Determinants of innovativeness for
Opportunity and Necessity Entrepreneurs
Lisa Goverts
MSc Entrepreneurship Joint Degree UvA -‐ VU
First Supervisor: Dr. M. Lebreton
Second Reader: Dr. P. Koellinger
Date: 01/07/2015
Table of content
Executive Summary ……….………2
1. Introduction ………...……….3
2. Literature review ……….…….7
2.1.1 Theoretical background………...……7
2.1.2 Entrepreneurship and innovation………...….7
2.1.3 Opportunity and Necessity entrepreneurs………..…….8
2.1.4 Innovation and Opportunity & Necessity entrepreneurs ……….10
2.2. Individual and environmental factors influencing innovative entrepreneurial activities ………...11 3. Methodology ………...…15 4. Empirical results ………22 5. Discussion ………...….28 6. Conclusion ………...32 7. References ………....34 8. Appendices………....37 Appendix 1………..…37 Appendix 2………..…38 Appendix 3………..………39 Appendix 4………..………40 Appendix 5………..………40 Appendix 6………..………41 Appendix 7……….………42
Executive Summary
In this research the determinants of innovativeness on opportunity and necessity entrepreneurs are investigated. Entrepreneurs differ in their reasons and motivations to start a new business as well as the type of novelty that they bring to the market. The sample of nascent
entrepreneurs is divided into two subgroups, opportunity driven entrepreneurs and necessity driven entrepreneurs. Opportunity entrepreneurs start a business due to a perceived business opportunity whereas necessity entrepreneurs engage in entrepreneurship due to the lack of other options. This study provides theoretical background and empirical results of
entrepreneurial innovativeness in opportunity and necessity entrepreneurs. The findings show that innovativeness in nascent entrepreneurs is dependent on both individual and
environmental factors. In particular, high degree of self-confidence and the GDP of the country the nascent entrepreneur is located, are significantly stronger determinants of innovativeness for opportunity entrepreneurs. Striking is that in both developed and
developing countries the majority of the nascent entrepreneurs are innovative and opportunity entrepreneurs. Subjectivity should be taken into account when analysing the findings of this paper. The data is gathered from the Global Entrepreneurship Monitor (GEM), the world’s foremost study of entrepreneurship. Data of 20 developed countries and 20 developing countries is gathered from the Adult Population Surveys for the years 2009-2011, yielding a sample of 13580 nascent entrepreneurs. The survey entails questions on entrepreneurship and innovative activities, however the respondents answers are influenced by individual choice and perceptions. Subjectivity of what one perceives as novel and whether one classifies himself as opportunity entrepreneur varies per individual and ones environment.
1.
Introduction
The worlds’ economy has shifted a lot in the past ten years. Big organizations and businesses dominated the corporate world and benefitted from a high local workforce. However, without small business the economy would not survive. The economic depression of 2008 has brought along a shift in our rapidly changing economy and is heading towards an entrepreneurially inspired and innovative business culture (Drucker, 2015). While countries are suffering from the recession, entrepreneurship has been flourishing because it is essential for a continued dynamism of the modern market economy (Klapper, Laeven and Raan 2006). The economy was already shifting, however the recession has stimulated this shift towards a rapid growth of entrepreneurial culture, including incubators, funds and accelerator programs.
This new market asks for innovation. In the past, organisations were able to survive by delivering and updating quality products, however trends have developed which stir
innovative activities. Delivering good products is not enough, globalisation and outsourcing push to improve the efficiency of those organizations and start ups and demand innovative processes. Business leaders and politicians often quote entrepreneurship and innovation as if these processes are the ingredients of success (Johnson, 2001). However, despite the
structural change in modern economies and the increasing popularity of entrepreneurship, macroeconomic models of business cycles usually abstract from entrepreneurship (Koellinger & Kurik, 2012). Entrepreneurship and innovation can provide competitive advantage,
however there are many businesses that survive by copying and adapting to the innovations of others. A distinction between purely innovative business activities and imitative business activities is often hard to draw. This may be due to the fact that there is still lots of misunderstanding on what one considers to be entrepreneurship and innovation. Entrepreneurship can be defined and recognized in various ways but it is widely
acknowledged that the field of entrepreneurship lacks a well-accepted definition (Gedeon, 2010). Being an entrepreneur involves risk and uncertainty, incentives to engage in this risky business are therefore critical; however the force that stimulates people to engage in
entrepreneurship is often poorly understood.
Even though entrepreneurship has become a popular career option and innovative business are stimulated, little research has been done to analyse what innovativeness means in the
entrepreneurial field and more specifically on what the determinants of innovation are for entrepreneurs. Where do these entrepreneurs come from, why do they engage in
entrepreneurship and what makes those entrepreneurs innovative? These are the main questions that arose when analysing these topics and formed the incentive for this paper. An often-used definition of entrepreneurship is the definition of Schumpeter (1934). He states entrepreneurship as innovative and change oriented behaviour and the carrying out of new combinations. Nonetheless there are several types of entrepreneurs who have different motives and incentives on why to become an entrepreneur. Not all entrepreneurs respond to their environment in a uniform way (Zali, Faghih, Ghoti & Rajaie2012). The reason why they start a business can either be because they seize a new business opportunities but can also be because they are forced into entrepreneurship due to lack of other options. These reasons are respectively based on opportunity driven motives or necessity driven motives. These motives form the start of entrepreneurial activity and entrepreneurial activity is the motor for innovation. Entrepreneurs can steer growth and creation of new business either with innovation or without. However, innovation trumps entrepreneurship when it comes to
economic growth and thus assumingly innovative entrepreneurs form the most important layer. In this paper we analyse the effect of opportunity entrepreneurs on the determinants of innovation and provide empirical evidence that determinants of innovation are especially stronger for opportunity entrepreneurs.
The focus of this paper is on nascent entrepreneurs. Nascent entrepreneurs are individuals engaged in creating new ventures. ‘They are starting their new business at the time they are interviewed and are not the result of an ex post evaluations of past decisions of successful entrepreneurs’ (Arenius & Minniti, 2005). The focus on nascent entrepreneurs is because they bring new knowledge and routines to the world. The nascent entrepreneurs studied are divided in two subgroups; necessity entrepreneurs and opportunity entrepreneurs based. This division is based on their reasons to engage in entrepreneurship. Entrepreneurs are motivated by different incentives and life circumstance, these incentives can be necessity based or opportunity based (Reynolds, 2002). Necessity based indicates that people start a business because they lack other employment options or because the other options are unsatisfactory. Instead opportunity entrepreneurs take advantage of a perceived business opportunity (Hechavvaria & Reynolds, 2009). In addition to the difference between necessity and opportunity entrepreneurs, this paper examines the impact of those two subgroups on
innovativeness. Not all entrepreneurs are per definition innovative. Economic growth is fuelled by both innovation and imitation (Segerstrom, 1991).An entrepreneur does not have to be innovative to start his own venture, imitative entrepreneurship happens frequently. Innovation focuses on producing new products or services based on new technologies and market with almost none competitors, whereas imitation is related to a market with many competitors and comparable products (Koellinger, 2008). However, often it is not so easy to draw a line between innovative and imitative activities.
This paper is based on theoretical background of existing academic journal papers on entrepreneurship and existing data of the Global Entrepreneurship Monitor (GEM). A study of Koellinger (2008) ‘Why are some entrepreneurs more innovative than others’ has formed the basis for this article. The study of Koellinger provides insights in the emergence of
entrepreneurial innovativeness. This paper provides a replication of Koellingers study for the years 2009 to 2011 based on forty countries. The aim of this article is to do further research on the determinants of innovation of an entrepreneur but, instead of focusing on the nascent entrepreneur as a whole a distinction is made between necessity and opportunity
entrepreneurs. Necessity entrepreneurs are expected to be in countries with a log GDP where unemployment is high, because these entrepreneurs lack options to starts as an employee and thus start their own business. Likely is that necessity entrepreneurs have less intention to search for new business opportunities, imitative entrepreneurial activities will suit their needs and gain more security for profits due to existing track records. Thus, expected is that
opportunity entrepreneur’s show a greater determinant for innovation To provide additional insight to the paper of Koellinger (2008), new hypotheses are formed and interaction terms are added to test the additive effect on the slope of the determinant in the model. The paper discusses the environmental and individual factors of an entrepreneur and its determinants of innovation. The paper of Koellinger focuses on 30 countries, however the GEM has expanded and more countries are added to the data. This paper includes 40 countries of which twenty developed economies and twenty developing economies. The paper of Koellinger focuses on thirty countries of which most are developed, in this paper an equal division is made to forestall biased result. This research will be the based on the following research question:
What is the impact of opportunity entrepreneurs and necessity entrepreneurs on the determinants of innovativeness?
To answer the research question four hypotheses have been formed based on extensive literature review. These hypotheses are based on three individual factors and one
environmental factor. The individual characteristics are (i) the individual’s perception of having the skills, ability and experience to be an entrepreneur, (ii) the fear of failure and (iii) the level of education obtained by the nascent entrepreneur. The first, perception of skills, ability and experience, can be rather biased. High failure rates and low returns imply that too many entrepreneurs enter the market and evidence has been found that subjective perceptions have a big influence on entrepreneurship (Koellinger, Minniti & Schade, 2007). Some
entrepreneurs can be too confident of having the qualified skills to be an entrepreneur, which might lead to failure. The second individual attribute, fear of failure, is related to the amount of risk an entrepreneur is willing to take for his new business. A high fear of failure insinuates that the entrepreneur is less willing to take a risk due to the uncertain outcome of its actions. The level of education of the entrepreneur is the third individual character. Education has a close relationship with entrepreneurship; entrepreneurs do have a higher level of education than wage-employed individuals (Robinson & Sexton, 1994). This paper focuses on the difference in innovation between entrepreneurs with a tertiary and those not.
The environmental variable added to the data is the gross domestic product (GDP) per capita. More necessity entrepreneurs will assumingly be present in developing economies with lower GDP due to the lack of other employment options. Entrepreneurs in developed countries are close to operating at the worldwide production possibility frontier (PPF), meaning that there are fewer options for imitative businesses (Koellinger, 2008).
The literature review provides operationalization of the concepts entrepreneurship and innovation and clarifies opportunity and necessity entrepreneurs. Individual and
environmental factors influencing entrepreneurial behaviour are integrated in the theory. Extended data collection of the GEM created the basis for regressions to test the hypotheses. Empirical evidence of those 4 hypotheses gives insight on the determinants of innovativeness of necessity and opportunity entrepreneurs and shows that both individual and environmental factors are determinants of innovation.
2. Literature review
2.1.1 Theoretical background
To answer the question: ‘What is the impact of opportunity entrepreneurs and necessity entrepreneurs on the determinants of innovativeness?’ it is important to understand the concepts innovation and entrepreneurship. Entrepreneurs differ on many levels, the reason why they engage in entrepreneurship, how they act as an entrepreneur and how innovative they are. In the field of entrepreneurship innovation is a critical point, however clear
definitions regarding entrepreneurship and innovation are hard to obtain. Over the years the definition of what an entrepreneur is, has raised misunderstanding and complexity. However, by reviewing relevant literature on the topic of entrepreneurship some definitions on the phenomenon entrepreneurship and the entrepreneur himself can be formed.
2.1.2. Entrepreneurship and innovation
Entrepreneurship is one of the engines of growth in all economies; therefore understanding the phenomena is of great importance. Entrepreneurship in its narrowest sense means to capture an idea and convert it into products or services, which results in a new business that enters the market (Johnson, 2001). Although the phenomenon is still complex,
entrepreneurship exists already for a long time. The entrepreneur was seen as an independent commodity speculator, but after the industrial revolution the entrepreneur adjusted to the new demands of rapid industrial development (Hamilton & Harper, 1994) The entrepreneur became an individual whose function was to manage his own business and was able to do this in an environment where risk is inherent. An important, and still used, definition comes from Schumpeter (1911) He identified the entrepreneur as a creative, driven individual who finds new combinations of production to create new products and services, or enters a new market or designs a new technology. These forms of entrepreneurship are fully based on novelty and creating new combinations and focuses thus mainly on innovative activities. The famous Schumpeterian analysis states that innovation is more than improvements in technology. Innovation can happen at various levels and that is why it is often hard to draw a line on what we call innovative and what imitative. Schumpeter (1934) speaks of five cases of innovation. The introduction of a new good, a good that is not familiar among consumers or is of new
quality, the introduction of a new production method, one that is has not been tested by experience, the opening of a new market, a market not yet entered by the particular industry, the conquest of a new source of supply, this can be of either raw materials or
half-manufactured goods and last, the carrying out of the new organization of an industry, e.g. carrying out of a monopoly. All these cases represent different forms of innovation creating novel innovative businesses.
Characteristics of entrepreneurship can be studied based on individual factors and
environmental specific factors. Literature has mostly focused on the entrepreneur as a person rather than on the influences of the environment that makes him a certain type of
entrepreneur.
For this article we focus on innovation in entrepreneurial activity. Innovation requires novelty and has little track record. It implies courage of the innovator to start an innovative business. Not every innovation has as much as an impact but this does not mean that an entrepreneur is more or less innovative. Radical innovations have a considerably bigger impact on the emergence of new markets and new business successes, these radical innovations are more likely to be developed by industry outsiders or newcomers to the industry or market (Gopalakrishna, Kessler & Scillitoe, 2010). There have been some debates on whether innovation (just as entrepreneurship) can be taught. Innovative entrepreneurs are defined as individuals who motivate and stir the innovation process and not just manage the process (Gopalakrishnan et al., 2010). Often it is a combination of the innate characteristics and taught characteristics of an individual, which implies that studying environmental as well as individual characteristics is of importance.
2.1.3. Opportunity and Necessity entrepreneurs
The innovative entrepreneur has been defined, but a distinction between necessity and opportunity entrepreneurs is needed for the analysis in this paper. Opportunity entrepreneurs respond to a perceived opportunity. An entrepreneurial opportunity is defined by Shane (2003), as ‘a situation in which a person can create a new means-ends framework for recombining resources that the entrepreneur believes will yield a profit’. Opportunity entrepreneurs have a pull perspective; they recognize and grab an opportunity and decide to engage in entrepreneurship (Zali et al., 2013).
An important theory on entrepreneurial opportunity recognition is the work of Kirzner (1973). Entrepreneurial opportunities are often measured as either Schumpeterian or Kirznerian.
Schumpeterian opportunities are more likely to be pursued by innovative individuals with strong ambitions to grow their company, while the Kirznerian type is more focused on the exploitation of today’s needs (De Jong & Marsili, 2010). Therefore Schumpeterian
entrepreneurs are more present in innovative organizations and shocks the economic
equilibrium in times of uncertainty while Kirznerian entrepreneurs operate in more incumbent competition and are less focused on growth. It could thus be that necessity entrepreneurs might have a more Kirznerian approach than opportunity entrepreneurs and vice versa. Kirzners interpretation of the entrepreneur was to engage in profitable arbitrage based on conflicting information (Hamilton & Harper, 1994). The Kirznerian view states that
individuals secure entrepreneurial profits by knowledge and information gaps identified in the market. In the Kirznerian view new combinations are not a necessity, hereby suggesting that opportunity entrepreneurs can be both imitative and innovative.
Entrepreneurial opportunities can thus come from either the Schumpeterian view or the Kirznerian view. These two theories show two different types of entrepreneurial
opportunities, however both views represent the opportunity entrepreneur who identifies a market opportunity. Opportunity entrepreneurs choose voluntarily to start a new business and often choose to start this business in their area of expertise, this makes them better prepared to start as an entrepreneur and have therefore a higher change of survival (Zali et al.,2013).
Opposite of the opportunity entrepreneur is the necessity entrepreneur. Necessity is a primary motive to engage in new business creation due to lack of other options, especially in poor countries. Whereas the opportunity entrepreneur comes from a pull perspective, the necessity entrepreneur has a push perspective (Verheul, Thurik, Hessels & van der Zwaan, 2010). The GEM formed the terms necessity and opportunity entrepreneurs. In the data was found that there is a lot of entrepreneurial activity in poor countries; the rates even extended the developed countries. These high rates are due to the drive of survival, poverty and the their lack of choice. The greater the poverty, the more necessity entrepreneurs are present in a country and thus the higher the rates of entrepreneurial activities (Reynolds et al., 2001). Necessity entrepreneurs do not have much ambition to let their business grow and thus have a smaller impact on the economy (Cheung, 2014). The innovativeness of their businesses is less radical and often more imitative. The number of necessity entrepreneurs present in the market can be very dependent on the economic welfare of a country. During times of recession lots of unemployed individuals have no job opportunities in existing companies, in these times
organizations are reengineering or reducing their workforce to cut costs which causes more unemployment. The, often last, alternative is then to switch from job seeker to job creator and go entrepreneurial (Carter, 2004). This increases the number of necessity entrepreneurs.
2.1.4 Innovation and Opportunity & Necessity entrepreneurs
The question ‘What is the impact of opportunity entrepreneurs and necessity entrepreneurs on the determinants of innovativeness’ assumes that those two types of entrepreneurs differ in degree of innovativeness. This basis is formed on exiting literature, which implicitly assumes that necessity and opportunity entrepreneurs differ in innovativeness.
Innovation has been defined as the development of products, services or processes that are new to business industries or society as a whole. A new business cannot innovate unless it has the capacity to generate creative ideas. Creativity is the creation of new products or ideas (Mayer, 1999). In each of the processes of innovation, creativity of individuals is important. This indicates that people and their abilities play an important role in the innovation process. Schools can be a place for the encouragement of creativity; creativity can even be fostered by the education system (Robinson & Sexton, 1994). Educational programs have developed a growing attention for entrepreneurial development in all educational levels (Dockerls, 1991). Thus nascent entrepreneurs who have obtained higher education are more guided and
educated towards entrepreneurial behaviour. Opportunity entrepreneurs are more found in developed countries with high educational programs and thus more likely to be taught how spot entrepreneurial opportunities and work on innovative activities. However, this is not solely individual oriented, environmental factors influence this effect. Cultural, and often country specific, characteristics can show a high or low legitimation to entrepreneurship in their educational system (Koellinger & Thurik, 2012).
A second factor indicating differences in the determinants of innovation for necessity and opportunity entrepreneurs are the riskiness and uncertainty of innovative businesses. Prospect theory has indicated a higher aversion to risk among individuals who are in a gain position (Koellinger & Thurik, 2012). Individuals in a loss position are more prone to accept high risk and uncertainty, this would suggest that necessity entrepreneurs are more inclined to
innovative behaviour. Necessity entrepreneurs have lower opportunity costs and thus the alternative of unemployment can create an incentive to start businesses on innovative ideas (Koellinger & Thurik, 2012). These factors are clear reasons to assume that there are
fundamental differences in opportunity/necessity entrepreneurs and their relation to
innovation. Investigating those differences will show more insight in why some entrepreneurs are more innovative than others and will thus provide additional information to Koellingers paper ‘Why are some entrepreneurs more innovative than others’.
2.2. Individual and environmental factors influencing innovative entrepreneurial activities
The above arguments presume that the individual characteristics and the environment in which one is located influence the determinants of innovativeness. Often studied individual perceptions of an entrepreneur are the motivation to achieve and compete, independence, skills and experience, capturing of opportunities, awareness of risk and the vision and impact (Johnson, 2001). Entrepreneurship requires a mixture of these attributes, therefore these attributes should not be observed in isolation. The focus for this paper is on three different individual attributes and one environmental characteristic because analysing all the additional factors in this study would virtually be impossible. Some objectively measurable variables influencing entrepreneurial behaviour that are added to this study are age and gender. The intention to start a business increases with age up to a threshold and decreases after (Levesque & Minniti, 2006). Gender differences show that males are more likely to engage in
entrepreneurial activities than females (Blakchflower, 2004).
One of the reasons why men are more likely to engage in entrepreneurial activities is their higher degree of self-confidence. Confidence in one’s own skills is a key driver when
engaging in entrepreneurial activity and appears to be even stronger for those in the beginning of the entrepreneurial process. (Koellinger et al., 2007). However, one’s confidence level is based on subjective and biased perceptions, this can have a crucial effect on entrepreneurial activities and their outcomes. A negative correlation between the level of entrepreneurial confidence and the survival of the nascent entrepreneurs has found to be significant
(Koellinger et al., 2007). Besides its low return, entrepreneurship has a high business failure rate, yet many entrepreneurs enter the market. This suggest that entrepreneurs might be too confident and that overconfidence may be the reason that drives individuals into
entrepreneurship.
Opportunity entrepreneurs are those that engaged in entrepreneurship voluntarily, expected is that those entrepreneurs are rather confident of their own skills because they could also choose to work as an employee and earn a fixed salary. Since entrepreneurship is a career
choice that does not pay on average (Hamilton, 2000), choosing to engage in entrepreneurship assumingly requires self-confidence, however choosing to engage in innovative
entrepreneurial activities requires assumingly even more confidence. Innovative
entrepreneurial activities demand a higher confidence level than imitative businesses because decisions are made based on little evidence or track records. The decisions are thus not made on grounded evidence while for imitative entrepreneurial activities one is able to rely on previous results. Again this is rather biased because overconfidence is also highest for
difficult tasks with little predictability (Fischhof, Slovic & Lichtenstein, 1977). Based on this theory, expected is that opportunity entrepreneurs are more confident and thus more prone to innovative behaviour. Expected is then that confidence is a greater determinant of innovation for opportunity entrepreneurs because necessity entrepreneurs do not choose to engage entrepreneurship based on their own skills and capabilities. This expectations leads to the following hypothesis:
Hypothesis 1: The level of confidence is a stronger determinant of innovativeness in opportunity than in necessity entrepreneurs.
Individuals that make a decision to start either an innovative or imitative business choose pro or contra risky actions. An assumption is that individuals, who choose for innovative and thus riskier businesses are confident of their own capabilities and are less afraid of failure.
Therefore the next perceptual variable analysed is fear of failure. An entrepreneur exposes himself towards lots of risky activities with uncertain outcomes when starting a new business. As an employee, one has the security of fixed wages and salary while an entrepreneur
receives uncertain and risky profits. When an individual decides to engage in a risky or uncertain action, such as starting a new business, various factors should be hold into
perspective. One of those factors is the opportunity costs; the lower the opportunity costs, the more likely they are to undertake entrepreneurial activity (Amit, Muller & Cockburn, 1995). Those entrepreneurs that choose to engage in entrepreneurship earned substantially less on average, prior to leaving, than the individuals that stayed employed, indicating that they had less opportunity costs (Amit et al., 1995). Lower opportunity costs makes it easier, and the barrier lower, to engaged in entrepreneurship. It is likely that necessity entrepreneurs have less opportunity costs and therefore have less fear of failure when engaging in innovative entrepreneurial activities. When relating this determinant to innovation, expected is that that imitative activities will result in fewer uncertainties since you can base your business on
existing track records. Innovation is inherently more risky and uncertainty than imitation; therefore expected is that opportunity innovative entrepreneurs will be more reticent to accept higher risk. This would include that necessity entrepreneurs have less fear of involving in innovative activities due to fewer opportunity costs, leading to hypotheses 2:
Hypothesis 2: Accepting a higher level of risk is a stronger determinant of innovativeness in necessity entrepreneurs than in opportunity entrepreneurs.
Entrepreneurial qualities such ask risk aversion and confidence are to some extent innate, however to obtain these qualities and thereby recognizing opportunities requires control of various basic tools. Many inventors are inventive and entrepreneurial (Khan & Sokologg, 1993). The individual characteristics linked to inventive and entrepreneurial behaviour are curiosity, critical thinking and enthusiasm to solving and analysing problems. Some of these tools can be taught or triggered through training and education. The effect of education on innovative entrepreneurship has often been studied and it seems more likely that individuals with a high intelligence, creativity and curiosity seek higher education. Those are
characteristics of entrepreneurial behaviour. However, a stereotype has been created about the belief that entrepreneurs are less educated than the general population (Douglass, 1976). A vision of a high school drop out who succeeds in the business world by starting his own business has grabbed the attention of many. Nonetheless entrepreneurs were significantly higher educated than the general population (Douglas, 1976). A high rise of educated entrepreneurs can be seen. When studying the proportion of US population with college degree, an increase from 7,5% to 10,7% from 1960 to 970 can be seen. In the mean time, the college educated entrepreneurs increased from 9% up to 37% from 1961 to 1975 (Robinson & Sexton, 1994). As been studied by Robinson & Sexton (1994), level of education increases the probability that an individual becomes self-employed and also increases the success rate of those entrepreneurs. Education thus provides an individual with the required knowledge and makes him more capable of recognizing, analysing and solving problems. We can therefore expect that those with a higher education also have a higher probability to perceive innovative business ideas and opportunities. With higher indication we imply those who have obtained a tertiary education. This assumes that opportunity entrepreneurs have obtained higher educational level and are more prone to creative innovative ideas. A positive effect of higher education and entrepreneurial innovativeness has been found (Koellinger, 2008).
Therefore expected is that having obtained a tertiary education is an even stronger determinant of innovation for opportunity entrepreneurs rather than for necessity entrepreneurs. Based on this theoretical background hypothesis 3 has been formed:
Hypothesis 3: Having a tertiary education is a stronger determinant of innovativeness in opportunity than in necessity entrepreneurs.
The ability of an individual to perceive an innovative business idea is, besides its individual factors, a function of the environment in which he/she is situated (Koellinger, 2008). The level of tertiary education obtained by the individual has lots to do with ones environment. Some entrepreneurs are not in the position to obtain the preferred educational level due to economical constraints or lack of developed education systems in their surroundings. The economic situation of the country might affect the entrepreneur’s behaviour and abilities. To gain results of both entrepreneurs who are able to obtain sufficient education and those that are not, this study is based on developing as well as developed countries. The country-level variable added to this study is the gross domestic product per capita (GDP). The GDP is a key indicator used to measure the status or health of a countries economy and represents the dollar value of all goods and services produced over a specific time period. The GDP can be used to measure and study economic growth and production. The Schumpeterian states that the entrepreneurs are the agents of change and economic development (Baumol, 2002).
Schumpeterian theory senses entrepreneurship as a trigger for economic booms, since seizing new market opportunities and creating new business will bring more employment to the market. On the other hand, entrepreneurship can be the escape when there is no economic growth and when there are no regular jobs left. This is also the difference between the necessity entrepreneurs who are more present in developing countries with lower GDP’s and opportunity entrepreneurs, who are more present in developed countries with high GDP’s. Economic development has been divided between three stages and two transitions. The GEM mentions these stages in their reports and lots of literature uses those to describe economic development. At the lowest level of economic development, we speak of the factor-driven stage. In this stage, production is based upon the deployment of primary factors of production, meaning land and unskilled labour. This stage is what is seen in developing countries with low GDP per capita. In this stage not much innovation is required, however we see lots of imitative necessity entrepreneur such as farmers. The second stage countries are in the
investment-driven economy, those are more industrialized and the economic growth is more capital intensive. Workforce is better educated and competition exists from high rates of production efficiency. The third stage is a technology driven economy and this is where innovation comes in. The stage is called the innovation-driven stage (Wennekers, van Stel, Thurik & Reynolds, 2005). This is happening in the high-income economies, countries that are developed to generate new knowledge. The higher the GDP the closer the economy is to the worldwide PPF which leaves less room for imitation, hence it is expected that the higher the GDP the more innovativeness is present. Expected is thus that a higher GDP is an even stronger determinant for opportunity entrepreneurs regarding innovative behaviour than necessity entrepreneurs. This analysis leads to the following hypothesis:
Hypothesis 4: A high GDP per capita is a stronger determinant of innovativeness and more prone for opportunity rather than for necessity entrepreneurs.
3. Methodology
The data used in this study is extracted from an existing database from the Global
Entrepreneurship monitor (GEM). The GEM is the largest assessment of entrepreneurial activity of individuals around the globe. The project started in 1999 covering a study of 10 countries while as of today the GEM is active in over 85 economies. It is an on-going study of entrepreneurial activities and measures entrepreneurial attributes, behaviour, ambitions and opportunities. The GEM tries to find to link entrepreneurship and economic development and aims to understand the fundamentals of this relationship. The data is divided into two tools, the adult population survey (APS) which explores the entrepreneurial characteristics of individuals and the National Expert Survey (NES), which monitors entrepreneurial
framework conditions. For this article the individual APS data is used to get suitable findings on the entrepreneur’s individual perception on entrepreneurship and innovation. The data used originate from the years 2009, 2010 and 2011 adult population surveys of the GEM. By gathering data from three years we allow of fluctuations in the distribution of entrepreneurial innovativeness across countries and time (Koellinger, 2008). Koellinger used in his paper the data of the years 2002, 2003, 2004, therefore findings conducted from this data can be perceived as novel. By merging the datasets of the GEM from the chosen three years, the basis for the existing dataset was formed.
Next we added two country-level variables to control the environmental conditions of entrepreneurial innovativeness (Koellinger, 2008).
The variables added are the GDP per capita as a percentage of USA and the percentage of unemployment. Both of these data are obtained from the World bank database.
After having collected the data of the GEM, the file is filtered on 40 countries with an equal balance between developed and developing economies (Appendix 1). The focus of this study is on the difference between necessity and opportunity entrepreneurs, therefore it would be unsatisfactory to take the 30
countries of Koellingers study, because this lists contains only seven developing countries. Developed countries presumably require more opportunity entrepreneurs due to the positive relationship of income level and opportunity entrepreneurs (Acs, 2006). To get a good understanding of differences in the determinants on innovation it is more applicable to add enough respondents of both entrepreneurial types in the study. The GEM has grown enormously in the years between 2004 and 2009, the initial GEM started with 10 participating countries in 1997, but the project has expended to 101 countries in 2011 and 104 in 2014. Enough data has been found for
Table 1 Table 1
twenty developed and developing economies, the bigger the sample the more precise interpretations of the results.
The developing and developed countries are extracted from the International Monetary Funds (IMF) who classified the advanced economies. The IMF classifies the countries by per capita income level, export diversification and degree of integration into the global financial system. After merging, the dataset consisted of341045 respondents in the 40 countries. However, this research is based on nascent entrepreneurs. To identify the nascent entrepreneurs we used the results of three questions of the GEM survey that are defined as determinants for nascent entrepreneurs (Koellinger, 2008). These questions distinguish the entrepreneur as a nascent owner or as an owner-manager of an existing firm. The questions qualifying nascent
entrepreneurs are based on involvement in independent start-up activities, involved in start up as part of a job assignment or owner-manager or a running business (Reynolds, et al 2005). Respondents must then answer additional questions that determine whether they have some vague dreams to become en entrepreneur or have conducted specific activities to actually starting the business. Three questions, related to entrepreneurial start up activities, ownership of the firm in gestation and wages/profits in the first months determines the nascent
entrepreneur. An entrepreneur can be qualified as a nascent entrepreneur if he has been active in the past 12 months, is owner or part-owner of the business and has no business paid wages last three months (Appendix 2).
The qualified entrepreneurs participating in the survey were 16023 nascent entrepreneurs, divided over three years .The average number of nascent entrepreneurs has almost doubled from 2009 to 2011. As entrepreneurship is becoming more trending and more accepted in todays economy, which makes this rather expected. After the recession lots of people lost their jobs or their faith in the corporate business and decided to enter entrepreneurial activities..
Innovation is often listed as one of the priorities of the government to stimulate economic growth, however innovation can vary per economy (GII, 2014). Therefore it is desirable to make an equal division between developed and developing economies so we can base our results on grounded findings. For this research we use the data till 2011 in which 101 countries were represented in the GE. The 0 in table 1 indicates the years in which that particular country did not participated; it does not mean that the country did not had any nascent entrepreneurs.
These 16023 nascent entrepreneurs are involved in start up activities due to several reasons and motivations. To analyse these reasons, this paper compares opportunity and necessity entrepreneurs, which are identified by the GEM. The GEM identifies those entrepreneurs by asking all those in start-ups about their personal motivations. To identify these motives and reasons, the variable sureason was used. This variable analyses the reason why an
entrepreneur engaged in entrepreneurship. Decided was not to use the opportunity variable in this research (except for Koellingers replication), because this variable does not make a good division between necessity and opportunity entrepreneurs. We are not only focusing on the respondents thought of whether or not there was a good opportunity but the reason why the respondent started his businesses. Those who did not thought that there was a good business opportunity are not directly necessity entrepreneurs. This is why the variable sureason is more applicable to this study and not the variable opportunity. The sureason variable makes as distinction between the various reasons why an entrepreneur engaged in entrepreneurship. The following question was asked to gain more insight on their motives:
‘Are you involved in this start-up to take advantage of business opportunity or because you have no better choices for work?’
All but 10% could classify themselves as one of those two or a combination of both. If respondents answered ‘ take advantage of business opportunity’ or ‘have a job but seek better opportunities’ we qualified him as an opportunity entrepreneur.
When he/she answered ‘no better choices for work’ he is considered a necessity entrepreneur.
Table 2
The data of nascent entrepreneurs contains significantly more opportunity entrepreneurs than necessity entrepreneurs (Appendix 3). The entrepreneurs listed here as opportunity
entrepreneurs by the two above defined answers are purely opportunity or purely necessity entrepreneurs. A dummy variable was created for opportunity entrepreneurs (1= opportunity
entrepreneur, 0 necessity entrepreneur). However, as table 2 shows, there are also 1541 entrepreneurs who engaged in entrepreneurship as a combination of both. The nascent entrepreneurs responded both or other are left out so the focus is on purely opportunity or pure necessity entrepreneur. Nonetheless it is important to take into account that it can be a combination of both or none of the two reasons mentioned.
Table 3
Expected was a higher share of opportunity entrepreneurs in developed countries and a higher share of necessity entrepreneurs in developing countries. However in developed as well as in developing countries there is a higher share of nascent opportunity entrepreneurs. The share of opportunity entrepreneurs in developed countries is 81% whereas the share of opportunity entrepreneurs in developing countries is 71%. Thus there are more opportunity entrepreneurs in developed countries, however there is not a significantly big difference as expected
beforehand.
This study analyses the determinants of innovation on opportunity and necessity entrepreneurs and thus the variable innovation was created. The GEM has used several questions in their survey to identify an innovative entrepreneur (Appendix 4). By identifying innovative entrepreneurs three factors are considered: the years that the technology used has been available, the novelty of the product and the market competition. Work of Koellinger (2008) and the GEM data define the imitative entrepreneur based on the following; purely
imitative entrepreneurs are those individuals that use technology available for over a year, who operate in a market with many business competitors and whose product or service is perceived as familiar. If the respondent does not fulfil on these three answers, we consider him an innovative entrepreneur. Nonetheless we must acknowledge that innovation happens on various levels, meaning that there will be a difference in the level of innovativeness of these nascent innovative entrepreneurs. The selected innovative entrepreneurs produce some product or service that can be perceived as novel.
Table 4
The descriptives show that in those 40 countries much more innovative rather than imitative nascent entrepreneurs are present. There are 10662 innovative entrepreneurs, which is 67% of the total nascent entrepreneurs in the dataset. In both developed and developing countries there is a share of over 75% of innovative entrepreneurs (Appendix 5). Striking was that in developing countries the share of innovative entrepreneurs is approximately 7% higher than for developed countries which is against the expectations.
For the first two hypotheses the data of two variables related to individual perceptions has been measured. Hypothesis 1 is related to the variable Suskill. Suskill is an individual characteristics measuring self-confidence. It analyses whether the respondent has the right skills, knowledge and experience required to start a new business. The answers can be biased, one may have the skills but be very modest, while another may be overconfident of his own skills. To test the confidence of the nascent entrepreneurs the GEM has computed a variable suskill, which asks the following question to the respondents:
Do you have the knowledge, skill and experience required to start a new business? The data in the table 5 shows that there are much more nascent entrepreneurs that are confident that they have the right skills and experience rather than not. This seems rather likely since we are studying nascent entrepreneurs, individuals who took the step of becoming an entrepreneur. Hypothesis 2 is related to the individual’s perception of risks and is
measured by the variable fear of failure (fearfail). Fearfail of the respondents is measured by the following question:
Would fear of failure prevent you from starting a business? This question is a proxy for downside risk tolerance and relates to hypotheses 2. Innovative entrepreneurial activities are assumed to be more risky and uncertain, thus due to the high number of innovative
entrepreneurs a higher risk tolerance is assumed. Table 4 shows the fearfail percentages, and shows that 73% of the nascent entrepreneurs is not afraid of failure. Nascent entrepreneurs had the courage to engage in new business activities and therefore assumingly have a higher risk tolerance and the courage to start a new business.
Table 5
These statistics are applicable for the replication of Koellingers study, however to test the formulated hypotheses an interaction term is added which combines the independent variables with the computed variable opportunity entrepreneurs. The outcomes of both suskill and fearfail may vary when the determinant of innovation is interacting with opportunity and necessity entrepreneurs. An individual forced into entrepreneurship does not necessarily think of himself as qualified for the ‘job’. For opportunity entrepreneurs it is a choice to act upon a recognized opportunity, this decision often entails a more thoughtful decision on whether or not the person has the qualified skill to start a business.
Data for the analysis of hypothesis three on education is also gathered from the GEM database. The variable tertiary education is added to the database. This variable divides the respondents based on their obtained level of education. Respondents that answered to be in the first stage or second stage of tertiary education are valued as having obtained a higher
education. A shate of 75% of the nascent entrepreneurs did not obtain a tertiary education (Appendix 6). For hypotheses 4, the variable GDP per capita as a percentage of USA was added to the country for residence and the time of the survey. The GDP used is a percentage of GDP per capita in the USA to view the distance of each country to the worldwide PPF. As was stated above, innovativeness is assumed to be highest for those entrepreneurs that live in countries operating close to the world PPF. This leaves them less room for imitation and more room for innovation. The GDP data was gathered from the Worldbank and checked by the data of the World Competitiveness Online database for 2009-2011.
Before testing the hypotheses, a replication of the study of Koellinger (2008) will be
conducted through the use of a logistic regression. This replication implies the differences in the determinants of innovativeness from the years 2002-2004 to 2009-2011. We use the replication to see what role the determinants play in recent economy and to find the differences in the determinants of innovation when an equal division is made between developed and developing countries. Thus it is a replica of the variables however the countries are not completely the same. Next step will be to test the hypotheses by implementing interaction terms in a linear regression. This outcome will more in depth information on the findings of Koellingers replication related to opportunity and necessity entrepreneurs.
4. Empirical Results
In figure 1 we can see how many imitative and innovative nascent entrepreneurs there are among the 40 countries from 2009 to 2011. The average shows that there are almost three times more innovative entrepreneurs rather than imitative entrepreneurs. However there is not a cross-country difference in entrepreneurial activity visible. Innovative nascent
entrepreneurs are present in both developed and developing countries. Striking is that there is not one country that is purely innovative or imitative. In all countries innovative and imitative entrepreneurs co-exists and the distribution of innovative and imitative varies substantially across countries. No significant difference between developed and developing countries has been found. Developing countries can obtain either more innovative or imitative
For example in Bangladesh there are more imitative entrepreneurs, whereas Chili and Peru contain almost only innovative entrepreneurs instead of imitative entrepreneurs even though all three are developing economies with a low GDP per capita. This high share of
innovativeness should not be misunderstood; we cannot say that the Peruvian nascent entrepreneurs introduce many products or services that are new to the world. But we can say that it has a high entrepreneurial innovativeness at the market level.
Before conducting the regression models for the replication of Koellingers study and the hypotheses testing, the correlation of our key variables is checked. A Pearson correlation coefficient was conducted to evaluate the four hypotheses, and to see if that there are relations between the four determinants. Table 6 is used to check whether two variables correlate, without speaking of causality. The correlation is significant for all variables except for the correlation of fearfail and tertiary education. For those significant, a significance of less than the alpha level of 0.05 has been found. Another check is the strength and the direction of the significant correlations. For all correlations, except for fearfail, a positive correlation has been found. The negative correlation between e.g. suskill and fearfail indicates that the lower the level of fearfail, the higher the level of suskill, implying that the more skilled and experienced Figure 1 Shares of Innovative and Imitative activities among nascent entrepreneurs, averages 2009-‐2011
the nascent entrepreneur is, the lower his fear of failure is. All other correlations are positive, specifying that a higher level of one variable is associated with a higher level of GDP. The strength of the correlation can be determined when looking at the size of the value of the correlation coefficient. All variables show a small correlation.
The data of the GEM was used to conduct a logistic regression of which the outcome is presented in table 7. This is the replication of Koellinger (2008) study but for the years 2009-2011 and the forty selected countries. The model is used to view the differences between the years 2002-2004 and 2009-2011 and the impact when more developing countries are taken into acoount. The logit estimations of the years 2002-2004 can be find in appendix 7. A logistic regression model is used because our dataset has more than one independent variable and our dependent variable, innovation, is binary. The dependent variable in a logistic
regression is either a 0 or 1 variable. In this research that is the choice between innovative (value = 1) and imitative (value = 0), and is indicating that the model describes the factors that make the nascent entrepreneur more innovative in any possible way.
This model illustrates that individual and country environmental factors make a nascent entrepreneur possible more innovative. For both variables, Individual and environmental factors, significant result is found. The environmental factor GDP, shows a strongly
significant negative correlation, which is rather unexpected. In the years 2002-2004 this was highly positive significant. Now it indicates that nascent entrepreneurs in countries with a higher GDP per capita are less likely to be innovative than those located in a country with lower GDP per capita. This is the opposite of what was found in the paper of Koellinger (2008). This result might be due to the fact that this paper is analysing data of countries that Table 6 Correlation of key variables
are recovering of an economic recession while there was no sign of economic recession in the years 2002-2004 when the paper of Koellinger was deducted. An economic depression brings along more uncertainty, which makes the uncertainty of innovative activities even more risky. Developed countries in the US and Europe have been hit hardest by the economic depression. Even though developed countries are still generally more likely to be innovative, several developing countries, such as Chile, China and Korea, have experienced rapid economic catch-up. Those countries can benefit from the global diffusion of technology and the access to new technologies without having to bear the costs and risks involved with new knowledge (Naudé, Szirmai & Goedhuys, 2011). As well, developing countries might see innovation as something new to the country or surroundings whereas it might not be innovative to the world, which could be the reason for a more biased result regarding innovativeness in developing countries.
The individual variables that are significant are gender, not working, fearfail,
opportunity and the level op education obtained by the nascent entrepreneur. This replication indicates that most of the variables are still in line with the significant determinants of
innovation 6 years before. The odds of being innovative are still higher for female entrepreneurs and those who have obtained a tertiary education. As well, we still find a positive significance for opportunity entrepreneurs, indicating that those nascent
entrepreneurs that have spotted a business opportunity are likely to be more innovative. This finding is important for the following part of the research in which the hypotheses will be tested. However, in the replication we also see significance for age, which implies that the odds ratio for an additional year in age is 1.004. The probability of being innovative is thus likely higher for an older person. Fearfail is also found significant for the years 2009-2011, the odds of being innovative is higher for the nascent entrepreneurs with a low fear of failure. This model was included as a check for the data collection and to start the hypotheses testing with general knowledge regarding the changes of determinants of innovativeness on nascent entrepreneurs.
To test the 4 hypotheses an extra model is implemented that includes interaction terms. The linear regression is used because a logit regression makes it very hard to interpret because the beta does not show the real value of the interaction (Wooldridge, 2012). ‘An interaction is to be observed when the nature or the strength of the relation between two variables changes as function of the third variable’ (González & Cox 2007). For each hypothesis, innovation depends on the value of the interacting variable. It can happen that the partial effect of the dependent variable with respect to the independent variable depends on the magnitude of yet another independent variable (Wooldridge, 2012). The model used to include the interaction terms is the linear probability model is. The dependent variable is still innovation and thus binary. All of the interaction terms are constructed from original set of variables that Koellinger used in his paper but then combined with the opportunity entrepreneur variable. The interaction terms function as an additive to the effect on the slope of the determinants due to the opportunity factor. Whether the variables are associated in the replication of Koellinger (2008), says nothing about the interaction in their effect on a third variable, therefore an additive model is implemented. Table 8 shows the linear regression model including the 4 interaction terms to test the hypotheses. The estimation results of the linear model show again that both individual and environmental variables function as determinants for the
determinant for innovativeness. Also, the older the individual, the stronger the determinant for innovative nascent entrepreneurs is shown in the regression model. Findings show that the opportunity entrepreneur is negatively significant and thus not more likely to engage in innovative entrepreneurial activity. In the replication model the comparable variable opport was positively significant. This might be because the opportunity variable used in the
replication output is based on the question if there is a good opportunity to start a business in the coming 6 months in their environment, while the recoded variable opportunity
entrepreneur looks at the reason why nascent entrepreneurs actually started their business. The opportunity entrepreneurs in this model are thus the ones who really acted upon this opportunity.
Table 8 linear regression model including interaction terms of opportunity entrepreneurs
Most striking is the shift from a negative significance for GDP to a positive significance when the interaction term is added. GDP as an independent variable indicates that nascent
when interacting with opportunity entrepreneurs the model shows a small positive
significance. Opportunity entrepreneurs have a higher share in developed countries, when combining the opportunity entrepreneur with GDP this might indicate a higher determinant for innovation because they seek innovative activities due to the few imitative business options available in countries working close to the worlds PPF. This indicates that nascent entrepreneurs with higher GDP per capita is a stronger determinant for innovativeness in opportunity entrepreneurs and is thus supporting hypothesis 4. The results also show a significant positive effect of the level of self-confidence on nascent entrepreneurial activities as a stronger determinant for opportunity entrepreneurs, which is in line with hypothesis 1. However, the estimated coefficient does not show significance for hypothesis 2, fear of failure, and hypothesis 3, tertiary education. Remarkable is that tertiary education is not a determinant of innovativeness anymore in this model. Not as an independent variable itself and not as interaction term with opportunity entrepreneurs.
5. Discussion
Four hypotheses were formed to gain insight on nascent entrepreneurs and their determinants to innovative activities. The measure opportunity was added to perceive novel information that continues the study of Koellinger (2008).
Table 9 *dependent variable is innovative entrepreneurial activity, involving introducing a new product and/or a new process and/or entering a market with limited expected competition.
Hypotheses Empirical
Support *
H1: The level of confidence is a stronger determinant of innovativeness
in opportunity than in necessity entrepreneurs.
*
H2: Accepting a high level of risk is a stronger determinant of innovativeness in
necessity entrepreneurs than in opportunity entrepreneurs.
H3: Having a tertiary education is a stronger determinant of innovativeness in
opportunity than in necessity entrepreneurs.
H4: A high GDP per capita is a stronger determinant of innovativeness and more
prone for opportunity rather than necessity entrepreneurs.
The regression model gives us the outcome of our hypotheses and in table 9 this empirical evidence is summarized.
Hypothesis 1, suggesting that confidence is a stronger determinant for innovation in opportunity entrepreneurs, is supported. Entrepreneurs that are confident about their own skills are more likely to start a business; therefore the high amount of confident nascent entrepreneurs is seen. The regression shows no significance for suskill and innovation however when interacted with opportunity entrepreneurs we do see a significance and can thus support the hypothesis. Individuals that are confident of their own skills are likely to join innovative entrepreneurial activities sooner than less confident entrepreneurs since innovative activities require confidence due to the lack of track records and low predictability of success. Opportunity entrepreneurs recognize an opportunity and that is the reason why they engage in entrepreneurship, they are not forced.. Therefore confidence in ones own skills is assumingly higher for opportunity entrepreneurs since they also have the option to choice another career. To engage in a business opportunity implies a degree of confidence to cover these high risk activities and forms a stronger determinant for innovation.
Empirical evidence also supports hypotheses 4, which claims that nascent entrepreneurs living in countries with a higher GDP shows a stronger determinant for innovation in opportunity entrepreneurs. The share of innovative entrepreneurs is positive when the interaction term is added but negative when only GDP and innovativeness is measured. Thus the GDP per capita is a stronger determinant for innovativeness for opportunity entrepreneurs.
This interaction term makes the variable positive significant assumingly due to the lack of imitative business in countries that operate high to the PPF. Imitative entrepreneurship is abundant and there are fewer entrepreneurial opportunities in advanced countries. This
implies that those countries with a higher GDP will leave less room for imitative behavior and nascent entrepreneurs are more prone on spotting business opportunities. This could also be a predictive of the lower rates of entrepreneurial activity in highly developed countries (Carree et al.2002; Wennekers et al. 2005).
Although the empirical findings for hypothesis 2 and 3 are not significant, it does not mean that this is evidence against the hypotheses. Hypothesis 2, regarding risk does not show a significant result however, risk can be measured in various ways and fearfail may be not the best measure for risk and uncertainty. The positive significant result of hypothesis 4 would
assume a positive significance for hypothesis 3, related to tertiary education. Those who are higher educated were expected to respond and recognize business opportunities faster and form a stronger determinant for innovation. However the findings of the analysis do not indicate this. This can be due to the fact that tertiary education is not the right proxy and educational level might not be as important as the overall level of economic development (Koellinger, 2008). The low difference between developing and developed countries already assumed this low difference on innovation and educational level. However, we do see that there are lots more nascent entrepreneurs with a higher education than not (appendix 6).
There are two factors that must be taken into account when discussing these findings; the focus on nascent entrepreneurs and the subjectivity of the respondents.
We see a much higher share of innovative entrepreneurs and surprisingly there is only one country that has more imitative entrepreneurs than opportunity entrepreneurs. No significant difference was found between nascent entrepreneurs living in developed and developing countries and their innovative activities. However when analysing the findings we must take into account that this study is solely based on nascent entrepreneurs which might be a huge determinant for the outcome of the analysis.
Studies on nascent entrepreneurs have analysed that the share of nascent entrepreneurs is more than three times higher for those who perceive a good business opportunity compared to those who do not (Wagner, 2008). This can make this research biased towards opportunity entrepreneurs, and makes the results more understanding. The study of Wagner (2008) showed that the share of nascent entrepreneurs is twice as high among those who do not consider fear of failure as a problem. Thus when analysing the findings of this papers, we must keep in mind that the data is based on solely nascent entrepreneurs who likely contain a higher share of opportunity entrepreneurs. Further research should study the impact of the variables on innovation in experienced and/or serial entrepreneurs.
Another mentionable point on the high share of opportunity entrepreneurs is that opportunity start often in their own area of expertise; this is where they recognize the opportunity (Zali et al., 2013). This gives him a higher change of survival and would therefore suggest that there are more opportunity entrepreneurs in the survey.
The subjectivity of the respondents also influences the outcomes of these results. Individuals vary in their ability to make sound judgements (Koellinger, 2008). Both innovation and
entrepreneurship are subjective concepts and whether someone qualifies him as innovative or opportunity entrepreneur depends on the perspective of the observer. Although the various questions of the GEM survey try to minimalize this subjectivity there will always be some. There are much more innovative opportunity entrepreneur rather than imitative necessity entrepreneurs. However it depends whether we are studying at macro or micro level, from an economic point of view the product does not have to be novel to the world to have an impact. As well, someone in Chile may consider the product new and innovative while it is not innovative in the United States. The interpretation of how innovative and entrepreneurial an individual is can thus be dependent on their environmental surroundings.
Another subjective interpretation is the idea of being an opportunity or necessity entrepreneur. Some individuals may have a hard time finding a job and therefore stay unemployed; in the mean time they might identify an opportunity where they start their business in. This can be considered as a combination of both, while the entrepreneur may classify himself as an opportunity entrepreneur. For some it might also be hard to identify themself as a necessity entrepreneur because it might feel as a failure. Some respondents might not admit to themselves and the survey that they are in fact necessity entrepreneurs.
The subjective judgements of respondents influence their behaviour and their answers and form a limitation for this research.
Recognizing further limitation of this study can contribute to future studies. A second limitation is that the data used for this study is from the years 2009-2011 and this we can not entirely speak of a replication of Koellingers study due to the severe differences in the world economy. It would be interesting to see how the determinants develop over time in a period of economic recovering. Another limitation is that the data for this research has been collected solely from the GEM, by using one source we are unable to rule out common method variance interpretations of the findings. Future research may collect data from different data sources other than the GEM to analyse the determinants of innovation for necessity and opportunity entrepreneurs. But despite the limitations, this research still offers novel information and a useful source for further research in the field of innovation and entrepreneurship.
