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 sprajwal@wlink.com.np

ARM Instructor: Prof. Virginia E. OLeary 12 December, 2009

Advanced Research Methods 2 Abstract

Advanced Research Methods 3 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 several research 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 wellbeing (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 as entrepreneurship. 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

Advanced Research Methods 4 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 Selfefficacy, 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).

Advanced Research Methods 5 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-up shape 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 interviewbased 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

Advanced Research Methods 6 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 jobcreation and employment opportunities in the country.

Advanced Research Methods 7 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 startups 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 cause their 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

Advanced Research Methods 8 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).

Advanced Research Methods 9 References Bosma, N., Acs, Z. J., Autio, E., Coduras, A., & Levie, J. (2009). 2008 Executive Report Global Entrepreneurship Monitor Choo, S., & Wong, M. (2007). Entrepreneurial intentions: Triggers and barriers to new venture creation in Singapore Singapore Management Review, 28, 47-64 Fiona Wilson, F., Kickul, J., & Marlino, D. (2007 ) Gender, Entrepreneurial Self-Efficacy, and Entrepreneurial Career Intentions: Implications for Entrepreneurship Education Entrepreurshi:p Theory and Practice, 5, 387-406 Gartner, W. B. (1985). A conceptual framework for describing the phenomenon of new venture creation. Academy of Management Review, 10, 696-706 Gartner, W. B. (1988). Who is an entrepreneur? is the wrong question American Journal of Small Business, 12, 11-32 Gilad, B., & Levine, P. (1986). A behavioral model of entrepreneurial supply. Journal of Small Business Management, 24 Horndby, J.S. (1994). A proposed research model of entrepreneurial motivation. Entrepreneurship: Theory and Practice Robbons, S. P., & Coulter, M.(2002). Managing entrepreneurial ventures Management, 7th ed Rosa, P., Kodithuwakku, S., Balunywa, W. (2006) Entrepreneurial motivation in developing countries: What does necessity and opportunity entrepreneurship really mean? Schumpeter, J. A. (1934). The theory of economic development, Harvard University Press Shane, S., Locke, E. A., Collins, C. J. (2003). Entrepreneurial motivation Human Resource Management Review, 13, 257-279 Stoner, J. A. F., Freeman, R. E., Gilbert, Jr. D. R. (1995). Inventing and reinventing organizations Management, 6 th ed The Gallup Organization. (2007). Entrepreneurship survey in the 25 Member States, United States, Iceland and Norway Analytical report, Hungary/Europe

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 the questions 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: __________ years 4. How old were you when you stopped full-time education? ____________________________ 5. Your company s 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 Company s business domain: ______________________________________________________ Employment period: From _______________________ to _____________________(MM/YYYY) Your position (immediately before leaving): __________________________________________ Core job Responsibilities: _________________________________________________________ _________________________________________________________

In paid-employment
Company s 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 ____________________________________________________ ________________ _

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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 following statements 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 - Don t know/ Not applicable ............ 3 - Disagree ................................ ......... 4 - Strongly disagree ............................ 5 a. I felt frustrated at my previous employment because my employer was not doing thing the right way ................................ ................................ . 1 2 3 4 5 b. There wasn t enough challenge and stimulation at my most recent job(s)......... 1 2 3 4 5 c. I felt I could make much more money by starting or joining a new business ..... 1 2 3 4 5 d. 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 mentioned reasons asto your preference to be self-employed rather than an employee? - Strongly agree ................................ .. 1 - Agree................................ ................ 2 - Don t know/ Not applicable .............. 3 - Disagree ................................ ........... 4 - Strongly disagree .............................. 5 a. Personal independence/self-fulfillment/ interesting tasks ................................ 1 2 3 4 5 b. A business opportunity ................................ ................................ ..................... 1 2 3 4 5 c. Better income prospects ................................ ................................ ................... 1 2 3 4 5 d. Freedom to choose place and time of working ................................ ................. 1 2 3 4 5 e. Lack of attractive employment opportunities ................................ .................... 1 2 3 4 5 f. To look after family business ................................ ................................ ............ 1 2 3 4 5 g. Members of family are self-employed ................................ ............................... 1 2 3 4 5 h. Freedom to choose place and time of working ................................ ................. 1 2 3 4 5 i. Favorable economic climate................................ ................................ .............. 1 2 3 4 5 j. To avoid uncertainties related to employment................................ .................. 1 2 3 4 5 k. Other ................................ ................................ ................................ ............... 1 2 3 4 5 12. Which of the following, do you feel, came first? Business idea Desire to start a business Don t know/Can t 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? ______________ %

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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 following factors to have helped you run your current business? - Strongly agree ................................ 1 - Agree................................ .............. 2 - Don t know/ Not applicable ............ 3 - Disagree ................................ ......... 4 - Strongly disagree ............................ 5 a. Experience from running my previous venture ................................ ................. 1 2 3 4 5 b. Experience from my previous employment ................................ ....................... 1 2 3 4 5 c. Formal academic courses ................................ ................................ .................. 1 2 3 4 5 d. Trainings ................................ ................................ ................................ ........... 1 2 3 4 5 e. Colleagues/ family member / friends help me run the business......................... 1 2 3 4 5 f. Other ________________________________________................................ ... 1 2 3 4 5 17. Please rate in the following scale your agreement or disagreement with hindrances/difficulties you faced in starting-up this business - Strongly agree ................................ 1 - Agree................................ .............. 2 - Don t know/ Not applicable ............ 3 - Disagree ................................ ......... 4 - Strongly disagree ............................ 5 a. Lack of business idea ................................ ................................ ....................... 1 2 3 4 5 b. Lack of finances................................ ................................ ................................ . 1 2 3 4 5 c. Lack of skills for running the business................................ ................................ 1 2 3 4 5 d. Severity of the decision to be self-employed ................................ ..................... 1 2 3 4 5 e. Burden of red tape/ administrative difficulties ................................ .................. 1 2 3 4 5 f. Lack of family support................................ ................................ ....................... 1 2 3 4 5 g. Other ________________________________________................................ ... 1 2 3 4 5 18. Right now, how many people are employed in your business? (Please include only those who would appear 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.