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Transcript of Tsinghua talk
Descriptive Statistics Hypothesis testing
Implications MIT/Tsinghua Comparison On-going and Future Work Most Work on Entrepreneurship Done in Developed Economies Baumol (1990)
Linked with long-run economic growth (Acemoglu, 2002; 2005; Porta, 1998)
Transition economies - Rona-Tas (1994) Walder (2003) Johnson, McMillan & Woodruff (2002) Nee (1996)
Institutions-based view of the firm Factors that Drive Founding Do Not Drive Performance Institutional Environment and Competitive Advantage
Successful entrepreneur, developing economy?
Individual characteristics, context characteristics, and their interaction drive performance
Team and industry (Eisenhardt and Schoonhoven, 1990)
Institutions – political, social, legal (formal and informal) constraints on indiv. and orgs. (Scott, 2001; North, 1990)
As institutional environment changes, individual and context characteristics that drive performance change
Transition – government planning and control - market institutions Formal and Informal Institutional Theory Transition, institutional reform, property rights, financial liberalization, liquidity constraints (Walder, 2003; Gans, Hsu & Stern 2002; Johnson, McMillan & Woodruff; Baumol, 1990; Thornton, 1999; Nee, 1996; Katila & Chen, 2009; Katila & Shane, 2005)
Neo-institutionalism (Meyer & Rowan, 1977; DiMaggio & Powell, 1983)
Many institutional “rules of the game” are informal (North 1990; Knight 1992)
Behavior and motivations heavily shaped by forces outside of formal institutions (De Soysa & Jutting 2006; Greif 2006) Institution: rules and procedures that structure social interaction by constraining and enabling actors’ behavior (North 1990; Knight 1992; Helmke & Levitsky 2004)
Informal institution: socially shared rules, usually unwritten, that are created, communicated, and enforced outside of officially sanctioned channels (Brinks 2003; Helmke & Levitsky 2004) from: (Helmke & Levitsky 2004; Lauth 2000) Institutional Environment and Competitive Advantage Emerging Economies and Government Ties Firms with government and managerial ties outperform (Peng and Luo, 2000)
Picking winners, providing resources (nefarious)
Privatization auctions that are not fully competitive (Schamis, 2002) Closer relationships with state-owned firms (Backman, 2001)
Better access to credit (Khwaja and Mian, 2005; Leuz and Oberholzer-Gee, 2006; Li, et al, 2009)
Government bailouts (Faccio, Masulis and McConnell, 2006)
Ties to sociopolitical elites increase the propensity to form cross-border alliances yet when the regime changed, these ties became a liability (Siegel, 2007)
Elites in transitional economies have been able to translate their power into economic benefits? (Nee, 1996; Walder, 2002; Walder, 2003)
New firms? Technology firms? Elite Entrepreneurs in a Developing Economy Push vs. pull entrepreneurship
Eliminates subsistence entrepreneurship
Focus on form of entrepreneurship tends to result in economic growth, not poverty alleviation
Desired homogeneity in skills, opportunity costs, more narrow, well-defined set, at risk for technology-based entrepreneurship
Comparing apples to apples Representative entrepreneurship
Self-employment (include lawyers and doctors)
Tech-based entrepreneurs - individuals who introduce new products and new production processes, adapt products/services for new markets, or innovate in other ways. (Baumol, innovative entrepreneurs) "The storm center of the world has shifted . . . to China, whoever understands that mighty Empire . . . has a key to world politics for the next five hundred years.” --U.S. Secretary of State John Hay, 1899
Tech-based entrepreneurship in developing countries rarely appears in academic literature (Lu 1997, 2000; Puga and Trefler, 2005)
Vernon’s (1966) product-cycle model
1989-2004 China 29% vs. US 1% (State Statistics Bureau)
1978-2004 # employed in private business up 300X
Policies and institutions changing rapidly (Cull & Xu, 2006; Nee, 1998; 1992; 1996; Peng & Heath, 1996; Steinfeld, 2007)
Entrepreneurship in China Hypotheses: H1: In institutional environments characterized by an emphasis on government central planning and control, entrepreneurs with government ties will create larger firms compared to entrepreneurs without such ties.
H2: In institutional environments characterized by government central planning and control, entrepreneurs in locations where government control was initially relaxed will create larger firms.
H3: As institutional environments transition from government central planning and control to market-based incentives, entrepreneurs who can access programs by non-gov. institutions (such as science parks) to create entrepreneurial behavior will create larger firms.
H4: In institutional environments that have transitioned from government central planning and control to market-based institutions, greater competition will make entrepreneurs with exposure to the firm creation process and those who are innovating create larger firms
H1: In the beginning, … entrepreneurs with government ties will create larger firms compared to entrepreneurs without such ties. (father in government)
H2: …, entrepreneurs in locations where government control was initially relaxed will create larger firms. (coastal regions, privatized)
H3: … entrepreneurs who can access programs by non-gov. institutions (such as science parks) to create entrepreneurial behavior will create larger firms. (science parks)
H4: In institutional environments that have transitioned … to market-based institutions, greater competition will make entrepreneurs with exposure to the firm creation process and those who are innovating create larger firms. (entrep. index, serial, innovation) Conclusions Factors driving which individuals start larger, more successful firms is not constant across sectors or over time.
Shifts in the directions consistent with the model that new sectors have separate drivers of performance rather than following the institutional changes: government, science parks, market-based free competition
Relaxing constraints on entry/markets, allowing market institutions
Providing information on opportunities
Stepping away, other institutions play a role
Incentives for entrepreneurial behavior
Gov. should resist the temptation to step back in Stanford Alumni Entrepreneurship Survey
To be sent in 2010 to ~100,000 alumni of Stanford University and current faculty
Will enable comparisons to Tsinghua and MIT
Israel (Technion), CUHK, Korea (SNU, Keist), Chile 1992 2000 2004 2007 2010 Deng Xiao Ping Southern Tour 1997 Private sector reform 1999 Constitutional Amendment Private firms 1998 Tsinghua Science Park 1998 CAS Knowledge Innovation Program
VC/PE Reforms 1998 Innovation Fund for Tech SMEs 2001 WTO Growth of Incubators/Science Parks 2006 Adoption of medium and Long Term S&T Strategic Plan Tsinghua alumni data ends in 2007
Interviews suggest some reversal in movement towards market-based institutions
Entrepreneurs indicate more govt. interference, stronger SOEs, higher taxes, intrusive labor and disability laws Boundary Conditions China had gradual economic reforms while political system remained largely unchanged
Contrast with Russia where economic and political liberalization was sudden Careful study of Western models and intention to move from gov. centered innovation to firm-centered innovation Regional experimentation, incentives for local development
Focus on tertiary education reform Focus on firm performance, not social welfare or aggregate economic impact Competing Hypothesis:
Alternative to market-based institutional development theory
Instead, newly emerging sectors had different performance drivers.
Saturation of ties to gov. officials
Additional entrepreneurs found new models and sectors relying more on innovation and market competition.
Two ways to earn profits (gov. vs. mkt or innovation) If the latter model is true, then we expect:
1. For new sectors (software, electronics) even in the early time period, being in the coastal provinces or having government connections does not improve performance.
2. For the old sectors (non-software & electronics) there is no switch to entrepreneurial experience & innovation driving performance. SW & Elec Older sectors