110019101-jialin li-critical literature review-international entrepreneurship

7/31/2019 110019101-Jialin Li-Critical Literature Review-International Entrepreneurship

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Critical Literature Review of the Role of the Entrepreneur in the Early

Internationalization of Small Firms

Contents

1. Introduction ..................................................................................................................................... 1

2. The Role of Entrepreneur in Small Firms ....................................................................................... 2

3. The Influence of Entrepreneurs Psychological Traits on Decision-making................................... 4

4. The Influence of Entrepreneurs Cognition on Decision-making ................................................... 6

5. Conclusion....................................................................................................................................... 8

References............................................................................................................................................... 9

1. Introduction

This paper aims to study the role of entrepreneur in the early internationalization of

small firms in in terms of analysing the influence on decision-making process from

managerial motivations, behaviour and attitudes. First of all, it is necessary to clarify what

is the internationalization of small firms. There are two similar internationalization paths

for SMEs pointed out by researchers (Jones, 1999; Andersen et al., 1997; Madsen and

Servais, 1997). One is the traditional incremental approach to internationalisation, and the

other is the more recent school of international entrepreneurship (McDougall and Oviatt,

2000).

Empirical researches proved that there are connections between decision making

and the internationalization of SMEs. The traditional incremental approach is based on

the Uppsala model developed by Johanson and Vahlne (1977) who explained that


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internationalization of SMEs is a process of slow, incremental and decision making that

would gradually increase the market power of firms. According to the model, individuals

and groups are playing significant role of decision-making by analysis and interpretation

and decisions are regarded as being dictated by the learning process (Lundberg 1995,

Andersson 2000, Blomstermo and Deo-Sharma 2003). Besides, Entrepreneurship is

recognized as a learning process which suggests that the perspective of the

entrepreneurial learning might contribute to the internationalization discourse (Minniti

and Bygrave 2001, Cope 2005, Rae and Carswell, 2001). The entire organization would

be affected by the decisions made by entrepreneurs through individual level learning and

organizational behaviour (Oviatt and Mcdougall 2005, Acedo and Florin 2006).

There is an argument explaining that the characteristics of decision-maker have not

been explored intensively enough (Bonaccorsi, 1992). That is to say the influence of the

entrepreneur on decision-making in the process of internationalization needs further study.

Therefore, this paper attempts to analyse the role of entrepreneur on decision-making of

small firm in internationalization.

2. The Role of Entrepreneur in Small Firms

Since the definition of entrepreneur and managers is always mixed, Begley and Boyd

(1987) pointed out that the lack of distinction of entrepreneur from manager. In order to

differentiate the distinction between entrepreneur and manager, some researchers defined

the term ofentrepreneur to mean a person who has founded his or her own enterprise

(Begley & Boyd, 1987, p. 100). Also, another researcher Bygrave (1989) commented that


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the conception of entrepreneurship is an emerging paradigm which is still in the pre-

theory stage and needed to be further developed.

Many researchers make different definitions of the roles of the entrepreneur

according to different theories of economics. Firstly, the entrepreneur acts as a co-

ordinator. Connell (1999) defines that the role of the entrepreneur is a combiner and

coordinator of productive resources. Connell (1999) also viewed that the entrepreneur

plays a role in the core of market system because he or she build the links between the

producer and consumer in communication. Besides, Casson (1982) argued that the

entrepreneur should be regarded as the fourth factor of production in his analysis.

Secondly, the entrepreneur plays a role as arbitrageur. This views of regarding the

entrepreneur as arbitrageur originates from Kirzner (1973), who argued that the

entrepreneur has the capability to identify profitable opportunities for organizations. The

arbitrageur attempts to seize the opportunity to sell the service and product at a

competitive price in the market. But there is another argument in contrast with Kirzners

view that the entrepreneur motivates the market toward equilibrium (Schumpeter, 1934).

Thirdly, the entrepreneur acts as an innovator of the organization. Drucker (1985) points

out that entrepreneurship should be acknowledged as an act of innovation that could add a

new wealth-producing capability to existing resources. Similarly, Schumpeter (1934) the

entrepreneur is the innovator who implements changes in the market and the entrepreneur

moves the market from equilibrium. Furthermore, the entrepreneur is also interpreted as

an uncertainty-bearer. Since the small firm is new to step into internationalization, the

entrepreneur who leads the organization towards internationalization should be

responsible for bearing the risk of the presence of uncertainty (Casson, 1982).

In summarizing the above types of roles the entrepreneur might act in the

internationalization of small firms, the following functions could be perceived as the


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entrepreneur. First, the entrepreneur is responsible to seize market opportunities for the

organization. And he or she should use the current resources into new production

combinations. Besides, the entrepreneur also becomes the owner-manager who operates

the organization and manages the assets to the best of the venture. Finally, the

entrepreneur has to take the risk of suffering market uncertainty that might bring loss and

failure to the organization. Casson (1982) made a supplement to the definition of

entrepreneur that he thought there is no difference between the manager in a company and

the entrepreneur because the key criterion is the judgement in decision making. In the

next section, the impact of the entrepreneur in decision making would be discussed.

3. The Influence of Entrepreneurs Psychological Traits on Decision-making

After explaining the different roles the entrepreneur would act in the international

business, this section would attempt to discuss the impact of the entrepreneur on decision

making.

In terms of managerial motivation, behaviour and attitudes, whether the entrepreneur

is proactive in operating the organization and managing business or not would influence

the development of a firm. Some research argues that the proactivity of entrepreneur

would motivate the entire company to develop more rapidly through identifying and

perceiving better opportunities and the decision makers are more willing to make internal

changes in order to gain further development (Kickul and Gundry, 2002). As the

entrepreneur or the executive managers who are responsible for making decisions, being

proactive seem to be the motivation for small firms to gain rapid development. In the

perspective of entrepreneurs proactivity, the literature on international entrepreneurship

(McDougall and Oviatt, 2000) and the empirical studies on the mindset of managers in


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global business support the assumption that it is a characteristic of entrepreneur who act

proactively in managing global business (Nummela et al, 2002).

Simonsson (2002) explained that entrepreneurs management plays a significant role

in internal communication, without which correct decision is not possible to be made by

entrepreneur. When developing the international business of small firms, the internal

communication channels would be important because it would have directly impact on

the efficiency and effectiveness of the company. That means the owner-managers or the

entrepreneurs of small firms should be capable to have the competence to build

participation and use rhetoric to motivate their employees. For instance, it is owner-

managers responsibility to create trust among employees since every decision being

made should be correctly interpreted within a firm and this results from the good

leadership in management (Misztal, 1998).

In smaller organizations knowledge tends to be individualized to the entrepreneur or

concentrated in a small group of people, who are close to the decision-making process

(Oviatt and McDougall, 2005). Thus, the personal characteristics of the entrepreneur in

psychology need to be analysed specifically.

First of all, Shaver and Scott (1991) discover that the achievement motivation is the

initial desire of the entrepreneur to start his or her business. By starting new business, the

entrepreneur would be aggressive in gaining achievement. McClelland (1961) defines that

the entrepreneur pursues achievement which is regarded as preference for challenge,

personal responsibility acceptance for outcomes and innovativeness. But the empirical

study carried out by Brockhaus (1980) discovered that there was a high failure rate of the

entrepreneur who was too aggressive and drove for achievement.

Secondly, the entrepreneur strives for the independence and the control upon different

situations (Hornaday and Aboud, 1971). That means the strong desire of being


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independent and demonstration of self-capability is the significant characteristic of the

entrepreneurs psychology (McGrath et al., 1992).

Furthermore, the desire for pursuing independence would lead to individualism of the

entrepreneur. And this trait of the entrepreneur might do harm to the organization as he or

she is so self-centred and make decisions without considering others advice or

suggestion. Hofstedes (1980) found that high individualism is linked to emphasis on

individual initiative and achievement.

In addition, there are literatures on entrepreneurial behaviour explaining that the

entrepreneur tends to be optimistic in global business environment and make decisions

according to subjective factors (Cooper et al., 1988). However, this kind of psychological

trait is likely to bring serious damage or failure to the organization and its business.

4. The Influence of Entrepreneurs Cognition on Decision-making

Apart from discussing the psychological traits of entrepreneur, this section would

study the cognition of entrepreneurs in how they think in operating organizations and

decision making. Busenitz and Barney (1997) found that entrepreneurs could be

differentiated from managers through making decisions by basing on individual biases

and heuristics. Thus, some of the literature related to the entrepreneurial cognitive biases

would be discussed in the following paragraph.

Firstly, emotions are significantly contributing to the influence on entrepreneurs

decision-making process. Forgas (1995) presents that the emotional biases in

entrepreneurial way of thinking is the affect infusion model which suggests that affective

states created by one source of experience is able to infuse judgement about other

unrelated events. Also, the likelihood of affect infusion is higher when entrepreneurs


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engage in effortful thought (Forgas, 1995). Thus, Baron (1998) made a hypothesis that

entrepreneurial decisions are of high susceptibility to affect infusion.

Secondly, Bandura (1986) defined that self-efficacy is an personal cognitive estimate

of a persons capabilities to mobilise the motivation, cognitive resources and courses of

action needed to exercise control upon events in his or her life. The people who with high

self-efficacy would regard the environment as full of opportunities while those who with

low self-efficacy would think the same environment to be burdened with costs and risks

(Chen et al., 1998). Besides, Brockhaus (1980) pointed out that self-efficacy represents a

serious bias since it leads to the wrong perception of the low possibility of failure.

Thirdly, the overconfidence of the entrepreneur would also leave impact on decision-

making. This is because the overconfidence of entrepreneurs shows the possibility to

overestimate the likely occurrence of a series of events (Zacharakis and Shepherd, 2001).

The people who are overconfident prefer to make judgement or decision based on their

subjective acknowledgement and ideas but not tend to predict the potential risks of failure.

Levander and Raccuia (2001) argued that entrepreneurs are more frequently found to

have higher degree of self-confidence than general population. Therefore, due to the

overconfidence, entrepreneurs are more susceptible to make decisions with uncertain

risks.

Finally, Baron (1998) claims that most individuals would attribute positive

outcomes to internal causes of their own talent and effort, but attribute negative results to

external causes. This kind of self-serving bias is more likely popular among unsuccessful

entrepreneurs because they are not able to analyse the objective reasons that contribute to

failure and success.

In conclusion, several common cognitive biases in entrepreneurial decision-making

have been discussed. Low and McMillan (1988) pointed out that these differences


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between entrepreneurs and non-entrepreneurs need further empirical testing. However,

the results of the current empirical study support that the cognitive issues above might

influence the decision-making process to some extent

.

5. Conclusion

Therefore, after studying the role of the entrepreneur in the internationalization of small

firms, it is necessary to conclude that the decision-making is a crucial characteristic of the

entrepreneurial activity. This paper first delivered an introduction of the two paths of

internationalization of small firms, and then studied the different roles that entrepreneurs

would act in managing and operating the organization in international business.

Afterwards, the study of entrepreneurs psychological traits and cognition were carried

out in order to analyse the potential influence on decision-making process. However,

some limitations could not be avoided in this paper because the studying areas of the

influence on decision-making process only based on the theories that related to

entrepreneurs individual psychology and cognition and further study of the influence

from managerial behaviour is needed in the future.


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