Entrepreneurial Motivation in Nepal Ver2_submitted 12 Dec

8/6/2019 Entrepreneurial Motivation in Nepal Ver2_submitted 12 Dec

1/12

Advanced Research Methods 1

A Study Entrepreneurial Motivation in Information Technology Sector in Nepal:

Opportunity-Driven or Necessity-Driven?

Prajwal Shrestha

Kathmandu University School of Management

Balkumari, Lalitpur

[email protected]

ARM

Instructor: Prof. Virginia E. OLeary

12 December, 2009


2/12


Abstract


3/12


A Study Entrepreneurial Motivation in Information Technology Sector in Nepal:

Opportunity-Driven or Necessity-Driven?

It is widely acknowledged that entrepreneurship is an important force shaping the

changes in the economic landscape (Bosma, Autio and Levie, 2009). There are severalresearch studies conducted which have attempted to explore the factors that contribute to

economic development of the country but very few research studies have been carried out

about the role of Entrepreneurship in Nepalese economy. There is virtually an absence of

any significant research study conducted with specific focus on Information Technology

(IT) sector in Nepal. Traditional analyses of economic growth tend to focus on large and

established firms rather than the contribution that smaller and newer firms provide to the

economy via innovation and competition (Bosma et al, 2009). However, studies like the

one carried out by Global Entrepreneurship Monitor (GEM) one of the worlds leading

research consortia concerned with improving understanding of the relationship between

entrepreneurship and national development are lacking in Nepal. GEM conducts the study

of entrepreneurial activities across more than 60 countries, out of which comprehensive

study of Total Entrepreneurial Activity (TEA) across 43 countries is conducted. Hence, we

have very little understanding of the various dimensions of entrepreneurship that effect

entrepreneurship and contribute to the entrepreneurial activity to national economic well-

being (Bosma et al, 2009). If new ventures are to be considered as engines of growth in an

economy, it is incumbent on policy makers to understand the key factors that encourage or

impede the creation of start-ups (Choo & Wong, 2007)

Entrepreneurship

GEM defines entrepreneurship as any attempt at new business or new venture creation,

such as self-employment, a new business organization, or the expansion of an existing

business, by an individual, teams of individuals, or established businesses (Bosma et al,

2009). According to this definition, all entrepreneurs do not necessarily start new ventures

but expading an existing business in an innovative way can also be considered asentrepreneurship. Schumpeter (1934) defines entrepreneurship an essentially consisting of

doing things that are not generally done in the ordinary course of business.

Accordingly, the function that is specific to entrepreneurs is the ability to take the

factors of production land, labor, and capital and use them to produce new goods or

services (Stoner, Freeman and Gilbert, Jr., 1995). It is worthwhile to distinguish between an


4/12


entrepreneurial venture and a small business. Entrepreneurs create entrepreneurial ventures

businesses that are pursuing opportunities, characterized by innovative practices, and

have growth and profitability as their main goals. A small business, on the other hand, is

one that is independently owned, operated, and financed; and doesnt necessarily engage in

any new or innovative practices (Robbins and Coulter, 2002).

Entrepreneurial Behavior

Because entrepreneurs have the potential to contribute so much to society, researchers

have tried to analyze their personalities, skills, and attitudes, as well as the conditions that

foster their development (Stoner et al, 1995). The psychological factors identified by

Thomas Begley and David P. Boyd in the mid-1980s identified five dimensions which

separated entrepreneurs from managers. They were need achievement, locus of control,

tolerance for risk, tolerance for ambiguity and type A behavior. These measures were the

ones where entrepreneurs differed significantly from regular managers. Still, other

researchers have added different dimensions to the entrepreneurial personality such as Self-

efficacy, Goal setting, Independence, Drive and Egoistic passion (Shane, Locke and

Collins, 2003) among others. Wilson (2007) further investigated Birds (1988) model of

entrepreneurial intentionality by suggesting that entrepreneurial self-efficacy (ESE), or the

self-confidence that one has the necessary skills to succeed in creating a business, has been

demonstrated to play a key role in determining the level of interest in pursuing an

entrepreneurial career.

In recent years, entrepreneurship studies has begun to explore the influences of the

external environment on motivating entrepreneurial ventures (Aldrich, 2000 cited by Choo

et al, 2007) giving rise to one of the more persistent debates among researchers between the

Trait and Contingency schools of thought (Gilad and Levine, 1986). This trend is

largely attributed to the limiting explanatory power of the entrepreneurial trait perspective,

which is focused on finding similarities across a diverse set of the population (Aldrich,

1990 cited by Choo et al, 2007). Several researchers have identified social and economic

factors and a need to earn a reasonable living as having a profound influencing effect on

shaping the attitudes and creating the intentions of an entrepreneur, which if strong enough,

leads to individual action (Weston, Hogarth-Scott and Wilson, 1994; Davies and Gibb,

1991; Brockhaus and Horwitz, 1986 cited by Choo et al, 2007).


5/12


Gartner (1985) proposed a conceptual framework for new venture creation which

integrates four major perspectives in entrepreneurship: characteristics of the individual(s)

who start the venture, the organization which they create, the environment surrounding the

new venture, and the process by which the new venture is started. Gartner (1988) suggested

that in entrepreneurial research should focus on the process of entrepreneurship instead of

who is the entrepreneur because entrepreneurship is a multidimensional process and that

entrepreneurial traits are just one component of that process. Recent empirical research on

entrepreneurial motivation has produced two broad, and to some extent competing,

hypotheses. These are popularly known as the push and pull theories of entrepreneurial

motivation (Gilad et al, 1986). Proponents of the push theory argue that people are

pushed into entrepreneurship by negative situational factors such as dissatisfaction with

existing employment, loss of employment, and career setbacks. These negative events, they

contend, tend to activate latent entrepreneurial talent and push individuals into business

activities. The alternative hypothesis, the pull theory, postulates that the existence of

attractive, potentially profitable business opportunities will attract (pull) alert individuals

into entrepreneurial activities (Gilad et al, 1986). GEM has invoked Necessity theory as

distinct from Opportunity theory to explain unexpectedly high rates of entrepreneurial

activity in developing nations (Reynolds, Camp, Bygrave, Autio, and Hay, 2001 cited by

Rosa, Kodithuwakku and Balunywa, 2006).

Entrepreneurs intention to start a business and the decisions that occur before start-upshape the subsequent goals, strategies, and structures of new ventures (Bird, 1988 cited by

Choo et al, 2007). Not all aspiring entrepreneurs are successful in starting a business

(GEM, 2008). Bhave (1994 cited by Choo et al, 2007) conducted an exploratory interview-

based study to generate integrative process model of entrepreneurial firm creation and

suggested that while some entrepreneurs were initially driven to venture creation by

externally stimulated opportunity recognition and others were driven by internally

stimulated opportunity recognition, they all shared a psychological commitment to pursue

the opportunity. The entrepreneurial process as operationally defined by GEM takes into

account that the entrepreneurial process starts before the firm is operational i.e. GEM

research covers the life cycle of the entrepreneurial process starting from the point where

individuals commit resources to start a business (conception phase); are involved in setting

up a business as nascent entrepreneur (firm birth phase); become an owner-manager of new


6/12


business to subsequently enter into the persistence phase where business becomes well

established (GEM, 2008)

The decision to behave entrepreneurially is based upon the interaction of personal

characteristics with other important perceptions of situational factors (Hornsby, 1994).

Three factors that may affect an individuals decision to start a new firm: (i) the

characteristics of the economic context; (ii) the characteristics of the individuals life or

career context; and (iii) underlying personal dispositions (Reynolds, 1992 cited by

Hornsby, 1994). Based upon the available literature, Hornsby (1994) has identified five

major categories of variables believed to interactively influence an individuals decision to

behave entrepreneurially. They are (i) an entrepreneurs personal characteristics; (ii) the

individuals personal environment; (iii) the relevant business environment; (iv) the specific

business idea; and (v) the goals of the entrepreneur.

Entrepreneurship in IT sector of Nepal

Information, communication and technology (IT) is a rapidly evolving area worldwide

and Nepal has not remained isolated from its impact. Initially, the terms information

technology (IT) defined all computer based products and services but recent days have seen

the use of the terms information and communication technology, ICT in short, to account

for the convergence of technologies where information technologies and communication

technologies result in a seamless integration. IT based businesses in Nepal consist of sales

and maintenance computer hardware, software, and communication systems; software and

system design and development; internet service providers; IT consultancy; IT training;

website development and maintenance; cyber caf and video game parlor; and IT

outsourcing businesses.

IT is one sector in Nepalese industry which has seen a plethora of new ventures

throughout the 1990s and 2000s. Although initially, only small investors were attracted to

this sector, there has been increase of institutional investors in recent days but their number

is very limited. IT venture under the management of Government is virtually non-existent the IT Park at Banepa has been leased out, and the Government owned National Computer

Center has been dissolved. In terms of the number of people involved as well as the number

of ventures, smaller entrepreneurial ventures have made appreciable contributions to job-

creation and employment opportunities in the country.


7/12


However, it has to be emphasized that IT development and use in Nepal is much less

sophisticated when compared to its next-door neighbors, China and India. A lot of new

small scale venture creations of IT businesses in Nepal are taking place but they suffer from

competitiveness and long-term sustainability problems. Potential causes of numerous start-

ups in the IT sector compared to other sectors of the industry may be due to the demands

for IT-based products and services and low entry-barriers in this sector. A large number of

IT graduates are produced in Nepal annually (from domestic as well as overseas

institutions). Many of them decide to work for other establishments or go abroad for higher

studies but some opt to start their own ventures. IT graduates with at least a bachelors

degree can be considered well qualified by any standard. But many IT ventures are also

started by others who come from different level and stream of educational background

and/or experience.

Hence, it becomes desirable to get some pertinent data about the IT-based ventures

being operated in Nepal as well as their mode of establishment because this type of

descriptive information which provides a holistic scenario of IT-based ventures in Nepal is

currently unavailable. Those which are available are lacking in the details and provided in

the company directory form and are not suitable for further research studies.

Entrepreneurship in IT-based ventures by their very nature is dynamic. Therefore, relevant

questions arise as to what extent Nepalese IT entrepreneurs really see sufficient

opportunities to start their own business or whether some other environment factors causetheir entrepreneurial behavior? Are there differences in the entrepreneurial behaviors of

opportunity-driven entrepreneurs vs. necessity-driven entrepreneurs? Are the research

findings that entrepreneurs in the third-world countries are generally necessity-driven

applicable to the entrepreneurs in the IT sector? These questions are important because

entrepreneurs have been the primary drivers of the IT sector of Nepal though its

contribution is minimal to the national economy but it is growing understanding the

human factors involved in the process will contribute towards our understanding of the

development and sustainability of the IT-based businesses. A study of this kind would

provide information about the triggers and barriers of new IT-based venture creation in

Nepal and more importantly, it could create basis for the identification of competitiveness

and sustainability of IT-based ventures analyzed in the context of human knowledge

workers who are considered the primary capital in IT sector. This study aims to investigate


8/12


the entrepreneurial attitudes and activities in the IT sector in Nepal. Specifically, it is

hypothesized that:

H1: Entrepreneurial motivation in IT sector in Nepal is more opportunity-driven than

necessity-driven.

H2: Opportunity-driven IT entrepreneurial ventures have greater survival rates than

necessity-driven IT entrepreneurial ventures.

According to GEM business ventures which have paid salaries and wages for more than 42

months are classified as established owners. The cut-off point of 42 months has been

made on a combination of theoretical and operational grounds because their businesses

have survived the liability of newness (Bosma et al, 2009).


9/12


10/12

Annex 1

Entrepreneurial Motivation Survey in the IT Sector of Nepal

The purpose of this questionnaire is to gather specific demographic and personal data related to your

entrepreneurial venture. It is expected that this survey will provide with valuable data about the

status of the IT-based ventures in general and the entrepreneurial motivation of the self-employed in

particular which will lead to greater understanding of this aspect of venture creation in Nepal.

This research study is being conducted purely for academic purpose only. Please answer all thequestions in the questionnaire. Your participation in this survey is highly appreciated and we assure

you the confidentiality of your data.

1. Your name (optional): _________________________________________________________2. Sex: Male

Female

3. Your age: __________ years4. How old were you when you stopped full-time education? ____________________________5. Your companys name (optional): _________________________________________________6. Establishment date of the company: ___________________(MM/YYYY)7. Primary products sold/ service provided (click whichever applicable):

Computer hardware sales IT Maintenance services

Computer software sales Internet service provider

Computer software development Cyber caf/Video game parlor

IT consulting IT training

IT outsourcing

Computer networking and communication product sales

Sales Specialized equipments (such as ATM/security devices etc)

8. Just before starting this venture you were Self-employed

Companys business domain: ______________________________________________________

Employment period: From _______________________ to _____________________(MM/YYYY)

Your position (immediately before leaving): __________________________________________

Core job Responsibilities: _________________________________________________________

_________________________________________________________

In paid-employmentCompanys business domain: ____________________________________________________

Employment period: From _______________________ to _____________________(MM/YYYY)

Your position (immediately before leaving): _________________________________________

Core job Responsibilities: ________________________________________________________

________________________________________________________

You were not engaged in any professional because you were Student (full-time)

Seeking a job

Looking after home/ family matters

Other _____________________________________________________________________


11/12

Annex 1

9. If you were previously self-employed, the reason that you left your previous business I sold my business

I closed down my business

10. If you were previously self-employed, the extent to which you agree or disagree with the followingstatements for the reason(s) that you left your previous business the extent to which you agree or

disagree with the following statements.

- Strongly agree ................................ 1- Agree ................................ .............. 2- Dont know/ Not applicable ............ 3- Disagree ................................ ......... 4- Strongly disagree ............................ 5

a. I felt frustrated at my previous employment because my employer was not doing thing theright way ................................ ................................ . 1 2 3 4 5

b. There wasnt enough challenge and stimulation at my most recent job(s) ......... 1 2 3 4 5c. I felt I could make much more money by starting or joining a new business ..... 1 2 3 4 5d. My new venture idea was rejected by my employer and I wanted to realize my business

concept ................................ ................................ . 1 2 3 4 5

11.Please rate in the following scale to what extent do you agree or disagree with the mentionedreasons asto your preference to be self-employed rather than an employee?

- Strongly agree ................................ .. 1- Agree ................................ ................ 2- Dont know/ Not applicable .............. 3- Disagree ................................ ........... 4- Strongly disagree .............................. 5

a. Personal independence/self-fulfillment/ interesting tasks ................................ 1 2 3 4 5b. A business opportunity ................................ ................................ ..................... 1 2 3 4 5c. Better income prospects ................................ ................................ ................... 1 2 3 4 5d. Freedom to choose place and time of working ................................ ................. 1 2 3 4 5e. Lack of attractive employment opportunities ................................ .................... 1 2 3 4 5f. To look after family business ................................ ................................ ............ 1 2 3 4 5g. Members of family are self-employed ................................ ............................... 1 2 3 4 5h. Freedom to choose place and time of working ................................ ................. 1 2 3 4 5i. Favorable economic climate ................................ ................................ .............. 1 2 3 4 5

j. To avoid uncertainties related to employment ................................ .................. 1 2 3 4 5k. Other ................................ ................................ ................................ ............... 1 2 3 4 5

12.Which of the following, do you feel, came first? Business idea

Desire to start a business Dont know/Cant say

13.Your ownership percentage in this business: ___________%14.As a rough estimate, what percentage of your personal income do you expect this business to

provide? ______________ %


12/12

Annex 1

15.Do the following apply to you? You might have to go abroad for higher studies

You are looking for opportunities to work in larger organizations

16.Please rate in the following scale the extent to which you agree or disagree with the followingfactors to have helped you run your current business?


a. Experience from running my previous venture ................................ ................. 1 2 3 4 5b. Experience from my previous employment ................................ ....................... 1 2 3 4 5c. Formal academic courses ................................ ................................ .................. 1 2 3 4 5d. Trainings ................................ ................................ ................................ ........... 1 2 3 4 5e. Colleagues/ family member / friends help me run the business ......................... 1 2 3 4 5f. Other ________________________________________................................ ... 1 2 3 4 5

17.Please rate in the following scale your agreement or disagreement with hindrances/difficulties youfaced in starting-up this business


a. Lack of business idea ................................ ................................ ....................... 1 2 3 4 5b. Lack of finances................................ ................................ ................................ . 1 2 3 4 5c. Lack of skills for running the business ................................ ................................ 1 2 3 4 5d. Severity of the decision to be self-employed ................................ ..................... 1 2 3 4 5e. Burden of red tape/ administrative difficulties ................................ .................. 1 2 3 4 5f. Lack of family support ................................ ................................ ....................... 1 2 3 4 5g. Other ________________________________________................................ ... 1 2 3 4 5

18.Right now, how many people are employed in your business? (Please include only those who wouldappear in your company payroll)

Regular, full-time

Regular, part-time

19.How would you describe your current situation? Busy with the current daily operation of the business

Expanding the business in related businesses

Expanding the business in unrelated businesses

It is a challenging task to sustain the current business

Thank you for the valuable time in filling out this questionnaire.

Documents

Entrepreneurial Motivation in Nepal Ver2_submitted 12 Dec