Business Owners’Cultural orientation and SME growth:

A Liberian Case Study.

Research Methods I Assignment for the Swiss School of Business and Management DBA Program

Submitted by Aaron Nyanama

May 2020
Introduction:
The role of small and medium-sized enterprises (SME) in driving economic development is very
vital, especially in developing and emerging economies (Heydari & Khoshnood, 2019). Each year,
multi-billion dollar worth of aids are devoted to fostering the growth of SMEs in developing
countries. The strategic role of SME is highlighted by the way it continues to influence both
regional and global policy debates (Foreman-Peck, 2013). The central issue dominating policy
debates around the world and Africa in particular is, how to stimulate economic growth through the
development of SMEs (Herdjiono et al., 2017; McGuinness et. al 2018). The key assumption behind
the support for SME's growth is that it leads to massive economic benefits such as, employment
creation and income generation (Hallberg 1999; Acs, Desai and Hessels 2008; Kang and Heshmati
2008). This is particularly strategic in developing countries that have overly abundant unskilled
people (Harson and Shaw 2001; Phillips and Bhatia-Panthaki 2007).

Just like many other developing countries, Liberia considers SME development and growth
to be a critical component of its poverty alleviation strategy. The below statistics from the
International Trade Center (2016) highlights the critical role of SME in the Country.
Nearly 80% of all formal Liberian firms employ fewer than 20 people, with only a further 13%
employing between 20 and 100 people. We should also keep in mind that Liberia is comprised of
mostly young people: 60% of the population is under the age of 25 and 70% of people in
employment are found in the informal sector. As such, it is safe to say that SMEs dominate Liberian
employment.

As depressing as the above statistics is, it highlights why understanding how SME operates
and how they can be effectively supported is not only academically significant but also very critical
for business practitioners. Key to understanding SMEs in Liberia is being able to understand how
business owners’ cultural orientation influences SME growth in Liberia.

This study is very significant in the sense that it seeks to find out which culture dimensions
lead to SME growth in Liberia. Culture is an important aspect of societies and organizations. To
develop an understanding of what societies and organizations value, we need to understand the
cultural norms and values that drive individual members of such a society (Erez and Gati 2004;
Hofstede 2001; House and Javidan 2004). The quest to understand economic behavior via culture
studies is not new. The recent trend in the applications of Darwinian thinking to economics by
evolutionary economics (Aldrich 1999) highlights the importance of culture to entrepreneurship
research. As pointed out by Busenitz and Arthurs (2006), the study of culture is important because
businesses need to develop dynamic capabilities to deal with their environments.
 I believe that establishing the link between a business owner’s cultural orientation and
business growth is important. This is because a business’s capability is highly influenced by culture:
both societal and organizational (Konig et.al 2007). Perhaps, the most persuasive argument for the
application of culture to entrepreneurship research is the one made by Freytag and Thurik (2007).
They argue that culture constitutes an important construct in entrepreneurship research as such, it
should be taken seriously.

The huge spike in research on the role of culture plays in entrepreneurial behavior has not
come without some major shortcomings. One of such shortcomings is the one mentioned by Konig
et.al (2007). They argue that most of the studies about culture's impact of entrepreneurship mainly
focus on the impact of culture on societal ownership of businesses. They believe that this narrow
focus on society analysis is not very helpful in understanding how individual business owner's
cultural orientations influence the business culture and organizational performance. As such, they
argue that there is a need for research that measures cultural orientations at the individual level.

This study is unique in the sense that it seeks to help expand the body of research individual
culture orientations and organizational performance. Unlike Konig et.al (2007) who focus on how
business owner’s culture orientation affects organizational culture, this study seeks to understand
which of the seven out 9 Global Leadership and Organizational Behavior Effectiveness (GLOBE,
2007) cultural dimensions has the most impact on SME growth in Liberia.

Another unique aspect of this study is that it will focus on entrepreneurship in Africa. This is
unique because a vast majority of entrepreneurship research in academia almost exclusively focused
on developed countries (George et. al 2016). and emerging economies in Asia. Very little is known
of entrepreneurship in Africa (Jones et. al 2018). This is worth highlighting here because the
African continent currently has six of the ten fastest-growing economies in the world (World
economic forum, 2020). The lack of empirical studies on entrepreneurship in Africa has led to a
widespread recognization among contemporary entrepreneurship scholars that there is an urgent
need for empirical studies on entrepreneurship in Africa. This study seeks to fill in that research
gap.
However, the significance of this study goes beyond the need to fill in research gaps. As
indicated by Le Pere and Ikome (2009), results from those studies could help solve some of the
challenges that the African continent faces such as, high youth unemployment rates, endemic
poverty, economic inequality, poor/ineffective infrastructure, and, etc. This study is unique in the
sense that it aims to provide new and empirical studies on the role of business owner’s culture
orientations on the growth of SME’s in Africa, whereas previous studies were mainly focused on
developed countries and few emerging economies.
 
Literature review
The goal of this section is to build a theoretical framework upon which the research will be based.
In the proceeding parts of this section, a brief review of the concepts and evolution of
entrepreneurship and theories relevant for this study will be provided.

Culture and Entrepreneurship

A preliminary review of the literature shows that there are three broad approaches to culture and
entrepreneurship research. The first approach focuses on the relationship between national culture
and entrepreneurship. The quest to understand the link between national culture and
entrepreneurship transcends academic boundaries (Hayton et al., 2002). It attracts the interest of
economists (e.g, Schumpeter, 1934), and sociologists (e.g., Weber, 1930), as well as psychologists
(e.g., McClelland, 1961). The number of studies done on the relationship between national culture
and entrepreneurial behaviors has grown significantly over the past 15 years (e.g. Beugelsdijk,
2007; Moriano et al., 2012; Si et al., 2020; Stephan & Pathak, 2016).

Perhaps one of the most compelling arguments for the role of culture in entrepreneurial
behavior were made by Radziszewska (2014). She argues our perception of entrepreneurs is seen as
independent, risk-taking mavericks who boldly organize the people and resources necessary for
creating new business ventures is not totally correct. She believes that for the role of entrepreneurs
to emerge within a culture, at least two social conditions must exist: entrepreneurs must be granted
social acceptance so that the activities associated with new venture formation are accepted as
legitimate and socially beneficial (Radziszewska, 2014). Without these, she argues that it is very
unlikely that entrepreneurs would emerge. This implies that for entrepreneurs to emerge, there is a
need to develop the culture of risk and rewards at the national level.

The second kind of research that is done on national culture and entrepreneurship focuses on
studying the link between national culture and the characteristics of those engaging in
entrepreneurial ventures. Stephen & Pathak (2007, for example, argues that charismatic and self-
protective cultures positively affect entrepreneurial behaviors. They believe that being charismatic
enables entrepreneurs to be co-operative because it enable them to initiate change while being self-
protective and competitive helps entrepreneurs safeguard their venture and avoid being exploited.
Finding from their study shows that that entrepreneurs do not only thrive in cultures that strongly
endorse desirable charismatic leaders, but are also in cultures that tolerate some of the less desirable
leadership attributes such as self-protectiveness.

The third approach seeks to investigate the link between national culture and corporate
entrepreneurship. There has been a lot of research done on how national culture affects the level of
financial risk that corporations are willing to take (Dimitratos et al., 2011; Kreiser et al., 2010; Shao
et al., 2013; Williamson, 2000). Shao et al. (2013) we examine whether national culture, an
informal institution, is associated with corporate investment decisions. Finding from their study
suggests that firms in individualistic countries invest more in R&D but not in capital expenditure
and cash, suggesting that individualistic values are associated with risk-taking. 

Discussion:
If there is anything that can be deduced from the above brief literature review, is the fact that most
of the previous studies on entrepreneurship mainly focus on the national aggregate impact of culture
on either entrepreneurial behaviors of individuals or corporations within a given society. This means
that there is a need for empirical research on how individual business owners' cultural orientations
affect organizational outcomes such as financial performances and employee turnover. This research
will be a significant contribution to the existing body of research on entrepreneurship.

Another discovery that was made from the literature review is that a vast majority of the
previous research on how culture influences entrepreneurial behaviors almost exclusively focus on
developed countries in Europe and North America. There are almost no significant amounts of
empirical studies done on culture and entrepreneurship in developing countries in Africa. This lack
of studies on Africa is worth noting here because as indicated above, seven of the ten fastest-
growing economies in the world are in Africa. I believe that a better understanding of what drives
entrepreneurship in Africa could help foster growth among SMEs while accelerating poverty
alleviating. I believe that the lack of empirical research, along with the need for growth in SME in
Africa, does not only make this study significant but also relevant.
Conclusion
What this literature review shows is that the assumption that entrepreneurs emerge independently of
their environment is not totally correct. Authors and policymakers knowledge that for individuals or
corporations to engage in entrepreneurship, there have to be cultural practices that recognize and
celebrate the risks that entrepreneurs take on.

An interesting aspect of the impact of cultural behaviors on entrepreneurship is that,

entrepreneurs’ actions are not only constrained by cultural practices (North, 1990), but they are also
enabled by them (Radziszewska, 2014). Different cultures perceive entrepreneurship and
entrepreneurial opportunity differently.

The benefits associated with studying entrepreneurship in Africa do not necessarily lie in being able
to gain access to the African economies. Studying entrepreneurship in Africa will help bring African
economies into the mainstream of entrepreneurship research. By doing so, will offer the potential to
expand our theoretical understanding of entrepreneurship in general.

Expanding our theoretical understanding of entrepreneurship, in general, is very important

for researchers because it provides the opportunity for them to fine-tune their theories by
developing conditions that are context-specific. The notion of context-specific is particularly
important for entrepreneurship research because it has the potential to allow researchers to develop
new theories and constructs that are generalizable to research in other contexts (Bruton et al., 2007).
Context-specific research gives us insight into how entrepreneurial behavior bound by culture. As
indicated by Bruton (2007), some of the keys assumptions that entrepreneurs are drive by the need
for profit maximization, self-interest, and opportunistic and individualistic behavior may not be
universal.
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