Bachelor Thesis Marlijn Botter

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Faculty of Economics and Business

Bachelor Thesis

Marlijn Botter

Analyzing path dependency and managerial intentionality: a comparison of

entrepreneurial activity in West and East Germany

Supervisor: dr. R.W. (Rudi) de Vries Study Program: BSc International Business

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Abstract

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1. Introduction

1.1 Contextual background

Murmann (2002) defines a co-evolution as: ‘Two evolving populations co-evolve if and only if they have a significant causal impact on each other’s ability to replicate.’ (pp 24,25). Co-evolution originates from the field of biology and Co-evolutionary theories regarding ecological systems and species, the ‘populations’ are in the field of economics often firms, industries, governments and institutions. In the co-evolutionary literature there is a significant amount of literature about the path dependency of industries and whether individual behavior of

entrepreneurs or managers can influence the success of a firm or that external factors are most influential. There is plenty of literature on this subject, mostly focusing on path dependency and managerial intentionality in relation to internationalization strategies of multinationals. (Eg. Hutzschenreuter et al., 2007; Cantwell et al.,2010; Lewin & Volberda, 2011 ) To further explore those co-evolutionary concepts comparing industries or firms in the same time period with a different institutional framework and environment might give more insight. A rather unique situation in the history of the western world this past century was the division of Germany after the Second World War, it was the only country that was divided into two separate countries with both their own government, policies, institutions etc After a period of 40 years the countries unified again into one Germany. Consequentially, this meant that there was a sudden need to implement policies and a new institutional framework in the Eastern part in the new, unified Germany. It therefore provides plenty of opportunities to do research in the co-evolutionary field.

1.2 Problem statement and research question

To further extend the literature on the concepts of path dependency and managerial

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4 for entrepreneurs to operate in. After the unification in 1989 differences in entrepreneurial activity became visible as there was little entrepreneurial activity in the German Democratic Republic before. The paper will take a look at differences in entrepreneurial activity in the period from 1990 until present and try to conclude whether mostly path dependency, individual behavior or a combination of the two was the driving force behind those developments. The research question of this paper will therefore be:

What are the differences between entrepreneurial activity in West Germany and East Germany in the period 1980 until present and can those be explained by the concept of path dependency or individual behavior of the entrepreneur or both?

As sub questions the paper will discuss:

 Can the individual behavior of the entrepreneur in this case be explained by the concept of path dependency? What institutions and external conditions play a role?

 Can the individual behavior of the entrepreneur in this case be explained by the concept of managerial intentionality?

1.3 Relevance

The paper will mostly have a theoretical relevance as it further explores the co-evolutionary literature written on path dependency and managerial intentionality. The research is based on a rather unique situation in a specific country during a specific period, therefore, the relevance might at first seem limited. However the division and unification of a country, as has

happened to Germany, might show co-evolutions that are otherwise hard to distinguish. Institutional changes are often incremental in nature, making it more difficult to show the effect of these changes, while in Germany the change was quite radical. Furthermore,

managerial intentionality is a subject not a great deal has been written about. This paper could further explore this concept and could be a basis for other researchers to expand the research on before mentioned co-evolutionary concepts.

1.4 Structure

In the next section, an overview on the existent literature about the concepts of path

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5 literature on this specific topic. After this there will be a ‘discussion’ section based on the findings. Finally, conclusions will be drawn, limitations of this study will be presented and recommendations for future research will be given.

2.Literature review

In this section an overview of relevant concepts and theories will be represented regarding the concepts of path dependency and managerial intentionality to get a better understanding of what these concepts entail and which theories stemming from those concepts could be applied to the comparison of entrepreneurship in the two country halves of Germany. The first part of this section is dedicated to theories about entrepreneurship to obtain an general understanding of the concept before zooming in on the particular case discussed in this paper.

2.1 Entrepreneurship

In this paper the path dependency and the influence of the individual behavior of the

entrepreneur is explored in East and West Germany. Furthermore, in how far this individual behavior could be explained by the concept of managerial intentionality will be explored. To understand and interpret the differences between the entrepreneurial activity in West Germany and East Germany in the specified period, first it is crucial to understand the concept of

entrepreneurship in general. It has been defined in multiple ways, in this paper the definition of Hisrich(1990) will be used: ‘behaviors that include demonstrating initiative and creative thinking, organizing social and economic mechanisms to turn resources and situations to practical account and accepting risk and failure.’(p209) Within the traditional literature linking the entrepreneur to the success of the business there are different streams of thought. There are economic theories, psychological theories and strategic management theories. (Mitchell et al, 2002) While the economic theories focus on the role of the entrepreneur as someone who solely is the founder of a business, psychological theories focus more on the personal traits and characteristics of the entrepreneur linked to firm success. However, research has not yet found a significant link between specific personality traits or cognitive abilities and firm performance. Interestingly, many authors do seem to think that the

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6 the entrepreneur. All of the above fields that have tried to explore the role of the entrepreneur have not really found hard evidence proving the importance of the entrepreneur, while often people in the field have the idea that an entrepreneur can make a difference to a company. This leads us to the central question regarding the literature on entrepreneurship: Why do some individuals have the ability to sense and exploit entrepreneurial opportunities while others do not? Shane & Venkatamaran (2000) suggest that the factors influencing this, can be grouped into two broad categories. The first category is about the ability to possess the information necessary to identify opportunities while the second one is about having the cognitive skills to exploit those opportunities. This approach places more emphasis on the cognitive abilities of an entrepreneur. This perspective is used by Mitchell et al (2002) as well. In this article the term entrepreneurial cognitions is used and defined. To come to this definition the authors start by providing definitions to entrepreneurship and cognitions separately. The definition that is provided for entrepreneurship is from Stevenson & Jarillo (1990), according to them entrepreneurship is about: ‘individuals who create opportunities where others do not, and who attempt to exploit those opportunities through various models of organizing, without regard to resources currently controlled.’ This definition will be used in the remaining part of the paper. Furthermore, the term cognitions is defined as: ‘all processes by which sensory input is transformed, reduced, elaborated, stored, recovered and used.’ (Neisser, 1967) Mitchell et al. (2002) combine these two definitions to come to a new definition for the term entrepreneurial cognitions: ‘entrepreneurial cognitions are the

knowledge structures that people use to make assessments, judgments, or decisions involving opportunity evaluation, venture creation, and growth.’ (p5)

Next to the cognitive side of the entrepreneur itself, there is literature on the influence of institutions on entrepreneurship. An important framework in the institutional literature in general is the framework developed by North (1990) This framework distinguishes between the formal and informal part of institutions, which constrain the behavior of the individuals, like entrepreneurs, who are affected by the institutions. The informal part are the codes of conduct, norms of behavior and conventions. While the formal part consists of the formal rules set by the government which underlie the informal constraints.

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7 institutions constrain the entrepreneur in his/her behavior by implementing formal rules and implying informal rules.

2.2 Path dependency

Firstly, let us start by defining what path dependency entails. In short, the theory of path dependency argues that history matters. (North, 1990) It does not mean that the past can exactly determine the future, as North (1990) describes in his book: ‘Path dependence is a way to narrow conceptually the choice set and link decision making through time. It is not a story of inevitability in which the past neatly predicts the future.’ (p98, 99) The focus is on future possibilities, the approach should therefore not be considered as a deterministic one. (Martin & Sunley,2006) Entrepreneurship is a powerful force in stimulating socioeconomic growth. Path dependency can be seen in the structure, culture and the institutions in the socioeconomic environment.(Saxenian, 1994) However, this is not the only aspect that influences the development of an industry or in this case the success of entrepreneurs. A frequently used model in the path dependency theory is the model designed by Arthur (1994) He argues that once a path is been chosen by engineers the development of technology will build further on the initial technology. He introduced the term ‘increasing returns’ meaning that with every step you take along the same path, it will be more costly to switch to a different path and the benefits of following the path you chose initially will be relatively larger, It is argued that this depiction of path dependency is too one sided, as it only focuses on technology. However, the theory of increasing returns and fixed paths can without too much difficulty be applied in the field of economics and business. Arthur himself illustrates that path dependencies do not mean that the outcome is fixed based on a certain historical event and as well illustrates the applicability to firm or organizations with the following example. If there is a fair chance that firms will locate close to firms that operate in the same sector this means that there could be a city or town that at one point is the location of a significant percentage of the firms operating in that industry. This specific place could be as favorable as any other place, and the clustering of the firms could have started anywhere else making only the process path dependent.

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8 another stream of thinking that assumes that institutions can be reshaped according to the needs of only the market. (David, 1994) Moreover, he comes up with three insights as to why path dependence is connected to economic events. So, in other words, why is history

important when it comes to organizations and institutional frameworks. The first one is regarding the coordination of held conventions by society shaped by historical events and a feeling of a ‘shared past’. The coordination process to reach a consensus is easier when people have a feeling of shared experiences. Once they have reached a solution on a certain issue this process is likely to repeat itself in the future, resulting again in a desirable solution for most people. The second insight is about the codes and conventions organizations have to have when the business consists of more than one person in order to function properly. Once this code has been established it will be learned to every new employee that enters the organization. As Arrow (1974) remarks, the learning of the code cannot be undone without a substantial amount of costs involved, resulting in distinct firm identities that rarely change. It makes employees act in accordance with the code, the firm’s history therefore influences the behavior of its own employees. The last insight David (1994) explains is about how

individuals find it easier to deal with institutions and organizational procedures and rules that are complementary to each other. So, new institutional arrangements are to some degree based on older institutional arrangements making them path dependent to some extent

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9 knowledge that growth regimes have. The third argument is about the knowledge spillovers in a specific region, this depends on how much knowledge there is in a specific region and to what extent the knowledge is region specific. The last argument is about to what extent there is innovation and entrepreneurial activity in a region. Literature (Porter 1998; Camagni, 1981) suggests that this is based largely on cooperation as this could lead to knowledge spillovers. Fritsch (2004) also argues that these growth regimes are mainly path dependent.

2.3 Managerial intentionality

Often overlooked in academic literature because it is a difficult concept to measure is managerial intentionality. There is still variance between firms that deal with the same path dependencies. This unaccounted variance is what is described by Hutzchenreuter et. al as managerial intentionality although the variance could also partially be explained by other factors as pure luck.(2007) Child (1972,1997) argues that firms do not operate fully efficient leaving room for entrepreneurs and managers to achieve short-term goals as they can

influence eg. the environment or the internal structure of the firm. In this way different firms can co-exist in the same business environment. According to the dynamic capabilities approach the core competences of the firm should be renewable and adaptable. (Teece et al., 1997) This approach is developed by Teece et al. to explain how to gain competitive

advantages in dynamic environments. The concept can be applied by the manager, who can develop new core competences. (Wernerfelt, 1984) In order not to create rigid core

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10 1991) In entrepreneurship, as discussed earlier, there is heterogeneity between the

entrepreneurs who might have different ideas about the same set of resources or are able to exploit resources where others cannot. Lately, research has focused more on how

entrepreneurs can transform (homogeneous) resources into heterogeneous outputs. (Alvarez & Busenitz, 2001) An interesting observation is that entrepreneurs tend to base their decisions on their experiences and beliefs while managers base their decisions more on facts and figures. Furthermore, decisions of the entrepreneur are more often based on heuristics. (Baron, 1998; Busenitz & Barney, 1997) This implies that entrepreneurs make use of higher-learning, this is learning based on using heuristics. (Lei et al., 1996) Due to this, entrepreneurs are able to make decisions in complicated situations in a quick fashion which can lead to new opportunities and innovative approaches. (Gavetti & Levinthal, 2000) According to the resource-based view, entrepreneurial thinking can thus lead to a competitive advantage and can be seen as a resource itself. Those new opportunities have resulted often from a search process in the field where the discovery is made, assuming that the entrepreneur already knows where the opportunities lie. (Stigler, 1961; Caplan, 1999) This process is irrational, making it difficult to research. This could indicate that this search process is part of the managerial intentionality concept. A concept developed by Kirzner (1997) to try to capture this intuition of entrepreneurs where to search for new opportunities is entrepreneurial alertness. It is defined by Alvarez & Busenitz (2001) as: ‘flashes of superior insight that enable one to recognize an opportunity when it presents itself.’ (p760) It has also been researched that most growth potential comes from entrepreneurs that already have existing enterprises, the so-called habitual entrepreneurs. Beginning entrepreneurs lack the experience the habitual entrepreneurs have gained with their prior businesses. (Alvarez & Busenitz, 2001) Schumpeter argues that innovations do not happen on a steady basis, often there is one breakthrough invention introduced, most likely, by a habitual entrepreneur. The less

experienced entrepreneurs then try to profit from this invention by coming up with

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11 company or organization which makes it perform better, worse or just different than its

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3.Methodology

In this paper the role of path dependency and managerial intentionality will be investigated further, based on the influence of these concepts on the differences in entrepreneurial activity in East and West Germany after the reunification. This will be done by performing a literature study. By using co-evolutionary literature on path dependency and managerial intentionality and combining those with general literature on entrepreneurship and institutions and more specific literature about the topic of entrepreneurial differences in East and West Germany this paper hopes to make a relevant contribution to the co-evolutionary topics mentioned above. All the information and data that is used in this paper will come from secondary sources, namely existing literature. For this specific paper a case study is used,

To form conclusions about if and why there are differences in the entrepreneurial activity between East German and West German entrepreneurs the institutional frameworks and external environments of both West Germany and East Germany will be investigated. By using general path dependent theories of mainly North(1990 & 1991) & David(1994) and some more specific theories like the dynamic capability approach of Teece(1997) and the resource based view on entrepreneurship of Alvarez & Busenitz (2001) this paper hopes to add to the path dependency and managerial intentionality literature. Furthermore, by using the case of West-German and East-German entrepreneurs and the existing literature on this subject by Fritsch(2004), Welter(2007) and Pistrui(2000) this paper will contribute to the existing literature on co-evolutions in general.

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4.Findings

In this part the differences that are found between East and West German entrepreneurs will be described. To better understand these differences and place them in the right context the paper starts with a general historical overview of the events that happened in Germany after the Second World War. After this, a brief description of the macro environment in Germany before and after the reunification will be given. The remaining part of the section will then zoom in on the entrepreneurial activity in West and East Germany after the reunification. 4.1 Historical context

A brief overview of the historical background of the German Democratic Republic and the Federal Republic of Germany will be given to put the research in its historical context. When World War II ended, France, the UK, the US and Russia divided Germany into four sectors. The French, British and American parts were unified in 1949 and became the Federal

Republic of Germany where a market economy was developed and there was a democracy. At about the same time the Russian sector became the German Democratic Republic were there was a communist regime and a socialist system. In the period after the division, West

Germany developed itself to one of the largest economies of Western Europe and grew substantially compared to East Germany. Soon people that lived in East Germany moved to West Germany to benefit from the welfare. This led to the decision to close the border entirely in 1961. In 1980 West Germany was a well-functioning economy with high growth rates, although there was also a high unemployment rate. East Germany had the best economic performance in the Soviet Union, however had only 30% of the productivity in comparison with West Germany. In 1989 the communist regime fell and the two halves were united into one Federal Republic of Germany, the East German part adopted the policies and economic system from the West. (Fritsch, 2004)

4.2 Situation before reunification

East Germany was characterized by a high level of bureaucracy in the period before

reunification. Furthermore, it was rather cut off from the outside world, so it was not able to gain from international knowledge flows. Therefore it is no surprise that dominant

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14 low degree of product variety and prices were mostly fixed by the government resulting in a low level of competition in the country. Whenever there were scarcities this mostly meant that there would be shortages instead of letting the market solve it resulting in a lively black market. Division of labor mostly stayed within firms instead of between firms.

4.3 Situation after reunification

After the reunification there were was a radical change in East-Germany as it suddenly had to compete with West-European countries and there had to be build a new institutional

framework. Due to the inefficiency of the former bureaucratic system unit costs and wages rose significantly and former soviet trade partners were unable to pay the higher prices. A lot of firms did not survive and resulted in a 20% unemployment rate. In the manufacturing sector the unemployment rate was even 65% due to the transformation of massive production sites back to private small scale production units or the complete closing down of the large units, resulting in substantial employee cuts. In order to build the new public sector capital equaling the amount of the East German GDP was transferred from West-Germany to East-Germany. (Brezinski & Fritsch, 1995) Furthermore, the whole East-German society had to adapt to new ways of working. Due to the effect of the market the shares of different

industries changed drastically. Thus, the whole transition took a lot of time and resources. In this period not only a lot of firms closed down or were transformed, new ones were set up as well. Logically, those business were too small to employ the entire workforce that had lost his job.

4. 4 Differences between East and West Germany in entrepreneurial activity

First of all, entrepreneurial activity in the East was very limited in the period of the division. Entrepreneurs were active on the black market or were craftsmen highly regulated by the government. (Fritsch, 2004) In contrast to West Germany, in East-Germany being an entrepreneur was mostly seen as something bad as there were almost no successful

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15 years there was a steady decline in the number of new businesses until 1997. In the same period in the West the number of entries and closures of new businesses remained

approximately the same. Remarkably, in the years 1998 and 1999 there was a large increase of new business entries while in 2000 the level went back to normal. There is not a clear explanation for this phenomenon. As you can see in figure 2 and 3 the net-entry rate is during the whole period higher in the East than in the West. However, the total level of

entrepreneurial activity remained higher in the West, about 10.3 percent in 2000. While in the East the percentage had risen from 4.5 percent in 1991 to 8.4 percent in 2000. A characteristic of the socialist system was that there were few suppliers in relation to the market size making the chances of survival for new entrepreneurs rather high. During the first years after the reunification start ups could benefit from this, even in the year 2000 the survival rates for the businesses established in 1993 were higher in East than in West Germany. The first mover advantages of businesses in the East therefore could be seen as long term and are described by the term density delay. (Fritsch, 2004) This term describes that firms that were established during a period with low industry density have higher survival rates than firms established in a high-density industry. (Caroll & Hannan, 1998) However, for the businesses formed after 1993 the survival rates decline every year, so this advantage was temporary. Fritsch (2004) also looked at the employment created by start-ups between 1993 and 1997. It shows that in the first years of the existence of the business East Germany generates more employment but than are overtaken by the West. Reasons for this could have been that the East German entrepreneurs in the first years benefitted from the subsidies and the low density in industries. Later on, the subsidies stopped and the entrepreneurs had more competition to deal with resulting in the lower survival rate.

4.5 Behavioral differences between East and West German entrepreneurs

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16 competition made personal initiative and a need for change redundant. Moreover, managers in East-Germany were risk-averse, showed little initiative and aimed at making as little mistakes as possible. ( Schultz-Gambard & Altschuh, 1993) They discouraged initiatives by their employees by sometimes even punishing the workers that did more than they were supposed to. (Ladensack,1990) According to Frese et al. (1996) the differences of personal initiative between the East and West German workforce could be explained by one of the following two processes. First he describes occupational socialization, which involves the factors control and complexity. Those factors have the power to socialize as they are an influence on the change ability, motivation and orientations which in turn influence the level of personal initiative. (Frese, 1982) A high level of job control has a positive effect on the level of personal

initiative for several reasons. The first one is that if the employee feels that he has low control of his job this results in a passive attitude towards his function. (Frese, 1989; Karasek & Theorell, 1990) Secondly, if the employee works in an environment with opportunities to develop his work role he feels more motivated to actually do so. (White, 1959) Thirdly, if the employee is given more power to make decisions he will act with a higher sense of job responsibility. (Hackman & Oldman, 1975) Lastly, in the event of setbacks employees employees are likely to act passive if they experience low control. Besides a high level of control, a high level of complexity also has a positive influence on the level of personal initiative. It shows a higher level of intellectual and creative skills and a more active approach to work and life in general. Furthermore, it is linked to a focus on the long term, which will lead to more personal initiative. It must be said that personal initiative not only occurs in high skilled jobs, however, it is easier developed compared to low skilled jobs. ( Kohn & Schooler, 1983) The other factor described by Frese et al.(1996) which could lead to differences

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17 between the East and West German workforce Frese et al. (1996) did a study comparing a sample of the workforce of Dresden to represent East Germany and a sample of the city of Mainz to represent West Germany. Figure 4 shows that the level of high personal initiative was considerably lower in East Germany compared to West Germany. This study is about the entire workforce of the two country halves, so we cannot draw conclusions from this for the case of entrepreneurs. However, if the overall population shows less personal initiative in the East it might be harder for East Germany to develop successful ventures and entrepreneurs. Pistrui (2000) focused on the differences in entrepreneurship between the two country halves after the unification specifically focusing on family businesses. He focused on the social cultural forces, the personality characteristics of the entrepreneurs and the environmental perceptions. His paper stresses the differences in motivations and perceptions of the

entrepreneurs. He shows that Western entrepreneurs were motivated by their own family, as to provide financial security for them. In contrast, Eastern entrepreneurs had a more

community based orientation which could be related to their socialist background. Welter (2007) argues that the institutional framework is embedded in the entrepreneurial activity in different countries using West and East Germany as examples. It is shown that eg. the East German entrepreneurs benefitted from the high privatization just after the unification of Germany. Furthermore, in the socialist society women were encouraged to do the same work as men, resulting in more female entrepreneurs in the Eastern side of the ‘new Germany’.

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5. Discussion

After looking at the historical context and zooming in on the institutions and behavioral theories that affect the performance and behavior of East and West German entrepreneurs we could make a few assumptions about the key factors that cause these differences and how they relate to the concepts of path dependency and managerial intentionality and the theories related to those concepts. This part is more based on assumptions deduced out of the literature available as real data on the specific case is fairly limited.

5.1 Institutional influences and path dependency

The institutional environment is in both country halves very different. Where West Germany has a market economy with a steady percentage of new ventures after the years of the reunification, East Germany is in a period of major transitions resulting in a fluctuating number of start-ups and closures of new businesses. While in the earlier years the number of new businesses and their survival rate is higher than in the West, it declines rapidly after a few years and around 1995 is below the level of start-ups originating from West Germany. The most logical reason for this is mentioned by Fritsch (2004) himself, you could view West-Germany being a later stage of the product life cycle than East Germany. In the first years, the early stage, this results in a lot of innovation and a favorable environment for entrepreneurs in East Germany. Moreover, they benefit from a supportive government that is willing to give them financial aid during those first years. I would argue that this difference is highly related to path dependence. In West-Germany the historical context of having a

market-oriented economy for a longer period of time influenced the steady performance of entrepreneurs. While in East-Germany entrepreneurs did not exist before the reunification, as with every new industry, you have to start somewhere. Meaning that this early stage of the industry with a successful start and a decline after a few years would be quite likely to happen. However, Fritsch (2004) cannot explain why in the years 1998 and 1999 the number of new start-ups rise again significantly in East-Germany, he simply leaves out those years in his empirical study.

5.2 Behavioral influences and path dependency vs. managerial intentionality

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19 for entrepreneurs were discouraged. Resulting in less opportunities for potential entrepreneurs in East Germany compared to West Germany. Furthermore, the reasons for becoming an entrepreneur could be different in both country halves. Due to the high unemployment in East Germany after the reunification it would be reasonable to argue that becoming an

entrepreneur was sometimes more out of necessity than a deliberate choice. In West Germany, where the economy was quite stable, becoming an entrepreneur probably had to do with a strong internal motivation to do so. Looking at Frese’s et al. (1996) personal initiative concept, the West German population overall showed more personal initiative than the East German population. Assuming that this also holds for the West German entrepreneurs, it could be that they are more successful as they show more persistence when facing setbacks, one of the characteristics of showing personal initiative.

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6. Conclusion

6.1 Concluding remarks

This paper started with the following research question: What are the differences between entrepreneurial activity in West Germany and East Germany in the period 1980 until present and can those be explained by the concept of path dependency or individual behavior of the entrepreneur or both? First of all it must be said that the timeframe set in the research question is not feasible after exploring the current literature on the subject. It would be more appropriate to use 1980 untill 2000 as a timeframe as most empirical data and literature studies on the subject are using this timeframe. The answer to the research question is at first sight an easy one, there are differences between the entrepreneurial activity of West and East German entrepreneurs in the period between 1980 and 1990 and those differences can be explained by both path dependency and managerial intentionality. However, for some differences it is hard to say what exactly the influence of path dependency is and what the influence of managerial intentionality is. Looking back at the sub questions deduced from the research question I will clarify this a bit more. The sub questions were: Can the individual behavior of the entrepreneur in this case be explained by the concept of path dependency? What institutions and external conditions play a role? Can the individual behavior of the entrepreneur in this case be explained by the concept of managerial intentionality?

Looking at the first sub question, regarding the institutional differences. We can say that the most distinct institutional differences between East and West Germany were the financial aid and the start up of a totally new industry for East Germany compared to the more stable environment and experienced entrepreneurs in West Germany. Path dependency explains a large part of those developments. Managerial intentionality is probably no part of this as this pertains more to behavior shown by groups or individuals. The behavioral differences,

mentioned in the second sub question, are more difficult to ascribe to only path dependency or only to managerial intentionality as the behavior shown by the majority of entrepreneurs in the two country halves is to some extent determined by the different environments they operate in and also to some extent by their own personality.

6.2 Limitations

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21 up with more sound conclusions instead of just assumptions. Furthermore, it is not possible to study all the literature on the concepts of path dependency and managerial intentionality as it takes up too much time. The biggest limitation regarding the case study is the lack of data. Only one empirical study could be found that compared the performance of East and West German entrepreneurs in the period between 1993-2000 while the paper aimed to investigate a larger time frame. Moreover, the concept of managerial intentionality needs more

investigation to get a better picture of what it entails as it is quite difficult to apply it to a specific case with the literature that is currently present.

6.3 Recommendations for future research

Future research could elaborate on the empirical research already conducted on this specific case by e.g. taking 2000-2010 as a timeframe and compare the performance of East and West German entrepreneurs to see if the developments of 1993-2000 continue in the same line or have changed significantly. Furthermore, the research on the concept of managerial

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8. Appendix

Figure 1. Number of start-ups and closures in East and West Germany 1993-2000. (Source: Fritsch, 2004)

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27 Figure 3. Development of Entrepreneurship in East and West Germany. (Source:Statistisches Bundesamt (various volumes) FS 1, R 4.1.1, Table 7.9)