Chapter 11 Global Entrepreneurship and Intrapreneurship

Entrepreneurship and Entrepreneurs

Entrepreneur is a French word that means “to undertake.” In the business world, this term applies to someone who wants to start a business or enterprise. As you may recall, entrepreneurshipThe recognition of opportunities (needs, wants, problems, and challenges) and the use or creation of resources to implement innovative ideas for new, thoughtfully planned ventures. is defined as “the recognition of opportunities (needs, wants, problems, and challenges) and the use or creation of resources to implement innovative ideas for new, thoughtfully planned ventures.”Mason Carpenter, Talya Bauer, and Berrin Erdogan, Principles of Management (Nyack, NY: Unnamed Publisher, 2009), accessed January 5, 2011, http://www.gone.2012books.lardbucket.org/printed-book/127834. An entrepreneurA person who engages in entrepreneurship. is a person who engages in entrepreneurship. Entrepreneurs are typically go-getters with high levels of skill and energy. Webster’s defines an entrepreneur as “the organizer of an economic venture; especially one who organizes, owns, manages, and assumes the risks of a business.”Webster’s Third New International Dictionary, Unabridged, s.v. “entrepreneur,” accessed November 7, 2010, http://unabridged.merriam-webster.com/cgi-bin/unabridged?va=entrepreneur&x=0&y=0. Entrepreneurship, like strategic management, will help you think about the opportunities available when you connect new ideas with new markets.

Entrepreneurs are distinct from small-business owners in that entrepreneurs often rely on innovation—new products, methods, or markets—to grow their business quickly and broadly. Entrepreneurs rely on innovation and speed to a much greater extent than small-business owners. Small-business owners typically enter established markets, providing a more traditional product or service to a local market. For example, a local dry cleaner may be a small business, whereas a company that develops a revolutionary new way to do dry cleaning and seeks to expand that new method nationally and internationally would be considered entrepreneurial.

Prior to the end of the last century, most people equated the word entrepreneurship with risk takers and nonconformists who were usually unable to work in a corporate environment. It was that small segment of the population that was willing to take what most perceive as very high risks. In truth, that is far from the reality. Entrepreneurs are certainly an adventurous group, but most wouldn’t describe themselves as aggressive risk takers. More often, they are passionate about an idea and carefully plan how to put it into effect. Most entrepreneurs are more comfortable with managed risk than with dangerous get-rich-quick schemes.

Entrepreneurship became a high-profile subject in the 1990s with the dot-com era, which created a whole new breed of “wannabe” entrepreneurs. Entrepreneurship was in vogue, and everyone wanted to be an entrepreneur. That period shaped the expectations and perceptions of an entire generation of potential entrepreneurs. It also made the world of venture capital more commonplace and accessible. Eventually—as with most business cycles—the Internet bubble burst, and the shift reversed. People sought the surety of corporate life once again. Nevertheless, the allure of entrepreneurship has continued to tempt many people.

Truths and Myths about Entrepreneurs

The late Jeffry Timmons, one of the early leaders in entrepreneurship education and an early advisor of Unnamed Publisher—the entrepreneurial organization that brings you this book—noted that there are few truths about entrepreneurs but many myths. Among those truths, he said,

The myths, however, are many. The following five entrepreneurship myths are among the most prevalent:

1. Entrepreneurs are born, not made. The most prevalent myth about entrepreneurs is that they are born with the skills that will make them successful and that anyone who’s not born with those skills will not succeed. In reality, entrepreneurism is a skill that, like any other skill, can be learned.
2. Entrepreneurs make more money. Surprisingly, the typical entrepreneur earns less than he or she would earn if working as an employee. Only the top 10 percent of entrepreneurs earn more than employees.Scott Shane, “Top Ten Myths of Entrepreneurship,” How to Change the World (blog), January 10, 2008, accessed January 2, 2011, http://blog.guykawasaki.com/2008/01/top-ten-myths-o.html#tp.
3. Being original is essential. Another entrepreneurial myth is that entrepreneurs who get to the market first gain the most. Research by Joe Tabet, presented at INSEAD’s Global Entrepreneurship Forum, has shown that the so-called first mover advantage is a myth: Google, eBay, and Swatch are examples of successful businesses that entered markets later. The key, Tabet says, is to find your niche and serve your customers well.“Debunking Myths about Entrepreneurs,” Knowledge (blog), INSEAD, June 10, 2009, accessed January 2, 2011, http://knowledge.insead.edu/Debunkingmythsaboutentrepreneurs090615.cfm.
4. It takes a lot of money to start a business. Research by Scott Shane of Case Western Reserve University has shown that the average new business needs only $25,000 in financing and that most of that money can be raised through debt.Scott Shane, “Top Ten Myths of Entrepreneurship,” How to Change the World (blog), January 10, 2008, accessed January 2, 2011, http://blog.guykawasaki.com/2008/01/top-ten-myths-o.html#tp.
5. Entrepreneurs must be risk takers. According to this myth, entrepreneurs are good at starting businesses but can’t manage them once they grow. Research by Babson College professor Joel Shulman shows that the stocks of publicly traded companies run by entrepreneurs significantly outperform those run by nonentrepreneurs and continue to do so even after adjusting by market cap size, sector, geography, or time period.Jeff Cornwall, “Another Entrepreneurial Myth Busted,” The Entrepreneurial Mind (blog), December 17, 2009, accessed January 1, 2011, http://www.drjeffcornwall.com/entrepreneurial-myths.

Should You Become an Entrepreneur?

Whatever your reasons for becoming an entrepreneur, understand and be clear about your personal motivations. This will help you make decisions and choices along the way. The short survey that follows this section might provide you with helpful insights, though keep in mind that—as the survey says—“no reliable predictive model or entrepreneurial character has successfully been developed.”

Beyond such self-assessment and reflection, as you go through the personal decision-making process, try to talk to as many people as you possibly can. Seek out others who have tried entrepreneurship—both those who have been successful and those who have not. Talk to people in your industry, including colleagues, friends, and potential advisors. You’d be surprised how open people can be about their experiences—good and bad. Read lots of books and get a variety of opinions. You’re not trying to get people’s “permission” to be an entrepreneur, nor are you looking to give yourself permission to try. What you should strive for is to understand the factors critical to success and see if you’re comfortable with them. There are no right or wrong answers. Only another entrepreneur can tell you what it’s like to lie awake at night stressing about whether you’ll make payroll that month. But at the same time, it’s that entrepreneur who can tell you what strategy worked to make payroll that month. It’s not the issues that define you as an entrepreneur but how you respond to those issues.

As you consider entrepreneurship, you need to assess whether it will provide you with the ability to support and sustain yourself and your family, both in the beginning and later on, when you eventually achieve your personal financial goals. Are you comfortable with the time it may take to grow and sustain your business? Many people start companies expecting to grow them aggressively (in financial terms), only to find that they are actually quite content with a profitable lifestyle business that allows them the ability to pursue other personal goals. Think about what kind of growth you’re comfortable with. Do you want a lifestyle business or an aggressive-growth business? Both are commendable choices, but only you can make that decision.

If you decide to become an entrepreneur, take a look at your professional and personal support systems—particularly the latter. Are they supporting you or thinking you’re off your rocker? Even if you are comfortable with the risks, uncertainties, and challenges, a spouse or other key family member may not be. Negative whisperings can rock the very confidence that’s required for entrepreneurship. Be wary not only of your own demons but also those of others around you.

Attitude is a key factor. For example, if deep down you’re happiest as a sole proprietor but are talking about growing a company because it sounds so much better, then guess what? You’re likely to stay a sole proprietor and defeat yourself subconsciously. You will not grow your company, and you’ll also be unhappy and unfulfilled, even if your company is successful by financial and market definition. Get in touch with what you really want and how you define success. Be comfortable and confident with your own answers. Confidence is a key component—it will bring customers, investors, and supporters to you.

You also need to assess how you handle stress. How determined are you to succeed? Starting a business isn’t always easy. You may have more naysayers than coaches around you. Many businesses fold in the second year despite the fact that the next year might have been the turning point. Most entrepreneurs will tell you that they hit a key milestone of sustainability around the third year of their business. If you can make it to that point, you can keep going, barring any unforeseen problems inside or outside the company. For example, you could be doing great, and then in the fifth year, your largest customer stumbles badly, creating a ripple effect in your company. If you’ve been astute enough to diversify, it should be no problem—if not, you’ll drown, too. Diversification in terms of your customer base is essential.

If you’re choosing entrepreneurship as a response to a personal or professional transition, think through your motivations thoroughly. If you’re starting a company because you were laid off from your last job, do you see it as a life-changing opportunity, or are you treading water until a suitable full-time position becomes available? If a personal situation or crisis is motivating you to consider entrepreneurship as a way to balance your obligations, you may want to focus on being a sole proprietor for a while, as growing a company of any size is a very time- and energy-consuming endeavor.Sanjyot P. Dunung, Starting Your Business (New York: Business Expert Press, 2010), 17–19.

What Do Entrepreneurs Do?

Entrepreneurs build for-profit and nonprofit ventures. The most well-known type of enterpreneurial venture is the for-profit, or commercial, venture, which sells products or services for a profit. Entrepreneurs can also launch a nonprofit venture whose purpose is to fulfill a social mission rather than to make money. For example, nonprofits often work to improve societal issues such as health care, the environment, and underserved populations. Entrepreneurs who launch these kinds of nonprofit ventures are often referred to as social entrepreneurs. Social entrepreneursA person who founds an organization (either for-profit or nonprofit) whose focus is to implement innovative solutions to societal problems. Social entreprenurs aim to create large-scale social change through the ventures they create. look for and implement innovative solutions to societal problems. Social entrepreneurs apply the same tools and skill sets as other entrepreneurs—seizing opportunities, organizing and managing tasks and people, improving how something is done—but their focus is to solve a social problem or create a benefit to humanity.

Entrepreneurial ventures can grow large or stay small, and they can operate at any level: local, national, or international.

What Is the Entrepreneurial Process?

There are three essential parts of the entrepreneurial processConsists of (1) identifying entrepreneurial opportunities, (2) planning and preparing the venture, and (3) resourcing the venture and taking action.: (1) opportunity identification, (2) plan and prepare the venture, and (3) resource the venture and take action. Sometimes the process unfolds as depicted in Figure 11.1 "The Entrepreneurial Process", though there are many examples where a formal plan is never put forth, or where a plan and resources lead to the identification of a completely different opportunity. 3M’s Post-it self-adhesive notes or W. L. Gore’s Glide dental floss are examples of the latter scenario.“Inventor of the Week: Robert Gore,” MIT School of Engineering, September 2006, accessed May 5, 2011, http://web.mit.edu/invent/iow/gore.html. However, for simplicity, you’ll look at the process in the common 1-2-3 order of identifying the opportunity, planning the venture, and funding and staffing it.

Figure 11.1 The Entrepreneurial Process

Taking the Opportunity

Perhaps the biggest difference between strategy in existing firms and new ventures is the starting point. Most researchers agree that the starting point for new ventures is opportunity, while the strategy for existing firms usually begins with some assessment of the firm’s underlying resources and capabilities.Jonathan T. Eckhardt and Scott A. Shane, “Opportunities and Entrepreneurship,” Journal of Management 29, no. 3 (June 2003): 333–49; Jonathan T. Eckhardt and Scott A. Shane, “The Individual-Opportunity Nexus: A New Perspective on Entrepreneurship,” in Handbook of Entrepreneurship Research: An Interdisciplinary Survey and Introduction, ed. Zoltan J. Acs and David B. Audretsch (Boston: Kluwer, 2003), 161–91.

How Do People Find Opportunities?

You might be surprised to learn that you already possess at least two tools that might help you unearth a valuable business opportunity. One way to think about opportunities is through a tool shown in Figure 11.2 "Levers That Lead to Opportunity Identification". The first four levers—eliminate, reduce, create, and raise—are summarized in the Blue Ocean Strategy framework made popular by strategy researchers W. Chan Kim and Renée Mauborgne.W. Chan Kim and Renée Mauborgne, “Blue Ocean Strategy: From Theory to Practice,” California Management Review 47, no. 3 (Spring 2005): 105–21. The fifth characteristic was developed through the work of their colleagues, Mason Carpenter and W. Gerry Sanders, authors of the best-selling textbook Strategic Management: A Dynamic Perspective.Mason Carpenter and William G. Sanders, Strategic Management: A Dynamic Perspective, Concepts and Cases (Upper Saddle River, NJ: Prentice Hall, 2009). The general idea behind the first four changes is that an entrepreneurial opportunity will offer something new but not necessarily because it is simply adding more features or costs. For instance, Amazon became successful because it provided a greater selection of books than any other store on the planet (increase), allowed greater convenience when shopping for books (reduced time needed), developed a logistics and software infrastructure to manage the process (create/add), and threatened to make brick-and-mortar stores obsolete (eliminate).

New markets can be created when innovations are based on these four characteristics alone. However, experience has shown that the more customers need to change their behaviors, the more slowly they will adopt an innovation. For this reason, the fifth characteristic—what stays the same—becomes a differentiating factor between innovations that take hold and those that don’t or do so more slowly. For instance, e-books have taken a long time to gain adoption, even though there are an increasing number of ways for them to be purchased and read. In contrast, Amazon’s strategy of selling printed books through an online store has worked largely because the book—the basic product—remained unchanged and thus required less change on the part of the consumer.

Research suggests that new venture opportunities tend to fall into one of three categories—new-market disruptions, low-end disruptions, or hybrid.

Figure 11.2 Levers That Lead to Opportunity Identification

Mason A. Carpenter, Managing Effectively Through Tough Times (Pearson: Upper Saddle River, NJ: Pearson, 2010).

The Business Plan

In order to secure start-up financing and launch the new product, many entrepreneurs draw up a formal business planA formal statement of a set of business goals, the reasons why they are believed attainable, and the plan for reaching those goals; it may also contain background information about the organization or team attempting to reach those goals. that brings all the elements of the new venture together for a specific purpose—namely, to ensure key stakeholders that the firm has a well-considered strategy and managerial expertise. A business plan is a formal statement of business goals, the reasons why they are attainable, and the plan for reaching those goals. It may also contain background information about the organization or team attempting to reach the goals. Even if such a plan isn’t necessary for communicating with external stakeholders, preparing one is still a good idea. At the very least, it will help you reexamine the five elements of your strategy and prompt you to look for ways to bring them together in order to create a viable and profitable firm. In addition, a business plan provides a vehicle for sharing your goals and objectives—and your plans for implementing them—with members of your entrepreneurial team. Focusing on the staging component of the five elements of strategy, for example, is a good way to set milestones and timelines and otherwise manage the scale and pace of your company’s growth. Finally, when it does come time to seek external funding to support the firm’s growth, the plan provides a solid basis for engaging professionals who can both help you get financing and advise you on strengthening customer relationships and finding strategic suppliers.

Familiarity with the five elements of strategy, implementation levers, and frameworks for analyzing external organizational context can prepare you to draw up a business plan. Although there are variations on form, the content of most plans covers the same topics. You can find a multitude of examples on the web in addition to software packages for creating a detailed and professional-looking document.See, for example, Business Plans website, accessed November 1, 2010, http://www.bplans.com; U.S. Small Business Administration website, accessed November 1, 2010, http://www.sba.gov/category/navigation-structure/starting-managing-business/starting-business/writing-business-plan; More Business website, accessed November 1, 2010, http://www.morebusiness.com; Center for Business Planning website, accessed November 1, 2010, http://www.businessplans.org. For more information, see the sidebar below for a summary of what is normally contained in a comprehensive business plan.

Finally, a word of warning: All too often, would-be entrepreneurs tend to equate a good business plan with the probability of success in running a business. Needless to say, however, a well-crafted plan doesn’t ensure a successful business. At this point in the process, your probability of success depends more heavily on the strength of the three elements with which you started the process—a good opportunity (including the right timing), the right entrepreneurial team, and the necessary resources and capabilities. A business plan is no substitute for strategy and strong execution. That’s why consultants often suggest that entrepreneurs think of the business plan not only as a helpful and necessary starting point but also as a continuous work in progress.Jeffry A. Timmons, New Venture Creation: Entrepreneurship for the 21st Century, 5th ed. (New York: McGraw-Hill, 1999).

Resourcing the New Venture Plan with People, Money, and Action People

There is no litmus test for determining the characteristics of successful entrepreneurs or those people who make the best members of an entrepreneurial team. However, without them, a new venture will never get off the ground. Sometimes, as you might imagine, key people are among the intangible resources and capabilities that distinguish the potential new venture as an opportunity, rather than just another good idea. As a practical matter, it’s the entrepreneur who drives the entrepreneurial process and ensures that all three elements—opportunity, resources and capabilities, and people—are in place and balanced. Because individuals have limits, team members are often selected because they bring skills that complement those of the lead entrepreneur and ensure that the firm has the necessary human capital to achieve its objectives.

How the Ease of Doing Business Affects Entrepreneurship across Countries

There are a number of factors that explain why the level of business entrepreneurship varies so much across countries. In 1776, Adam Smith argued in The Wealth of Nations that the free-enterprise economic system, regardless of whether it’s in the United States, Russia, or anywhere else in the world, encourages entrepreneurship because it permits individuals freedom to create and produce.Adam Smith, An Inquiry into the Nature and Causes of the Wealth of Nations (London: W. Strahan and T. Cadell, 1776). Recent versions have been edited by scholars and economists. Such a system makes it easier for entrepreneurs to acquire opportunity. Smith was focused mostly on for-profit businesses. However, constraints on the ownership of property might not necessarily constrain other types of entrepreneurship, such as social entrepreneurship.

Business entrepreneurship and social entrepreneurship are clearly related. Researchers have observed that in countries where it’s relatively easy to start a business—that is, to engage in business entrepreneurship—then it’s also comparatively easier to be a social entrepreneur as well. One useful information resource in this regard is the World Bank’s annual rankings of “doing business”—that is, the Doing Business report provides a quantitative measure of all the regulations associated with starting a business, such as hiring employees, paying taxes, enforcing contracts, getting construction permits, obtaining credit, registering property and trading across borders.Doing Business website, accessed July 2, 2010, http://www.doingbusiness.org.

Doing Business is based on the concept that economic activity requires good rules. For businesses to operate effectively, they need to know that contracts are binding, that their property and intellectual property rights are protected, and that there is a fair system for handling disputes. The rules need to be clear yet simple to follow so that things like permits can be obtained efficiently.

The World Bank’s Doing Business Project looks at laws and regulations, but it also examines time and motion indicators. Time and motion indicators measure how long it takes to complete a regulatory goal (e.g., getting a permit to operate a business).

Thanks to ten years of Doing Business data, scholars have found that lower costs of entry encourage entrepreneurship, enhance firm productivity, and reduce corruption.For example, Levon Barseghyan, “Entry Costs and Cross-Country Productivity and Output,” Journal of Economic Growth 12, no. 2 (2008): 145–67; and Leora F. Klapper, Anat Lewin, and Juan Manuel Quesada Delgado, “The Impact of the Business Environment on the Business Creation Process,” World Bank Policy Research Working Paper No. 4937, May 1, 2009. Simpler start-up regulations also translate into greater employment opportunities.For example, Roberto Chang, Linda Kaltani, and Norman V. Loayza, “Openness Can Be Good for Growth: The Role of Policy Complementarities,” Journal of Development Economics 90, no. 1 (September 2009): 33–49; Elhanan Helpman, Marc Melitz, and Yona Rubinstein, “Estimating Trade Flows: Trading Partners and Trading Volumes,” The Quarterly Journal of Economics, 123, no. 2 (May 2008): 441–87.

Beyond describing local business practices, one of the key objectives of the Doing Business Project is to make it easier for entrepreneurship to flourish around the world. Considerable progress has been made each year in this regard, with 2010 being noted as a record year in regard to business-regulation reform. The countries with at least one positive reform are shown in the following figure.

Source: “Percentage of Countries with at Least One Positive Reform,” Doing Business, accessed June 3, 2011, http://www.doingbusiness.org/reforms/events/~/media/FPDKM/Doing%20Business/Documents/Reforms/Events/DB10-Presentation-Arab-World.pdf.

Among the most populated countries, the World Bank suggests it’s easiest to do business in the United States, the United Kingdom, Canada, Australia, and Thailand; the most difficult large countries are Côte d’Ivoire, Angola, Cameroon, Venezuela, and the Republic of the Congo. Among the less populated countries, the easiest-to-do-business rankings go to Iceland, Mauritius, Bahrain, Estonia, and Lithuania; the most difficult are Mauritania, Equatorial Guinea, São Tomé and Príncipe, and Guinea-Bissau. You can experiment with sorting the rankings yourself by region, income, and population at http://www.doingbusiness.org/economyrankings.

Differing Attitudes about Entrepreneurship around the World

Entrepreneurship takes place depending on the economic and political climate, as summarized in the World Bank’s Doing Business surveys. However, culture also plays an important role—as well as the apparent interest among a nation’s people in becoming entrepreneurs. This interest is, of course, partly related to the ease of doing business, but the cultural facet is somewhat deeper.

Turkey, for instance, seems a ripe location for entrepreneurship because the country has relatively stable political and economic conditions. Turkey also has a variety of industries that are performing well in the strong domestic market. Third, Turkey has enough consumers who are early adopters, meaning that they will buy technologies ahead of the curve. Again, this attitude would seem to support entrepreneurism. Yet, as Jonathan Ortmans reports in his Policy Forum Blog, currently only 6 percent workers are entrepreneurs—a surprisingly low rate given the country’s favorable conditions and high level of development.Jonathan Ortmans, “Entrepreneurship in Turkey,” Policy Forum Blog, April 5, 2010, accessed July 2, 2010, http://www.entrepreneurship.org/en/Blogs/Policy-Forum-Blog/2010/April/Entrepreneurship-in-Turkey.aspx. The answer to the mystery can be found in the World Bank’s most recent report, which shows Turkey to be among the most difficult countries in which to do business. The Kauffman Foundation, on the basis of its own assessment, likewise identified many hurdles to entrepreneurship in Turkey, such as limited access to capital and a large, ponderous bureaucracy that has a tangle of regulations that are often inconsistently applied and interpreted. Despite all the regulations, intellectual property rights are poorly enforced and big established businesses strong-arm smaller suppliers.Jonathan Ortmans, “Entrepreneurship in Turkey,” Policy Forum Blog, April 5, 2010, accessed July 2, 2010, http://www.entrepreneurship.org/en/Blogs/Policy-Forum-Blog/2010/April/Entrepreneurship-in-Turkey.aspx.

However, the Kauffman study also suggests that perhaps the most difficult problem is Turkey’s culture regarding entrepreneurship and entrepreneurs. Although entrepreneurs “by necessity” are generally respected for their work ethic, entrepreneurs “by choice” (i.e., entrepreneurs who could be pursuing other employment) are often discouraged by their families and urged not to become entrepreneurs. The entrepreneurs who succeed are considered “lucky” rather than having earned their position through hard work and skill. In addition, the business and social culture does not have a concept of “win-win,” which results in larger businesses simply muscling in on smaller ones rather than encouraging their growth or rewarding them through acquisition that would provide entrepreneurs with a profitable exit. The Kauffman report concludes that Turkey is in as much need of cultural capital as financial capital.

Is there a way for you to gain insights into a country’s entrepreneurial culture and therefore better explain why entrepreneurship varies so much? While there’s no perfect answer to this—just as it’s impossible to provide you with a survey telling you whether you will be a success or a failure as an entrepreneur—you may find it of interest to compare the motivations for engaging in entrepreneurship across countries. The Global Entrepreneurship Monitor (GEM)An annual assessment of the national level of entrepreneurial activity across countries, started as a partnership between London Business School and Babson College. is a research program begun in 1999 by London Business School and Babson College. GEM does an annual standardized assessment of the national level of entrepreneurial activity in fifty-six countries. The GEM reports are available at http://www.gemconsortium.org.

GEM shows that there are systematic differences between countries in regard to national characteristics that influence entrepreneurial activity. GEM also shows that entrepreneurial countries experience higher economic growth. On the basis of another set of surveys and the corresponding index prepared annually by the World Economic Forum (WEF),World Economic Forum website, accessed July 2, 2010, http://www.weforum.org/en/index.htm. countries are broken out in groups, including factor-driven economies (e.g., Angola, Bolivia, Bosnia and Herzegovina, Colombia, Ecuador, Egypt, India, and Iran), efficiency-driven economies (e.g., Argentina, Brazil, Chile, Croatia, Dominican Republic, Hungary, Jamaica, Latvia, Macedonia, Mexico, Peru, Romania, Russia, Serbia, South Africa, Turkey, and Uruguay), and innovation-driven economies (e.g., Belgium, Denmark, Finland, France, Germany, Greece, Iceland, Ireland, Israel, Italy, Japan, the Netherlands, Norway, Slovenia, South Korea, Spain, the United Kingdom, and the United States). Somewhat like the Doing Business survey, the WEF ranks national competitiveness in the form of a Global Competitiveness Index (GCI)System that ranks nations quantitatively according to a weighted index of twelve assessed pillars: (1) institutions, (2) infrastructure, (3) macroeconomic stability, (4) health and primary education, (5) higher education and training, (6) goods-market efficiency, (7) labor-market efficiency, (8) financial-market sophistication, (9) technological readiness, (10) market size, (11) business sophistication, and (12) innovation.. The GCI defines competitiveness as “the set of institutions, policies, and factors that determine the level of productivity of a country.” The GCI ranks nations on a weighted index of twelve assessed pillars: (1) institutions, (2) infrastructure, (3) macroeconomic stability, (4) health and primary education, (5) higher education and training, (6) goods-market efficiency, (7) labor-market efficiency, (8) financial-market sophistication, (9) technological readiness, (10) market size, (11) business sophistication, and (12) innovation.“The Global Competitiveness Report 2008-2009: US, 2008,” World Economic Forum, accessed January 18, 2011, https://members.weforum.org/pdf/gcr08/United%20States.pdf. Current and past reports are available at http://www.weforum.org/reports.

Factor-driven economiesEconomies that are highly sensitive to world economic cycles, commodity price trends, and exchange rate fluctuations; typical in countries that compete on the basis of unskilled labor and natural resources. are economies that are dependent on natural resources and unskilled labor. For example, Chad is the lowest-ranked country in the GCI, and its economy is dependent on oil reserves. Because its economy is so tied to a commodity, Chad is very sensitive to world economic cycles, commodity prices, and fluctuations in exchange rates. The pillars associated with factor-driven economies are institutions, infrastructure, macroeconomic stability, and health and primary education.

Efficiency-driven economiesEconomies that are typical in countries that compete on the basis of production processes and increased product quality., in contrast, are found in countries that have well-established higher education and training, efficient goods and labor markets, sophisticated financial markets, a large domestic or foreign market, and the capacity to harness existing technologies, which is also known as technological readiness. The economies compete on production and product quality, as Brazil does. Brazil has a per capita gross domestic product (GDP) of about $7,000.

Innovation-driven economiesEconomies that are typical in countries that compete on business sophistication and innovation., finally, are economies that compete on business sophistication and innovation.Casey Coleman, “Assessing National Innovation and Competitiveness Benchmarks,” U.S. General Services Administration, March 7, 2009, accessed June 10, 2010, http://innovation.gsa.gov/blogs/OCIO.nsf/dx/Assessing-National-Innovation-and-Competitiveness-Benchmarks. The United States, with a per capita GDP of about $46,000, ranks first overall in the GCI due to its mature financial markets, business laws, large domestic size, and flourishing innovation.

Using the criteria for factor-driven, efficiency-driven, and innovation-driven economies and the most recent surveys results, the following figure summarizes the range of activity across a select group of countries.

Adapted from Global Entrepreneurship Monitor, 2008 Report, U.S.A.

Global Start-ups and Born-Global Firms

More and more firms—even very small ones—have operations that bridge national borders soon after their founding. Thanks to the Internet and related information technologies (IT) that enable many of them, this new breed of firms began emerging in the 1990s and is dubbed “born-global” because their operations often span the globe early in their existence. A born-global firmAlso commonly called a global start-up, a business organization that, from inception, seeks to derive significant competitive advantage from the use of resources and the sale of outputs in multiple countries., also commonly called a global start-upA business organization that, from inception, seeks to derive significant competitive advantage from the use of resources and the sale of outputs in multiple countries., is “a business organization that, from inception, seeks to derive significant competitive advantage from the use of resources and the sale of outputs in multiple countries.”Benjamin M. Oviatt and Patricia Phillips McDougall, “Toward a Theory of International New Ventures,” Journal of International Business Studies, First Quarter 1994, 47, accessed December 24, 2010, http://aib.msu.edu/awards/25_1_94_45.pdf. A common characteristic of such firms is that their offerings complement the products or capabilities of other global players, take advantage of global IT infrastructure, or otherwise tap into a demand for a product or service that at its core is somewhat uniform across national geographic markets. While many firms may fall into this category by virtue of their products, the operations and customers of born-global firms do actually span the globe—exploiting a combination of exporting and foreign direct investment.

Logitech, the computer peripherals company, is perhaps one of the best early examples of a successful born-global firm.Benjamin M. Oviatt and Patricia Phillips McDougall, “Global Start-Ups: Entrepreneurs on a Worldwide Stage,” Academy of Management Executive 9, no. 2 (1995): 30–44. Focusing first on the PC mouse, the company was founded by two Italians and a Swiss. The company’s operations and research and development were initially split between California and Switzerland, and then it expanded rapidly with production in Ireland and Taiwan. With its stylish and ergonomic products, Logitech captured 30 percent of the global computer mouse business by 1989, garnering the start-up a healthy $140 million in revenues.

Its innovative and stylish products have made Logitech a global leader in computer peripheral devices.

Courtesy of Logitech Inc.

Today, Logitech is an industry leader in the design and manufacture of computer peripheral devices; has manufacturing facilities in Asia and offices in major cities in North America, Europe, and the Asia-Pacific region; and directly employs more than 6,000 people worldwide.Logitech website, accessed November 1, 2010, http://www.logitech.com.

Skype Limited is a more recent born-global firm. You may already have its software on your laptop or desktop computer to take advantage of this free Internet phone technology, called voice-over Internet protocol, or VoIP.Skype website, accessed November 1, 2010, http://www.skype.com. At any point in time, there are millions of users logged in on Skype; the program and service has made such a strong impression that the term “Skype me” has replaced “call me” in some circles. Niklas Zennstrom and Janus Friis, the same two entrepreneurs who invented KaZaA (one of the most popular Internet file-sharing software programs in the world) also developed Skype. Initially founded in Sweden as Tele2, Skype is now headquartered in Luxembourg and has offices in Europe, the United States, and Asia. Skype and has received significant funding from some of the largest venture-capital firms in the world.“Where Is Skype?,” Skype, accessed December 27, 2010, http://about.skype.com/where-is-skype. Both Logitech and Skype share certain characteristics—ripe conditions for global start-ups, what it takes to build them, and what it takes to make them succeed.

Skype’s video calling capabilities have enabled businesses to connect with team members around the world economically and efficiently.

Courtesy of Skype Limited 2011.

Two Phases of Global Start-up Assessment

Global start-ups need to pass through two phases. If you can answer yes to all or most of the questions from Phase 1, then you need to be sure that you can quickly build the resources and capabilities identified in Phase 2. Research has shown that firms unable to connect the dots in Phase 2 are forced to cease operations after a short, but lively, period of time.Benjamin M. Oviatt and Patricia Phillips McDougall, “Global Start-Ups: Entrepreneurs on a Worldwide Stage,” Academy of Management Executive 9, no. 2 (1995): 30–44.

• Phase 1: Should my firm be a global start-up?

  1. Do I want to build the brand around the world right from the start?
  2. Do I need human resources from other countries for my company to succeed?
  3. Do I need financial capital from other countries for my company to succeed?
  4. Will my target customers prefer the services of my company to the services of my competitors if I am global?
  5. Can I put an international system in place more quickly than domestic competitors?
  6. Do I need global scale and scope to justify the financial and human capital investment in the venture?
  7. Will a purely domestic focus now make it harder for me to go global in the future?

• Phase 2: Now that you have committed to going global, here is what you need:

  1. A strong management team with international experience
  2. A broad and deep international network among suppliers, customers, and complements
  3. Preemptive marketing or technology that provides you with a first-mover advantage with customers and can lock out competitors from key suppliers and complements
  4. Strong intangible assets (e.g., both Logitech and Skype have style, hipness, and mindshare via their brands)
  5. The ability to keep customers locked in by linking new products and services to the core business while constantly innovating in the core product or service itself
  6. Close worldwide coordination and communication among business units, suppliers, complements, and customers

So why is the introduction of global start-ups important at this point in your international business education? One reason is the increasing prevalence of global start-ups, driven in part by globalizing consumer preferences, mobile consumers, large global firms, and the pervasiveness of the Internet and its effects. The other is that global start-ups are very relevant to the subject of intrapreneurship, which you will learn about in Section 11.5 "From Entrepreneurship to Intrapreneurship".

Intrapreneurship and Its Roots

The power and spirit of entrepreneurs and entrepreneurship are also felt in the context of established businesses. In 1992, for instance, The American Heritage Dictionary brought intrapreneurshipA form of entrepreneurship that takes place in a business that is already in existence. and intrapreneurA person within an established business who takes direct responsibility for turning an idea into a profitable finished product through assertive risk taking and innovation. into the mainstream by adding intrapreneur to its dictionary, defining it as “a person within a large corporation who takes direct responsibility for turning an idea into a profitable finished product through assertive risk taking and innovation.”The American Heritage Dictionary (Orlando, FL: Houghton Mifflin, 1992), s.v. “intrapreneur.”

In the early 1980s, Gifford and Elizabeth Pinchot were developing the concept of the intracorporate entrepreneur and coined the word intrapreneur. Under their model, a person wishing to develop an intrapreneurial project would initially have to risk something of value to themselves—a portion of their salary, for instance. The intrapreneur could then sell the completed project for both cash bonuses and intracapital, which could be used to develop future projects. On the basis of the success of some of the early trials of their methods in Sweden, the Pinchots began a school for intrapreneurs. In 1985, they published their first book, Intrapreneuring, combining the findings from their research and practical applications.Gifford Pinchot and Elizabeth Pinchot, Intrapreneuring (New York, NY: Harper & Row Publishers, 1985).

In their book Re-Inventing the Corporation, John Naisbitt and Patricia Aburdene cited intrapreneurship as a way for established businesses to find new markets and new products.John Naisbitt and Patricia Aburdene, Re-Inventing the Corporation (New York: Warner Bros Publications, 1985). Steve Jobs also described the development of the Macintosh computer as an intrapreneurial venture within Apple. In 1990, the concept was established enough that Rosabeth Moss Kanter of the Harvard Business School discussed the need for intrapreneurial development as a key factor in ensuring the survival of the company in her book When Giants Learn to Dance.Rosabeth Moss Kanter, When Giants Learn to Dance (New York: Free Press, 1990).

Differences between Entrepreneurs and Intrapreneurs

The primary difference between the two types of innovators is their context—the intrapreneur acts within the confines of an existing organization. Most organizations would dictate that the intrapreneur should ask for permission before attempting to create a desired future—in practice, the intrapreneur is more inclined to act first and then ask for forgiveness later, rather than ask for permission before acting. The intrapreneur is also typically the intraorganizational revolutionary—challenging the status quo and fighting to change the system from within. This ordinarily creates a certain amount of organizational friction. A healthy dose of mutual respect is required in order to ensure that such friction can be positively channeled. In summary, then, an intrapreneur is someone who operates like an entrepreneur but has the backing of an organization.

Gifford Pinchot’s book Intrapreneuring: Why You Don’t Have to Leave the Corporation to Become an Entrepreneur provides ten commandments for intrapreneurs:

1. Do any job needed to make your project work, regardless of your job description.
2. Share credit wisely.
3. Remember, it is easier to ask for forgiveness than permission.
4. Come to work each day willing to be fired.
5. Ask for advice before asking for resources.
6. Follow your intuition about people; build a team of the best.
7. Build a quiet coalition for your idea; early publicity triggers the corporate immune system.
8. Never bet on a race unless you are running in it.
9. Be true to your goals, but realistic about ways to achieve them.
10. Honor your sponsors.Gifford Pinchot and Elizabeth Pinchot, Intrapreneuring (New York, NY: Harper & Row Publishers, 1985), 22.

The Intrapreneurial Organization

An intrapreneurial organizationOne that seeks to systematically promote the spirit of intrapreneurship in targeted parts of the organization. is one that seeks to systematically promote the spirit of intrapreneurship in targeted parts of the organization. The stellar innovation track records of firms like Merck & Co., 3M, Motorola, Newell Rubbermaid, Johnson & Johnson, Corning Incorporated, General Electric, Hewlett-Packard, Walmart, and many others demonstrate that bigness isn’t in itself antithetical to intrapreneurship. At the same time, these are but a few of the thousands of large firms around the world. Understanding the obstacles to entrepreneurship in large, established firms will put you on firmer ground when it comes time to translate what you know about entrepreneurship in general to the process of corporate intrapreneurship.

As you may have guessed by now, intrapreneurs have helped increase the speed and cost-effectiveness of technology transfer from research and development to the marketplace. The following are some methods that have been used by businesses to foster intrapreneurship:

• Intrapreneurial employees are able to participate in the rewards of what they create, such as being granted something like ownership rights in the internal enterprises they create.
• The firm treats intrapreneurial teams as a profit center, rather than as a cost center (i.e., teams are expected to make money). Some companies give their intrapreneurial teams their own internal bank accounts.
• Team members can choose the projects on which they work or the alliances they join.
• Employees have access to training to help them learn new skills.
• Internal enterprises are recognized within the organization and have official standing.
• The organization defines and supports a system of contractual agreements between internal enterprises.
• The intrapreneurship plan includes a method for settling disputes that may arise around the internal enterprise and employees.

Companies that want to gain the benefits of intrapreneurism create systems for identifying employees with intrapreneurial traits and help develop those employees through training and reward them through incentives. The intrapreneurial organization can take on one or a combination of two forms: coexistence or structural separation.