Revisiting the impact of cultural diversity on creativity and entrepreneurial innovation : a Dutch-British comparative study on the impact of cultural diversity on creativity and entrepreneurial innovation

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1 | MSc Entrepreneurship Master Thesis by Nick Breukelman

Revisiting the impact of cultural diversity on creativity and entrepreneurial

innovation.

A Dutch-British comparative study on the impact of cultural diversity on creativity and entrepreneurial innovation.

Master Thesis

June, 2017

Supervisor: dr. P.J. Peverelli Author: Nick Breukelman Student number: 2501602

E-mail: n.breukelman@student.vu.nl

MSC Entrepreneurship

Faculty of Economics and Business Administration

VU University & UVA University, Amsterdam

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PREFACE

In January 2008 Bill Gates gave a speech at the World economic Forum where he introduced the concept of “Creative Capitalism”. In his speech he argued that creative capitalism is portrayed by innerpreneurs who have the characteristics of an entrepreneur but use their business to create social change rather than using their business to accumulate economic resources. He further argued that “creativity and entrepreneurial inventiveness will be the key for business success and that a country’s economic success is determined by its capitalists' ability to mobilize, attract and retain human creative talent”. This really inspired me since creativity and innovation are such intangible and complex concepts that nonetheless play a crucial role in economic development. Working at the British Embassy in the Netherlands taught me the importance of cultural differences. In my daily work I experience a lot of differences in the way of doing business, despite the close proximity between the Netherlands and the United Kingdom. Subsequently I read an article by Park, Burgess, and McKenzie (1925) in which they argue that “Great Cities have always been melting pots of races and cultures. Out of the vivid and subtle interactions of which they have been the centers, there have come the newer breeds and newer social types.” This remarkable quote and my personal experience of cultural differences in working in the British and Dutch business environment encouraged me to take a closer look at the impact of cultural diversity on creativity and entrepreneurial innovation.

The copyright of this thesis rests with the author and the author is solely responsible for the content of the thesis. The process of writing the thesis is always far from inmaculate and could not be without support from others. Therefore I would like to thank dr. Peter Peverelli for his excellent feedback and encouraging support throughout the process of writing this thesis. Furthermore I would like to thank the Michiel, the Department for International Trade, for offering me the opportunity to pursue the Masters of Entrepreneurship and offering their full support throughout the academic year. Finally I would like to thank Johannes and Martijn for being critical proofreaders. Everyone’s support was of utter importance and extremely valuable.

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ABSTRACT

The process of regional development is characterized by an increasing amount of individuals that are moving to urban areas and firms to relocate to the urban regions. There are studies that are aimed at explaining the underlying theories behind regional development. Two studies that try to explain how creativity and entrepreneurship contribute to regional development and other studies have shown mixed results in the role of national culture on regional development. This study therefore revisits the impact of culture on creativity and entrepreneurial innovation. More specifically, we investigated how creativity and entrepreneurial innovation are connected and how culture influences the relationship.

This study is focussed building a theoretical framework in the entrepreneurial and creativity paradigm. To be able to review the impact of creativity and entrepreneurial innovation we decided to focus our research on the United Kingdom and the Netherlands. To be able to determine the impact of culture on creativity and entrepreneurial innovation we narrowed our research and decided to compare six regions across the United Kingdom and the Netherlands. These regions show significant similarities in terms of gross domestic product in relation to the national GDP and sector specialism. To be able to determine the level of creativity and entrepreneurial innovation in the different regions we decided to take data from the Global creativity Index and the Global Entrepreneurship and Development Index. These results illustrate how creativity and entrepreneurial innovation is distributed across the different regions. Subsequently, we apply the theory of the 7 cultural dimensions of Trompenaars which are focussed on type of industry.

We compared the level of GDP per capita across the different regions sincecreativity and entrepreneurial innovation are positively correlated to the GDP per capita and explain the level of regional development. Subsequently we measured the impact of culture on the different levels of regional development. Our results indicate that cultural support has a significant impact on creativity and entrepreneurial innovation and that the difference in GDP per capita is partially explained by the level of cultural support in a region. To control this outcome we analysed how governmental policies influence the level of entrepreneurship. The results indicate that the United Kingdom has more favourable governmental policies towards entrepreneurship whereas the Netherlands has a higher GDP per capita in every region. Therefore the theoretical conclusion is that a difference in regional development can be explained by the cultural differences.

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1. INTRODUCTION

1.1 Introduction

To increase a country or region’s economic development policy-makers should understand the forces that drive development. Scholars have found several drivers to be associated within a macro-economic context; creativity (Florida, 2015), and entrepreneurial development (Acs, et al. 2015). However, other researchers have argued that cultural diversity also influences regional development (Trompenaars & and Hampden-Turner, 1997; Hofstede, 1980). This study therefore test the proposition that cultural diversity influences the level of creativity and entrepreneurial development by comparing creativity indices, entrepreneurial development indices, and cultural dimensions by Trompenaars (1997).

Although entrepreneurship is an area of research that has been studied thoroughly a well-developed unified definition within entrepreneurial paradigm is still lacking. There are several forces that influence entrepreneurship and its multidisciplinary nature further contributes to the existence of multiple perspectives. Without all these different perspectives entrepreneurship would not be in its current state and the merits of these perspectives are a contribution to a unified definitions. There are numerous drivers behind the concept of entrepreneurship and Adam Smith attempted to emphasize the role of human capital as a “fourth factor of production” alongside land, labour, and capital (Florida, 2015). In this study we will analyse the role of human capital by focussing on creativity which differs fundamentally from the other three factors of production. The second driver is entrepreneurial innovation which is becoming increasingly important due to the rise of programs, start-up communities, entrepreneurial policies, and investments on a global scale (Acs, et al. 2015). Scholars argue that these are extremely dynamic times with a new generation of digital development and risk taking people.

These drivers of entrepreneurship exist in a certain context which will be referred to in this study as culture. The aim of this study is therefore to review the impact of culture on creativity and entrepreneurial innovation and how this contributes to regional development. We apply a geographical focus since countries or regions are endowed by nature with different physical environments. Moreover, to succeed in a physical environment the members of a society will adopt a certain pattern of behaviour which then differs across country borders (Shane, S. 1993).

This study thus aims to analyse how creativity and entrepreneurial innovation differ across our geographical regions and how the cultural context influences these drivers. Many of

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existing research has focused on determinants and predictors of entrepreneurship while there has been less focus on how culture influences these drivers behind regional development. To allow ourselves to develop a relevant theoretical framework we will compare two countries; The United Kingdom and the Netherlands. Within these countries we will take a closer look at comparable regions to find out the impact of cultural diversity on creativity and entrepreneurial innovation.

1.2 Research Question

This study aims to get a deeper understanding of the impact of culture on creativity and entrepreneurial innovation. More specifically, our aim is to draw a comparison between two countries; The United Kingdom and the Netherlands. By determining what the impact of creativity and entrepreneurial innovation in different regions across the two countries is we will research the impact of culture on these drivers of entrepreneurship. In order to build a theoretical framework this study is directed by the following main question: “What is the

impact of cultural diversity on the level of creativity and entrepreneurial innovation in the Netherlands and the United Kindom?” In order to answer the main question we have

formulated two sub-research questions. These questions will enable us build a theoretical framework and to formulate an answer to the main research question.

1) What is the influence of creativity on regional development?

2) What is the influence of entrepreneurial innovation on regional development?

1.3 Theoretical and practical relevance

The variables that we will research in this study are rather complicated phenomena and therefore our aim is to enhance the theoretical constructs. By studying creativity and entrepreneurial innovation within their cultural contact we aim to increase the understanding of scholars of these drivers behind entrepreneurship. This study is relevant for both theoretical and practical fields since it will elaborate on studies by Florida, Acs, and Trompenaars which all have been focused on a particular factor whereas the our analysis of the combined factors offers more insight in the complex nature of culture.

From a theoretical point of view this study is relevant since it delivers a theoretical contribution to the impact of cultural diversity on creativity and entrepreneurial innovation. Our aim is to test and improve existing theories and answer previously unanswered questions. Moreover, we will use cultural distance as an independent variable since we assume that

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cultural diversity has an influence on the level of creativity and entrepreneurial innovation. Although these two drivers of entrepreneurship have been studied independently, few have actually combined them and researched them in the context of cultural diversity. Applying cultural diversity as an independent variable on two drivers of entrepreneurship will therefore be an interesting development in the research field of creativity and entrepreneurial innovation The practical relevance of this study can be found in the applicability for national and local governments, academics, regional development agencies, firms and organisations since it will provide them more insight into the factors that stimulate growth and how culture influences these factors. Countries, regions, and cities spend a significant amount of money on attracting firms to certain regions, therefore a better insight why certain regions are more attractive to firms provides them with a better understanding of how to attract certain firms. Not only will this knowledge be applicable when making their own policies and acquisition strategy, but it will also improve their understanding of other regions and the underlying cultural differences.

1.4 Thesis Structure

This thesis is structured according to the most commonly accepted structure. In his research “A resource for social scientists and practitioner researchers” Robson described the structure of research which we will apply throughout this study. (Robson, 2002). Chapter two will provide a literature review which aims to review existing body of literature and the current state of the research paradigm of creativity, entrepreneurial innovation and cultural diversity. We will provide a definition of the aforementioned variables and we will provide an extensive overview of the underlying concepts. The third chapter will focus on the methods that we use to collect our data and how we conduct our research. Moreover this section will explain why we made certain choices throughout our study and how this contributes to the theoretical framework. Chapter four will elaborate on the data that we collected and the results that flow from the data collections. Furthermore, this chapter will provide an interpretation of the results however our thorough analysis of the results will follow in the fifth chapter of this study. This chapter will provide an overview of how we interpret the results and how these results can be applied theoretically as well as practically. The final chapter is the conclusion of our research and provides an answer to the main research question.

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2. THEORY

This literature review can be considered as the fundamental knowledge base for this research since a single study cannot cover every perspective of the different variables in the same depth, so we have to distinguish between possible perspectives. The literature review is therefore the place where we will provide an overview of the selected perspectives and we will show the relationships and aspects that we will investigate in this study (Blumberg, et al 2008). The aspects that we have identified and that we will elaborate on within the spectre of this study are; the creativity theory of knowledge spillover entrepreneurship, entrepreneurial innovation, cultural diversity, entrepreneurial policies.

2.1 Creativity

In the first section of the theoretical framework we will elaborate on the concept of creativity. Creativity is defined as the ability to recognize opportunities and solutions to problems, or as creating something new. Creativity is more than just a way of observing, thinking or doing, it can be considered a combination of these aspects. Creativity is fundamentally different from the traditional factors of production that have formed the foundation for modern capitalism (Florida, et al. 2015). Florida argues that “It is not a stock of things that can be depleted or worn out, but an infinitely renewable resource that can be contin-ually replenished and deepened”. A significant body of literature about creativity already exists and the overarching theory is that innovation and economic progress stem from openness to talented people across the board (Florida, et al. 2015). We will introduce the creative class, which makes up more than thirty percent of the workforce on average in advanced nations. When we refer to the creative class in this study our intention is to describe a workforce including; scientists and technologists, artists, bohemians, cultural creatives, and media workers, knowledge-based professionals in business, education, and health-care (Florida, et al. 2015). A distinguishing characteristic of the creative class is that its members aim to create meaningful new forms. “These people engage in creative problem solving, and draw on complex bodies of knowledge to solve specific problems” (Florida, 2003,).

2.1.1 The creativity theory of knowledge spillover entrepreneurship

In this section we will elaborate on the creativity theory of knowledge spillover entrepreneurship and address the key constructs of the rise of the creative class as introduced by (Florida 2003, 2004). According to Florida the spillover theory of creativity can be defined by the fact that “creative centres are not thriving due to economic reasons but because the creative class clusters somewhere. The companies follow the people, or are started by them,

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which provides an integrated ecosystem where all forms of creativity take root and flourish” (Florida, 2003,). Florida elaborates on the original knowledge spillover theory by adding creativity since he argues that creative people are the key drivers of urban and regional growth. In another study (Audretsch and Belitski, 2013) the authors argue that “urban regions make it easier for business to find non-trivial solutions and attract creative people from all over because of their diversity, tolerance and availability of cultural amenities”. This builds on the theory by (Florida, 2003, 2004) which illustrates that the creative class searches for regions with a high level of tolerance and openness to new ideas and people. This implies that an uneven geographical distribution will occur across cities and regions. His ideas are particularly interesting when looking at the development of regions and his reasoning behind the clustering of the creative class. Florida argues that creative people not only generate new ideas, but due to the clustering of the creative class in these urban areas they also stimulate the overall economic activity which results in regional development. Consequently, the people climate is crucial to the ability of cities and regions to attract more creativity and that business follows creativity rather than people following businesses (Florida, 2003, 2004).

The creativity theory of knowledge spillover entrepreneurship gained a lot of attention globally since it approaches regional development from a people’s perspective rather than regional development originating from location decisions by businesses. Therefore policymakers, business developers, entrepreneurs, academia started acknowledging the theoretical perspective about the Creative Class being the key driver of urban and regional growth (Florida, 2003). In his study Florida further elaborates on this people’s perspective and argues that the level of creativity in urban areas and cities originates from the nature of the population in a region. A relatively high percentage of creative people in a population is the source of novelties, innovative ideas, a higher level of entrepreneurship and consequently a better economic climate according to Florida. Markusen elaborates on this view and argues that not only novelties, innovations and the level of entrepreneurship amongst creative people is the key driver of economic development but people that are employed by businesses that offer creative jobs with the freedom to act autonomously (Markusen et al. 2006). Markusen also argues that it is more important what people do in their day-to-day activities rather than their sector specialization or educational background, consequently their economic productivity stems from the level of innovation in a job. These ideas are particularly relevant to this research since it implies that regional development does not originates from the presence of particular industries but from the inhabitants of a region. We will further elaborate on this notion in the section about creativity and entrepreneurial innovation in the Netherlands and the United

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Kingdom since interestingly enough in both countries there is a clear regional distinction in terms of specific industry (e.g. healthcare, high-tech) density. So rather than the original knowledge spillover theory which focuses on the spillover of knowledge between businesses and sectors Florida emphasizes the spillover of human capital in the form of creativity which generates innovation within a city or region (Stolarick and Florida, 2006). Particularly the focus on the creativity aspect of human capital within the research by Stolarick and Florida is regarded as an important contribution to the relationship between human capital and economic development across regions. They break with the conventional idea that regional development depends on educational background of a region’s population. Bohemians are illustrative for this theory since mostly they haven’t acquired any form of formal education however they often cluster in regions where creative industries flourish. However (Marlet, 2004) argues that it is important to make a distinction between human capital which employed in a creative job and unemployed human capital. This is undeniably related to the argument that if human capital is unemployed there will be a lack of creative knowledge spillover and does not benefit a city or a region to economically benefit from the available human capital.

Another element that is addressed by Florida is geographical location, he argues that the organizing importance of companies evaporated and that cities and regions have become increasingly important organising factors (Florida, 2004). This is particularly interesting in the light of this research since we will have a look whether there is a clear difference in geographical location between the Netherlands and the United Kingdom but as well how cultural diversity determines the level of creativity across countries. According to Florida geographical preferences for people from the Creative Class can be ascribed to a region’s innovative and tolerant climate which is open to novelties and new ideas. “We found that talent or creative capital is attracted to places that score high on our basic indicators of diversity – the Gay, Bohemian, and other indexes. It is not because high-tech industries are populated by great number of bohemians and gay people but rather artists musicians, gay people, and members of the creative class in general prefer places that are open and diverse (Florida, 2003). However this is not equally distributed across cities or regions since there is a clear distinction between those regions in terms of tolerance. Therefore we will apply the tolerance index to different regions in the United Kingdom and the Netherlands and consider the level of tolerance. Additionally, Florida stresses that creative people in general value a broad spectre of cultural services which are often located in dense urban areas. Thus a broad spectre of cultural services can be considered a valuable asset to urban areas since it attracts the creative class and consequently becomes a location for businesses to invest. Florida thus argues that the

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sociocultural aspects such as a people’s climate is becoming increasingly important and that the rather conventional view centred round the importance of a business climate loses edge. This means that urban areas are developing towards more heterogeneous communities where weak ties, creativity and an open-minded mind-set have a cumulative effect on economic growth.

However, there is some critique on the creativity theory of knowledge spillover since it is questionable to what extend the “creative class” differs from other professionals. A significant body of research demonstrates that both the creative class as well as professionals from other disciplines (e.g. formal education) are indicative for urban and regional growth, however the Creative class indicators perform better than educational indicators (Florida, Mellander, and Stolarick 2008). This implies that the Creative Class serves as a good indicator for economic growth in a certain region or urban areas. Thus the tolerance index will function as a useful measurement in this research since it will give a good indication of how creativity distributed in both the UK and The Netherlands and how cultural diversity influences creativity distribution.

2.1.2. Creative capitalism

When we talk about creative capitalism as used by Florida in the global creativity index we use the definition of Bill Gates who introduced the concept of creative capitalism in his speech in 2008 at the World Economic Forum. Creative capitalism places social needs as the primary goal of economic activity rather than the accumulation as resources as the primary driver of capitalism. The global creativity index introduces creative capitalism and a clear distinction is made between the three ”T’s” of creative capitalism; Technology, Talent, Tolerance. The global creativity index (GCI) further describes creativity as a factor which increases the level of productivity and which is closely connected to urbanization (Florida et al, 2015). Important to stress is that according to the literature there are two approaches that dominate the balance between creative economic growth and inequality. As mentioned previously the tolerance index is an important predictor for the level of creativity in certain areas and the two paths can be considered as indicators for the difference of cultural diversity in regions. The first path that is identified is a High Road path, which is frequently associated with Scandinavian nations as well as the Netherlands. This path is a combination of high levels of creative competitiveness with a relatively low level of inequality (Florida et al, 2015). The Netherlands is categorized under the High Road Path since traditionally it has a close proximity to Scandinavian nations. This relatively low level of inequality is in other words a high score

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on the tolerance index. The other path, which is the Low Road Path, is associated with the United States and the United Kingdom, this path combines high levels of creative competitiveness with higher levels of inequality. Thus the difference lies in the level of inequality in the different paths. Additionally it is crucial to note that we will follow the line of the global creativity index in terms of measuring the level of creativity in the different regions across the Netherlands and the United Kingdom. Technology, Talent, and Tolerance will thus play an important role in our analysis to the level of creativity in the different regions and will form the basis to identify the influence of cultural diversity of different geographical locations. Some more critique on this theorization was published by (Marlet & van Woerkens, 2007) in their study “the Dutch creative class and how it fosters urban employment growth”. They found that the bohemian effect is less powerful than Florida suggests. They did an extensive study amongst various Dutch cities and found that the bohemian index is useful if Amsterdam is included in the research however when Amsterdam is excluded the bohemian index was not the most important predictor for employment growth (appendix A). Furthermore they argue that human capital as measured by educational level does not matter in relation the creative class. However that the creative class matters for the prediction of employment growth, so the fundamental questions is whether human capital should be replaced with creative class. (Marlet & van Woerkens, 2007) then argued that “human capital is the amount of knowledge and skills of an individual and the level of human capital in a certain location is the sum of the human capital of all individuals living and/or working in this place”. This means that they basically found that human capital and creative class refer to the same definition and therefore creative class and human capital can be considered theoretically identical (Marlet & van Woerkens, 2007). Therefore we will not only analyse the tolerance and technology index of the GCI but the talent index will be equally important in our study.

2.2 Entrepreneurial Innovation

2.2.1 Entrepreneurship

Almost a century ago in 1934 Joseph Schumpeter tried to define the basic principles of entrepreneurship and to capture all its factors in a single definition. His idea of entrepreneurship is that entrepreneurs are always searching for ways to disrupt established systems and by means of ongoing search for creative innovation replace traditional enterprises (Schumpeter, 1934). This so called search for disruption is a process that forms the basis of this definition for entrepreneurship and Schumpeter elaborated on this idea that someone can only be referred to as an entrepreneur if that person carries out innovations. Or in other words, entrepreneurship

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is inseparable from innovation. Another definition within the entrepreneurial paradigm is one by Porter that ‘Innovation and entrepreneurship are the heart of national advantage, and if there is a new way of processing or producing we call it innovation (Porter, 1990). Porter further elaborates on this by stating that innovation is one of the fundamental factors necessary for economic development in a region and is an ongoing process. Despite a 56 years timespan between the two theories they both connect innovation and entrepreneurship and we will therefore treat entrepreneurial innovation as unified factor in this research.

2.2.2 Entrepreneurial innovation

Innovation plays a large role in the presence or absence of entrepreneurship. Whether or not entrepreneurs operate in cultures that support new ideas, experimentation, novel solutions to problems, and the creative processes of entrepreneurs will determine the strength of innovativeness according to (Lee & Paterson, 2000).

In this section we will elaborate on Schumpeter’s theory of economic development since it fundamentally supports our view that entrepreneurial innovation is key in long term economic development. We realize that entrepreneurial innovation is not a warranty for succes and it depends whether an innovation is turned into a succes on how enterprises market their innovations. The theory that was developed by Schumpeter in “The Theory of Economic Development” in 1912 is still highly relevant and has been referred to substantially in the entrepreneurial research paradigm. In his theory Schumpeter ascribes a central role to the entrepreneur in long-term economic development. Highly relevant to this research is the notion that this theory of economic development is based on the overal fluctuations of the market and therefore takes a macro-economic perspective. He argues that markets are in a constant situation of fluctuation and thus never in a state of equilibrium (Schumpeter, 1912). Consequently markets are volatile and any given economic situation offers entrepreneurs the opportunity to disrupt existing industries. This implies that entrepreneurs are therefore constantly searching for ways to be creative and innovative in order to explore previously unexplored opportunities. This theory of economic development thus builds on capitalism where economic development is an entrepreneurial driven ongoing process which assumes that the economic environment changes constantly due to the disruptive nature of creative individuals (Schumpeter, 1912). As mentioned previously the theory by Schumpeter has been one of the fundamental theories about economic development and has been referred to numerous times, exemplary is the notion by (Kirzner, 1997) who stresses that entrepreneurs are not only constantly searching for ways to disrupt existing industries but that entrepreneurs

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are obliged to recognize these potential opportunities and disrupt markets accordingly. Once an opportunity is recognized by the entrepreneur he then combines his resources and human capital in the form of experience, knowledge, motivation and creativity to create new products and processes. (Patzelt & Shepherd, 2011) argue that this limited group of individuals is constantly in a process of recognizing these opportunities and aims to pursue these opportunities by aligning resources and human capital. The vast majority of the population does not recognize these opportunities or does not possess the necessary capabilities to pursue the opportunities. Thus a clear distinction between entrepreneurs and average citizens is the moral courage and lower level of risk aversion that moves entrepreneurs towards addressing identified opportunities. The ones that are initiating those alignments of resources to recognized opportunities are called entrepreneurs (Schumpeter, 1912) and are therefore inseparable from innovation. Hence in line with Schumpeter’s theory about the opportunity recognition obligation of entrepreneurs and Florida’s theory about knowledge spillover. This knowledge can be used to disrupt and develop markets, different products and target audiences. Entrepreneurship thus requires a certain level of creativity since it is not only about recognizing the opportunity but also requires that structural holes between resources and the eventual innovation are bridged and addressed accordingly. This is what Schumpeter calls value creation by recognizing opportunities and addressing them with new combinations of resources and human capital resulting in a new way of value creation (Schumpeter, 1912). This form of innovative creative destruction lies in the very nature of entrepreneurship and we therefore see that creativity and entrepreneurial innovation are strongly intertwined. The emergence of these new combinations lead to an increase of business activities in regions and (Florida, 2003).

2.2.3. Entrepreneurship and Development

Now that we described entrepreneurial innovation it is important to include how entrepreneurship contributes to economic development. In previous sections we have described how creativity plays a crucial role in the urbanization of areas but also in the economic development of certain locations. Next to the Global Creativity Index a global entrepreneurship and development index (GEDI) exists which is a ranking of all 130 countries by their GEDI score (Acs, et al. 2015). In our analysis we will incorporate the GEDI and research the influence of cultural diversity on GEDI score. According to (Acs, et al. 2015) the GEDI describes “how countries are seeking to entrepreneurial resilience to their economies benchmark their regulatory frameworks and ecosystem performance against other economies”. Economic

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development thus contributes to the way how countries structure their regulatory framework towards entrepreneurship and how they incentivise business development. Regulatory frameworks play thus a crucial role in the economic development of countries and cannot be left out of the equation. In our section about cultural diversity we will see that regulatory frameworks are also discussed by Trompenaars in his book on culture in business. Therefore we will discuss regulatory frameworks and how they contribute to economic development.

The GEDI makes a clear distinction between three A’s; Entrepreneurial Attittudes (ATT), Entrepreneurial abilities (ABT), Entrepreneurial Aspirations (ASP). According to (Acs, et al. 2015) the three A’s form the basis for the overal economic and development score, hence we will address the three sub-indexes ATT, ABT, ASP. Entrepreneurial attitude is defined as “the attitude of a society towards entrepreneurship, in other words the general feelings of the population about recognizing opportunities, knowing entrepreneurs personally, accepting risks associated with business start-ups, have the necessary skills to successfully launch a business” (Acs, et al. 2015). Entrepreneurial abilities is defined as the characteristics of entrepreneurs and of their businesses. The GEDI describes ABT as “start-ups in the medium- or high-technology sectors that are initiated by educated entrepreneurs, and launched because a person is motivated by an opportunity in an environment that is not overly competitive” (Acs, et al. 2015). The third sub-index is entrepreneurial aspiration which reflects the willingness of individuals to break free from their bosses and their search for autonomy. The researchers define ASP as “as the early-stage entrepreneur’s effort to introduce new products and/or services, develop new production processes, penetrate foreign markets, substantially increase their company’s staff, and finance the business with formal and/or informal venture capital”.

(Acs, et al. 2015) stress that the three A’s influence each other and thus cannot be considered separately. Thus, entrepreneurial attitudes influences entrepreneurial abilities and entrepreneurial aspirations, while entrepreneurial aspirations and abilities also influences entrepreneurial attitudes. These three sub-indexes are crucial to this study since they find a significant overlap in the cultural dimensions that have been identified by Trompenaars. In the section on cultural diversity we will elaborate on the cultural dimensions and also refer to the ATT, ABT, ASP indexes and how they fit in the different dimensions.

2.3 Correlation between creativity and entrepreneurial innovation

In the previous sections we have described how creativity and entrepreneurial innovation contribute to economic development in a region. Subsequently, in this section we will describe the relation between creativity and entrepreneurial innovation. It is important for

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the rest of this study to stress how creativity and entrepreneurship are related since we will analyse the influence of cultural diversity on this relationship. As previously addressed in the section on entrepreneurial innovation we see that entrepreneurship and innovation are inseparably connected and that innovation is fundamental for economic development in a region. With the theory of creativity knowledge spillover we stressed that for a region to increase its business activities it has to be tolerant and score high on the gay and bohemian index. Consequently, if a region scores high on the tolerance and talent index creative people tend to move towards a region and as a result business will follow. Businesses tend to find these innovative areas very attractive since it will enable them to profit from a high turnover of creative individuals. Consequently, a vicious circle emerges when a region is more tolerant and creative individuals cluster and spillover their knowledge. This again leads to the creative destruction of industries and innovative combinations that lead to the overal economic development of a region. In graph 1 we can see the correlation coefficient between creativity and entrepreneurship.

Graph 1. Correlation Creativity and Entrepreneurship

Global Creativity Index, pg. 28. source: Florida, et al. (2015)

The correlation coefficient between creativity and entrepreneurship is 0.827 which means that there is a strong linear correlation between creativity and entrepreneurship. This is in line with the theory by Florida and Acs that we described in the two previous sections. On a country level the correlation between creativity and entrepreneurship was also described and in the Netherlands and the United Kingdom the correlation is 0.9 which is above the global correlation between creativity and entrepreneurship. The corresponding correlations can be found in Appendix C. Following this theoretical body of literature we will consider creativity and entrepreneurship as two independent variables that show a significant linear correlation and we will examine how cultural diversity influences this relationship.

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2.4 Cultural Diversity

Cultural diversity is a concept which is rather complex, intangible and hardly generalizable (House et al., 2004). The reason why we incorporate the concept of cultural diversity in this research is because the concept becomes highly relevant in exploring the cultural differences between the United Kingdom and the Netherlands and provides an insight in how this influences entrepreneurial activities across the two countries. Trompenaars stresses that it is not the question if culture influences the way people do business internationally but how international business is affected (Trompenaars, 2007). Therefore we will zoom in on the cultural diversity between the UK and The Netherlands domestic markets rather than how respectively the Netherlands or UK do business internationally.

2.4.1 Cultural dimensions

Many academics attempted to define the concept of culture and, as with entrepreneurship, it has proven to be a difficult to define concept. Hofstede’s definition of culture is one of the most frequently applied theories in cultural sciences. He described culture as “the collective programming of the human mind that distinguishes the members of one human group from those of another. Culture in this sense is a system of collectively held values” (Hofstede, 1980). When we take a look at the different aspects of this definitions we see that Hofstede distinguishes members of one cultural group from members of another group. Within these groups people are considered individuals who have their own ideas that when combined form a demarcated collective (Hofstede, 1980). Another significant body of research has been done by Fons Trompenaars who approached the definition of culture from a group perspective rather than an accumulation of individuals. In this research we will fundamentally approach cultural diversity making use of the theory developed by Trompenaars since our aim is to distinguish cultural diversity between two nations, and thus a group perspective seems more applicable rather than an analysis of individuals combined into a collective.

In 1980 Hofstede was the first to distinguish four universal cultural dimensions; uncertainty avoidance, power distance, individualism, masculinity/femininity which became the measurable variables for the conceptualization of culture. In a later phase Hofstede added a fifth dimension to his framework, Confucian dynamism also known as long term orientation which completed his framework. Another authority in the research paradigm of culture is Shalom Schwartz who in 1994 focused on values in his “Beyond Individualism/Collectivism: New Dimensions of Values”. (Schwartz, 1994) approached the context of culture in a different way than Hofstede did. With this new approach on values Schwartz attempted to rate the

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perceived importance of values in a certain cultural environment, on an individual level. Rather than on the individual level, Schwartz conceptualized on a cultural leven and identified seven dimensions; harmony, embeddedness, hierarchy, mastery, affective autonomy, intellectual autonomy, and egalitarianism (Schwartz, 1994). We can thus say that these two theories complement each other and the cultural dimensions by Hofstede and the values by Schwartz can thus be used to measure the level of cultural diversity. However as previously mentioned these two approaches focus on the perception of the individual towards culture rather than the overal group perception.

In this research we will focus on value differences between the United Kingdom and The Netherlands as a group and not between individuals, and cultural diversity refers to the differences in cultural values between two countries (Trompenaars, 1997). As previously mentioned, it is complicated to measure cultural diversity and therefore we have chosen to apply the theory by Fons Trompenaars and Charles Hampden-Turner. Trompenaars identified seven dimensions of culture which he used to measure the cultural diversity between two countries; universalism versus particularism, individualism versus communitarianism, specific versus diffuse, neutral versus emotional, achievement versus ascription, sequential time versus synchronous time, internal direction versus outer direction. Trompernaars and Hampden-Turner found that different cultures not differ in a random way but that these differences are measurable and even predictable (Trompenaars, 1997). We will shortly address the seven dimensions identified in the theoretical model since we use the dimensions to distinguish the differences between the United Kingdom and The Netherlands. In the method section we will further elaborate on the methods we used to retrieve and apply the data of Trompenaars and how this is connected to the Global Entrepreneurship and Development Index by (Acs, et al, 2015). Below we will first elaborate on the cultural diversity dimensions by Trompenaars and how they reflect entrepreneurship.

According to Trompenaars and Hampden-Turner universalism in a culture refers to a high perceived importance on laws, values and rules, within universalistic cultures rules outweigh relationships. Whilst in particularism relationships dictate the rules that they live by. Based on the situation and depending on the involvement people adjust their responses. Trompenaars argued that particularistic entrepreneurs act authoritarian in their decision-making style (Tiessen, 1997).

The second dimension focuses on individualism which means that a culture values personal freedom, ambitions and achievements, whereas in communitarian cultures the group is perceived as more important that the individual. This implies that the individual is

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subservient to the community (Trompenaars, 1997). Entrepreneurship is frequently identified as individualistic rather than a collectivistic approach. (Scheinberg and MacMillan, 1986) argue that intrinsic motivation such as wealth, personal development, independence, the need for approval and escape from unsatisfactory work is what drives new entrepreneurs. Collectivism is often identified as corporate entrepreneurship and considered as team innovation rather than driven by intrinsic motivation (Tiessen, 1997). The third dimension relates to the first two dimensions since Trompenaars argues that in a specific culture people keep work and private lives separated and, as we saw in the first dimension, relationships therefore do not have a major impact on individual objectives. On the other hand, in diffuse cultures work and private life influences one another and the distinction between professional and private matters is less specific. Then Trompenaars and Hampden-Turner identify a fourth dimension in their research, neutral versus emotional. In cultures that are perceived as neutral people tend to make great efforts to control their emotions and not let those emotions interfere in their work lives. In more emotional cultures people tend to express their emotions more openly and even at work they tend to be more emotional (Trompenaars, 1997). Another dimension is called achievement vs. ascription. Cultures that are focused on achievement tend to value performance, no matter who you are. In these cultures performance play an important role and it defines what you are, since “you are what you do, and you’re valued accordingly”. On the contrary, ascriptive cultures are more hierarchical in essence. People believe that you should be valued for who you are, however power, title and job position matter. Consequently in ascriptive cultures there is less room for creativity and entrepreneurial mind-set within the business culture (Hofstede, 1991). The sixth dimension is sequential time vs. synchronous time. Sequential time means as much as people like events to happen in order, punctuality and planning is thus perceived as crucial in business environments. “Time is money” is probably the best summary for the sequential characteristics of a culture (Trompenaars, 1997), (Hofstede, 1991). Whereas in synchronous cultures the past, present and future are perceived as interwoven periods, more often than in sequential cultures several projects run at the same time and their view on planning and schedule is flexible. Synchronous oriented entrepreneurs are focused on events and external elements in their environment. On the contrary sequential entrepreneurs have a more internal focus on activities that happen within the boundaries of their ecosystem (Bluedorn, 1991). Frequently entrepreneurs are open to synchronous systems that stimulate the creative debate and thinking such as opportunity recognition and idea generation. On the other hand Griessman argues that, “sequential entrepreneurs control attention by switching with techniques, such as quiet times and appointment schedules, in order

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to work on task lists in order” (Griessman, 1994). The final dimension is internal direction versus outer direction. This dimension has a clear distinction between cultures that believe that they have the ability to control nature and their environment (internal direction) and an outer direction, where cultures believe that the environment controls them and they have to cooperate with the environment to achieve goals (Trompenaars, 1997).

This section on cultural diversity illustrates that cultures can be defined in terms of dimensions that encompass the way cultures act and more specifically how entrepreneurship and creativity are related to the different dimension of the cultural paradigm. However there is also some critique on Trompenaars’ cultural diversity theories by Geert Hofstede.

Hofstede argues that Trompenaars confuse conceptual categories with dimensions. Conceptual categories are boxes in the mind of the researcher who studies a culture whereas it should be the purpose of the research to replace these preconceived conceptual categories with empirical findings (Hofstede, 1996). Additionally Hofstede argues that by applying this research design to the research population the collected data will function as a primary source to redefine existing theories. Hofstede acknowledges that Trompenaars has gone through this process however “his research samples were small and poorly matched; also, a number of nine countries is statistically insufficient to develop a multidimensional model” (Hofstede, 1996).

2.4.2 Government Policies

Besides our theoretical description of cultural diversity and the dimensions of culture that have been identified by Trompenaars and Hofstede we believe it is necessary to add an additional factor which influences the level of entrepreneurship in a country. We will therefore elaborate on the theory behind government policies directed towards incentivising entrepreneurship in countries. In general, for the growth of entrepreneurship, a political system needs to be built on the freedom of choice, individual rights, democratic rules, and balances of government (Lee & Paterson, 2000). Therefore facilitating entrepreneurship is high on many government policy agendas and we see that the policies that are aimed at incentivising the emergence of entrepreneurship have become increasingly important (Acs, et al 2015).

We have added this sub-factor to our theoretical framework since we think that it is necessary to explain how government policies influence the level of entrepreneurship in a certain country. In this study the main focus is to explain how cultural diversity influences the level of creativity and entrepreneurship in a country however, following Trompenaars book “Riding on the waves of culture”, we believe that it is important to take into consideration how government policies stimulate creativity and entrepreneurship. In his book Trompenaars argues

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that a universalistic approach influences structures and policies within a country. Consequently universalistic countries prefer consistent and uniform procedures (Trompenaars & Hampden-Turner, 1997).

For cultures to adopt an entrepreneurial ecosystem it is necessary that entrepreneurial friendly policies are facilitated by governments. Therefore many governments talk about support ecosystems that cover the entire life cycle of a new venture; the early days of the start-up, the scale-up phase, becoming an SME, international consolidation projects and expansion (Acs, et al 2015). However Acs argues that the governmental policies still lack understanding what entrepreneurial ecosystems are and the policies remain unfocused and are therefore unable to fundamentally change ecosystem functions. This problems stems from a disconnection between the academic and the policymaker world. There is too little research on entrepreneurship to come to a single definition of an entrepreneurial ecosystem with the result that when governments and researchers talk about entrepreneurial ecosystems the may be referring to different definitions. (Acs, et al 2015) stresses that this disconnect undermines the efficiency of current policies but also the design of new policies that are directed towards entrepreneurial activity and stimulate economic development of regions. Consequently it is necessary to understand entrepreneurial ecosystems at a country level and not as the sum of individual efforts. Which means that policies can only be designed effectively at a country level and that the quantity of entrepreneurs does not define the economic development of regions. Nevertheless comparing the influence of policy on the level of entrepreneurship across nations is rather difficult since there is an absence of a universally agreed definition of entrepreneurship. This causes difficulties in comparing the level of entrepreneurship for different time periods and countries (Audretsch, et al 2007), (Acs, et al 2015). Different economies have different strengths and face different challenges which therefore require a different approach in terms of entrepreneurial policies. (Audretsch, et al 2007) therefore links the impact of governmental policies on the level of entrepreneurship in countries. The researchers make a distinction between nascent entrepreneurs and actual entrepreneurs. Nascent entrepreneurs are people who take the first active step to start a business, whereas actual entrepreneurs are individuals who are actually running a business.

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(Audretsch et al, 2007)

The impact of different policies on various types of entrepreneurship differs quite substantially in the table and we can see that lowering barriers to start-up is an effective policy for nascent entrepreneurship. This implies that individuals tend to start a business if there are fewer barriers. Whereas lowering barriers to expansion and growth has a strong impact on actual entrepreneurs. Finally, providing advice support and public funds has a strong impact on all types of entrepreneurs and can be considered as the fundamental building blocks of an entrepreneurial ecosystem (Audretsch, et al 2007), (Acs, et al 2015).

Consequently, it is important that policymakers come to a realization that entrepreneurship is not only about individuals or the quantity of entrepreneurs within a region or country, but context is equally important. As illustrated previously a nascent entrepreneur who just started a new business may have a different growth perspective than an actual entrepreneur, and thus require different facets within entrepreneurial policies. (Acs, et al 2015) therefore argues that “It is important to understand that a country’s economic and social contexts—that is, its conditions for entrepreneurship—not only influence the success of a new venture but who starts the venture in the first place”. This is in line with our study on cultural diversity in different countries and the intension of starting a business. In summary, policies that ignore this aspect of the entrepreneurial dynamic are not likely to be effective if the individuals who have the right skills and attitudes are not those who start new firms (Audretsch, et al 2007). Thus we can say that the level of creativity rather important for the level of entrepreneurial innovation in a country, and that entrepreneurial policies increase the quantity of individuals starting up a new firm but not necessarily the level of economic development of a region or a country. This still depends on the individual who starts a business and thus relies on the level of creativity within a region. Consequently, according to Acs “the entrepreneurship systems framework emphasizes the effects of institutions and infrastructure combined with individual-level attitudes, ability, and aspirations” (Acs, et al 2015).

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3. METHODOLOGY

In this section we will provide an overview of the methods that we used for conducting our research. We aim to provide a detailed overview of the rationale for the used methods and will discuss the decision that were made to come to this research design. In order, we will give an overview of the research question and the underlying philosophy to give a clear overview of the research design. Subsequently we will elaborate on the geographical research setting, the Netherlands and the United Kingdom. To verify the outcomes of the research we have added two geographical areas as a control areas. To conclude this chapter we will end with an analysis of data collections methods that have been used as well as the internal and external validation of the research.

3.1 Research Paradigm; Research philosophy and approach

The aim of this research is to validate and to improve existing theory on creativity and entrepreneurial innovation. To provide a substantial overview of these variables we will focus on identifying the relevant theories behind these variables and to explain how they are influenced by cultural diversity. We will use previous knowledge as a foundation to explain the variables and we will give an overview of the theories that have been applied to the problems. Our research will follow the ontology research paradigm by analysing the nature of reality, or being by means of existing literature. Within the ontological research paradigm we will reflect the philosophy of positivism since we prefer to work with an observable social reality which results in law-like generalisations (Saunders et al., 2009). Our aim is to produce law-like generalisations as an end product of the study and an important assumption is that the research is value free, which means that the researcher is independent of and neither affects nor is affected by the subject of the research. We will remain independent of the data and maintain an objective stance since our aim is to build on the existing theories (Blumberg, et al 2008).

In this research we will analyse qualitative data and therefore we will follow an inductive reasoning approach. Saunders et al. (2009) argue that there are a number of inductive based analytical procedures to analyse qualitative data. The use of an inductive approach allows a good “fit” between the social reality of the researched area and the theory that emerges, it will be “grounded” in that reality Saunders et al. (2009). The purpose of the study is to find out if, and why there is a difference between the two geographical areas. Therefore this will be a causal study that tries to explain the relationships among variables (Blumberg, et al 2008). The state of the theory is mature and therefore aligns with our research approach since Saunders argues that to research a subject area you need competent level of knowledge about that area.

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We therefore commence this research with a clearly defined research question and objectives building on existing theories.

3.2 Overview research question

This research is based on two different dependent variables and how they influence on another; Creativity and Entrepreneurial Innovation. This study aims to compare the level of creativity and entrepreneurial innovation, and the relationship between the two variables in the chosen geographical research field. However to explain the possible research outcome across the different geographical regions we will add the independent variable cultural diversity. The central question therefore is whether cultural diversity has any influence on creativity and entrepreneurial innovation.

To allow ourselves a unit of measurement we choose to make a geographical distinction and to compare the United Kingdom and the Netherlands. In order to answer this question we addressed the theories independently as well as combined. An overview of the research question and subsections can be found in table 1.

Research Question

Revisiting the impact of cultural diversity on creativity and entrepreneurial innovation

A comparative study between the United Kingdom and The Netherlands

Dependent Variable Theory

Creativity The creativity theory of knowledge spillover

Innovative Entrepreneurship Schumpeter, Patzelt

Independent Variable Theory

Cultural Diversity Riding on Cultural Waves, Trompenaars

Sub: Government Policies Global Entrepreneurship and Development Index

3.3 Unit of measurement

The level at which this research is performed is at the regional level. We will compare different regions in the Netherlands, and we will do the same for the United Kingdom. We will then measure the level of creativity and innovative entrepreneurship within the different regions and compare the outcomes of the analysis in the Netherlands with the outcomes of the analysis in the United Kingdom. As previously mentioned cultural diversity will be the

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independent variable in this research that aims to explain the level of creativity and entrepreneurial innovation in the geographical area. In the theoretical framework section about creativity we introduced tolerance as a measurable, however to verify the outcomes of the comparison between the United Kingdom and the Netherlands we have added have added government policies as a sub category under cultural diversity. We have added this sub category to the theoretical framework as well as a two additional countries that will be necessary towards the law-like generalisation. We have chosen to add two countries with that differ in terms of culture and political climate to be able to explain the influence of the country factors on the dependent variables.

3.4 Research Setting: The Netherlands and United Kingdom

The setting of this research is The Netherlands and the United Kingdom. Our aim is to compare the level of creativity and entrepreneurial innovation in the two countries. To be able to verify the data we will zoom in on different regions in both countries which allows us to describe differences between the regions which will form the foundation to describe the differences on a country level.

We based our decision for these three regions on three characteristics; geographical location, regional GDP in relation to national GDP, regional sector importance. These three characteristics are crucial within the scope of this study since the difference of geographical location rules out that there will be an overlap in data between certain regions. The regional GDP in relation to the national GDP is important since it will enable us to analyse the correlational data between creativity and GDP. Regional sector importance is the third crucial factor since Trompenaars applied cultural diversity dimensions to industries. Therefore on a regional level we have identified three regions within the Netherlands that we will focus on; province North-Holland, province Brabant, province Friesland. This distinction is also applicable to the United Kingdom therefore we will focus on three specific regions; Greater London, Manchester/Liverpool region, Northern Ireland. Our decision for the regions originates from the nation that the three regions in the Netherlands show similarities with equivalent regions in the UK (NFIA, 2017). Within the scope of this research we identified similarities between province of North-Holland and greater London, Brabant and the Manchester/Liverpool region. Therefore following these regional similarities we will draw a comparison for the level of creativity and entrepreneurial innovation to allow ourselves to identify the influence of cultural diversity on a country level.

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The region of North-Holland and Greater London show similarities since both regions are considered to be the engine of the national economy and therefore attractive to international oriented companies. Regional sector focus is on the financial sector and the technology/start-up scene. Furthermore, Greater London makes technology/start-up 22.2% of the national GDP whereas North-Holland province makes up 20.95% (CBS, 2017) of the national GDP (NFIA, 2017). Secondly, we chose for the region of Manchester/Liverpool and the province of Brabant since these regions are considered the economic centre of the North whereas in the Netherlands Brabant counts as the economic centre of the south of the Netherlands. Brabant and Manchester/Liverpool have become a cluster of high-tech firms, including multinational enterprises such as Philips. Their GDP’s are respectively 15.09% (CBS, 2017) for Brabant and 9.30% for Manchester/Liverpool (NFIA, 2017). The most important sectors within the regions are circular economy, life sciences, healthcare (BOM, 2017). We can also link the region of Northern-Ireland to the province of Friesland due to their sector focus on Food/Drink and the “make” industry. The GDP of Friesland is 2.6% (CBS, 2017) of the total national GDP in the Netherlands whereas the GDP of Northern-Ireland makes up 2.2% of the total GDP in the United Kingdom (NFIA, 2017)

The different regions therefore provide an interesting and suitable setting to study the level of creativity and entrepreneurial innovation. Subsequently, since we are investigating the effect of cultural diversity on creativity and entrepreneurial innovation we will compare these variables across the regions which will form the foundation for our analysis of creativity and entrepreneurial innovation on a country level.

3.5 Data Collection

As previously mentioned, we will build on the existing theories and we will gather data from different data sources. The aim of the study is to contribute to the field of creativity and entrepreneurial innovation and the influence of cultural diversity on these variables. Therefore for this research we will use data from the Global Entrepreneurship and Development Index 2015, which indicates how countries score in terms of entrepreneurship and development (Acs, et al, 2015). The global entrepreneurship and development index is compiled by the global entrepreneurship and development institute (GEDI) which is a non-profit organization that studies the relationship between entrepreneurship, economic development and prosperity. GEDI measures the quality and dynamics of entrepreneurial ecosystems at a national and regional level and is therefore a fundamental source to analyse entrepreneurial innovation in relation to cultural diversity (Acs, et al, 2015). The factors that are described in the

Revisiting the impact of cultural diversity on creativity and entrepreneurial innovation : a Dutch-British comparative study on the impact of cultural diversity on creativity and entrepreneurial innovation