1 / 68

Context and Entrepreneurship

Context and Entrepreneurship. Paul Reynolds Florida International University 14 February 2005. The Entrepreneurial Process. Social, Political, Economic Context. Adult Population. Growth. NE. Firm Birth. Persist. Start-up Processes. ?. Business Firm Population. NI. Quit. ?.

byrd
Télécharger la présentation

Context and Entrepreneurship

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript


  1. Context and Entrepreneurship Paul Reynolds Florida International University 14 February 2005 MAN6805‑Lecture 05_A

  2. The Entrepreneurial Process Social, Political, Economic Context Adult Population Growth NE Firm Birth Persist Start-up Processes ? Business Firm Population NI Quit ? ? MAN6805‑Lecture 05_A

  3. Initial Focus • Who enters the start-up process? MAN6805‑Lecture 05_A

  4. Entering the Business Start-Up Process National Social, Political, Economic Context Personal Attributes Personal Background, Experience Immediate Social Context Neighborhood, regional context Economic sector Adult Population NE Start-up Processes NI Business Firm Population MAN6805‑Lecture 05_A

  5. Then considered two additional issues • What happens in the start-up process? • What affects transition to an operating business – the firm birth? MAN6805‑Lecture 05_A

  6. The Entrepreneurial Process Social, Political, Economic Context Define beginning Define “Birth” Start-up Processes WHAT HAPPENS HERE? Firm Birth ? Define “quit” When do people drop-out? ? MAN6805‑Lecture 05_A

  7. The Entrepreneurial Process Social, Political, Economic Context Adult Population Start-up Team Personal Context, Assistance Start-up Activities, Strategy Industry & Competitive Response General Economic Conditions NE Firm Birth Start-up Processes ? Business Firm Population NI ? ? MAN6805‑Lecture 05_A

  8. Next stage of the firm life course • What about operating firm survival? • What about firm growth? • How are survival and growth related? • [Grow or die?] • Practical implications MAN6805‑Lecture 05_A

  9. The Entrepreneurial Process Social, Political, Economic Context Growth [gazelles, real entrepreneurship] Firm Birth Persist [steady-state, lifestyle, mice] Quit [terminate, discontinue, death, fail] MAN6805‑Lecture 05_A

  10. The Entrepreneurial Process Social, Political, Economic Context • Expertise • Industry • Larger teams • Growth in • Industry • Region • Manage • Money • Operations Strategic Focus Present Growth [gazelles, real entrepreneurship] (patterns may be erratic) Firm Birth Persist [steady-state, lifestyle, mice] Quit [discontinue, death, fail] MAN6805‑Lecture 05_A

  11. How to think about context? • Consider how to break up the overall process • Consider major transition “events” • Conceptual framework used by others • Framework for the way they have designed the research MAN6805‑Lecture 05_A

  12. Social, Political, Economic Context Adult Population Growth NE Firm Birth Business Firm Population Start-up Processes Persist ? NI Quit MAN6805‑Lecture 05_A

  13. Social, Political, Economic Context Entry Adult Population Growth NE Firm Birth Business Firm Population Start-up Processes Persist ? NI Quit MAN6805‑Lecture 05_A

  14. Social, Political, Economic Context Entry Gestation Adult Population Growth NE Firm Birth Business Firm Population Start-up Processes Persist ? NI Quit MAN6805‑Lecture 05_A

  15. Social, Political, Economic Context Entry Firm Birth Gestation Adult Population Growth NE Firm Birth Business Firm Population Start-up Processes Persist ? NI Quit MAN6805‑Lecture 05_A

  16. Social, Political, Economic Context Survival, Growth Entry Firm Birth Gestation Adult Population Growth NE Firm Birth Business Firm Population Start-up Processes Persist ? NI Quit MAN6805‑Lecture 05_A

  17. Two Research Paradigms related to Context and Impact on the Process • Market Entry Research • Economists • Based on Classical Model of an Economic Market • Research compares markets • Regional Comparisons • Consider comparisons of different geographic units • Each unit considered an autonomous system • Lots of different disciplines give attention to this MAN6805‑Lecture 05_A

  18. Market Entry Research • Very popular with economists • Tend to focus on “firm birth/firm death” • Not much attention to the rest of the process • Very narrow focus • What conceptual framework would lead to this focus? MAN6805‑Lecture 05_A

  19. Classical Model of Economic Exchange Price Quantity (amount) MAN6805‑Lecture 05_A

  20. Classical Model of Economic Exchange Price Supply Demand Quantity (amount) MAN6805‑Lecture 05_A

  21. Classical Model of Economic Exchange Price • Intellectual objective Supply Demand Quantity (amount) MAN6805‑Lecture 05_A

  22. Classical Model of Economic Exchange Price • Intellectual objective • Predict Price and Quantity at equilibrium • Equilibrium – steady state solution Supply P Demand Quantity (amount) Q MAN6805‑Lecture 05_A

  23. What conditions are required to make the prediction?What conditions lead to more accurate predictions? Hint: Based on the model of an European farmer’s market! MAN6805‑Lecture 05_A

  24. Conditions for classic economic market! 1) Commodity products: all identical MAN6805‑Lecture 05_A

  25. Conditions for classic economic market! • 1) Commodity products: all identical • Buyers: identical, none large enough to have a major impact on P or Q • Sellers: identical, none large enough to have a major impact on P or Q MAN6805‑Lecture 05_A

  26. Conditions for classic economic market! • 1) Commodity products: all identical • Buyers: identical, none large enough to have a major impact on P or Q • Sellers: identical, none large enough to have a major impact on P or Q • Full, complete information about products, payments MAN6805‑Lecture 05_A

  27. Conditions for classic economic market! • 1) Commodity products: all identical • Buyers: identical, none large enough to have a major impact on P or Q • Sellers: identical, none large enough to have a major impact on P or Q • Full, complete information about products, payments • Fully acceptable medium of exchange MAN6805‑Lecture 05_A

  28. Conditions for classic economic market! • 1) Commodity products: all identical • Buyers: identical, none large enough to have a major impact on P or Q • Sellers: identical, none large enough to have a major impact on P or Q • Full, complete information about products, payments • Fully acceptable medium of exchange • Commodity volume, payment amounts ratio scale • Lots of small incremental units MAN6805‑Lecture 05_A

  29. Conditions for classic economic market! • 1) Commodity products: all identical • Buyers: identical, none large enough to have a major impact on P or Q • Sellers: identical, none large enough to have a major impact on P or Q • Full, complete information about products, payments • Fully acceptable medium of exchange • Commodity volume, payment amounts ratio scale • Lots of small incremental units • All participants maximizing utility at exchange • Pay the least money, get the most goods • Sell the fewest goods, get the most money • Indifferent with regards who they deal with! MAN6805‑Lecture 05_A

  30. Conditions for classic economic market! • 1) Commodity products: all identical • Buyers: identical, none large enough to have a major impact on P or Q • Sellers: identical, none large enough to have a major impact on P or Q • Full, complete information about products, payments • Fully acceptable medium of exchange • Commodity volume, payment amounts ratio scale • Lots of small incremental units • All participants maximizing utility at exchange • Pay the least money, get the most goods • Sell the fewest goods, get the most money • Indifferent with regards who they deal with! • 8) Market clears during trading period-instant “equity” MAN6805‑Lecture 05_A

  31. Why is this attractive? • Sounds good—everybody gets an equal shot at “maximizing utility” • No person [persons] controls outcome • No person to blame if don’t like outcome • INVISIBLE HAND LEADS TO OPTIMUM OUTCOME FOR ALL ULTIMATE EQUALITY ULTIMATE INDIVIDUAL AUTONOMY ULTIMATE “FREEDOM FROM GOVERNMENT”(?) MAN6805‑Lecture 05_A

  32. What is wrong with this! • Real world examples of when this occurs? • Very rare.. • None of the conditions are usually present • Best classic example is the stock market • E-Bay might be a good current example, but takes some computer skills to play in the market. • Much of economic policy prescriptions designed to create the conditions of a classic economic price sensitive market • Why are conditions so hard to maintain? MAN6805‑Lecture 05_A

  33. Which conditions are met? • Commodity products: all identical • Rare • Buyers: identical, none have a major impact on P or Q • People yes, but businesses (Wal-Mart example) • Sellers: identical, none have a major impact on P or Q • Varies dramatically by “commodity” • Full, complete information about products, payments • Varies by “commodity,” sales practices MAN6805‑Lecture 05_A

  34. Which conditions are met? • Fully acceptable medium of exchange • Trusting money solved in some countries • 6) Commodity volume, payment amounts ratio scale • Varies dramatically (pencils vs space vehicles) • 7) All participants maximizing utility at exchange • Issues of trust—required for complex commodities • Issues of expected “recropocity” • Social networks get in the way, non-economic values • 8) Market clears during trading period-instant “equity” • Rare—serial equity more common MAN6805‑Lecture 05_A

  35. Why do we care? • Represents the world view behind the research and assessments of economists related to new firm creation • Given this model, when would you expect a new supplier to enter the “market” • They call it market entry • Don’t use term to refer to a new customer in the market, only a new producer! MAN6805‑Lecture 05_A

  36. When to expect market entry? MAN6805‑Lecture 05_A

  37. When to expect market entry? • Produce the goods more cheaply than others, sell at a lower price • New productive technology • Cheaper sources of supply MAN6805‑Lecture 05_A

  38. When to expect market entry? • Produce the goods more cheaply than others, sell at a lower price • New productive technology • Cheaper sources of supply • Be willing to take a lower profit and cut the price • Related to other options for the supplier MAN6805‑Lecture 05_A

  39. When to expect market entry? • Produce the goods more cheaply than others, sell at a lower price • New productive technology • Cheaper sources of supply • Be willing to take a lower profit and cut the price • Related to other options for the supplier • Introduce new goods or services, create new markets • Does not fit assumptions • Cannot handle with conceptual scheme MAN6805‑Lecture 05_A

  40. Market Entry Research [½] • Define markets? • By different Industry Sector codes • Usually comparing different manufacturing sectors • “Entry” is the presence of a new source of the goods or services • Could be autonomous start-up • Could be a new branch, subsidiary of large firm • Could be an expansion of the product line of existing firm, no new business entity created MAN6805‑Lecture 05_A

  41. Market Entry Research [2/2] • Exit is the disappearance from the market of a supplier • Challenge • Collecting data on existing firms • Collecting data on features of the “market” • Collect data on entry and exit MAN6805‑Lecture 05_A

  42. Empirical Generalizations [Stylized facts][P.A. Geroski, Int.J.Indus.Org. 1195, 13:421-440] • Entry common • Level about same across “industries” • Compare manufacturing sectors • Entry/exit highly correlated • Survival rate low • Autonomous [de novo] more common but less success than “diversification” • Some variation over time • Large, high growth new entrants spend more to enter market MAN6805‑Lecture 05_A

  43. Common Interpretations [Stylized results:1/2][P.A. Geroski, Int.J.Indus.Org. 1195, 13:421-440] • New entry not related to high profits in “market” • Market entry barriers are quite high [for manufacturing] • Hard to predict entry rates based on market profits and entry barriers • Entry rates do not reduce average market profits • High entry often reflects innovation and increases in efficiency MAN6805‑Lecture 05_A

  44. Common Interpretations [Stylized results:2/2][P.A. Geroski, Int.J.Indus.Org. 1195, 13:421-440] • Incumbents reaction to entry is “selective” (hard to predict) • Incumbents usually do not lower prices to block entry • Larger and older new entrants more likely to survive • Not autonomous new [de novo] • Conclude • entry is easy, survival is not • entry affects products, processes, but not profits MAN6805‑Lecture 05_A

  45. Is this “helpful?” [1/2] • How does this treat “firm creation?” • Co mingles new businesses, new branches, and new product lines • What is being emphasize in the process? • Post “gestation” and beyond • Is “exit” bad? • Who knows, no measure of outcome for those that “exit’ MAN6805‑Lecture 05_A

  46. Is this “helpful?” [2/2] • What is the measure of “social good” ? • Average industry profits • Less is better for society • What independent variables affect “entry”? • Expected profits in the industry • Barriers to entry • Research tends to support conceptual scheme MAN6805‑Lecture 05_A

  47. Other option: geographic comparisons • Try to identify a number of “regional markets” • Compare the markets in terms of • Firm creation, firm termination • Various characteristics related to business activity • Measures of social benefits: jobs, GDP, etc. MAN6805‑Lecture 05_A

  48. US Regional Comparisons • “New Firm” • New entries in commercial credit rating file • Recent “exits” from same file • Separate three types • Independent start-ups (70%) • Headquarters (5%) • Branch or subsidiaries (25%) MAN6805‑Lecture 05_A

  49. Firm Organizational Structure Enterprise A Enterprise B FIRM A [Establishment] HEADQUARTERS B [Establishment] BRANCH B-1 [Establishment] BRANCH B-2 [Establishment] BRANCH B-3 [Establishment] MAN6805‑Lecture 05_A

  50. Complication • U.S. Federal Data organized around establishments (or plants) • Much research does not treat the firm, or enterprise • US Current structure • 10 million (+/-) self-employed businesses entities • 3.5 million single site employer firms • 2.0 million multi site employer firms • 0.020 million large firms, over 500 jobs – half of all jobs MAN6805‑Lecture 05_A

More Related