Exam Paper

Entrepreneurship in European Society: con-

text, conditions and factors needed to ensure
positive effects

Entrepreneurship and Industrial Organization in Europe

EBC 4213

Maastricht University – Master in Global Business

Name: Leon, JI
ID number: i6212457
Tutorial Group: N° 3 (4:00 p.m. – 6:00 p.m.)
Tutor: Dr. Lukas Figge
Word count: 3,170
1
 Table of Contents

1. Introduction……………………………………………………………………………………………………………………………… 3
2. Defining Entrepreneurship……………………………………………………..………………………………………………… 4
3. Positive effects of Entrepreneurship……………………………………….………………………………………………… 5
4. Negative effects of Entrepreneurship…………..…………………………………………………………………………… 6
5. Conditions and factors to drive Entrepreneurship-…………………………………………………………………… 8
6. Framework…………………………………………….…………………………………………………………………………..……. 9
7. Conclusion……………………………………………………………………………………………………………………………… 10
8. Appendix A: Framework…………………………………………………………………………………………………………. 11
9. References……………………………………………………………………………………………..………………………………. 12

2
1. Introduction

Economic growth and social development are two of the main objectives that all societies around the
world pursue. Several studies present Entrepreneurship as the necessary path to reach these goals
since is a critical driver of growth innovation and prosperity (Bosma et al., 2016). Nevertheless, every-
thing that glitters is not gold. Entrepreneurship might also generate negative effects on society, or
even on the entrepreneur. The responsibility to address and alleviated these negative effects relies on
the leaders of the nations. But how and to what extent? Definitely, this depends on the context and
the specific relationship between society and entrepreneurial activity.

Although Europe is still one of the regions with the lowest entrepreneurial activity (Bosma et al., 2016),
more than 99% of the companies in the EU are small and medium-sized enterprises (SMEs) and in the
past five years, SMEs have created close to 85% of new jobs (European Commission, 2019). Thus, they
represent a vital piece of Europe’s economy. Therefore, the main issue to be addressed in the present
paper is: what are the main factors and conditions required to guarantee that entrepreneurship has
positive effects; and how can the negative effects of entrepreneurship be reversed in European so-
ciety?

Firstly, the paper begins with a review of the different approaches and explanations of entrepreneur-
ship, to provide a comprehensive, compelling definition. Then, the paper discusses the promising pos-
itive effects of entrepreneurship, providing examples in the European context. To contrast, the fol-
lowing section covers the dark side of entrepreneurship by analyzing its potential negative effects.
This section also provides illustrations of the deleterious effects. Later, the paper deeps on the condi-
tions and factors that determine the effect of entrepreneurship in society, focusing on the specific
case of European countries. Next, we provide a conceptual framework that comprises the interrela-
tions between entrepreneurship and the analyzed factors and conditions. For a better comprehension
of the reader, this framework is illustrated in a diagram. The document concludes with a summary of
the key insights of all sections.

2. Defining Entrepreneurship

In the literature, we can find many definitions of entrepreneurship, all with different approaches.
Baumol (1996) discuss if entrepreneurship is related only with positive outcomes. To address this, He

3
defines three types of entrepreneurship: productive, unproductive and destructive. Also, Baumol
(1996) describes entrepreneurs as “persons who are ingenious and creative in finding ways that add
to their own wealth, power, and prestige” (p. 6). Thus, the finality of productive entrepreneurship is
to create value for society while unproductive and destructive entrepreneurships pursue to increase
the welfare of the entrepreneur by exploiting the existing value in society. Johnson (2001) an ancient
limited business-oriented definition of entrepreneurship as “entrepreneurship involves capturing
ideas, converting them into products and, or services and then building a venture to take the product
to market” (p. 138). However, new definitions have appeared in recent years, focusing more on the
person (“the entrepreneur”) than in the activity itself. Abu-Saifan (2012) focused more on the protag-
onist and defined entrepreneurship as “an exceptional set of activities carried out by individuals with
an exceptional mind-set in order to maximize profit” (p. 23). Bacigalupo, Kampylis, Punie & Van den
Brande (2016) developed an entrepreneurship competence framework, materializing the mentioned
“exceptional mind-set” and defining entrepreneurship as a transversal competence. Also, Bacigalupo
et al. (2016) include groups (teams and organizations) under the scope of entrepreneurship and sum-
marized the different kinds of created value in three broad groups: cultural, social and economic.
Hagel (2016) complements the definition of entrepreneurship by remarking the of that entrepreneurs’
willingness to face the risks involved in the activities that they perform to capitalize on spotted oppor-
tunities and create value. Therefore, entrepreneurship is a transversal competence of individuals and
groups to carry out activities with the purpose of exploiting spotted opportunities and creating cul-
tural, social, and economic value (productive entrepreneurship), dealing with risks involved to these
activities.

It is noteworthy to clarify that entrepreneurship is not only about starting independently – as an indi-
vidual or group of individuals – your own venture or project. Intrapreneurship is the creation, devel-
opment, and implementation of new ventures inside an organization, that is to say, for your employer
(Jhonson, 2001). It also can be called Entrepreneurial employee activity (EEA) and include the devel-
opment or introduction of new products or services, the creation of a new business division, open a
subsidiary among others (Bosma et al., 2016). Intrapreneurship in European society accounts for 40%
of the entrepreneurial individuals in Europe (Bosma et al., 2016). Therefore, intrapreneurship influ-
ence European society since these initiatives are supported by established organizations and repre-
sent a source of competitiveness for them (Bosma et al., 2016).

Why entrepreneurship matters? Bacigalupo et al. (2016) answer to this question by stating that indi-
viduals (and groups) may apply the transversal competence of entrepreneurship in all spheres of life

4
as personal development, active participation in society, job seeking, and creating new ventures. Thus,
entrepreneurship supports to accomplish the objective of all countries: rise the competitiveness of
their nations. Specifically, entrepreneurship plays a significant role in European society. The large level
of intrapreneurship contributes to maintaining high competitiveness of their organizations; thus, Eu-
rope is highly competitive, regardless of its low level of spin-offs and independent entrepreneurship
(Bosma et al., 2016).

3. Positive effects of Entrepreneurship

Entrepreneurship is “at the heart of national advantage” (Porter, 1990, p. 125). As stated in the
presentation of this paper, entrepreneurship is always related with positive results and effects. The
concept of productive entrepreneurship and its contribution to the creation of value for the entrepre-
neur and the society (Baumol, 1996). Also, Bosma, Content, Sanders & Stam (2018) present in their
study of 25 European countries that productive entrepreneurship contributes to the growth of GDP
per capita. To complement, the article also provides guidance on how to improve this effect by edu-
cation (perceived skills) and improving regulations around credit, labor, and business.

Entrepreneurship influence positively growth because it raises competition by increasing the number
of companies that participate in a market (Burns, 2011). Also, entrepreneurship has an inspiring di-
mension (Bacigalupo et al, 2016). Through this competence, it can have a stimulating effect on the
entrepreneurial ecosystem, rousing creativity, motivating imitators, thus, encouraging more entrepre-
neurship (Isenberg, 2010). As a consequence of competition among organizations, innovation will in-
crease (Carree & Thurik, 2010). Additionally, entrepreneurship eases the transmission of knowledge
from its source to other individuals or organizations (Burns, 2011). That is to say, it facilitates
“knowledge spillovers” among individuals or firms (Toma, Grigore, & Marinescu, 2013). One of the
main examples was the Estonian company Skype, a startup that was bought by eBay in 2005 for $ 2.6
million (De Pommereau, 2011). The Skype case inspired younger entrepreneurs that are established
in different industrial parks in the tech hub of Tallinn, Estonia (De Pommereau, 2011; Cellan-Jones,
2016). With its technology and success, Skype also generated a knowledge spillover in the Estonian IT
market, contributing to the development of future firms.

5
Entrepreneurship foster diversity and variety among firms in any location (Burns, 2011). As a conse-
quence of an enhanced rivalry between firms, companies carry out innovations to develop a compet-
itive advantage. This way, firms recover competitiveness and go to the market to gain market share.
This quest for uniqueness influences economic growth (Toma, Grigore, & Marinescu, 2013). One ex-
ample of diversity and variety is the market of financial services in London. All kind of customers –
small/big firms from any industry – will find a company or a group of them, that will provide an ade-
quate product that fits with their requirements. In addition, they will constantly develop new services
or products (more profits or savings) in order to reach high customer satisfaction.

One of the presentations of entrepreneurship that delivers positive effects on society due its noble
nature is social entrepreneurship. Santos (2012) defines social entrepreneurship as “the pursuit of
sustainable solutions to neglected problems with positive externalities” (p. 335). Also, Santos (2012)
states that social entrepreneurs have the goal to create social value, thus, contributing with society’s
growth. Michael Porter complement this concept adding the concept of “shared value”: creating eco-
nomic value and provide a societal benefit at the same time (Driver, 2012). Therefore, social entre-
preneurs are driven by an intrinsic motivation – address a neglected problem – and score high in the
ethical and sustainable thinking competence (Bacigalupo et al., 2016). eSolidar Is an example of social
entrepreneurship in Europe. This Portuguese startup developed an online platform for people to par-
ticipate in fundraise activities for charities (eSolidar, 2019). eSolidar empowers users with the ability
to donate, while empower charity with the capacity to reach more people in a timely and cost-effec-
tive way.

Finally, It can be stated that entrepreneurship is a source of economic growth for society since it in-
creases competition, innovation, and variety. Additionally, all the above-mentioned positive effects of
entrepreneurship are related to its goal to create creating cultural, social, and economic value, thus,
delivering growth to the society.

4. Negative effects of Entrepreneurship

As mentioned before, the taxonomy proposed by Baumol (1996) is based on the amount of value that
entrepreneurship provides to society. In that sense, he stated that entrepreneurship may be produc-
tive, unproductive and destructive. For Baumol, unlike other authors, entrepreneurship is not a pan-

6
acea: it can affect negatively the development of society. The entrepreneurs’ competences as creativ-
ity and spotting opportunities may be used to innovate unproductive and destructive activities related
to rent-seeking like litigation and takeovers, tax evasion, and legal opportunism (Bacigalupo et al.,
2016; Baumol, 1996). Therefore, the amount of value created for society from entrepreneurship relies
on the ethics, values, and education of the entrepreneur. Thus, the growth of society relies on the
goodwill of entrepreneurs. One example of rent-seeking is the Uber phenomenon in Peru. Since Uber
arrival, many local startups appeared replicating its model. However, all these companies (Uber in-
cluded) take advantage of the weak legal regulation of the taxi industry in Peru. The requirements to
register as a driver in these companies are so low that many thieves and kidnappers are using these
apps to carry out their criminal acts. Additionally, these companies are a source of income for illegal
immigrants, increasing the number of units in an over-saturated market. As a consequence, these
organizations are damaging society by increasing the levels of informality and delinquency.

Entrepreneurship is a transversal competence that not everybody can master and become an entre-
preneur (Kritikos, 2014). The statistics presented in Bosma et al. (2016) reinforce this statement by
showing a Europe among the last places in entrepreneurship, while other regions duplicate, triplicate
and quintuplicate the European rate. The report also shows the existence of significant variability even
among European countries (Bosma et al., 2016). This can be associated with social, economic and
cultural differences, that influence population to develop (or not) entrepreneurship competences. De-
spite that, governments tend to develop entrepreneur policies based on myths, resulting in an inap-
propriate intervention (Brown, Mawson & Mason, 2017). For example, companies try to emulate Sili-
con Valley at all cost and tend to flood entrepreneurs with easy money (Eisenberg, 2010). The combi-
nation of lack of development of entrepreneurial competences, inaccurate entrepreneurship policies,
and indiscriminate government support leads to a high level of failure meaning cost for the govern-
ment, then reflected on taxpayers (Kritikos, 2014).

In the section of the positive effects of entrepreneurship, it was mentioned that high competition
increase innovation. During disruption periods, creativity, adaptability, and innovation are required to
adapt to new requirements of the market and keep the firm competitive (Ostergaard & Park, 2015).
However, what happens when innovation does not come out? An innovation lock-in hurt entrepre-
neurship initiatives, and sometimes with fatal outcomes. As a consequence, societies that depend on
entrepreneurship initiatives in a specific sector as a source of growth may be heavily affected by the
crisis. Additionally, under this context, the entrepreneurs may feel enormous quantities of pressure

7
and stress, affecting their mental and physical health (Gourguechon, 2018). The results can be as dis-
astrous as the suicide cases of the tech entrepreneurs Ilya Zhitomirskiy and Aaron Swartz. These re-
grettable events damage society and the entrepreneurship environment.

5. Conditions and factors to drive Entrepreneurship

In previous sections, the positive and negative effects of entrepreneurship were presented. Now this
section discusses the factors and conditions that drive and determine entrepreneurship and its rela-
tionship with the positive and negative effects, and how they can result in the growth of European
society. To address these questions, we use literature with different approaches.

Rusu and Roman (2018) stated that Entrepreneurship is the product of the interaction between inter-
nal and external factors. Their study based on 18 European countries shows that perceptual indicators
like fear of failure, entrepreneurial intentions, perceived capabilities, and perceived opportunities in-
fluence entrepreneurial activity. Bosma et al. (2018) deepened on quantifying the positive effect of
perceived capabilities in 25 European nations and found that increasing the perceived hard (cognitive)
and soft (business, ethics, and others) skills by 10% could result in an increase in GDP per capita growth
of 0.5% points. This is a very ambitious goal. However, awareness of individuals can train and develop
entrepreneurial skills, knowledge, and attitudes is increasing (Bacigalupo et al., 2016). The EntreComp
framework proposed by Bacigalupo et al. (2016) is a useful tool that gathers soft and hard skills needed
to develop productive entrepreneurship in European society. Through proper entrepreneurial educa-
tion, the negative effects generated by the lack of entrepreneurship competences can be mitigated.
Also, it fosters the competitiveness and innovation capacity of individuals. Consequently, it generates
the same effect on the competitiveness and innovation capacity of their own entrepreneurial initia-
tives or of the organizations of which they are members. Further, as mentioned before, the 15 com-
petences of the framework are applicable in different domains of life, contributing to the growth of
society beyond the entrepreneurship dimension.

Culture plays a determinant role in entrepreneurship since its related to customs, values, motivation,
and ethics of individuals; influencing decision making (Sankar, 1988). Kilman, Saxton, and Serpa (1985)
stated that culture influences on organizations as long as orients conduct in the desired path is ac-
cepted by the members to comply with the settled cultural protocol. In the other hand, culture can
have a negative impact whenever orients conduct in a non-desired path, is accepted by the members
and makes high pressure on them. Thus, it may influence the decisions of entrepreneurs to carry out

8
a productive entrepreneurship initiative or opt for unproductive or destructive entrepreneurship ac-
tivities. Since entrepreneurs are educated and raised in society (organization), it can be stated that
societies receive positive or negative effects from the entrepreneurs they produce. Complementary
to education, entrepreneurs must have a solid background on values and ethics so that society can
enjoy the positive effects of entrepreneurship. However, the connections between culture and entre-
preneurship are not clear, simple, and direct, and further research is necessary (Carree & Thurik,
2010). The statistics presented by Bosma et al. (2016) clearly evidence that European society is not as
entrepreneurial as others. To tackle this, Isenberg (2012) states that a cultural change is necessary to
create a productive entrepreneurship environment. He gives the example of Ireland, where just in one
generation people changed from entrepreneurship afraid to pro-entrepreneurship. Thus, cultural bar-
riers should be broken down.

The recommendation of Eisenberg leads us to discuss the influence of institutions, governments, and
policies over the positive and negative effects of entrepreneurship. Public policies play a main role in
the entrepreneurship ecosystem because they influence the competitiveness of regions by providing
the infrastructure that allows firms to obtain resources for innovation (Audretsch, Hülsbeck, & Leh-
mann, 2012). This way, the entrepreneurs of the region are capable to compete in the market. Addi-
tionally, access to resources encourages the entrance of other entrepreneurs, increasing variety.
Bosma et al. (2018) measured the positive effect of improving the regulations around credit, labor,
and business and found that increasing these regulations on 10% could result in an increase in GDP
per capita growth of 1.1% points. Unfortunately, sometimes policymakers of governments give prior-
itize myths and misconceptions about entrepreneurship activity instead of real facts, affecting the
process of policy formulation and implementation (Brown, Mawson, Mason, 2017). Therefore, gov-
ernments must analyze and understand the needs of the entrepreneurs of the region to elaborate
policies according to the context and support the creation of cultural, social, and economic value.
Additionally, governments should comply with its regulatory function and actively pursue rent-seeking
entrepreneurship. Also, they must modify policies to prevent future cases, without falling on unnec-
essary overregulation that might alarm entrepreneurs. Finally, Isenberg (2012) established that strong
entrepreneurship ecosystem has effective institutions associated with entrepreneurship. Audretsch
et al. (2012) stated that regional competitiveness and research by local research-intensive universities
are important factors that significantly influence the innovation level of firms. A remarkable example
is the entrepreneurial ecosystem of Limburg, the Netherlands. The research institution, Brightlands
Campus, works in line with companies around de world, startups, and universities.

9
6. Framework
For a better understanding, the present paper includes in the Appendix A an illustration of the frame-
work elaborated in the paper. The reader will observe in the diagram the relationship between condi-
tions and factors to drive Entrepreneurship, the link of these with the positive and negative effects
and how they affect the growth of European society.

7. Conclusion
This paper investigates the main factors and conditions required to guarantee that entrepreneurship
has positive effects; and how to revert the negative effects of entrepreneurship in European society.
To address this, we briefly review and analyze different definitions of entrepreneurship. As a result,
entrepreneurship was defined as a transversal competence of individuals and groups to carry out ac-
tivities with the purpose of exploiting spotted opportunities and creating cultural, social, and eco-
nomic value (productive entrepreneurship), dealing with risks involved to these activities. Addition-
ally, this first section presents the definition of intrapreneurship to complement the concept of entre-
preneurship. Also, the relevance of entrepreneurship for European society was highlighted.

With the concept of entrepreneurship clear, this article provided positive effects of entrepreneurship
based on the creation of cultural, social, and economic value. Through the use of European examples,
this paper explains how innovation, variety, and competition contribute to the growth of society. So-
cial entrepreneurship is included as an outlier among entrepreneurship due to its focus on the devel-
opment and creation of social value. On the other hand, the following section reveals the dark side of
entrepreneurship and how the existing value in society is destroyed. Rent-seeking entrepreneurship
and the combination of lack of entrepreneurial competences with wrong designed policies damage
the social and economic stability of society. Also, this part takes the effect of Uber in a developing
country as an example of how rent-seeking entrepreneurship has a deleterious effect on society.

The last part of this study proposes three main drivers of entrepreneurship: education, culture, and
institutions, government and policies. Through the analysis of these drivers, we identified how to ex-
ploit the positive effects and what should be avoided or corrected to alleviate the negative of entre-
preneurship. All the parts discussed in the present documents are organized and arranged in a diagram
for a better understanding of the reader.

10
11
 Appendix A

Figure 1: Proposed framework for the factors and conditions that promote entrepreneurship and the effects on the European society
12
 References

Abu-Saifan, S. (2012). Social entrepreneurship: Definition and boundaries. Technology Innovation

Management Review, 2(2), 22-27. Retrieved from https://search-proquest-

com.ezproxybib.pucp.edu.pe/docview/1614474197?accountid=28391

Audretsch, D. B., Hülsbeck, M., & Lehmann, E. E. (2012). Regional competitiveness, university spillo-

vers, and entrepreneurial activity. Small Business Economics, 39(3), 587-601.

Bacigalupo, M., Kampylis, P., Punie, Y., & Van den Brande, G. (2016). EntreComp: The entrepreneur-

ship competence framework. Luxembourg: Publication Office of the European Union.

Baumol, W. J. (1996). Entrepreneurship: Productive, unproductive, and destructive. Journal of busi-

ness venturing, 11(1), 3-22.

Bosma, N., Abdul, A., Michael, D., Eltobgy, M., Gratzke, P., Hart, M., ... & O'Neill, M. (2016, December).

Europe’s Hidden Entrepreneurs: Entrepreneurial Employee Activity and Competitiveness in Eu-

rope. World Economic Forum.

Bosma, N., Content, J., Sanders, M., & Stam, E. (2018). Institutions, entrepreneurship, and economic

growth in Europe. Small Business Economics, 1-17.

Brown, R., Mawson S. & Mason, C. (2017). Myth-busting and entrepreneurship policy: the case of high

growth firms. Entrepreneurship and Regional Development, 29(5-6), 414-443.

https://doi.org/10.1080/08985626.2017.1291762

Burns, P. (2016). Entrepreneurship and Small Business. New York: Palgrave Macmillan.

Carree, M & Thurik, R. (2010). The Impact of Entrepreneurship on Economic Growth. In Acs, Z. &

Audretsch, D., Handbook of Entrepreneurship Research: An Interdisciplinary Survey and In-

13
 troduction (p.557-594). Retrieved from https://www.researchgate.net/publica-

tion/226229868_The_Impact_of_Entrepreneurship_on_Economic_Growth/citation/down-

load

European Commission (2019). Entrepreneurship and Small and medium-sized enterprises (SMEs).

Retrieved June 4, 2019 from https://ec.europa.eu/growth/smes_en

Hagel, J. (2016, Oct 02). We need to expand our definition of entrepreneurship. Business Mirror Re-

trieved from https://search-proquest-

com.ezproxybib.pucp.edu.pe/docview/1825219662?accountid=28391

Kilman, R. H., Saxton, M. J., & Serpa, R. (1985). Gaining control of the corporate culture. San Fran-

cisco, CA: Jossey-Bass.

Cellan-Jones, R. (2016). Estonia – the Skype effect. BBC News. Retrieved June 4, 2019 from

https://www.bbc.com/news/technology-36286157

De Pommereau, I. (2011). Skype's Journey From Tiny Estonian Start-Up To $8.5 Billion Microsoft Buy.

The Christian Science Monitor. Retrieved from: https://www.csmonitor.com/World/Eu-

rope/2011/0511/Skype-s-journey-from-tiny-Estonian-start-up-to-8.5-billion-Microsoft-buy

Driver, M. (2012). An interview with Michael Porter: Social entrepreneurship and the transformation

of capitalism. Academy of Management Learning & Education, 11(3), 421-431.

eSolidar (2019). About us. Retrieved June 4, 2019 from https://www.esolidar.com/about

Gourguechon, P. (2018). Entrepreneurs And Suicide Risk: A New Perspective On Entrapment Pro-

vides Hope. Forbes. Retrieved from June 4, 2019 from https://www.forbes.com/sites/prudy-

gourguechon/2018/08/23/entrepreneurs-and-suicide-a-new-perspective-on-entrapment-

gives-hope/#29da6c075385

Johnson, D. (2001). What is innovation and entrepreneurship? Lessons for larger organisations. In-

dustrial and Commercial Training, 33(4), 35-140,

https://doi.org/10.1108/00197850110395245

14
Kritikos, A. S. (2014). Entrepreneurs and their impact on jobs and economic growth. IZA World of La-

bor. Retrieved from: https://wol.iza.org/uploads/articles/8/pdfs/entrepreneurs-and-their-im-

pact-on-jobs-and-economic-growth.pdf

Ostergaard, C.R. and E. Park (2015), What makes clusters decline? A study on disruption and evolu-

tion of a hight-tech cluster in Denmark. Regional Studies, 49(5), 834-849.

http://dx.doi.org/10.1080/00343404.2015.1015975

Porter, M. E. (1990), The Competitive Advantage of Nations, New York: Free Press.

Rusu, V. D. & Roman, A. (2018). Entrepreneurial motivations in the European Union countries. Man-

agement Dynamics in the knowledge Economy, 6(1), 9-31. Retrieved from https://www.re-

searchgate.net/publication/324228950_Entrepreneurial_Motivations_in_the_European_Un-

ion_Countries_An_Empirical_Approach

Sankar, Y. (1998). Organizational culture, values, and ethics. International Journal of Value-Based Man-

agement, 1(1), 9-26. Retrieved from https://link.springer.com/article/10.1007/BF03186612

Santos, F. M. (2012). A positive theory of social entrepreneurship. Journal of business ethics, 111(3),

335-351. Retrieved from https://link.springer.com/article/10.1007/s10551-012-1413-4

Toma, S. G., Grigore, A. M., & Marinescu, P. (2014). Economic development and entrepreneurship.

Procedia Economics and Finance, 8, 436-443. Retrieved from https://www.re-

searchgate.net/publication/275246573_Economic_Development_and_Entrepreneurship

15