crisis in Zimbabwe. The escalating crisis in Zimbabwe's banking sector was a cause of concern to three investing South African banks that had majority shares in some Zimbabwean banks; that was Absa, Standard Bank and Nedcor. Standard Bank owned Stanbic Bank Zimbabwe. Absa owned 26% of Commercial Bank of Zimbabwe (CBZ). Nedbank Africa owned 39% of the Merchant Bank of Central Africa (MBCA) based in Zimbabwe, while Old Mutual Zimbabwe owned just under 23%. Standard, Absa and Nedcor, kept an eye on unfolding crisis for signs of systemic risk.

The banks that failed during the period commencing from 1994 to date included Prima Bank, Sechold Bank, African Bank, Community Bank, Islamic Bank, FBC Fidelity Bank, New Republic Bank, Regal Treasury, Saambou and BoE (Makhubela, 2006). Four big banks exposed to housing credit included ABSA and FNB. The introduction of the Financial Intelligence Centre Act 38 of 2001 (FICA) knocked the wind out of the housing market.

The African Bank Limited set up at the height of apartheid in the 1970s assisted mostly black investors. It was the first fully black-owned bank to be put under receivership in 1995 after 20-years in operation. Its closure was a blow to black economic empowerment (Chicago Tribune, 1995). Thereafter, a number of most troubling things happened in South Africa, which showed that the country's economic base was slowly falling apart and crumbling. One example is the accidental run on SAAMBOU bank due to some troubling news reports. As a consequence, one billion rand was withdrawn, and the bank put under curatorship,

The 2008 Lehman Brothers collapse in the United States is alleged to have triggered a worldwide banking crisis including in Swaziland (Swaziland Commentary, 2010). The IMF reported that Swaziland had the worst economy then in the whole of sub-Saharan Africa and that the economy was in a mess long before 2008 (Swaziland Commentary, 2010). Hence, the major economic crisis that Swaziland faced in the last decade was not connected to the Lehman Brothers collapse. Swaziland's economy stagnated over the last decade while that of the rest of sub-Saharan Africa grew (Swaziland Commentary, 2010).The major contributor to the stagnant Swazi economy was its financial sector, which despite being in a healthy operational condition, had however taken backward steps in the past decade (Swaziland Commentary, 2010). Swaziland's real per capita GDP growth declined from an

In 2003, profit sharing in the industry took a similar pattern, only that Barclays and Standard took a disproportionately bigger share compared to Kenya Commercial, which was managed badly then. There were ten commercial banks, two mortgage firms, three nonbanks and four building societies in the country (Maiko, 2003). Structural asymmetry in the system was brought by insecurity in small banks. Small banks were forced to pay relatively high deposit interest rates. Large banks were deemed insensitive to customers, levying all manner of charges and penalties on both deposits and lending. The Central Bank (Amendment) Act 2000, popularly known as the Donde Act, helped to regulate the lending rate by controlling both supply and demand prices (Maiko, 2003).

The ill-fated Euro Bank was in the business of holding and not trading state money. Its dud assets piled at 260 per cent of their equity fund size. Ninety-two per cent of the nonperforming debts were taken out by state firms' heads and politicians. These people pumped government funds into the dying bank. It is alleged that the bank was involved in money laundering. Its political connections are said to have helped to keep it open (Maiko, 2003). Some banks in Kenya collapsed when power changed hands, and the protective veil was withdrawn.

#### **8. Nigeria**

The emergence of indigenous banks in Nigeria almost immediately introduced collapse of deposit taking institutions. Twenty-one out of twenty-five indigenous banks in the country collapsed between 1947 and 1952 (Financial Nigeria, 2006). Capital injection into the banks in 2007 through public offers and IPOs alone resulted in mega banking in Nigeria. It is thought that the regulatory gap before the establishment of the Central Bank of Nigeria (CBN) may have been responsible for the earliest episode of collapse of banks in Nigeria. Between 1920 and 1930s, the earliest indigenous banks rapidly multiplied, whereas in 1954 that was the launch of the first banking regulatory instrument. At that time, skilled and experienced bankers and asset managers were scarce. Indigenous banks were characterised with insider loan abuses and poor capitalization. Thus, their performance standards were below par with competing foreign banks (Financial Nigeria, 2006). Some small and midsized companies and some fake companies received hefty loans, but before the banks went bust. Some politicians also made the A-list of bank debtors (Murphy, 2009). Some executives influenced share prices by conspiring with stockbrokers. Some CEOs who were charged with fraud went on the run and were wanted by Interpol (Murphy, 2009).

In 1960, over 95% of the licensed indigenous banks were liquidated by independence. Government replaced this model of bank ownership with government ownership. The argument was that banks are considered as development agents, and hence they became an integral part of Nigeria's economic nationalism (Financial Nigeria, 2006). The federal government bought controlling stakes in the foreign banks. State governments were encouraged to start their own banks (Financial Nigeria, 2006). The country was returned to the private ownership model when the economy was liberalized in the mid-eighties. Banking licenses were issued to over 80 local entrepreneurs. This was the era which resulted in banking distress and failures with depositors losing their money (Financial Nigeria, 2006).

There was a combined weakness in that the regulatory regime was weak and that the banks were too many to be effectively managed by regulators. There were gross insider abuses, financial recklessness, and outright criminality by a young generation of bank directors and bankers. Hence, banks became poorly capitalized. There was a skill gap in managing risks in such a turbulent macroeconomic climate characterised by structural change driven by controversial policies.

Before July 6, 2004, 25 banks and those with interconnected liabilities almost collapsed (Financial Nigeria, 2006). Following consolidation in 2005, The Nigerian banking sector, however, took off to become the largest in sub-Saharan Africa outside South Africa. Nigerian banks aggressively expanded in Africa and Europe (Business Monitor International Ltd, 2009). The reform that began in 2009 is paying off and that the country's 24 banks are healthier (Daily Trust, 2011).

#### **9. South Africa**

196 Entrepreneurship - Gender, Geographies and Social Context

In 2003, profit sharing in the industry took a similar pattern, only that Barclays and Standard took a disproportionately bigger share compared to Kenya Commercial, which was managed badly then. There were ten commercial banks, two mortgage firms, three nonbanks and four building societies in the country (Maiko, 2003). Structural asymmetry in the system was brought by insecurity in small banks. Small banks were forced to pay relatively high deposit interest rates. Large banks were deemed insensitive to customers, levying all manner of charges and penalties on both deposits and lending. The Central Bank (Amendment) Act 2000, popularly known as the Donde Act, helped to regulate the lending

The ill-fated Euro Bank was in the business of holding and not trading state money. Its dud assets piled at 260 per cent of their equity fund size. Ninety-two per cent of the nonperforming debts were taken out by state firms' heads and politicians. These people pumped government funds into the dying bank. It is alleged that the bank was involved in money laundering. Its political connections are said to have helped to keep it open (Maiko, 2003). Some banks in Kenya collapsed when power changed hands, and the protective veil

The emergence of indigenous banks in Nigeria almost immediately introduced collapse of deposit taking institutions. Twenty-one out of twenty-five indigenous banks in the country collapsed between 1947 and 1952 (Financial Nigeria, 2006). Capital injection into the banks in 2007 through public offers and IPOs alone resulted in mega banking in Nigeria. It is thought that the regulatory gap before the establishment of the Central Bank of Nigeria (CBN) may have been responsible for the earliest episode of collapse of banks in Nigeria. Between 1920 and 1930s, the earliest indigenous banks rapidly multiplied, whereas in 1954 that was the launch of the first banking regulatory instrument. At that time, skilled and experienced bankers and asset managers were scarce. Indigenous banks were characterised with insider loan abuses and poor capitalization. Thus, their performance standards were below par with competing foreign banks (Financial Nigeria, 2006). Some small and midsized companies and some fake companies received hefty loans, but before the banks went bust. Some politicians also made the A-list of bank debtors (Murphy, 2009). Some executives influenced share prices by conspiring with stockbrokers. Some CEOs who were charged

In 1960, over 95% of the licensed indigenous banks were liquidated by independence. Government replaced this model of bank ownership with government ownership. The argument was that banks are considered as development agents, and hence they became an integral part of Nigeria's economic nationalism (Financial Nigeria, 2006). The federal government bought controlling stakes in the foreign banks. State governments were encouraged to start their own banks (Financial Nigeria, 2006). The country was returned to the private ownership model when the economy was liberalized in the mid-eighties. Banking licenses were issued to over 80 local entrepreneurs. This was the era which resulted in banking distress and failures with depositors losing their money (Financial Nigeria, 2006). There was a combined weakness in that the regulatory regime was weak and that the banks were too many to be effectively managed by regulators. There were gross insider abuses, financial recklessness, and outright criminality by a young generation of bank directors and bankers. Hence, banks became poorly capitalized. There was a skill gap in managing risks in

with fraud went on the run and were wanted by Interpol (Murphy, 2009).

rate by controlling both supply and demand prices (Maiko, 2003).

was withdrawn.

**8. Nigeria** 

South Africa's economy is very vulnerable to what happens on Wall Street. South Africa has a highly concentrated banking sector. There was legitimate fear of severe spillover effects of the escalating inflation and banking sector crisis in Zimbabwe. The escalating crisis in Zimbabwe's banking sector was a cause of concern to three investing South African banks that had majority shares in some Zimbabwean banks; that was Absa, Standard Bank and Nedcor. Standard Bank owned Stanbic Bank Zimbabwe. Absa owned 26% of Commercial Bank of Zimbabwe (CBZ). Nedbank Africa owned 39% of the Merchant Bank of Central Africa (MBCA) based in Zimbabwe, while Old Mutual Zimbabwe owned just under 23%. Standard, Absa and Nedcor, kept an eye on unfolding crisis for signs of systemic risk.

The banks that failed during the period commencing from 1994 to date included Prima Bank, Sechold Bank, African Bank, Community Bank, Islamic Bank, FBC Fidelity Bank, New Republic Bank, Regal Treasury, Saambou and BoE (Makhubela, 2006). Four big banks exposed to housing credit included ABSA and FNB. The introduction of the Financial Intelligence Centre Act 38 of 2001 (FICA) knocked the wind out of the housing market.

The African Bank Limited set up at the height of apartheid in the 1970s assisted mostly black investors. It was the first fully black-owned bank to be put under receivership in 1995 after 20-years in operation. Its closure was a blow to black economic empowerment (Chicago Tribune, 1995). Thereafter, a number of most troubling things happened in South Africa, which showed that the country's economic base was slowly falling apart and crumbling. One example is the accidental run on SAAMBOU bank due to some troubling news reports. As a consequence, one billion rand was withdrawn, and the bank put under curatorship, and all withdrawals stopped (Lamprecht, 2002).

#### **10. Swaziland**

The 2008 Lehman Brothers collapse in the United States is alleged to have triggered a worldwide banking crisis including in Swaziland (Swaziland Commentary, 2010). The IMF reported that Swaziland had the worst economy then in the whole of sub-Saharan Africa and that the economy was in a mess long before 2008 (Swaziland Commentary, 2010). Hence, the major economic crisis that Swaziland faced in the last decade was not connected to the Lehman Brothers collapse. Swaziland's economy stagnated over the last decade while that of the rest of sub-Saharan Africa grew (Swaziland Commentary, 2010).The major contributor to the stagnant Swazi economy was its financial sector, which despite being in a healthy operational condition, had however taken backward steps in the past decade (Swaziland Commentary, 2010). Swaziland's real per capita GDP growth declined from an

Sustainable Retail Banking and Asset Management:

foreign exchange, food, and fuel.

to an increase in interest rates charges for consumer loans.

cashing foreign currency at the top rate.

Lessons from Challenges Faced by Entrepreneurs in African Economies 199

activities (Muleya, 2008; Chimhangwa, 2011; Mambondiani, 2011; Business Reporter, 2011). The move to close some bank by the central banks was meant to protect depositors' funds. The central bank appointed administrators to run some of these troubled banks in a bid to prevent a sector-wide contagion (Mpofu and Nyakazeya, 2011; Business Reporter, 2011).

Corruption and mismanagement took place on a staggering scale. Some banks and asset management companies closed as a result of a domino effect resulting from exposure, to varying extents, to those that had closed before them. A typical example was the exposure due to the closure of ENG Capital where Trust Banking Corporation, Century Bank, Metropolitan Bank and First Mutual Insurance group were directly exposed to the ENG's financial flu (Mambondiani, 2011). The ENG Asset Management Directors diverted invested clients' money to buying properties and luxury vehicles in Zimbabwe and from overseas. The fraud case sparked a crisis that saw a run on deposits by panicky investors

Prior to the collapse of several indigenous banks and asset management companies, Zimbabwe had seventeen commercial banks with assets amounting to about 3.522 million US dollars. Average liquidity ratio as at September 30, 2004 was 58.2 percent. About twothirds of these banks had been established in the past decade when the government liberalized the sector in the 1990s. Skewed government policies since independence from Britain in 1980 had led to huge unemployment, soaring inflation, and acute shortages of

By January 2004, seven banks, namely Trust Bank, Time Bank of Zimbabwe, Metropolitan Bank, Century Bank, Royal Bank, Barbican Bank, including the Agricultural Bank of Zimbabwe (AgriBank) owned by the government, had been excluded from the daily clearing because they did not have the necessary cash to pay other banks. AgriBank lent an undisclosed amount to new farmers. These farmers were given land confiscated from white commercial farmers, and had not managed to grow adequate crops to repay their loans.

Most banks that had low liquidity levels were left exposed and scurrying for financial cover after the central bank demanded urgent recapitalization. In addition, the central bank expected the banks to observe the New Capital Accord known as Basel 2. This seeks to align regulatory capital with risk management. In November 2003, liquidity deficiencies in frailer banks were revealed by the real-time settlement system for interbank loans. Some banks had to sell their foreign currency reserves and properties in order to raise their capital levels and improve their liquidity. The tightening of the lending between the central bank and commercial banks led to an increase in interbank lending interest rates. This filtered through

In January 2004, the central bank in Zimbabwe began foreign currency auctions in what it said was a move to end black market trading. The central bank ordered banks to ensure they could meet their commitments to depositors. This resulted in some banks disposing of hoarded foreign currency, luxury vehicles, houses and jewellery. The short-term result was that the black market for U.S. dollars dropped. Several leading exporters said this had affected their ability to do business, because they had only managed to stay afloat by

Shocked cold by the closure of several banks, bankers called for an "amnesty" period from the central bank. They agreed that lessons had been learnt and that they now needed time to

(Mambondiani, 2011; Mpofu and Nyakazeya, 2011; Business Reporter, 2011).

annual rate of two and a half percent during 1980-94 to 0.7 percent since then compared to the average one and a half percent annually for sub-Saharan Africa since 1995 and in the lower-middle income countries, growth averaged 7 and a half percent (Swaziland Commentary, 2010).

Swaziland's financial system became shallower instead of deepening – that is, the more access individuals and businesses had to varied financial services, the better it would have equipped Swaziland to mobilise resources towards growth and the reduction of poverty and income inequality (Swaziland Commentary, 2010). Since 1995, there was a decline in private sector lending, bank deposits, and money supply as a percentage of GDP. Swaziland's reported cases of HIV/AIDS are so far the highest in the world (Swaziland Commentary, 2010). It is believed that some important linkages between the financial sector and the real economy in Swaziland do explain the country's poor performance (Swaziland Commentary, 2010). For instance, the country mobilises a small amount of domestic savings (8 percent of GDP) to finance investment, A fall in foreign savings was witnessed since the 1980s and 1990s, and so were annual investment rates which declined far below other low-income countries in the region from 25 to 19 percent of GDP for the period 1981-94. The government spent more than it collected in revenues and was saddled with a huge civil service wage bill that, together with poor projects selection and appraisals, curtailed growth.

The commercial banking system catered for approximately 38 percent of the population who had access to a bank account, and concentrated on export financing. Yet, the export sector failed to promote effectively employment and growth. Swaziland had no public credit registry except private credit bureaus which covered only 38 percent of the population. The weak investment climate pushed up the cost of capital and reduced the rate of return investors sought. The inadequate regulation and supervision of nonbank financial institutions (NBFIs) rendered the financial sector more vulnerable. Savings and credit cooperatives (SCCOs) emerged to cater for the financial needs of the significant Swazis who had been abandoned by the commercial banking sector. Some borrowers failed to secure loans due to a lack of access to collateral. Approximately 60 percent of the land is held in public trust and could not be used by farmers as collateral to secure loans to facilitate the achievement of higher agricultural yields. Instead, people are limited to accumulating savings in traditional assets such as livestock (Swaziland Commentary, 2010).

#### **11. Zimbabwe**

The first report of a collapsed bank in Zimbabwe was that of Roger Boka's United Merchant Bank in 1998. UNIBANK followed in year 2000. From then on, the financial system began to suffer serious tremors. The climax came in 2003 after the failure of ENG Asset Management that triggered a wholesale run on banks. In a space of six months, seven banks closed their doors. Locally-owned banks and asset management companies battled for survival, with some closing, as the Reserve Bank of Zimbabwe (RBZ) cracked down on institutions engaged in shady dealings (Muleya, 2008; Mpofu and Nyakazeya, 2011; Business Reporter, 2011). Such institutions included the United Merchant Bank, First National Building Society, Unibank, Trust Banking Corporation, ENG Capital, First Mutual Asset Management Company, Century Discount House, Intermarket Holdings' subsidiaries – the Discount House, Intermarket Building Society, and the Banking Corporation. Some banks experienced liquidity problems arising from their involvement in speculative and non-core

annual rate of two and a half percent during 1980-94 to 0.7 percent since then compared to the average one and a half percent annually for sub-Saharan Africa since 1995 and in the lower-middle income countries, growth averaged 7 and a half percent (Swaziland

Swaziland's financial system became shallower instead of deepening – that is, the more access individuals and businesses had to varied financial services, the better it would have equipped Swaziland to mobilise resources towards growth and the reduction of poverty and income inequality (Swaziland Commentary, 2010). Since 1995, there was a decline in private sector lending, bank deposits, and money supply as a percentage of GDP. Swaziland's reported cases of HIV/AIDS are so far the highest in the world (Swaziland Commentary, 2010). It is believed that some important linkages between the financial sector and the real economy in Swaziland do explain the country's poor performance (Swaziland Commentary, 2010). For instance, the country mobilises a small amount of domestic savings (8 percent of GDP) to finance investment, A fall in foreign savings was witnessed since the 1980s and 1990s, and so were annual investment rates which declined far below other low-income countries in the region from 25 to 19 percent of GDP for the period 1981-94. The government spent more than it collected in revenues and was saddled with a huge civil service wage bill

The commercial banking system catered for approximately 38 percent of the population who had access to a bank account, and concentrated on export financing. Yet, the export sector failed to promote effectively employment and growth. Swaziland had no public credit registry except private credit bureaus which covered only 38 percent of the population. The weak investment climate pushed up the cost of capital and reduced the rate of return investors sought. The inadequate regulation and supervision of nonbank financial institutions (NBFIs) rendered the financial sector more vulnerable. Savings and credit cooperatives (SCCOs) emerged to cater for the financial needs of the significant Swazis who had been abandoned by the commercial banking sector. Some borrowers failed to secure loans due to a lack of access to collateral. Approximately 60 percent of the land is held in public trust and could not be used by farmers as collateral to secure loans to facilitate the achievement of higher agricultural yields. Instead, people are limited to accumulating

The first report of a collapsed bank in Zimbabwe was that of Roger Boka's United Merchant Bank in 1998. UNIBANK followed in year 2000. From then on, the financial system began to suffer serious tremors. The climax came in 2003 after the failure of ENG Asset Management that triggered a wholesale run on banks. In a space of six months, seven banks closed their doors. Locally-owned banks and asset management companies battled for survival, with some closing, as the Reserve Bank of Zimbabwe (RBZ) cracked down on institutions engaged in shady dealings (Muleya, 2008; Mpofu and Nyakazeya, 2011; Business Reporter, 2011). Such institutions included the United Merchant Bank, First National Building Society, Unibank, Trust Banking Corporation, ENG Capital, First Mutual Asset Management Company, Century Discount House, Intermarket Holdings' subsidiaries – the Discount House, Intermarket Building Society, and the Banking Corporation. Some banks experienced liquidity problems arising from their involvement in speculative and non-core

that, together with poor projects selection and appraisals, curtailed growth.

savings in traditional assets such as livestock (Swaziland Commentary, 2010).

Commentary, 2010).

**11. Zimbabwe** 

activities (Muleya, 2008; Chimhangwa, 2011; Mambondiani, 2011; Business Reporter, 2011). The move to close some bank by the central banks was meant to protect depositors' funds. The central bank appointed administrators to run some of these troubled banks in a bid to prevent a sector-wide contagion (Mpofu and Nyakazeya, 2011; Business Reporter, 2011).

Corruption and mismanagement took place on a staggering scale. Some banks and asset management companies closed as a result of a domino effect resulting from exposure, to varying extents, to those that had closed before them. A typical example was the exposure due to the closure of ENG Capital where Trust Banking Corporation, Century Bank, Metropolitan Bank and First Mutual Insurance group were directly exposed to the ENG's financial flu (Mambondiani, 2011). The ENG Asset Management Directors diverted invested clients' money to buying properties and luxury vehicles in Zimbabwe and from overseas. The fraud case sparked a crisis that saw a run on deposits by panicky investors (Mambondiani, 2011; Mpofu and Nyakazeya, 2011; Business Reporter, 2011).

Prior to the collapse of several indigenous banks and asset management companies, Zimbabwe had seventeen commercial banks with assets amounting to about 3.522 million US dollars. Average liquidity ratio as at September 30, 2004 was 58.2 percent. About twothirds of these banks had been established in the past decade when the government liberalized the sector in the 1990s. Skewed government policies since independence from Britain in 1980 had led to huge unemployment, soaring inflation, and acute shortages of foreign exchange, food, and fuel.

By January 2004, seven banks, namely Trust Bank, Time Bank of Zimbabwe, Metropolitan Bank, Century Bank, Royal Bank, Barbican Bank, including the Agricultural Bank of Zimbabwe (AgriBank) owned by the government, had been excluded from the daily clearing because they did not have the necessary cash to pay other banks. AgriBank lent an undisclosed amount to new farmers. These farmers were given land confiscated from white commercial farmers, and had not managed to grow adequate crops to repay their loans.

Most banks that had low liquidity levels were left exposed and scurrying for financial cover after the central bank demanded urgent recapitalization. In addition, the central bank expected the banks to observe the New Capital Accord known as Basel 2. This seeks to align regulatory capital with risk management. In November 2003, liquidity deficiencies in frailer banks were revealed by the real-time settlement system for interbank loans. Some banks had to sell their foreign currency reserves and properties in order to raise their capital levels and improve their liquidity. The tightening of the lending between the central bank and commercial banks led to an increase in interbank lending interest rates. This filtered through to an increase in interest rates charges for consumer loans.

In January 2004, the central bank in Zimbabwe began foreign currency auctions in what it said was a move to end black market trading. The central bank ordered banks to ensure they could meet their commitments to depositors. This resulted in some banks disposing of hoarded foreign currency, luxury vehicles, houses and jewellery. The short-term result was that the black market for U.S. dollars dropped. Several leading exporters said this had affected their ability to do business, because they had only managed to stay afloat by cashing foreign currency at the top rate.

Shocked cold by the closure of several banks, bankers called for an "amnesty" period from the central bank. They agreed that lessons had been learnt and that they now needed time to

Sustainable Retail Banking and Asset Management:

beneficiary shareholders (Sandu, 2011).

(Sandu, 2011).

Reporter, 2010).

personalities behind them.

financial obligations.

dealings (Maiko, 2003).

show:

sums.

Lessons from Challenges Faced by Entrepreneurs in African Economies 201

• Special Purpose Vehicles (SPV) were used to circumvent regulations and to engage in non-core activities including gold, grain and fuel trading, stock of bricks, luxury

• Internal controls virtually collapsed allowing unauthorised transactions to occur

• Some of the group's shareholding structures camouflaged the true identity of the

• Non-performing insider loans were issued to sister and sinister companies (Business

• Trusts were designed to camouflage reality on the ground, their purpose, and

• Investors' money was used to buy fixed assets that could not be readily converted into cash when the investors' funds reached maturity, leaving banks unable to meet their

• The shareholding structure of some banks hindered effective regulation and supervision as it facilitated owner-managers of these banks to masquerade as non-

• Some banks were conduits for money laundering while some engaged in shady

• Some bank's political connections helped to keep them open, whereas others collapsed when the protective veil was withdrawn when power changed hands (Maiko, 2003).

The author found strong evidence in favour of the *Hypothesis 3*. This exercise suggests further evidence of slack in corporate governance practices at the time across the banking and asset management sectors of most of the African countries under consideration (Sandu, 2011). In some cases, internal audit failed to discharge its statutory obligations. Surveys

• Foreign-owned banks were targeted by the indigenisation act and required to transfer majority shareholding to local blacks under a controversial empowerment policy (e.g.

• Some banks short-circuited internal control/audit and normal accounting safeguards. In effect, they were able to operate with no proper supervision from central banks – and

• Some asset management companies were of an underground nature as they had neither

The author found strong evidence in favour of the Hypothesis 4. The financial crisis was systemic. It sparked a credit crunch which was severe in some African countries and

• There were cases of violations of the Banking Act (Mpofu and Nyakazeya, 2011). *Hypothesis 4:* "the macroeconomic climate" effect caused the distress and/or collapse,

Barclays Bank and Standard Chartered Banks in Zimbabwe) (Chinaka, 2011). • Because of the absence of tight oversight, some banks were able to make seemingly small gambles, and these banks decisions routinely resulted in losses of substantial

hence were able temporarily to hide their losses (Sandu, 2011).

physical addresses nor working contact phone numbers. • There were cases of violations of the Exchange Control Regulations.

*Hypothesis 3:* "the corporate governance" effect caused the distress and/or collapse,

vehicles, and houses contrary to the Banking Act (Sandu, 2011).

executive directors (Business Reporter, 2010; Muleya, 2011).

• Depositors' funds were siphoned through related party loans (Sandu, 2011).

clean things up. However, it seemed bankers' pleas for a moratorium were unlikely to get a favourable ear. The central bank stated that Zimbabwe was over-banked, pledging to block fresh applications for banking licenses. The sweeping clean-up drive by the central bank sent business magnates fleeing abroad to escape imprisonment (Nyakazeya, 2011).

In December 2003, Zimbabwe's central bank promoted greater accountability and transparency by announcing that no management position will be held by a bank owner. Bank management, the board and/or its chair, was not to have a shareholder with 10% or more shares. Prior to this announcement, and the clampdown by the central bank, Zimbabwe's 17 banks were reported to have had some managers who were also major shareholders (Mpofu and Nyakazeya, 2011; Business Reporter, 2010).

Thus, Zimbabwe's new banks faced failure due to irresponsible practices including mismanagement and structural ownership weaknesses which led to liquidity and solvency deficiencies and saw a run on deposits by panicking depositors (Muleya, 2008; Chimhangwa, 2011; Mambondiani, 2011; Business Reporter, 2011).

### **12. Diagnosing entrepreneurial challenge drivers in the last decade**

The author evaluates four hypotheses on the causes of distress and/or collapses:

*Hypothesis 1*: "A plethora of deficiencies" effect caused the distress and/or collapse,

The author found strong evidence in favour of the *Hypothesis 1*. Darwin's (1859) natural selection theory is applied here to this particular retail banking and asset management situation. According to Darwin's theory, the natural selection process determines which members of species survive and reproduce, and which ones die prematurely. Hence the surveys show:


*Hypothesis 2*: "the corruption" effect caused the distress and/or collapse,

The author found strong evidence in favour of the *Hypothesis 2.* Corruption permeated governments, commerce and society. Corruption is a stumbling block to development and has a bearing on economic fundamentals. As the African countries' economies struggle, most peoples' means correspondingly dwindle, and hence the temptation to become corrupted in order to survive. Surveys show:

clean things up. However, it seemed bankers' pleas for a moratorium were unlikely to get a favourable ear. The central bank stated that Zimbabwe was over-banked, pledging to block fresh applications for banking licenses. The sweeping clean-up drive by the central bank

In December 2003, Zimbabwe's central bank promoted greater accountability and transparency by announcing that no management position will be held by a bank owner. Bank management, the board and/or its chair, was not to have a shareholder with 10% or more shares. Prior to this announcement, and the clampdown by the central bank, Zimbabwe's 17 banks were reported to have had some managers who were also major

Thus, Zimbabwe's new banks faced failure due to irresponsible practices including mismanagement and structural ownership weaknesses which led to liquidity and solvency deficiencies and saw a run on deposits by panicking depositors (Muleya, 2008;

The author found strong evidence in favour of the *Hypothesis 1*. Darwin's (1859) natural selection theory is applied here to this particular retail banking and asset management situation. According to Darwin's theory, the natural selection process determines which members of species survive and reproduce, and which ones die prematurely. Hence the

• Major commercial banks and other financial houses faced critical liquidity crisis largely caused by unlawful speculative investments which threatened to ruin the stricken institutions (Maiko, 2003; Muleya, 2008; Chimhangwa, 2011; Mambondiani, 2011;

• The minimum capital adequacy threshold requirement was not complied with in a

• Big clients moved their deposits from some recently established commercial banks to the traditional banks such as Standard Chartered and Barclays (i.e. flight to safety). • These long-established traditional banks turned down cheques issued by banks

• Many retailers refused to accept cheques or guarantees from banks suspected to be

The author found strong evidence in favour of the *Hypothesis 2.* Corruption permeated governments, commerce and society. Corruption is a stumbling block to development and has a bearing on economic fundamentals. As the African countries' economies struggle, most peoples' means correspondingly dwindle, and hence the temptation to become

majority of cases, i.e undercapitalisation (Chimhangwa, 2011).

*Hypothesis 2*: "the corruption" effect caused the distress and/or collapse,

• There was a high level of non-performing loans.

suspected to be under investigation.

corrupted in order to survive. Surveys show:

sent business magnates fleeing abroad to escape imprisonment (Nyakazeya, 2011).

shareholders (Mpofu and Nyakazeya, 2011; Business Reporter, 2010).

Chimhangwa, 2011; Mambondiani, 2011; Business Reporter, 2011).

surveys show:

Business Reporter, 2011).

under investigation.

**12. Diagnosing entrepreneurial challenge drivers in the last decade**  The author evaluates four hypotheses on the causes of distress and/or collapses: *Hypothesis 1*: "A plethora of deficiencies" effect caused the distress and/or collapse,


*Hypothesis 3:* "the corporate governance" effect caused the distress and/or collapse,

The author found strong evidence in favour of the *Hypothesis 3*. This exercise suggests further evidence of slack in corporate governance practices at the time across the banking and asset management sectors of most of the African countries under consideration (Sandu, 2011). In some cases, internal audit failed to discharge its statutory obligations. Surveys show:


*Hypothesis 4:* "the macroeconomic climate" effect caused the distress and/or collapse,

The author found strong evidence in favour of the Hypothesis 4. The financial crisis was systemic. It sparked a credit crunch which was severe in some African countries and

Sustainable Retail Banking and Asset Management:

rescue package for the local Meridian BIAO.

important to mention some caveats.

have more profound consequences.

behind) impact entrepreneurs (or sme's).

fiscal position (Draper and Biacuana, 2009).

government, and civil society (The Standard, 2011).

**15. Overall conclusions and recommendations** 

entire African continent comprising of 54 countries.

them to restructure burdensome loans (Kim and Moore, 2009).

Lessons from Challenges Faced by Entrepreneurs in African Economies 203

semi-nationalisation of some troubled banks. Western countries use nationalisation to propup banks during tough times in an emergency. Its use is to lend to businesses in order for

The less vulnerable large foreign-owned banks with strong controls and foreign shareholder support benefited from the crises as they continued to attract money. Panicked depositors shifted money to them. Some banks discussed consolidation and possible mergers. Thus, the foregoing is a clear testimony of the ''survival of the fittest'' banks and asset management companies through superior service quality delivery. First National Bank of South Africa has since bought the Swaziland Meridian BIAO operations. Standard Bank of South Africa (Stanbic) acquired Tanzania's Meridian BIAO. The Ghana Reinsurance Organisation (GRO) together with the Social Security and National Insurance Trust (SSNIT) announced a \$7.2m

A new African regional strategy was recently drawn out by the World Bank. This provides a vision for the next decade for the multilateral institution. The strategy was developed through the widespread consultations with representatives from the private sector,

Prior to discussing possible implications of this study for entrepreneurs (or sme's), it is

• First, the analysis focuses on randomly selected African countries whose data was readily available; hence these results are considered to be fairly representative of the

• Second, crises are not the same, as some countries are hit harder. Poorer countries with less developed financial systems suffer more during financial crises, e.g. Zimbabwe (relatively less developed) vs. South Africa (relatively more developed). Deeper crises

• Third, the impacts of the macroeconomic climate on entrepreneurship will depend on the respective country's foreign exchange reserves, balance of payments position, and

The effect of the crisis is crucially dependent on the external demand conditions surrounding the crisis and the sectoral composition. Hence using a theory-based benchmark in the form of Basel 2, this chapter marshals the best available evidence on the causes of bank and asset management company distresses and/or collapses in the last decade within select African countries and explains how the collapsing banks (and the different factors

This research revealed a plethora of deficiencies within the banking and asset management companies which included inappropriate shareholding structure, inadequate capitalisation, systematic abuse of depositors' funds, disintegration of corporate governance structures, chronic liquidity and income generation challenges, greediness, high level of nonperforming insider and related-party exposures, gross violation of banking laws and regulations, inadequate regulation and oversight, as well as a weak and uncoordinated legal

framework (Muleya, 2011; Mpofu and Nyakazeya, 2011; Business Reporter, 2010).

reduced the confidence of financial institutions. The severe economic crises were blamed on governments' mismanagement. It is believed that the growing turmoil in the banking sector followed the governments' new monetary policy announcements. Loose monetary policies left interest rates highly negative in real terms, intensified inflationary pressures, encouraged excessive borrowing, imposed a heavy tax on savers, and increased the vulnerability of the financial sectors. Surveys show:


#### **13. How much does each factor matter in entrepreneurship?**

One can test his/her thinking further and determine to what extent each effect accounts for the bank and asset management company collapses in the last decade. As it turns out, the corporate governance effect is by far the most important. This work suggests that because of the absence of tight oversight, some banks were able to make seemingly small gambles, and these banks' decisions routinely resulted in losses of large sums. This exercise suggests further evidence of slack in corporate governance practices at the time across the banking and asset management sectors of most of the African countries under consideration.

#### **14. Multilateral support efforts**

The central bank and the courts play an important role to ensure the protection of depositors' funds and to support entrepreneurs. Although banks were given a reprieve by the central banks to desist from the black market trading, the African states continued to pursue alleged offenders. The shocks of the credit crises spurred lawmakers to consider

reduced the confidence of financial institutions. The severe economic crises were blamed on governments' mismanagement. It is believed that the growing turmoil in the banking sector followed the governments' new monetary policy announcements. Loose monetary policies left interest rates highly negative in real terms, intensified inflationary pressures, encouraged excessive borrowing, imposed a heavy tax on savers, and increased the

• It is argued that African banks were not directly involved in the credit crunch due to Sub-Saharan Africa's low level of financial development (Bernham and Martin, 2010). • It is argued that if the cost of such low development is that African exporters are very dependent on external trade finance, then the real cost of the global crisis on Africa may

• It is argued that while African banks preferred not to buy "toxic" assets in order to provide for some shelter, the continent may have been hit harder by the trade

• It is argued that trade collapse did hit hard African countries (Baldwin, 2009; Draper

• Part of the bank collapses can be accounted for by compositional effects and vertical

• Some institutions closed as a result of a domino effect resulting from exposure, to

• The adverse situation was a reflection of scarcity in the market, low level of economic

• Most of the money in banks was on call basis rather than fixed deposits. Banks could not lend money that urgently needed to be withdrawn (Robertson, 2011; Chimhangwa,

• The lack of investor interest naturally translated into money shortage in the banks resulting in high interest rate charges on loans (Robertson, 2011; Chimhangwa, 2011). • Some banks were also being targeted by the indigenisation act (Chinaka, 2011;

One can test his/her thinking further and determine to what extent each effect accounts for the bank and asset management company collapses in the last decade. As it turns out, the corporate governance effect is by far the most important. This work suggests that because of the absence of tight oversight, some banks were able to make seemingly small gambles, and these banks' decisions routinely resulted in losses of large sums. This exercise suggests further evidence of slack in corporate governance practices at the time across the banking

The central bank and the courts play an important role to ensure the protection of depositors' funds and to support entrepreneurs. Although banks were given a reprieve by the central banks to desist from the black market trading, the African states continued to pursue alleged offenders. The shocks of the credit crises spurred lawmakers to consider

and asset management sectors of most of the African countries under consideration.

vulnerability of the financial sectors. Surveys show:

actually be higher (Bernham and Martin, 2010).

transmission channel (Bernham and Martin, 2010).

linkages.

2011).

Chimhangwa, 2011).

**14. Multilateral support efforts** 

and Biacuana, 2009; Kandiero and Ndikumana, 2009).

varying extents, to those that had closed before them.

**13. How much does each factor matter in entrepreneurship?** 

activity and investor apathy (Robertson, 2011).

semi-nationalisation of some troubled banks. Western countries use nationalisation to propup banks during tough times in an emergency. Its use is to lend to businesses in order for them to restructure burdensome loans (Kim and Moore, 2009).

The less vulnerable large foreign-owned banks with strong controls and foreign shareholder support benefited from the crises as they continued to attract money. Panicked depositors shifted money to them. Some banks discussed consolidation and possible mergers. Thus, the foregoing is a clear testimony of the ''survival of the fittest'' banks and asset management companies through superior service quality delivery. First National Bank of South Africa has since bought the Swaziland Meridian BIAO operations. Standard Bank of South Africa (Stanbic) acquired Tanzania's Meridian BIAO. The Ghana Reinsurance Organisation (GRO) together with the Social Security and National Insurance Trust (SSNIT) announced a \$7.2m rescue package for the local Meridian BIAO.

A new African regional strategy was recently drawn out by the World Bank. This provides a vision for the next decade for the multilateral institution. The strategy was developed through the widespread consultations with representatives from the private sector, government, and civil society (The Standard, 2011).

#### **15. Overall conclusions and recommendations**

Prior to discussing possible implications of this study for entrepreneurs (or sme's), it is important to mention some caveats.


The effect of the crisis is crucially dependent on the external demand conditions surrounding the crisis and the sectoral composition. Hence using a theory-based benchmark in the form of Basel 2, this chapter marshals the best available evidence on the causes of bank and asset management company distresses and/or collapses in the last decade within select African countries and explains how the collapsing banks (and the different factors behind) impact entrepreneurs (or sme's).

This research revealed a plethora of deficiencies within the banking and asset management companies which included inappropriate shareholding structure, inadequate capitalisation, systematic abuse of depositors' funds, disintegration of corporate governance structures, chronic liquidity and income generation challenges, greediness, high level of nonperforming insider and related-party exposures, gross violation of banking laws and regulations, inadequate regulation and oversight, as well as a weak and uncoordinated legal framework (Muleya, 2011; Mpofu and Nyakazeya, 2011; Business Reporter, 2010).

Sustainable Retail Banking and Asset Management:

could not have done this chapter without you.

1. For a detailed description of BASEL II, see:

2. For a detailed description of banks performance evaluation, see:

The way Forward", Electronic copy available at: http://ssrn.com/abstract=1150968. pp. 1-21.

Congress, 7-5700, www.crs.gov, R40778. August 25.

KPMG's Basel Initiative.

ISSN: 1943-7765, pp. 97-101.

Aarhus, Denmark. January 14.

VoxEU.org, 27 November.

pp. 149-157.

Africa, see:

**18. References** 

**17. Footnotes** 

Lessons from Challenges Faced by Entrepreneurs in African Economies 205

challenging groups. Without their efforts, support and encouragement, I may well have fallen along the wayside and have found plenty of reasons to put other less academic distractions far higher on my list of priorities. They know who they are. Thank you all.

Lastly, a huge debt of thanks goes to my family, who have been amazing for their patience and unstinting belief, and are the ones who gave me the encouragement in the first place: I

a. KPMG (2003). "Basel II: A Worldwide Challenge for the Banking Business", Financial Services, KPMG International, a Swiss non-operating association, Head of

a. Wirnkar, A.D. and Tanko M. (2008). "CAMEL(S) and bank performance evaluation:

b. Cicea, C. And Hincu, D. (2009). "Performance evaluation methods in commercial banks and associated risks for managing assets and liabilities", Academy of Economic Studies Bucharest, Romania, *Communications of the IBIMA, Volume 7*,

c. Hunjak, T. and Jakovcevic, D. (2001). "AHP based model for bank performance evaluation and rating", Proceedings – 6th ISAHP, Berne, Switzerland, August 2-4,

a. Arieff, A. *et al.* (2009). "The Global Economic Crisis: Impact on Sub-Saharan Africa and Global Policy Responses", Congressional Research Service, Report for

a. Carapeto, M. *et al*. (2010). "Distress classification measures in the banking sector", European Financial Management Association (EFMA), *Conference*. Location:

b. Demirguc-Kunt, A. et al. (2006). "Inside the crisis: An empirical analysis of banking systems in distress", *Journal of International Money and Finance, 25*, 702-718. c. Poghosyan, T. Et al. (2009). "Distress in European banks: Ana analysis based on a new dataset", Paper provided by International Monetary Fund, Number 09/9,

3. For a detailed description of the impact of the global economic crisis on Sub-Saharan

4. For a detailed description of distress classification measures in the banking sector, see:

http://www.imf.org/external/pubs/ft/wp/2009/wp0909.pdf. 21 Jan.

Baldwin, Richard (ed.), The Great Trade Collapse: Causes, Consequences and Prospects,

The crisis impacts serve to reinforce the point of the integration of African economies into the global economy. Any major changes to global banking and asset management patterns that the crisis may engender are likely to substantially transform the African entrepreneurial structural features (Draper and Biacuana, 2009). Additional impacts are possible at policy level too (Draper and Biacuana, 2009). For banks and asset management companies to fully recover, policymakers should undertake the following measures in the spirit of entrepreneurship, amongst others:


The efforts of the central bank should be directed at containing the multiplier and domino effect (Muleya, 2011). The central banks should keep eye on the ball. At the end of the day, autonomy of the central banks will reassure the banking industry. The curatorship protects depositors, preserves the assets of banks, and protects the stability of the financial system using the law and market solutions (Muleya, 2011; Macheka, 2011). Thus, given all the necessary support, entrepreneurs (or sme's) are able to take advantage of emerging opportunities, explore and question the world around them, and also to embrace their passion.

#### **16. Acknowledgements**

*We are like dwarfs on the shoulders of giants, so that we can see more than they, and things at a great distance, not by virtue of any sight on our part, or any physical distinction, but because we are carried high and raised up by their giant size. (Bernard of Chartres, 12th Century)* 

It is without some hesitation that I assent to Chartres' point of view. It is with great pleasure to recognise and thank my giants who have frequently carried me on their shoulders in diverse ways. I have had the great privilege of working with various teams over an extended period of time and learning from, and enjoying, the insights of highly diverse and challenging groups. Without their efforts, support and encouragement, I may well have fallen along the wayside and have found plenty of reasons to put other less academic distractions far higher on my list of priorities. They know who they are. Thank you all.

Lastly, a huge debt of thanks goes to my family, who have been amazing for their patience and unstinting belief, and are the ones who gave me the encouragement in the first place: I could not have done this chapter without you.

#### **17. Footnotes**

204 Entrepreneurship - Gender, Geographies and Social Context

The crisis impacts serve to reinforce the point of the integration of African economies into the global economy. Any major changes to global banking and asset management patterns that the crisis may engender are likely to substantially transform the African entrepreneurial structural features (Draper and Biacuana, 2009). Additional impacts are possible at policy level too (Draper and Biacuana, 2009). For banks and asset management companies to fully recover, policymakers should undertake the following measures in the spirit of

• Management teams should understand fully the nature of the businesses they manage. • Management needs to establish and communicate clearly responsibilities for each

• Management should ensure that significant weaknesses identified to them are resolved

• Industry regulators should continue to monitor corporate governance and regulatory

• The central banks should develop capacities to govern the fiscal and monetary policy

• Skill acquisition and development in information technology security and risk

• Banks need to strategise by mobilization of deposits for lesser dependence on the high

• There is a need to regulate inter-bank lending in order to prevent the new mega banks

The efforts of the central bank should be directed at containing the multiplier and domino effect (Muleya, 2011). The central banks should keep eye on the ball. At the end of the day, autonomy of the central banks will reassure the banking industry. The curatorship protects depositors, preserves the assets of banks, and protects the stability of the financial system using the law and market solutions (Muleya, 2011; Macheka, 2011). Thus, given all the necessary support, entrepreneurs (or sme's) are able to take advantage of emerging opportunities, explore and question the world around them, and also to embrace their

*We are like dwarfs on the shoulders of giants, so that we can see more than they, and things at a great distance, not by virtue of any sight on our part, or any physical distinction, but because we are* 

It is without some hesitation that I assent to Chartres' point of view. It is with great pleasure to recognise and thank my giants who have frequently carried me on their shoulders in diverse ways. I have had the great privilege of working with various teams over an extended period of time and learning from, and enjoying, the insights of highly diverse and

*carried high and raised up by their giant size. (Bernard of Chartres, 12th Century)* 

• In order to exercise effective control, there should be a clear segregation of duties. • There is a need to establish relevant internal and risk management controls for all

compliance in banks (Business Reporter, 2010; Financial Nigeria, 2006).

management is needed (Financial Nigeria, 2006).

interest rate public sector funds (Financial Nigeria, 2006).

apocalyptic multiple failures (Financial Nigeria, 2006).

frameworks that will drive growth in economies (Financial Nigeria, 2006).

entrepreneurship, amongst others:

business activity.

business activities

quickly.

passion.

**16. Acknowledgements** 

	- a. KPMG (2003). "Basel II: A Worldwide Challenge for the Banking Business", Financial Services, KPMG International, a Swiss non-operating association, Head of KPMG's Basel Initiative.
	- a. Wirnkar, A.D. and Tanko M. (2008). "CAMEL(S) and bank performance evaluation: The way Forward", Electronic copy available at: http://ssrn.com/abstract=1150968. pp. 1-21.
	- b. Cicea, C. And Hincu, D. (2009). "Performance evaluation methods in commercial banks and associated risks for managing assets and liabilities", Academy of Economic Studies Bucharest, Romania, *Communications of the IBIMA, Volume 7*, ISSN: 1943-7765, pp. 97-101.
	- c. Hunjak, T. and Jakovcevic, D. (2001). "AHP based model for bank performance evaluation and rating", Proceedings – 6th ISAHP, Berne, Switzerland, August 2-4, pp. 149-157.
	- a. Arieff, A. *et al.* (2009). "The Global Economic Crisis: Impact on Sub-Saharan Africa and Global Policy Responses", Congressional Research Service, Report for Congress, 7-5700, www.crs.gov, R40778. August 25.
	- a. Carapeto, M. *et al*. (2010). "Distress classification measures in the banking sector", European Financial Management Association (EFMA), *Conference*. Location: Aarhus, Denmark. January 14.
	- b. Demirguc-Kunt, A. et al. (2006). "Inside the crisis: An empirical analysis of banking systems in distress", *Journal of International Money and Finance, 25*, 702-718.
	- c. Poghosyan, T. Et al. (2009). "Distress in European banks: Ana analysis based on a new dataset", Paper provided by International Monetary Fund, Number 09/9, http://www.imf.org/external/pubs/ft/wp/2009/wp0909.pdf. 21 Jan.

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Macheka, T. (2011). "Banks hit back", The Zimbabwe Situation,

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Kandiero, Tonia and Leonce Ndikumana (2009), "Supporting the World Trade Organisation

Kay, J. and Vickers, J. (1988). *Regulatory Reform in Britain,* in Economic Policy 7: 8, 285 – 351. Kim, J.J. and Moore, H. (2009). "What if Uncle Sam takes over your bank?", The Wall Street

Laeven, L. and Valencia, F. (2008). Systemic Banking Crises: A New Database. IMF Working

Laeven, L. and Valencia, F. (2010). Resolution of Banking Crises: The Good, the Bad, and the

Lamprecht, J. (2002). "South Africa Is Quietly Collapsing", Rense.com,

Lutz, S. (2000). Beyond the Basel Accord: Banking regulation in a system of multiple

governance, *International Studies Association*, 41st Annual Convention, Los Angeles,

http://www.theindependent.co.zw/, Thursday, 02 June 2011 19:27, and http://www.zimbabwesituation.com/jun3a\_2011.html. Accessed 08/06/2011. Maiko, D. (2003). Euro Bank collapse: a tip of the iceberg? News From Africa: Archive /

http://www.newsfromafrica.org/newsfromafrica/articles/art\_1281.html. March. Makhubela, S. (2006). "Causes of bank failure in the post democratic south Africa", MBA

Dissertation, Graduate School of Business, University of KwaZulu-Natal,

http://www.newzimbabwe.com/blog/index.php/2011/06/Imambondiani/rbm-

US and global perspectives", Did trade credit problems deepen the great trade collapse? VOX- Research-based policy analysis and commentary from leading economists. http://www.voxeu.org/index.php?q=node/4298. 27 November. Mpofu, B. and Nyakazeya, P. (2011). "ReNaissance Bank placed under curatorship", The

Zimbabwe Situation, http://www.theindependent.co.zw/, Thursday, 02 June 2011 20:55, and http://www.zimbabwesituation.com/jun3a\_2011.html. Accessed

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Mambondiani, L. (2011). "RMB collapse: a failure of regulation", Posted On June 17, @ 14:18

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Muleya, D. (2008). "Zimbabwe: Banks Face Collapse", Palapye.com News Blog, 26 January, http://palapye.wordpress.com/2008/01/26/zimbabwe-banks-face-collapse/

Muleya, D. (2011). "Rescue plan for ailing banks in the offing - Biti", The Zimbabwe

Murphy, B.M. (2009). "Nigerian Banks Collapse – Could Affect USA",

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Situation, http://www.thestandard.co.zw/, Sunday, 01 May 15:52, and http://www.zimbabwesituation.com/may2\_2011.html. Accessed 17/05/2011. Chinaka, C. (2011). "Zimbabwe threatens foreign banks over empowerment",

http://www.zimbabwesituation.com/may16\_2011.html. Accessed 17/05/2011. Daily Trust (2011). "Nigerian banks in fresh trouble", NigeriaIndependent.com, 27/04/2011

Darwin, C. (1959). *On the Origin of Species by Means of Natural Selection, or, the Preservation of* 

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Gono, G. (2011b). Troubled Renaissance Merchant Bank (RMB) placed under curatorship. NEWZIMBABWE.COM: Published on: Friday, June 03, 11:00 AM GMT. http://www.newzimbabwe.com/news/news.aspx?newsID=5266. Goodhart, C. *et al.* (1998). *Financial Regulation. Why, how and where now?* London: Routledge. Hamann, R., Kapelus, P. and Ndlovu, N. (2010). Sustainable Organisation, Strategic

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Peter Venter, 2nd Edition, Oxford University Press, Southern Africa. Hashagen, J. (2003). "Basel II: A Worldwide Challenge for the Banking Business", Financial

The Great Trade Collapse: Causes, Consequences and Prospects, VoxEU.org, 27

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http://www.newsfromafrica.org/newsfromafrica/articles/art\_1281.html. March.


**13** 

Mojca Duh

*Slovenia* 

**Family Businesses: The Extensiveness of** 

*University of Maribor, Faculty of Business and Economics,* 

**Succession Problems and Possible Solutions** 

Family businesses are an important group of enterprises within the small and medium-sized (SME) sector; many of the world's large enterprises are also family businesses. Although no statistics are complete enough to map the presence of family businesses throughout the world, many studies conducted in different countries have confirmed the weight these businesses carry in national economies (Astrachan & Shanker, 2003; IFERA, 2003; Mandl, 2008). In the past, family businesses were often perceived to be the weakest type of enterprises; if they were successful, it was concluded that such success was despite their family character (Mandl, 2008, 7). Nowadays, family businesses are gaining in importance in public and policy discussions, which is especially true for the European Union (EU). The most recent proof of the acknowledged important role of family businesses for the employment growth and economic prosperity of the EU economy is the Small Business Act (2008), in which special attention is given to family-owned enterprises and the issue of

According to findings in various studies, one of the major problems family businesses encounter is the transfer of ownership and management to the next family generation (Miller et al., 2003; Morris et al., 1997; Sharma et al., 2003; Transfer of SMEs, 2002). Approximately one third of businesses within the EU need to be transferred to new owners in the next ten years (ranging from 25 percent to 40 percent, depending on the member state).1 This corresponds to an average of at least 610,000 SMEs being transferred each year, of which 300,000 are SMEs with employees involving 2.1 million jobs (assuming that an SME with employees has an average of seven employees) and 310,000 are SMEs without employees (Transfer of SMEs, 2002, 10-11). The success of SMEs in which families prevail also depends on the successful transfer of management and ownership. Several studies estimate that only 30 percent of family enterprises survive to the second generation because of unsolved or badly solved transition of ownership and management to the next family generation, and many enterprises fail soon after the second generation takes control (Kets de Vries, 1993; Miller et al., 2003; Morris et al.,

business succession (first principle of the Small Business Act).

1 Estimation was made for EU-19, without new countries joining EU in 2004.

**1. Introduction** 


## **Family Businesses: The Extensiveness of Succession Problems and Possible Solutions**

#### Mojca Duh

*University of Maribor, Faculty of Business and Economics, Slovenia* 

#### **1. Introduction**

208 Entrepreneurship - Gender, Geographies and Social Context

Nyakazeya, P. (2011). "Biti accuses banks of 'stealing', Published On: Tuesday, May 24, 12:07 PM GMT, http://www.newzimbabwe.com/news/news.aspx?newsID=5192. Reinhart, C. and Rogoff, K. (2008). This Time is Different: A Panoramic View of Eight Centuries of Financial Crises. NBER Working Paper No. 13882, March, p.125. Reinhart, C. M. and Rogoff, K.S. (2009). This Time Is Different: Eight Centuries of Financial

Robertson, J. (2011). As in Chimhangwa, K. (2011). "Zimbabwe banking sector struggles to survive". http://www.thestandard.co.zw/. Sunday, 01 May, 15:52. Sandu, N. (2011). "How things got messy for ReNaissance", Sunday, 15 May, 14:08, http://www.thestandard.co.zw/business/29722-how-things-got-messy-for-

http://searchsecurity.techtarget.co.uk/definition/Basel-II?vgnextfmt=print.

Swaziland Commentary, (2010). "The Government's Economic Crisis", Information and

The Standard, (2011). "World Bank boss speaks on Zimbabwe", Sunday, 15 May, 13:28. http://www.thestandard.co.zw/business/29714-world-bank-boss-speaks-on-

commentary about the struggle for democracy in the African Kingdom of

http://swazilandcommentary.blogspot.com/2010/12/governments-economic-

Folly. Princeton University Press, p.496.

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Swaziland, Wednesday, December 15.

crisis.html Accessed 23/07/2011.

zimbabwe, Accessed 17/05/2011.

Accessed 06/07/2011. 11Jan.

Family businesses are an important group of enterprises within the small and medium-sized (SME) sector; many of the world's large enterprises are also family businesses. Although no statistics are complete enough to map the presence of family businesses throughout the world, many studies conducted in different countries have confirmed the weight these businesses carry in national economies (Astrachan & Shanker, 2003; IFERA, 2003; Mandl, 2008). In the past, family businesses were often perceived to be the weakest type of enterprises; if they were successful, it was concluded that such success was despite their family character (Mandl, 2008, 7). Nowadays, family businesses are gaining in importance in public and policy discussions, which is especially true for the European Union (EU). The most recent proof of the acknowledged important role of family businesses for the employment growth and economic prosperity of the EU economy is the Small Business Act (2008), in which special attention is given to family-owned enterprises and the issue of business succession (first principle of the Small Business Act).

According to findings in various studies, one of the major problems family businesses encounter is the transfer of ownership and management to the next family generation (Miller et al., 2003; Morris et al., 1997; Sharma et al., 2003; Transfer of SMEs, 2002). Approximately one third of businesses within the EU need to be transferred to new owners in the next ten years (ranging from 25 percent to 40 percent, depending on the member state).1 This corresponds to an average of at least 610,000 SMEs being transferred each year, of which 300,000 are SMEs with employees involving 2.1 million jobs (assuming that an SME with employees has an average of seven employees) and 310,000 are SMEs without employees (Transfer of SMEs, 2002, 10-11). The success of SMEs in which families prevail also depends on the successful transfer of management and ownership. Several studies estimate that only 30 percent of family enterprises survive to the second generation because of unsolved or badly solved transition of ownership and management to the next family generation, and many enterprises fail soon after the second generation takes control (Kets de Vries, 1993; Miller et al., 2003; Morris et al.,

<sup>1</sup> Estimation was made for EU-19, without new countries joining EU in 2004.

Family Businesses: The Extensiveness of Succession Problems and Possible Solutions 211

Some new data on the presence of family businesses in the European economy have emerged from the recently conducted project "Overview of Family Business Relevant Issues" (Mandl, 2008), in which partners (i.e., analyzed countries) were members of the EU and candidates for membership in the EU (Turkey, Croatia, the Former Yugoslav Republic of Macedonia) as well as Iceland, Norway, and Liechtenstein. Table 1 presents the data on the share of family businesses and the share of employees in family businesses for those countries that dispose with such data. Data on family businesses' share of value added, total turnover added, or their contribution to GNP was available only for a few of the analyzed countries and are therefore not included in Table 1. In some of the analyzed countries, the share of family businesses is measured using the SME population instead (or in addition to) total enterprises' population. The cross-national comparison shows quite diversified data regarding the presence and importance of family businesses for national economies. This is partially due to the definition used for family business. The dependency of the estimates on the applied definition is obvious for those countries in which different research studies (based on different definitions) came to varying results. Since the data in Table 1 are used for the illustration of the importance of family businesses across Europe (and not for a detailed analysis), the interval estimation on the family businesses' share/number is included for the cases of different national estimations (for detailed data, which also include

Based on the data on the presence of family businesses in the analyzed countries (see Table 1), it is estimated that 70 to 80 percent of European enterprises are family businesses. Family businesses account for an important part of European employment indeed, 40 to 50 percent of all employees work in family businesses; in some countries, this share is even higher. In the majority of the analyzed countries, we can observe a higher share of enterprises than of employment, implicating that family businesses are on average smaller than the average national company (Mandl, 2008, 39). Similarly, IFERA (2003) demonstrated that the contribution of family enterprises to GNP or employment rates in analyzed countries is generally 10 to 30 percent lower than their rankings as a percentage of all businesses in terms of numbers. Even if these numbers indicate that family businesses are on average smaller than non-family businesses, in many countries family businesses also include very large companies. In Luxemburg, Norway, and Sweden, research results show that approximately 30 percent of the largest companies are family businesses; in Belgium this share is even higher, accounting for about 50 percent

In Slovenia, which is an EU member state and a former socialist country, the tradition of family businesses persisted mostly within the craft sector during the socialist period (starting after World War II and lasting until the early 1990s). During that period, operating a family firm within the craft sector was not really attractive due to various pressures on the private owners, such as restrictions in employment, amount of productive resources allowed in the private ownership, and the weak image of crafts compared to favored social companies (Duh, 2003; Glas & Vadnjal, 2005). The transition to the market economy from the former socialist economy in Slovenia was closely connected with the development of private SMEs as well as family enterprises. For Slovenia, several estimations were done

information on the definition used, see Mandl, 2008, 40-46).

(Mandl, 2008, 48).

regarding the importance of family businesses.

1997). Failure in succession represents a serious problem not only for family enterprises and their employees, but also for the prosperity of an economy. Intergenerational succession represents a crucial point in the lifecycle of any family business and, as such, has been a primary focus of research. According to Howorth and co-authors (2006), the transfer of entrepreneurial learning between family members and the revitalization of entrepreneurial spirit through the transfer of ownership and management provide rich insights for entrepreneurship research.

The main goal of the contribution is to broaden our understanding of family businesses' succession issues and possible solutions, with a special focus on succession planning and the supporting infrastructure needed in order to carry out the transfer of ownership and management successfully. The in-depth review of studies and supporting measures as well infrastructure will be done by devoting special attention to activities conducted within the EU. However, EU countries are not a homogeneous group of countries, and differences exist among them in regards to economic and social-political developments, especially between some "new" members or candidates for membership (i.e., former socialist countries) and the "old" members (i.e., countries with the tradition of a market economy). Significant research efforts have been devoted to the topic of succession in countries with a tradition of entrepreneurship and market economy, and proposed solutions have been developed in an effort to create sound institutional (counseling, information centers, training) and educational support. However, studies of succession problems in family enterprises in former socialist countries are scarce. One reason for this lack of research is the fact that private enterprises were outlawed during the era of the socialist economy. The social and economic changes in Central and Eastern Europe in the 1990s have created an opportunity for the rebirth of entrepreneurship and family business development (Duh et al., 2007; McMillan & Woodruff, 2002; Poutziouris et al., 1997). Therefore, this chapter will make comparisons between the "old" and "new" EU member states regarding succession problems and solutions. For more a detailed comparison, we select Slovenia, one of the most developed European post-socialist countries.

#### **2. Family businesses as an important factor of economic development**

Family businesses are a vital component of the economic health of many countries, particularly in established market economies, where entrepreneurial initiative is strongly encouraged. Many studies conducted in different countries have confirmed the weight that these businesses carry in national economies (Astrachan & Shanker, 2003; IFERA, 2003; Mandl, 2008). In several European countries, family enterprises represent the majority of all enterprises (IFERA, 2003). Several studies have suggested that family enterprises are emerging as the central force driving economies in former socialist or so-called transition countries (Duh & Tominc, 2005; Pistrui et al., 1997; Poutziouris et al., 1997; Vadnjal, 2005). Indeed, the social and economic changes in the former socialist countries in the Central and Eastern Europe created an opportunity for establishing private enterprises, and the industrial policy in these countries has been focused on the development of a dynamic SME sector. Several studies have found that families provide critical resources and support to newly emerging enterprises in these countries (Duh, 2003; Dyer & Panicheva Mortensen, 2005; Poutziouris et al., 1997).

1997). Failure in succession represents a serious problem not only for family enterprises and their employees, but also for the prosperity of an economy. Intergenerational succession represents a crucial point in the lifecycle of any family business and, as such, has been a primary focus of research. According to Howorth and co-authors (2006), the transfer of entrepreneurial learning between family members and the revitalization of entrepreneurial spirit through the transfer of ownership and management provide rich

The main goal of the contribution is to broaden our understanding of family businesses' succession issues and possible solutions, with a special focus on succession planning and the supporting infrastructure needed in order to carry out the transfer of ownership and management successfully. The in-depth review of studies and supporting measures as well infrastructure will be done by devoting special attention to activities conducted within the EU. However, EU countries are not a homogeneous group of countries, and differences exist among them in regards to economic and social-political developments, especially between some "new" members or candidates for membership (i.e., former socialist countries) and the "old" members (i.e., countries with the tradition of a market economy). Significant research efforts have been devoted to the topic of succession in countries with a tradition of entrepreneurship and market economy, and proposed solutions have been developed in an effort to create sound institutional (counseling, information centers, training) and educational support. However, studies of succession problems in family enterprises in former socialist countries are scarce. One reason for this lack of research is the fact that private enterprises were outlawed during the era of the socialist economy. The social and economic changes in Central and Eastern Europe in the 1990s have created an opportunity for the rebirth of entrepreneurship and family business development (Duh et al., 2007; McMillan & Woodruff, 2002; Poutziouris et al., 1997). Therefore, this chapter will make comparisons between the "old" and "new" EU member states regarding succession problems and solutions. For more a detailed comparison, we select Slovenia, one of the most

**2. Family businesses as an important factor of economic development** 

Family businesses are a vital component of the economic health of many countries, particularly in established market economies, where entrepreneurial initiative is strongly encouraged. Many studies conducted in different countries have confirmed the weight that these businesses carry in national economies (Astrachan & Shanker, 2003; IFERA, 2003; Mandl, 2008). In several European countries, family enterprises represent the majority of all enterprises (IFERA, 2003). Several studies have suggested that family enterprises are emerging as the central force driving economies in former socialist or so-called transition countries (Duh & Tominc, 2005; Pistrui et al., 1997; Poutziouris et al., 1997; Vadnjal, 2005). Indeed, the social and economic changes in the former socialist countries in the Central and Eastern Europe created an opportunity for establishing private enterprises, and the industrial policy in these countries has been focused on the development of a dynamic SME sector. Several studies have found that families provide critical resources and support to newly emerging enterprises in these countries (Duh, 2003; Dyer & Panicheva Mortensen,

insights for entrepreneurship research.

developed European post-socialist countries.

2005; Poutziouris et al., 1997).

Some new data on the presence of family businesses in the European economy have emerged from the recently conducted project "Overview of Family Business Relevant Issues" (Mandl, 2008), in which partners (i.e., analyzed countries) were members of the EU and candidates for membership in the EU (Turkey, Croatia, the Former Yugoslav Republic of Macedonia) as well as Iceland, Norway, and Liechtenstein. Table 1 presents the data on the share of family businesses and the share of employees in family businesses for those countries that dispose with such data. Data on family businesses' share of value added, total turnover added, or their contribution to GNP was available only for a few of the analyzed countries and are therefore not included in Table 1. In some of the analyzed countries, the share of family businesses is measured using the SME population instead (or in addition to) total enterprises' population. The cross-national comparison shows quite diversified data regarding the presence and importance of family businesses for national economies. This is partially due to the definition used for family business. The dependency of the estimates on the applied definition is obvious for those countries in which different research studies (based on different definitions) came to varying results. Since the data in Table 1 are used for the illustration of the importance of family businesses across Europe (and not for a detailed analysis), the interval estimation on the family businesses' share/number is included for the cases of different national estimations (for detailed data, which also include information on the definition used, see Mandl, 2008, 40-46).

Based on the data on the presence of family businesses in the analyzed countries (see Table 1), it is estimated that 70 to 80 percent of European enterprises are family businesses. Family businesses account for an important part of European employment indeed, 40 to 50 percent of all employees work in family businesses; in some countries, this share is even higher. In the majority of the analyzed countries, we can observe a higher share of enterprises than of employment, implicating that family businesses are on average smaller than the average national company (Mandl, 2008, 39). Similarly, IFERA (2003) demonstrated that the contribution of family enterprises to GNP or employment rates in analyzed countries is generally 10 to 30 percent lower than their rankings as a percentage of all businesses in terms of numbers. Even if these numbers indicate that family businesses are on average smaller than non-family businesses, in many countries family businesses also include very large companies. In Luxemburg, Norway, and Sweden, research results show that approximately 30 percent of the largest companies are family businesses; in Belgium this share is even higher, accounting for about 50 percent (Mandl, 2008, 48).

In Slovenia, which is an EU member state and a former socialist country, the tradition of family businesses persisted mostly within the craft sector during the socialist period (starting after World War II and lasting until the early 1990s). During that period, operating a family firm within the craft sector was not really attractive due to various pressures on the private owners, such as restrictions in employment, amount of productive resources allowed in the private ownership, and the weak image of crafts compared to favored social companies (Duh, 2003; Glas & Vadnjal, 2005). The transition to the market economy from the former socialist economy in Slovenia was closely connected with the development of private SMEs as well as family enterprises. For Slovenia, several estimations were done regarding the importance of family businesses.

Family Businesses: The Extensiveness of Succession Problems and Possible Solutions 213

The estimated share of family enterprises among SMEs in one Slovenian region ranged between 38.1 and 50.1 percent (Duh, 2003). The results of another large-scale research study showed that 46.45 percent of SMEs in the sample were identified as family businesses; the estimated share of family enterprises among SMEs in Slovenia was between 41.11 and 51.79 percent (Duh & Tominc, 2005). The results of a study carried out in 2002 indicated that 58.6 percent of SMEs identified themselves as family firms (Glas, 2003; Vadnjal, 2005). In addition, Vadnjal (2005) estimated their share in employment and valued added based on the estimated share of family businesses among SMEs in Slovenia. According to his estimation, family enterprises employ at least 26 percent of the active adult population and contribute 22 percent to the total value added of the Slovenian economy. However, he considered both shares to be conservative (bottom-line) estimations. According to other estimations, the share of family enterprises falls in the 60 to 80 percent range (e.g., Glas et al., 2006), contributing 30 percent of the GDP (Vadnjal, 2006). These data show that family businesses in Slovenia are an important part of the SME sector. No data on large family enterprises are available for Slovenia. Some other research studies conducted in former socialist countries (e.g., Romania, Bulgaria, Hungary, Croatia, Poland; for references see, Duh et al., 2007) indicate that family enterprises represent an important share of enterprises in the SME sector; however, these enterprises are relatively young compared to those in countries with the tradition of a market economy as the majority of them have their beginnings in the early 1990s. For example, research results for Germany show that, of businesses founded prior to 1960 that were still around in 1996-97, more than 70 percent were still family businesses (Klein, 2000). On the other hand, in a comparative study between East Germany (as a former socialist country) and West Germany, Pistrui and coauthors (2000) found that the vast majority (79 percent) of East German SMEs surveyed were new start-ups, compared to 38 percent in the West. Similarly, Mandl (2008) found that family enterprises are an important group of enterprises in the analyzed post-socialist countries (see Table 1); however, the time horizon since when family businesses are considered in public and policy discussions varies between Eastern and Western Europe.

In numerous countries, family businesses are widely equated to SMEs—not only in public discussion, but also in policy. This is particularly true in the case in Central and Eastern European countries whereas in Northern, Southern, and Western European countries the awareness about the heterogeneity of family businesses regarding their class size is more widespread (Mandl, 2008, 36). However, EU member states are aware of the importance family businesses play in the economy, which is also clearly stated within the Small Business Act (2008). Family businesses are not only important for what they represent to the economy, but also (or especially) due to the commitment they show to local communities, the long-term stability they bring, the responsibilities they feel as owners, and the values for which they stand. In light of the recent financial crisis, these are especially valuable characteristics. This crisis may be a good moment for family businesses to prove the importance of the values for which they have always stood (Overview of Family Business, 2009, 22). Therefore, the first of the ten principles of the Small Business Act (2008) for guiding the conception and implementation of policies at both the EU and the member states levels refers to the creation of such an environment "… in which entrepreneurs and family businesses can thrive and entrepreneurship is rewarded." Special emphasis is given, among others, to business transfers as well. Of course, only declarative support is not


Source: Mandl, 2008, 40-46.

Table 1. Family businesses in Europe

**Country Share of family businesses Share of employees in family** 

Austria 80% 70-75%

Croatia - 6.16% of total employment Cyprus 85-90% 40-50% Czech Rep. 80-95% of SMEs - Denmark 35.6-94.6% - Estonia 90% 50% Finland 80-86% 75% of SMEs' employees

Germany 95% (differ in different size classes) 57% Greece 52-80% - Hungary 70-72.2% 55% Iceland 70-80% 70-80% Ireland 75% half of employment in the

Italy 65-81% -

Lithuania 38%; 92.3% of SMEs - Luxembourg 70%; 1/3 of the 369 biggest enterprises 25% of the 369 biggest

Norway 2/3; 30%of the largest 500 enterprises 40% Poland 70-80% 40-65% Portugal 70-80% about 50% Romania more than half of the SMEs 19% Slovak Rep. 80-95% - Slovenia 58.6% of SMEs; 60-80% at least 26% of the active adult

Spain 85% 75% of total private

Sweden 54.5%; 26.4% of large enterprises 34.7%

Turkey 90% of enterprises; 94% of SMEs -

65% of private sector enterprises

69% of SMEs;

49.2% of the largest manufacturing

companies

enterprises;

enterprises

employees

Belgium 70%; 52% of the 100,000 biggest

France 75% of medium-sized and 20% of large

Latvia 30% of SMEs with fewer than 50

The

United Kingdom

Netherlands

Source: Mandl, 2008, 40-46.

Table 1. Family businesses in Europe

**businesses** 




private sector

population

employment

employment

41.9% of private sector

55-83% From 33 to 40%

enterprises' employees

The estimated share of family enterprises among SMEs in one Slovenian region ranged between 38.1 and 50.1 percent (Duh, 2003). The results of another large-scale research study showed that 46.45 percent of SMEs in the sample were identified as family businesses; the estimated share of family enterprises among SMEs in Slovenia was between 41.11 and 51.79 percent (Duh & Tominc, 2005). The results of a study carried out in 2002 indicated that 58.6 percent of SMEs identified themselves as family firms (Glas, 2003; Vadnjal, 2005). In addition, Vadnjal (2005) estimated their share in employment and valued added based on the estimated share of family businesses among SMEs in Slovenia. According to his estimation, family enterprises employ at least 26 percent of the active adult population and contribute 22 percent to the total value added of the Slovenian economy. However, he considered both shares to be conservative (bottom-line) estimations. According to other estimations, the share of family enterprises falls in the 60 to 80 percent range (e.g., Glas et al., 2006), contributing 30 percent of the GDP (Vadnjal, 2006). These data show that family businesses in Slovenia are an important part of the SME sector. No data on large family enterprises are available for Slovenia. Some other research studies conducted in former socialist countries (e.g., Romania, Bulgaria, Hungary, Croatia, Poland; for references see, Duh et al., 2007) indicate that family enterprises represent an important share of enterprises in the SME sector; however, these enterprises are relatively young compared to those in countries with the tradition of a market economy as the majority of them have their beginnings in the early 1990s. For example, research results for Germany show that, of businesses founded prior to 1960 that were still around in 1996-97, more than 70 percent were still family businesses (Klein, 2000). On the other hand, in a comparative study between East Germany (as a former socialist country) and West Germany, Pistrui and coauthors (2000) found that the vast majority (79 percent) of East German SMEs surveyed were new start-ups, compared to 38 percent in the West. Similarly, Mandl (2008) found that family enterprises are an important group of enterprises in the analyzed post-socialist countries (see Table 1); however, the time horizon since when family businesses are

In numerous countries, family businesses are widely equated to SMEs—not only in public discussion, but also in policy. This is particularly true in the case in Central and Eastern European countries whereas in Northern, Southern, and Western European countries the awareness about the heterogeneity of family businesses regarding their class size is more widespread (Mandl, 2008, 36). However, EU member states are aware of the importance family businesses play in the economy, which is also clearly stated within the Small Business Act (2008). Family businesses are not only important for what they represent to the economy, but also (or especially) due to the commitment they show to local communities, the long-term stability they bring, the responsibilities they feel as owners, and the values for which they stand. In light of the recent financial crisis, these are especially valuable characteristics. This crisis may be a good moment for family businesses to prove the importance of the values for which they have always stood (Overview of Family Business, 2009, 22). Therefore, the first of the ten principles of the Small Business Act (2008) for guiding the conception and implementation of policies at both the EU and the member states levels refers to the creation of such an environment "… in which entrepreneurs and family businesses can thrive and entrepreneurship is rewarded." Special emphasis is given, among others, to business transfers as well. Of course, only declarative support is not

considered in public and policy discussions varies between Eastern and Western Europe.

Family Businesses: The Extensiveness of Succession Problems and Possible Solutions 215

defining a family business is followed in this contribution. Therefore, we do not create an operational definition, but rather explain some distinguishing characteristics of family

Many studies indicate that family enterprises have unique developmental characteristics compared to non-family enterprises. Steier and Ward (2006) suggested that family businesses differ from non-family ones along important strategic and organizational dimensions. As the term family business implies, the most important differences have something to do with how a family influences the behavior of a firm. Mandl (2008, 54-55) exposed one of the most important characteristics of family businesses—namely, the strong inter-relationship between the family and the business; the family is at the center of the enterprise, formally (e.g., through ownership, involvement in management or employment) or informally (e.g., by providing advice and consultancy) influencing the business. These parallel decision-making lines increase the complexity of the enterprise's functioning. According to Olson and co-authors (2003), family businesses are complicated by dynamics within the family that owns and manages them. These dynamics affect not only business performance, but also business growth, change, and transitions over time. They also simultaneously affect family well-being outcomes. Other authors (e.g., Kets de Vries, 1993; Morris et al., 1997) have explained differences between family and non-family enterprises with advantages (e.g., the long-term perspective, strong family commitment to the business, a personal and positive motivating work environment). They also identify disadvantages such as nepotism, family conflicts, succession problems, and overlapping family and business interests. Other authors have examined differences between family and non-family enterprises in terms of company size, age, industry, performance, profitability, job creation, growth, strategies, and other factors (e.g., Jorissen et al., 2005). Although studies on family versus non-family differences have sometimes revealed mixed results (Sharma, 2004), researchers tend to agree that enterprises owned and managed by families are a special form of business organization whose "specialness" has both positive and negative consequences (Gersick et al., 1997; Jorissen et al., 2005; Neubauer & Lank, 1998). The very diversity of family businesses and their behavior make them an important and distinct field of study overlapping the study of entrepreneurship (Howorth et al., 2006). According to findings in various national studies, one of the "developmental characteristics" and a major problem that family businesses encounter is the transfer of ownership and management—namely, succession (Miller et al., 2003; Morris et al., 1997; Overview of Family Business, 2009; Sharma et al., 2003; Transfer of SMEs, 2002). However, problems linked to the transfer of ownership and management are not limited to family businesses, but to all SMEs; indeed, SMEs' crucial problem was also recognized by the European Commission, which initiated various activities related to business transfer, some of which are discussed within this contribution.

**4. Succession process and possible solution to succession issues** 

In addition to a business's creation and growth, succession is a crucial phase in the firm's lifecycle. Many authors (e.g., Handler, 1994; Sharma et al., 2003) differentiate between succession in management and succession in ownership, although in most SMEs (both family and non-family) both processes go hand-in-hand. Succession is one of the key developmental problems in the SME population; however due to the involvement of a

businesses.

sufficient. An adequate supportive social-political, economic, and cultural environment as well as the creation of national and EU political measures is needed for establishing and developing family SMEs. This also refers to the family businesses' succession, which has been found to be one of the most critical issues within this special group of enterprises.

#### **3. Definition and characteristics of a family business**

Numerous attempts have been made to articulate conceptual and operational definitions of a family enterprise. The focus of most of these efforts has been on defining family enterprises so that they can be distinguished from non-family enterprises. However, none of these attempts has resulted in a generally accepted definition in either developed market economies or post-socialist countries. Researchers also question the homogeneity of these enterprises since a large majority of enterprises in most countries involve a significant "family" impact. Empirical research has revealed that family enterprises vary in terms of degrees of family involvement (e.g., Sharma, 2004), which can change during the lifetime of the family business and is well illustrated within different family business developmental models (e.g., Gersick et al., 1997).

Mandl (2008, 2), in the study "Overview of family business relevant issues," found 90 different definitions across 33 European countries, which mainly require major family influence on ownership and management/strategic control. Other characteristics used to differentiate family businesses from non-family ones were the active involvement of family members in the enterprise's everyday activities, the enterprise's contribution to the family's income generation, and intergenerational considerations. A recent study (Mandl, 2008, 1) confirms the absence of a single definition of a family business that would be "widely and exclusively applied to every conceivable area, such as to public and policy discussions, to legal regulations, as an eligibility criterion for support services, and to the provision of statistical data and academic research." The lack of a single definition for family business leads to other problems in addition to the absence of reliable and comparable data on family businesses in national economies. Therefore, the expert group established by the European Commission proposed a definition of family business that should enable statistics to be produced on the sector (e.g., contribution of family businesses to employment, total turnover of family businesses) and be comparable between countries (for the proposed definition, see Overview of Family Business, 2009, 10).

Many of the proposed definitions (including the EU one) are trying to be operational in nature, often using the criteria of the family's involvement in the enterprise (e.g., ownership, management, generational succession). These definitions do not explain why family involvement in an enterprise leads to behaviors and outcomes that might be expected to differ from non-family businesses. Chrisman and co-authors (2005, 556-557) describe such approaches to definitions as the components-of-involvement approach to defining a family enterprise and thus propose as more adequate definition whose essential approach is "based on the belief that family involvement is only a necessary condition; family involvement must be directed toward behaviors that produce certain distinctiveness before it can be considered a family firm." As such, two enterprises with the same extent of family involvement may not be family businesses if either lacks the intention, vision, familialness, and/or behavior that constitute the essence of a family business. The essence approach in

sufficient. An adequate supportive social-political, economic, and cultural environment as well as the creation of national and EU political measures is needed for establishing and developing family SMEs. This also refers to the family businesses' succession, which has been found to be one of the most critical issues within this special group of enterprises.

Numerous attempts have been made to articulate conceptual and operational definitions of a family enterprise. The focus of most of these efforts has been on defining family enterprises so that they can be distinguished from non-family enterprises. However, none of these attempts has resulted in a generally accepted definition in either developed market economies or post-socialist countries. Researchers also question the homogeneity of these enterprises since a large majority of enterprises in most countries involve a significant "family" impact. Empirical research has revealed that family enterprises vary in terms of degrees of family involvement (e.g., Sharma, 2004), which can change during the lifetime of the family business and is well illustrated within different family business developmental

Mandl (2008, 2), in the study "Overview of family business relevant issues," found 90 different definitions across 33 European countries, which mainly require major family influence on ownership and management/strategic control. Other characteristics used to differentiate family businesses from non-family ones were the active involvement of family members in the enterprise's everyday activities, the enterprise's contribution to the family's income generation, and intergenerational considerations. A recent study (Mandl, 2008, 1) confirms the absence of a single definition of a family business that would be "widely and exclusively applied to every conceivable area, such as to public and policy discussions, to legal regulations, as an eligibility criterion for support services, and to the provision of statistical data and academic research." The lack of a single definition for family business leads to other problems in addition to the absence of reliable and comparable data on family businesses in national economies. Therefore, the expert group established by the European Commission proposed a definition of family business that should enable statistics to be produced on the sector (e.g., contribution of family businesses to employment, total turnover of family businesses) and be comparable between countries (for the proposed

Many of the proposed definitions (including the EU one) are trying to be operational in nature, often using the criteria of the family's involvement in the enterprise (e.g., ownership, management, generational succession). These definitions do not explain why family involvement in an enterprise leads to behaviors and outcomes that might be expected to differ from non-family businesses. Chrisman and co-authors (2005, 556-557) describe such approaches to definitions as the components-of-involvement approach to defining a family enterprise and thus propose as more adequate definition whose essential approach is "based on the belief that family involvement is only a necessary condition; family involvement must be directed toward behaviors that produce certain distinctiveness before it can be considered a family firm." As such, two enterprises with the same extent of family involvement may not be family businesses if either lacks the intention, vision, familialness, and/or behavior that constitute the essence of a family business. The essence approach in

**3. Definition and characteristics of a family business** 

definition, see Overview of Family Business, 2009, 10).

models (e.g., Gersick et al., 1997).

defining a family business is followed in this contribution. Therefore, we do not create an operational definition, but rather explain some distinguishing characteristics of family businesses.

Many studies indicate that family enterprises have unique developmental characteristics compared to non-family enterprises. Steier and Ward (2006) suggested that family businesses differ from non-family ones along important strategic and organizational dimensions. As the term family business implies, the most important differences have something to do with how a family influences the behavior of a firm. Mandl (2008, 54-55) exposed one of the most important characteristics of family businesses—namely, the strong inter-relationship between the family and the business; the family is at the center of the enterprise, formally (e.g., through ownership, involvement in management or employment) or informally (e.g., by providing advice and consultancy) influencing the business. These parallel decision-making lines increase the complexity of the enterprise's functioning. According to Olson and co-authors (2003), family businesses are complicated by dynamics within the family that owns and manages them. These dynamics affect not only business performance, but also business growth, change, and transitions over time. They also simultaneously affect family well-being outcomes. Other authors (e.g., Kets de Vries, 1993; Morris et al., 1997) have explained differences between family and non-family enterprises with advantages (e.g., the long-term perspective, strong family commitment to the business, a personal and positive motivating work environment). They also identify disadvantages such as nepotism, family conflicts, succession problems, and overlapping family and business interests. Other authors have examined differences between family and non-family enterprises in terms of company size, age, industry, performance, profitability, job creation, growth, strategies, and other factors (e.g., Jorissen et al., 2005). Although studies on family versus non-family differences have sometimes revealed mixed results (Sharma, 2004), researchers tend to agree that enterprises owned and managed by families are a special form of business organization whose "specialness" has both positive and negative consequences (Gersick et al., 1997; Jorissen et al., 2005; Neubauer & Lank, 1998). The very diversity of family businesses and their behavior make them an important and distinct field of study overlapping the study of entrepreneurship (Howorth et al., 2006). According to findings in various national studies, one of the "developmental characteristics" and a major problem that family businesses encounter is the transfer of ownership and management—namely, succession (Miller et al., 2003; Morris et al., 1997; Overview of Family Business, 2009; Sharma et al., 2003; Transfer of SMEs, 2002). However, problems linked to the transfer of ownership and management are not limited to family businesses, but to all SMEs; indeed, SMEs' crucial problem was also recognized by the European Commission, which initiated various activities related to business transfer, some of which are discussed within this contribution.

#### **4. Succession process and possible solution to succession issues**

In addition to a business's creation and growth, succession is a crucial phase in the firm's lifecycle. Many authors (e.g., Handler, 1994; Sharma et al., 2003) differentiate between succession in management and succession in ownership, although in most SMEs (both family and non-family) both processes go hand-in-hand. Succession is one of the key developmental problems in the SME population; however due to the involvement of a

Family Businesses: The Extensiveness of Succession Problems and Possible Solutions 217

authors (e.g., Gersick et al., 1997), nepotism is suggested as one reason that succession occurs within the family. Next to this purely nepotistic explanation, Bjuggren and Sound (2002) indicated that a family member as a successor is preferable when so-called idiosyncratic knowledge is considered highly relevant to successful functioning of the enterprise. Similarly, based on their theoretical and empirical analysis, Royer and co-authors (2008) argue that situations in which family business-specific experiential knowledge is highly relevant for gaining competitive advantage make family members the most suitable

However, studies also suggest that an increasing number of successions take place outside the family involving third parties due to a decreasing willingness of descendants (i.e., sons and daughters) to take over the family enterprise (Stavrou, 1999; Transfer of SMEs, 2002, 10, 40). Descendants may not want to join the enterprise for many reasons, but one of the most important reasons is that they want to start their own business (Bjuggren & Sund, 2001, 13). According to the results of the Eurobarometer (2003, as cited in Transfer of Businesses, 2003) survey, 65 percent of Europeans prefer starting a business to taking over an existing one, despite the obvious advantages of taking over a business, such as an existing production structure, a customer network, and a good name. Two reasons explain this situation. First, starting up a business allows the entrepreneur to shape it exactly the way he/she wants it. Founding one's own business also makes it easier to match personal needs, such as locating the business close to entrepreneur's home. Second, setting up a new business usually requires less financing than a takeover. According to some estimates, taking over an existing business requires 60 percent more investment than a startup (Marketplaces, 2006, 14).

Smaller chances of finding succession solutions within the family are also the result of the fact that parents have fewer children; in addition, a very competitive environment requires higher managerial and entrepreneurial skills of potential successors. Therefore, in the future, more transfers to third parties will be realized. However, finding the potential successor outside the family circle is not an easy task. The age group most active in establishing businesses will shrink over the next decades (Communication, 2006, 4), and the previously discussed preference of starting up one's own business instead of taking over an existing one also (negatively) influences the possibilities of successfully solving business transfers. Therefore, the success of business transfer will largely depend on its preparation, which

According to the experts, succession is still often triggered by the owner-manager's retirement. However, retirement is only one reason for succession. Reasons for earlier successions (transfers) include personal decisions (e.g., early retirement, change of profession, interests in the family situation), changing competitive environments (e.g., changing markets, new products, new channels of distribution) or incidents (e.g., divorce,

Succession represents a problem not only in countries with a tradition of a market economy, where it is estimated that approximately one third of businesses within the EU need to be transferred to new owners in the next ten years (Transfer of SMEs, 2002, 10-11), but also for family businesses in many Central and Eastern European post-socialist countries; family businesses in these countries are currently approaching the challenge of managing the

illness, death) and also play an important role (Transfer of SMEs, 2002, 10, 40).

successors.

should start sufficiently early.

family in the business it is much more emotional in family businesses (e.g., Kets de Vries, 1993; Morris et al., 1997; Sharma et al., 2003). Research results indicate that succession in family businesses often does not work out (Dyck et al., 2002; Kets de Vries, 1993; Miller et al., 2003; Morris et al., 1997; Sharma et al., 2003), which is why succession is one of the most studied and researched issues in the field of family business research (Giambatista et al., 2005; Sharma, 2004). Although this subject accounts for approximately one third of the family business literature, no general theory of succession or succession planning in family enterprises has emerged (Sharma et al., 2003).

Failure in succession represents a serious problem not only to family enterprises, but also to the health of an economy. Owner-managers are often not aware of the problem of securing the continuity of their enterprises. Due to their occupation with daily operational problems, they often cannot—or do not want to—start preparing changes in ownership and management of their enterprises early enough. They are often not aware of the crucial importance of solving succession issues on time. Although many problems are linked to family business succession, according to Molly and co-authors (2010), it should not necessarily be seen as a negative event in the lifecycle of a family business as no evidence is found that a family firm's profitability is affected by succession.

The succession is more a process than an event of transferring ownership and management control to the successor (Overview of Family Business, 2009, 16); it is a multistage process that occurs over time, beginning before heirs even enter the business (Handler, 1994). According to Longenecker and Schoen (1996), parent-child succession in the leadership of a family business involves a long-term diachronic process of socialization. In other words, family successors are gradually prepared for leadership through a lifetime of learning experiences; this preparation spans over many years and covers several successive positions, from non- or informal involvement over functional roles of a successor to early and mature succession, when a successor actually takes over the leadership position and is relatively autonomous in that role. Handler (1994) exposed the need of mutual role adjustment between predecessor/transferor and successor. She developed a model according to which the transferor evolves from the role of monarch over delegator to advisor; the successors in turn evolve from helper over manager to leader.

The transfer of ownership (i.e., succession in ownership) can take place within the family, through management buy-outs (i.e., sales to non-family management/employees), and sales to outside persons or existing companies, including takeovers and mergers (Transfer of SMEs, 2002, 10). Similarly, succession in management within the family is only one of the options. However, ownership in family businesses has a special meaning because it involves a strong "personal" factor. When an enterprise is transferred within the family, the financial capital is transferred with a "social and cultural capital" that usually results in the enhanced personal commitment to the enterprise as well as to the community. Family owners do not think that they possess just capital. They are aware that ownership encompasses persons, products, responsibilities, etc. Ownership of a family business is a property built and developed by the family over several generations (Overview of Family Business, 2009, 15). Although succession within the family is only one among many possibilities, a majority of family enterprise leaders have been found to be desirous of retaining family control past their tenure (Donckels & Lambrecht, 1999; Bjuggren & Sund, 2001). According to some

family in the business it is much more emotional in family businesses (e.g., Kets de Vries, 1993; Morris et al., 1997; Sharma et al., 2003). Research results indicate that succession in family businesses often does not work out (Dyck et al., 2002; Kets de Vries, 1993; Miller et al., 2003; Morris et al., 1997; Sharma et al., 2003), which is why succession is one of the most studied and researched issues in the field of family business research (Giambatista et al., 2005; Sharma, 2004). Although this subject accounts for approximately one third of the family business literature, no general theory of succession or succession planning in family

Failure in succession represents a serious problem not only to family enterprises, but also to the health of an economy. Owner-managers are often not aware of the problem of securing the continuity of their enterprises. Due to their occupation with daily operational problems, they often cannot—or do not want to—start preparing changes in ownership and management of their enterprises early enough. They are often not aware of the crucial importance of solving succession issues on time. Although many problems are linked to family business succession, according to Molly and co-authors (2010), it should not necessarily be seen as a negative event in the lifecycle of a family business as no evidence is

The succession is more a process than an event of transferring ownership and management control to the successor (Overview of Family Business, 2009, 16); it is a multistage process that occurs over time, beginning before heirs even enter the business (Handler, 1994). According to Longenecker and Schoen (1996), parent-child succession in the leadership of a family business involves a long-term diachronic process of socialization. In other words, family successors are gradually prepared for leadership through a lifetime of learning experiences; this preparation spans over many years and covers several successive positions, from non- or informal involvement over functional roles of a successor to early and mature succession, when a successor actually takes over the leadership position and is relatively autonomous in that role. Handler (1994) exposed the need of mutual role adjustment between predecessor/transferor and successor. She developed a model according to which the transferor evolves from the role of monarch over delegator to advisor; the successors in

The transfer of ownership (i.e., succession in ownership) can take place within the family, through management buy-outs (i.e., sales to non-family management/employees), and sales to outside persons or existing companies, including takeovers and mergers (Transfer of SMEs, 2002, 10). Similarly, succession in management within the family is only one of the options. However, ownership in family businesses has a special meaning because it involves a strong "personal" factor. When an enterprise is transferred within the family, the financial capital is transferred with a "social and cultural capital" that usually results in the enhanced personal commitment to the enterprise as well as to the community. Family owners do not think that they possess just capital. They are aware that ownership encompasses persons, products, responsibilities, etc. Ownership of a family business is a property built and developed by the family over several generations (Overview of Family Business, 2009, 15). Although succession within the family is only one among many possibilities, a majority of family enterprise leaders have been found to be desirous of retaining family control past their tenure (Donckels & Lambrecht, 1999; Bjuggren & Sund, 2001). According to some

enterprises has emerged (Sharma et al., 2003).

turn evolve from helper over manager to leader.

found that a family firm's profitability is affected by succession.

authors (e.g., Gersick et al., 1997), nepotism is suggested as one reason that succession occurs within the family. Next to this purely nepotistic explanation, Bjuggren and Sound (2002) indicated that a family member as a successor is preferable when so-called idiosyncratic knowledge is considered highly relevant to successful functioning of the enterprise. Similarly, based on their theoretical and empirical analysis, Royer and co-authors (2008) argue that situations in which family business-specific experiential knowledge is highly relevant for gaining competitive advantage make family members the most suitable successors.

However, studies also suggest that an increasing number of successions take place outside the family involving third parties due to a decreasing willingness of descendants (i.e., sons and daughters) to take over the family enterprise (Stavrou, 1999; Transfer of SMEs, 2002, 10, 40). Descendants may not want to join the enterprise for many reasons, but one of the most important reasons is that they want to start their own business (Bjuggren & Sund, 2001, 13). According to the results of the Eurobarometer (2003, as cited in Transfer of Businesses, 2003) survey, 65 percent of Europeans prefer starting a business to taking over an existing one, despite the obvious advantages of taking over a business, such as an existing production structure, a customer network, and a good name. Two reasons explain this situation. First, starting up a business allows the entrepreneur to shape it exactly the way he/she wants it. Founding one's own business also makes it easier to match personal needs, such as locating the business close to entrepreneur's home. Second, setting up a new business usually requires less financing than a takeover. According to some estimates, taking over an existing business requires 60 percent more investment than a startup (Marketplaces, 2006, 14).

Smaller chances of finding succession solutions within the family are also the result of the fact that parents have fewer children; in addition, a very competitive environment requires higher managerial and entrepreneurial skills of potential successors. Therefore, in the future, more transfers to third parties will be realized. However, finding the potential successor outside the family circle is not an easy task. The age group most active in establishing businesses will shrink over the next decades (Communication, 2006, 4), and the previously discussed preference of starting up one's own business instead of taking over an existing one also (negatively) influences the possibilities of successfully solving business transfers. Therefore, the success of business transfer will largely depend on its preparation, which should start sufficiently early.

According to the experts, succession is still often triggered by the owner-manager's retirement. However, retirement is only one reason for succession. Reasons for earlier successions (transfers) include personal decisions (e.g., early retirement, change of profession, interests in the family situation), changing competitive environments (e.g., changing markets, new products, new channels of distribution) or incidents (e.g., divorce, illness, death) and also play an important role (Transfer of SMEs, 2002, 10, 40).

Succession represents a problem not only in countries with a tradition of a market economy, where it is estimated that approximately one third of businesses within the EU need to be transferred to new owners in the next ten years (Transfer of SMEs, 2002, 10-11), but also for family businesses in many Central and Eastern European post-socialist countries; family businesses in these countries are currently approaching the challenge of managing the

Family Businesses: The Extensiveness of Succession Problems and Possible Solutions 219

generation is the most turbulent experience due to the conflicts resulting from the founder's shadow and the lack of succession experinces; therefore, it is expected that the transfers in management between later generation family members can be solved more smoothly due to

Since the succession process extends over time and different possibilities of future ownership and management structure exist, it needs to be carefully planned. Many authors conclude that succession planning increases the probability of a successful transfer of

**5. Succession planning as one of the most important factors of successful** 

Succession planning refers to the deliberate and formal process that facilitates the transfer of ownership and management control. There is significant overlap between activities considered by researchers to be components of the succession process and those activities considered to be parts of succession planning (Sharma et al., 2003). In opinion of many authors (Morris et al., 1997; Sharma et al., 2003) succession planning is expected to help improve the probability of the success for the succession process. According to the experts' opinion, the necessary preparation period may take from five to ten years. If the preparation and planning also includes the qualification of a potential successor, even longer periods

Many studies show that successions are not planned in due time (Bjuggren & Sund, 2001; Sharma et al., 2003) and that the first generation family enterprises did less succession planning than the second and third generation family enterprises (Sonfield & Lussier, 2004). Studies within the EU Member States also indicate that the majority of owner-managers did not take the necessary steps to plan and carry out upcoming successions. This results in failed business transfers, which take jobs, assets and opportunities with them (Transfer of SMEs, 2002). Also the research carried out in Slovenia show that family businesses' ownermanagers are not always aware of the importance of timely succession preparations. According to Duh and Tominc (2005), less than 60 percent (on average 57.5 percent) of Slovenian family business owner-managers who are 51 or older are actually planning the succession in the next five years. Consequently, more than one third of family businesses in Slovenia will be unprepared to face succession problems in the next five to ten years (due to the age of the owner-manager). "Not planning to retire in the next five years," and "succession planning is not necessary" are two of the most often stated reasons for not

preparing the transfer of management and/or ownership in the next five years.

The study of the expert group on the transfer of SMEs at the European Commission identified three kinds of problems linked to the preparation of business transfers (Transfer of SMEs, 2002); similar cognitions can be found in many other researches on succession problems in family enterprises. The first type of problems is psychological and emotional ones. Many owner-managers, who have created and built up their own businesses over a number of years, are very reluctant to let go and to prepare the transfer of their business. The transfer of know-how and skills takes place very late, if at all. There are many invisible, "soft" or emotional problems that play a major role in successions, especially where family

ownership and management, which will be discussed in the next section.

the experience from earlier successions.

**transfers of management and ownership** 

may be required (Transfer of SMEs, 2002, 21).

transfer of ownership and management for the first time (Duh el al., 2007; Mandl, 2008, 8). The review of studies conducted in these countries (Duh et al. 2007; see also national reports in Marketplaces, 2006, 54-74) indicates that the majority of family businesses are owned by the founding generation. For example, Polish firms are mostly first generation in that the founder often serves as a CEO or chairman of the board. Almost all family businesses registered on the Warsaw Stock Exchange are still either owned or run by the founders (Kowalewski et al., 2010, 49). In Germany, where the tradition of entrepreneurship and private ownership has existed since the end of World War II, only 39 percent of family businesses are in the first generation; a remarkable number of family businesses in Germany and the UK are held within fourth or subsequent generations (Klein, 2000). However, in comparing East and West German entrepreneurs, Pistrui and co-authors (2000) found that only 10 percent of East German entrepreneurs inherited their business, compared to 40 percent in West Germany. Similar to other former socialist countries, the majority of family businesses in Slovenia are still in the possession of the founding generation (Duh & Tominc, 2005; Duh et al., 2007; Glas & Vadnjal, 2005). Slovenian owner-managers often believe that the business should stay in the family (Duh & Tominc, 2005; Glas, 2003). Regarding succession in management, research results (Duh et al., 2005) indicate that the majority of respondents decided to realize the succession within the family (63.5 percent). The proportion of family enterprises that decided to realize succession within the family is significantly higher than within non-family enterprises. The situation is rather similar when deciding about succession in ownership. The majority of respondents decided to realize succession within the family (71.4 percent). We can conclude that Slovenian family business owners do not find selling the business to be an attractive succession solution; ownermanagers prefer that one of the family members takes over the business. These findings indicate a very similar situation as in other traditionally market-oriented countries. Another study in Slovenia found that the succeeding generation wants to retain more freedom to decide whether it will become part of the family business. Successors lack the proper training and mentoring; thus, they feel uncertain about their capability to manage the firm (Glas et al., 2005).

In former socialist countries, succession is even more problematic than in Europe in general as it has not always been recognized as the problem and family businesses' founders/owner-managers lack previous succession experiences (e.g., Duh et al., 2007). They have almost no possibility to share succession experiences with others given that the majority of their owner-manager colleagues are founders (not successors). The succession experiences seem to play an important role as some evidence suggests that the survival of an enterprise beyond the first generation increases the probability of the success of subsequent successions. Research results indicate that, if an enterprise survives to the second generation, the probability that it will also survive subsequent successions increases substantially. Of the fewer than one third of family enterprises that survive the transition to the second generation, approximately 50 percent survive from the second to the third generation and more than 70 percentof these enterprises are passed on to the fourth generation (Bjuggren & Sund, 2001; Stavrou, 1999). The increasing degree of survival can be due to—among other reasons—the experiences from earlier successions. Similarly, Davis and Harverston (1998, 1999) found that the transition from the founder to the second

transfer of ownership and management for the first time (Duh el al., 2007; Mandl, 2008, 8). The review of studies conducted in these countries (Duh et al. 2007; see also national reports in Marketplaces, 2006, 54-74) indicates that the majority of family businesses are owned by the founding generation. For example, Polish firms are mostly first generation in that the founder often serves as a CEO or chairman of the board. Almost all family businesses registered on the Warsaw Stock Exchange are still either owned or run by the founders (Kowalewski et al., 2010, 49). In Germany, where the tradition of entrepreneurship and private ownership has existed since the end of World War II, only 39 percent of family businesses are in the first generation; a remarkable number of family businesses in Germany and the UK are held within fourth or subsequent generations (Klein, 2000). However, in comparing East and West German entrepreneurs, Pistrui and co-authors (2000) found that only 10 percent of East German entrepreneurs inherited their business, compared to 40 percent in West Germany. Similar to other former socialist countries, the majority of family businesses in Slovenia are still in the possession of the founding generation (Duh & Tominc, 2005; Duh et al., 2007; Glas & Vadnjal, 2005). Slovenian owner-managers often believe that the business should stay in the family (Duh & Tominc, 2005; Glas, 2003). Regarding succession in management, research results (Duh et al., 2005) indicate that the majority of respondents decided to realize the succession within the family (63.5 percent). The proportion of family enterprises that decided to realize succession within the family is significantly higher than within non-family enterprises. The situation is rather similar when deciding about succession in ownership. The majority of respondents decided to realize succession within the family (71.4 percent). We can conclude that Slovenian family business owners do not find selling the business to be an attractive succession solution; ownermanagers prefer that one of the family members takes over the business. These findings indicate a very similar situation as in other traditionally market-oriented countries. Another study in Slovenia found that the succeeding generation wants to retain more freedom to decide whether it will become part of the family business. Successors lack the proper training and mentoring; thus, they feel uncertain about their capability to manage the firm

In former socialist countries, succession is even more problematic than in Europe in general as it has not always been recognized as the problem and family businesses' founders/owner-managers lack previous succession experiences (e.g., Duh et al., 2007). They have almost no possibility to share succession experiences with others given that the majority of their owner-manager colleagues are founders (not successors). The succession experiences seem to play an important role as some evidence suggests that the survival of an enterprise beyond the first generation increases the probability of the success of subsequent successions. Research results indicate that, if an enterprise survives to the second generation, the probability that it will also survive subsequent successions increases substantially. Of the fewer than one third of family enterprises that survive the transition to the second generation, approximately 50 percent survive from the second to the third generation and more than 70 percentof these enterprises are passed on to the fourth generation (Bjuggren & Sund, 2001; Stavrou, 1999). The increasing degree of survival can be due to—among other reasons—the experiences from earlier successions. Similarly, Davis and Harverston (1998, 1999) found that the transition from the founder to the second

(Glas et al., 2005).

generation is the most turbulent experience due to the conflicts resulting from the founder's shadow and the lack of succession experinces; therefore, it is expected that the transfers in management between later generation family members can be solved more smoothly due to the experience from earlier successions.

Since the succession process extends over time and different possibilities of future ownership and management structure exist, it needs to be carefully planned. Many authors conclude that succession planning increases the probability of a successful transfer of ownership and management, which will be discussed in the next section.

#### **5. Succession planning as one of the most important factors of successful transfers of management and ownership**

Succession planning refers to the deliberate and formal process that facilitates the transfer of ownership and management control. There is significant overlap between activities considered by researchers to be components of the succession process and those activities considered to be parts of succession planning (Sharma et al., 2003). In opinion of many authors (Morris et al., 1997; Sharma et al., 2003) succession planning is expected to help improve the probability of the success for the succession process. According to the experts' opinion, the necessary preparation period may take from five to ten years. If the preparation and planning also includes the qualification of a potential successor, even longer periods may be required (Transfer of SMEs, 2002, 21).

Many studies show that successions are not planned in due time (Bjuggren & Sund, 2001; Sharma et al., 2003) and that the first generation family enterprises did less succession planning than the second and third generation family enterprises (Sonfield & Lussier, 2004). Studies within the EU Member States also indicate that the majority of owner-managers did not take the necessary steps to plan and carry out upcoming successions. This results in failed business transfers, which take jobs, assets and opportunities with them (Transfer of SMEs, 2002). Also the research carried out in Slovenia show that family businesses' ownermanagers are not always aware of the importance of timely succession preparations. According to Duh and Tominc (2005), less than 60 percent (on average 57.5 percent) of Slovenian family business owner-managers who are 51 or older are actually planning the succession in the next five years. Consequently, more than one third of family businesses in Slovenia will be unprepared to face succession problems in the next five to ten years (due to the age of the owner-manager). "Not planning to retire in the next five years," and "succession planning is not necessary" are two of the most often stated reasons for not preparing the transfer of management and/or ownership in the next five years.

The study of the expert group on the transfer of SMEs at the European Commission identified three kinds of problems linked to the preparation of business transfers (Transfer of SMEs, 2002); similar cognitions can be found in many other researches on succession problems in family enterprises. The first type of problems is psychological and emotional ones. Many owner-managers, who have created and built up their own businesses over a number of years, are very reluctant to let go and to prepare the transfer of their business. The transfer of know-how and skills takes place very late, if at all. There are many invisible, "soft" or emotional problems that play a major role in successions, especially where family

Family Businesses: The Extensiveness of Succession Problems and Possible Solutions 221

has been suggested that the performance of the next generation is likely to be based on the effectiveness with which the knowledge, and social networks, are transferred across generations (Cabrera-Suárez et al., 2001; Steier, 2001). With specific regard to the process of transferring knowledge (i.e., specific experiential/idiosyncratic/tacit) the research findings of Mazzola and co-authors (2008) indicate that the involvement of next-generation family members (after they join the firm) in the process of strategic planning enables the next generation to aquire crucial tacit business knowledge and skills as well as facilitates interpersonal work relationships between incumbents and next-generation leaders, and

Research on effectiveness of knowledge transfer between generations has unequivocally revealed the importance of the absorptive capacity of the next generation and the nature of the relationship between generations (Sharma, 2004). The level of preparedness of the next generation and its relationship with the senior generation has a significant influence on the next generation's performance. A supportive relationship characterized by mutual respect and open communications enables the smooth transition of knowledge, social capital, and networks across generations (Duh, 2003; Dyck et al., 2002; Morris et al., 1997; Sharma et al., 2003). Such transfers would lead to competitive advantages for family enterprises (Sharma,

The findings on the complexity of the succession process and succession solutions as well as on problems linked to the succession planning indicate that owner-managers need a comprehensive support (e.g., advice, consultancy, training, network for exchanging experiences etc.) in order to tackle the succession problems successfully. Taking into consideration the extensiveness of the succession problem among the EU Member States, the European Commission has started many activities with the aim to avoid losing SMEs (family and non-family ones) because of difficulties in succession process, and lack of preparation and/or badly solved transfer of ownership and management. Since many of these activities are coping with problems exposed in our contribution, we found the recommendations and solutions as well as cases of good practices as a fruitful contribution for broadening our understanding of family businesses' succession. Especially, since they

helps building credibility and legitimacy for next generation.

are all based on rich scientific cognitions and professional expertise.

**6. Supporting measures and infrastructure for family businesses in the** 

**6.1 Supporting measures and recommendations to the EU member states regarding** 

Many businesses fail in the transfer phase not because they are not viable, but because the transfer has not been sufficiently prepared. In particular, during the recent economic crisis it has been even more important to ensure smooth business transfers, which preserve jobs and economic growth. An effectively and efficiently managed transfer is an important success factor for the future development since the enterprise disposes with experiences, networks, reputation and a customer base that newly founded companies are lacking (Mandl, 2008, 57). Successfully realized business transfers are important for national economies and the European economy in general as, according to some data (Transfer of SMEs, 2002, 27),

2004).

**succession process** 

**succession/business transfer process** 

enterprises are concerned (Bjuggren & Sund, 2001; Dyck et al., 2002; Kets de Vries, 1993; Morris et al., 1997; Sharma et al., 2001;): owner-manager being too busy running and controlling the enterprise, owner-manager's fears of losing a central role in the family, owner-manager's different excuses which are more or less connected to feelings of rivalry and jealousy toward potential successors, and owner-manager very often associates retirement with his or her own mortality.

The second type of problems is related to the complexity of the succession process and to the fact that owner-manager has no (or just limited) experiences or knowledge of handling this situation and scarce external support to facilitate the succession process. The ownermanager very often does not know who to contact for help or where to find information (Dyck et al., 2002; Malinen, 2004; Morris et al., 1997). The third type of problems stem from national legislation, in particular company law, taxation and administrative formalities. Examples of problems of this kind include high inheritance and gift taxes, and problems preventing the change of the legal form of a business when preparations are being made for transfers (Bjuggren & Sund, 2001).

The fourth set of problems is based on understanding that entrepreneurship consists of many complex activities in which a lot of tacit knowledge is present that cannot be easily transferred from one generation to another. There are many deeply ingrained routines (Nelson & Winter, 1982) and experiential knowledge that makes company successful and can be acquired only by learning by doing in which younger family members work together with elders adopting their experiential knowledge and skills. Family culture is an important constituent of tacit knowledge.

Many researches deal with the above mentioned problems in order to find solutions on how to support succession planning and enable successful transfers of ownership and management. Sharma and co-authors (2003) study revealed that the presence of a trusted successor willing to take over the leadership of an enterprise was the spark that controls the succession planning process. This suggests a need to engage the next generation family members in succession planning, as it is their careers and lives that are involved in this decision. But the authors also point out, that without the desire of the incumbent to keep the business in the family, the chance of a satisfactory succession are practically nil. An incumbent who plans for succession because of the feasibility rather than the desirability of succession is more likely to delay, abort, or sabotage its final implementation. Therefore, the incumbents should avoid the delusion that the presence of a trusted successor is all that is required for succession. Without the wholehearted commitment of the incumbent and the family to the process, it may be better to plan to sell the business than to plan for the transfer within the family.

Dyck and co-authors (2002) suggests that the effectiveness of management succession depends on sequence (i.e., appropriateness of successors' skills and experiences), timing, technique (i.e., details by which succession will be achieved), and communication between the predecessor and successor. Researches based on the resource-based view of the firm suggest the importance of transferring the tacit embedded knowledge, networks and social capital across generations. Due to their long tenures, family firm leaders possess a significant amount of idiosyncratic or tacit knowledge related to the firm (Lee et al., 2003). It

enterprises are concerned (Bjuggren & Sund, 2001; Dyck et al., 2002; Kets de Vries, 1993; Morris et al., 1997; Sharma et al., 2001;): owner-manager being too busy running and controlling the enterprise, owner-manager's fears of losing a central role in the family, owner-manager's different excuses which are more or less connected to feelings of rivalry and jealousy toward potential successors, and owner-manager very often associates

The second type of problems is related to the complexity of the succession process and to the fact that owner-manager has no (or just limited) experiences or knowledge of handling this situation and scarce external support to facilitate the succession process. The ownermanager very often does not know who to contact for help or where to find information (Dyck et al., 2002; Malinen, 2004; Morris et al., 1997). The third type of problems stem from national legislation, in particular company law, taxation and administrative formalities. Examples of problems of this kind include high inheritance and gift taxes, and problems preventing the change of the legal form of a business when preparations are being made for

The fourth set of problems is based on understanding that entrepreneurship consists of many complex activities in which a lot of tacit knowledge is present that cannot be easily transferred from one generation to another. There are many deeply ingrained routines (Nelson & Winter, 1982) and experiential knowledge that makes company successful and can be acquired only by learning by doing in which younger family members work together with elders adopting their experiential knowledge and skills. Family culture is an important

Many researches deal with the above mentioned problems in order to find solutions on how to support succession planning and enable successful transfers of ownership and management. Sharma and co-authors (2003) study revealed that the presence of a trusted successor willing to take over the leadership of an enterprise was the spark that controls the succession planning process. This suggests a need to engage the next generation family members in succession planning, as it is their careers and lives that are involved in this decision. But the authors also point out, that without the desire of the incumbent to keep the business in the family, the chance of a satisfactory succession are practically nil. An incumbent who plans for succession because of the feasibility rather than the desirability of succession is more likely to delay, abort, or sabotage its final implementation. Therefore, the incumbents should avoid the delusion that the presence of a trusted successor is all that is required for succession. Without the wholehearted commitment of the incumbent and the family to the process, it may be better to plan to sell the business than to plan for the transfer

Dyck and co-authors (2002) suggests that the effectiveness of management succession depends on sequence (i.e., appropriateness of successors' skills and experiences), timing, technique (i.e., details by which succession will be achieved), and communication between the predecessor and successor. Researches based on the resource-based view of the firm suggest the importance of transferring the tacit embedded knowledge, networks and social capital across generations. Due to their long tenures, family firm leaders possess a significant amount of idiosyncratic or tacit knowledge related to the firm (Lee et al., 2003). It

retirement with his or her own mortality.

transfers (Bjuggren & Sund, 2001).

constituent of tacit knowledge.

within the family.

has been suggested that the performance of the next generation is likely to be based on the effectiveness with which the knowledge, and social networks, are transferred across generations (Cabrera-Suárez et al., 2001; Steier, 2001). With specific regard to the process of transferring knowledge (i.e., specific experiential/idiosyncratic/tacit) the research findings of Mazzola and co-authors (2008) indicate that the involvement of next-generation family members (after they join the firm) in the process of strategic planning enables the next generation to aquire crucial tacit business knowledge and skills as well as facilitates interpersonal work relationships between incumbents and next-generation leaders, and helps building credibility and legitimacy for next generation.

Research on effectiveness of knowledge transfer between generations has unequivocally revealed the importance of the absorptive capacity of the next generation and the nature of the relationship between generations (Sharma, 2004). The level of preparedness of the next generation and its relationship with the senior generation has a significant influence on the next generation's performance. A supportive relationship characterized by mutual respect and open communications enables the smooth transition of knowledge, social capital, and networks across generations (Duh, 2003; Dyck et al., 2002; Morris et al., 1997; Sharma et al., 2003). Such transfers would lead to competitive advantages for family enterprises (Sharma, 2004).

The findings on the complexity of the succession process and succession solutions as well as on problems linked to the succession planning indicate that owner-managers need a comprehensive support (e.g., advice, consultancy, training, network for exchanging experiences etc.) in order to tackle the succession problems successfully. Taking into consideration the extensiveness of the succession problem among the EU Member States, the European Commission has started many activities with the aim to avoid losing SMEs (family and non-family ones) because of difficulties in succession process, and lack of preparation and/or badly solved transfer of ownership and management. Since many of these activities are coping with problems exposed in our contribution, we found the recommendations and solutions as well as cases of good practices as a fruitful contribution for broadening our understanding of family businesses' succession. Especially, since they are all based on rich scientific cognitions and professional expertise.

#### **6. Supporting measures and infrastructure for family businesses in the succession process**

#### **6.1 Supporting measures and recommendations to the EU member states regarding succession/business transfer process**

Many businesses fail in the transfer phase not because they are not viable, but because the transfer has not been sufficiently prepared. In particular, during the recent economic crisis it has been even more important to ensure smooth business transfers, which preserve jobs and economic growth. An effectively and efficiently managed transfer is an important success factor for the future development since the enterprise disposes with experiences, networks, reputation and a customer base that newly founded companies are lacking (Mandl, 2008, 57). Successfully realized business transfers are important for national economies and the European economy in general as, according to some data (Transfer of SMEs, 2002, 27),

Family Businesses: The Extensiveness of Succession Problems and Possible Solutions 223

specialized training for parties involved. The Small Business Act (2008) further points out the importance of measures for supporting and ensuring successful business transfers,

How are these recommendations put into the practice? Several actions and projects aim to create conditions and support for facilitating business transfers. Significant support has already been realized on national levels, and some actions and projects have been initiated by the European Commission. We next describe some of these actions and support in more

**6.2 Support for owners-managers and mentoring in the succession/business transfer** 

Across Europe, many good practices exist related to raising owner-managers' awareness as well as instruments for supporting succession planning. All of these initiatives are rather new (Mandl, 2008, 83). An example of good practice for raising entrepreneurs' awareness is the Netherlands, where the Ministry of Economic Affairs—in cooperation with three employers' organizations—developed the toolkit for business transfer (i.e., transfer package), which includes information on business transfer planning (for detailed descriptions, see Mandl, 2008, 139-141). In addition, all entrepreneurs age 55 of older receive a letter (first sent in 2004) informing them of the importance of a timely transfer planning and the availability of this toolkit/package. In addition to raising awareness, instruments in the field of advice or consultancy (for free or financial support) or "self planning tools" are offered by diverse actors, such as governmental authorities, employers' organizations, or family business networks. For example, the Belgian "Insituut voor het Familiebedrijf (IFB)" introduced the Succession Scorecard in 2006, which can be accessed for free via a website (in English: www.scorecardsuccession.com). The instrument provides a self-test for entrepreneurs (50 multiple-choice questions) to investigate the strengths/weaknesses in connection to the planned business transfer (for detailed descriptions, see Mandl, 2008, 135- 138). Meanwhile, the Employment and Economic Development Centres in Finland launched "ViestinVaihto/Passing the Baton" program, consisting of three consulting days (cooperation with experienced management consultants on a confidential firm-to-firm basis) to discuss different options and solutions for business succession. Several seminars and workshops preparing potential successors for their future role are offered by family business networks or employers' organizations (Mandl, 2008, 84). Furthermore, the "Institut für Familien und Betriebe/Institute for family and business" in Austria offers a special seminar called "Generationen/Generations" that covers topics like dealing with the fear of change, emotional bonds, and enthronement. Special training program for successors is offered by the Finnish Family Firm Association (FFFA). The program lasts four training days and consists of expert lectures as well as group and case assignments; the same program is offered on an international level in Barcelona, Spain (for detailed descriptions, see Mandl,

Although the analysis of the institutional actors as well as policy actions to support and promote family businesses (and especially family businesses facing succession issues) in Slovenia show that different actors support and promote SMEs and other business organizations, no special ones focus on family businesses (for a detailed analysis, see Duh,

especially in family businesses.

detail.

**process** 

2008, 84, 152-154).

existing companies conserve an average of five jobs whereas a start-up generates an average of only two jobs. Moreover, the success rate of business transfers is higher than that of startups.

Therefore, the economic environment as well supporting infrastructure and measures need to be improved in order to raise the competitiveness of European economy. Based on the identification of problems connected with business transfer (discussed in the previous chapter), increasing owner-managers' awareness about the need to prepare for the transfer of their businesses in a timely manner has been identified among the EU member states as the starting point for a successful transfer (Transfer of SMEs, 2002, 21). In addition to raising awareness, the right regulatory framework and appropriate supporting structure and services need to be in place. All these areas have been identified and dealt with in the Recommendation on the transfer of SMEs adopted by the European Commission in December 1994 (Commission, 1994). The European Commission invited countries(EU member states) to improve their legal and fiscal environment for business transfers, raise awareness, and provide support for business transfers.

In March 1998 the Commission Communication was published on the improvements done in the member states for the period leading up to the end of 1996 (Commission, 1998). An expert group on the transfer of SMEs was set up in November 2000 to help the Commission monitor the implementation of the 1994 Recommendation on the transfer of SMEs. Its tasks included identifying new legal, task, and support measures taken since 1998, when the first review was made; assessing the measures taken; analyzing the provision of support measures; and making proposals for further action. The expert group found that significant support is available for business transfers from numerous bodies; however, such support is often not offered in a structured manner and, therefore, it does not necessarily reach the target group. The expert group pointed out that equal attention should have been given to start-ups and transfers; among its proposals was also the creation of the "European Business Transfer Centre," a virtual European platform for coordinating the gathering of information and exchange of experiences and best practices on business transfers as well as the creation of a European sellers and buyers database/marketplace (Transfer of SMEs, 2002, 44-45).

In October 2002, another project on business transfers was started: The MAP 2002 project. Its tasks were twofold (Transfer of Businesses, 2003): to help member states make further progress in implementing measures in key areas of the Commission Recommendation from 1994 and to act on the expert group's proposals. The latest recommendations published by the European Commission (Communication, 2006, 9-10) are based on the analysis of the progress in the member states and can be summarized in the following key areas: political attention should be given to both business transfers and start-ups, adequate financial conditions should be provided, raising awareness, considering "soft factors" and supporting mentoring, organizing transparent markets for business transfers, ensuring that tax systems are transfer friendly, and creating of appropriate structures to broadly implement the recommendations.

Similarly, the expert group on family businesses (Overview of Family Business, 2009, 16) pointed out the need to raise owner-managers' awareness of the importance of early business transfer preparation as well the need to make tools for transfers available (e.g.,

existing companies conserve an average of five jobs whereas a start-up generates an average of only two jobs. Moreover, the success rate of business transfers is higher than that of start-

Therefore, the economic environment as well supporting infrastructure and measures need to be improved in order to raise the competitiveness of European economy. Based on the identification of problems connected with business transfer (discussed in the previous chapter), increasing owner-managers' awareness about the need to prepare for the transfer of their businesses in a timely manner has been identified among the EU member states as the starting point for a successful transfer (Transfer of SMEs, 2002, 21). In addition to raising awareness, the right regulatory framework and appropriate supporting structure and services need to be in place. All these areas have been identified and dealt with in the Recommendation on the transfer of SMEs adopted by the European Commission in December 1994 (Commission, 1994). The European Commission invited countries(EU member states) to improve their legal and fiscal environment for business transfers, raise

In March 1998 the Commission Communication was published on the improvements done in the member states for the period leading up to the end of 1996 (Commission, 1998). An expert group on the transfer of SMEs was set up in November 2000 to help the Commission monitor the implementation of the 1994 Recommendation on the transfer of SMEs. Its tasks included identifying new legal, task, and support measures taken since 1998, when the first review was made; assessing the measures taken; analyzing the provision of support measures; and making proposals for further action. The expert group found that significant support is available for business transfers from numerous bodies; however, such support is often not offered in a structured manner and, therefore, it does not necessarily reach the target group. The expert group pointed out that equal attention should have been given to start-ups and transfers; among its proposals was also the creation of the "European Business Transfer Centre," a virtual European platform for coordinating the gathering of information and exchange of experiences and best practices on business transfers as well as the creation of a European sellers and buyers database/marketplace (Transfer of SMEs, 2002, 44-45).

In October 2002, another project on business transfers was started: The MAP 2002 project. Its tasks were twofold (Transfer of Businesses, 2003): to help member states make further progress in implementing measures in key areas of the Commission Recommendation from 1994 and to act on the expert group's proposals. The latest recommendations published by the European Commission (Communication, 2006, 9-10) are based on the analysis of the progress in the member states and can be summarized in the following key areas: political attention should be given to both business transfers and start-ups, adequate financial conditions should be provided, raising awareness, considering "soft factors" and supporting mentoring, organizing transparent markets for business transfers, ensuring that tax systems are transfer friendly, and creating of appropriate structures to broadly implement the

Similarly, the expert group on family businesses (Overview of Family Business, 2009, 16) pointed out the need to raise owner-managers' awareness of the importance of early business transfer preparation as well the need to make tools for transfers available (e.g.,

awareness, and provide support for business transfers.

ups.

recommendations.

specialized training for parties involved. The Small Business Act (2008) further points out the importance of measures for supporting and ensuring successful business transfers, especially in family businesses.

How are these recommendations put into the practice? Several actions and projects aim to create conditions and support for facilitating business transfers. Significant support has already been realized on national levels, and some actions and projects have been initiated by the European Commission. We next describe some of these actions and support in more detail.

#### **6.2 Support for owners-managers and mentoring in the succession/business transfer process**

Across Europe, many good practices exist related to raising owner-managers' awareness as well as instruments for supporting succession planning. All of these initiatives are rather new (Mandl, 2008, 83). An example of good practice for raising entrepreneurs' awareness is the Netherlands, where the Ministry of Economic Affairs—in cooperation with three employers' organizations—developed the toolkit for business transfer (i.e., transfer package), which includes information on business transfer planning (for detailed descriptions, see Mandl, 2008, 139-141). In addition, all entrepreneurs age 55 of older receive a letter (first sent in 2004) informing them of the importance of a timely transfer planning and the availability of this toolkit/package. In addition to raising awareness, instruments in the field of advice or consultancy (for free or financial support) or "self planning tools" are offered by diverse actors, such as governmental authorities, employers' organizations, or family business networks. For example, the Belgian "Insituut voor het Familiebedrijf (IFB)" introduced the Succession Scorecard in 2006, which can be accessed for free via a website (in English: www.scorecardsuccession.com). The instrument provides a self-test for entrepreneurs (50 multiple-choice questions) to investigate the strengths/weaknesses in connection to the planned business transfer (for detailed descriptions, see Mandl, 2008, 135- 138). Meanwhile, the Employment and Economic Development Centres in Finland launched "ViestinVaihto/Passing the Baton" program, consisting of three consulting days (cooperation with experienced management consultants on a confidential firm-to-firm basis) to discuss different options and solutions for business succession. Several seminars and workshops preparing potential successors for their future role are offered by family business networks or employers' organizations (Mandl, 2008, 84). Furthermore, the "Institut für Familien und Betriebe/Institute for family and business" in Austria offers a special seminar called "Generationen/Generations" that covers topics like dealing with the fear of change, emotional bonds, and enthronement. Special training program for successors is offered by the Finnish Family Firm Association (FFFA). The program lasts four training days and consists of expert lectures as well as group and case assignments; the same program is offered on an international level in Barcelona, Spain (for detailed descriptions, see Mandl, 2008, 84, 152-154).

Although the analysis of the institutional actors as well as policy actions to support and promote family businesses (and especially family businesses facing succession issues) in Slovenia show that different actors support and promote SMEs and other business organizations, no special ones focus on family businesses (for a detailed analysis, see Duh,

Family Businesses: The Extensiveness of Succession Problems and Possible Solutions 225

Based on the project results, many recommendations regarding mentoring were put forth, among which we find especially important the following ones (Mentoring, 2009, 134-139): better information on businesses transferred and easier access to it by the main actors, establishment of a public-private partnership to offer the mentoring services, mentoring should be provided before and after the takeover, mentoring should not be restricted to entrepreneurs who have just taken over a company (i.e., first year of ownership) but should target entrepreneurs in their first years (i.e., from one to five years), and various types of

The examples of good practices for supporting business transfers can be valuable for those countries where support is still lacking, especially the former socialist countries. In addition to these good practices, recommendations related to mentoring are also of great importance for creators and actors of supporting infrastructure and measures, especially as they are based on the project results in which both actors—mentors and users (entrepreneurs from different countries)—participated. In order to improve mentoring support, regular analysis and evaluations are needed, and information on good practices should be disseminated

In addition to raising awareness, specific consultancy, and mentoring that facilitates the transfer process, marketplaces that provide a platform for bringing together potential buyers and sellers are an important tool for fostering successful business transfers. Marketplaces are increasingly important since the number of transfers to third parties is increasing. It is therefore becoming more and more important to facilitate the matching of potential buyers and sellers of businesses, thereby contributing to successful transfers. According to findings from the project on fostering transparent marketplaces for business transfers in Europe (Marketplaces, 2006, 13-16), transfers to third parties are characterized by specific factors: matching the preferences of buyers and sellers, building trust (information asymmetries), and addressing emotional, psychological, and technical issues. Buyers and sellers have different preferences regarding the business; therefore, it might be complicated to match a potential buyer and potential seller in the same area and at the same time. The research shows a numerical difference often occurs between the supply and demand sides in transfer databases. Such databases usually include more offers of businesses (2/3 of advertisements) than persons actively looking for a business (1/3 of

According to experts' opinion, building trust is difficult as strong information asymmetries usually exist between buyers and sellers of businesses, especially smaller ones. The ownerseller might exaggerate the strong aspects and downplay the problems. Knowing this, the transferee-buyer might distrust the information provided by the owner. The building of trust will also be made difficult because potential sellers usually do not want to have it widely known that their business is for sale. Therefore, advertisements in databases will be quite general and vague—in other words, not very attractive to potential successors-buyers, who wish to have a clearer picture of an enterprise. The issue of trust also applies to intermediary institutions. Potential advisers in a web-based marketplace sometimes do not

**6.3 Transparent marketplaces for the transfer of businesses** 

trust the institutions involved in running the database.

mentoring should be applied.

among the member states.

advertisements).

2008). Exceptions do exist. In addition to some research activities on family businesses done within university-based institutes and educational support in the form of courses offered, the Slovenian Chamber of Craft and Small Business is an example of good practice in supporting family SMEs in the succession process; indeed, it was also selected within the project "Overview of family business relevant issues" (Mandl, 2008). Family businesses evolving from the crafts tradition are among those now facing succession issues similar to "newly established" family businesses set up during the 1990s. Part of the chamber's activities is therefore focused on dealing with succession problems. The main motive as well as objective of the activities (training, information, advice, consulting) of the chamber is to raise members' awareness of the problems of the succession process, to make the transfer of the business as simple as possible, and to enable enterprises to remain in the market after the change of generations in charge of the business.

Another important factor for successful business transfer is mentoring of the new owner who takes over the enterprise. Challenges and problems involved in transfers or takeovers do not end with the formal business transfer (e.g., with the signing of the sales contract), but also extend into the period after the transfer. As a result, a large number of business transfers still fail after transfer. In fact, more than one out of five enterprises close within six years after the takeover in France (Mentoring, 2009, 133). Owners of small enterprises particularly expressed a need for mentoring. Medium-sized and large enterprises know how and where to get guidance and advice and can pay for such advice, whereas small enterprises are often not able to afford these services. Therefore, the European Commission started the European pilot post-takeover mentoring project "A Helping Hand for SMEs— Mentoring Business Transfer" (Mentoring, 2009), whose basic purpose was to create innovative and specific support services for new owners throughout the process of business transfer. In the project, which ran between January 2007 and August 2009, 18 European countries participated. The Chambers of Commerce and Industry and their mentors involved in the project identified individuals who had taken over businesses with fewer than 50 employees less than one year before mentoring was provided. The transfer advisor then offered the buyer a personalized mentoring program, selecting appropriate mentors on the basis of the needs identified. The mentoring process could take various forms (support, advice, and training) in nine major areas: business strategy, marketing and commerce, accounting, fiscal and legal aspects, human resource management, technical know-how, financing difficulties, logistics, and IT systems. The pilot action included 9,067.30 full mandays of mentoring delivered, 937 mentees recruited, and 890 cases completed (89 percent of all cases) (Mentoring, 2009, 5). The project ended with the entrepreneurs'/buyers' evaluation of the mentoring process, assessment of their satisfaction with the content and type of support provided, and their expectation of any future mentoring (for a more detailed description of the project and results, see Mentoring, 2009). The results of the project indicate that it is useful to implement mentoring services at the national or regional level in order to adapt services to the local particularities where mentoring is occurring. The main quality of a mentoring scheme is its tailor-made aspect, which allows customized support to meet the new owner's (i.e., buyer's) needs; the pilot project further shows that the characteristics of business transfers differ significantly among countries. For example, business transfers realized within the family accounted for more than half of all cases in Austria and Greece, but less than 10 percent in the UK and France (Mentoring, 2009, 133- 134).

2008). Exceptions do exist. In addition to some research activities on family businesses done within university-based institutes and educational support in the form of courses offered, the Slovenian Chamber of Craft and Small Business is an example of good practice in supporting family SMEs in the succession process; indeed, it was also selected within the project "Overview of family business relevant issues" (Mandl, 2008). Family businesses evolving from the crafts tradition are among those now facing succession issues similar to "newly established" family businesses set up during the 1990s. Part of the chamber's activities is therefore focused on dealing with succession problems. The main motive as well as objective of the activities (training, information, advice, consulting) of the chamber is to raise members' awareness of the problems of the succession process, to make the transfer of the business as simple as possible, and to enable enterprises to remain in the market after

Another important factor for successful business transfer is mentoring of the new owner who takes over the enterprise. Challenges and problems involved in transfers or takeovers do not end with the formal business transfer (e.g., with the signing of the sales contract), but also extend into the period after the transfer. As a result, a large number of business transfers still fail after transfer. In fact, more than one out of five enterprises close within six years after the takeover in France (Mentoring, 2009, 133). Owners of small enterprises particularly expressed a need for mentoring. Medium-sized and large enterprises know how and where to get guidance and advice and can pay for such advice, whereas small enterprises are often not able to afford these services. Therefore, the European Commission started the European pilot post-takeover mentoring project "A Helping Hand for SMEs— Mentoring Business Transfer" (Mentoring, 2009), whose basic purpose was to create innovative and specific support services for new owners throughout the process of business transfer. In the project, which ran between January 2007 and August 2009, 18 European countries participated. The Chambers of Commerce and Industry and their mentors involved in the project identified individuals who had taken over businesses with fewer than 50 employees less than one year before mentoring was provided. The transfer advisor then offered the buyer a personalized mentoring program, selecting appropriate mentors on the basis of the needs identified. The mentoring process could take various forms (support, advice, and training) in nine major areas: business strategy, marketing and commerce, accounting, fiscal and legal aspects, human resource management, technical know-how, financing difficulties, logistics, and IT systems. The pilot action included 9,067.30 full mandays of mentoring delivered, 937 mentees recruited, and 890 cases completed (89 percent of all cases) (Mentoring, 2009, 5). The project ended with the entrepreneurs'/buyers' evaluation of the mentoring process, assessment of their satisfaction with the content and type of support provided, and their expectation of any future mentoring (for a more detailed description of the project and results, see Mentoring, 2009). The results of the project indicate that it is useful to implement mentoring services at the national or regional level in order to adapt services to the local particularities where mentoring is occurring. The main quality of a mentoring scheme is its tailor-made aspect, which allows customized support to meet the new owner's (i.e., buyer's) needs; the pilot project further shows that the characteristics of business transfers differ significantly among countries. For example, business transfers realized within the family accounted for more than half of all cases in Austria and Greece, but less than 10 percent in the UK and France (Mentoring, 2009, 133-

the change of generations in charge of the business.

134).

Based on the project results, many recommendations regarding mentoring were put forth, among which we find especially important the following ones (Mentoring, 2009, 134-139): better information on businesses transferred and easier access to it by the main actors, establishment of a public-private partnership to offer the mentoring services, mentoring should be provided before and after the takeover, mentoring should not be restricted to entrepreneurs who have just taken over a company (i.e., first year of ownership) but should target entrepreneurs in their first years (i.e., from one to five years), and various types of mentoring should be applied.

The examples of good practices for supporting business transfers can be valuable for those countries where support is still lacking, especially the former socialist countries. In addition to these good practices, recommendations related to mentoring are also of great importance for creators and actors of supporting infrastructure and measures, especially as they are based on the project results in which both actors—mentors and users (entrepreneurs from different countries)—participated. In order to improve mentoring support, regular analysis and evaluations are needed, and information on good practices should be disseminated among the member states.

#### **6.3 Transparent marketplaces for the transfer of businesses**

In addition to raising awareness, specific consultancy, and mentoring that facilitates the transfer process, marketplaces that provide a platform for bringing together potential buyers and sellers are an important tool for fostering successful business transfers. Marketplaces are increasingly important since the number of transfers to third parties is increasing. It is therefore becoming more and more important to facilitate the matching of potential buyers and sellers of businesses, thereby contributing to successful transfers. According to findings from the project on fostering transparent marketplaces for business transfers in Europe (Marketplaces, 2006, 13-16), transfers to third parties are characterized by specific factors: matching the preferences of buyers and sellers, building trust (information asymmetries), and addressing emotional, psychological, and technical issues. Buyers and sellers have different preferences regarding the business; therefore, it might be complicated to match a potential buyer and potential seller in the same area and at the same time. The research shows a numerical difference often occurs between the supply and demand sides in transfer databases. Such databases usually include more offers of businesses (2/3 of advertisements) than persons actively looking for a business (1/3 of advertisements).

According to experts' opinion, building trust is difficult as strong information asymmetries usually exist between buyers and sellers of businesses, especially smaller ones. The ownerseller might exaggerate the strong aspects and downplay the problems. Knowing this, the transferee-buyer might distrust the information provided by the owner. The building of trust will also be made difficult because potential sellers usually do not want to have it widely known that their business is for sale. Therefore, advertisements in databases will be quite general and vague—in other words, not very attractive to potential successors-buyers, who wish to have a clearer picture of an enterprise. The issue of trust also applies to intermediary institutions. Potential advisers in a web-based marketplace sometimes do not trust the institutions involved in running the database.

Family Businesses: The Extensiveness of Succession Problems and Possible Solutions 227

recommended to avoid fragmentation of national databases; see Marketplaces, 2006, 53). Most marketplaces and databases are not specifically oriented toward family businesses. An example of good practice is the "Austrian Nachfolgebörse der Österreichischen Wirtschaftskammer" (Mandl, 2008, 84), which was established in 2003 in Austria and provides a platform for persons looking for successors and persons wishing to buy an existing company. Both parties are supported by the experts providing knowledge and information relevant for business transfer. The services contain, among others, a succession check (i.e., whether the business is "fit" for transfer), guidelines, and a checklist for

Since the transfer of ownership and management within a family is only one of the possibilities for solving succession in family business (and according to research findings not a favorable option for potential entrepreneurs/successors), the marketplaces and databases are gaining in importance for solving succession problems at the firm level as well as the national and European level. However, the text has discussed findings on the needed characteristics of marketplaces and databases for business transfers, demonstrating that the creation and implementation of such platforms are not easy tasks, especially for countries in which the supporting infrastructure for business transfers is underdeveloped. This is especially true for former socialist countries (see national reports in Marketplaces, 2006, 54- 74). Therefore, we find the exchange of good practices and dissemination of research results to be particularly important for ensuring the effectiveness and efficiency of marketplaces

The problem of succeeding the owner (in the majority of SMEs, also manager) is a critical issue in all SMEs, particularly in family businesses because of its emotional nature. Various statistics indicate the limited survival rates of family businesses due to poorly solved difficulties surrounding the succession. Succession is gaining more importance in Europe because of the expected retirement of a substantial amount of family businesses' ownermanagers. Many activities have been started within the EU (at the EU and national levels) in order to support business transfers. Successful transfers have direct affects for national economies as well as for the European economy in general. In realizing successful transfers, an important role is played by owners-managers of transferable enterprises as well as by national governments, which should establish supporting measures and infrastructure. The search for potential successors and preparations for succession should start early enough. Owners-managers should be aware of the fact that succession takes time and should be planned; this is true for transfer within the family as well as selling the business to third parties. Therefore, the main issue to tackle to ensure successfully transfer is to raise family business owner-managers' awareness of the importance of early preparation and then make support (tools, measures, and infrastructure) available for the transfer. Owner-managers close to retirement should be actively approached to support them with advice regarding succession (e.g., like in Netherlands; see also Molly et al., 2001), and potential successors should be trained to take up their role as family business owner and/or leader through well-structured, partially tailor-made programs or workshops (regarding knowledge needs,

supporting the determination of the selling price.

and databases among member states.

**7. Conclusions** 

see also Duh & Belak, 2008).

For the incumbent owner (transferor-seller), the business to be transferred also has emotional value, which the buyer will not be willing to pay for. Only if the incumbent owner-seller has some emotional bond with the potential successor-buyer can the loss of the emotional value be diminished. Therefore, the seller and buyer have to get along on an emotional and psychological level, not just on a business level. In order to build trust between the buyer and the seller, longer tutoring periods during which the incumbent owner gradually retires from the business can be helpful. In addition, technical issues are linked to business transfers. The transfer of business is complex as it involves the transfer of several types of assets (such as machinery, real estate, cars), which might be governed by special rules and different tax provisions. Moreover, more than two parties are often concerned, including not only the owner-seller and the buyer, but also the owner's family, credit institutions, etc.

Based on the specifics of businesses transfers to third parties (as previously discussed in the text) and experiences of existing marketplaces and databases, the experts identified the relevant preconditions and factors for marketplaces and databases to work successfully. In continuation of the text they are briefly summarized (Marketplaces, 2006, 47-53). The fragmentation of databases should be avoided by establishing a comprehensive national database. If that is not possible, then a national portal for such databases should be considered. National databases and portals should also provide links to well-established databases in other countries. The database should be run and managed by a neutral and trustworthy host organization (e.g., chambers of commerce, chambers of trade and industry, and/or craft chambers) since this is a key factor for the databases' success.

In order to balance information asymmetries between buyers and sellers as well as attract more potential users of databases, a minimum standard is required with respect to the degree of detail of the information presented. Anonymity is of central importance for most potential sellers. The database host organization is responsible for the quality of advertisements and for regular checking of their validity as well as for offering additional services (e.g., information about business transfers issues, mediation services during the negotiations, and tutoring). With such an offer of services, marketplaces will be more successful. In order to adjust and improve marketplaces, a systematic follow-up of the success of transfers is needed.

Marketplaces and databases for facilitating successful transfers to third parties already exist in some of the EU member states (Marketplaces, 2006, 6, 17-22) , including Overnamemarkt in Sowaccess in Belgium, Nexxt-Change in Germany, Passer le relais in France, Borsa delle Imprese in Italy, Bourse d'enterprises in Luxembourg, Ondernemingsbeurs in the Netherlands, Nachfolgeborse in Austria, and Yrittajat in Finland. Most of these databases were established only a few years ago. Today they contain more than 11,000 transferable enterprises, which correspond to roughly 7-8 percent of the businesses that are transferable each year. It is estimated that, each year, one out of four businesses in the databases finds a successor, and the success rate is 25 percent, although there is limited evidence to support this estimate as several database operators do not record what happens to businesses that leave the database. Most of databases are national, but there are also some established on regional bases. Differences exist regarding economic sectors covered (although it is recommended to avoid fragmentation of national databases; see Marketplaces, 2006, 53). Most marketplaces and databases are not specifically oriented toward family businesses. An example of good practice is the "Austrian Nachfolgebörse der Österreichischen Wirtschaftskammer" (Mandl, 2008, 84), which was established in 2003 in Austria and provides a platform for persons looking for successors and persons wishing to buy an existing company. Both parties are supported by the experts providing knowledge and information relevant for business transfer. The services contain, among others, a succession check (i.e., whether the business is "fit" for transfer), guidelines, and a checklist for supporting the determination of the selling price.

Since the transfer of ownership and management within a family is only one of the possibilities for solving succession in family business (and according to research findings not a favorable option for potential entrepreneurs/successors), the marketplaces and databases are gaining in importance for solving succession problems at the firm level as well as the national and European level. However, the text has discussed findings on the needed characteristics of marketplaces and databases for business transfers, demonstrating that the creation and implementation of such platforms are not easy tasks, especially for countries in which the supporting infrastructure for business transfers is underdeveloped. This is especially true for former socialist countries (see national reports in Marketplaces, 2006, 54- 74). Therefore, we find the exchange of good practices and dissemination of research results to be particularly important for ensuring the effectiveness and efficiency of marketplaces and databases among member states.

#### **7. Conclusions**

226 Entrepreneurship - Gender, Geographies and Social Context

For the incumbent owner (transferor-seller), the business to be transferred also has emotional value, which the buyer will not be willing to pay for. Only if the incumbent owner-seller has some emotional bond with the potential successor-buyer can the loss of the emotional value be diminished. Therefore, the seller and buyer have to get along on an emotional and psychological level, not just on a business level. In order to build trust between the buyer and the seller, longer tutoring periods during which the incumbent owner gradually retires from the business can be helpful. In addition, technical issues are linked to business transfers. The transfer of business is complex as it involves the transfer of several types of assets (such as machinery, real estate, cars), which might be governed by special rules and different tax provisions. Moreover, more than two parties are often concerned, including not only the owner-seller and the buyer, but also the owner's family,

Based on the specifics of businesses transfers to third parties (as previously discussed in the text) and experiences of existing marketplaces and databases, the experts identified the relevant preconditions and factors for marketplaces and databases to work successfully. In continuation of the text they are briefly summarized (Marketplaces, 2006, 47-53). The fragmentation of databases should be avoided by establishing a comprehensive national database. If that is not possible, then a national portal for such databases should be considered. National databases and portals should also provide links to well-established databases in other countries. The database should be run and managed by a neutral and trustworthy host organization (e.g., chambers of commerce, chambers of trade and industry, and/or craft chambers) since this is a key factor for the databases'

In order to balance information asymmetries between buyers and sellers as well as attract more potential users of databases, a minimum standard is required with respect to the degree of detail of the information presented. Anonymity is of central importance for most potential sellers. The database host organization is responsible for the quality of advertisements and for regular checking of their validity as well as for offering additional services (e.g., information about business transfers issues, mediation services during the negotiations, and tutoring). With such an offer of services, marketplaces will be more successful. In order to adjust and improve marketplaces, a systematic follow-up of the

Marketplaces and databases for facilitating successful transfers to third parties already exist in some of the EU member states (Marketplaces, 2006, 6, 17-22) , including Overnamemarkt in Sowaccess in Belgium, Nexxt-Change in Germany, Passer le relais in France, Borsa delle Imprese in Italy, Bourse d'enterprises in Luxembourg, Ondernemingsbeurs in the Netherlands, Nachfolgeborse in Austria, and Yrittajat in Finland. Most of these databases were established only a few years ago. Today they contain more than 11,000 transferable enterprises, which correspond to roughly 7-8 percent of the businesses that are transferable each year. It is estimated that, each year, one out of four businesses in the databases finds a successor, and the success rate is 25 percent, although there is limited evidence to support this estimate as several database operators do not record what happens to businesses that leave the database. Most of databases are national, but there are also some established on regional bases. Differences exist regarding economic sectors covered (although it is

credit institutions, etc.

success of transfers is needed.

success.

The problem of succeeding the owner (in the majority of SMEs, also manager) is a critical issue in all SMEs, particularly in family businesses because of its emotional nature. Various statistics indicate the limited survival rates of family businesses due to poorly solved difficulties surrounding the succession. Succession is gaining more importance in Europe because of the expected retirement of a substantial amount of family businesses' ownermanagers. Many activities have been started within the EU (at the EU and national levels) in order to support business transfers. Successful transfers have direct affects for national economies as well as for the European economy in general. In realizing successful transfers, an important role is played by owners-managers of transferable enterprises as well as by national governments, which should establish supporting measures and infrastructure. The search for potential successors and preparations for succession should start early enough. Owners-managers should be aware of the fact that succession takes time and should be planned; this is true for transfer within the family as well as selling the business to third parties. Therefore, the main issue to tackle to ensure successfully transfer is to raise family business owner-managers' awareness of the importance of early preparation and then make support (tools, measures, and infrastructure) available for the transfer. Owner-managers close to retirement should be actively approached to support them with advice regarding succession (e.g., like in Netherlands; see also Molly et al., 2001), and potential successors should be trained to take up their role as family business owner and/or leader through well-structured, partially tailor-made programs or workshops (regarding knowledge needs, see also Duh & Belak, 2008).

Family Businesses: The Extensiveness of Succession Problems and Possible Solutions 229

type of transfer [family, employees, etc.]), which would provide the basis for evaluation of

An important source of information on business transfers is provided by already cited reports on EU business transfer activities, which include the analysis of the improvements in EU member states, examples of good practices, and other solutions (e.g., legal, financial, tax etc.). Important data on the implementation of the ten principles of the Small Business Act are provided at the country level in the SBA fact sheets (e.g., SBA Fact Sheets, 2010) and, together with the SME Performance Review, represent one of the main tools employed by the European Commission to monitor SBA implementation (Annual Report, 2009). These are all valuable resources of data and information to support business transfers and make them a successful process in the life of a family business for national institutions, organizations,

Annual Report. (2009). European SMEs under Pressure. Annual report on EU small and

Astrachan, J. H. & Shanker, M. C. (2003). Family Businesses' Contribution to the U.S.

Bjuggren, P.-O. & Sund, L.-G. (2001). Strategic Decision Making in Intergenerational

Cabrera-Suárez, K., De Saa-Pérez, P. & García-Almeida, D. (2001). The Succession Process

Chrisman, J. J., Chua, J. H. & Sharma, P. (2005). Trends and Directions in the Development

*Practice*, Vol. 29, No. 5, (September 2005), pp. 555-575, ISSN 1042-2587 Commission (1994). Commission Recommendation on the transfer of small and medium-

http://ec.europa.eu/enterprise/policies/sme/documents/transfers/ Commission (1998). Commission Communication on the transfer of small and medium-

 http://ec.europa.eu/enterprise/policies/sme/documents/transfers/ Communication (2006). Communication from the Commission to the Council, the European

sized enterprises, OJ C 93, 23. 9. 2011, Available from:

*Review*, Vol. 14, No. 1, (March 2001), pp. 37-46, ISSN 0894-4865

*Business Review*, Vol. 14, No. 1, (March 2001), pp. 11–23, ISSN 0894-4865 Bjuggren, P.-O. & Sund, L.-G. (2002). A transaction cost rationale for transition of the firm

medium-sized enterprises 2009. European Commission, 21.9.2011, Available from: http://ec.europa.eu/enterprise/policies/sme/facts-figures-analysis/performance-

Economy: A Closer Look. *Family Business Review*, Vol. 16, No. 3, (December 2003),

Successions of Small- and Medium-Sized Family-Owned Businesses. *Family* 

within the family. *Small Business Economics*, Vol. 19, No. 2, (September 2002), pp.

from a Resource and Knowledge-based View of the Family Firm. *Family Business* 

of a Strategic Management Theory of the Family Firm. *Entrepreneurship Theory and* 

sized enterprises, OJ L 385, and the accompanying Communication containing the justification for the Recommendation, OJ C 400, 23. 9. 2011, Available from:

Parliament, the European Economic and Social Committee and the Committee of the Regions: Implementing the Lisbon Community Programme for Growth and Jobs—Transfer of Business, Continuity through a new beginning, 23. 9. 2011,

transfer processes and the design for appropriate policies.

and government agencies.

review/

pp. 211-219, ISSN 0894-4865

123-133, ISSN 1573-0913

Available from:

**8. References** 

The respective national institutions and organizations should create such measures and infrastructure to foster successful business transfers, promote entrepreneurs to prepare business transfers in a timely manner, and engage potential entrepreneurs in thinking about taking over the existing enterprise. In addition to raising owner-managers' awareness, providing information on support available for facilitating business transfers and offering special training programs on business transfers, including succession topics in study programs, special counseling on business transfers, and creation of a business sellers and buyers database/marketplace, are critical.

Many recommendations have been put forth (e.g., by the European Commission) while various activities and examples of good practice have been made public. Some countries have already created and implemented innovative and effective measures; these positive experiences should be shared, especially with post-socialist countries, where issues of family business transfer often do not attract the needed political attention and lack a family business support infrastructure. Private SMEs and family businesses in post-socialist countries are now in the majority and for the first time are facing issues of transferring ownership and management. According to research findings, this transition is the most critical one.

Although research findings indicate that we can expect an increasing number of successions to be realized to third persons, governments should take steps to stimulate succession within the family. Taking over a family business can be a valuable alternative for family members, especially in contexts/situations where it appears to be advantages associated with the selection of a family member as a successor (e.g., existence of family businessspecific experiential/idiosyncratic knowledge). Researchers almost automatically assume that, in accordance with the model of stages of ownership evolution (e.g., controlling owner, sibling partnership, cousin consortium; for a description, see Gersick et al., 1997), over the generations, family businesses are inevitably confronted with greater family complexity; however, there are possibilities to reduce this complexity and problems arise from this complexity (e.g., conflicts among family members, growing demand for dividends from a greater number of family members). According to Lambrecht and Lievens (2008), pruning the family tree is an alternative method of handling family complexity that is usually done in the second and subsequent generations. By reducing the number of family shareholders and/or family managers, the business family introduces simplicity into the ownership and/or management structure of the family business. Good practices of how to prepare and realize the pruning of the family tree should also be the topic of family business ownermanagers training.

It is also useful to continue with research, which should concentrate on the factors that contribute to effective successions and the effectiveness of the enterprise after the transition. Research findings also provide valuable insights into best practices regarding how to carry out a succession and how an enterprise is expected to change because of the transition while also calling attention to problems linked to business transfers. Next to research, the collecting of data on succession on a regular basis is important. An expert group (Transfer of SMEs, 2002) suggested indicators for monitoring business transfers at the European level (e.g., age structure of SME owners by size class of enterprises, number of business transfers by size class, number of start-ups and number of closures, age of the enterprise at transfer, type of transfer [family, employees, etc.]), which would provide the basis for evaluation of transfer processes and the design for appropriate policies.

An important source of information on business transfers is provided by already cited reports on EU business transfer activities, which include the analysis of the improvements in EU member states, examples of good practices, and other solutions (e.g., legal, financial, tax etc.). Important data on the implementation of the ten principles of the Small Business Act are provided at the country level in the SBA fact sheets (e.g., SBA Fact Sheets, 2010) and, together with the SME Performance Review, represent one of the main tools employed by the European Commission to monitor SBA implementation (Annual Report, 2009). These are all valuable resources of data and information to support business transfers and make them a successful process in the life of a family business for national institutions, organizations, and government agencies.

#### **8. References**

228 Entrepreneurship - Gender, Geographies and Social Context

The respective national institutions and organizations should create such measures and infrastructure to foster successful business transfers, promote entrepreneurs to prepare business transfers in a timely manner, and engage potential entrepreneurs in thinking about taking over the existing enterprise. In addition to raising owner-managers' awareness, providing information on support available for facilitating business transfers and offering special training programs on business transfers, including succession topics in study programs, special counseling on business transfers, and creation of a business sellers and

Many recommendations have been put forth (e.g., by the European Commission) while various activities and examples of good practice have been made public. Some countries have already created and implemented innovative and effective measures; these positive experiences should be shared, especially with post-socialist countries, where issues of family business transfer often do not attract the needed political attention and lack a family business support infrastructure. Private SMEs and family businesses in post-socialist countries are now in the majority and for the first time are facing issues of transferring ownership and management. According to research findings, this transition is the most

Although research findings indicate that we can expect an increasing number of successions to be realized to third persons, governments should take steps to stimulate succession within the family. Taking over a family business can be a valuable alternative for family members, especially in contexts/situations where it appears to be advantages associated with the selection of a family member as a successor (e.g., existence of family businessspecific experiential/idiosyncratic knowledge). Researchers almost automatically assume that, in accordance with the model of stages of ownership evolution (e.g., controlling owner, sibling partnership, cousin consortium; for a description, see Gersick et al., 1997), over the generations, family businesses are inevitably confronted with greater family complexity; however, there are possibilities to reduce this complexity and problems arise from this complexity (e.g., conflicts among family members, growing demand for dividends from a greater number of family members). According to Lambrecht and Lievens (2008), pruning the family tree is an alternative method of handling family complexity that is usually done in the second and subsequent generations. By reducing the number of family shareholders and/or family managers, the business family introduces simplicity into the ownership and/or management structure of the family business. Good practices of how to prepare and realize the pruning of the family tree should also be the topic of family business owner-

It is also useful to continue with research, which should concentrate on the factors that contribute to effective successions and the effectiveness of the enterprise after the transition. Research findings also provide valuable insights into best practices regarding how to carry out a succession and how an enterprise is expected to change because of the transition while also calling attention to problems linked to business transfers. Next to research, the collecting of data on succession on a regular basis is important. An expert group (Transfer of SMEs, 2002) suggested indicators for monitoring business transfers at the European level (e.g., age structure of SME owners by size class of enterprises, number of business transfers by size class, number of start-ups and number of closures, age of the enterprise at transfer,

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**14** 

*Brazil* 

**International Entrepreneurship in** 

The economic development of a country depends today on qualified integration into the world economy. In the past, internationalization tended to be restricted to large companies. Today, small and medium enterprises (SMEs) have become involved in the global market in a variety of ways. The growing internationalization of the small and medium size firms has stimulated the creation of a field of studies aimed at understanding this new phenomenon, the so-called "international new ventures", "born global", "global start-ups" or "international entrepreneurship". The internationalization of these firms is based on singular features: their operations and strategies are not the same as the large firms, as they are not the same as the firms that remain on the home market. Internationalization requires small and medium size firms to mobilize different kinds of resources (economic and social) that uniquely impose greater degrees of risks and indeterminacy. In the past, small and medium size firms tended to be seen as victims; at present, they are seen as 'players in the

International entrepreneurship1 is not a new phenomenon, yet it is certainly more significant today than it was some decades ago. Factors that have contributed to small and medium size firms involvement in international business are, among others, the increasing use of information and communication technologies (ICTs), growth of knowledge-intensive industries, reduced costs of transportation and logistics2, trade liberalization and increasing competition, greater awareness of international economic opportunities, the need to share knowledge and costs with partners and the lack of qualified human resources on the home

1 Entrepreneurship is a controversial concept. For a good review of the concept, see Aldrich, H.E. (2005) "Entrepreneurship", in Smelser, N. J. & Swedberg, R. (eds), The handbook of economic sociology, 2. ed. New Jersey: Princeton University Press. Briefly, for the purposes of this article, international entrepreneurship is considered "the discovery, enactment, evaluation, and exploitation of opportunities—across national borders—to create future goods and services" (Oviatt & McDougall,

2 "…a three-minute telephone call from New York City to London cost \$717.70 in 1927 and 84 cents in 1999 (all in 1999 U.S. dollars). Shipping a 150-pound parcel by air from New York City to Hong Kong cost \$2,188 in 1960 and \$389 in 1999 (in 1999 U.S. dollars)." (Kuemmerle, W. (2005). The entrepreneur's

path to global expansion. MIT Sloan Management Review, 46,42–49).

**1. Introduction** 

game' (Ruzzier et al., 2006).

markets.

2005, p.540).

**an Emerging Economy** 

*Federal University of Rio Grande do Sul,* 

Sonia K. Guimarães


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## **International Entrepreneurship in an Emerging Economy**

Sonia K. Guimarães *Federal University of Rio Grande do Sul, Brazil* 

#### **1. Introduction**

234 Entrepreneurship - Gender, Geographies and Social Context

Steier, L. (2001). Next-generation Entrepreneurs and Succession: An Exploratory Study of

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Change in Management Education. *Entrepreneurship Theory and Practice,* Vol. 30,

Final report of the MAP 2002 project, European Commission, August 2003, 23. 9.

orientation of family enterprises in Slovenia). Doktorska disertacija (Doctoral dissertation). Ekonomska fakulteta, Univerza v Ljubljani (Faculty of Economics,

businesses, *Proceedings of the 26th Conference on Entrepreneurship and Innovation Cooperation between the economic, academic and governmental spheres—mechanisms and levers*, ISBN 961-6354-45-0, Maribor, March 2006, 30. 10. 2009, Available from: The economic development of a country depends today on qualified integration into the world economy. In the past, internationalization tended to be restricted to large companies. Today, small and medium enterprises (SMEs) have become involved in the global market in a variety of ways. The growing internationalization of the small and medium size firms has stimulated the creation of a field of studies aimed at understanding this new phenomenon, the so-called "international new ventures", "born global", "global start-ups" or "international entrepreneurship". The internationalization of these firms is based on singular features: their operations and strategies are not the same as the large firms, as they are not the same as the firms that remain on the home market. Internationalization requires small and medium size firms to mobilize different kinds of resources (economic and social) that uniquely impose greater degrees of risks and indeterminacy. In the past, small and medium size firms tended to be seen as victims; at present, they are seen as 'players in the game' (Ruzzier et al., 2006).

International entrepreneurship1 is not a new phenomenon, yet it is certainly more significant today than it was some decades ago. Factors that have contributed to small and medium size firms involvement in international business are, among others, the increasing use of information and communication technologies (ICTs), growth of knowledge-intensive industries, reduced costs of transportation and logistics2, trade liberalization and increasing competition, greater awareness of international economic opportunities, the need to share knowledge and costs with partners and the lack of qualified human resources on the home markets.

<sup>1</sup> Entrepreneurship is a controversial concept. For a good review of the concept, see Aldrich, H.E. (2005) "Entrepreneurship", in Smelser, N. J. & Swedberg, R. (eds), The handbook of economic sociology, 2. ed. New Jersey: Princeton University Press. Briefly, for the purposes of this article, international entrepreneurship is considered "the discovery, enactment, evaluation, and exploitation of opportunities—across national borders—to create future goods and services" (Oviatt & McDougall, 2005, p.540).

<sup>2 &</sup>quot;…a three-minute telephone call from New York City to London cost \$717.70 in 1927 and 84 cents in 1999 (all in 1999 U.S. dollars). Shipping a 150-pound parcel by air from New York City to Hong Kong cost \$2,188 in 1960 and \$389 in 1999 (in 1999 U.S. dollars)." (Kuemmerle, W. (2005). The entrepreneur's path to global expansion. MIT Sloan Management Review, 46,42–49).

International Entrepreneurship in an Emerging Economy 237

The growth of knowledge intensive entrepreneurship in emerging economies may be associated with worldwide decentralization of R&D, made possible to a great extent by ICTs5. Data from the Science and Engineering Indicators, 2010, of the National Science Board (NSB), USA, reveal a new map of R&D (see Figure 1): in 2007, North America and European Union were responsible for 63 percent of the world's US\$ 1,10 trillion invested in this area, as compared to 71 percent in 1996. The Asian Pacific's (mainly China, Japan and Korea) contribution rose from 24 percent to 31 percent. Latin America remained a minor player with a mere 2.6 percent of the total. Despite the region's low performance, Brazil emerges as its leader in R&D, demonstrating growth that has repercussions for innovation

Since the end of the 1990s, successive Brazilian administrations have made significant efforts to stimulate the internationalization of the Brazilian firms, through a range of incentives which have included SMEs. The Productive Development Policy, issued in 2008, aimed at increasing private investments in R&D in order to create conditions for the country's

Recently (August, 3rd, 2011), the Brazilian Research and Innovation Enterprise (Embrapii) was created, in partnership with the German Institute Fraunhofer. It aims at promoting innovation in industrial and service sectors, based on the principles of the successful Brazilian Enterprise of Agricultural Research (EMBRAPA), which operates 90 research centers throughout the country. In the speech he gave, current Minister of Science, Technology and Innovation Aluízio Mercadante asserted that EMBRAPII seeks to "expand the system of innovation primarily within small and medium enterprises" (Minister of S,T&I speech, See http://www.anpei.org.br/imprensa/noticias/cni-e-governo-criam-empresa-

Why is internationalization important? Internationalization is a general concept that includes a variety of activities, such as exportation of goods and services or establishment of joint ventures and subsidiaries abroad, aimed at setting up contracts and partnerships among enterprises for the development of R&D activities. In this article, we use the concept "internationalization" in its general sense, that is, the move to carry economic and productive activities beyond borders; in other words, activities that are not restricted to commercial operation. Internationalization is always considered here with a focus on

There is some consensus in the literature that internationalization has a positive impact on firm performance. Internationalization implies greater transaction costs than would be incurred within home markets, thus requiring the enhancement of firm performance. Thus a process of reciprocal influence is set off: internationalization favors the development of a firm's technological capacity which, in turn, benefits its competitiveness. Firms may also benefit from exchanges that are set up with international research centers, some of which are

5 This transformation, which the ICTs made easier, enables us to question the thesis asserting the inevitably peripheral position of developing countries - as exporters of commodities and bearers of a technologically-dependent industrialization - within the international division of labor (Arora &

and high tech-entrepreneurship.

para-inovação).

technological innovation.

Gambardella, 2004; Ariffin & Figueredo, 2006).

qualified integration (including SMEs) into global trade.

Indeed, as a result of shifts in technology manufacturing and knowledge-intensive services, a worldwide restructuring is taking place. This can be demonstrated by comparing data on world trade for the periods spanning 1980-1993 and 1994-2008. Data show a significant increase in the annual average of global export – from 3.6 percent to 7.8 percent (International Monetary Fund, IMF, as cited in Nonnenberg, 2011) – as well as a change in the kind of goods and services exported: there has been expressive growth of high technological goods and knowledge intensive services while labor intensive goods have suffered a reduction (from 40 percent of the total, in 1980, to approximately 29 percent, in 2008). A shift in the flux of world trade can also be observed, with export of medium and high-tech goods and services increasing at higher rates in the emerging economies (resulting primarily from Chinese and Korean performances) than in the developed economies. The nature of international operations has also changed: in addition to export and/or commercial activities, these operations now include partnerships and contracts with other enterprises for manufacturing or assembling processes, for distribution, maintenance, aftersale support, and for brand transfer and franchises abroad.

These changes can, to a large extent, be seen as a result of the nature of innovation, technology transfer facilitated by multinational corporate investments in R&D, as well as the increasing volume of foreign direct investments in emerging economies (Nonnemberg, 2011)3 and, last but not least, the spread of science and technological capacity around the world. Indeed, research investments are growing more rapidly outside the centers that previously dominated world R&D – North America, Europe, and Japan (See Figure 1).

Fig. 1. Location of Estimed Worldwide R&D Expenditures: 1996 and 20074

<sup>3</sup> In developed countries, high-tech goods and services underwent a 53 percent to 66 percent increase during the 1980-2008 period; in emergent countries, there was a 16 to 50 percent increase over the same period (Nonnemberg, 2011).

<sup>4</sup> Source: Globalization of Science and Engineering, Science and Engineering Indicators, 2010. National Science Board, Arlington, Virginia, US (accessed on 05.09.2011: http://www.nsf.gov/nsb)

Indeed, as a result of shifts in technology manufacturing and knowledge-intensive services, a worldwide restructuring is taking place. This can be demonstrated by comparing data on world trade for the periods spanning 1980-1993 and 1994-2008. Data show a significant increase in the annual average of global export – from 3.6 percent to 7.8 percent (International Monetary Fund, IMF, as cited in Nonnenberg, 2011) – as well as a change in the kind of goods and services exported: there has been expressive growth of high technological goods and knowledge intensive services while labor intensive goods have suffered a reduction (from 40 percent of the total, in 1980, to approximately 29 percent, in 2008). A shift in the flux of world trade can also be observed, with export of medium and high-tech goods and services increasing at higher rates in the emerging economies (resulting primarily from Chinese and Korean performances) than in the developed economies. The nature of international operations has also changed: in addition to export and/or commercial activities, these operations now include partnerships and contracts with other enterprises for manufacturing or assembling processes, for distribution, maintenance, after-

These changes can, to a large extent, be seen as a result of the nature of innovation, technology transfer facilitated by multinational corporate investments in R&D, as well as the increasing volume of foreign direct investments in emerging economies (Nonnemberg, 2011)3 and, last but not least, the spread of science and technological capacity around the world. Indeed, research investments are growing more rapidly outside the centers that previously dominated world R&D – North America, Europe, and Japan (See Figure 1).

sale support, and for brand transfer and franchises abroad.

Fig. 1. Location of Estimed Worldwide R&D Expenditures: 1996 and 20074

Science Board, Arlington, Virginia, US (accessed on 05.09.2011: http://www.nsf.gov/nsb)

3 In developed countries, high-tech goods and services underwent a 53 percent to 66 percent increase during the 1980-2008 period; in emergent countries, there was a 16 to 50 percent increase over the same

4 Source: Globalization of Science and Engineering, Science and Engineering Indicators, 2010. National

period (Nonnemberg, 2011).

The growth of knowledge intensive entrepreneurship in emerging economies may be associated with worldwide decentralization of R&D, made possible to a great extent by ICTs5. Data from the Science and Engineering Indicators, 2010, of the National Science Board (NSB), USA, reveal a new map of R&D (see Figure 1): in 2007, North America and European Union were responsible for 63 percent of the world's US\$ 1,10 trillion invested in this area, as compared to 71 percent in 1996. The Asian Pacific's (mainly China, Japan and Korea) contribution rose from 24 percent to 31 percent. Latin America remained a minor player with a mere 2.6 percent of the total. Despite the region's low performance, Brazil emerges as its leader in R&D, demonstrating growth that has repercussions for innovation and high tech-entrepreneurship.

Since the end of the 1990s, successive Brazilian administrations have made significant efforts to stimulate the internationalization of the Brazilian firms, through a range of incentives which have included SMEs. The Productive Development Policy, issued in 2008, aimed at increasing private investments in R&D in order to create conditions for the country's qualified integration (including SMEs) into global trade.

Recently (August, 3rd, 2011), the Brazilian Research and Innovation Enterprise (Embrapii) was created, in partnership with the German Institute Fraunhofer. It aims at promoting innovation in industrial and service sectors, based on the principles of the successful Brazilian Enterprise of Agricultural Research (EMBRAPA), which operates 90 research centers throughout the country. In the speech he gave, current Minister of Science, Technology and Innovation Aluízio Mercadante asserted that EMBRAPII seeks to "expand the system of innovation primarily within small and medium enterprises" (Minister of S,T&I speech, See http://www.anpei.org.br/imprensa/noticias/cni-e-governo-criam-empresapara-inovação).

Why is internationalization important? Internationalization is a general concept that includes a variety of activities, such as exportation of goods and services or establishment of joint ventures and subsidiaries abroad, aimed at setting up contracts and partnerships among enterprises for the development of R&D activities. In this article, we use the concept "internationalization" in its general sense, that is, the move to carry economic and productive activities beyond borders; in other words, activities that are not restricted to commercial operation. Internationalization is always considered here with a focus on technological innovation.

There is some consensus in the literature that internationalization has a positive impact on firm performance. Internationalization implies greater transaction costs than would be incurred within home markets, thus requiring the enhancement of firm performance. Thus a process of reciprocal influence is set off: internationalization favors the development of a firm's technological capacity which, in turn, benefits its competitiveness. Firms may also benefit from exchanges that are set up with international research centers, some of which are

<sup>5</sup> This transformation, which the ICTs made easier, enables us to question the thesis asserting the inevitably peripheral position of developing countries - as exporters of commodities and bearers of a technologically-dependent industrialization - within the international division of labor (Arora & Gambardella, 2004; Ariffin & Figueredo, 2006).

International Entrepreneurship in an Emerging Economy 239

New features of economic development marked by knowledge-based industries, internationalization and innovation represent a significant challenge for an emerging economy like Brazil. The Brazilian industrialization process was based on an importsubstitution model, geared toward the home market and favored by strong state protectionism. This worked to prevent the emergence of a culture of innovation, insofar as the reigning concern became the production of goods that had previously been imported. Yet over the last two decades, confronted by new economic dynamics, Brazil has been made a tremendous effort to overcome the lacunas that were the legacy of the "old culture". Since the end of the 1990s, the country has been implementing policies aiming at stimulating innovation, aided by private investment in R&D and seeking to put the country on the map as a relevant player in the international innovation scenario. Incentives also target micro and

Notwithstanding government incentives, innovative small and medium size companies in Brazil show low performance in export activities. Moreover, this is particularly true with regard to the leading sectors of the "new economy" - ICTs and the Life Sciences sector. Findings of research carried out in 2008 (Biominas, 2009) which looked at 252 private firms in the Life Sciences field showed that only 11.2 percent of the respondents declared recurrent export activity, while 22.4 percent reported that they exported occasionally. Nonetheless, 30.7 percent of these firms declared an intention to take part in the world market within the next two years. Efforts are being made to overcome low performance: in the area of Biotechnology, BrBiotec, a Technical Network in Biotechnology and Health, was recently created, for the purpose of strengthening the identity and performance of Brazilian firms on a world scale.

Chart 1. Export of manufacturing goods, by technological intensity (1996-2009)6

Despite low performance in the export of high-tech goods and services, Brazil's export structure has undergone change. Chart 1 here maps Brazilian export performance over the 1996-2009 period, by degree of technological intensity for product groups. In the case of goods

**2. Brazil and internationalization** 

small high-tech companies.

6 Source: IPEA, 2010, P. 497.

known for their excellence. Furthermore, the possibility of establishing partnerships with other firms for joint developments of goods and services, aimed at accessing new markets, is opened.

Nonnemberg (2011) refers to several recent studies that demonstrate the existence of strong correlation between exportation, innovation (presence of R&D) and increase in productivity. That correlation would be especially true when considering SMEs in emerging countries, which benefit from the interaction with foreign enterprises through the transfer of technological, managerial and market knowledge. There is also evidence that shows a positive correlation between exporting firms and improved human resources management (for instance, higher wages and investment in training). Firms that rely primarily on exporting what they produce have 3.6 times more probability of producing radical innovation than firms relying on local or regional markets; firms that participate in cooperative arrangements with other organizations for the development of innovation have 4 times more chances of producing radical innovation than firms that are not involved in cooperation with other organizations (Tironi & Cruz, 2008).

Knowledge-based firms tend to employ more complex processes in designing a new product, an improved production method or more efficient service delivery. For instance, in the Bio-technological sector, a firm may develop processes that involve some type of manipulation of human genes. These firms may enjoy the possibility of internationalizing insofar as they tend to hold a competitive sustainable advantage which may be in demand in other countries (Oviatt & McDougall, 1994).

A study of technology, export and employment which considers Brazilian firms has concluded that "The innovative internationalized firms pay better wages, employ qualified people expend proportionally more resources in training, which improves the workers' qualification." (Arbix et al., 2005 as cited in De Negri e Salerno, 2005).

In the present article, our major goal is to describe the findings of research based on five cases. These cases were selected from a survey that our team carried out at 81 knowledgebased SMEs, located in incubators or in technological parks situated on five different university campuses. Among the 81 firms where interviews were conducted, there were only 19 that declared involvement in international activities, and in most cases, this was more occasional than regular; furthermore, for most of them, this involvement had taken place in the past. The five cases we selected were among the small and medium size firms that could be identified as minimally successful.

Our research main objective was to inquire into how entrepreneurs discover, evaluate, and exploit international opportunities, considering the relationship between environment, industry conditions and entrepreneurial actors. Based on that objective, some issues were raised, as follows:

How does a Brazilian start-up expand beyond borders? Can patterns of internationalization be observed among high-performing ventures or do they all tend to follow different paths?

How have an outward-oriented culture and strategic actions developed, in light of the fact that neither are part of the country's entrepreneurial culture and that the size of the domestic market could be considered an incentive to remain at home?

#### **2. Brazil and internationalization**

238 Entrepreneurship - Gender, Geographies and Social Context

known for their excellence. Furthermore, the possibility of establishing partnerships with other firms for joint developments of goods and services, aimed at accessing new markets, is

Nonnemberg (2011) refers to several recent studies that demonstrate the existence of strong correlation between exportation, innovation (presence of R&D) and increase in productivity. That correlation would be especially true when considering SMEs in emerging countries, which benefit from the interaction with foreign enterprises through the transfer of technological, managerial and market knowledge. There is also evidence that shows a positive correlation between exporting firms and improved human resources management (for instance, higher wages and investment in training). Firms that rely primarily on exporting what they produce have 3.6 times more probability of producing radical innovation than firms relying on local or regional markets; firms that participate in cooperative arrangements with other organizations for the development of innovation have 4 times more chances of producing radical innovation than firms that are not involved in

Knowledge-based firms tend to employ more complex processes in designing a new product, an improved production method or more efficient service delivery. For instance, in the Bio-technological sector, a firm may develop processes that involve some type of manipulation of human genes. These firms may enjoy the possibility of internationalizing insofar as they tend to hold a competitive sustainable advantage which may be in demand

A study of technology, export and employment which considers Brazilian firms has concluded that "The innovative internationalized firms pay better wages, employ qualified people expend proportionally more resources in training, which improves the workers'

In the present article, our major goal is to describe the findings of research based on five cases. These cases were selected from a survey that our team carried out at 81 knowledgebased SMEs, located in incubators or in technological parks situated on five different university campuses. Among the 81 firms where interviews were conducted, there were only 19 that declared involvement in international activities, and in most cases, this was more occasional than regular; furthermore, for most of them, this involvement had taken place in the past. The five cases we selected were among the small and medium size firms

Our research main objective was to inquire into how entrepreneurs discover, evaluate, and exploit international opportunities, considering the relationship between environment, industry conditions and entrepreneurial actors. Based on that objective, some issues were

How does a Brazilian start-up expand beyond borders? Can patterns of internationalization be observed among high-performing ventures or do they all tend to follow different paths? How have an outward-oriented culture and strategic actions developed, in light of the fact that neither are part of the country's entrepreneurial culture and that the size of the

cooperation with other organizations (Tironi & Cruz, 2008).

qualification." (Arbix et al., 2005 as cited in De Negri e Salerno, 2005).

domestic market could be considered an incentive to remain at home?

in other countries (Oviatt & McDougall, 1994).

that could be identified as minimally successful.

raised, as follows:

opened.

New features of economic development marked by knowledge-based industries, internationalization and innovation represent a significant challenge for an emerging economy like Brazil. The Brazilian industrialization process was based on an importsubstitution model, geared toward the home market and favored by strong state protectionism. This worked to prevent the emergence of a culture of innovation, insofar as the reigning concern became the production of goods that had previously been imported. Yet over the last two decades, confronted by new economic dynamics, Brazil has been made a tremendous effort to overcome the lacunas that were the legacy of the "old culture". Since the end of the 1990s, the country has been implementing policies aiming at stimulating innovation, aided by private investment in R&D and seeking to put the country on the map as a relevant player in the international innovation scenario. Incentives also target micro and small high-tech companies.

Notwithstanding government incentives, innovative small and medium size companies in Brazil show low performance in export activities. Moreover, this is particularly true with regard to the leading sectors of the "new economy" - ICTs and the Life Sciences sector. Findings of research carried out in 2008 (Biominas, 2009) which looked at 252 private firms in the Life Sciences field showed that only 11.2 percent of the respondents declared recurrent export activity, while 22.4 percent reported that they exported occasionally. Nonetheless, 30.7 percent of these firms declared an intention to take part in the world market within the next two years. Efforts are being made to overcome low performance: in the area of Biotechnology, BrBiotec, a Technical Network in Biotechnology and Health, was recently created, for the purpose of strengthening the identity and performance of Brazilian firms on a world scale.

Chart 1. Export of manufacturing goods, by technological intensity (1996-2009)6

Despite low performance in the export of high-tech goods and services, Brazil's export structure has undergone change. Chart 1 here maps Brazilian export performance over the 1996-2009 period, by degree of technological intensity for product groups. In the case of goods

<sup>6</sup> Source: IPEA, 2010, P. 497.

International Entrepreneurship in an Emerging Economy 241

entrepreneur observes and interprets opportunities to enable internationalization is considered to be contingent, to large extent, on personal experiences and characteristics (e.g. prior international experiences) and psychological traits (e.g., risk-taking propensity)

Other analysts challenge the subjective perspective by asserting that opportunities can only be recognized by individuals with certain capabilities (Shane & Venkataraman, 2000, as cited in Aldrich, 2005). Indeed, the perception of opportunities requires a diversity of information. The importance of the networks and their diversification, as well as learning acquired from earlier jobs or other professional experiences are all salient elements. Research findings highlight the absolute relevance of such factors. Nonetheless, they may be considered a necessary but not sufficient condition, since among many people in similar

In short, some approaches emphasize the entrepreneur's ability to perceive opportunities and make decisions based on his/her values and attitudes; others highlight the role of institutions and the general socio-economic conditions favoring or constraining actors' decisions and decision-making. To isolate only one of these perspectives would lead to too simplistic a position; as Thornton asserts, entrepreneurship is a dynamic phenomenon, changing according to social-economic and technological transformations. Individual or socio-economic or cultural factors may be responsible for the emergence of the phenomenon in one period yet not in another, since the nature of entrepreneurship and the requirements for starting a business also change. Thornton proposes a multilevel approach which integrates analyses of "the effects of individual-level traits, organizational and market-level variables, and population-level characteristics…" (Thornton, 1999, p. 36). This seems to be a more adequate approach for analyzing international entrepreneurship as well, since small firms' internationalization results from a combination of factors created by institutions,

The firms we researched were created over the last 10-12 years. Their products and services are knowledge-intensive: telecommunications equipment; software and biotech products. In four companies, at least one of the founders was connected to academic life. Some of them are still active as academic faculty. All firms except one began their activities as an incubator firm or within a technological park on a university campus; all of them are currently

Different firms have taken different paths towards internationalization, thus limiting possibilities for generalization. This in turn poses some problems for perspectives that assume firms move, gradually, from shorter to longer distances, whether in geographical and/or cultural terms. The trajectories of the firms we researched portray other scenarios, as

1. Following the client – this is the case of firm A, created in the 1990s and specializing in development of software for the shoe industry (in southern Brazil). It was founded by an academic who abandoned academic activities due to the difficulties he had in combining them with business. These difficulties were heightened by internationalization itself, with its concomitant commitment to travel and long stays

(Oviatt, Shrader, & McDougall, 2004; Oviatt, & McDougall, 2005, p.542).

personal and cultural situations, only a few choose to found a firm.

environment, the nature of the industry and actors' capabilities.

engaged in research projects with academic participation.

**4. Our findings** 

we suggest below:

abroad.

produced with lower levels of technology (textiles, leather, shoes, wood, paper and cellulose), a decrease from 43 percent, in 1996, to 36 percent, in 2007, can be observed; however, this was followed by a later increase that brought the group up again to previous rates, reaching 42 percent in 2009. Products requiring medium-high and medium-low technological intensity maintained a largely balanced pattern, with some minor fluctuation, over the period. The world crisis explains drops in the medium-high group (cars and capital goods, refined oil and other fuels) and the medium-low group (rubber, plastic products, refined oil and other fuels; other mineral products) in 2008-2009. The high-tech group (airplanes and aerospace equipment/services, pharmaceuticals, information and communication technologies, medical and optical equipment) has increased its participation from 5 percent, in 1996, to 15 percent, in 2000, due to airplanes and cellular phone export. From 2003 on, exports in this group have fallen to 9 percent, primarily due to the drop in cell phone exports; nonetheless, when compared to 1996, a significant increase becomes evident (Instituto de Pesquisa Econômica Aplicada [IPEA], 2010, p.497).

#### **3. International entrepreneurship**

The literature on SME firm internationalization, although highly diversified, tends to focus primarily on Europe and the United States. There is a tendency to generalize firms' internationalization trajectory as a continuum that moves from local to worldwide, with regional presence as an intermediate stage. This tendency runs on the assumption that the lower the level of cultural differences and geographical distance, the faster and more successful the route to internationalization (Kuemmere, 2005). Yet the validity of this assumption may be questioned, since in the era of easy communication, a firm's trajectory is likely to be related to the economic dynamism of a region or market, regardless of geographical or cultural distances (an argument that we will be develop later on).

In examining the internationalization of small and medium-size firms, current literature tends to highlight the so-called structural aspects or enabling forces: faster and lower cost transportation that have enabled people and goods (the containerization of freight) to move easily among countries (Oviatt & McDougall, 1999) and improved communication (on line communication through digital technology and/or facilities for overseas travel). However, it is also acknowledged that in order for structural factors to be effective, motivating forces must be set into motion. Concerning the internationalization of small firms, several aspects may be identified as motivating drives: reduction of tariffs in target countries; incentives provided by the home country government; the influence of international-minded management; sharing of knowledge and research costs through strategic alliances and collaboration; favorable sales and profit opportunities in foreign markets; new markets; voluntary orders from foreign buyers; foreign expertise to improve domestic competitiveness; feasible ways to ship to foreign markets; unused productive capacity; adverse domestic market conditions; looser product regulations in target countries; favorable currency exchange values; foreign competitors' entrance into the domestic market and access to human and financial resources.

Beyond objective and enabling factors, some analysts also emphasize the ability of certain individuals to perceive valuable opportunities, which they call "opportunity recognition". This is considered to be a central characteristic of entrepreneurial behavior, the underlying subjective aspect of the phenomenon: how entrepreneurial actors interpret or mediate the opportunities that are created by enabling and motivating forces. The way in which an

produced with lower levels of technology (textiles, leather, shoes, wood, paper and cellulose), a decrease from 43 percent, in 1996, to 36 percent, in 2007, can be observed; however, this was followed by a later increase that brought the group up again to previous rates, reaching 42 percent in 2009. Products requiring medium-high and medium-low technological intensity maintained a largely balanced pattern, with some minor fluctuation, over the period. The world crisis explains drops in the medium-high group (cars and capital goods, refined oil and other fuels) and the medium-low group (rubber, plastic products, refined oil and other fuels; other mineral products) in 2008-2009. The high-tech group (airplanes and aerospace equipment/services, pharmaceuticals, information and communication technologies, medical and optical equipment) has increased its participation from 5 percent, in 1996, to 15 percent, in 2000, due to airplanes and cellular phone export. From 2003 on, exports in this group have fallen to 9 percent, primarily due to the drop in cell phone exports; nonetheless, when compared to 1996, a significant increase becomes evident (Instituto de Pesquisa Econômica

The literature on SME firm internationalization, although highly diversified, tends to focus primarily on Europe and the United States. There is a tendency to generalize firms' internationalization trajectory as a continuum that moves from local to worldwide, with regional presence as an intermediate stage. This tendency runs on the assumption that the lower the level of cultural differences and geographical distance, the faster and more successful the route to internationalization (Kuemmere, 2005). Yet the validity of this assumption may be questioned, since in the era of easy communication, a firm's trajectory is likely to be related to the economic dynamism of a region or market, regardless of

In examining the internationalization of small and medium-size firms, current literature tends to highlight the so-called structural aspects or enabling forces: faster and lower cost transportation that have enabled people and goods (the containerization of freight) to move easily among countries (Oviatt & McDougall, 1999) and improved communication (on line communication through digital technology and/or facilities for overseas travel). However, it is also acknowledged that in order for structural factors to be effective, motivating forces must be set into motion. Concerning the internationalization of small firms, several aspects may be identified as motivating drives: reduction of tariffs in target countries; incentives provided by the home country government; the influence of international-minded management; sharing of knowledge and research costs through strategic alliances and collaboration; favorable sales and profit opportunities in foreign markets; new markets; voluntary orders from foreign buyers; foreign expertise to improve domestic competitiveness; feasible ways to ship to foreign markets; unused productive capacity; adverse domestic market conditions; looser product regulations in target countries; favorable currency exchange values; foreign competitors' entrance into the domestic market

Beyond objective and enabling factors, some analysts also emphasize the ability of certain individuals to perceive valuable opportunities, which they call "opportunity recognition". This is considered to be a central characteristic of entrepreneurial behavior, the underlying subjective aspect of the phenomenon: how entrepreneurial actors interpret or mediate the opportunities that are created by enabling and motivating forces. The way in which an

geographical or cultural distances (an argument that we will be develop later on).

Aplicada [IPEA], 2010, p.497).

**3. International entrepreneurship** 

and access to human and financial resources.

entrepreneur observes and interprets opportunities to enable internationalization is considered to be contingent, to large extent, on personal experiences and characteristics (e.g. prior international experiences) and psychological traits (e.g., risk-taking propensity) (Oviatt, Shrader, & McDougall, 2004; Oviatt, & McDougall, 2005, p.542).

Other analysts challenge the subjective perspective by asserting that opportunities can only be recognized by individuals with certain capabilities (Shane & Venkataraman, 2000, as cited in Aldrich, 2005). Indeed, the perception of opportunities requires a diversity of information. The importance of the networks and their diversification, as well as learning acquired from earlier jobs or other professional experiences are all salient elements. Research findings highlight the absolute relevance of such factors. Nonetheless, they may be considered a necessary but not sufficient condition, since among many people in similar personal and cultural situations, only a few choose to found a firm.

In short, some approaches emphasize the entrepreneur's ability to perceive opportunities and make decisions based on his/her values and attitudes; others highlight the role of institutions and the general socio-economic conditions favoring or constraining actors' decisions and decision-making. To isolate only one of these perspectives would lead to too simplistic a position; as Thornton asserts, entrepreneurship is a dynamic phenomenon, changing according to social-economic and technological transformations. Individual or socio-economic or cultural factors may be responsible for the emergence of the phenomenon in one period yet not in another, since the nature of entrepreneurship and the requirements for starting a business also change. Thornton proposes a multilevel approach which integrates analyses of "the effects of individual-level traits, organizational and market-level variables, and population-level characteristics…" (Thornton, 1999, p. 36). This seems to be a more adequate approach for analyzing international entrepreneurship as well, since small firms' internationalization results from a combination of factors created by institutions, environment, the nature of the industry and actors' capabilities.

#### **4. Our findings**

The firms we researched were created over the last 10-12 years. Their products and services are knowledge-intensive: telecommunications equipment; software and biotech products. In four companies, at least one of the founders was connected to academic life. Some of them are still active as academic faculty. All firms except one began their activities as an incubator firm or within a technological park on a university campus; all of them are currently engaged in research projects with academic participation.

Different firms have taken different paths towards internationalization, thus limiting possibilities for generalization. This in turn poses some problems for perspectives that assume firms move, gradually, from shorter to longer distances, whether in geographical and/or cultural terms. The trajectories of the firms we researched portray other scenarios, as we suggest below:

1. Following the client – this is the case of firm A, created in the 1990s and specializing in development of software for the shoe industry (in southern Brazil). It was founded by an academic who abandoned academic activities due to the difficulties he had in combining them with business. These difficulties were heightened by internationalization itself, with its concomitant commitment to travel and long stays abroad.

International Entrepreneurship in an Emerging Economy 243

through contracting. The cooperation agreement signed with a Canadian firm, from Toronto, seeks to develop a vaccine for prostate cancer. The Brazilian firm is preparing to go

3. "Born global" – Firm C started in 2003, exporting electronic games (for family entertainment centers), first, to Spain, through the help of a reseller. The firm was able to expand to other European markets: in its current (2011) eight years of existence, it has exported to more than 30 countries in Europe, Asia, Africa and Middle East and has distribution contracts with 17 international firms. At the beginning, markets were opened through the help of personal social networks. Expansion to other markets was largely carried out through the firm's presence in fairs and through contacts via Internet. Until recently, it exported up to 60 percent of its production. In 2010, exports dropped to 20 percent, due to the fall of international demand and the simultaneous growth of the home market, primarily as a result of upcoming international events such as World Cup and Olympic Games, which will require electronic equipment produced by the firm (electronic panels and stadium access cards). The firm also produces voting machines used in several state parliaments in Brazil. The firm's entrepreneur considers exports very important primarily because of the value of feedback from abroad- which he sees as contributing with new ideas that help to improve the products- and to tax breaks, considered a way of compensating for the high taxation of the home market. The firm's target goal is to export 50 percent of its total production. One of its founders, currently the minor partner, is a university researcher in Computer Science. The major partner has a background as a staff member at a firm which made games. The combination of both kinds of know-how has allowed them to become very successful, through innovation in electronic equipment and games. The firm's R&D has about 30

The major part of firm C investments come from its own resources, although it has recently taken a loan from a public bank in order to build new installations. Despite the ease with which credit (at lower rates) can be obtained (especially since the firm was awarded a prize for its innovative performance), the owner is very cautious about taking loans; he fears

4. Sub-contracting in China - Firm D chose to subcontract out to China in order to benefit from lower labor costs in producing the cabinet for one item in its telecom equipment. However, it kept its innovative research sector at home. Producing in China is also a way to deal with Chinese competition. It involves a process of technology transfer from the Brazilian firm to the producers in that country, in order to guarantee compliance with quality standards and application of tests to assure the quality standards required. Furthermore, the pieces produced in China undergo thorough testing for compliance with standards at home. The firm has 90 employees, one third of whom work in R&D. The firm also contracts out R&D services and maintains a partnership with an university to carry out two research projects. In the past, these funds came from the firm's own resources. At present, part of this money comes from a government endowment: the firm and a university have received resources to develop research projects jointly. The focus on R&D is also related to the firm's concern for increasing its

5. Export on demand –Firm E is a small firm which focuses on R&D. It was created in 2001 by a group of researchers from two well known universities in the South of Brazil who

to public offerings (IPO), at the Toronto Stock Exchange.

employees (one third of the total number of employees).

product portfolio in order to reduce market vulnerability.

unpredictable shifts in the market.

In this case, the internationalization process began in 2004, following in the wake of a client a Brazilian shoe company which had initiated production operations in China. Around 80 percent of the firm income is generated from export (a previous 90 percent). As we see here, the process of internationalization resulted from an indirect factor: the main client moved production to China, in an attempt to face the challenge of Chinese competition. In fact, this is not an unusual form of internationalization; it has occurred within the leather industry with some companies moving to Spain and China. Although "following a client" may seem like an easier way to internationalize – since apparently, the groundbreaking work has been carried out by the client - in reality the process demands significant changes for the software supplier. Support and maintenance services, require considerable adjustment, such as employees' intensive training; this has included building skills in oral and written communication in English, not often required for Brazilian employees, not even in the software industry. The need for frequent travel to distant places is cited by employees as another problem, demanding the ability to adjust to different or unusual situations.

The firm employs 30 people, of whom 70 percent hold undergraduate and graduate degrees. The remaining 30 percent are currently attending undergraduate courses. The company's founder expressed concern over the present situation: according to him, since 2004, computer professionals' wages have increased 80 percent, while the business' income was reduced by half due to the de-valuation of US currency exchanges rate. He also complained about high staff turn over – an indication of scarcity of personnel – which, he sees, jeopardizes firm investments in training.

The firm sustains a close relationship with the university, through joint development of research projects with academics, as well as providing training for students.

2. Strategic alliances with international partners – this is the case of firm B - one of the most innovative small firms in the field of Biotechnology in Brazil. It is a typical knowledge -intensive firm, investing 60 percent of its annual income in research activities. Its founder is a perfect example of "scientist-entrepreneur", preserving the qualities of a real scientist which he fuses with the practical view of an entrepreneur.

The founder holds a PhD degree in Medicine, from Alberta University in Canada. There, he was exposed to another sort of experience: his academic training was accompanied by technical training within a biotech firm located within the university technological park. This experience gave him expertise in technical aspects of the field. In contrast to what occurs in Brazil, the generation of knowledge was conceived of there as a potential tradable commodity.

His return to Brazil, in 1999, coincided with the government policy that created a system of support for Science, Technology and Innovation, guaranteeing finance resources for R&D aimed at the development of research and innovation in the private sector as well – something that had been previously almost inexistent.

Growth strategies involve investment in relevant innovation, in order to produce new knowledge at the global level, rather than simply adding improvements to a product already existing abroad. This kind of innovation adds considerable value to the product. As the entrepreneur argues: "(The firm) grows and makes money not by simply exploiting the firm's resources, but by adding value to the products."

This company has partners in Canada, Germany and Brazil, through trade agreements (distribution and representation), joint ventures (through mutual technology transfer) and

In this case, the internationalization process began in 2004, following in the wake of a client a Brazilian shoe company which had initiated production operations in China. Around 80 percent of the firm income is generated from export (a previous 90 percent). As we see here, the process of internationalization resulted from an indirect factor: the main client moved production to China, in an attempt to face the challenge of Chinese competition. In fact, this is not an unusual form of internationalization; it has occurred within the leather industry with some companies moving to Spain and China. Although "following a client" may seem like an easier way to internationalize – since apparently, the groundbreaking work has been carried out by the client - in reality the process demands significant changes for the software supplier. Support and maintenance services, require considerable adjustment, such as employees' intensive training; this has included building skills in oral and written communication in English, not often required for Brazilian employees, not even in the software industry. The need for frequent travel to distant places is cited by employees as

another problem, demanding the ability to adjust to different or unusual situations.

jeopardizes firm investments in training.

something that had been previously almost inexistent.

firm's resources, but by adding value to the products."

commodity.

The firm employs 30 people, of whom 70 percent hold undergraduate and graduate degrees. The remaining 30 percent are currently attending undergraduate courses. The company's founder expressed concern over the present situation: according to him, since 2004, computer professionals' wages have increased 80 percent, while the business' income was reduced by half due to the de-valuation of US currency exchanges rate. He also complained about high staff turn over – an indication of scarcity of personnel – which, he sees,

The firm sustains a close relationship with the university, through joint development of

2. Strategic alliances with international partners – this is the case of firm B - one of the most innovative small firms in the field of Biotechnology in Brazil. It is a typical knowledge -intensive firm, investing 60 percent of its annual income in research activities. Its founder is a perfect example of "scientist-entrepreneur", preserving the qualities of a real scientist which he fuses with the practical view of an entrepreneur. The founder holds a PhD degree in Medicine, from Alberta University in Canada. There, he was exposed to another sort of experience: his academic training was accompanied by technical training within a biotech firm located within the university technological park. This experience gave him expertise in technical aspects of the field. In contrast to what occurs in Brazil, the generation of knowledge was conceived of there as a potential tradable

His return to Brazil, in 1999, coincided with the government policy that created a system of support for Science, Technology and Innovation, guaranteeing finance resources for R&D aimed at the development of research and innovation in the private sector as well –

Growth strategies involve investment in relevant innovation, in order to produce new knowledge at the global level, rather than simply adding improvements to a product already existing abroad. This kind of innovation adds considerable value to the product. As the entrepreneur argues: "(The firm) grows and makes money not by simply exploiting the

This company has partners in Canada, Germany and Brazil, through trade agreements (distribution and representation), joint ventures (through mutual technology transfer) and

research projects with academics, as well as providing training for students.

through contracting. The cooperation agreement signed with a Canadian firm, from Toronto, seeks to develop a vaccine for prostate cancer. The Brazilian firm is preparing to go to public offerings (IPO), at the Toronto Stock Exchange.

3. "Born global" – Firm C started in 2003, exporting electronic games (for family entertainment centers), first, to Spain, through the help of a reseller. The firm was able to expand to other European markets: in its current (2011) eight years of existence, it has exported to more than 30 countries in Europe, Asia, Africa and Middle East and has distribution contracts with 17 international firms. At the beginning, markets were opened through the help of personal social networks. Expansion to other markets was largely carried out through the firm's presence in fairs and through contacts via Internet. Until recently, it exported up to 60 percent of its production. In 2010, exports dropped to 20 percent, due to the fall of international demand and the simultaneous growth of the home market, primarily as a result of upcoming international events such as World Cup and Olympic Games, which will require electronic equipment produced by the firm (electronic panels and stadium access cards). The firm also produces voting machines used in several state parliaments in Brazil. The firm's entrepreneur considers exports very important primarily because of the value of feedback from abroad- which he sees as contributing with new ideas that help to improve the products- and to tax breaks, considered a way of compensating for the high taxation of the home market. The firm's target goal is to export 50 percent of its total production. One of its founders, currently the minor partner, is a university researcher in Computer Science. The major partner has a background as a staff member at a firm which made games. The combination of both kinds of know-how has allowed them to become very successful, through innovation in electronic equipment and games. The firm's R&D has about 30 employees (one third of the total number of employees).

The major part of firm C investments come from its own resources, although it has recently taken a loan from a public bank in order to build new installations. Despite the ease with which credit (at lower rates) can be obtained (especially since the firm was awarded a prize for its innovative performance), the owner is very cautious about taking loans; he fears unpredictable shifts in the market.


International Entrepreneurship in an Emerging Economy 245

Despite sectorial differences and the distinct paths to internationalization that characterize the cases we have researched, all of our interviewees claimed to have been benefited by ease in communications, particularly electronic communication. In some cases, it has been absolutely crucial for business emergence and expansion. Reliance on electronic communication is particularly true in the case of Brazil, where labor laws make it practically impossible for a small firm to maintain employees abroad. Internet was considered a formidable tool for obtaining information of different kinds related to firm performance. Access to fairs and exhibits was also seen as a very important opportunity to engage in

Our respondents identified internationalization experience as having a positive impact on firm performance. Interviewees felt they could characterize relationships with foreign partners as horizontal rather than dependant. Constraints stemming from requirements and certifications which are sometimes quite strict were regarded as an opportunity to learn and

Constraints were identified as emerging primarily from domestic problems. A common complaint was related to the lack of skilled personnel needed to deal with innovative research linked to market demands. It was noted that people holding university degrees are prepared for the academic world but not for producing innovation. The lack of skilled staff generates heavy competition over human resources within knowledge-intensive firms. Other problems that entrepreneurs pointed to were the excess of bureaucratic procedures imposed by Brazilian institutions and currency exchange rates that devaluate the US dollar

The world economic crisis was seen as a problem acting to reduce demand. Nonetheless, the country's economic growth and favorable market conditions guarantee the expansion of the home market, without the uncertainties and difficulties of trading across borders. Therefore, small start ups which have been involved only sporadically within the world market

The firms we researched have had different trajectories, performance outcomes and path dependence, demonstrating the risks of generalizations about innovative knowledgeintensive entrepreneurship. Their affinities can be identified as a shared focus on innovation. The two firms that come closest to what could be called "radical innovation" are in the Biotechnology field. One of them (Firm E) is still very dependent on government support while the other one (Firm B) relied heavily on government support in the past. It was able to consolidate its trajectory through strategic international alliances and it is now preparing to go to IPO, in Canada. The two other firms which are currently undergoing processes of expansion (Firms C and D) rely mainly on their own funds and can be seen as based on incremental innovation. At present, they are redirecting the major part of their production to the home market, due to conjunctural conditions. Firm A, focused on software development, was also the one which reported to have been most harshly affected by the

At the macro-level, the so-called knowledge economy and globalization stimulated by ICT feasibility have tended to favor economic decentralization of production and of R, D &I,

international business.

to improve the quality of the products and services.

become less motivated to internationalize.

**6. Final considerations** 

vis-à-vis other national currencies, thus favoring imports over exports.

negative impact of the present currency exchange situation.

were motivated by a call from a government program to finance knowledge- intensive firms. Its current owners are three persons holding PhDs in Biotechnology, two of whom work in the academic area and a third, devoted to management activities. The goods and services the firm offers are based on modern Biotechnology and Bio information.

Firm activities are concentrated on R&D, focusing on biopharmaceutical research. They do engage in commercial activities but rely on resellers for packing and selling the products to other firms. Firm E employs 22 skilled staff members (among whom five hold PhD degrees and four, Master's Degrees). For approximately four years, firm income was generated by the supply of biopharmaceuticals to larger domestic firms. These firms, however, were bought by other larger companies – a consolidation process characteristic of what goes on in the industry worldwide. Previously-signed contracts were broken, generating penalties that allowed Firm E to continue in the business. At the moment of our research (2010), the biotech firm relied heavily on government financing. To complement its budget, the firm carries out services for larger firms. Its income is totally exhausted on running the business and owners are not currently receiving payment; their income comes from their academic work at the university.

This firm illustrates of the main features of the new paradigm quite well, that is, the close relationship between academic life and business. Its internationalization began through a foreign order resulting from an academic paper written by one of its founders which was accessed on line. The American subsidiary of a German multinational expressed interest in a potential product and asked the company whether it would be interested in producing and exporting it. The American firm then helped the Brazilian firm with the procedures to get the export process going – a very cumbersome process indeed, since they are dealing with biological material that requires strict certification rules. The relationship between the firms worked very well, until the 2008 economic crisis which reduced and eventually terminated demand.

#### **5. The internationalization process**

Knowledge -intensive firms have a variety of characteristics: some products and services such as the ones related to life sciences and Biotechnology are more complex and more difficult to work with than others. Biotechnology – one of the key sectors in the "new economy" - attracts billions of dollars in capital on a worldwide scale, but must cope with extreme risk and uncertainty. Innovation in Biotechnology demands a long process and depends on time-intensive R&D work. Nonetheless, the life sciences and Biotechnology industry in Brazil is growing, particularly in health biotechnology (primarily in the areas of vaccines and diagnostics). The country has acquired a strong technical position in a number of crucial enabling areas, such as stem cell research, genomic studies, plant Biotechnology and vaccines. Around 75 percent of the sector is made up by small firms (Biominas, 2009, p. 9). Notwithstanding the important governmental role in supporting R&D within life sciences companies, targeting internationalization (64.1% of the total amount of US\$ 95.8 million invested in 2008), the sector's international achievement still remains very low.

In the electronics industry, where competition is harsh and products have a short life, internationalization is seen as a form of surviving, not only through export but also by establishing strategic alliances and subcontracting. In general terms, internationalization was seen by our interviewees as a way of enhancing company competitiveness, since in the global era - where access to the markets is supposedly easier - goods and services must have international quality and prices, regardless of whether produced for home or foreign markets.

services the firm offers are based on modern Biotechnology and Bio information.

demand.

**5. The internationalization process** 

Firm activities are concentrated on R&D, focusing on biopharmaceutical research. They do engage in commercial activities but rely on resellers for packing and selling the products to other firms. Firm E employs 22 skilled staff members (among whom five hold PhD degrees and four, Master's Degrees). For approximately four years, firm income was generated by the supply of biopharmaceuticals to larger domestic firms. These firms, however, were bought by other larger companies – a consolidation process characteristic of what goes on in the industry worldwide. Previously-signed contracts were broken, generating penalties that allowed Firm E to continue in the business. At the moment of our research (2010), the biotech firm relied heavily on government financing. To complement its budget, the firm carries out services for larger firms. Its income is totally exhausted on running the business and owners are not currently receiving payment; their income comes from their academic work at the university. This firm illustrates of the main features of the new paradigm quite well, that is, the close relationship between academic life and business. Its internationalization began through a foreign order resulting from an academic paper written by one of its founders which was accessed on line. The American subsidiary of a German multinational expressed interest in a potential product and asked the company whether it would be interested in producing and exporting it. The American firm then helped the Brazilian firm with the procedures to get the export process going – a very cumbersome process indeed, since they are dealing with biological material that requires strict certification rules. The relationship between the firms worked very well, until the 2008 economic crisis which reduced and eventually terminated

Knowledge -intensive firms have a variety of characteristics: some products and services such as the ones related to life sciences and Biotechnology are more complex and more difficult to work with than others. Biotechnology – one of the key sectors in the "new economy" - attracts billions of dollars in capital on a worldwide scale, but must cope with extreme risk and uncertainty. Innovation in Biotechnology demands a long process and depends on time-intensive R&D work. Nonetheless, the life sciences and Biotechnology industry in Brazil is growing, particularly in health biotechnology (primarily in the areas of vaccines and diagnostics). The country has acquired a strong technical position in a number of crucial enabling areas, such as stem cell research, genomic studies, plant Biotechnology and vaccines. Around 75 percent of the sector is made up by small firms (Biominas, 2009, p. 9). Notwithstanding the important governmental role in supporting R&D within life sciences companies, targeting internationalization (64.1% of the total amount of US\$ 95.8 million invested in 2008), the sector's international achievement still remains very low.

In the electronics industry, where competition is harsh and products have a short life, internationalization is seen as a form of surviving, not only through export but also by establishing strategic alliances and subcontracting. In general terms, internationalization was seen by our interviewees as a way of enhancing company competitiveness, since in the global era - where access to the markets is supposedly easier - goods and services must have international quality and prices, regardless of whether produced for home or foreign markets.

were motivated by a call from a government program to finance knowledge- intensive firms. Its current owners are three persons holding PhDs in Biotechnology, two of whom work in the academic area and a third, devoted to management activities. The goods and Despite sectorial differences and the distinct paths to internationalization that characterize the cases we have researched, all of our interviewees claimed to have been benefited by ease in communications, particularly electronic communication. In some cases, it has been absolutely crucial for business emergence and expansion. Reliance on electronic communication is particularly true in the case of Brazil, where labor laws make it practically impossible for a small firm to maintain employees abroad. Internet was considered a formidable tool for obtaining information of different kinds related to firm performance. Access to fairs and exhibits was also seen as a very important opportunity to engage in international business.

Our respondents identified internationalization experience as having a positive impact on firm performance. Interviewees felt they could characterize relationships with foreign partners as horizontal rather than dependant. Constraints stemming from requirements and certifications which are sometimes quite strict were regarded as an opportunity to learn and to improve the quality of the products and services.

Constraints were identified as emerging primarily from domestic problems. A common complaint was related to the lack of skilled personnel needed to deal with innovative research linked to market demands. It was noted that people holding university degrees are prepared for the academic world but not for producing innovation. The lack of skilled staff generates heavy competition over human resources within knowledge-intensive firms. Other problems that entrepreneurs pointed to were the excess of bureaucratic procedures imposed by Brazilian institutions and currency exchange rates that devaluate the US dollar vis-à-vis other national currencies, thus favoring imports over exports.

The world economic crisis was seen as a problem acting to reduce demand. Nonetheless, the country's economic growth and favorable market conditions guarantee the expansion of the home market, without the uncertainties and difficulties of trading across borders. Therefore, small start ups which have been involved only sporadically within the world market become less motivated to internationalize.

The firms we researched have had different trajectories, performance outcomes and path dependence, demonstrating the risks of generalizations about innovative knowledgeintensive entrepreneurship. Their affinities can be identified as a shared focus on innovation. The two firms that come closest to what could be called "radical innovation" are in the Biotechnology field. One of them (Firm E) is still very dependent on government support while the other one (Firm B) relied heavily on government support in the past. It was able to consolidate its trajectory through strategic international alliances and it is now preparing to go to IPO, in Canada. The two other firms which are currently undergoing processes of expansion (Firms C and D) rely mainly on their own funds and can be seen as based on incremental innovation. At present, they are redirecting the major part of their production to the home market, due to conjunctural conditions. Firm A, focused on software development, was also the one which reported to have been most harshly affected by the negative impact of the present currency exchange situation.

#### **6. Final considerations**

At the macro-level, the so-called knowledge economy and globalization stimulated by ICT feasibility have tended to favor economic decentralization of production and of R, D &I,

International Entrepreneurship in an Emerging Economy 247

tends to separate R&D from production, which, in turn, is outsourced. Two firms in our

The focus on R&D has created incentives for the development of relationships between firms and universities. The firms we studied all mentioned some kind of relationship with the universities. The two firms in the Biotechnology sector have a closer relationship to academic life although both have their own R, D &I departments. However, innovation – the creation of goods and services aiming at the market – was accomplished at the firm itself while universities contributed with knowledge creation and the training of skilled personnel. The university role has not been a relevant source of innovation for the firms, but maintains a secondary role, primarily related to personnel recruitment, consultancy and research partnerships. One case of joint development of research projects was observed, revealing a closer relationship between the firm and academics in which the academics were

To foster internationalization, innovation must be accompanied by market prospects and knowledge of communication channels. Information technologies are an invaluable contribution in easing the burdens of communication that have, in the past, posed restrictions on the SME internationalization. For our respondents, another crucial strategy refers to maintaining attendance at exhibitions and fairs, in order to become aware of novelties, identify the routes that large firms are paving and search for international buyers

As we have mentioned, the cases we studied did not confirm the thesis that one of the major incentives for firms to engage in international business is related to so-called "psychic distance", that is, the better knowledge they have about business opportunities in their immediate surroundings, enabling the process of internationalization to follow a gradual path from regional to global. Our findings, to the contrary, show that the decisive factor regarding choice of a business destiny is not related to "psychic distance", but to economic dynamism. If a dynamic economy is found in a distant rather than local region, cultural and geographical distance may not be determinant. Among the firms we studied, international networks were not based in Latin America. It seems that easier forms of communication such as those provided by the Internet, as well as the greater familiarity of foreign cultures and feasibility of covering long distances, have contributed to make cultural and

These conditions confirm the importance of what some analysts call social capital7 - access to privileged information through connections (network) provided prior to any economic transaction. There is a marked need for the founder to be embedded not only in a scientific network (formed by senior researchers) but also within a network already oriented toward conceiving generation of knowledge as a possible tradable commercial commodity. In that sense, we also highlight the relevance of cross-organizational networks and entrepreneurs' ability to transfer experience obtained abroad in leveraging the performance of their

7 "Social capital" is a metaphor that indicates a set of social resources available to individuals who are

geographical distances less important than they used to be.

part of network involving connections and interactions.

research fell in that category.

also the owners of the company.

and partnerships.

ventures.

which may facilitate discovery of promising market niches and business opportunities. The availability of a national/regional system of innovation, however incipient, tends to favor the expansion of high-tech entrepreneurship in emergent economies. In the Brazilian case, notwithstanding unfavorable cultural and institutional features, government legislation since the end of the 1990s has been a strong factor in stimulating entrepreneurship.

At the micro level, it has been shown that entrepreneurs have a particular view of the potentialities of some market conditions, contributing to the pursuit of their goals, even against the grain of predominant social and cultural conceptions. In that sense, their individualist perspective seems to play a role. At this level of analysis, empirical data suggest that individual differences in social status did not correspond to differences in the "opportunity recognition" – an ability that depends to a large extent on information but also on an ability to make good use of it through generating knowledge.

Individual exposure to multiple social and cultural influences (whether on the job, in school or through other means of information, locally or abroad) is vital in supporting the decision to be an entrepreneur, particularly when this does not seem to constitute a rational choice.

The dependence of successful entrepreneurial efforts and economic activities on embedded and densely connected network of social actors was demonstrated, as well as the importance of network diversification allowing firms to identify and access novel information and the resources needed for sustained development and improved performance. In the case in point – emergent societies – the articulation of educational and scientific institutions, students, professors, government, other enterprises, among others social actors, reveal relationships that are not properly embedded within social contexts but rather learned from an ad hoc situation. To cope with difficulties, firms have to extend their networks beyond the closed scientific circle, in order to reach different external partners: the finance industry and leading investors, administrative consultants in areas related to law, taxes and marketing, local authorities, customers, foreign partners and competitors.

High-tech firms are able to build different strategies that allow them to face competition from competitors who are better- positioned in economical and technological terms. A key difference between firms was identified: a) those producing incremental innovations (improvements in already-existing products – new to the national and to the Latin American markets), relied on their R&D departments, on relevant information usually sought abroad ,and on imported equipment; b) those firms whose innovation can be characterized as radical innovation or something similar to it, (that is, new to the world market) reveal a higher degree in founders' level of scientific training. This may be crucial factor in explaining the difference we have identified.

The internationalized knowledge-based firms we have researched here focus on R&D activities, since innovation is the main strategy they employ to compete in the global market. All the firms we studied had their own R&D department, which usually accounted for one third of total staff. This feature indicates a new trend among firms, since in Brazil – a lasting consequence of the import-substitution model of industrialization- even large companies tend to have little interest in maintaining a R&D department.

Some of the innovative firms we studied tended to privilege the R in detriment of D. In some cases, firms follow the organizational principles of the new division of labor, which

which may facilitate discovery of promising market niches and business opportunities. The availability of a national/regional system of innovation, however incipient, tends to favor the expansion of high-tech entrepreneurship in emergent economies. In the Brazilian case, notwithstanding unfavorable cultural and institutional features, government legislation

At the micro level, it has been shown that entrepreneurs have a particular view of the potentialities of some market conditions, contributing to the pursuit of their goals, even against the grain of predominant social and cultural conceptions. In that sense, their individualist perspective seems to play a role. At this level of analysis, empirical data suggest that individual differences in social status did not correspond to differences in the "opportunity recognition" – an ability that depends to a large extent on information but also

Individual exposure to multiple social and cultural influences (whether on the job, in school or through other means of information, locally or abroad) is vital in supporting the decision to be an entrepreneur, particularly when this does not seem to constitute a rational choice. The dependence of successful entrepreneurial efforts and economic activities on embedded and densely connected network of social actors was demonstrated, as well as the importance of network diversification allowing firms to identify and access novel information and the resources needed for sustained development and improved performance. In the case in point – emergent societies – the articulation of educational and scientific institutions, students, professors, government, other enterprises, among others social actors, reveal relationships that are not properly embedded within social contexts but rather learned from an ad hoc situation. To cope with difficulties, firms have to extend their networks beyond the closed scientific circle, in order to reach different external partners: the finance industry and leading investors, administrative consultants in areas related to law, taxes and

High-tech firms are able to build different strategies that allow them to face competition from competitors who are better- positioned in economical and technological terms. A key difference between firms was identified: a) those producing incremental innovations (improvements in already-existing products – new to the national and to the Latin American markets), relied on their R&D departments, on relevant information usually sought abroad ,and on imported equipment; b) those firms whose innovation can be characterized as radical innovation or something similar to it, (that is, new to the world market) reveal a higher degree in founders' level of scientific training. This may be crucial factor in

The internationalized knowledge-based firms we have researched here focus on R&D activities, since innovation is the main strategy they employ to compete in the global market. All the firms we studied had their own R&D department, which usually accounted for one third of total staff. This feature indicates a new trend among firms, since in Brazil – a lasting consequence of the import-substitution model of industrialization- even large

Some of the innovative firms we studied tended to privilege the R in detriment of D. In some cases, firms follow the organizational principles of the new division of labor, which

since the end of the 1990s has been a strong factor in stimulating entrepreneurship.

on an ability to make good use of it through generating knowledge.

marketing, local authorities, customers, foreign partners and competitors.

companies tend to have little interest in maintaining a R&D department.

explaining the difference we have identified.

tends to separate R&D from production, which, in turn, is outsourced. Two firms in our research fell in that category.

The focus on R&D has created incentives for the development of relationships between firms and universities. The firms we studied all mentioned some kind of relationship with the universities. The two firms in the Biotechnology sector have a closer relationship to academic life although both have their own R, D &I departments. However, innovation – the creation of goods and services aiming at the market – was accomplished at the firm itself while universities contributed with knowledge creation and the training of skilled personnel. The university role has not been a relevant source of innovation for the firms, but maintains a secondary role, primarily related to personnel recruitment, consultancy and research partnerships. One case of joint development of research projects was observed, revealing a closer relationship between the firm and academics in which the academics were also the owners of the company.

To foster internationalization, innovation must be accompanied by market prospects and knowledge of communication channels. Information technologies are an invaluable contribution in easing the burdens of communication that have, in the past, posed restrictions on the SME internationalization. For our respondents, another crucial strategy refers to maintaining attendance at exhibitions and fairs, in order to become aware of novelties, identify the routes that large firms are paving and search for international buyers and partnerships.

As we have mentioned, the cases we studied did not confirm the thesis that one of the major incentives for firms to engage in international business is related to so-called "psychic distance", that is, the better knowledge they have about business opportunities in their immediate surroundings, enabling the process of internationalization to follow a gradual path from regional to global. Our findings, to the contrary, show that the decisive factor regarding choice of a business destiny is not related to "psychic distance", but to economic dynamism. If a dynamic economy is found in a distant rather than local region, cultural and geographical distance may not be determinant. Among the firms we studied, international networks were not based in Latin America. It seems that easier forms of communication such as those provided by the Internet, as well as the greater familiarity of foreign cultures and feasibility of covering long distances, have contributed to make cultural and geographical distances less important than they used to be.

These conditions confirm the importance of what some analysts call social capital7 - access to privileged information through connections (network) provided prior to any economic transaction. There is a marked need for the founder to be embedded not only in a scientific network (formed by senior researchers) but also within a network already oriented toward conceiving generation of knowledge as a possible tradable commercial commodity. In that sense, we also highlight the relevance of cross-organizational networks and entrepreneurs' ability to transfer experience obtained abroad in leveraging the performance of their ventures.

<sup>7 &</sup>quot;Social capital" is a metaphor that indicates a set of social resources available to individuals who are part of network involving connections and interactions.

**15** 

*USA* 

Charles B. Hennon *Miami University,* 

**Entrepreneurship, Farming, and Identity:** 

When necessity dictates, families can often make adaptations to continue in a lifestyle promoting family farming and signalling traditional values and way of life choices. This chapter investigates this phenomenon, including the dynamics of assets enlargement (economic and human capital) and how adept families are in integrating other forms of gainful employment into the farming way of life. The research utilises an interpretative (hermeneutic) phenomenological approach to foster insights and understanding about entrepreneurship capacity and action strategies of the farmer and family. The chapter hence explores how entrepreneurship relates to identity as 'farmer' and the ability to stay in a valued, yet modified, way of life. The term farmer is used in a broad manner, and includes

1 Farmers have been defined in multiple ways. McElwee (2008. p. 467) identified farmers "as those occupied on a part- or full-time basis and engaged in a range of activities that are primarily dependent on the farm and agriculture in the practice of cultivating the soil, growing crops and raising livestock as the main source of income" whilst noting this left out some key components such as pluriactivity. According to the United States Department of Agriculture [USDA], a farm is "any place from which \$1,000 or more of agricultural products were produced and sold, or normally would have been sold, during the year", a definition that is limited, especially in a global context. USDA notes that for analytical purposes, one is not necessarily constrained by this definition of a farm (Economic Research Service, 2011a). There is no hardand-fast definition, but a conceptualization used by USDA indicates a 'family farm' is one with the majority of the business owned by the operator and individuals related to the operator by blood, marriage, or adoption, including relatives not living in the operator's household. Brookfield and Parson (2007) used a broad definition, characterising family farms as both owner-operated and tenanted, and large and small in land endowment. The principle component defining a family farm is family organization. Family farms can vary from small to large in terms of income, with some being 'residential/lifestyle farms', or 'hobby farms', with most income coming from activities other than agriculture, to 'farming-occupation farms' with operators having farming as their major occupation (Economic Research Service, 2010; Hennon & Hildenbrand, 2005a). A 'yeoman farmer' is one with goals derived from personal identity as farmer and family concerns, such as continuity or passing the farm to at least one heir. In contrast, an 'entrepreneur farming style' is driven by profit optimising goals, to have an efficient business that is profitable (Davis-Brown & Salamon, 1988). See McElwee (2008), Capitanio and Adinolfi (2010), and Hennon and Hildenbrand (2005b) for farm taxonomies that include entrepreneur functions. Scientific definitions or 'typifications' are applied by 'outsiders', and might not capture or reflect what common folk, including

**1. Introduction** 

crofters in Scotland (see Hunter, 2000; Stewart, 2005).1

self-defined farmers, would argue.

**A Phenomenological Inquiry** 

#### **7. References**


## **Entrepreneurship, Farming, and Identity: A Phenomenological Inquiry**

Charles B. Hennon *Miami University, USA* 

#### **1. Introduction**

248 Entrepreneurship - Gender, Geographies and Social Context

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planejamento e políticas públicas. IPEA, Brasília.

Aplicada [IPEA], Feb. 2011, Rio de Janeiro.

Princeton University Press, New Jersey

local and foreign firms in the electronics industry in Malaysia and Brazil. *Science* 

and opportunities for developed and developing countries. *National Bureau of Economic Research*. Retrieved from <http://www.nber.org/papers/w10538.pdf>. Biominas Foundation. (2009). *Estudo das Empresas de Biociências, Brasil*. Retrieved from

<http://win.biominas.org.br/biominas2008/File/estudo%20setorial%20site.pdf >.

*firmas industriais brasileiras*. Instituto de Pesquisa Econômica Aplicada [IPEA],

sul-sudeste da Ásia. Texto para Discussão n° 1579. Instituto de Pesquisa Econômica

international entrepreneurship. In: *Research in global strategic management: international entrepreneurship*. Rugman, A.; Wright, R. (Eds.), pp. 23-40, JAI Press

Modeling the Speed of Internationalization. *Entrepreneurship Theory & Practice*, n.

Ventures: A Risk Management Model. In: *Advances in International Management*: The Evolving Theory of the Multinational Firm. M. Hitt & J. Cheng (Eds.). JAI Press,

present and future. *Journal of Small Business and Enterprise Development*, v. 13, n. 4,

**7. References** 

Brasília.

*Review*, n. 46, pp. 42-49.

Inc., Stamford.

29, pp. 537-553.

Greenwich.

pp. 476-497.

pp. 19-46.

When necessity dictates, families can often make adaptations to continue in a lifestyle promoting family farming and signalling traditional values and way of life choices. This chapter investigates this phenomenon, including the dynamics of assets enlargement (economic and human capital) and how adept families are in integrating other forms of gainful employment into the farming way of life. The research utilises an interpretative (hermeneutic) phenomenological approach to foster insights and understanding about entrepreneurship capacity and action strategies of the farmer and family. The chapter hence explores how entrepreneurship relates to identity as 'farmer' and the ability to stay in a valued, yet modified, way of life. The term farmer is used in a broad manner, and includes crofters in Scotland (see Hunter, 2000; Stewart, 2005).1

<sup>1</sup> Farmers have been defined in multiple ways. McElwee (2008. p. 467) identified farmers "as those occupied on a part- or full-time basis and engaged in a range of activities that are primarily dependent on the farm and agriculture in the practice of cultivating the soil, growing crops and raising livestock as the main source of income" whilst noting this left out some key components such as pluriactivity. According to the United States Department of Agriculture [USDA], a farm is "any place from which \$1,000 or more of agricultural products were produced and sold, or normally would have been sold, during the year", a definition that is limited, especially in a global context. USDA notes that for analytical purposes, one is not necessarily constrained by this definition of a farm (Economic Research Service, 2011a). There is no hardand-fast definition, but a conceptualization used by USDA indicates a 'family farm' is one with the majority of the business owned by the operator and individuals related to the operator by blood, marriage, or adoption, including relatives not living in the operator's household. Brookfield and Parson (2007) used a broad definition, characterising family farms as both owner-operated and tenanted, and large and small in land endowment. The principle component defining a family farm is family organization. Family farms can vary from small to large in terms of income, with some being 'residential/lifestyle farms', or 'hobby farms', with most income coming from activities other than agriculture, to 'farming-occupation farms' with operators having farming as their major occupation (Economic Research Service, 2010; Hennon & Hildenbrand, 2005a). A 'yeoman farmer' is one with goals derived from personal identity as farmer and family concerns, such as continuity or passing the farm to at least one heir. In contrast, an 'entrepreneur farming style' is driven by profit optimising goals, to have an efficient business that is profitable (Davis-Brown & Salamon, 1988). See McElwee (2008), Capitanio and Adinolfi (2010), and Hennon and Hildenbrand (2005b) for farm taxonomies that include entrepreneur functions. Scientific definitions or 'typifications' are applied by 'outsiders', and might not capture or reflect what common folk, including self-defined farmers, would argue.

Entrepreneurship, Farming, and Identity: A Phenomenological Inquiry 251

succeeding or becoming discouraged and giving up (Wisconsin Innovation Network, 1993). Lumpkin and Dess (1996, p. 136) declared: "The essential act of entrepreneurship is new entry. New entry can be accomplished by entering new or established markets with new or existing goods or services. New entry is the act of launching a new venture, either by a startup firm, through an existing firm, or via 'internal corporate venturing' ". The 'entrepreneurial process' is how a new element with new value is created through using creativity, time, and resources; taking risks; and applying other relevant elements such as social capital (Chegini & Khoshtinat, 2010; Moroz & Hindle, 2011). The concept of 'entrepreneuring' accents using individual abilities, and so empowerment, skill, and other human capital are vital. 'Entrepreneurial orientation' is the "processes, practices, and decision-making activities that lead to new entry" (Lumpkin & Dess, 1996, p. 136). 'Entrepreneurial self-efficacy' is the belief that one's agency can see a new venture through

Several personality factors are associated with entrepreneurial intentions and performance, and therefore the emergence and success of entrepreneurs (Cismariu & Mocan, 2010; Zhao et al., 2010). Identified traits associated with entrepreneurial orientation include proactiveness, autonomy, risk taking, innovativeness, and competitive aggressiveness (Covin & Wales, 2011; Lumpkin & Dess, 1996; McElwee, 2008). Among youth, traits forecasting potential entrepreneurs include revising important points after training, realising the significance of training, having high levels of competition orientation, being economically motivated, and showing capacity to bear well-planned risk along with a low level of nervousness about starting a business (Patel & Chauhan, 2009). Entrepreneurial skills are 'higher level' skills, having to do with initiating, managing, and advancing an enterprise. Several lower level skills related to production, administration, and marketing are needed. These are technical or managerial skills. Higher-level skills for farming related enterprises include developing and evaluating a business strategy, networking and utilising contacts, and recognising and realising business opportunities (de Wolf & Schoorlemmer, 2007; Vesala & Pyysiäinen, 2008). Not all skills and attributes need be present for successful

Some skills and qualities are of a preconditional nature, without which entrepreneurial behaviour is impossible. Without a risk-taking attitude, as an example, a farmer is not able to realise business opportunities. Absence of specific personal qualities and attitudes hinder the development of entrepreneurial skills. Motivation to learn, self-reflection, and attitude

There is no innate entrepreneurial aptitude; rather, given the right internal and external factors, a person might become an entrepreneur over time. People can express an intention to begin a business, and intention is a foundational aspect of entrepreneurial behaviour, but intention does not necessarily lead to action. The entrepreneurial process is 'triggered' (ie, initiated) when the person begins serious consideration about starting a business and dedicates time and resources for this to happen. Schutz (1967) enumerated the idea that when planning an undertaken to be completed in the future, the individual uses 'reflective projection'. Reflectivity permits imagining an endeavour as completed in the future, imagining what is realised after acting. Triggering this endeavour launches the 'in-order-to motive' of action. 'Because motives' are historical and environmental (*umwelt*) factors

toward feedback are examples (de Wolf & Schoorlemmer, 2007).

having influenced the decision to proceed with the endeavour.

to its fruition (Wang et al., 2010).

entrepreneuring (Warren, 2002).

Entrepreneurship is a charismatic concept, widely used and widely defined; for example, "as a creative and innovative response to the environment" (Chandramouli et al., 2007, p. 320). It is accepted that entrepreneurship, including family entrepreneurship, is an instrument driving economic development and creating wealth, developing technology, and producing employment (Baines et al., 2003; Chegini & Khoshtinat, 2010; García et al., 2007; Hennon et al., 1998, Hennon et al., 2000; Karlsson et al., 2010; Koveos, 2010; Moroz & Hindle, 2011; Nordqvist & Melin, 2010), including in rural areas and by farmers (Alsos et al., 2003; Chandramouli et al., 2007; de Wolf & Schoorlemmer, 2007; Dabson, 2008, 2011; McElwee, 2006a, 2008; Rudmann, 2008; Vesala & Pyysiäinen, 2008; Vik & McElwee, 2011). Farm resources can be put to use in entrepreneurial activities, such as tourism or food processing, to foster economic viability. Farmers are an "innovative reservoir in agricultural communities and a potential source of entrepreneurship" (Alsos et al., 2003, p. 436). Development agencies see rural entrepreneurship having employment potential whilst farmers favour it as a way for improving earnings. Rural women understand entrepreneurship as creating employment possibility near their homes, which fosters autonomy (Anitha, 2004; Chandramouli et al., 2007). Governments and organizations regard small enterprise development as a pleasing alternative for rural development, and often enact 'planned social change' policies to this end (Sandberg, 2003; Warren, 2002). Many rural enterprises are 'micro enterprises', employing 10 persons or less.

Improvement of agobusiness and subsistence farming is possible with effective exploitation of human and material resources. Farmers have different levels of skilfulness in use of entrepreneurial skills, can reflect on their strengths and weaknesses in these skills, and be trained in thinking from an entrepreneurial skills perspective (Dabson, 2011; Rudmann, 2008; The Foxy Farm Entrepreneur, 2008; Vesala & Pyysiäinen, 2008). Developing and improving skills among farmers is a feasible option and objective (McElwee, 2006a; Rudmann, 2008; Vesala & Pyysiäinen, 2008). Developing entrepreneurial skills of farmers can take two tracks. The first is to amend the social, economic, political, and cultural frameworks that hinders, and foster those that stimulates, their development. The second is encouragement of farmers, via their personalities and capabilities, to kindle the development of entrepreneurship. If farming competitiveness is to be improved by nurturing entrepreneurial behaviour, both tracks have to be considered (Rudmann, 2008; Vesala & Pyysiäinen, 2008). The skills and attributes a farmer must possess to maximise the entrepreneurial capacity of the farm business have been assessed. Various farm and nonfarm activities could necessitate different types of entrepreneurial skills (Dabson, 2011; De Clercq & Voronov, 2011; de Wolf & Schoorlemmer, 2007; Hennon & Hildenbrand, 2005a; Hildenbrand & Hennon, 2008; McElwee, 2005; Rudmann, 2008; Vik & McElwee, 2011; Vesala et al., 2007).

The improvement of entrepreneurial skills in agriculture is an important condition to generate sustainable rural development (de Wolf & Schoorlemmer, 2007). If entrepreneurship is an instrument for improving the quality of life for families and communities, and for sustaining a fit economy and environment, fostering entrepreneuring skill must be regarded as an urgently needed development component (Chandramouli et al., 2007). Skills can include a person's technical skills, behavioural attributes, or personality characteristics. 'Entrepreneuring' might be considered as the dynamics whereby persons elect to become involved in the gestation of a new or modified organisation, and eventually

Entrepreneurship is a charismatic concept, widely used and widely defined; for example, "as a creative and innovative response to the environment" (Chandramouli et al., 2007, p. 320). It is accepted that entrepreneurship, including family entrepreneurship, is an instrument driving economic development and creating wealth, developing technology, and producing employment (Baines et al., 2003; Chegini & Khoshtinat, 2010; García et al., 2007; Hennon et al., 1998, Hennon et al., 2000; Karlsson et al., 2010; Koveos, 2010; Moroz & Hindle, 2011; Nordqvist & Melin, 2010), including in rural areas and by farmers (Alsos et al., 2003; Chandramouli et al., 2007; de Wolf & Schoorlemmer, 2007; Dabson, 2008, 2011; McElwee, 2006a, 2008; Rudmann, 2008; Vesala & Pyysiäinen, 2008; Vik & McElwee, 2011). Farm resources can be put to use in entrepreneurial activities, such as tourism or food processing, to foster economic viability. Farmers are an "innovative reservoir in agricultural communities and a potential source of entrepreneurship" (Alsos et al., 2003, p. 436). Development agencies see rural entrepreneurship having employment potential whilst farmers favour it as a way for improving earnings. Rural women understand entrepreneurship as creating employment possibility near their homes, which fosters autonomy (Anitha, 2004; Chandramouli et al., 2007). Governments and organizations regard small enterprise development as a pleasing alternative for rural development, and often enact 'planned social change' policies to this end (Sandberg, 2003; Warren, 2002). Many rural

Improvement of agobusiness and subsistence farming is possible with effective exploitation of human and material resources. Farmers have different levels of skilfulness in use of entrepreneurial skills, can reflect on their strengths and weaknesses in these skills, and be trained in thinking from an entrepreneurial skills perspective (Dabson, 2011; Rudmann, 2008; The Foxy Farm Entrepreneur, 2008; Vesala & Pyysiäinen, 2008). Developing and improving skills among farmers is a feasible option and objective (McElwee, 2006a; Rudmann, 2008; Vesala & Pyysiäinen, 2008). Developing entrepreneurial skills of farmers can take two tracks. The first is to amend the social, economic, political, and cultural frameworks that hinders, and foster those that stimulates, their development. The second is encouragement of farmers, via their personalities and capabilities, to kindle the development of entrepreneurship. If farming competitiveness is to be improved by nurturing entrepreneurial behaviour, both tracks have to be considered (Rudmann, 2008; Vesala & Pyysiäinen, 2008). The skills and attributes a farmer must possess to maximise the entrepreneurial capacity of the farm business have been assessed. Various farm and nonfarm activities could necessitate different types of entrepreneurial skills (Dabson, 2011; De Clercq & Voronov, 2011; de Wolf & Schoorlemmer, 2007; Hennon & Hildenbrand, 2005a; Hildenbrand & Hennon, 2008; McElwee, 2005; Rudmann, 2008; Vik & McElwee, 2011;

The improvement of entrepreneurial skills in agriculture is an important condition to generate sustainable rural development (de Wolf & Schoorlemmer, 2007). If entrepreneurship is an instrument for improving the quality of life for families and communities, and for sustaining a fit economy and environment, fostering entrepreneuring skill must be regarded as an urgently needed development component (Chandramouli et al., 2007). Skills can include a person's technical skills, behavioural attributes, or personality characteristics. 'Entrepreneuring' might be considered as the dynamics whereby persons elect to become involved in the gestation of a new or modified organisation, and eventually

enterprises are 'micro enterprises', employing 10 persons or less.

Vesala et al., 2007).

succeeding or becoming discouraged and giving up (Wisconsin Innovation Network, 1993). Lumpkin and Dess (1996, p. 136) declared: "The essential act of entrepreneurship is new entry. New entry can be accomplished by entering new or established markets with new or existing goods or services. New entry is the act of launching a new venture, either by a startup firm, through an existing firm, or via 'internal corporate venturing' ". The 'entrepreneurial process' is how a new element with new value is created through using creativity, time, and resources; taking risks; and applying other relevant elements such as social capital (Chegini & Khoshtinat, 2010; Moroz & Hindle, 2011). The concept of 'entrepreneuring' accents using individual abilities, and so empowerment, skill, and other human capital are vital. 'Entrepreneurial orientation' is the "processes, practices, and decision-making activities that lead to new entry" (Lumpkin & Dess, 1996, p. 136). 'Entrepreneurial self-efficacy' is the belief that one's agency can see a new venture through to its fruition (Wang et al., 2010).

Several personality factors are associated with entrepreneurial intentions and performance, and therefore the emergence and success of entrepreneurs (Cismariu & Mocan, 2010; Zhao et al., 2010). Identified traits associated with entrepreneurial orientation include proactiveness, autonomy, risk taking, innovativeness, and competitive aggressiveness (Covin & Wales, 2011; Lumpkin & Dess, 1996; McElwee, 2008). Among youth, traits forecasting potential entrepreneurs include revising important points after training, realising the significance of training, having high levels of competition orientation, being economically motivated, and showing capacity to bear well-planned risk along with a low level of nervousness about starting a business (Patel & Chauhan, 2009). Entrepreneurial skills are 'higher level' skills, having to do with initiating, managing, and advancing an enterprise. Several lower level skills related to production, administration, and marketing are needed. These are technical or managerial skills. Higher-level skills for farming related enterprises include developing and evaluating a business strategy, networking and utilising contacts, and recognising and realising business opportunities (de Wolf & Schoorlemmer, 2007; Vesala & Pyysiäinen, 2008). Not all skills and attributes need be present for successful entrepreneuring (Warren, 2002).

Some skills and qualities are of a preconditional nature, without which entrepreneurial behaviour is impossible. Without a risk-taking attitude, as an example, a farmer is not able to realise business opportunities. Absence of specific personal qualities and attitudes hinder the development of entrepreneurial skills. Motivation to learn, self-reflection, and attitude toward feedback are examples (de Wolf & Schoorlemmer, 2007).

There is no innate entrepreneurial aptitude; rather, given the right internal and external factors, a person might become an entrepreneur over time. People can express an intention to begin a business, and intention is a foundational aspect of entrepreneurial behaviour, but intention does not necessarily lead to action. The entrepreneurial process is 'triggered' (ie, initiated) when the person begins serious consideration about starting a business and dedicates time and resources for this to happen. Schutz (1967) enumerated the idea that when planning an undertaken to be completed in the future, the individual uses 'reflective projection'. Reflectivity permits imagining an endeavour as completed in the future, imagining what is realised after acting. Triggering this endeavour launches the 'in-order-to motive' of action. 'Because motives' are historical and environmental (*umwelt*) factors having influenced the decision to proceed with the endeavour.

Entrepreneurship, Farming, and Identity: A Phenomenological Inquiry 253

Renzulli et al., 2000; Rogoff & Heck, 2003). Families are important breeding grounds for entrepreneurial functions and activities that can enable seizing entrepreneurial opportunities. Members of business families experience "learning-in-practice" that "brings innovation and change as well as continuity" (Hamilton, 2011, p. 8). Entrepreneuring is quite often a family affair. "Entrepreneurship is the start and heart" of most family businesses (Heck, n.d.). An entrepreneurial family teaches, nurtures, promotes, and enhances the efforts of its members who recognised and realised opportunities and engage in entrepreneurship (Barnes & Lachapelle, 1997; Hamilton, 2011; Laferrèe, 2001; Plant & Ren, 2010). Further on, family support can buttress 'entrepreneurial persistence' where the decision is taken to continue with an opportunity in the face of adversity, counterinfluences, or enticing alternatives (De Clercq & Voronov, 2011; Holland & Shepherd, 2011). The family business is an expansive view of entrepreneurship, as the morphogenesis of initial business efforts of one or more family members progresses (Baines et al., 2003; Entrepreneurship, n.d.; Heck, n.d., 2004). Wheelock (1993, p. 23) suggested, "Economic motivation must be examined in a family rather than an individual context. In relating lives to livelihood, a 'familial economic unit' and its distinctive work strategy are shown to be critical...." The Task Force of the International Family Business Program Association (n.d.) emphasized that the basic foundation on which to base analyses of the economy is not individual workers, entrepreneurs, or corporations, but rather families that create, control, and operate businesses. Even though family environment is an important contributor to incubating and sustaining entrepreneurship, families can experience challenges and strife as well as success and joy (Anderson & Miller, 2003; Baines et al., 2003; Bowman, 2001; Brown, 2011; Fairlie, 2009). Wheelock (1993, p. 33) warned, "families often need to adapt to a new way of life

when they set up in business, and for some this...[is] much easier than for others".

the knowledge base of entrepreneuring among farmers.

There is no lack of entrepreneurship throughout rural America, but this is not widely recognized (Dabson, 2011). The same can be said of farmers worldwide. Farmers have traditionally been entrepreneurial, especially pluriactive farmers, and are business owners and managers, including businesses in addition to the conventional farm business (Carter, 1998; Carter & Rosa, 1998; Eikeland & Lie, 1999; McElwee, 2008). Alsos et al. (2003, p. 436) asked, "Why do some farmers choose to start new business activities instead of limiting their engagement to farming or becoming employed?" and recognised, "a paucity of knowledge about which factors trigger the start-up of entrepreneurial activities among farmers", a sentiment echoed by McElwee (2008). This chapter answers the call for adding to

The content of this chapter displays how two couples prised opportunities and fulfilled the entrepreneurial function to create organisations in the service and retail sectors that have allowed the families to have economic viability whilst maintaining the self conceptions of traditional crofters and farmers. Issues investigated include entrepreneurial intentionality, what triggered the decisions to pursue entrepreneurship, entrepreneurial persistence and self-efficacy, awareness of entrepreneurial opportunities, some of the traits and abilities of the family members that foster entrepreneurial activities, their entrepreneurial orientations, use of their holding's plant resources, and the types and nature of the new entries. Data for the analyses comes from interviews and participant observation of a crofting family in the western highlands of Scotland, and interviews and observations of a farm family in the Midwestern United States. Even though some people might not think of farmers as business

What triggers the final decision to take action remains unclear. After the trigger phase, the entrepreneurial pathway needs correspondence to the person's aspirations and felt as desirable. Further, the person needs to believe the project is feasible and than she/he is capable of realising the initiative to completion, that is, having a sense of entrepreneuring self-efficacy or persistence (De Clercq & Voronov, 2011; Degeorge & Fayolle, 2011; Wang et al., 2010).

There are two types of triggers. The first type is 'intention'. Intention is a cognitive desire to act and a willingness to adopt a specific line of action. Intentionality can originate from a person's characteristics advantageous to entrepreneuring—optimism, internal locus of control, propensity for risk-taking, craving for achievement, wanting autonomy, wanting to be in control. Intentions are powered by motivations, which may or may not be stable and enduring over time. Possible motivations for initiating entrepreneuring include desire for autonomy, independence, and self-realization, and enjoying a challenge (Degeorge & Fayolle, 2011; Plant & Ren, 2010).

The second type of trigger is 'displacement', or a disruption of a person's life (see 'problematic' discussion later in chapter). The change in one's behaviour leading to initiation of an entrepreneuring action can proceed from either positive and/or negative factors. Examples of positive factors include potential funding sources, acquiring encouraging information about lifestyles of the self-employed, a family atmosphere promoting entrepreneurial adventures, and discovering an entrepreneurial opportunity. Negative factor examples include being made redundant, marital disruption, unstable income, debt, and bankruptcy. Negative displacements are often what motivate action, especially new entry ventures. A blending of positive and negative displacements, however, is what often leads to significant life changes. The displacements can be internal or external to the person. External displacements relate to changes in the individuals' social and employment life, one's *umwelt*; internal relate to things like personal dissatisfaction, the belief that one is not advancing professionally or career wise, or age-related feelings that it is 'now or never' (Degeorge & Fayolle, 2011).

Unlike the traditional entrepreneur having a mission to produce and distribute goods or a service in a unique way, self-employed entrepreneurs regularly elect this route to sustain themselves and their families (Aronson, 1991). Often they are 'survival entrepreneurs', who due to a drought of other income options take the course of action of creating enterprises (Dabson, 2008). Through 'purposeful enactment' (Van de Ven & Poole, 1995), people, including farmers, can undertake a generative process of what is termed the entrepreneurial function aimed at new-venture creation due to a perceived opportunity. A variety of triggers can setoff pursue of new enterprise creation. The 'entrepreneurial function' infers discovering, assessing, and exploiting opportunities. The function implies new products, services, or processes; new business or other strategies; and perhaps novel organisational structures as well as new markets for products and inputs that perhaps did not previously exist. An unexpected and/or unvalued economic opportunity characterises 'entrepreneurial opportunity' (García et al., 2007).

Much entrepreneurial work, especially cognitively and socially, takes place within a family system (Hamilton, 2011; Heck, n.d., 2004; Hennon et al., 2000; Nordqvist & Melin, 2010;

What triggers the final decision to take action remains unclear. After the trigger phase, the entrepreneurial pathway needs correspondence to the person's aspirations and felt as desirable. Further, the person needs to believe the project is feasible and than she/he is capable of realising the initiative to completion, that is, having a sense of entrepreneuring self-efficacy or persistence (De Clercq & Voronov, 2011; Degeorge & Fayolle, 2011; Wang et

There are two types of triggers. The first type is 'intention'. Intention is a cognitive desire to act and a willingness to adopt a specific line of action. Intentionality can originate from a person's characteristics advantageous to entrepreneuring—optimism, internal locus of control, propensity for risk-taking, craving for achievement, wanting autonomy, wanting to be in control. Intentions are powered by motivations, which may or may not be stable and enduring over time. Possible motivations for initiating entrepreneuring include desire for autonomy, independence, and self-realization, and enjoying a challenge (Degeorge &

The second type of trigger is 'displacement', or a disruption of a person's life (see 'problematic' discussion later in chapter). The change in one's behaviour leading to initiation of an entrepreneuring action can proceed from either positive and/or negative factors. Examples of positive factors include potential funding sources, acquiring encouraging information about lifestyles of the self-employed, a family atmosphere promoting entrepreneurial adventures, and discovering an entrepreneurial opportunity. Negative factor examples include being made redundant, marital disruption, unstable income, debt, and bankruptcy. Negative displacements are often what motivate action, especially new entry ventures. A blending of positive and negative displacements, however, is what often leads to significant life changes. The displacements can be internal or external to the person. External displacements relate to changes in the individuals' social and employment life, one's *umwelt*; internal relate to things like personal dissatisfaction, the belief that one is not advancing professionally or career wise, or age-related feelings that it is

Unlike the traditional entrepreneur having a mission to produce and distribute goods or a service in a unique way, self-employed entrepreneurs regularly elect this route to sustain themselves and their families (Aronson, 1991). Often they are 'survival entrepreneurs', who due to a drought of other income options take the course of action of creating enterprises (Dabson, 2008). Through 'purposeful enactment' (Van de Ven & Poole, 1995), people, including farmers, can undertake a generative process of what is termed the entrepreneurial function aimed at new-venture creation due to a perceived opportunity. A variety of triggers can setoff pursue of new enterprise creation. The 'entrepreneurial function' infers discovering, assessing, and exploiting opportunities. The function implies new products, services, or processes; new business or other strategies; and perhaps novel organisational structures as well as new markets for products and inputs that perhaps did not previously exist. An unexpected and/or unvalued economic opportunity characterises 'entrepreneurial

Much entrepreneurial work, especially cognitively and socially, takes place within a family system (Hamilton, 2011; Heck, n.d., 2004; Hennon et al., 2000; Nordqvist & Melin, 2010;

al., 2010).

Fayolle, 2011; Plant & Ren, 2010).

'now or never' (Degeorge & Fayolle, 2011).

opportunity' (García et al., 2007).

Renzulli et al., 2000; Rogoff & Heck, 2003). Families are important breeding grounds for entrepreneurial functions and activities that can enable seizing entrepreneurial opportunities. Members of business families experience "learning-in-practice" that "brings innovation and change as well as continuity" (Hamilton, 2011, p. 8). Entrepreneuring is quite often a family affair. "Entrepreneurship is the start and heart" of most family businesses (Heck, n.d.). An entrepreneurial family teaches, nurtures, promotes, and enhances the efforts of its members who recognised and realised opportunities and engage in entrepreneurship (Barnes & Lachapelle, 1997; Hamilton, 2011; Laferrèe, 2001; Plant & Ren, 2010). Further on, family support can buttress 'entrepreneurial persistence' where the decision is taken to continue with an opportunity in the face of adversity, counterinfluences, or enticing alternatives (De Clercq & Voronov, 2011; Holland & Shepherd, 2011). The family business is an expansive view of entrepreneurship, as the morphogenesis of initial business efforts of one or more family members progresses (Baines et al., 2003; Entrepreneurship, n.d.; Heck, n.d., 2004). Wheelock (1993, p. 23) suggested, "Economic motivation must be examined in a family rather than an individual context. In relating lives to livelihood, a 'familial economic unit' and its distinctive work strategy are shown to be critical...." The Task Force of the International Family Business Program Association (n.d.) emphasized that the basic foundation on which to base analyses of the economy is not individual workers, entrepreneurs, or corporations, but rather families that create, control, and operate businesses. Even though family environment is an important contributor to incubating and sustaining entrepreneurship, families can experience challenges and strife as well as success and joy (Anderson & Miller, 2003; Baines et al., 2003; Bowman, 2001; Brown, 2011; Fairlie, 2009). Wheelock (1993, p. 33) warned, "families often need to adapt to a new way of life when they set up in business, and for some this...[is] much easier than for others".

There is no lack of entrepreneurship throughout rural America, but this is not widely recognized (Dabson, 2011). The same can be said of farmers worldwide. Farmers have traditionally been entrepreneurial, especially pluriactive farmers, and are business owners and managers, including businesses in addition to the conventional farm business (Carter, 1998; Carter & Rosa, 1998; Eikeland & Lie, 1999; McElwee, 2008). Alsos et al. (2003, p. 436) asked, "Why do some farmers choose to start new business activities instead of limiting their engagement to farming or becoming employed?" and recognised, "a paucity of knowledge about which factors trigger the start-up of entrepreneurial activities among farmers", a sentiment echoed by McElwee (2008). This chapter answers the call for adding to the knowledge base of entrepreneuring among farmers.

The content of this chapter displays how two couples prised opportunities and fulfilled the entrepreneurial function to create organisations in the service and retail sectors that have allowed the families to have economic viability whilst maintaining the self conceptions of traditional crofters and farmers. Issues investigated include entrepreneurial intentionality, what triggered the decisions to pursue entrepreneurship, entrepreneurial persistence and self-efficacy, awareness of entrepreneurial opportunities, some of the traits and abilities of the family members that foster entrepreneurial activities, their entrepreneurial orientations, use of their holding's plant resources, and the types and nature of the new entries. Data for the analyses comes from interviews and participant observation of a crofting family in the western highlands of Scotland, and interviews and observations of a farm family in the Midwestern United States. Even though some people might not think of farmers as business

Entrepreneurship, Farming, and Identity: A Phenomenological Inquiry 255

Approximately 85 per cent of Scotland is 'less favoured area', a European Union classification that acknowledges natural and geographic disadvantages. About 65,000 people are employed in agriculture, about eight per cent of Scotland's rural workforce; agriculture is the third largest employer in rural Scotland (National Farmers Union

Crofting is a form of regulated land tenure, unique to parts of Scotland (Busby & Macleod, 2010; Crofters Commission, n.d.; Scottish Crofting Federation, n.d.). Crofts are agricultural holdings in the Highlands and Islands of Scotland that are subject to the Crofting Acts. The word croft comes from the Gaelic *coirtean*, and means a small-enclosed field. In Scotland, a croft is a small individual holding of enclosed land with a share in a common grazing (Stewart, 2005). Crofters are entitled to have a dwelling house on the croft and to erect or use a building or other structure on the croft for an auxiliary occupation, such as a loom shed for weaving. Crofts range from less than one-half hectare to more than 50, with an average croft being five hectare of 'in-bye' (arable) land and a share in a larger area of common grazing. The common grazing land is subject to crofting legislation and used by crofters communally. There are about 800 regulated common grazings, usually managed by a Grazing Committee that makes Grazing Regulations to control their use. The crofters or others holding interests in common grazings are 'shareholders'. The number and kinds of livestock each crofter is entitled to graze is the 'souming' (Scottish Parliament Information Centre [SPIC], 2010). The Crofting Commission (n.d.) considers crofting to mean the "close and interlinked relationships between the land and the economy, agriculture, environment,

A croft has been styled "a small area of land entirely surrounded by regulations" (Stewart, 2005, p. 1). Statutory conditions restrict the use of the croft land to farming, forestry, or putting the croft to a 'purposeful use'. Crofting agriculture is primarily rearing of lambs and cattle for sale to low ground farmers for breeding stock or fattening and finishing, as these are not cost-effective in the crofting areas due to climatic and soil quality shortcomings. Croft land is generally poor quality and the in-bye land is mainly permanent pasture. Crofts are typically small compared to other agricultural holdings in Scotland, and cannot sustain full time employment. A survey in 2007 found, on average, 30 per cent of a croft household's income came from crofting. Finding supplementary employment varies according to environment, climate, and other factors in the crofting counties. Many crofters have diversified into small-scale tourism and other enterprises, and others hold jobs in the public sector, tourism, rural industry, service sectors, and fishing (Scottish Crofting Federation,

The crofting lifestyle has a long history (Hunter, 2000; Stewart, 2005). The basic principle of crofting law is to furnish the crofter security of tenure at a reasonable rent. The crofter and landlord agree upon the amount of rent, normally before the start of a tenancy. Although technically a year-to-year arrangement, crofting tenancies have no time limit and are hereditable. Crofters can bequeath their tenancy to any one person (assignation). Different rules apply if that person is not a family member. The definition of family is restricted to

heritage, culture and distinctive lifestyles of crofting communities".

certain relatives and includes a civil partner or cohabitant (SPIC, 2010).

**2.1 Crofts** 

Scotland, n.d.).

n.d.; SPIC, 2010).

owners or entrepreneurs, they do own a business, thought not of the traditional type. Agricultural business is risky with unstable incomes, farm economics differ from most other businesses, and farming is a way of life. Family farms are family businesses with signature family dynamics and special emotional attachments to the farm and business (Brookfield & Parsons, 2007; Feldman, 2009; Gasson & Errington, 1993; Hennon & Hildenbrand, 2005a; Kobzar, 2006; Marotz-Baden et al., 1988; McElwee, 2008). Family businesses, including family-farm business, are complex because individual, family, and business subsystems overlap. Boundaries are often diffused and individual issues become family issues, and family issues become business issues, and vice versa. Family dynamics influence the family and enterprise and contribute to success or failure. Farm families are characterised by an 'agifamily system' with unique affiliations and organisations (Bennett, 1982). Hildenbrand (2008) presented a case study of one such Germany farm family. Brookfield and Parsons (2007, p. 217) argued that family farms persist, in the face of capitalism and predictions of industrial farms becoming hegemonic, due to the bonds of family. Families can adjust and adapt to market forces and take advantage of new opportunities. Policy makers are often blind "to the adaptive flexibility of family-scale operation, its competitive ability and its contribution to sustaining wider rural economies".

The chapter is structured as follows. First, background information about the crofting system in Scotland and the scale of family farming, and why for some families these remain a valued lifestyle and tradition, is offered. This section presents some important conceptualisations and reviews knowledge about entrepreneurship among farmers and farm families. Given that phenomenology is not widely utilised in the study of entrepreneurship, the next section provides an overview of this approach to research. The following section explains the methods employed for the research presented here in. Casereconstruction analysis grounds the analytical approach, and the case reconstructions are presented next. Findings from the analysis of how two families, and by extension perhaps other families, make sense of their lifeworlds and can persist 'as if' they are still farm families rather than rural entrepreneurs, are offered. The conclusion section offers an explanation of how use of the 'as if' strategy can help during periods of difficult adjustments to emerging economic and other situations (in a sense, modernising to remain traditional). This section also presents the conceptualising of entrepreneurial vivacity and astuteness, two other themes that emerged. The chapter offers some understanding of the process by which families, struggling to survive in an economically peripheral area or whilst facing agroeconomic changes and uncertain markets, can use entrepreneurial skills and attitudes to transform their livelihood and create new businesses, yet holding to identities of traditional crofter or family farmer.

#### **2. Crofts and farms**

The agricultural sector is fashioned by many contingencies impacting local economies policy, geography, topography, climate, transportation systems, proximity to markets, and labour force size and skills for example. Other factors are culture, traditions, *habitus*, and availability of capital (Bourdieu, 1977; Brookfield, & Parsons, 2007; Hennon & Hildenbrand, 2005a; McElwee, 2008). Entrepreneurship orientation and opportunities also vary. Worldwide, farms and farming vary in many ways. Farmers and farms are not uniform, but represent heterogeneity, even in the same geographical area. In this chapter the focus is on crofts in Scotland and family farms in the U.S. Midwest.

#### **2.1 Crofts**

254 Entrepreneurship - Gender, Geographies and Social Context

owners or entrepreneurs, they do own a business, thought not of the traditional type. Agricultural business is risky with unstable incomes, farm economics differ from most other businesses, and farming is a way of life. Family farms are family businesses with signature family dynamics and special emotional attachments to the farm and business (Brookfield & Parsons, 2007; Feldman, 2009; Gasson & Errington, 1993; Hennon & Hildenbrand, 2005a; Kobzar, 2006; Marotz-Baden et al., 1988; McElwee, 2008). Family businesses, including family-farm business, are complex because individual, family, and business subsystems overlap. Boundaries are often diffused and individual issues become family issues, and family issues become business issues, and vice versa. Family dynamics influence the family and enterprise and contribute to success or failure. Farm families are characterised by an 'agifamily system' with unique affiliations and organisations (Bennett, 1982). Hildenbrand (2008) presented a case study of one such Germany farm family. Brookfield and Parsons (2007, p. 217) argued that family farms persist, in the face of capitalism and predictions of industrial farms becoming hegemonic, due to the bonds of family. Families can adjust and adapt to market forces and take advantage of new opportunities. Policy makers are often blind "to the adaptive flexibility of family-scale operation, its competitive ability and its

The chapter is structured as follows. First, background information about the crofting system in Scotland and the scale of family farming, and why for some families these remain a valued lifestyle and tradition, is offered. This section presents some important conceptualisations and reviews knowledge about entrepreneurship among farmers and farm families. Given that phenomenology is not widely utilised in the study of entrepreneurship, the next section provides an overview of this approach to research. The following section explains the methods employed for the research presented here in. Casereconstruction analysis grounds the analytical approach, and the case reconstructions are presented next. Findings from the analysis of how two families, and by extension perhaps other families, make sense of their lifeworlds and can persist 'as if' they are still farm families rather than rural entrepreneurs, are offered. The conclusion section offers an explanation of how use of the 'as if' strategy can help during periods of difficult adjustments to emerging economic and other situations (in a sense, modernising to remain traditional). This section also presents the conceptualising of entrepreneurial vivacity and astuteness, two other themes that emerged. The chapter offers some understanding of the process by which families, struggling to survive in an economically peripheral area or whilst facing agroeconomic changes and uncertain markets, can use entrepreneurial skills and attitudes to transform their livelihood and create new businesses, yet holding to identities of traditional

The agricultural sector is fashioned by many contingencies impacting local economies policy, geography, topography, climate, transportation systems, proximity to markets, and labour force size and skills for example. Other factors are culture, traditions, *habitus*, and availability of capital (Bourdieu, 1977; Brookfield, & Parsons, 2007; Hennon & Hildenbrand, 2005a; McElwee, 2008). Entrepreneurship orientation and opportunities also vary. Worldwide, farms and farming vary in many ways. Farmers and farms are not uniform, but represent heterogeneity, even in the same geographical area. In this chapter the focus is on

contribution to sustaining wider rural economies".

crofts in Scotland and family farms in the U.S. Midwest.

crofter or family farmer.

**2. Crofts and farms** 

Approximately 85 per cent of Scotland is 'less favoured area', a European Union classification that acknowledges natural and geographic disadvantages. About 65,000 people are employed in agriculture, about eight per cent of Scotland's rural workforce; agriculture is the third largest employer in rural Scotland (National Farmers Union Scotland, n.d.).

Crofting is a form of regulated land tenure, unique to parts of Scotland (Busby & Macleod, 2010; Crofters Commission, n.d.; Scottish Crofting Federation, n.d.). Crofts are agricultural holdings in the Highlands and Islands of Scotland that are subject to the Crofting Acts. The word croft comes from the Gaelic *coirtean*, and means a small-enclosed field. In Scotland, a croft is a small individual holding of enclosed land with a share in a common grazing (Stewart, 2005). Crofters are entitled to have a dwelling house on the croft and to erect or use a building or other structure on the croft for an auxiliary occupation, such as a loom shed for weaving. Crofts range from less than one-half hectare to more than 50, with an average croft being five hectare of 'in-bye' (arable) land and a share in a larger area of common grazing. The common grazing land is subject to crofting legislation and used by crofters communally. There are about 800 regulated common grazings, usually managed by a Grazing Committee that makes Grazing Regulations to control their use. The crofters or others holding interests in common grazings are 'shareholders'. The number and kinds of livestock each crofter is entitled to graze is the 'souming' (Scottish Parliament Information Centre [SPIC], 2010). The Crofting Commission (n.d.) considers crofting to mean the "close and interlinked relationships between the land and the economy, agriculture, environment, heritage, culture and distinctive lifestyles of crofting communities".

A croft has been styled "a small area of land entirely surrounded by regulations" (Stewart, 2005, p. 1). Statutory conditions restrict the use of the croft land to farming, forestry, or putting the croft to a 'purposeful use'. Crofting agriculture is primarily rearing of lambs and cattle for sale to low ground farmers for breeding stock or fattening and finishing, as these are not cost-effective in the crofting areas due to climatic and soil quality shortcomings. Croft land is generally poor quality and the in-bye land is mainly permanent pasture. Crofts are typically small compared to other agricultural holdings in Scotland, and cannot sustain full time employment. A survey in 2007 found, on average, 30 per cent of a croft household's income came from crofting. Finding supplementary employment varies according to environment, climate, and other factors in the crofting counties. Many crofters have diversified into small-scale tourism and other enterprises, and others hold jobs in the public sector, tourism, rural industry, service sectors, and fishing (Scottish Crofting Federation, n.d.; SPIC, 2010).

The crofting lifestyle has a long history (Hunter, 2000; Stewart, 2005). The basic principle of crofting law is to furnish the crofter security of tenure at a reasonable rent. The crofter and landlord agree upon the amount of rent, normally before the start of a tenancy. Although technically a year-to-year arrangement, crofting tenancies have no time limit and are hereditable. Crofters can bequeath their tenancy to any one person (assignation). Different rules apply if that person is not a family member. The definition of family is restricted to certain relatives and includes a civil partner or cohabitant (SPIC, 2010).

Entrepreneurship, Farming, and Identity: A Phenomenological Inquiry 257

under \$250,000. The number of small family-farm operators who report farming as their primary occupation has declined. In 1993, these represented 37 per cent of farms; in 2003, 27 per cent. Residential farms (small farms with operators reporting off-farm work as primary occupation) increased to 42 per cent in 2003, from 36 per cent in 1993. Their average farm sales were low (\$12,000 in 2003), and represented five per cent of all U.S. farm production

The median farm-household income in 2003 was \$47,600, 10 per cent greater than for all U.S. households. Farm business average income for all family farms in 2011 is projected at \$31,900. For almost all U.S. farm families, a significant proportion of income is earned offfarm, as is true for farm families in many other nations. U.S. farm operator households are not low-income when the combined farm and off-farm incomes are considered. Because small-farm households receive much income from off-farm work or self-employed operation of enterprises, general economic policies, such as tax or economic development policy, are as important as farm policy. Within the European Union, the Common Agricultural Policy presents farmers the opportunity for taking more responsibility for their businesses, and for having more freedom to farm as desired. This is generally true of the agricultural sector in the U.S. This means farmers have to adjust and be attentive to market forces (Barrett et al., 2001; Brookfield, 2008; Brookfield & Parsons, 2007; Economic Research Service, 2010; Hennon & Hildenbrand, 2005a; Hoppe & Banker, 2006, 2010; Hoppe et al., 2010; McElwee,

Hennon and Hildenbrand (2008, p. 481) asked: "Why, against the trend of modernisation and enlargement, and hence laden with risk, do many farming families continue to value and pursue a more traditional family pattern?" They provided two answers to this question: a) the family farm offers an advantaged way of living in regards to independence and the combination of life and livelihood, b) family tradition hampers surrendering a farm. The successor is expected to make a personal contribution to the farm. This tradition creates a dilemma not easily surmounted (Bourdieu, 1977). This, however, can be the motivation behind development of the farm, provided the generations living on the farm respectfully engage with one another (see Mishra et al., 2010, for a review of farm succession planning in

Farm exits each year are approximately 10 per cent in the U.S. The same number of farms, mostly smallholdings, comes into existence (Hoppe & Korb, 2006). The number of farms has been stable since 1974. The exit probability is minimal for large farms in existence for 14 or more years and managed by people younger than age 65. This lower rate of exit supports the production concentration among fewer and larger family farms. Hampered by lack of capital and other resources, smaller family farms have difficulties adapting to globalised

'Getting big or getting out' is an applicable principle when judging the future of the familyoperated farm business. Increasing the use of technology (e.g., geo-positioning systems for planting crops and computers for record keeping and forecasting), enlarging the land area, and expanding a mono-structure (specialising in one crop or type of livestock) can help secure survival (see for example, Fernandez-Cornejo, 2007; Halpin & Guilfoyle, 2005; Rossier, 2005). If these were only options available, the premise presented in this chapter, that farmers can be entrepreneurial in ways beside traditional agricultural actives, would

the USA, and Bohak et al., 2010, for a review of succession in Europe).

markets. Some do grow into larger operations (Newton, 2005).

(Hoppe & Banker, 2006).

2005).

Crofters are in danger of losing their tenancy only if failing to reside on or near their croft, breaching statutory conditions, failing to pay rent, or if the landlord 'resumes' part or the entire croft. The landlord must apply to the Scottish Land Court to do this, and permission is granted only if it is for the good of the croft or the estate, or is in the public interest or the interests of the crofting community (e.g., for building houses, harbours, churches, schools; planting trees; or for other purposes likely to provide employment in the locality). A crofter has the right to buy the site of his/her croft house. If the landlord refuses to sell or if failure to agree terms and conditions of sale ensues, the crofter can apply to the Land Court for an Order requiring the landlord to sell. When a crofter buys the croft, she/he essentially becomes the landlord (SPIC 2010).

Crofts are not intended to provide all the means of substance for a family through agriculture. The size of the croft was deliberately kept small so that the occupant would be available for work at kelping or fishing, or as hired hands on farms and estates, or engage in other economic activities that would benefit the landlord. This situation still exists, but the ancillary work of the crofter might not necessarily benefit the landlord. Many crofters have off croft work such as lorry drivers, tele-workers, postal workers, weavers, and teachers, and many have diversified in to small-scale tourism (Munk, 2006; Scottish Crofting Federation, n.d.). Some crofters have developed activities on or from the croft, such as weaving, creating jewellery or pottery, or retail sales of handicrafts or woollen sweaters.

The Crofters Commission (1998, p. 4) assessed "crofting is best described as a way of life. It is often equated with part-time agriculture. This is only partially true; agriculture links crofters with the land and crofting agriculture impacts significantly on rural economies. But crofting is more. It defines the economy, environment, culture, language and heritage for many rural communities. At the very heart of crofting are people. Our challenge is to work with them to enhance the crofting way of life."

#### **2.2 Farms**

In the U.S. Midwest, family farms can be large in terms of land endowment and income, but mostly are small in terms of income and land. Land is owned, and additional land often rented. Common products are soya beans, wheat, and corn, and beef and dairy farming. Most U.S. farms, 98 per cent, are family operations; the largest farms also are predominantly family run.2 Large-scale family and nonfamily (often industrialised) farms are 12 per cent of U.S. farms, but account for 84 per cent of the value of production. Average net income for farm businesses (intermediate and commercial operations, including nonfamily farms) is projected to be \$83,100 in 2011, a 17 per cent increase from 2010. Smallholdings are less profitable than large-scale farms, on average, and their operator households often rely on off-farm income.3 Many family farms are part-time, small-scale operations with sales of

<sup>2</sup> The majority of farms in the European Union are family-owned and operated, as they are in Australia, most African nations, Canada, and the USA. The family-operated farm business prevails even in countries that are geographically and otherwise suited for industrialised farming (Hildenbrand & Hennon, 2008).

<sup>3</sup> Off-farm as used here includes employment off the farm premises, as well as income earned on or from the premises from business enterprises owned and/or run by the farmer or family.

Crofters are in danger of losing their tenancy only if failing to reside on or near their croft, breaching statutory conditions, failing to pay rent, or if the landlord 'resumes' part or the entire croft. The landlord must apply to the Scottish Land Court to do this, and permission is granted only if it is for the good of the croft or the estate, or is in the public interest or the interests of the crofting community (e.g., for building houses, harbours, churches, schools; planting trees; or for other purposes likely to provide employment in the locality). A crofter has the right to buy the site of his/her croft house. If the landlord refuses to sell or if failure to agree terms and conditions of sale ensues, the crofter can apply to the Land Court for an Order requiring the landlord to sell. When a crofter buys the croft, she/he essentially

Crofts are not intended to provide all the means of substance for a family through agriculture. The size of the croft was deliberately kept small so that the occupant would be available for work at kelping or fishing, or as hired hands on farms and estates, or engage in other economic activities that would benefit the landlord. This situation still exists, but the ancillary work of the crofter might not necessarily benefit the landlord. Many crofters have off croft work such as lorry drivers, tele-workers, postal workers, weavers, and teachers, and many have diversified in to small-scale tourism (Munk, 2006; Scottish Crofting Federation, n.d.). Some crofters have developed activities on or from the croft, such as weaving, creating jewellery or pottery, or retail sales of handicrafts or woollen sweaters.

The Crofters Commission (1998, p. 4) assessed "crofting is best described as a way of life. It is often equated with part-time agriculture. This is only partially true; agriculture links crofters with the land and crofting agriculture impacts significantly on rural economies. But crofting is more. It defines the economy, environment, culture, language and heritage for many rural communities. At the very heart of crofting are people. Our challenge is to work

In the U.S. Midwest, family farms can be large in terms of land endowment and income, but mostly are small in terms of income and land. Land is owned, and additional land often rented. Common products are soya beans, wheat, and corn, and beef and dairy farming. Most U.S. farms, 98 per cent, are family operations; the largest farms also are predominantly family run.2 Large-scale family and nonfamily (often industrialised) farms are 12 per cent of U.S. farms, but account for 84 per cent of the value of production. Average net income for farm businesses (intermediate and commercial operations, including nonfamily farms) is projected to be \$83,100 in 2011, a 17 per cent increase from 2010. Smallholdings are less profitable than large-scale farms, on average, and their operator households often rely on off-farm income.3 Many family farms are part-time, small-scale operations with sales of

2 The majority of farms in the European Union are family-owned and operated, as they are in Australia, most African nations, Canada, and the USA. The family-operated farm business prevails even in countries that are geographically and otherwise suited for industrialised farming (Hildenbrand &

3 Off-farm as used here includes employment off the farm premises, as well as income earned on or

from the premises from business enterprises owned and/or run by the farmer or family.

becomes the landlord (SPIC 2010).

with them to enhance the crofting way of life."

**2.2 Farms** 

Hennon, 2008).

under \$250,000. The number of small family-farm operators who report farming as their primary occupation has declined. In 1993, these represented 37 per cent of farms; in 2003, 27 per cent. Residential farms (small farms with operators reporting off-farm work as primary occupation) increased to 42 per cent in 2003, from 36 per cent in 1993. Their average farm sales were low (\$12,000 in 2003), and represented five per cent of all U.S. farm production (Hoppe & Banker, 2006).

The median farm-household income in 2003 was \$47,600, 10 per cent greater than for all U.S. households. Farm business average income for all family farms in 2011 is projected at \$31,900. For almost all U.S. farm families, a significant proportion of income is earned offfarm, as is true for farm families in many other nations. U.S. farm operator households are not low-income when the combined farm and off-farm incomes are considered. Because small-farm households receive much income from off-farm work or self-employed operation of enterprises, general economic policies, such as tax or economic development policy, are as important as farm policy. Within the European Union, the Common Agricultural Policy presents farmers the opportunity for taking more responsibility for their businesses, and for having more freedom to farm as desired. This is generally true of the agricultural sector in the U.S. This means farmers have to adjust and be attentive to market forces (Barrett et al., 2001; Brookfield, 2008; Brookfield & Parsons, 2007; Economic Research Service, 2010; Hennon & Hildenbrand, 2005a; Hoppe & Banker, 2006, 2010; Hoppe et al., 2010; McElwee, 2005).

Hennon and Hildenbrand (2008, p. 481) asked: "Why, against the trend of modernisation and enlargement, and hence laden with risk, do many farming families continue to value and pursue a more traditional family pattern?" They provided two answers to this question: a) the family farm offers an advantaged way of living in regards to independence and the combination of life and livelihood, b) family tradition hampers surrendering a farm. The successor is expected to make a personal contribution to the farm. This tradition creates a dilemma not easily surmounted (Bourdieu, 1977). This, however, can be the motivation behind development of the farm, provided the generations living on the farm respectfully engage with one another (see Mishra et al., 2010, for a review of farm succession planning in the USA, and Bohak et al., 2010, for a review of succession in Europe).

Farm exits each year are approximately 10 per cent in the U.S. The same number of farms, mostly smallholdings, comes into existence (Hoppe & Korb, 2006). The number of farms has been stable since 1974. The exit probability is minimal for large farms in existence for 14 or more years and managed by people younger than age 65. This lower rate of exit supports the production concentration among fewer and larger family farms. Hampered by lack of capital and other resources, smaller family farms have difficulties adapting to globalised markets. Some do grow into larger operations (Newton, 2005).

'Getting big or getting out' is an applicable principle when judging the future of the familyoperated farm business. Increasing the use of technology (e.g., geo-positioning systems for planting crops and computers for record keeping and forecasting), enlarging the land area, and expanding a mono-structure (specialising in one crop or type of livestock) can help secure survival (see for example, Fernandez-Cornejo, 2007; Halpin & Guilfoyle, 2005; Rossier, 2005). If these were only options available, the premise presented in this chapter, that farmers can be entrepreneurial in ways beside traditional agricultural actives, would

Entrepreneurship, Farming, and Identity: A Phenomenological Inquiry 259

the community or to outsiders such as tourists. Rural enterprises can arise within a single household or a wider social network (Warren, 2002). Rural enterprise development requires higher investment and higher risk. Diversifying farmers and their families should select the alternative best suiting their risk-aversion needs. Farmers proficient in joining conventional farming with rural enterprises experience higher income and more secure livelihoods than do farmers with income from conventional farming alone, or combined with wage labour

Pluriactivity also can be conceptualised as better use of space and other resources. A closely related concept is 'multioccupation', or a person (or a family) simultaneously being gainfully employed in more than one occupation. Traditionally, crofters in Scotland have been involved in multioccupation (both on and outwith of the croft) and pluriactivity as they combined a variety of gainful activities to assemble a livelihood (Hunter, 2006; Kinloch & Dalton, 1990; Toynbee & Jamieson, 1989). Fernandez-Cornejo (2007) noted that off-farm employment is regarded as a usual feature in most farming societies, more than one-half of U.S. farm operators work off-farm, and the majority of farmers regard off-farm employment as a permanent pursuit (ie, strategic versus occasional diversification; Warren, 2002). The average African and Asian rural household acquires about 45 and 30 per cent, respectively, of their income from non-farm income sources, whilst in rural Latin America it is about 40 per cent (Warren, 2002). About one-fifth of U.S. farmers with a second source of income are

Certain farmers choose off-farm employment or to start their own enterprises as a way to stabilise household income given the volatility of agricultural earnings (Barrett et al., 2001; Warren, 2002). A desire to realise vocational training drives some pluriactivity. The decision to seek other income sources as well as the sustainability of such endeavours are supported by several factors, including family support and encouragement, own financial resources or obtainability of credit, availability of premises on the holding for alternative uses, and the ease of operating a business from the home. The alternate source of income can be one's own family enterprise as it is created, nourished, and maintained, such as done by the two

A European Union Green Paper defined entrepreneurship as "the mindset and process to create and develop economic activity by blending risk-taking, creativity and/or innovation with sound management, within a new or an existing organisation" (de Wolf & Schoorlemmer, 2007, p. 115). Research with European farmers used the following definition (de Wolf & Schoorlemmer, 2007, p. 119): "An entrepreneurial farmer is a person who is able to create and develop a profitable business in a changing business environment". Operationalizing farmers' entrepreneurial activity is difficult. Farmers do not operate in business activities similar to others. Additionally, farmers, and especially crofters, work in a

highly regulated environment that is a barrier to entrepreneurship (McElwee, 2006a).

Regardless, many farmers are quite entrepreneurial if one accepts that it means creatively determining how, and then acquiring, additional income from strategic farm development, or service, retail, or wholesale new entries undertaken owing to entrepreneurial opportunities (Capitanio & Adinolfi, 2010; Haugen & Vik, 2008; Hennon & Hildenbrand,

(Warren, 2002).

self-employed business owners.

**2.4 Farmers as entrepreneurs** 

families observed for the analysis presented in this chapter.

need discarded. The processes of concentration and/or enlargement restrict some reasons for maintaining a farm and its benefits to the family. Pluriactivity, multioccupation, and portfolio enhancement can be advanced via entrepreneuring.

#### **2.3 Pluriactivity, diversification, multioccupation, and portfolio of activities**

In an agricultural context, 'pluriactivity' describes "the phenomenon of farming in conjunction with another gainful activity, whether on- or off-farm" (Mackinnon et al., 1991, p. 59), "existence of other gainful activities for the farmer, ie. every activity other than activity relating to farm work, carried out for remuneration" (Barthomeuf, 2008, p. 3), or "any business activity that the farmer engages in which is off-farm activity" (McElwee, 2008, p. 478). Pluriactivity designates that farm households realise income from not only agricultural activities, but also non-agricultural on-farm and off-farm activities. Pluriactivity among farm households in the United States, Europe, and elsewhere is an established tradition and has become more common in recent decades (Alsos et al., 2003; Barrett et al., 2001; Shucksmith & Winter, 1990; Toynbee & Jamieson, 1989). Significant numbers of farmers and spouses have resorted to other sources of income at certain times and stages of the life cycle, as either a temporary tactic for income enlargement or as a more prevalent fixture of wage earning and lifestyle benefits (Barthomeuf, 2008; Bergmann et al., 2006; Fernandez-Cornejo, 2007; Rønning & Kolvereid, 2006). Pluriactivity as an economic strategy can enable families to persist in farming and living in the countryside, and can be motivated by many factors—desire to keep the family farm going, to stay at home to care for elderly parents, affinity with farm labour, or emotional or family bond reasons such as not wanting to sell the family homestead (Alsos et al., 2003, Hennon & Hildenbrand 2005a; Hildenbrand & Hennon, 2008).

One type of pluriactivity is 'diversification', an intrinsic attribute of many rural livelihood strategies, and promoted by Britain and European policy makers as a desirable trend among farmers (Warren, 2002). Farm diversification is the "on-farm use of the resources of the farm for producing either new agricultural products which are not in surplus or non-agricultural products" (Shucksmith & Winter, 1990, p. 429). Warren (2002) conceptualised diversification "as the exploitation of multiple assets and sources of revenue". McElwee (2008, p. 478) considered diversification as "on-farm or farming-related activity. Thus contracting or farm accommodation would constitute diversification". The Scottish Government (2010) defined diversification as the "entrepreneurial use of farm resources for the purpose of producing non-agricultural commodities". For this chapter, diversification includes any gainful activities that do not comprise farm work, but are directly related to the holding. Examples include handicrafts, piecework, weaving, wood processing, aquaculture, contractual work using equipment of the holding, retail sales of food products or other goods, and tourism such as a B&B (Barthomeuf, 2008).

'Rural livelihoods diversification' processes can encompass a broad brand of activities, including wage labour or enterprise development. 'Rural self-employment enterprises' are activities organised by mobilising labour and other household capital assets (e.g., savings, buildings, equipment, land). 'Rural agricultural enterprises' are built from inventive onfarm agricultural activities such as independent commercial production or contract farming. 'Rural non-agricultural enterprises' centre on pursuits like processing of commodities, manufacturing, retail or wholesale trades, home-based piecework, or providing services to

need discarded. The processes of concentration and/or enlargement restrict some reasons for maintaining a farm and its benefits to the family. Pluriactivity, multioccupation, and

In an agricultural context, 'pluriactivity' describes "the phenomenon of farming in conjunction with another gainful activity, whether on- or off-farm" (Mackinnon et al., 1991, p. 59), "existence of other gainful activities for the farmer, ie. every activity other than activity relating to farm work, carried out for remuneration" (Barthomeuf, 2008, p. 3), or "any business activity that the farmer engages in which is off-farm activity" (McElwee, 2008, p. 478). Pluriactivity designates that farm households realise income from not only agricultural activities, but also non-agricultural on-farm and off-farm activities. Pluriactivity among farm households in the United States, Europe, and elsewhere is an established tradition and has become more common in recent decades (Alsos et al., 2003; Barrett et al., 2001; Shucksmith & Winter, 1990; Toynbee & Jamieson, 1989). Significant numbers of farmers and spouses have resorted to other sources of income at certain times and stages of the life cycle, as either a temporary tactic for income enlargement or as a more prevalent fixture of wage earning and lifestyle benefits (Barthomeuf, 2008; Bergmann et al., 2006; Fernandez-Cornejo, 2007; Rønning & Kolvereid, 2006). Pluriactivity as an economic strategy can enable families to persist in farming and living in the countryside, and can be motivated by many factors—desire to keep the family farm going, to stay at home to care for elderly parents, affinity with farm labour, or emotional or family bond reasons such as not wanting to sell the family homestead (Alsos et al., 2003,

One type of pluriactivity is 'diversification', an intrinsic attribute of many rural livelihood strategies, and promoted by Britain and European policy makers as a desirable trend among farmers (Warren, 2002). Farm diversification is the "on-farm use of the resources of the farm for producing either new agricultural products which are not in surplus or non-agricultural products" (Shucksmith & Winter, 1990, p. 429). Warren (2002) conceptualised diversification "as the exploitation of multiple assets and sources of revenue". McElwee (2008, p. 478) considered diversification as "on-farm or farming-related activity. Thus contracting or farm accommodation would constitute diversification". The Scottish Government (2010) defined diversification as the "entrepreneurial use of farm resources for the purpose of producing non-agricultural commodities". For this chapter, diversification includes any gainful activities that do not comprise farm work, but are directly related to the holding. Examples include handicrafts, piecework, weaving, wood processing, aquaculture, contractual work using equipment of the holding, retail sales of food products or other goods, and tourism

'Rural livelihoods diversification' processes can encompass a broad brand of activities, including wage labour or enterprise development. 'Rural self-employment enterprises' are activities organised by mobilising labour and other household capital assets (e.g., savings, buildings, equipment, land). 'Rural agricultural enterprises' are built from inventive onfarm agricultural activities such as independent commercial production or contract farming. 'Rural non-agricultural enterprises' centre on pursuits like processing of commodities, manufacturing, retail or wholesale trades, home-based piecework, or providing services to

**2.3 Pluriactivity, diversification, multioccupation, and portfolio of activities** 

portfolio enhancement can be advanced via entrepreneuring.

Hennon & Hildenbrand 2005a; Hildenbrand & Hennon, 2008).

such as a B&B (Barthomeuf, 2008).

the community or to outsiders such as tourists. Rural enterprises can arise within a single household or a wider social network (Warren, 2002). Rural enterprise development requires higher investment and higher risk. Diversifying farmers and their families should select the alternative best suiting their risk-aversion needs. Farmers proficient in joining conventional farming with rural enterprises experience higher income and more secure livelihoods than do farmers with income from conventional farming alone, or combined with wage labour (Warren, 2002).

Pluriactivity also can be conceptualised as better use of space and other resources. A closely related concept is 'multioccupation', or a person (or a family) simultaneously being gainfully employed in more than one occupation. Traditionally, crofters in Scotland have been involved in multioccupation (both on and outwith of the croft) and pluriactivity as they combined a variety of gainful activities to assemble a livelihood (Hunter, 2006; Kinloch & Dalton, 1990; Toynbee & Jamieson, 1989). Fernandez-Cornejo (2007) noted that off-farm employment is regarded as a usual feature in most farming societies, more than one-half of U.S. farm operators work off-farm, and the majority of farmers regard off-farm employment as a permanent pursuit (ie, strategic versus occasional diversification; Warren, 2002). The average African and Asian rural household acquires about 45 and 30 per cent, respectively, of their income from non-farm income sources, whilst in rural Latin America it is about 40 per cent (Warren, 2002). About one-fifth of U.S. farmers with a second source of income are self-employed business owners.

Certain farmers choose off-farm employment or to start their own enterprises as a way to stabilise household income given the volatility of agricultural earnings (Barrett et al., 2001; Warren, 2002). A desire to realise vocational training drives some pluriactivity. The decision to seek other income sources as well as the sustainability of such endeavours are supported by several factors, including family support and encouragement, own financial resources or obtainability of credit, availability of premises on the holding for alternative uses, and the ease of operating a business from the home. The alternate source of income can be one's own family enterprise as it is created, nourished, and maintained, such as done by the two families observed for the analysis presented in this chapter.

#### **2.4 Farmers as entrepreneurs**

A European Union Green Paper defined entrepreneurship as "the mindset and process to create and develop economic activity by blending risk-taking, creativity and/or innovation with sound management, within a new or an existing organisation" (de Wolf & Schoorlemmer, 2007, p. 115). Research with European farmers used the following definition (de Wolf & Schoorlemmer, 2007, p. 119): "An entrepreneurial farmer is a person who is able to create and develop a profitable business in a changing business environment". Operationalizing farmers' entrepreneurial activity is difficult. Farmers do not operate in business activities similar to others. Additionally, farmers, and especially crofters, work in a highly regulated environment that is a barrier to entrepreneurship (McElwee, 2006a).

Regardless, many farmers are quite entrepreneurial if one accepts that it means creatively determining how, and then acquiring, additional income from strategic farm development, or service, retail, or wholesale new entries undertaken owing to entrepreneurial opportunities (Capitanio & Adinolfi, 2010; Haugen & Vik, 2008; Hennon & Hildenbrand,

Entrepreneurship, Farming, and Identity: A Phenomenological Inquiry 261

The resource-exploiting entrepreneur wants to exploit available resources—material and/or immaterial, like particular buildings, unique premises or location, education, experience, vocational training, human and social capital—usually connected to the farm and/or family members. These could also be local community resources. These farmers have other opportunities including farm expansion or waged labour. These opportunities are forsaken for not allowing the person to utilise her/his unique resources. The farm is a place of residence, but strong ties to farming is lacking relative to pluriactive or yeoman farmers. A substantial portion of household income comes from the farm. The nascent business activity, however, can be just as, or even more, important concerning income, quality of life, lifestyle, and satisfaction. The activity is not necessarily rooted in farming and can be located on or outwith the farm. The businesses are often larger than pluriactive farmers' and require more capital. Family members own the businesses and typically only employ other family members. If these fresh activities utilise resources well, the businesses contributes to household income and local economic activity (Alsos et al., 2003; Capitanio & Adinolfi, 2010; Carter, 1999; Davis-Brown & Salamon, 1988; Hildenbrand & Hennon, 2008; Marotz-Baden et

Portfolio entrepreneurs have weaker bonds to farming, and sometimes to the farm as a residence. These farmers view the farm as a business, a business not always necessary to keep, unlike the perspective of pluriactive farmers. The bourgeoning business sometimes becomes bigger than the farm business and the greatest source of income. They consciously chose self-employment, and this is an important point for them. The main trigger for starting a new business is wanting to develop a business idea, not necessarily originating in the farm's resources. They set forth to create uniqueness by such means as differentiating their products from others, using unique design, marketing as a niche business, and focusing on sales, implying a market-oriented approach. Portfolio entrepreneurs can marshal resources, and often invest greater sums compared to pluriactive farmers and resource-exploiting entrepreneur. These people thereby take greater risks, financially, reputation wise (stigma of failure), and time use. They might shift resources from the farm to the business if a better return is expected. They might curtail employment and other activities, including time with family, to fulfil the business idea. The business is expected to contribute significantly to the family income, and can contribute to economic development and employment (Alsos et al., 2003; Damaraju et al., 2010; de Wolf & Schoorlemmer, 2007; Hennon & Hildenbrand, 2005b; Hildenbrand & Hennon, 2008; McElwee, 2006b, 2008;

Nordqvist & Melin, 2010; Rossier, 2005; Vesala & Pyysiäinen, 2008; Warren, 2002).

Historically known for commitment to independence and entrepreneurial ideals, farmers have experience of self-employment and food production. Agricultural households have a tradition of combining other sources of income with farming activities (Alsos et al., 2003). Families engaged in agobusiness frequently weave lives and livelihoods from complex strands of living and earning. Entrepreneuring is a global hedge against 'farm exits' due to inadequate income (Bohak et al., 2010; Brookfield & Parsons, 2007; Chandramouli et al., 2007; de Wolf & Schoorlemmer, 2007; Economic Research Service, 2006; Glauben et al., 2003; Kimhi & Bollman, 1999; Rudmann, 2008; Stam & Dixon, 2004). Entrepreneuring, can however, led to farm exits in the sense of the famer giving up traditional farming to pursue

al., 1988; Rossier, 2005).

other gainful activities.

2005a; Hildenbrand & Hennon, 2008; McElwee, 2005, 2008; Vesala & Pyysiäinen, 2008; Vik & McElwee, 2011). For the farm enterprise to remain viable and the family to sustain, additional sources of income besides the more common agricultural activities are frequent. These additional sources are components of the portfolio of earning activities for the individual and household, and include off-farm and on-farm occupations by multiply family members, and are more frequent when the family holding is closer to conurbations (Barrett et al., 2001; Rudmann, 2008; Sofer, 2001; Warren, 2002). A portfolio of activities can stabilise income flows and consumption (Barrett et al., 2001; Kobzar, 2006; Vesala et al., 2007). This type of pluriactivity and multioccupation is typical of crofters, farmers, and other households engaged in home-based employment (Hennon et al., 2000; Hillenbrand & Hennon, 2008; Scottish Crofting Federation, n.d.; Wheelock, 1993). One large-scale study in Europe concluded the farmers interviewed, for the most part, agreed entrepreneurial skills were important and relevant for one's business activities. Differences were found, however, about how skilful farmers were (Vesala & Pyysiäinen, 2008). Among farmers as potential entrepreneurs, portfolio farmers, in contrast to other farmers, see themselves as risk-takers, innovative, optimistic, growth-oriented, and possessing more personal control over their business activities (Vesala et al., 2007).

Owner-managers of a business who start new business activities are 'parallel' or 'portfolio' entrepreneurs. Farms are somewhat like other small rural businesses. Farmers are business owner-managers. Farmers, who initiate new business activities by realising and exploiting entrepreneurial opportunities and still maintaining the farm business, are therefore portfolio entrepreneurs (Alsos et al., 2003).

Various groupings of activities in rural livelihood portfolios have been suggested. One that captures an importance distinction is broadening through wage labour or broadening through growth of self-employment enterprises. The business idea, the resources available, and the lifestyle of the farm family influence the nature of the new enterprise. Alsos et al. (2003) identified three types of farmer entrepreneurs who contribute to society in different manners. 'Pluriactive farmers' take up the multifunctional of farming. 'Resource exploiting entrepreneurs' exploit distinctive resources to generate economic activity from the farm. 'Portfolio entrepreneurs' offer a greater contribution to household income, employment, and economic activity.

Pluriactive farmers identify as farmers, and they put their work effort into and receive their main income from farming. New business activities are started in order to maintain or expand the farm, and new business activities typically relate to the farm. The strong commitment to farming can be a choice of lifestyle—to staying on the family farm. The commitment can also be due to a belief of having no choice—due to a sense of duty or perceiving few other opportunities. Establishing new business activities is a way of increasing farm income. A new business activity is developed instead of waged employment because these farmers find off-farm employment difficult to combine with farm activities and difficult to fit into their lifestyle. The business started often emulate those of other farmers, are typically small in scale, and put up on competence and utilising spare capacity at the farm, such as work force or machinery. Pluriactive farmers pursue a traditional way of living whilst modernising it, and thusly contribute to the multifunctionality of agriculture (Alsos, et al., 2003; Barthomeuf, 2008; Bergmann et al., 2006; Hennon & Hildenbrand, 2005b; Hildenbrand & Hennon, 2008; Kinsella et al., 2000; Sofer, 2001).

2005a; Hildenbrand & Hennon, 2008; McElwee, 2005, 2008; Vesala & Pyysiäinen, 2008; Vik & McElwee, 2011). For the farm enterprise to remain viable and the family to sustain, additional sources of income besides the more common agricultural activities are frequent. These additional sources are components of the portfolio of earning activities for the individual and household, and include off-farm and on-farm occupations by multiply family members, and are more frequent when the family holding is closer to conurbations (Barrett et al., 2001; Rudmann, 2008; Sofer, 2001; Warren, 2002). A portfolio of activities can stabilise income flows and consumption (Barrett et al., 2001; Kobzar, 2006; Vesala et al., 2007). This type of pluriactivity and multioccupation is typical of crofters, farmers, and other households engaged in home-based employment (Hennon et al., 2000; Hillenbrand & Hennon, 2008; Scottish Crofting Federation, n.d.; Wheelock, 1993). One large-scale study in Europe concluded the farmers interviewed, for the most part, agreed entrepreneurial skills were important and relevant for one's business activities. Differences were found, however, about how skilful farmers were (Vesala & Pyysiäinen, 2008). Among farmers as potential entrepreneurs, portfolio farmers, in contrast to other farmers, see themselves as risk-takers, innovative, optimistic, growth-oriented, and possessing more personal control over their

Owner-managers of a business who start new business activities are 'parallel' or 'portfolio' entrepreneurs. Farms are somewhat like other small rural businesses. Farmers are business owner-managers. Farmers, who initiate new business activities by realising and exploiting entrepreneurial opportunities and still maintaining the farm business, are therefore portfolio

Various groupings of activities in rural livelihood portfolios have been suggested. One that captures an importance distinction is broadening through wage labour or broadening through growth of self-employment enterprises. The business idea, the resources available, and the lifestyle of the farm family influence the nature of the new enterprise. Alsos et al. (2003) identified three types of farmer entrepreneurs who contribute to society in different manners. 'Pluriactive farmers' take up the multifunctional of farming. 'Resource exploiting entrepreneurs' exploit distinctive resources to generate economic activity from the farm. 'Portfolio entrepreneurs' offer a greater contribution to household income, employment, and

Pluriactive farmers identify as farmers, and they put their work effort into and receive their main income from farming. New business activities are started in order to maintain or expand the farm, and new business activities typically relate to the farm. The strong commitment to farming can be a choice of lifestyle—to staying on the family farm. The commitment can also be due to a belief of having no choice—due to a sense of duty or perceiving few other opportunities. Establishing new business activities is a way of increasing farm income. A new business activity is developed instead of waged employment because these farmers find off-farm employment difficult to combine with farm activities and difficult to fit into their lifestyle. The business started often emulate those of other farmers, are typically small in scale, and put up on competence and utilising spare capacity at the farm, such as work force or machinery. Pluriactive farmers pursue a traditional way of living whilst modernising it, and thusly contribute to the multifunctionality of agriculture (Alsos, et al., 2003; Barthomeuf, 2008; Bergmann et al., 2006; Hennon & Hildenbrand, 2005b; Hildenbrand & Hennon, 2008; Kinsella et al., 2000; Sofer,

business activities (Vesala et al., 2007).

entrepreneurs (Alsos et al., 2003).

economic activity.

2001).

The resource-exploiting entrepreneur wants to exploit available resources—material and/or immaterial, like particular buildings, unique premises or location, education, experience, vocational training, human and social capital—usually connected to the farm and/or family members. These could also be local community resources. These farmers have other opportunities including farm expansion or waged labour. These opportunities are forsaken for not allowing the person to utilise her/his unique resources. The farm is a place of residence, but strong ties to farming is lacking relative to pluriactive or yeoman farmers. A substantial portion of household income comes from the farm. The nascent business activity, however, can be just as, or even more, important concerning income, quality of life, lifestyle, and satisfaction. The activity is not necessarily rooted in farming and can be located on or outwith the farm. The businesses are often larger than pluriactive farmers' and require more capital. Family members own the businesses and typically only employ other family members. If these fresh activities utilise resources well, the businesses contributes to household income and local economic activity (Alsos et al., 2003; Capitanio & Adinolfi, 2010; Carter, 1999; Davis-Brown & Salamon, 1988; Hildenbrand & Hennon, 2008; Marotz-Baden et al., 1988; Rossier, 2005).

Portfolio entrepreneurs have weaker bonds to farming, and sometimes to the farm as a residence. These farmers view the farm as a business, a business not always necessary to keep, unlike the perspective of pluriactive farmers. The bourgeoning business sometimes becomes bigger than the farm business and the greatest source of income. They consciously chose self-employment, and this is an important point for them. The main trigger for starting a new business is wanting to develop a business idea, not necessarily originating in the farm's resources. They set forth to create uniqueness by such means as differentiating their products from others, using unique design, marketing as a niche business, and focusing on sales, implying a market-oriented approach. Portfolio entrepreneurs can marshal resources, and often invest greater sums compared to pluriactive farmers and resource-exploiting entrepreneur. These people thereby take greater risks, financially, reputation wise (stigma of failure), and time use. They might shift resources from the farm to the business if a better return is expected. They might curtail employment and other activities, including time with family, to fulfil the business idea. The business is expected to contribute significantly to the family income, and can contribute to economic development and employment (Alsos et al., 2003; Damaraju et al., 2010; de Wolf & Schoorlemmer, 2007; Hennon & Hildenbrand, 2005b; Hildenbrand & Hennon, 2008; McElwee, 2006b, 2008; Nordqvist & Melin, 2010; Rossier, 2005; Vesala & Pyysiäinen, 2008; Warren, 2002).

Historically known for commitment to independence and entrepreneurial ideals, farmers have experience of self-employment and food production. Agricultural households have a tradition of combining other sources of income with farming activities (Alsos et al., 2003). Families engaged in agobusiness frequently weave lives and livelihoods from complex strands of living and earning. Entrepreneuring is a global hedge against 'farm exits' due to inadequate income (Bohak et al., 2010; Brookfield & Parsons, 2007; Chandramouli et al., 2007; de Wolf & Schoorlemmer, 2007; Economic Research Service, 2006; Glauben et al., 2003; Kimhi & Bollman, 1999; Rudmann, 2008; Stam & Dixon, 2004). Entrepreneuring, can however, led to farm exits in the sense of the famer giving up traditional farming to pursue other gainful activities.

Entrepreneurship, Farming, and Identity: A Phenomenological Inquiry 263

sociology in that it distinguishes phenomenology from positivistic modes of explanation (McLain, 1981). " 'Holding onto the subjective perspective' offers…the only really sufficient guarantee that social reality is not replaced by a fictitious non-existent world constructed by some scientific observer". Schutz did recognise that the perspective of another person could only be approximated, always remaining an unachievable ideal for social theorists (Hitzler

Phenomenological researchers are looking for understanding of the essential truths or essences of lived experiences (Byrne, 2001a,). They accept that knowledge and understanding are ingrained in the everyday world experienced by embodied humans. Furthermore, phenomenologists believe knowledge cannot be quantified, reduced to numbers and statistics. Rather, phenomenologists posit understanding of life and 'truth' emerges from people's life experiences. It is furthered argued that people live in taken for granted realities that are subjective. The 'lifeworld' is of central concern in a phenomenological analysis. It is the "only real world, the one that is actually given through perception, that is ever experienced and experienceable—our everyday Lifeworld….What we know best, what is always taken for granted in all human life, always familiar" (Husserl, 1970, pp. 49 & 123). Lifeworld (*Lebenswelt*) is what is self-evident or 'given'; it is a world that people can experience together, and thusly intersubjectivity, the sharing of subjective states by two or more people, is achievable (Scheff et al., 2006). Intersubjectivity occurs when a phenomenon is personally experienced (subjectively), but by more than one person (Intersubjectivity, n.d.). It allows for empathy, or the experiencing of another person as a 'subject' rather than just an object. It also provides for 'common sense', or shared meanings, raised through interaction. Shared meaning is a resource to interpret what 'things' mean in everyday life, a definition of the situation experienced. One way intersubjectivity occurs is through communication as people report on their experiences and negotiate the meaning of things. Language and 'talk', or communication in interactions with others, is vital in phenomenological analysis (Gubrium & Holstein, 1993). One's way of talking about things and events—the objects of people's conversation—are of paramount importance. Each person's world is one of things "constituted by language in interaction" (Gubrium & Holstein, 1993, p. 655). Social organisation is produced through linguistic interaction (Radina et al., 2008). Each individual's lifeworld consists of socially and culturally given

meanings, a lived realm of culturally grounded understandings (Habermas, 1981).

beyond the horizon of direct experience.

Schutz (1967) used the term *umwelt* to point to the 'surrounding world' or environmental factors that can affect the behaviour of an individual actor. He also mentions 'consociates' or 'fellow-men' of the individual that share a community of space and time. Experienced social realities are vast, directly experienced as well as indirectly experienced—a social reality

Phenomenological understanding underscores how people impart meaning to the life they are living, a focus on individual consciousness. Experience is a critical aspect of living, a consciousness of being a physical and psychological person (corporeality) and of one's relationship to the physical and social world (relationality). It is also how the immediate world is realised spatially and temporally. Phenomenology scrutinises and seeks understanding of how people experience and accomplish everyday reality, and how it is intensubjectively structured. People's perspectives, voices, meanings, and their lives as experienced are prioritised. In phenomenological analysis, attention to how individuals give

& Eberle, 2004, p. 69).

#### **3. Phenomenological method**

Social sciences theories and concepts are 'second order', in that they are derived from and explain 'first order' everyday constructs and life. Schutz (1953, 1966, 1967) presented several postulates concerning the qualities of good social theory. The 'postulate of subjective interpretation' requires social scientific analysis and explanation to explain the subjective world of the actor. Schutz proposed (1953, p. 34), "compliance with this postulate warrants the consistency of the constructs of the social scientist with the constructs of common-sense experience of the social reality".

The postulate of subjective interpretation asserts theorists are not directly interested in a person's behaviour as observed. The description of a person's behaviour must be as if conceived through the mind of the person who enacted the behaviour. Theories of action construct images of actors' means and ends. The theory assumes, or hypothesises, the event or act is important to the actor as a means to achieve a particular end. The theorist's images must be reasonable and understandable to the actor and to others. The consequence for theory construction is that from observation of typical sequence of action, a model of the actor is constructed that includes realising 'in-order-to' and 'because of' motives attributed to the actor.

Schutz (1967) developed the idea of 'temporality' in the generation of an action theory. Passive experience (e.g., reflexes), spontaneous activity without a guiding project (e.g., noticing something in the environmental), and deliberately planned and projected activity (ie, action, such as seeking funding for a business) were demarcated. When planning an action to be future realised, the person depends on reflective 'projection'. Such reflectivity allows the person to imagine a project as completed in the future, imagining what will have been accomplished after purposeful action. Realising or triggering this project launches the 'in-order-to motive' of one's action. A person's 'because motives' entail environmental and historical factors that influenced the decision, now past as it was already undertaken, to start upon the project. This motive can only be discovered by investigating past factors that preceded the decision.

The 'postulate of logical consistency' argues that scientific theories must be logical and clear, superseding the language, constructs, typifications, and common-sense thinking used in everyday life. Theories of human action are fashioned through a process of typification, an idea Schutz (1962) derived from Husserl. Typification is a fundamental process in people's sense making about the world. Common-sense typifications are continuously employed and developed. Scientific typifications, or social types (e.g., types of actors or actions), serve a similar purpose within the investigative objectives of the social scientist. They offer a way of identifying, classifying, and comparing modes of social action using defined criteria for the designation of phenomena to type (Wilson, 2002).

The 'postulate of adequacy' holds that scientific descriptions or explanations of social situations and lines of action be comprehensible to those involved—well linked to the lived experience. It accordingly demands that constructs used by the theorist be articulated and consistent with the constructs used by the everyday actor. These scientific concepts must be comprehensible and give a comprehensive and trustworthy explanation of the acts observed. The postulate of adequacy represents, to it proponents, a transformative idea in

Social sciences theories and concepts are 'second order', in that they are derived from and explain 'first order' everyday constructs and life. Schutz (1953, 1966, 1967) presented several postulates concerning the qualities of good social theory. The 'postulate of subjective interpretation' requires social scientific analysis and explanation to explain the subjective world of the actor. Schutz proposed (1953, p. 34), "compliance with this postulate warrants the consistency of the constructs of the social scientist with the constructs of common-sense

The postulate of subjective interpretation asserts theorists are not directly interested in a person's behaviour as observed. The description of a person's behaviour must be as if conceived through the mind of the person who enacted the behaviour. Theories of action construct images of actors' means and ends. The theory assumes, or hypothesises, the event or act is important to the actor as a means to achieve a particular end. The theorist's images must be reasonable and understandable to the actor and to others. The consequence for theory construction is that from observation of typical sequence of action, a model of the actor is constructed that includes realising 'in-order-to' and 'because of' motives attributed

Schutz (1967) developed the idea of 'temporality' in the generation of an action theory. Passive experience (e.g., reflexes), spontaneous activity without a guiding project (e.g., noticing something in the environmental), and deliberately planned and projected activity (ie, action, such as seeking funding for a business) were demarcated. When planning an action to be future realised, the person depends on reflective 'projection'. Such reflectivity allows the person to imagine a project as completed in the future, imagining what will have been accomplished after purposeful action. Realising or triggering this project launches the 'in-order-to motive' of one's action. A person's 'because motives' entail environmental and historical factors that influenced the decision, now past as it was already undertaken, to start upon the project. This motive can only be discovered by investigating past factors that

The 'postulate of logical consistency' argues that scientific theories must be logical and clear, superseding the language, constructs, typifications, and common-sense thinking used in everyday life. Theories of human action are fashioned through a process of typification, an idea Schutz (1962) derived from Husserl. Typification is a fundamental process in people's sense making about the world. Common-sense typifications are continuously employed and developed. Scientific typifications, or social types (e.g., types of actors or actions), serve a similar purpose within the investigative objectives of the social scientist. They offer a way of identifying, classifying, and comparing modes of social action using defined criteria for the

The 'postulate of adequacy' holds that scientific descriptions or explanations of social situations and lines of action be comprehensible to those involved—well linked to the lived experience. It accordingly demands that constructs used by the theorist be articulated and consistent with the constructs used by the everyday actor. These scientific concepts must be comprehensible and give a comprehensive and trustworthy explanation of the acts observed. The postulate of adequacy represents, to it proponents, a transformative idea in

**3. Phenomenological method** 

experience of the social reality".

to the actor.

preceded the decision.

designation of phenomena to type (Wilson, 2002).

sociology in that it distinguishes phenomenology from positivistic modes of explanation (McLain, 1981). " 'Holding onto the subjective perspective' offers…the only really sufficient guarantee that social reality is not replaced by a fictitious non-existent world constructed by some scientific observer". Schutz did recognise that the perspective of another person could only be approximated, always remaining an unachievable ideal for social theorists (Hitzler & Eberle, 2004, p. 69).

Phenomenological researchers are looking for understanding of the essential truths or essences of lived experiences (Byrne, 2001a,). They accept that knowledge and understanding are ingrained in the everyday world experienced by embodied humans. Furthermore, phenomenologists believe knowledge cannot be quantified, reduced to numbers and statistics. Rather, phenomenologists posit understanding of life and 'truth' emerges from people's life experiences. It is furthered argued that people live in taken for granted realities that are subjective. The 'lifeworld' is of central concern in a phenomenological analysis. It is the "only real world, the one that is actually given through perception, that is ever experienced and experienceable—our everyday Lifeworld….What we know best, what is always taken for granted in all human life, always familiar" (Husserl, 1970, pp. 49 & 123). Lifeworld (*Lebenswelt*) is what is self-evident or 'given'; it is a world that people can experience together, and thusly intersubjectivity, the sharing of subjective states by two or more people, is achievable (Scheff et al., 2006). Intersubjectivity occurs when a phenomenon is personally experienced (subjectively), but by more than one person (Intersubjectivity, n.d.). It allows for empathy, or the experiencing of another person as a 'subject' rather than just an object. It also provides for 'common sense', or shared meanings, raised through interaction. Shared meaning is a resource to interpret what 'things' mean in everyday life, a definition of the situation experienced. One way intersubjectivity occurs is through communication as people report on their experiences and negotiate the meaning of things. Language and 'talk', or communication in interactions with others, is vital in phenomenological analysis (Gubrium & Holstein, 1993). One's way of talking about things and events—the objects of people's conversation—are of paramount importance. Each person's world is one of things "constituted by language in interaction" (Gubrium & Holstein, 1993, p. 655). Social organisation is produced through linguistic interaction (Radina et al., 2008). Each individual's lifeworld consists of socially and culturally given meanings, a lived realm of culturally grounded understandings (Habermas, 1981).

Schutz (1967) used the term *umwelt* to point to the 'surrounding world' or environmental factors that can affect the behaviour of an individual actor. He also mentions 'consociates' or 'fellow-men' of the individual that share a community of space and time. Experienced social realities are vast, directly experienced as well as indirectly experienced—a social reality beyond the horizon of direct experience.

Phenomenological understanding underscores how people impart meaning to the life they are living, a focus on individual consciousness. Experience is a critical aspect of living, a consciousness of being a physical and psychological person (corporeality) and of one's relationship to the physical and social world (relationality). It is also how the immediate world is realised spatially and temporally. Phenomenology scrutinises and seeks understanding of how people experience and accomplish everyday reality, and how it is intensubjectively structured. People's perspectives, voices, meanings, and their lives as experienced are prioritised. In phenomenological analysis, attention to how individuals give

Entrepreneurship, Farming, and Identity: A Phenomenological Inquiry 265

knowledge cannot be put asunder, as they are a part of the person. It is not possible to approach a subject in a completely blank, neutral manner. It is recognised that people, including the researcher, use one's own experiences to interpret the experiences of others. The goal then is to become acutely aware of presuppositions and how they may affect the

Phenomenology as a philosophy emphases the nature of experience as known to the person experiencing the phenomenon. A phenomenon is anything that appears or presents itself to someone in consciousness (Moran, 2000). The 'known experience' is termed 'lived experience.' A descriptive phenomenological researcher thus examines and attempts to understand the qualities, or essence, of an experience. Interpretative phenomenologists focus on the lived experience, or the situated meaning of a human in the world (*dasein*) (Flood, 2010; Lopez & Willes, 2004). This is typically attempted via in-depth but loosely structured interviews, people's stories, or observations of people having the experience of interest to the investigator (Balls, 2009; Connelly, 2010). The goal is accurate describing and revealing the meaning of the lived experience in the context of what is being investigated, rather than constructing a nomothetic theory, developing a theoretical model, or confirming/disconfirming existing theory. Phenomenology is discover orientated. The aim is to develop inductive, interpretive theories indivisibly substantiated in the lived-world (Balls, 2009; Cope, 2005; Flood, 2010). Cognitive meaning is discerned from the informational, expository, and conceptual aspects of the examined text of the interview or other data source. These are the semantic and linguistic meaning, making understanding achievable. Non-cognitive aspects of the text include expressive attributes and emotions displayed during the interview or observation. Combined, these types of meaning enrich the

study (Ball, 2009; Connelly, 2010; Crist & Tanner, 2003; Lopez & Willis, 2004).

investigators and reader's understanding of everyday life (van Manen, 1997).

experiences, but each individual's worldview is subjective and singular.

An individual's 'natural attitude' is the attention given to the world as assumed and taken for granted. The natural attitude assumes a uniform and predictable day-to-day lifeworld exists. Individuals assume that others share, to some extent, a similar consciousness of reality. This intersubjectivity is a process of on-going accomplishment—interactions with others leads to those involved contributing to each person's shared meanings of the takenfor-granted world (Daly, 2007; Gubrium & Holstein, 1993, 2000). Individuals share common localised cultures and family paradigms for making sense of their worlds as objective

Phenomenology focuses on consciousness and conscious experience. These experiences include perceptions, emotions, judgements, and the like (Balls, 2009). People are 'embodied beings', experiencing life as corporal beings having a physical and cognitive existence. 'Problematics' are experiences, positive or negative, bringing into question one's 'stock of knowledge' (the subjective types of knowledge one holds of his/her world, serving as a reference point for living in this world; Daly, 2007). People hold 'typifications', grounded in experience, allowing for a sense of predictability. People expect that life in the future will correspond with the schema of the familiar life of the past; what was typical is anticipated to be typical in the future. When an event, interaction, or piece of information is incongruent with one's typifications, new meaning is often essential. Learning of being made redundant, realisation that one's income is inadequate, or becoming conscious that changes in agriculture are making one's effort inadequate, could be problematics requiring conscious reorienting of one's everyday

meaning to the objects of their consciousness or experiences is critical (Daly, 2007; Gubrium & Holstein, 1993). Research intends clarification of situations lived in everyday life and the meaning of experiences (Giorgi & Giorgi, 2003).

The research reported herein is a phenomenological analysis about how farming couples' identities are interactionally constituted and sustained. Each person's identity is influenced by his or her family paradigm, biography, and 'local cultures' and 'going concerns' (Gubrium & Holstein, 1993, 2000). These cultures are organisers of shared concepts and expectations about the world and life. Going concerns are "relatively stable, routinized, ongoing patterns of action and interaction" and a "way of being who and what we are in relation to the immediate scheme of things" (Gubrium & Holstein, 2000, p. 102). To be understood is how language in social interaction fashions a meaningful world and self-identity. In experiencing life as a process, people might use categories such as farmer or crofter, or business owner or entrepreneur, to identify self or to provide indicators of statuses in the life lived. What matters in the analysis and interpretation of the experiences of the people studied is not so much the status of farmer or others that people offer, or the fact of farming, crofting, or running a business, but rather what the individual 'makes' of it. That is, the language used to live within one's world and explain it to self and others. The aim of inquiry is to capture as closely as possible the way the phenomenon of crofting and farming are experienced within the context in which it ensues. From the contextual presentation of the phenomenon as lived by the participant, the analysis endeavours to determine the essence of the phenomenon and to interpret how one experiences the phenomenon. Direct descriptions of experiences provided by those having the experience are sought, rather than 'scientific' analysis or understanding (Daly, 2007). The subjective meanings that compose the phenomenon are pursued through analysing lived instances of the phenomenon (Giorgi & Giorgi, 2003). To do this, the researcher must 'enter' the world of the investigated individual, but trying to withhold own preconceptions and scientific concepts whilst getting in touch in a direct and primitive way with the 'natural attitude' of the individual living in a social world as constructed by her or his subjective and intersubjective reality.

#### **3.1 Phenomenology**

Phenomenology has become a commonly used term and it is not always clear if the reference is to the philosophy or to phenomenological inquiry as an approach to research. Phenomenological inquiry designates a research perspective distinct from more positivistic, hypothetico-deductive forms of inquiry. Cope (2005) demonstrated how the philosophy is translated into an interpretive research method. There are two major branches within phenomenology, stemming from two seminal thinkers who shaped the early stages of the philosophy. The descriptive or eidetic branch is associated with Husserl, and the interpretative or hermeneutics branch with Heidegger (Heidegger, 1962; Husserl, 2010, 1999; Lopez & Willis, 2004; Munhall, 2007; Wojnar & Swanson, 2007). Both were German philosophers. Heidegger was Husserl's student, but when he took over Heidegger's chair, he fostered a differ understanding of what phenomenology could do (Lopez & Willis, 2004).

There are important differences between the two approaches, but a simplified explanation is offered here. Descriptive phenomenologists attempt to put aside, or 'bracket' knowledge, presuppositions, or biases they have about the subject of investigation so that these do not affect the study. Interpretative phenomenologists accept that previously held ideas and

meaning to the objects of their consciousness or experiences is critical (Daly, 2007; Gubrium & Holstein, 1993). Research intends clarification of situations lived in everyday life and the

The research reported herein is a phenomenological analysis about how farming couples' identities are interactionally constituted and sustained. Each person's identity is influenced by his or her family paradigm, biography, and 'local cultures' and 'going concerns' (Gubrium & Holstein, 1993, 2000). These cultures are organisers of shared concepts and expectations about the world and life. Going concerns are "relatively stable, routinized, ongoing patterns of action and interaction" and a "way of being who and what we are in relation to the immediate scheme of things" (Gubrium & Holstein, 2000, p. 102). To be understood is how language in social interaction fashions a meaningful world and self-identity. In experiencing life as a process, people might use categories such as farmer or crofter, or business owner or entrepreneur, to identify self or to provide indicators of statuses in the life lived. What matters in the analysis and interpretation of the experiences of the people studied is not so much the status of farmer or others that people offer, or the fact of farming, crofting, or running a business, but rather what the individual 'makes' of it. That is, the language used to live within one's world and explain it to self and others. The aim of inquiry is to capture as closely as possible the way the phenomenon of crofting and farming are experienced within the context in which it ensues. From the contextual presentation of the phenomenon as lived by the participant, the analysis endeavours to determine the essence of the phenomenon and to interpret how one experiences the phenomenon. Direct descriptions of experiences provided by those having the experience are sought, rather than 'scientific' analysis or understanding (Daly, 2007). The subjective meanings that compose the phenomenon are pursued through analysing lived instances of the phenomenon (Giorgi & Giorgi, 2003). To do this, the researcher must 'enter' the world of the investigated individual, but trying to withhold own preconceptions and scientific concepts whilst getting in touch in a direct and primitive way with the 'natural attitude' of the individual living in a social world as constructed by her or his

Phenomenology has become a commonly used term and it is not always clear if the reference is to the philosophy or to phenomenological inquiry as an approach to research. Phenomenological inquiry designates a research perspective distinct from more positivistic, hypothetico-deductive forms of inquiry. Cope (2005) demonstrated how the philosophy is translated into an interpretive research method. There are two major branches within phenomenology, stemming from two seminal thinkers who shaped the early stages of the philosophy. The descriptive or eidetic branch is associated with Husserl, and the interpretative or hermeneutics branch with Heidegger (Heidegger, 1962; Husserl, 2010, 1999; Lopez & Willis, 2004; Munhall, 2007; Wojnar & Swanson, 2007). Both were German philosophers. Heidegger was Husserl's student, but when he took over Heidegger's chair, he fostered a differ understanding of what phenomenology could do (Lopez & Willis, 2004). There are important differences between the two approaches, but a simplified explanation is offered here. Descriptive phenomenologists attempt to put aside, or 'bracket' knowledge, presuppositions, or biases they have about the subject of investigation so that these do not affect the study. Interpretative phenomenologists accept that previously held ideas and

meaning of experiences (Giorgi & Giorgi, 2003).

subjective and intersubjective reality.

**3.1 Phenomenology** 

knowledge cannot be put asunder, as they are a part of the person. It is not possible to approach a subject in a completely blank, neutral manner. It is recognised that people, including the researcher, use one's own experiences to interpret the experiences of others. The goal then is to become acutely aware of presuppositions and how they may affect the study (Ball, 2009; Connelly, 2010; Crist & Tanner, 2003; Lopez & Willis, 2004).

Phenomenology as a philosophy emphases the nature of experience as known to the person experiencing the phenomenon. A phenomenon is anything that appears or presents itself to someone in consciousness (Moran, 2000). The 'known experience' is termed 'lived experience.' A descriptive phenomenological researcher thus examines and attempts to understand the qualities, or essence, of an experience. Interpretative phenomenologists focus on the lived experience, or the situated meaning of a human in the world (*dasein*) (Flood, 2010; Lopez & Willes, 2004). This is typically attempted via in-depth but loosely structured interviews, people's stories, or observations of people having the experience of interest to the investigator (Balls, 2009; Connelly, 2010). The goal is accurate describing and revealing the meaning of the lived experience in the context of what is being investigated, rather than constructing a nomothetic theory, developing a theoretical model, or confirming/disconfirming existing theory. Phenomenology is discover orientated. The aim is to develop inductive, interpretive theories indivisibly substantiated in the lived-world (Balls, 2009; Cope, 2005; Flood, 2010). Cognitive meaning is discerned from the informational, expository, and conceptual aspects of the examined text of the interview or other data source. These are the semantic and linguistic meaning, making understanding achievable. Non-cognitive aspects of the text include expressive attributes and emotions displayed during the interview or observation. Combined, these types of meaning enrich the investigators and reader's understanding of everyday life (van Manen, 1997).

An individual's 'natural attitude' is the attention given to the world as assumed and taken for granted. The natural attitude assumes a uniform and predictable day-to-day lifeworld exists. Individuals assume that others share, to some extent, a similar consciousness of reality. This intersubjectivity is a process of on-going accomplishment—interactions with others leads to those involved contributing to each person's shared meanings of the takenfor-granted world (Daly, 2007; Gubrium & Holstein, 1993, 2000). Individuals share common localised cultures and family paradigms for making sense of their worlds as objective experiences, but each individual's worldview is subjective and singular.

Phenomenology focuses on consciousness and conscious experience. These experiences include perceptions, emotions, judgements, and the like (Balls, 2009). People are 'embodied beings', experiencing life as corporal beings having a physical and cognitive existence. 'Problematics' are experiences, positive or negative, bringing into question one's 'stock of knowledge' (the subjective types of knowledge one holds of his/her world, serving as a reference point for living in this world; Daly, 2007). People hold 'typifications', grounded in experience, allowing for a sense of predictability. People expect that life in the future will correspond with the schema of the familiar life of the past; what was typical is anticipated to be typical in the future. When an event, interaction, or piece of information is incongruent with one's typifications, new meaning is often essential. Learning of being made redundant, realisation that one's income is inadequate, or becoming conscious that changes in agriculture are making one's effort inadequate, could be problematics requiring conscious reorienting of one's everyday

Entrepreneurship, Farming, and Identity: A Phenomenological Inquiry 267

their actions or intentions; all they can offer are accounts or stories about what they did and why. No single method can grasp the subtle variations in ongoing human experiences".

A person can interpret things differently at different times and in different contexts; interpretations could change with time. Phenomenological studies are situated in a specific context at a certain time, reflecting existentialist concern for understanding the 'humanbeing-in-the-world', with human existence explained by the experiential context in which it occurs (Bogdan & Taylor, 1975). The knowledge of the researcher is developed through a personal, interactive, linguistic relationship between the person investigated and the person doing the investigation. Descriptions casted by the investigator are interpretations of the

Bogdan and Taylor (1975, pp. 13–14, italics in original) encapsulated phenomenological inquiry: "The phenomenologist views human behavior—what people say and do—as a product of how people interpret their world. The task…is to capture this *process* of interpretation....In order to grasp the meanings of a person's behavior, *the phenomenologist* 

Two case studies were effected in order to illustrate the complex interrelation between families and farms, entrepreneuring activities, and self-identities. Case reconstruction, based on the theory of social action, was employed. The method is grounded on the dialectic of the general and the particular. The general represents the possibilities for action of the case family. The particular is the choices of the family in regard to these possibilities. These choices made are not random; they establish and reinforce the social order of the family, thusly shaping a pattern specific to the family and the decisionmaking process. This pattern is the case structure. Using case analysis, case reconstruction entails recognising and recounting case structures. The case structure is regarded as a hypothesis (ie, case structure hypothesis) and evidence for verification is sought in the data collected about the case. Hypotheses from a theoretical model or supplying empirical proof are not employed. Rather, ideographic theories of the action orientation of the cases are derived from empirical study of the families. Case reconstruction can identify structural issues, but a survey is necessary to determine the prevalence of the occurrence

The analysis scrutinises how a couple constructs, through language in interaction, a family reality from individual experiences and sense making. The concern is how individual's subjective experiences become a negotiated intersubjective experience. "Experience is not 'raw'; people choose meanings and inquire of significant others as to how to make meaning of experiences and thus understand their experiences within the context of family life" (Hildenbrand & Hennon, 2008, p. 493). Families have an element of choice to create the reality of life lived together, to fashion life experienced what they choose to make it. The interest in this chapter includes holistic sense making and resulting lines of social action, or

Two agricultural couples were investigated, one in Scotland and one in the USA. Interviews were transcribed and analysed through sequential analysis, observations were undertaken,

interpretations of the investigated.

**4. Material and methods** 

(Hildenbrand, 1999).

the family reality.

*attempts to see things from that person's point of view".*

reality. New typifications become possible as this proceeds. It is in understanding this process that phenomenological analysis provides a framework for understanding entrepreneurship due to displacement and disjunctions.

#### **3.2 Analytical approach**

There is a predominance of objectivist approaches in the entrepreneurship literature, including farm entrepreneurship (McElwee, 2006b; McElwee & Atherton, 2005). Grant and Perren (2002) argued that new perspectives on entrepreneurship would be achieved when one escapes the 'paradigmatic cage' of positivism. Phenomenological or closely related interpretative approaches are being used in entrepreneurship and management research (Cope 2005; Devins & Gold, 2002; Ehrich, 2005; Hamilton, 2011; Rae, 2000, Rae & Carswell, 2000). McElwee (2008) and Hildenbrand and Hennon (2008) used a phenomenology technique in their investigations of farmer entrepreneurship.

There is no accepted lock-step approach to using phenomenology for understanding social phenomenon (Groenewald, 2004). Analysis of the data, or interpretation, can take different approaches. The intention is detecting meaningful information and totalising this information into themes once all transcriptions of the interviews and field notes have been analysed. Themes are subjects or topics common among several of the people interviewed (Byrne, 2001b; Wertz et al., 2011). This approach is thematic analysis.

It is common when reporting thematic analysis for the author to make hefty use of direct quotes from the people interviewed. Such use of quotes is to verify or to make transparent the development of themes and assist the reader more fully understand and appreciate the experience as it was lived. Phenomenological research is judged for its quality based on its transparency and if it can be audited (Balls, 2009). Trustworthiness, or rigour, is important (Graneheim & Lundman, 2004; Jootun et al., 2009; Koch, 2005). Rigour focuses on objectivity and neutrality. Techniques include bracketing if doing descriptive research, having others including the people interviewed confirm findings to certify their credibility, as well as discussions with colleagues to help ensure awareness of biases along with help to prevent premature closure of the analysis undertaken. Reflexivity is important to further understanding of the phenomenon of interest and the researcher's role in selecting the subject matter and doing the analysis. Careful record keeping about the analysis and memoing about aspects of the study (including what the investigator was seeing, hearing, questioning, and doing) and emerging insights helps in tracking progress and identification of presuppositions and the basis for drawing conclusions and identification of themes. Importantly, the investigator should reflect upon the articulation of the research with the philosophy, answering questions such as: "Do the findings reflect as fully as possible the experience of the participants? Do the findings relate all feasible aspects of what it is like to be the person (in a body) who has experienced a certain phenomenon…?" (Connelly, 2010, p. 128; Cope, 2005). Phenomenological investigations endeavour to understand what an "experience was like to *live it*, not just the person's reaction to the experience" (Connelly, 2010, p. 127; Italic in original). Ideally, the findings are written in a way that communicates to the reader the participants' experiences as fully as they can be comprehended with out having experienced them oneself. However, there is difficulty in understanding and interpreting the words and stories of the people having the experiences of interest. Denzin and Lincoln (2011, p. 21) pointed out, people "are seldom able to give full explanations of their actions or intentions; all they can offer are accounts or stories about what they did and why. No single method can grasp the subtle variations in ongoing human experiences".

A person can interpret things differently at different times and in different contexts; interpretations could change with time. Phenomenological studies are situated in a specific context at a certain time, reflecting existentialist concern for understanding the 'humanbeing-in-the-world', with human existence explained by the experiential context in which it occurs (Bogdan & Taylor, 1975). The knowledge of the researcher is developed through a personal, interactive, linguistic relationship between the person investigated and the person doing the investigation. Descriptions casted by the investigator are interpretations of the interpretations of the investigated.

Bogdan and Taylor (1975, pp. 13–14, italics in original) encapsulated phenomenological inquiry: "The phenomenologist views human behavior—what people say and do—as a product of how people interpret their world. The task…is to capture this *process* of interpretation....In order to grasp the meanings of a person's behavior, *the phenomenologist attempts to see things from that person's point of view".*

#### **4. Material and methods**

266 Entrepreneurship - Gender, Geographies and Social Context

reality. New typifications become possible as this proceeds. It is in understanding this process that phenomenological analysis provides a framework for understanding

There is a predominance of objectivist approaches in the entrepreneurship literature, including farm entrepreneurship (McElwee, 2006b; McElwee & Atherton, 2005). Grant and Perren (2002) argued that new perspectives on entrepreneurship would be achieved when one escapes the 'paradigmatic cage' of positivism. Phenomenological or closely related interpretative approaches are being used in entrepreneurship and management research (Cope 2005; Devins & Gold, 2002; Ehrich, 2005; Hamilton, 2011; Rae, 2000, Rae & Carswell, 2000). McElwee (2008) and Hildenbrand and Hennon (2008) used a phenomenology

There is no accepted lock-step approach to using phenomenology for understanding social phenomenon (Groenewald, 2004). Analysis of the data, or interpretation, can take different approaches. The intention is detecting meaningful information and totalising this information into themes once all transcriptions of the interviews and field notes have been analysed. Themes are subjects or topics common among several of the people interviewed

It is common when reporting thematic analysis for the author to make hefty use of direct quotes from the people interviewed. Such use of quotes is to verify or to make transparent the development of themes and assist the reader more fully understand and appreciate the experience as it was lived. Phenomenological research is judged for its quality based on its transparency and if it can be audited (Balls, 2009). Trustworthiness, or rigour, is important (Graneheim & Lundman, 2004; Jootun et al., 2009; Koch, 2005). Rigour focuses on objectivity and neutrality. Techniques include bracketing if doing descriptive research, having others including the people interviewed confirm findings to certify their credibility, as well as discussions with colleagues to help ensure awareness of biases along with help to prevent premature closure of the analysis undertaken. Reflexivity is important to further understanding of the phenomenon of interest and the researcher's role in selecting the subject matter and doing the analysis. Careful record keeping about the analysis and memoing about aspects of the study (including what the investigator was seeing, hearing, questioning, and doing) and emerging insights helps in tracking progress and identification of presuppositions and the basis for drawing conclusions and identification of themes. Importantly, the investigator should reflect upon the articulation of the research with the philosophy, answering questions such as: "Do the findings reflect as fully as possible the experience of the participants? Do the findings relate all feasible aspects of what it is like to be the person (in a body) who has experienced a certain phenomenon…?" (Connelly, 2010, p. 128; Cope, 2005). Phenomenological investigations endeavour to understand what an "experience was like to *live it*, not just the person's reaction to the experience" (Connelly, 2010, p. 127; Italic in original). Ideally, the findings are written in a way that communicates to the reader the participants' experiences as fully as they can be comprehended with out having experienced them oneself. However, there is difficulty in understanding and interpreting the words and stories of the people having the experiences of interest. Denzin and Lincoln (2011, p. 21) pointed out, people "are seldom able to give full explanations of

entrepreneurship due to displacement and disjunctions.

technique in their investigations of farmer entrepreneurship.

(Byrne, 2001b; Wertz et al., 2011). This approach is thematic analysis.

**3.2 Analytical approach** 

Two case studies were effected in order to illustrate the complex interrelation between families and farms, entrepreneuring activities, and self-identities. Case reconstruction, based on the theory of social action, was employed. The method is grounded on the dialectic of the general and the particular. The general represents the possibilities for action of the case family. The particular is the choices of the family in regard to these possibilities. These choices made are not random; they establish and reinforce the social order of the family, thusly shaping a pattern specific to the family and the decisionmaking process. This pattern is the case structure. Using case analysis, case reconstruction entails recognising and recounting case structures. The case structure is regarded as a hypothesis (ie, case structure hypothesis) and evidence for verification is sought in the data collected about the case. Hypotheses from a theoretical model or supplying empirical proof are not employed. Rather, ideographic theories of the action orientation of the cases are derived from empirical study of the families. Case reconstruction can identify structural issues, but a survey is necessary to determine the prevalence of the occurrence (Hildenbrand, 1999).

The analysis scrutinises how a couple constructs, through language in interaction, a family reality from individual experiences and sense making. The concern is how individual's subjective experiences become a negotiated intersubjective experience. "Experience is not 'raw'; people choose meanings and inquire of significant others as to how to make meaning of experiences and thus understand their experiences within the context of family life" (Hildenbrand & Hennon, 2008, p. 493). Families have an element of choice to create the reality of life lived together, to fashion life experienced what they choose to make it. The interest in this chapter includes holistic sense making and resulting lines of social action, or the family reality.

Two agricultural couples were investigated, one in Scotland and one in the USA. Interviews were transcribed and analysed through sequential analysis, observations were undertaken,

Entrepreneurship, Farming, and Identity: A Phenomenological Inquiry 269

investigator rented a room for several days. One formal, recorded, interview lasting approximately three hours was conducted with Don (aged 58 at the first interview) the husband and Mary (aged 56) the wife, as well as Don's brother and sister-in-law who were visiting. Informal interviews were also conducted, and observations made, over several days. Field notes were taken. The transcribed interview was given to the family the following year and they clarified and corrected it. During this visit, additional interviews (a total of three hours) were conducted and observations made. Three years later the investigator conducted a participate observation study, working on the croft for six days. Follow up phone calls and email allowed for updates. Interviews were also conducted with the former president of the Crofter's Union and with members of the Crofting Commission staff. Local newspapers, agricultural papers, and other materials such as Commission reports, were read to learn more about the agricultural and crofting situation in Scotland. Interviews were transcribed and analysed using case reconstruction methods. A reconstructed case summary or 'story' of the family based on the interviews and other data

A third-generation farm family living in Ohio (USA) was asked if they would be interviewed. The author's knowledge of the geographical area and its social milieu, plus interaction with farmers, helped to select the family considered representative of other farm families in the area. The family is well known and respected. The author has had some farm business transactions with the husband. The purpose of the proposed interview and interview logistics were explained and confidentiality assured. Informed consent was obtained. The interview was conducted in the family's home on a winter Sunday evening. Present were the husband (Keith II aged 42) and wife (Kathy aged 38), as well as their son (aged 9) who did not participate in the interview. The interview was recorded and lasted approximately 2.5 hours. A draft genogram was constructed during the interview and finished after the interview was transcribed. Follow-up visits and telephone calls determined the accuracy of the interview and interpretation, and to learn of new developments. Observations of interactions in the family's place of business also occurred. These observations were of naturally occurring events and provided opportunities for insights of spontaneous and authentic daily life. The family was studied over a three-year period. A reconstructed case summary or story of the family based on the interview and

The formal interviews with both cases used a hybridisation of the phenomenological interview (Cope, 2005; Ryba, 2007; Thompson et al., 1989). The phenomenological interview creates a dialogue to enable a flow of questions arising from the intersubjective 'space' of the investigator and the investigated's conversation. Questions were formulated based on the experiences of the person being interviewed, the researcher's interpretation of the meaning of experiences being disclosed, and to reconnoitre topics stated by the interviewee. To focus the discussion on 'something' (an agreed upon phenomenon; aboutness), not 'anything', the interviews began with a 'funnelling' technique—to commence a story (or narrative) about the history of the farm/croft and family. The interview started with "I have four questions for you: who are you, where did you come from, where are you now, and where do you want to go"? The interviews followed in the manner of a conversation, with follow-up questions asked to obtain information such as dates of events and changes in the history of the croft/farm. Two other techniques were used—'delineating and illuminating'.

was produced.

observations was developed.

and extensive field notes were recorded and consulted. Each case was analysed separately, with eidetic descriptions of important events, emic concepts, and emergent themes identified. Cross analysis was then preformed to identify common and signature themes and strategies that the families used to modify their income generating processes, and, as a result, changes in lives and livelihood.

The aim of this study is to learn about the characteristic nature of the entrepreneuring farmer/family. Human's subjective viewpoints, the taken-for-grantedness of knowledge and the social world, and how this knowledge is created are the concern of phenomenological inquiry. People's experiences are of 'something', characterised by 'aboutness', or what awareness is about or directed. The analytical charge of scientific inquiry is to understand the experiencing of this something within the context in which it occurs. This context includes the lived-life, present situation, and future intentions. The analysis presented in this chapter is attentive to the process by which farmers and farm families 'make sense' of their lifeworld (*Lebenswelt*), and their social position as 'self' and 'family' within this world. The theorists must 'enter' the world of the farmer and achieve intersubjectivity whilst best withholding, or at least being keenly aware of, preconceptions and judgements, and not applying scientific concepts a priori. This entering of the families' world requires adapting a 'phenomenological attitude' to better undertake the investigation. The farmer and family are the experts on the topic investigated (Cope, 2005; Glendinning, 2007; Hildenbrand & Hennon, 2008).

However, investigators are not naïve when entering the farmer's world and experience the interview (Cope, 2005; Cope & Watts, 2000). Previous research as well as experiences, values, and language inform the investigator's lifeworld and natural attitude. The investigator owns an agenda concerning why to conduct the investigation. The investigator attempts openness to insights and novel ways that farm families existentially establish and experience their worlds. Nevertheless, knowledge and experiences help form interview questions and interpretation of the interview. Awareness and reflexivity is promoted by the hermeneutic or interpretative tradition, the approached taken for this study. Interpretative phenomenologists accept that previous knowledge, hunches about what will be discovered, and biases cannot be stricken from the investigator's mind. Holding these presuppositions in abeyance to the extend possible by adopting a phenomenology attitude is attempted so to not unduly affect the research. The attempt is to reconstruct the meaning that is in the data, and then develop a theoretical explanation from this reconstructed meaning that is true to, and comprehensible by, the people investigated.

#### **4.1 The cases**

The worlds of the people investigated were entered in multiple manners. The methodological approach is interactive and interpretative (Hildenbrand & Hennon, 2008; McElwee, 2005). With phenomenological research, the indispensable criteria for participant selection are the persons have experienced the investigated phenomenon and are willing and able to describe the experiences (Polkinghorne, 1989). The investigator asked people in pubs and stores, and members of the Scottish Crofting Commission, for recommendations as to a crofting family to interview. The investigator approached a family identified and inquired about the possibility of being interviewed. Confidentiality was promised. Permission was granted, and informed consent obtained. The family ran a B&B so the

and extensive field notes were recorded and consulted. Each case was analysed separately, with eidetic descriptions of important events, emic concepts, and emergent themes identified. Cross analysis was then preformed to identify common and signature themes and strategies that the families used to modify their income generating processes, and, as a

The aim of this study is to learn about the characteristic nature of the entrepreneuring farmer/family. Human's subjective viewpoints, the taken-for-grantedness of knowledge and the social world, and how this knowledge is created are the concern of phenomenological inquiry. People's experiences are of 'something', characterised by 'aboutness', or what awareness is about or directed. The analytical charge of scientific inquiry is to understand the experiencing of this something within the context in which it occurs. This context includes the lived-life, present situation, and future intentions. The analysis presented in this chapter is attentive to the process by which farmers and farm families 'make sense' of their lifeworld (*Lebenswelt*), and their social position as 'self' and 'family' within this world. The theorists must 'enter' the world of the farmer and achieve intersubjectivity whilst best withholding, or at least being keenly aware of, preconceptions and judgements, and not applying scientific concepts a priori. This entering of the families' world requires adapting a 'phenomenological attitude' to better undertake the investigation. The farmer and family are the experts on the topic investigated (Cope, 2005; Glendinning,

However, investigators are not naïve when entering the farmer's world and experience the interview (Cope, 2005; Cope & Watts, 2000). Previous research as well as experiences, values, and language inform the investigator's lifeworld and natural attitude. The investigator owns an agenda concerning why to conduct the investigation. The investigator attempts openness to insights and novel ways that farm families existentially establish and experience their worlds. Nevertheless, knowledge and experiences help form interview questions and interpretation of the interview. Awareness and reflexivity is promoted by the hermeneutic or interpretative tradition, the approached taken for this study. Interpretative phenomenologists accept that previous knowledge, hunches about what will be discovered, and biases cannot be stricken from the investigator's mind. Holding these presuppositions in abeyance to the extend possible by adopting a phenomenology attitude is attempted so to not unduly affect the research. The attempt is to reconstruct the meaning that is in the data, and then develop a theoretical explanation from this reconstructed meaning that is true to,

The worlds of the people investigated were entered in multiple manners. The methodological approach is interactive and interpretative (Hildenbrand & Hennon, 2008; McElwee, 2005). With phenomenological research, the indispensable criteria for participant selection are the persons have experienced the investigated phenomenon and are willing and able to describe the experiences (Polkinghorne, 1989). The investigator asked people in pubs and stores, and members of the Scottish Crofting Commission, for recommendations as to a crofting family to interview. The investigator approached a family identified and inquired about the possibility of being interviewed. Confidentiality was promised. Permission was granted, and informed consent obtained. The family ran a B&B so the

result, changes in lives and livelihood.

2007; Hildenbrand & Hennon, 2008).

and comprehensible by, the people investigated.

**4.1 The cases** 

investigator rented a room for several days. One formal, recorded, interview lasting approximately three hours was conducted with Don (aged 58 at the first interview) the husband and Mary (aged 56) the wife, as well as Don's brother and sister-in-law who were visiting. Informal interviews were also conducted, and observations made, over several days. Field notes were taken. The transcribed interview was given to the family the following year and they clarified and corrected it. During this visit, additional interviews (a total of three hours) were conducted and observations made. Three years later the investigator conducted a participate observation study, working on the croft for six days. Follow up phone calls and email allowed for updates. Interviews were also conducted with the former president of the Crofter's Union and with members of the Crofting Commission staff. Local newspapers, agricultural papers, and other materials such as Commission reports, were read to learn more about the agricultural and crofting situation in Scotland. Interviews were transcribed and analysed using case reconstruction methods. A reconstructed case summary or 'story' of the family based on the interviews and other data was produced.

A third-generation farm family living in Ohio (USA) was asked if they would be interviewed. The author's knowledge of the geographical area and its social milieu, plus interaction with farmers, helped to select the family considered representative of other farm families in the area. The family is well known and respected. The author has had some farm business transactions with the husband. The purpose of the proposed interview and interview logistics were explained and confidentiality assured. Informed consent was obtained. The interview was conducted in the family's home on a winter Sunday evening. Present were the husband (Keith II aged 42) and wife (Kathy aged 38), as well as their son (aged 9) who did not participate in the interview. The interview was recorded and lasted approximately 2.5 hours. A draft genogram was constructed during the interview and finished after the interview was transcribed. Follow-up visits and telephone calls determined the accuracy of the interview and interpretation, and to learn of new developments. Observations of interactions in the family's place of business also occurred. These observations were of naturally occurring events and provided opportunities for insights of spontaneous and authentic daily life. The family was studied over a three-year period. A reconstructed case summary or story of the family based on the interview and observations was developed.

The formal interviews with both cases used a hybridisation of the phenomenological interview (Cope, 2005; Ryba, 2007; Thompson et al., 1989). The phenomenological interview creates a dialogue to enable a flow of questions arising from the intersubjective 'space' of the investigator and the investigated's conversation. Questions were formulated based on the experiences of the person being interviewed, the researcher's interpretation of the meaning of experiences being disclosed, and to reconnoitre topics stated by the interviewee. To focus the discussion on 'something' (an agreed upon phenomenon; aboutness), not 'anything', the interviews began with a 'funnelling' technique—to commence a story (or narrative) about the history of the farm/croft and family. The interview started with "I have four questions for you: who are you, where did you come from, where are you now, and where do you want to go"? The interviews followed in the manner of a conversation, with follow-up questions asked to obtain information such as dates of events and changes in the history of the croft/farm. Two other techniques were used—'delineating and illuminating'.

Entrepreneurship, Farming, and Identity: A Phenomenological Inquiry 271

five additional years the person was paid a forest management fee. The Cotts pay rent—the amount set by the Land Court is minimal—to a landlord for 405 hectare of grazing land.

Don grew up in Edinburgh and met Mary in Switzerland when both were working for a multinational corporation. Don received technical training as an engineer and worked in Africa for a U.S. based corporation, and later was transferred to Geneva. Mary, who is German, was a dental assistant and worked for her father in Asia. She married a Swiss man at age 20, but soon divorced. She moved to Switzerland (became Swiss citizen by marriage) and was employment as English typist for the same company that employed Don. Later she becomes assistant to her boss. Mary had a serious automobile accident and in hospital agreed to marry Don (she had said no earlier). They were 28 and 26 at the time. Offices in Geneva were closing and Don was transferred to Edinburgh, as was Mary due to her being his wife. They were paid less in Edinburgh and Mary did not like living there. They had their honeymoon on Isle of Skye and decided they would like to croft, so wrote letters to

The Cotts moved to the croft in 1977, living in a caravan until the house was built. They have two sons, one now living in London and one in Edinburgh. The croft was purchased in 1990 for £80,000. Don is in a somewhat exceptional position of being both landlord and tenant for his croft (because it was purchased). Owner-occupancy has become more common since 1975, but typically the tenant crofter pays rent to a landlord upon whose land the croft resides (Crofters Commission, n.d.; Scottish Crofting Federation, n.d.). At one time there were five families in the Cott's village with about five hectare of out-run for winter grazing and a share in the common grazing. Each croft had one-half hectare of land. In the late 1950s, there were three crofts in the village. When Don bought his croft, he basically bought the total village. Don in effect is his own landlord. He could rent to someone else, and in fact does rent a small building for a shop to his wife Mary for legal reasons, including taxes. His application to buy the land was approved by the Crofting Commission as they considered local interests. To prepare for the land court appearance when he was trying to buy the land, Don dictated and recorded his speech on tape, listened, and wrote it down to

The croft has a house and a few small outbuildings, including a small retail outlet for wool and sweaters. A recently built shed/barn is over one kilometre away on other side of carriageway. The house was built in the late 1970s and expanded in the 1980s, with money obtained through a Crofting Commission housing scheme, so the Cotts could offer B&B accommodations. Three or four rooms are let for bed and breakfast. The couple also owns a house a couple kilometres away, purchased for Mary's mother. It is now let to tourist with the idea that one day it can be sold. There is also a caravan located between the house and

The croft is worked with the help of three border collies; there is very little mechanical equipment. Livestock consists of five cattle and about 150 sheep (lambs are not counted). Some sheep are of a rare breed raised for their wool. This wool is sold in the retail establishment run by Mary Cott. Angora rabbits are also kept for their fur, which Mrs Cott sells throughout Great Britain or to weave sweaters that are sold from the small retail shop located adjacent to the house. Mrs Cott mostly has other women do the weaving. Some of

landlords seeking a croft.

edit. This was to remove slang and to sharpen its focus.

the loch that is a tourist accommodation.

Delineating keeps the conversation from departure too far from the phenomenon of interest, or the something/aboutness; after exploring a new line of conversation enough to determine its importance, the conversation was refocused to the agreed upon topic. An illuminating technique brings clarity to ideas and language of the participants not familiar to the researcher, or to get more detail about a topic mentioned.

Part of the interviews was devoted to gathering of relevant data on the family business over three generations (one for the Scottish couple). These data were integrated into a genogram that was analysed sequentially (Hildenbrand, 2005a). Starting from a given datum (e.g., date of birth, occupation of the grandfather) the investigator asked, "what are the 'objectively' given possibilities for this person (e.g., whom will he marry; will he continue the farm in the way of his father)? These potential answers were compared with the actual decisions taken. From this the investigation explored the now given possibilities until an action and meaning pattern relating the lifeworld of the family under study was discerned. This pattern was then confronted with interpretations of the family's history amassed during the interview. Comparing these with the pattern developed from the genogram offered a 'thick description' allowing formulation of hypotheses for this family. Comparing these hypotheses with those fashioned in case reconstructions of other families will allow developing grounded theory on the world of entrepreneuring farm families.

#### **5. Case reconstructions**

The goal is seeking understanding of the thoughts and behaviour patterns of family members to illustrate, in one case, how a crofting family could adapt over a period of years into a 'modern' business family integrating pluriactivity whilst maintaining the image of traditional crofters. In the second case the inquiry illustrates how the family could sustain their image as a farm family even when transforming within a year from farming devoted to cereal crops and livestock, into a family running a rural business in the tree nursery, vegetable, and flower trade. Both families engage in strategies of pluriactivity, including diversification and multioccupation, to weave a variety of employment opportunities together in order to maintain a lifestyle that is economically precarious, but personally satisfying. Instead of presenting thematic topics with supportive quotes, the families stories are presented and interpretations offered.

#### **5.1 Don and Mary Cotts, a crofting family**

The family lives in a remote but scenic area on the northwest coast of Scotland, in Rossshire, an economically peripheral area. The croft lies alongside a winding road, a one-lane track with passing places. The croft is located about 8 kilometres from a small village and about two hours drive from Fort Williams and Inverness. This village has two small food stores, a pub, and a couple of other small retail establishments. The croft, which is rather large as crofts go due to it consisting of two and one-half previous crofts, is of approximately 32 hectares, located adjacent to a loch, with little flat land. The croft abuts a set of hills, which are steep and rough, with lots of rocks, bracken, and water. There are many trees on the croft in-bye land, some planted by the Cotts as an ecological move. This was part of a forest management scheme where the person bought and planted trees in designated areas. If the trees were of a certain height in five years, the person was paid. For

Delineating keeps the conversation from departure too far from the phenomenon of interest, or the something/aboutness; after exploring a new line of conversation enough to determine its importance, the conversation was refocused to the agreed upon topic. An illuminating technique brings clarity to ideas and language of the participants not familiar to the

Part of the interviews was devoted to gathering of relevant data on the family business over three generations (one for the Scottish couple). These data were integrated into a genogram that was analysed sequentially (Hildenbrand, 2005a). Starting from a given datum (e.g., date of birth, occupation of the grandfather) the investigator asked, "what are the 'objectively' given possibilities for this person (e.g., whom will he marry; will he continue the farm in the way of his father)? These potential answers were compared with the actual decisions taken. From this the investigation explored the now given possibilities until an action and meaning pattern relating the lifeworld of the family under study was discerned. This pattern was then confronted with interpretations of the family's history amassed during the interview. Comparing these with the pattern developed from the genogram offered a 'thick description' allowing formulation of hypotheses for this family. Comparing these hypotheses with those fashioned in case reconstructions of other families will allow

The goal is seeking understanding of the thoughts and behaviour patterns of family members to illustrate, in one case, how a crofting family could adapt over a period of years into a 'modern' business family integrating pluriactivity whilst maintaining the image of traditional crofters. In the second case the inquiry illustrates how the family could sustain their image as a farm family even when transforming within a year from farming devoted to cereal crops and livestock, into a family running a rural business in the tree nursery, vegetable, and flower trade. Both families engage in strategies of pluriactivity, including diversification and multioccupation, to weave a variety of employment opportunities together in order to maintain a lifestyle that is economically precarious, but personally satisfying. Instead of presenting thematic topics with supportive quotes, the families stories

The family lives in a remote but scenic area on the northwest coast of Scotland, in Rossshire, an economically peripheral area. The croft lies alongside a winding road, a one-lane track with passing places. The croft is located about 8 kilometres from a small village and about two hours drive from Fort Williams and Inverness. This village has two small food stores, a pub, and a couple of other small retail establishments. The croft, which is rather large as crofts go due to it consisting of two and one-half previous crofts, is of approximately 32 hectares, located adjacent to a loch, with little flat land. The croft abuts a set of hills, which are steep and rough, with lots of rocks, bracken, and water. There are many trees on the croft in-bye land, some planted by the Cotts as an ecological move. This was part of a forest management scheme where the person bought and planted trees in designated areas. If the trees were of a certain height in five years, the person was paid. For

developing grounded theory on the world of entrepreneuring farm families.

researcher, or to get more detail about a topic mentioned.

**5. Case reconstructions** 

are presented and interpretations offered.

**5.1 Don and Mary Cotts, a crofting family** 

five additional years the person was paid a forest management fee. The Cotts pay rent—the amount set by the Land Court is minimal—to a landlord for 405 hectare of grazing land.

Don grew up in Edinburgh and met Mary in Switzerland when both were working for a multinational corporation. Don received technical training as an engineer and worked in Africa for a U.S. based corporation, and later was transferred to Geneva. Mary, who is German, was a dental assistant and worked for her father in Asia. She married a Swiss man at age 20, but soon divorced. She moved to Switzerland (became Swiss citizen by marriage) and was employment as English typist for the same company that employed Don. Later she becomes assistant to her boss. Mary had a serious automobile accident and in hospital agreed to marry Don (she had said no earlier). They were 28 and 26 at the time. Offices in Geneva were closing and Don was transferred to Edinburgh, as was Mary due to her being his wife. They were paid less in Edinburgh and Mary did not like living there. They had their honeymoon on Isle of Skye and decided they would like to croft, so wrote letters to landlords seeking a croft.

The Cotts moved to the croft in 1977, living in a caravan until the house was built. They have two sons, one now living in London and one in Edinburgh. The croft was purchased in 1990 for £80,000. Don is in a somewhat exceptional position of being both landlord and tenant for his croft (because it was purchased). Owner-occupancy has become more common since 1975, but typically the tenant crofter pays rent to a landlord upon whose land the croft resides (Crofters Commission, n.d.; Scottish Crofting Federation, n.d.). At one time there were five families in the Cott's village with about five hectare of out-run for winter grazing and a share in the common grazing. Each croft had one-half hectare of land. In the late 1950s, there were three crofts in the village. When Don bought his croft, he basically bought the total village. Don in effect is his own landlord. He could rent to someone else, and in fact does rent a small building for a shop to his wife Mary for legal reasons, including taxes. His application to buy the land was approved by the Crofting Commission as they considered local interests. To prepare for the land court appearance when he was trying to buy the land, Don dictated and recorded his speech on tape, listened, and wrote it down to edit. This was to remove slang and to sharpen its focus.

The croft has a house and a few small outbuildings, including a small retail outlet for wool and sweaters. A recently built shed/barn is over one kilometre away on other side of carriageway. The house was built in the late 1970s and expanded in the 1980s, with money obtained through a Crofting Commission housing scheme, so the Cotts could offer B&B accommodations. Three or four rooms are let for bed and breakfast. The couple also owns a house a couple kilometres away, purchased for Mary's mother. It is now let to tourist with the idea that one day it can be sold. There is also a caravan located between the house and the loch that is a tourist accommodation.

The croft is worked with the help of three border collies; there is very little mechanical equipment. Livestock consists of five cattle and about 150 sheep (lambs are not counted). Some sheep are of a rare breed raised for their wool. This wool is sold in the retail establishment run by Mary Cott. Angora rabbits are also kept for their fur, which Mrs Cott sells throughout Great Britain or to weave sweaters that are sold from the small retail shop located adjacent to the house. Mrs Cott mostly has other women do the weaving. Some of

Entrepreneurship, Farming, and Identity: A Phenomenological Inquiry 273

share in or right to the common grazing. There are grazing officers who over see this

There are many regulations and legalities involved with agriculture and crofting. Some come from the European Union and some from the Crofting Commission as well as the UK. Local ordinances also play a role. Don noted "there was a thick book of regulations" and "no one knows all the regulations, but don't matter as long as you get along with the neighbours". The rules often come into play during disputes between crofters and landlords. The post brings news of regulations and modifications ("a letter a day on new regulations"), as well as reports and newsletters discussing grant schemes and regulations. The Cotts receive several newspapers and newsletters (some pertaining to rare breeds due to the animals they raise) as well as information from the Scottish Crofters Commission and Scottish Crofters Union. Don offered that whilst he paid money to the Union, "they were of marginal assistance". Learning about the regulations is possible through the Crofters Union, farmers' press, and talking to people. These sources also "help in learning how to get around regulations". There are many forms to be completed and records kept. Books must be up to date. Mary stated that "we can be fined or subsidies lost if mistakes are made. Some of the forms are complex and hard to fill out". Don offered, "It is hard to keep up". He mentioned he is sceptical of people. He has reservations about the government seeking to make regulations and laws. He commented many times over the years of visiting the croft the amount of paperwork, laws, and restrictions that do not make sense to crofters or to common people. He believes that if people used more common sense, things would be

Building a shed illustrates the complexity of crofter life as well as the regulations that Don repeatedly mentioned as one of the most problematic aspects of crofting. The shed or barn is about 9 x 14 metres and has a concrete paddock for cattle feeding. At the time, government grants helped pay for building sheds at the rate of 60 per cent if for animals and 50 per cent if for storage. Because this shed was for both, different amounts were granted. First Don had to "beg" his landlord (the person who owns the grazing land) to be able to build, and then he had to get permission from the local council as well as their approval for its location. He revealed there were "lots of hassles over this". He could not build where he wanted because the building would be visible from the road and distract from the scenic values of the countryside. Another location was approved farther away, approximately one kilometre. Consequently, the new structure has neither electricity nor running water. The area is wet and large lorries have trouble getting in and out due to the hills and curve on the road. Don reported there were "lots and lots of problems" with getting the shed built so he did much of the work himself. Due to a variety of delays, he could not get the grant money when he wanted to pay for materials and workers. Inspections had to be done and approvals obtained before the grant moneys were forthcoming. They had to borrow from the bank. Don did admit that because of grant schemes "people could now have nice buildings".

The B&B business is also regulated by laws as well as influenced by forces outside the Cott's control. The Cotts were concerned about a possible inspection from the tourist board. They make surprise visits by booking a room for the evening. Don said Mary likes to try to keep him away during inspections because he argues with the tourist board. He believes "the board should be working for me, not the other way around, should be doing all they can to give people, people like us, a break and get tourist wanting to stay in this area. We have a

grazing and settle disputes. Mary is a grazing officer.

better.

these women live some distance from the croft and wool, patterns, and sweaters are sent by post. Tourists stop by to shop. Sweaters and wool can be sent by post to customers.

Crofts are not meant to provide all the means of substance for a family through agriculture. Don and Mary have preformed a variety of income generating activities over the years of their living on the croft. This family has engaged in such activities as raising sheep, rabbits, and cattle; harvesting seaweed; picking whelks; delivering the post; owning a small textiles retail establishment; running a propane business; letting a caravan and house to tourist; and operating a bed and breakfast. They have also worked in a hotel, for the county building roads, and for a large estate owner in a variety of capacities.

Mary indicated that the various sources of family income were in the following proportions: the bed and breakfast 50 per cent, letting a caravan and a house 15-20 per cent, the sheep and cows five per cent, the forestry two-three per cent, hiring out of Don's labour 25 per cent, and selling LP gas one per cent. Mary noted the shop was not a source of income because the money earned has been "going back into the shop…I want to get it good and established". This family's entrepreneuring, home-based employment, and hiring out of labour have created employment for themselves and others. This type of pluriactivity and multioccupation is typical of crofters, farmers, and other households engaged in homebased employment (Hennon et al., 2000; Hillenbrand & Hennon, 2008; Scottish Crofting Federation, n.d.).

The B&B is run year around, but doing busy times on the croft, such as lambing, the B&B is secondary and Mary stated, is on a "if we are available to answer telly or met a car that drives in" bases. Although there are four rooms that could be let, the number of guests is typically limited to six due to space availability at the table. With more guests, it is crowded and Mary feels this is not good for the guests. Because there is limited options to purchase meals nearby, one very expensive restaurant and one costly café, Mary cooks and serves an evening meal to guest for an extra charge above the B&B rate, securing another source of income. She bakes the bread served at meals.

The house is two storey, functional and simple. There are four guest bedrooms and two baths. The centre part of the house is a large sitting room with comfortable chairs, a fireplace, and the dining table. The kitchen is located at the rear of the house (the side facing the carriageway) with a rear door off a hallway. The couple spends a great deal of their time in the kitchen. The kitchen table is a work area. This is where most of the interviews and visiting took place, often over tea and a few times whiskey. The kitchen also affords a view of the drive and is convenient to exiting the house to go to the shop or out to tend to the crofting activities.

Don was asked about the advantages of crofting. He indicated that crofting should cost less to get into than farming. This is because the crofter does not have to buy the land, only the improvements made to the land and buildings by the current tenants. With housing grants and loans, people can afford nice housing. The grants and loans can pay for materials and the person can self build or pay for construction. There is a shortage of lower cost housing in the remote areas of Scotland. On a croft, the crofter can buy the house and a small amount of land. Buying the whole croft is more difficult. This purchase would include payments for the land to the landlord, for solicitors, and so forth. Any one landlord could own many crofts. In the Cott's area there are two landlords and perhaps 100 crofts. Each croft has a

these women live some distance from the croft and wool, patterns, and sweaters are sent by

Crofts are not meant to provide all the means of substance for a family through agriculture. Don and Mary have preformed a variety of income generating activities over the years of their living on the croft. This family has engaged in such activities as raising sheep, rabbits, and cattle; harvesting seaweed; picking whelks; delivering the post; owning a small textiles retail establishment; running a propane business; letting a caravan and house to tourist; and operating a bed and breakfast. They have also worked in a hotel, for the county building

Mary indicated that the various sources of family income were in the following proportions: the bed and breakfast 50 per cent, letting a caravan and a house 15-20 per cent, the sheep and cows five per cent, the forestry two-three per cent, hiring out of Don's labour 25 per cent, and selling LP gas one per cent. Mary noted the shop was not a source of income because the money earned has been "going back into the shop…I want to get it good and established". This family's entrepreneuring, home-based employment, and hiring out of labour have created employment for themselves and others. This type of pluriactivity and multioccupation is typical of crofters, farmers, and other households engaged in homebased employment (Hennon et al., 2000; Hillenbrand & Hennon, 2008; Scottish Crofting

The B&B is run year around, but doing busy times on the croft, such as lambing, the B&B is secondary and Mary stated, is on a "if we are available to answer telly or met a car that drives in" bases. Although there are four rooms that could be let, the number of guests is typically limited to six due to space availability at the table. With more guests, it is crowded and Mary feels this is not good for the guests. Because there is limited options to purchase meals nearby, one very expensive restaurant and one costly café, Mary cooks and serves an evening meal to guest for an extra charge above the B&B rate, securing another source of

The house is two storey, functional and simple. There are four guest bedrooms and two baths. The centre part of the house is a large sitting room with comfortable chairs, a fireplace, and the dining table. The kitchen is located at the rear of the house (the side facing the carriageway) with a rear door off a hallway. The couple spends a great deal of their time in the kitchen. The kitchen table is a work area. This is where most of the interviews and visiting took place, often over tea and a few times whiskey. The kitchen also affords a view of the drive and is convenient to exiting the house to go to the shop or out to tend to the

Don was asked about the advantages of crofting. He indicated that crofting should cost less to get into than farming. This is because the crofter does not have to buy the land, only the improvements made to the land and buildings by the current tenants. With housing grants and loans, people can afford nice housing. The grants and loans can pay for materials and the person can self build or pay for construction. There is a shortage of lower cost housing in the remote areas of Scotland. On a croft, the crofter can buy the house and a small amount of land. Buying the whole croft is more difficult. This purchase would include payments for the land to the landlord, for solicitors, and so forth. Any one landlord could own many crofts. In the Cott's area there are two landlords and perhaps 100 crofts. Each croft has a

post. Tourists stop by to shop. Sweaters and wool can be sent by post to customers.

roads, and for a large estate owner in a variety of capacities.

income. She bakes the bread served at meals.

Federation, n.d.).

crofting activities.

share in or right to the common grazing. There are grazing officers who over see this grazing and settle disputes. Mary is a grazing officer.

There are many regulations and legalities involved with agriculture and crofting. Some come from the European Union and some from the Crofting Commission as well as the UK. Local ordinances also play a role. Don noted "there was a thick book of regulations" and "no one knows all the regulations, but don't matter as long as you get along with the neighbours". The rules often come into play during disputes between crofters and landlords. The post brings news of regulations and modifications ("a letter a day on new regulations"), as well as reports and newsletters discussing grant schemes and regulations. The Cotts receive several newspapers and newsletters (some pertaining to rare breeds due to the animals they raise) as well as information from the Scottish Crofters Commission and Scottish Crofters Union. Don offered that whilst he paid money to the Union, "they were of marginal assistance". Learning about the regulations is possible through the Crofters Union, farmers' press, and talking to people. These sources also "help in learning how to get around regulations". There are many forms to be completed and records kept. Books must be up to date. Mary stated that "we can be fined or subsidies lost if mistakes are made. Some of the forms are complex and hard to fill out". Don offered, "It is hard to keep up". He mentioned he is sceptical of people. He has reservations about the government seeking to make regulations and laws. He commented many times over the years of visiting the croft the amount of paperwork, laws, and restrictions that do not make sense to crofters or to common people. He believes that if people used more common sense, things would be better.

Building a shed illustrates the complexity of crofter life as well as the regulations that Don repeatedly mentioned as one of the most problematic aspects of crofting. The shed or barn is about 9 x 14 metres and has a concrete paddock for cattle feeding. At the time, government grants helped pay for building sheds at the rate of 60 per cent if for animals and 50 per cent if for storage. Because this shed was for both, different amounts were granted. First Don had to "beg" his landlord (the person who owns the grazing land) to be able to build, and then he had to get permission from the local council as well as their approval for its location. He revealed there were "lots of hassles over this". He could not build where he wanted because the building would be visible from the road and distract from the scenic values of the countryside. Another location was approved farther away, approximately one kilometre. Consequently, the new structure has neither electricity nor running water. The area is wet and large lorries have trouble getting in and out due to the hills and curve on the road. Don reported there were "lots and lots of problems" with getting the shed built so he did much of the work himself. Due to a variety of delays, he could not get the grant money when he wanted to pay for materials and workers. Inspections had to be done and approvals obtained before the grant moneys were forthcoming. They had to borrow from the bank. Don did admit that because of grant schemes "people could now have nice buildings".

The B&B business is also regulated by laws as well as influenced by forces outside the Cott's control. The Cotts were concerned about a possible inspection from the tourist board. They make surprise visits by booking a room for the evening. Don said Mary likes to try to keep him away during inspections because he argues with the tourist board. He believes "the board should be working for me, not the other way around, should be doing all they can to give people, people like us, a break and get tourist wanting to stay in this area. We have a

Entrepreneurship, Farming, and Identity: A Phenomenological Inquiry 275

drive, either Don or Mary will typically go out to greet them. Don helps in the house, carrying out ashes from the fire as well as tending to the fire. He also fixes things around the house, talks to guests, offers ideas on tourist attractions, and helps with cleaning and other chores as necessary. Mary cares for the house, cooks, and participates in outside crofting chores, such as medicating sheep and helping with lambing, a demanding and tiring time. Don does most of the outside work, except for cutting the grass in the garden, done by Mary. Decision-making is joint. One example was deciding on where to put a park for the cows (an enclosed area that was to be built somewhere across the road). As appears to be true with so much that occurs on this croft, Mary and Don jointly assessed the situation in order to come to a decision. The issue was if they were to run one fence for several metres along the road, or to make two bits of fenced in area, with an area between closed off to the cows. Don was concerned that part of the area was too rough for the calves and they would

be injured. He thought it was better and cheaper to do two bits; Mary wanted one.

crofting scheme.

from others.

advance.

As they walked along were the park would be talking about it, sometimes at great distance from each other (as Mary was walking on the hill several metres from the road as Don walked along the road), they discussed the pros and cons of each idea. Mary walked the rough land on the ridge to show that it would be okay for the cows. At issue also was where to put the gate, as the area is quite rocky with several peat bogs (where the couple used to cut peat for fuel). The gate would have to be in an area where there was lorry access. A bulldozer would have to be hired and materials purchased. No decision was reached, but as Don said, "It was a draw at half-time. We both get our words in and then we compromise". Observations showed the couple often would sit at the kitchen table and discuss what was to be done that day. Many times Don would ask Mary's opinion about what he should do that day. The couple seems to discuss together and seek consensus about longer-term planning and monetary expenditures, such as purchasing a vehicle or entering into a

As for the future, there is some uncertainty. Don mentioned that it is hard to project income based on tourism. In comparison, even though the price of lambs fluctuated and was down, there were subsidies as well as other programs that helped make predicting income easier. Mary noted that though sales at the shop have recently been good (about 100-150 sweaters are sold each year), this income also was hard to predict. Don would like to improve the appearance of the shop (it is a small wooden building), believing people drive down the lane after seeing the sign and then see the small shop and have a negative reaction. He indicated, as did Mary, that people must talk positively about the shop as they have many sales including return customers. People also mention that they have heard about the shop

The couple had to learn how to be crofter and care for animals. Mary said local people are polite and "not in your business". She indicated the way to ask for help from locals was to "drop hints". They have borrowed ideas from others and it took time to learn, but people have been good about letting them learn; "Just ask if you want something". Don said the local way is people are suppose to notice if someone needs something and then offer to help. He also reported that over the years he has become an innovator, for example, being the first in the area to use movable electric fencing for the cows, and people have sought him out for

lot to offer, but people don't know it". The tourist board has changed its rating systems over the years. The Cotts had to have three different signs in six years on the road advertising their B&B. They also pay £100 a year to have the B&B listed without a picture in the Highlands Tourist Board Book. The B&B is mentioned in various travel guides, often without the couple knowing about it. Mary reported, "About half our guests just stop by to ask for a room, the rest book ahead. I have to turn people away sometimes because we don't have space. Other times, no one here. Its up and down…you can't plan, like how much food to get for meals and such".

The B&B has received a score of seven out of ten by the board over the last few years. At the time of the first interview, rooms were £14 per night per person. If the guest booked a room through the tourist board, the board received 10 per cent of the B&B rate plus charged the person a £3 fee. Mary felt the Board "was leaning on them" to increase the charge to £16 per person with an increase over 10 years to £21. When preparing the business plan for the B&B with a 10-year projection, they had indicated that the rate would go from £9 to £16. The officials said it should be higher and go to £21. Don believes this is too high—"this is not a hotel and we don't have the services like a hotel does. People know this or quickly learn it". He indicated that if the Tourist Board wanted to make these kinds of accommodations available, "the board should help build hotels. Other tourists could use cheaper B&Bs if they wanted". Mary revealed the cost of doing business included banking fees. There is a charge to cash cheques, including a £5 charge if the cheque was drawn on a different bank plus a 10 per cent fee for cash deposits. There is also a three per cent fee for each credit card transaction.

Don runs a small LP gas distribution business. He took it over soon after moving to the croft, and gave it "a bit of a boost" and it becomes main source of income. Construction in area was booming and there was demand for gas for heaters, etc. He stores cylinders of gas in a shed convenient to the drive near the road. People can stop by to purchase or he delivers with help from "a young lad…strong boy…does the lifting". This business was started because Don figured he could make money from it, as the nearest distributor was in a town some distance away. More recently, the demand has slowed, and the income from the business is now minor. For a time they sold doors for homes and made "good pay" building beds for workers building drilling platforms.

Both Don and Mary work hard all day. Mary seldom sits down even thought she has some trouble with arthritis and her feet. In response to questions about a typical day, Mary indicated that the alarm goes off at 6 a.m. They lie in bed and listen to the news on the radio until about 7 a.m. Don said this was to hear the weather and find out what was going on in the world. They have a cold shower. Don begins to take care of the animals. As he noted, around 7 a.m. they start "to sort out people and animals". The table is set for breakfast for the B&B guests. At 7:30 they have their own breakfast and Don opens the shop. Coffee is made and breakfast cooked for the guests. Between 8 and 9 breakfast is served and this is a hectic time. Between 9 and 10 the guests typically leave, but there is no set time for this and sometimes guests linger, especially those staying more than one night. The breakfast dishes are cleared, beds are made, and the daily laundry begins. Bed clothing, etc. are hung to dry and are ironed. Their bed is made and the house is dusted and hovered. There are interruptions to this work as people stop in to visit the shop or inquire about rooms. Sometimes as people are leaving the B&B, they visit the shop. When cars are heard on the

lot to offer, but people don't know it". The tourist board has changed its rating systems over the years. The Cotts had to have three different signs in six years on the road advertising their B&B. They also pay £100 a year to have the B&B listed without a picture in the Highlands Tourist Board Book. The B&B is mentioned in various travel guides, often without the couple knowing about it. Mary reported, "About half our guests just stop by to ask for a room, the rest book ahead. I have to turn people away sometimes because we don't have space. Other times, no one here. Its up and down…you can't plan, like how much food

The B&B has received a score of seven out of ten by the board over the last few years. At the time of the first interview, rooms were £14 per night per person. If the guest booked a room through the tourist board, the board received 10 per cent of the B&B rate plus charged the person a £3 fee. Mary felt the Board "was leaning on them" to increase the charge to £16 per person with an increase over 10 years to £21. When preparing the business plan for the B&B with a 10-year projection, they had indicated that the rate would go from £9 to £16. The officials said it should be higher and go to £21. Don believes this is too high—"this is not a hotel and we don't have the services like a hotel does. People know this or quickly learn it". He indicated that if the Tourist Board wanted to make these kinds of accommodations available, "the board should help build hotels. Other tourists could use cheaper B&Bs if they wanted". Mary revealed the cost of doing business included banking fees. There is a charge to cash cheques, including a £5 charge if the cheque was drawn on a different bank plus a 10 per cent fee for cash deposits. There is also a three per cent fee for each credit card

Don runs a small LP gas distribution business. He took it over soon after moving to the croft, and gave it "a bit of a boost" and it becomes main source of income. Construction in area was booming and there was demand for gas for heaters, etc. He stores cylinders of gas in a shed convenient to the drive near the road. People can stop by to purchase or he delivers with help from "a young lad…strong boy…does the lifting". This business was started because Don figured he could make money from it, as the nearest distributor was in a town some distance away. More recently, the demand has slowed, and the income from the business is now minor. For a time they sold doors for homes and made "good pay"

Both Don and Mary work hard all day. Mary seldom sits down even thought she has some trouble with arthritis and her feet. In response to questions about a typical day, Mary indicated that the alarm goes off at 6 a.m. They lie in bed and listen to the news on the radio until about 7 a.m. Don said this was to hear the weather and find out what was going on in the world. They have a cold shower. Don begins to take care of the animals. As he noted, around 7 a.m. they start "to sort out people and animals". The table is set for breakfast for the B&B guests. At 7:30 they have their own breakfast and Don opens the shop. Coffee is made and breakfast cooked for the guests. Between 8 and 9 breakfast is served and this is a hectic time. Between 9 and 10 the guests typically leave, but there is no set time for this and sometimes guests linger, especially those staying more than one night. The breakfast dishes are cleared, beds are made, and the daily laundry begins. Bed clothing, etc. are hung to dry and are ironed. Their bed is made and the house is dusted and hovered. There are interruptions to this work as people stop in to visit the shop or inquire about rooms. Sometimes as people are leaving the B&B, they visit the shop. When cars are heard on the

building beds for workers building drilling platforms.

to get for meals and such".

transaction.

drive, either Don or Mary will typically go out to greet them. Don helps in the house, carrying out ashes from the fire as well as tending to the fire. He also fixes things around the house, talks to guests, offers ideas on tourist attractions, and helps with cleaning and other chores as necessary. Mary cares for the house, cooks, and participates in outside crofting chores, such as medicating sheep and helping with lambing, a demanding and tiring time. Don does most of the outside work, except for cutting the grass in the garden, done by Mary. Decision-making is joint. One example was deciding on where to put a park for the cows (an enclosed area that was to be built somewhere across the road). As appears to be true with so much that occurs on this croft, Mary and Don jointly assessed the situation in order to come to a decision. The issue was if they were to run one fence for several metres along the road, or to make two bits of fenced in area, with an area between closed off to the cows. Don was concerned that part of the area was too rough for the calves and they would be injured. He thought it was better and cheaper to do two bits; Mary wanted one.

As they walked along were the park would be talking about it, sometimes at great distance from each other (as Mary was walking on the hill several metres from the road as Don walked along the road), they discussed the pros and cons of each idea. Mary walked the rough land on the ridge to show that it would be okay for the cows. At issue also was where to put the gate, as the area is quite rocky with several peat bogs (where the couple used to cut peat for fuel). The gate would have to be in an area where there was lorry access. A bulldozer would have to be hired and materials purchased. No decision was reached, but as Don said, "It was a draw at half-time. We both get our words in and then we compromise". Observations showed the couple often would sit at the kitchen table and discuss what was to be done that day. Many times Don would ask Mary's opinion about what he should do that day. The couple seems to discuss together and seek consensus about longer-term planning and monetary expenditures, such as purchasing a vehicle or entering into a crofting scheme.

As for the future, there is some uncertainty. Don mentioned that it is hard to project income based on tourism. In comparison, even though the price of lambs fluctuated and was down, there were subsidies as well as other programs that helped make predicting income easier. Mary noted that though sales at the shop have recently been good (about 100-150 sweaters are sold each year), this income also was hard to predict. Don would like to improve the appearance of the shop (it is a small wooden building), believing people drive down the lane after seeing the sign and then see the small shop and have a negative reaction. He indicated, as did Mary, that people must talk positively about the shop as they have many sales including return customers. People also mention that they have heard about the shop from others.

The couple had to learn how to be crofter and care for animals. Mary said local people are polite and "not in your business". She indicated the way to ask for help from locals was to "drop hints". They have borrowed ideas from others and it took time to learn, but people have been good about letting them learn; "Just ask if you want something". Don said the local way is people are suppose to notice if someone needs something and then offer to help. He also reported that over the years he has become an innovator, for example, being the first in the area to use movable electric fencing for the cows, and people have sought him out for advance.

Entrepreneurship, Farming, and Identity: A Phenomenological Inquiry 277

below the poverty lievel (Economic Research Service, 2011a, 2011b; U.S. Census Bureau,

The farm is located on a paved single-carriageway connecting the two towns. In recent years, raising dairy cows, hogs, and beef, and growing hay and crops such as corn and soya were common. The county has experienced a decline in agricultural activity with farms converted to housing or commercial development activities. Several farms remain, the majority having a farmer also occupied in off-farm wage-earning activities. Both smaller (8– 16 hectare) and larger farms exist. In Ohio, the average farm is 74 hectare with 60 per cent of farms between 1–40 hectare, and 90 per cent below 202 hectare. Most farms (56 per cent) have sales of \$9,999 or less, 75 per cent below \$50,000. The vast majority (90 per cent) are family farms, with the farmer's average age being 56, and 43 per cent having farming as

Immigrants from Germany, the previous generations of the Cropland family helped settle a town about 35 kilometres from the current Cropland farm. Keith Cropland I purchased a farm of 100 hectare of land near this town in the 1920s, and was distinguished for breeding draught horses. His son Neil worked on the farm where they also raised corn. Keith I's second and youngest son, Martin, managed another farm and then entered the transportation sector. Keith I's oldest son Neil was a cattle breeder. Neil wanted to be in farming but his father was still living, so over about 20 years starting around 1960, he purchased four adjacent farms, cultivated over one connected area covering 2.6 sq. kilometres (approximately 250 hectare). He fattened pigs, sometimes having 2,000. His son, Keith II, who was interviewed for the study reported here, said "a semi [lorry] load of hogs would come into the farm…and between my mom, my sister and then me and Derrick, we were young then, would take care of them hogs and then dad would go to the sales, send the trucks in, and we were running thousands of heads of hogs through here every week.

The family leased farmland and in a peak period had 21 farms totalling 680 hectare. During the 1970s, Neil traded in calves (approximately 8,000–10,000 per year) and grew corn and soya beans. Neil with his son Keith II hauled the calves from a 14-hour drive distance and sold them within days to two weeks. Keith II observed, "but see livestock…you either gotta be big or you're out… 20 years ago, I knew of at least 10 dairy farms within a 5 mile [8 kilometres] radius of here, and I knew of 30 hog farmers within a 5-mile radius of here.

During the 1980s, Neil ran a USA-wide truckage company and later a construction business in addition to operating the farm. Neil is now semi-retired, owns the farm, and raises a few cattle. Two of the three sons (Derrick and Keith II) have worked for the business in its various sectors; the youngest son manages a steel firm and owns a construction company. All three sons built houses on the farm and live there with their families. The daughter married a metalworker and lives in a nearby town. Specialising in different agriculture areas, the two oldest sons engaged in the daily farm business. Each child is to inherit one of the four farm segments (about 65 hectare each). The two brothers rent the farmland from their father at below market value. This rent is the parents' main source of retirement

n.d.).

their primary occupation.

But the market on that fell through".

There's none now".

income.

#### **5.2 Précis**

There have been many changes in the local community as well as in crofting during the time that the Cotts have lived on a croft. More transformations are underway. Both Mary and Don's individual biographies are at the centre of an expanding set of forces that impinge upon their lives. Whilst these are economic, social, and political in nature, and some are distant and others more local, they impinge on their daily lives and plans for the future. Their lifeworlds have undergone change, but they have adapted, finding sources of income and living a desired but physically demanding lifestyle. Pluriactivity and multioccupation have been common, and entrepreneurship has played its part. They saw an opportunity with the LP gas business, as they did with building beds, raising rare breed animals for their unique fur and wool, and starting a small sweater retail business. They are not 'typical' crofters, but have identities and act as if they were. Both have technical training and worked in other countries. Neither come from an agricultural or crofting background. Intention appears to be the main motivator for their entrepreneurial endeavours, realising that crofters have to seek out multiple sources of income. Their entrepreneuring in terms of improvements to the croft and its income generating abilities, combined with creating new businesses, has allowed them to live a life they desire in an economically precarious area. In a sense, they are survival entrepreneurs and lifestyle entrepreneurs, as they selected businesses favourable to long-term and viable participation in areas where they had interest, talent, and expertise (Peters et al., 2009). They have experienced multiple problematics requiring conscious reorienting of their everyday reality. New typifications are created and applied as life proceeds.

The bed and breakfast start-up is an example of how they used their entrepreneurial attitudes and skills. They were alert and realised there were few tourist facilities in the area, discussed the possibility of entering into this aspect of tourism, sought out information and funding possibilities, assessed the risks, and made the decision to move ahead. They were able to recognise an entrepreneurial opportunity, trigger it, and it became the greatest source of household income. In terms of McElwee's (2008) typology of entrepreneurial farmers, the Cotts would be Type II, Farmer as Entrepreneur. They possessed and further developed the requisite skills for engagement in entrepreneurial activity. Their backgrounds and human capital situated in a 'surrounding world' or *umwelt*, fostered the entrepreneurial function. The croft is in a geographical and cultural region that facilitates certain types of entrepreneuring, such as the expectation of pluriactivity and the increase in tourism. Mary and Don, however, did not self describe as entrepreneurs. The word was not used during either the interviews or observations. They did use terms like 'having to do something', 'saw an opportunity and took it', and being 'innovators'.

#### **5.3 Keith and Kathy Cropland, a farming family**

A third-generation farm family living in Ohio (USA), the Cropland farm is located in a USDA labelled '1' county on its rural-urban continuum, meaning it is a fringe county within a Metropolitan Statistical Area with a population of 1 million. The family lives on the extreme edge of the MSA, the area is rural, and a small town (20,000 people) is about 5 kilometres from the farm. The largest town (60,000 population) in the county (370,000 population) is 34 kilometres distance. Within the county, 13 per cent of the population is

There have been many changes in the local community as well as in crofting during the time that the Cotts have lived on a croft. More transformations are underway. Both Mary and Don's individual biographies are at the centre of an expanding set of forces that impinge upon their lives. Whilst these are economic, social, and political in nature, and some are distant and others more local, they impinge on their daily lives and plans for the future. Their lifeworlds have undergone change, but they have adapted, finding sources of income and living a desired but physically demanding lifestyle. Pluriactivity and multioccupation have been common, and entrepreneurship has played its part. They saw an opportunity with the LP gas business, as they did with building beds, raising rare breed animals for their unique fur and wool, and starting a small sweater retail business. They are not 'typical' crofters, but have identities and act as if they were. Both have technical training and worked in other countries. Neither come from an agricultural or crofting background. Intention appears to be the main motivator for their entrepreneurial endeavours, realising that crofters have to seek out multiple sources of income. Their entrepreneuring in terms of improvements to the croft and its income generating abilities, combined with creating new businesses, has allowed them to live a life they desire in an economically precarious area. In a sense, they are survival entrepreneurs and lifestyle entrepreneurs, as they selected businesses favourable to long-term and viable participation in areas where they had interest, talent, and expertise (Peters et al., 2009). They have experienced multiple problematics requiring conscious reorienting of their everyday reality. New typifications are created and

The bed and breakfast start-up is an example of how they used their entrepreneurial attitudes and skills. They were alert and realised there were few tourist facilities in the area, discussed the possibility of entering into this aspect of tourism, sought out information and funding possibilities, assessed the risks, and made the decision to move ahead. They were able to recognise an entrepreneurial opportunity, trigger it, and it became the greatest source of household income. In terms of McElwee's (2008) typology of entrepreneurial farmers, the Cotts would be Type II, Farmer as Entrepreneur. They possessed and further developed the requisite skills for engagement in entrepreneurial activity. Their backgrounds and human capital situated in a 'surrounding world' or *umwelt*, fostered the entrepreneurial function. The croft is in a geographical and cultural region that facilitates certain types of entrepreneuring, such as the expectation of pluriactivity and the increase in tourism. Mary and Don, however, did not self describe as entrepreneurs. The word was not used during either the interviews or observations. They did use terms like 'having to do something', 'saw

A third-generation farm family living in Ohio (USA), the Cropland farm is located in a USDA labelled '1' county on its rural-urban continuum, meaning it is a fringe county within a Metropolitan Statistical Area with a population of 1 million. The family lives on the extreme edge of the MSA, the area is rural, and a small town (20,000 people) is about 5 kilometres from the farm. The largest town (60,000 population) in the county (370,000 population) is 34 kilometres distance. Within the county, 13 per cent of the population is

**5.2 Précis** 

applied as life proceeds.

an opportunity and took it', and being 'innovators'.

**5.3 Keith and Kathy Cropland, a farming family** 

below the poverty lievel (Economic Research Service, 2011a, 2011b; U.S. Census Bureau, n.d.).

The farm is located on a paved single-carriageway connecting the two towns. In recent years, raising dairy cows, hogs, and beef, and growing hay and crops such as corn and soya were common. The county has experienced a decline in agricultural activity with farms converted to housing or commercial development activities. Several farms remain, the majority having a farmer also occupied in off-farm wage-earning activities. Both smaller (8– 16 hectare) and larger farms exist. In Ohio, the average farm is 74 hectare with 60 per cent of farms between 1–40 hectare, and 90 per cent below 202 hectare. Most farms (56 per cent) have sales of \$9,999 or less, 75 per cent below \$50,000. The vast majority (90 per cent) are family farms, with the farmer's average age being 56, and 43 per cent having farming as their primary occupation.

Immigrants from Germany, the previous generations of the Cropland family helped settle a town about 35 kilometres from the current Cropland farm. Keith Cropland I purchased a farm of 100 hectare of land near this town in the 1920s, and was distinguished for breeding draught horses. His son Neil worked on the farm where they also raised corn. Keith I's second and youngest son, Martin, managed another farm and then entered the transportation sector. Keith I's oldest son Neil was a cattle breeder. Neil wanted to be in farming but his father was still living, so over about 20 years starting around 1960, he purchased four adjacent farms, cultivated over one connected area covering 2.6 sq. kilometres (approximately 250 hectare). He fattened pigs, sometimes having 2,000. His son, Keith II, who was interviewed for the study reported here, said "a semi [lorry] load of hogs would come into the farm…and between my mom, my sister and then me and Derrick, we were young then, would take care of them hogs and then dad would go to the sales, send the trucks in, and we were running thousands of heads of hogs through here every week. But the market on that fell through".

The family leased farmland and in a peak period had 21 farms totalling 680 hectare. During the 1970s, Neil traded in calves (approximately 8,000–10,000 per year) and grew corn and soya beans. Neil with his son Keith II hauled the calves from a 14-hour drive distance and sold them within days to two weeks. Keith II observed, "but see livestock…you either gotta be big or you're out… 20 years ago, I knew of at least 10 dairy farms within a 5 mile [8 kilometres] radius of here, and I knew of 30 hog farmers within a 5-mile radius of here. There's none now".

During the 1980s, Neil ran a USA-wide truckage company and later a construction business in addition to operating the farm. Neil is now semi-retired, owns the farm, and raises a few cattle. Two of the three sons (Derrick and Keith II) have worked for the business in its various sectors; the youngest son manages a steel firm and owns a construction company. All three sons built houses on the farm and live there with their families. The daughter married a metalworker and lives in a nearby town. Specialising in different agriculture areas, the two oldest sons engaged in the daily farm business. Each child is to inherit one of the four farm segments (about 65 hectare each). The two brothers rent the farmland from their father at below market value. This rent is the parents' main source of retirement income.

Entrepreneurship, Farming, and Identity: A Phenomenological Inquiry 279

brother didn't get along, but it couldn't…we were butting heads, not feuding or nothing, but there just wasn't enough ground for both of us and we knew something was going to happen and finally I'm done…I'm going to do this, I don't know what she thought, but…" Asked what she thought, Kathy replied that she did not think he was serious about opening a market until he sold a piece of farm equipment. "That's when I said, 'Mom, he sold the planter'…we're not doing this anymore… yeah, I think that's when it hit me was when he

Keith II turned over to Derrick the land he was leasing and his brother farms about 404 hectare and earns enough from that. Even without enough land, Keith II wants to remain in an occupation related to agriculture. He comments, "the way I look at it to me, tomorrow I could be doing something else, I mean I could…would if there was something comes along that I feel like I want to…we…I'm thinking about putting up a farm restaurant. I mean we're going to stay into the farming and into produce and the like, but…I'm open for suggestions….I mean if I see something…who knows. Perhaps buying and selling equipment…or… any way to bring another source of income into the farm, I mean…the farming. Since we've went to the nursery, this will be our third season…and we're making more off of this than we were off of farming and I think if I get a couple more years to really get established, it would carry us…I could retire off of that…but we're always open for new adventure…I mean, I can't see me as being one that said okay this is the way I'm going to retire…it's like the hay, it's like the trucks, it's that's the way of my dad. My dad has showed cattle, he's farmed, he's built houses, he's drove trucks, he did produce, he had a farm market…he plays in the stock market. I mean, dad is one that he would get into something

when it was good and get out and try something else".

you say"? She responds with "self-employed farmer".

Interviewer: "If I would ask this question to your brother, what would he say"?

nursery and market, but if there's something else out there that I can try, I'll try it".

Keith II: "He's more cautious, I guess you'd say, he will stay in the farming…he's three years older, he's pretty well set, I'm a little more risky, riskier I guess you'd say in the family, and that's the way my dad did, I mean I'd want to stay…we will stay with the

Even with the crisis resulting from the way his father worked out a deal with Derrick about the farm business, and despite the entrepreneuring and many facets of pluriactivity that were undertaken previously, Keith II still considers him self a farmer. He abridges his philosophy on life in two notions: "I have to keep control" and "farming is in our blood". Despite adjusting his activities to the altered conditions, habitus (a system of durable and transposable dispositions that form the principle of generating and structuring of practices and representations of the lifeworld) and self-conception do not automatically change.

Keith II discloses his modus of structuring and parleying his identity of farmer within the family milieu. Kathy is asked, "When someone asks you what your husband does, what do

The following conversation reveals that the name Cropland is synonymous with being a well-established farm family— accordingly, this is one's identity. The interviewer asks, "But

Interviewer: "I'm thinking about in the future; what are you going to say"?

Kathy: They [people in the community] say, "You're a Cropland".

sold it".

The two brothers assisted their father with the farm, including the leased land within a 48 kilometre radius. For a three-year period during the 1980s when his father retired from farming, the tillable land was leased to others, so Keith II worked as a driver in his dad's truckage company, and occasionally worked as a plumber, on a dairy farm, and in other occupations. Still driving a lorry for wages, at age 30, he and his brother took over the home farm and started farming together. They also leased 17 farms (a total of about 809 hectare) to grow hay and crops, mostly corn and soya beans, whereas the father still raised livestock. The two also raised about 1,500 hogs each year for five years and until 2004, hauled grain.

The brothers kept losing the leased land because it was sold to construct houses, until there was about 405 hectare. Derrick had more equipment and so farmed more land, whilst Keith II had about 121 hectare of crop. Keith II reminisced that with this amount of land, "for two families to make a living on that it can't be done…you just…there's just not enough there, so I hauled grain….I had semis [lorries] and I was hauling grain and hay…150, 200 loads for other farmers and that would help pay for my truck, plus I would get an income off the truck plus the farming and then we were baling hay 30…35,000 bales of hay here…and that was our best crop. We'd sell all that. My wife and I have an apartment house [they let the flats for income]…ah, still not enough income to support a family and …we live average…I mean we don't have new vehicles". He also mentioned that when he married Kathy he expected her to have a 'town job' because "you got to have that second income…you have to have more than one income to farm…so you need the off the farm income". He further stated that in the 1940s a family could live on subsistence farming, but "nowadays you better have a full time job. At 160 acres [65 hectare, the size of the home farm], unless you do what I did…diversify…and go into specialty crops…then you can make it".

A crisis developed when Keith II, then aged about 40, learned from his wife (who manages a hotel in the near by town) that his brother Derrick was to take over the farm business on his own. He was to lease it from the parents at a special price. After coming to accept this situation, Keith II purchased one-half hectare and leased 16 hectare from his father. On the purchased land he established a landscape nursery and a store for agricultural produce and 'country' items including handicrafts. The store also sells provisions such as artisan bread, specialty cheeses, preserves, Amish prepared items and produce, and seasonal items such as pumpkins and Christmas trees. A corn maze is cut and a fee charged for its use. The store is located on the carriageway fronting the farm. He continues to drive a lorry hauling grain from local farmers to a transportation hub. He buys and resells hay. In the winter he has worked as plumber at the construction firm of his youngest brother. More recently, Keith II purchased a 'box' truck used for delivering produce from about a score of farms, including Amish, to farm markets and grocery stores. He reported that he saw an opportunity and decided to pursue it, and this now ensures another revenue stream for the family. Since opening the nursery, the building, what is termed a 'pole barn' in the U.S., has been expanded to twice its original size, and a large green house constructed. The building has a walk in cooler, but not heat. The business is open from spring until Christmas.

Keith II: "Got to the point where I knew I wasn't going to be able to stay in the farm, unless we found a lot of ground and dad always said do the landscape nursery and produce…well…[dad] always said we should do it, he said me and Derrick should do it…that acreage that I had…I, I knew I had to do something else, …not that me and my

The two brothers assisted their father with the farm, including the leased land within a 48 kilometre radius. For a three-year period during the 1980s when his father retired from farming, the tillable land was leased to others, so Keith II worked as a driver in his dad's truckage company, and occasionally worked as a plumber, on a dairy farm, and in other occupations. Still driving a lorry for wages, at age 30, he and his brother took over the home farm and started farming together. They also leased 17 farms (a total of about 809 hectare) to grow hay and crops, mostly corn and soya beans, whereas the father still raised livestock. The two also raised about 1,500 hogs each year for five years and until 2004, hauled grain. The brothers kept losing the leased land because it was sold to construct houses, until there was about 405 hectare. Derrick had more equipment and so farmed more land, whilst Keith II had about 121 hectare of crop. Keith II reminisced that with this amount of land, "for two families to make a living on that it can't be done…you just…there's just not enough there, so I hauled grain….I had semis [lorries] and I was hauling grain and hay…150, 200 loads for other farmers and that would help pay for my truck, plus I would get an income off the truck plus the farming and then we were baling hay 30…35,000 bales of hay here…and that was our best crop. We'd sell all that. My wife and I have an apartment house [they let the flats for income]…ah, still not enough income to support a family and …we live average…I mean we don't have new vehicles". He also mentioned that when he married Kathy he expected her to have a 'town job' because "you got to have that second income…you have to have more than one income to farm…so you need the off the farm income". He further stated that in the 1940s a family could live on subsistence farming, but "nowadays you better have a full time job. At 160 acres [65 hectare, the size of the home farm], unless you do

what I did…diversify…and go into specialty crops…then you can make it".

walk in cooler, but not heat. The business is open from spring until Christmas.

Keith II: "Got to the point where I knew I wasn't going to be able to stay in the farm, unless we found a lot of ground and dad always said do the landscape nursery and produce…well…[dad] always said we should do it, he said me and Derrick should do it…that acreage that I had…I, I knew I had to do something else, …not that me and my

A crisis developed when Keith II, then aged about 40, learned from his wife (who manages a hotel in the near by town) that his brother Derrick was to take over the farm business on his own. He was to lease it from the parents at a special price. After coming to accept this situation, Keith II purchased one-half hectare and leased 16 hectare from his father. On the purchased land he established a landscape nursery and a store for agricultural produce and 'country' items including handicrafts. The store also sells provisions such as artisan bread, specialty cheeses, preserves, Amish prepared items and produce, and seasonal items such as pumpkins and Christmas trees. A corn maze is cut and a fee charged for its use. The store is located on the carriageway fronting the farm. He continues to drive a lorry hauling grain from local farmers to a transportation hub. He buys and resells hay. In the winter he has worked as plumber at the construction firm of his youngest brother. More recently, Keith II purchased a 'box' truck used for delivering produce from about a score of farms, including Amish, to farm markets and grocery stores. He reported that he saw an opportunity and decided to pursue it, and this now ensures another revenue stream for the family. Since opening the nursery, the building, what is termed a 'pole barn' in the U.S., has been expanded to twice its original size, and a large green house constructed. The building has a brother didn't get along, but it couldn't…we were butting heads, not feuding or nothing, but there just wasn't enough ground for both of us and we knew something was going to happen and finally I'm done…I'm going to do this, I don't know what she thought, but…"

Asked what she thought, Kathy replied that she did not think he was serious about opening a market until he sold a piece of farm equipment. "That's when I said, 'Mom, he sold the planter'…we're not doing this anymore… yeah, I think that's when it hit me was when he sold it".

Keith II turned over to Derrick the land he was leasing and his brother farms about 404 hectare and earns enough from that. Even without enough land, Keith II wants to remain in an occupation related to agriculture. He comments, "the way I look at it to me, tomorrow I could be doing something else, I mean I could…would if there was something comes along that I feel like I want to…we…I'm thinking about putting up a farm restaurant. I mean we're going to stay into the farming and into produce and the like, but…I'm open for suggestions….I mean if I see something…who knows. Perhaps buying and selling equipment…or… any way to bring another source of income into the farm, I mean…the farming. Since we've went to the nursery, this will be our third season…and we're making more off of this than we were off of farming and I think if I get a couple more years to really get established, it would carry us…I could retire off of that…but we're always open for new adventure…I mean, I can't see me as being one that said okay this is the way I'm going to retire…it's like the hay, it's like the trucks, it's that's the way of my dad. My dad has showed cattle, he's farmed, he's built houses, he's drove trucks, he did produce, he had a farm market…he plays in the stock market. I mean, dad is one that he would get into something when it was good and get out and try something else".

Interviewer: "If I would ask this question to your brother, what would he say"?

Keith II: "He's more cautious, I guess you'd say, he will stay in the farming…he's three years older, he's pretty well set, I'm a little more risky, riskier I guess you'd say in the family, and that's the way my dad did, I mean I'd want to stay…we will stay with the nursery and market, but if there's something else out there that I can try, I'll try it".

Even with the crisis resulting from the way his father worked out a deal with Derrick about the farm business, and despite the entrepreneuring and many facets of pluriactivity that were undertaken previously, Keith II still considers him self a farmer. He abridges his philosophy on life in two notions: "I have to keep control" and "farming is in our blood". Despite adjusting his activities to the altered conditions, habitus (a system of durable and transposable dispositions that form the principle of generating and structuring of practices and representations of the lifeworld) and self-conception do not automatically change.

Keith II discloses his modus of structuring and parleying his identity of farmer within the family milieu. Kathy is asked, "When someone asks you what your husband does, what do you say"? She responds with "self-employed farmer".

Interviewer: "I'm thinking about in the future; what are you going to say"?

Kathy: They [people in the community] say, "You're a Cropland".

The following conversation reveals that the name Cropland is synonymous with being a well-established farm family— accordingly, this is one's identity. The interviewer asks, "But

Entrepreneurship, Farming, and Identity: A Phenomenological Inquiry 281

when I pass it down to him, has changed 100 per cent". He also offers it is great to pass on specialised knowledge across the generations, but that large farms are "shoving the little

He is optimistic about the lost of farms in his area. This creates business opportunities for him and hopefully his son. As farms are converted into housing estates, there is more vehicle traffic driving by his nursery and market, more need for trees and other landscaping

Coming from a farming tradition, Keith II regards himself as a farmer although he is now the owner and manger of a profitable rural enterprise. Farming is 'in his blood', and his entrepreneurship savvy has allowed him and his wife (also from a farming background) to remain in a familiar lifestyle, albeit transformed from crop growing and animal husbandry to growing vegetables for retail sales and running a new business. The new business is additional to other income earning activities such as hauling grain and selling hay. Kathy

With a long running, but rather latent, entrepreneurial intention, a displacement triggered action to realise the new entry. The problematic calling into question Keith's taken for granted world was the discovery that he would not have enough land to support his family through the agricultural activities that had become common place for him. An entrepreneurial opportunity was seized, as the nursery and farm market is a unique enterprise for the area. Moving rather quickly, the family obtained funding and land, and had a building constructed. Both spouses' human capital and previous experiences with pluriactive (including record keeping and tax issues) allowed for seeing the feasibility of undertaking the new line of action. Family dynamics and history supported the entrepreneurial function, and Keith II had the experience of seeing what his dad had accomplished in business, and to learn from him. The business has been explaining as Keith II has entrepreneurial self-efficacy, and the full support of his wife. Keith's portfolio of marketable skills is well developed, and these are applied so the going concerns of life are managed and new typifications applied as needed. Although their life has changed, Keith II uses an 'as if' strategy to find commonalities permitting a continuity to life. The present life is perceived as if it is the same as the past-lived life, and the future is assumed to be much

In McElwee's (2008) typology of entrepreneurial farmers, this family would be Type II, Farmer as Entrepreneur. Keith II had, or developed, requisite skills to engage in entrepreneurial activity. The farm has advantaged location, being in an area facilitating the activity undertaken. There is access to infrastructure, the location is easily reached, and there is drive by sales opportunities as people can see the nursery and market from the carriageway. The business fills a niche in the local economy. The couple identified and exploited a non-farming opportunity, despite Keith's insistence that he is a farmer. Whilst being entrepreneurial, the family did not use the term during the interview or during follow-up visits. Terms like 'risk taker' or 'had to do something' were used. The Cropland couple fit the survival entrepreneurial mould, as well as being lifestyle entrepreneurs (Peters

still maintains her 'city job' but helps in the market and does the bookkeeping.

items, and people are interested in buying fresh farm produce.

guy out".

**5.4 Précis** 

the same.

et al., 2009).

again, in five years from now, would you say he's a self-employed farmer or would you say he owns a…"

Kathy: "A nursery and farm market. Yeah that's what I say now, yeah, I have the last year".

Keith's rejoinder: "To me, like I say, I'm still farming".

Interviewer: "Farming"?

Kathy: "We own the nursery and farm market".

Keith II: "You're fertilizing…probably they're talking it's supposed to get down to about 19 degrees [-7 Celsius] Monday night. I'll drive a tractor all night Monday night. I'll go over and plough the garden while the ground is frozen, so I'll be in a tractor from 8 o'clock, 9 o'clock till 10-11 o'clock the next morning and that's farming. I mean you go out to the barn out here there's planters, there's equipment, it's not that great big 12 row planter, there's a four row but I'm still putting seed in the ground and I'm watching it grow and I'm picking harvest off of it so I am…the yield is not the old yield, but instead of having them say, and the government and the mills saying okay we're going to give you \$2 a bushel, when I sell mine I'll say I'm selling them for \$4 a bushel or a dozen, or I set my price and if I set it too high and I don't sell it, well that's my fault I overpriced it, or if I don't make enough, it's my fault…it's more, it's in my hands, I control my destiny, if I sell something bad, if I try to cheat somebody…"

A few minutes later, Keith II says: "My future is being a farmer". Keith II stills identifies as a farmer, and hopes that his son follows in this style. Both he and his wife think that trying to force their son to farm is a bad idea, and are accepting to whatever job he would like. This is revealed by Keith's observation "…cause if you were forced into it you wouldn't do it…the time, the hours, the headaches, the nightmares, of farming you gotta have it in your blood, you gotta want to do or you're not gonna do it". He further remarks, "I mean, it's too, it's too demanding of a job, you gotta love it and do it". He also comments that with the price of farmland and many people in his area exiting from farming, their son might not have the opportunity to farm. He mentions trying to purchase nearby farmland but cannot compete with the price offered by housing developers. He comments his father's farm (for which he paid perhaps one-half million dollars over several years) is now worth millions of dollars and if it was sold, his parents and all the children could be millionaires. Keith II is unequivocal that this will not take place in his lifetime.

Keith II: "It will never happen in my day as long as I am alive, I will own my farm that I get and I think my brothers are the same way, but you know, a big contractor comes in and gives you a number that…well, like the neighbours there. They have 300 acres [121 hectare], it'll bring 6 to 10 million [dollars]…."

Regarding his type of livelihood for his son, Keith II also says, "like I said, I'd like to see him carry on…to get into what I'm doing, I think…it's a good life, don't get me wrong. It's…I think it's you're out, you're not in a building, you're not sitting in an office, it's a good way of living, it's a proud way of living when you start with nothing in the fields and you do the work and you see it grow and you harvest it. I mean it, it's in your blood…more or less it's passed down from your dad from his dad. But farming, since dad passed it down to us till when I pass it down to him, has changed 100 per cent". He also offers it is great to pass on specialised knowledge across the generations, but that large farms are "shoving the little guy out".

He is optimistic about the lost of farms in his area. This creates business opportunities for him and hopefully his son. As farms are converted into housing estates, there is more vehicle traffic driving by his nursery and market, more need for trees and other landscaping items, and people are interested in buying fresh farm produce.

#### **5.4 Précis**

280 Entrepreneurship - Gender, Geographies and Social Context

again, in five years from now, would you say he's a self-employed farmer or would you say

Kathy: "A nursery and farm market. Yeah that's what I say now, yeah, I have the last year".

Keith II: "You're fertilizing…probably they're talking it's supposed to get down to about 19 degrees [-7 Celsius] Monday night. I'll drive a tractor all night Monday night. I'll go over and plough the garden while the ground is frozen, so I'll be in a tractor from 8 o'clock, 9 o'clock till 10-11 o'clock the next morning and that's farming. I mean you go out to the barn out here there's planters, there's equipment, it's not that great big 12 row planter, there's a four row but I'm still putting seed in the ground and I'm watching it grow and I'm picking harvest off of it so I am…the yield is not the old yield, but instead of having them say, and the government and the mills saying okay we're going to give you \$2 a bushel, when I sell mine I'll say I'm selling them for \$4 a bushel or a dozen, or I set my price and if I set it too high and I don't sell it, well that's my fault I overpriced it, or if I don't make enough, it's my fault…it's more, it's in my hands, I control my destiny, if I sell something bad, if I try to

A few minutes later, Keith II says: "My future is being a farmer". Keith II stills identifies as a farmer, and hopes that his son follows in this style. Both he and his wife think that trying to force their son to farm is a bad idea, and are accepting to whatever job he would like. This is revealed by Keith's observation "…cause if you were forced into it you wouldn't do it…the time, the hours, the headaches, the nightmares, of farming you gotta have it in your blood, you gotta want to do or you're not gonna do it". He further remarks, "I mean, it's too, it's too demanding of a job, you gotta love it and do it". He also comments that with the price of farmland and many people in his area exiting from farming, their son might not have the opportunity to farm. He mentions trying to purchase nearby farmland but cannot compete with the price offered by housing developers. He comments his father's farm (for which he paid perhaps one-half million dollars over several years) is now worth millions of dollars and if it was sold, his parents and all the children could be millionaires. Keith II is

Keith II: "It will never happen in my day as long as I am alive, I will own my farm that I get and I think my brothers are the same way, but you know, a big contractor comes in and gives you a number that…well, like the neighbours there. They have 300 acres [121 hectare],

Regarding his type of livelihood for his son, Keith II also says, "like I said, I'd like to see him carry on…to get into what I'm doing, I think…it's a good life, don't get me wrong. It's…I think it's you're out, you're not in a building, you're not sitting in an office, it's a good way of living, it's a proud way of living when you start with nothing in the fields and you do the work and you see it grow and you harvest it. I mean it, it's in your blood…more or less it's passed down from your dad from his dad. But farming, since dad passed it down to us till

Keith's rejoinder: "To me, like I say, I'm still farming".

unequivocal that this will not take place in his lifetime.

it'll bring 6 to 10 million [dollars]…."

Kathy: "We own the nursery and farm market".

he owns a…"

Interviewer: "Farming"?

cheat somebody…"

Coming from a farming tradition, Keith II regards himself as a farmer although he is now the owner and manger of a profitable rural enterprise. Farming is 'in his blood', and his entrepreneurship savvy has allowed him and his wife (also from a farming background) to remain in a familiar lifestyle, albeit transformed from crop growing and animal husbandry to growing vegetables for retail sales and running a new business. The new business is additional to other income earning activities such as hauling grain and selling hay. Kathy still maintains her 'city job' but helps in the market and does the bookkeeping.

With a long running, but rather latent, entrepreneurial intention, a displacement triggered action to realise the new entry. The problematic calling into question Keith's taken for granted world was the discovery that he would not have enough land to support his family through the agricultural activities that had become common place for him. An entrepreneurial opportunity was seized, as the nursery and farm market is a unique enterprise for the area. Moving rather quickly, the family obtained funding and land, and had a building constructed. Both spouses' human capital and previous experiences with pluriactive (including record keeping and tax issues) allowed for seeing the feasibility of undertaking the new line of action. Family dynamics and history supported the entrepreneurial function, and Keith II had the experience of seeing what his dad had accomplished in business, and to learn from him. The business has been explaining as Keith II has entrepreneurial self-efficacy, and the full support of his wife. Keith's portfolio of marketable skills is well developed, and these are applied so the going concerns of life are managed and new typifications applied as needed. Although their life has changed, Keith II uses an 'as if' strategy to find commonalities permitting a continuity to life. The present life is perceived as if it is the same as the past-lived life, and the future is assumed to be much the same.

In McElwee's (2008) typology of entrepreneurial farmers, this family would be Type II, Farmer as Entrepreneur. Keith II had, or developed, requisite skills to engage in entrepreneurial activity. The farm has advantaged location, being in an area facilitating the activity undertaken. There is access to infrastructure, the location is easily reached, and there is drive by sales opportunities as people can see the nursery and market from the carriageway. The business fills a niche in the local economy. The couple identified and exploited a non-farming opportunity, despite Keith's insistence that he is a farmer. Whilst being entrepreneurial, the family did not use the term during the interview or during follow-up visits. Terms like 'risk taker' or 'had to do something' were used. The Cropland couple fit the survival entrepreneurial mould, as well as being lifestyle entrepreneurs (Peters et al., 2009).

Entrepreneurship, Farming, and Identity: A Phenomenological Inquiry 283

discarded, but does not need to be. It is not whether something is true in some empiricalobjective fashion, but if it is pragmatic to act as if were true. Humans act as if the world corresponds to their models of it, and their place with in it—their lifeworlds are their

Both couples used what is commonly referred to as entrepreneurship over their life course. They recognised opportunities and initiated new or improved income activities, including new businesses. From this observation, two themes are apparent. These themes are captured by two constructs, entrepreneurial vivacity (*Lebendigkeit*) and entrepreneurial astuteness (*Scharfsinn*). These constructs are helpful devices for classifying the characteristics and line of social action of both the Cott and Cropland families. These are higher order concepts that encapsulate aspects of what is needed for successful and sustainable entrepreneuring as displayed by both couples. The terms are imprecise concepts, conceptualised here to offer a

'Entrepreneurial vivacity' includes entrepreneurial orientation, or the preconditioned attitudes and skills without which entrepreneurial action will not ensue. Vivacity includes human capital and traits like high tolerance for risk taking, motivation to learn, selfreflection, acceptance of critical feedback, intentionality, networking and utilising contacts, and being alert for and recognising entrepreneurial opportunities. It allows for perceiving problematics and disruptions as opportunities. Entrepreneurial vivacity also captures the attitude and motivation that can see embryonic entrepreneurial activity through to success. It includes 'because of' and 'in order to' motivations. Because of motives could awaken entrepreneurial vivacity. Vivacity can carry one through setbacks and disappointments, allowing for entrepreneurial persistence. Entrepreneurial self-efficacy is captured by this concept, as is reflective projection and passion. Vivacity fosters reflectivity, imagining an endeavour as it would be when completed in the future, imagining what is realised after acting. Vivacity becomes part of the natural attitude and lifeword, giving meaning to objects and ideas in the surrounding world, or *umwelt.* The families' lifeworld consists of socially and culturally given meanings, a lived realm of understandings that recognises, permits,

Once intention is triggered or sparked (ie, initiated) into purposeful action, 'entrepreneurial astuteness' is critical. Astuteness includes the skills and knowledge prerequisite for entrepreneurial success. It includes marshalling resources and deploying them in constructive ways. It is knowing how to best use creativity, time, and other material and nonmaterial resources; assessing and taking appropriate risks; searching for and triaging information, learning necessary skills, and using other relevant inputs such as social capital. Astuteness permits management of entrepreneurial ambiguity as part of going concerns, pregiveness of life lived. The construct thusly includes what has been conceptualised as

I wish to thank Lori Horstman for her assistance with this chapter. I also express my gratitude to the two case families for their willing participation. My physicians and surgeons, their support teams and staffs, the many nurses who have cared for me, and Bernice Klaben, my speech therapist, have been essential contributors to my well being over

more abstract conceptualisation of the entrepreneurial phenomenon.

realities (Vaihinger, 1913).

and fosters entrepreneuring.

entrepreneurial process and function.

**7. Acknowledgment** 

#### **6. Conclusions**

Two agifamilies operating in two distinct and different agricultural traditions (Crofting and Midwestern farming, one basically using dogs and the other a wealth of expensive machinery) developed pluriactivity, diversification, and multifunctioning strategies allowing for continuity in a valued lifestyle. Each family developed distinctive lines of action and income generating strategies, specified to the environmental constraints and opportunities. Both are entrepreneurial, but used different levels of capital and distinct resources. Both, however, did employ a similar cognitive strategy—use of 'as if'. The interviews and observations revealed two other themes, entrepreneurial vivacity and entrepreneurial astuteness.

The analysis of the Cott and Cropland families allows a feasible interpretation of possible choices for survival as agricultural businesses. These choices are founded on a habitus (Bourdieu, 1977) with farm and land, and on the type of relationships within the couples and between the generations that provide a framework of possibilities. With this foundation, Don and Mary and Keith II and Kathy confront their lived world, negotiate a meaning for it, and choose lines of action allowing for increased financial remuneration and continuity of desired lifestyles. These people also develop and defend identities that could be considered, by some people, fictions. These identities, however, serve good purpose for presentation to customers and for continuity of the croft and farm, in a modernised manner, and persistence in living a valued lifestyle in a desirable location. Both couples recognised and realised entrepreneurship opportunities and created new entries. Each couple supported the entrepreneurship intentions of a spouse, and provided encouragement and human capital once the entrepreneuring was triggered. The spouses assist each other, providing labour and skills such as bookkeeping, in the rural enterprises created. The new enterprises provide income for the families and employment for a small number of people. The businesses contribute to the local economies in other ways such as purchasing provisions, equipment maintenance and petroleum, taxes, and attracting tourist who spend money in the community.

The Cotts present themselves to tourist and the local community as typical crofters, but innovative. This is not deception, as the investigation revealed that Don and Mary identify as typical, in a sense bracketing their history as educated, travelled, 'interlopers' into the crofting way of life. Their daily activities and language shows they believe and act as if they were traditional crofters. Concerning the Croplander family, the habitual patterns of action of Keith II relate to his farming ancestors, whilst the current operations are apart from that of these ancestors. Keith II self identifies as a farmer; Kathy refers to him as a self-employed farmer, mentioning the business they now own and operate. It would be mistaken to attribute self-deception and irrationality. Research (cf. Hennon & Hildenbrand, 2005) indicates that such a stance, 'as if' certain facts still are valid (ie, endurance of a family farm as a business although gainfully employed in another activity, or continuity of a family business as if family-operated farm), can be of assistance in mastering a transformation process in the family business. This use of 'as if' has mostly been observed with traditionally operated family farms at the margin of profitability (Hennon & Hildenbrand, 2005). The Cropland case demonstrates this strategy can function in businesses open to transformation with more than one option. Once the transition has been completed, the fictive as if can be

Two agifamilies operating in two distinct and different agricultural traditions (Crofting and Midwestern farming, one basically using dogs and the other a wealth of expensive machinery) developed pluriactivity, diversification, and multifunctioning strategies allowing for continuity in a valued lifestyle. Each family developed distinctive lines of action and income generating strategies, specified to the environmental constraints and opportunities. Both are entrepreneurial, but used different levels of capital and distinct resources. Both, however, did employ a similar cognitive strategy—use of 'as if'. The interviews and observations revealed two other themes, entrepreneurial vivacity and

The analysis of the Cott and Cropland families allows a feasible interpretation of possible choices for survival as agricultural businesses. These choices are founded on a habitus (Bourdieu, 1977) with farm and land, and on the type of relationships within the couples and between the generations that provide a framework of possibilities. With this foundation, Don and Mary and Keith II and Kathy confront their lived world, negotiate a meaning for it, and choose lines of action allowing for increased financial remuneration and continuity of desired lifestyles. These people also develop and defend identities that could be considered, by some people, fictions. These identities, however, serve good purpose for presentation to customers and for continuity of the croft and farm, in a modernised manner, and persistence in living a valued lifestyle in a desirable location. Both couples recognised and realised entrepreneurship opportunities and created new entries. Each couple supported the entrepreneurship intentions of a spouse, and provided encouragement and human capital once the entrepreneuring was triggered. The spouses assist each other, providing labour and skills such as bookkeeping, in the rural enterprises created. The new enterprises provide income for the families and employment for a small number of people. The businesses contribute to the local economies in other ways such as purchasing provisions, equipment maintenance and petroleum, taxes, and attracting tourist who spend

The Cotts present themselves to tourist and the local community as typical crofters, but innovative. This is not deception, as the investigation revealed that Don and Mary identify as typical, in a sense bracketing their history as educated, travelled, 'interlopers' into the crofting way of life. Their daily activities and language shows they believe and act as if they were traditional crofters. Concerning the Croplander family, the habitual patterns of action of Keith II relate to his farming ancestors, whilst the current operations are apart from that of these ancestors. Keith II self identifies as a farmer; Kathy refers to him as a self-employed farmer, mentioning the business they now own and operate. It would be mistaken to attribute self-deception and irrationality. Research (cf. Hennon & Hildenbrand, 2005) indicates that such a stance, 'as if' certain facts still are valid (ie, endurance of a family farm as a business although gainfully employed in another activity, or continuity of a family business as if family-operated farm), can be of assistance in mastering a transformation process in the family business. This use of 'as if' has mostly been observed with traditionally operated family farms at the margin of profitability (Hennon & Hildenbrand, 2005). The Cropland case demonstrates this strategy can function in businesses open to transformation with more than one option. Once the transition has been completed, the fictive as if can be

**6. Conclusions** 

entrepreneurial astuteness.

money in the community.

discarded, but does not need to be. It is not whether something is true in some empiricalobjective fashion, but if it is pragmatic to act as if were true. Humans act as if the world corresponds to their models of it, and their place with in it—their lifeworlds are their realities (Vaihinger, 1913).

Both couples used what is commonly referred to as entrepreneurship over their life course. They recognised opportunities and initiated new or improved income activities, including new businesses. From this observation, two themes are apparent. These themes are captured by two constructs, entrepreneurial vivacity (*Lebendigkeit*) and entrepreneurial astuteness (*Scharfsinn*). These constructs are helpful devices for classifying the characteristics and line of social action of both the Cott and Cropland families. These are higher order concepts that encapsulate aspects of what is needed for successful and sustainable entrepreneuring as displayed by both couples. The terms are imprecise concepts, conceptualised here to offer a more abstract conceptualisation of the entrepreneurial phenomenon.

'Entrepreneurial vivacity' includes entrepreneurial orientation, or the preconditioned attitudes and skills without which entrepreneurial action will not ensue. Vivacity includes human capital and traits like high tolerance for risk taking, motivation to learn, selfreflection, acceptance of critical feedback, intentionality, networking and utilising contacts, and being alert for and recognising entrepreneurial opportunities. It allows for perceiving problematics and disruptions as opportunities. Entrepreneurial vivacity also captures the attitude and motivation that can see embryonic entrepreneurial activity through to success. It includes 'because of' and 'in order to' motivations. Because of motives could awaken entrepreneurial vivacity. Vivacity can carry one through setbacks and disappointments, allowing for entrepreneurial persistence. Entrepreneurial self-efficacy is captured by this concept, as is reflective projection and passion. Vivacity fosters reflectivity, imagining an endeavour as it would be when completed in the future, imagining what is realised after acting. Vivacity becomes part of the natural attitude and lifeword, giving meaning to objects and ideas in the surrounding world, or *umwelt.* The families' lifeworld consists of socially and culturally given meanings, a lived realm of understandings that recognises, permits, and fosters entrepreneuring.

Once intention is triggered or sparked (ie, initiated) into purposeful action, 'entrepreneurial astuteness' is critical. Astuteness includes the skills and knowledge prerequisite for entrepreneurial success. It includes marshalling resources and deploying them in constructive ways. It is knowing how to best use creativity, time, and other material and nonmaterial resources; assessing and taking appropriate risks; searching for and triaging information, learning necessary skills, and using other relevant inputs such as social capital. Astuteness permits management of entrepreneurial ambiguity as part of going concerns, pregiveness of life lived. The construct thusly includes what has been conceptualised as entrepreneurial process and function.

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### *Edited by Thierry Burger-Helmchen*

Entrepreneurship is a main driver of economic growth and of social dynamics. However, some basic characteristics like the gender of the entrepreneur, the geographical location, or the social context may have a tremendous impact on the possibility to become an entrepreneur, to create a firm and to prosper. This book is a collection of papers written by an array of international authors interested in the question of entrepreneurship from a gender point of view (male vs female entrepreneurship), a geographical point of view (Africa, Europe, America and Latin America, Asia...) or a specific social context point of view (agricultural economy, farming or family business, etc.).

Entrepreneurship - Gender, Geographies and Social Context

Entrepreneurship

Gender, Geographies and Social Context

*Edited by Thierry Burger-Helmchen*

Photo by BrianAJackson / iStock