CHAPTER 4

CHAPTER 4

Policies of New Technology-Based Firms (NTBFs)

Policies & Founder Characteristics of New Technology Based Firms(NTBTFs),

A Comparison between British & Indian Firms

4.1

INTRODUCTION

Public officials are currently interested in fostering the creation of spin-offs from public research. The

reason is understandable. In high cost nations, the creation of new knowledge intensive organizations is

central simply because these countries can hardly compete on low cost in mass production. In other words,

future income in these countries needs to be based on knowledge intensive firms. Knowledge intensive firms

are also perceived to be flexible and dynamic in nature, and can more easily change according to shifting

demand.

For instance, OECD (2001:7) states that: “Research based spin-offs are generally understood to be small, new

technology-based firms whose intellectual capital originated in universities or other public research

organisations. [They] are thought to contribute to innovation, growth, employment and revenues. They are

perceived to be flexible and dynamic, giving rise to novel fields and markets, and playing a critical role in the

development of high-technology clusters.” Not only are they flexible, they are also a precondition for

industrial clusters to successfully emerge and prosper. NTBFs play an increasingly important role in our

economic system. To further illustrate, the OECD (1999:6) stresses the importance of NTBFs: "Small

enterprises, especially new technology-based firms, play a distinctive and increasing role within innovation

systems. Beyond their direct contribution to the creation and diffusion of new goods and services, new

technology-based firms help instil a culture of innovation, encourage investments in skills and improve

economy-wide dynamic allocative efficiency. However, the conditions for their creation and growth are still

far from optimum in a majority of countries and the innovation capacities of a majority of SMEs are still

limited."

New technology based firms (NTBFs) can be broadly identified as those that introduce innovations to the

market, expected to have none or few competitors and use cutting edge technology (Storey and Tether,

1998). “Newness” can be attributed to both the firm itself and the technology developed or applied within

the firm. Consequently NTBFs are exposed to “liability of newness” and face considerable difficulties in

achieving sustainable returns and financial profitability.

4.2

NTBFs are held to be important drivers of innovation and economic growth. However, the process by

which they do this is less well understood. New growth theory (Romer, 1990, 1994; Solow, 1956, 1957)

attempted to show a relationship between innovation and economic growth, but gave no role to the

individual entrepreneurial firm.

High-technology firms have had higher creation and destruction rates than others and this sector responded

differently to the recession from other sectors by experiencing higher volatility (perhaps reflecting a

different risk profile of high-tech enterprises).21 The high-tech industry also accounted for higher

proportional job growth (relative to its share of the economy) than other sectors,while the low-technology

sectors contributed proportionally more in job destruction.

Conceptual and Theoretical Basis:

Several different explanations have been offered for the economic contributions

from NTBFs:

Schumpeterian – NTBFs are the agents of “creative destruction” destroying

old firms and replacing them with more efficient high-tech enterprises.

Flexible specialisation – NTBFs allow more flexible specialisation than would

be available under other institutional arrangements.

Innovation system – NTBFs fulfil the role of innovation assets, possibly

arising from the process of vertical disintegration of research and

development enterprises.

Industrial organisation – NTBFs develop as the balance between internal

and external co-ordination costs changes.

Schumpeter was one of the first persons to explore the role of the new technology-based firm in causing

economic growth and development. He was uncomfortable with the static model of economics, largely the

work of Walras (1874) and Marshall (1890), who formalized much of General Equilibrium Theory. Though

Schumpeter began his work following this path, but soon began to be uncomfortable with the static model. He

felt that the economy contained internal elements which caused disruption and change; however, this idea did

not fit with Walras’s model, in which the economy only reacted to external shocks.

Schumpeter’s exposition of the role of the entrepreneur is in the second chapter of this work, entitled “The

Fundamental Phenomenon of Economic Development” (Schumpeter, 1934). He defined development as the

carrying out of new combinations. This concepts covers the following five cases:

4.3

(1) The introduction of a new good—that is one with which consumers are not yet familiar—or of a new

quality of a good.

(2) the introduction of a new method of production, that is one not yet tested by experience in the branch of

manufacture concerned, which need by no means be founded upon a discovery scientifically new, and can

also exist in a new way of handling a commodity commercially.

(3) The opening of a new market, that is a market into which the particular branch of manufacture of the

country in question has not previously entered, whether or not this

market has existed before.

(4) The conquest of a new source of supply of raw materials or half-manufactured goods,

again irrespective of whether this source already exists or whether it has first to be created. (5) The carrying

out of the new organization of any industry, like the creation of a monopoly position (for example through

trustification) or the breaking up of a monopoly position.

(Schumpeter, 1934: p. 66)

Creative Destruction

It is here that we can begin to see the role of the new technology-based firm begin to emerge.Schumpeter

makes it clear that “these new combinations are, as a rule, embodied, as it were, in new firms which generally

do not arise out of the old ones but start producing beside them” (Schumpeter, 1934: p. 66). Here we can also

see the beginnings of the concept of creative destruction, as he speaks of the new combinations as a

“discontinuity” which “mean the competitive destruction of the old”, which phenomenon is “peculiar to this

form of organisation”, that is to say, a uniquely capitalist concept (p. 67). In 1942, he formalized the concept

of “creative destruction” as a process “that incessantly revolutionizes the economic structure from within,

incessantly destroying the old one, incessantly creating a new one” (Schumpeter 1942: p. 83). According to

Schumpeter, innovation causes market dislocations, which allow the ascendance of new firms and the

corresponding decline of the large incumbent firms whose leadership positions they assume. This occurs

through the introduction of :the new commodity, the new technology, the new source of supply, the new type

of organization (the largest-scale unit of control for instance) – competition which commands a decisive cost

or quality advantage and which strikes not at the margins of the profits and the output of the existing firms but

at their foundations and their very lives. (Schumpeter, 1942: p. 84) This is fundamentally different from

general equilibrium theory, where competition is almost exclusively price-based. In Schumpeter’s view,

4.4

competition is not to be based solely on price — “the price variable is ousted from its dominant position”

(Schumpeter, 1942: p. 84)— but rather is based largely on non-price characteristics of a

product such as capabilities and performance —shifting the basis of competition from the ability to

minimize cost to the ability to innovate. Schumpeter’s view of the economic world

stands in stark contrast to the prevalent view of the day, which was dominated by Keynesianism (Keynes,

1936) and general equilibrium theory (Walras, 1874). These theories contained no provision for innovation

or entrepreneurship, and even today, macroeconomics is dominated by the intellectual descendents of these

theories (Romer, 1996). Clearly, an understanding of the role which NTBFs play in the larger economy

requires looking again at the ideas of Schumpeter, and how those ideas relate to modern research on

innovation and technological change.

The Importance of Small Firms

There is substantial evidence that small firms play a critical role in creating job growth in the

economy (Birch, 1979, 1987; Storey, 1994). In his book Job Creation in America (1987), Birch estimated

that 81.5% off all net new jobs in the economy were created by firms with fewer than 100 employees.

However, it is important to realize that not all types of small firms are alike when it comes to job creation.

Kirchhoff (1994) showed that one particular class of startups, high innovation (i.e., new technology-based

firms), are far more likely to generate new jobs than low or medium innovation startups. While there are far

more low and medium-innovation firms, and they therefore account for a larger share of new jobs,

the high-innovation startups produce proportionally far more jobs than their low and

medium-innovation counterparts. Kirchhoff’s can be seen in Figure 2:

Figure 2: Kirchoff’s typology of small firms

Kirchoff’s “glamorous” firms are those that

account for the highest job creation on a per-firm

basis, and represent an “ideal type” of NTBF.

Equally important, though less visible, are those

NTBFs whose innovations enable the growth of

other, less innovative firms4.5

It is clear that NTBFs have significant impact on the near-term job market. From Schumpeter’s model, we

can also conclude that they should have a major impact on the longer-term job market and the overall

economic outlook as well. This impact extends beyond jobs: NTBFs account for a disproportionately large

share of major innovations. Scherer (1980; 1990), along with reports from the U.S. Small Business

Administration (1995; 1996), indicates that major innovations are more likely to come out of small

businesses than large businesses. A 2002 study for the U.S. Small Business Administration found that

“small patenting firms produce 13-14 times more patents per employee as large patenting firms” and that

“small firm patents are twice as likely as large firm patents to be among the 1% most cited patents” (CHI

Research Inc., 2002). Further, “in the modern economy, innovation remains largely the work of smaller

firms. Though in the aggregate, NTBFs spend only a fraction of what large firms spend on total R&D, they

produce more than half of the innovations” (SBA, 1996).This disproportionate impact of NTBFs is evident

in our daily lives. Many inventions, from airplanes to personal computers, originated in small firms. Many

of the most significant innovations in the automobile occurred during the first few years of the industry’s

existence (Abernathy & Clark, 1985). And even while pointing out the importance of incremental

innovation by large firms, Baumol (2002) recognizes the important role of NTBFs in bringing radical

innovations to the market.

The salient features of high-tech firms as identified in the literature are listed below:

• The need for high degrees of integration both at strategy (Grant etal., 1991) and operational (Hayes and

Jaikumar, 1988; Florida, 1991) levels.

• The need for collaboration among several individuals, agencies, and organizations for technology

development and commercialization (Freund, 1990; Mock, 1991; Wissema and Eusser, 1991; Manimala

and Pearson, 1991).

• The greater degrees of uncertainty associated with new technologies and the consequent need for greater

flexibility for solving the emerging technological problems and securing customer acceptance (Chetty,

1990; Chein, et al.,1990; Krishnamurthy, 1991; Meldrum and Millman, 1991).

• The greater susceptibility of new technologies to Murphy's Law that anything that can go wrong, will,

and the consequent need for constant monitoring, especially with a view to overcome customer resistance

to new technologies (Chein et al., 1990),

4.6

• The special needs of the human factor at work vis-a-vis new technologies, their fears, misconceptions,

their obsolescence, and the consequent need for retraining and redeployment, and so on (Ettkin et al.,

1990; Betcherman, 1991; Thomas, 1991 ;Cunningham etal., 1991; Hackett, 1991; Krishna, 1991; Yuen,

1990).

• The lethargy and the 'not-invented-here' attitude of the large organizations (Drucker, 1985) especially

the publicly held ones (Rose and Joskow, 1990), and their resultant inability to make use of the

entrepreneurial opportunities presented by new technologies (Holmes and Schmitz, 1990).

An innovative company, according to Oslo methodology2, is an enterprise, which during a given period (most

of ten three years) introduced into the market at least one technical innovation (a new or considerably

improved product or a new or considerably improved technological process). It is a company, which offers

high capacity for creation, implementation and popularisation of various innovations [24]. J. Schumpeter

created the classical

theory of innovation, which states that innovation is production and distribution of new products and services,

application of new production technologies, identification and control of new sales markets, identification and

use of the new raw materials purchasing sources as well as creating new organization solutions in economy

[27].

Currently, two approaches in innovations interpretation dominate. The first emphasises the factual (result)

type

of innovations, which include changes in production leading, in turn, to the generation of a new product [30].

Another approach underlines the activity (process) importance of innovations, which include all processes

of creative thinking, aiming at application and use of improved solutions in technology, organisation and

social life [18]. An innovative company is able to create and absorb innovations, is creative and continuously

adapts to the changes occurring in the environment [10] and aims at achieving the technological leadership

position [4].

Figure 3. contains the most important characteristics of an innovative company.

Moreover, innovative companies are much more dynamic than others and show 1/3 higher productivity

4.7

(measured by the proportion of the added value to the number of employees) in comparison to non-innovative

companies, larger size and, in consequence, relatively larger added value, higher turnover by approximately

1/5 per one employee, two times higher investment expenditure per one employee and investment rate (versus

addend value) sometimes as high as 40%, very high exports dynamics (by approximately 7–15% more than

non-innovative companies) and high export rate (over 50%) (measured by the proportion of exports to total

turnover) [23].

The presented characteristics of an innovative company reflect many features of a high technology company.

However, due to the broad interpretation of innovation and the sectoral limitation regarding R&D expenditure

in revenue (from 8 to 15% in high technology sector), it can be stated that every high technology company is

an innovative one, however, not every innovative company is a high technology one.

A HT company as an enterprise using modern information technology

Another factor, which determines the concept of a high technology company, is modern information

technology. It is simultaneously the basis of the knowledge management system. Information technology (IT)

integrates different technologies (hardware, software, telecommunication, teleinformatics) and used to

acquire, select, analyse,

process, store, manage and transfer of information to others [9]. A high technology company should use new

information technologies, as they increase its efficiency, productivity and flexibility as well as lower costs

[19].

Simultaneously, IT supports improvement of organisation structure flexibility by its levelling (often

by reducing middle level managerial personnel) [7]. The advanced information technologies support

research and implementation works, which helps reduce the design stage and products introduction to market

period [19]. Considering the above, the appropriate information systems should be established in high tech

companies, in order to acquire knowledge from various sources, codify and create new knowledge and

provide

opportunity to share it. Such systems should be characterised by the factors, which are presented in Table 2.

Figure 4. Characteristics of management supporting IT

4.8

Another aspect in this area, especially in building a knowledge management system, is the selection of

appropriate IT tools. The most important tools are business intelligence, groupware/collaboration,

workflow/business process management – BPM, customer relationship management – CRM, document

management/content management, etc.

Due to the important role of information systems in knowledge management and decision support systems,

creating innovations and supporting research and development activity as well as considering the fact that

high technology sector has high demand for science and information, it seems right to state, that every high

4.9

technology company widely uses modern information technology, however, not every company, which

uses advanced information technology is a high technology company.

Specific Experience

Specific human capital includes industry specific experience, entrepreneurial -leadership experience,

managerial experience, technical and commercial experience, (all the above at companies operating at both

same and different sector than the current one) and finally specific role experience and large company

experience as skills that can assist an entrepreneur directly with managing the entrepreneurial process (see for

example McGee and Dowling, 1994; Eisenhardt and Schoonhoven, 1990; Van de Ven et al, 1984; Colombo

and Grilli, 2005).

4.10

Industry specific experience is expected to have a negative effect on failure and a positive effect on

growth. That is because entrepreneurs with similar sector previous experience will have a better

knowledge of any technological and marketing opportunities that are still underdeveloped in the

specific sector and have a good potential for market exploitation (see Feeser and Willard 1990;

Bruderl et al 1992).

Managerial experience was found to have mixed results in past studies with some (Gimeno et al,

1997) of them observing a positive effect on growth and performance whereas others found no effect

at all (Bates, 1990; Bruderl et al, 1992). More recently, Colombo and Grilli, 2005 found an indirect

effect of managerial experience on the growth of a company, as it has a positive effect on the ability

of a company to attract external finance.

Same sector experience especially when it is combined with managerial experience in a technical or

commercial role can provide the entrepreneur with an advantage on technical and/or market

knowledge (McGee and Dowling, 1994; Roure and Keeley, 1990). It will therefore be expected that

individuals with same sector managerial experience in a technical or commercial position will have a

positive effect on growth. As the co-existence between technical and business education in an

entrepreneurial team will be expected to have a higher effect on growth rather than when these skills

exist individually, it can also be expected that the co-existence in a team of both technical and

commercial experience will have a greater effect on growth than a team where these experiences

exist individually.

Specific education

NTBF operate in sectors where high levels of technological skills are needed. Therefore, it is not

surprising that past studies on the entrepreneurs educational background found them, on average,

highly academically qualified and specialised in technical areas such as engineering and science

4.11

(Westhead and Storey, 1994; Colombo and Delmastro, 2002). However, despite of the fact that

entrepreneurs have strong technical and professional backgrounds that are useful in terms of product

R&D and manufacturing, they might lack the necessary managerial and marketing skills that are vital

for the commercial success of a company (Tether, 1997). Moreover, because of their technological

background entrepreneurs tend to overemphasize the technological side of the company, which has as

a result for marketing and general management skills to be significant areas of weakness within

hightechnology

companies, (Oakley, 2003).

Although it is believed that entrepreneurs without technological skills rarely form successful firms1,it has

recently been argued that technological education by itself can not guarantee the success of a

NTBF. In order for that to happen it has to be complemented with managerial expertise that can be

acquired through education but also through experience (Oakley and Mukhtar, 1999). Therefore the

existence of an individual or of a management team with diverse skills, where technological and

business/managerial (marketing, finance, etc) skills exist is one of the main determinants of success

1 Almus and Nerlinger (1999), for example, found that NTBFs where their entrepreneurs had high human

capital measures and especially engineering and technical skills showed higher growth

in high technology start-ups (Berry, 1996). While the impact of technical education is difficult to be

made ex ante, business education is expected to have a positive effect on growth. Furthermore the coexistence

of technical and business education in a team will be expected to have a higher effect on

performance than the individual effects.

4.12

The New Technology-based Firm

Advantage

New technology-based firms are often ideally placed to deal with the unmet needs of the marketplace. Each of

the above mentioned weaknesses of incumbent firms in relation to working with disruptive technologies

corresponds

to a strength of new or small firms in dealing with the same issues. NTBFs do not have an existing customer

base which they need to cater to, thus freeing them from the problem of listening too closely to their best

customers (Christensen et al.,1996). Instead, they are able to approach problems with a clean slate, developing

solutions which are not limited by compatibility with existing products. Second, NTBFs are not heavily

invested in

older technologies; there is no need to worry about funding and sustaining multiple research and development

initiatives simultaneously. Oddly, because resources are often more constrained in startups and small firms,

they must focus more closely on the technologies with the greatest potential. Since they are not constrained by

havingto support an existing technology base,they are free to devote all of their limited resources to

developing the new technology.Next, as new organizations, NTBFs are not constrained by the organizational

inertia of larger, older firms. There is no psychological baggage of upper management tying them to an older

technology. Often, though not always, NTBFs are run by younger entrepreneurs, who may be less experienced

with older technologies, and

therefore have no need or reason to consider the old technology and its limitations when developing a new

technology.NTBFs are also working at the beginning stages of a technology s-curve, almost by definition. As

such, they have the opportunity to ride the upward slope of the curve, rather that wondering if their

technology has plateaued. These firms are likely to be leading the technological shifts, rather than being

forced to respond to them. Finally, NTBFs are more likely to be idea-driven; the development model is often

one of “technology push” rather than the “demand pull” which often prevails at larger firms. The “technology

push” model of technology development is more risky, because it is not based on market research (the market

to be researched may not even exist). However, developing technology because it’s new and exciting is much

more likely to produce technology which is a discontinuous leap from the current technological trajectory, and

has the potential to disrupt the current market and industry.

4.13

Examples of Creative Destruction

Examples abound of this process in action. Perhaps the most famous is the advent of the personal computer.

The advent of the personal computer dramatically altered the composition of the computer industry. Many of

the industry’s leading firms disappeared: Control Data Inc., UNIVAC’s computer manufacturing division,

Digital Equipment Corp. (the second largest computer manufacturer in the world in 1986), Data General, and

Prime Computer have all gone the way of the dodo bird. As their market values declined, that of the start ups

who now dominate the market — Apple Computer, Dell Computer, Gateway Computer, and HP-Compaq

Computer— increased dramatically. IBM, the lone exception to this trend, thrived briefly, but has since sold

its personal computer business to a Chinese company (Lenovo), and has restructured much of its business.

This is a classic example of Schumpeterian creative destruction. The stakeholders of DEC, Data General,

Control Data,

Prime Computer and UNIVAC have lost significant amounts of their wealth while a new set of shareholders,

employees and suppliers, stakeholders in the new industry leaders, have gained the wealth (or corporate value)

that these former leaders of their industry lost. Christensen notes that this pattern has happened repeatedly in

the hard-disc industry (Christensen, 1992b, 1992a; 1993; Christensen & Rosenbloom, 1995), with the industry

leader

changing with virtually every major technological advance in hard-disc technology. Even in less

technologically “sexy” industries, such as power shovels, the pattern has been seen. The shift from cable to

hydraulics left the power shovel industry with a new set of dominant players, while the old leaders faded

away (Christensen, 1997). Abernathy and Clark (1985) used technological change induced disruption in the

automobile industry to derive their transilience map, and Tripsas found similar effects in the typesetting

(Tripsas, 1997) and digital imaging (Tripsas et al.,2000) industries. There is some evidence that the process

is happening currently in pharmaceuticals, where the chemistry-based companies are struggling in the face

of heavy competition from new biology and genetically based companies. Nanotechnology will likely also

cause upheaval in the industries

where it becomes a factor (Walsh, 2002), and there are hopeful signs of potential disruptive technologies

being developed in the alternative energy sector as well.

4.14

Findings: British NTBFs Vs OTBFs

Data was obtained through mailed survey from a sample of 90 British entrepreneurs and 68 Indian

entrepreneurs. The questionnaire had five parts. Part 1 was based on the general characteristics of the

enterprise, part 2 on the policies of the enterprise, and parts 3-5 on the personality traits (personal policies),

motives, and background of the entrepreneurs, respectively.

NTBFs of Britain (N = 32) were compared with OTBFs of the same country (N = 58) in terms of the

policies of the venture and the traits, motives, and background of their founders. In the /-test 12 variables

emerged as significantly different. All of them were significant aip <0.05. Out of the 12 variables, four

related to policies, four to traits, and four to background variables. There was no difference between the two

groups in terms of their motives (see Table 12.1). A brief discussion of their implications is given below.

Motives

It is interesting to note that none of the motives were significantly different for the two groups, implying

that entrepreneurial motives may not be a factor influencing the choice of technology. The latter is not even

related to one's need to do something new and 'leading edge', since the difference between the two groups on

this was negligible. The means differed by -0.030, which is virtually no difference at all. The reason seems

to be that for a person to do something new and 'leading edge', it is not essential that such a strategy should

be based on new technology. In other words, innovation is not dependent on technology alone. There are so

many other areas in which an entrepreneur can (and does) innovate, as was also shown in an earlier study by

the author (Manimala, 1992a). The choice of a new technology may not be influenced by one's desire to

innovate. It may largely be on account of having had opportunities to be familiar with a new technology.

The significantly observed difference in the length of previous employment (see B9 in Table 12.1), with

founders of NTBFs, having longer experience, is probably an indication of this phenomenon.

Policies

The four policy variables that were shown to be significantly different for the two groups were:

(a) preference for tried and tested products,

(b) changing goals to accommodate emerging profitable opportunities,

(c) adherence to strict rules and procedures permitting very little experimentation,

(d) close supervision with a view to correct and punish deviations.

4.15

The first policy variable (preference for tried and tested products) was, as expected in the classification

itself, based on product information. In any case product and technology choices cannot be independent of

each other, as was also shown in the author's earlier study {Manimala, 1992a) where both product and

process innovations were shown as part of operations innovation.

The second policy variable that shows a difference (P4) suggests that the founders of NTBFs have

developed a special interest in, and a love for, the product/technology of their choice, and that their goals are

likely to be tied up with their product/technology choices. This is probably why they are reluctant to change

their lines/goals even when opportunities present themselves in other products or technologies. Or it may be

because these entrepreneurs have their basic competencies in these technologies and so would feel diffident

about maintaining the quality of products and services in a different field. Alternatively, they may not enjoy

working in any other fields at all. Hence these opportunities may not be presenting any real opportunities for

them.

Table 17: NTBFS vs QTBFs of Britain: Variables those are significantly different for the two

groups

Variable number and description Mean for

British

OTBFs(N=58)

Mean for British

NTBFs (N=32)

t P

(0 Policies (P)

^l Preference for tried and

tested products

4.45 3.69 1.95 0.05

034 Changing goals for

profitable opportunities

4.9S 4.06 2.43 0.01

7=

17

Adherence to strict rules

and procedures and non-

tolerance Of

3.35 2.56 2.16 0.03

4

y% Close supervision and

punishing deviations

4.72 3.84 2.32 0.02

2

ffl) Traits (T)

~'\ Lack of scruples 3.28 2.38 2.46 0.01

6~S Difficulty with

unstructured situations

3.85 3.13 2.10 0.03

9'18 Challenge in doing

difficult tasks

5.43 4.78 2.45 0.01

6-19 Complacency about the

knowledge of business,

and aversion to learning

2.33 1,78 2.28 0.02

5

iii) Motives (H)

4.16

[None of the motives was

significantly different for

the two groups]M Background variable (B)*

39 Length of work experience

as employee

3.91 4.43 -

2.01

0.04

731

2

Family affluence during

childhood

4.39 3.80 2.10 0.03

2=

16

Deep interest in a variety

of activities during

5.65 4.80 2.73 0.00

8=2

2

Entrepreneursnip through

purposeful action

5-67 4.90 2.29 0.02

4

-e group sizes lor this analysis were 54 lor QTBFs and 30 tor NTBFs.

The third and fourth variables in this group (P17 and P22) obviously relate to the! way the human resources

are controlled in the organization. It is natural that NTBFs cannot become rigid about their rules and

procedures. Since the technology is new! and probably evolving, there is scope for some experimentation,

which has to he allowed.! In short, NTBF entrepreneurs are almost forced to grant autonomy to the people!

involved, and so close supervision and punishments for deviations are likely to become) counter-productive.

This conforms to the findings of Burns and Stalker (1961) \vh: observed that an organic structure based on

flexibility and autonomy at lower leve^ is more appropriate in a dynamic environment. Clearly, NTBFs are

operating in t. technologically dynamic environment.

Traits

Of the four significantly different traits discovered, two are easily explainable Pounders of OTBFs have a

higher need for structure. Similarly, their disagreement) with the "complacency statement" is not as strong

as that of the founders of NTBFs. These are to be expected because new technologies involve uncertainties

and newj firms will not be able to easily structure their organizations. Moreover, one canm be complacent

about knowledge in the field, but must keep oneself abreast of tl evolving technology.

The two other significant traits are more difficult to explain. One of them is that tl founders of NTBFs

expressed a stronger disagreement with the statement thi everything is fair in business as long as it produces

results. It is rather difficult \ explain why NTBFs should be more ethical than OTBFs. It may be because of

tl longer association of the founders of NTBFs with professional organizations employees (see Table 12.1,

section on 'Background'). Another supporting factor from] the background is the finding that the founders

4.17

of NTBFs were not as strong as those! of OTBFs in their desire to become entrepreneurs through

purposeful action. It appearEJ that they are not as 'entrepreneurial' as their OTBF counterparts. They seem

more] akin to the 'inventor tinkerer' category of entrepreneurs identified in an earlier study, by the author

(Manimala, 1988). They are scientists, professionals, inventors, etc., the first place, and have become

entrepreneurs because of some opportunities constraints experienced in their areas of expertise. They are

therefore likely to scot lowly in terms of the 'entrepreneurial attitude' of getting things done by whatever!

means.

The last of the significant trait variables is the attitude of respondents towards difficult and challenging

tasks. OTBFs are more inclined to take up such tasks, which, as observed above, are somewhat difficult to

explain. It is more logical to think that it would be more challenging to build an enterprise based on a new

technology than to build a conventional enterprise. The logical force of this argument is likely to be derived

from an 'actor-observer' bias (Bruno and Tyebjee, 1982). From the NTBF entrepreneur's point of view,

managing the new technology may not be too challenging for him because, as we have observed above, he

is probably an expert technician in the new field. Since he is likely to be less of an entrepreneur the real

challenge would be in the entrepreneurial function of gaining and retaining a position in the market. The

latter part is probably taken care of because the 'technician' was 'induced' to become an entrepreneur by a

market opportunity. Besides, as we have noted above, a new technology-based firm is also likely to have a

new product which would easily secure a market niche for the firm. On the other hand, when an

entrepreneur is in the field with a 'me-too' product, which is often the case with OTBFs, the task of creating

and maintaining a position for oneself in the market can be formidable. It may be with reference to this task

that the founders of OTBFs show a greater degree of enthusiasm in accomplishing challenging and difficult

tasks. In fact, an earlier study by this author observed that entrepreneurs choosing new products (or new

technology, by the extension of the argument) do so in order to avoid competition (Manimala, 1992b). They

are risk-managers or risk-avoiders rather than risk-takers. This may be the reason for the founders of NTBFs

stating that they are relatively less enthusiastic toward the takingup of difficult and challengingjobs

Background Variables

Of the four background variables showing significant difference, two have been mentioned above in

support of the differences in other variables. It was noted that the length of previous experience as

employees was longer in the case of NTBF founders. Similarly, their current status as entrepreneurs is the

result of less purposeful action than in the case of OTBF founders. It appears that NTBF entrepreneurs were

4.18

motivated more by a desire to be technicians than to be entrepreneurs. Their need for job satisfaction in

terms of the development of new technology seems to be comparatively high, and indeed, they would have

continued to pursue this goal in their previous employment but for some constraints therein or opportunities

outside. To this extent there is probably a chance element in their decision to become entrepreneurial. It

may also be inferred that there is a greater scope for an incubator phase (Smilor and Gill, 1986) in the

formation of NTBFs, when compared with the OTBFs' case.

Two other background variables sharing significant difference between the two groups are 'affluence during

childhood' and 'deep interest in a variety of activities during

childhood'. In both these variables, the founders of OTBFs have significantly scores than the founders of

NTBFs. It may be hypothesized that deep interest single activity would lead to specialization, whereas deep

interest in a variet* activities would stimulate generalist tendencies. Founders of NTBFs are more lik to be

specialists in the technology concerned, which might be a major reason fo: venturing into the new

technology. The influence of material welfare or the lac.-: during childhood on the choice of technologies is

difficult to explain. It may b the more affluent individuals might have had better opportunities for getting

invi in a variety of activities and thus to develop generalist tendencies. Alternatively enterprising individual

with adequate financial support need not go through a period of employment before he/she could start

his/her own venture. As we observed above, employment with other firms seems to be an important means

person to acquire new technologies. Affluence in childhood or the lack of it could possible explanation for

the relative strength of the need for taking up employm.

Distinguishing Factors

The 12 variables that were significantly different between NTBFs and OTBFs we factor-analyzed using data

from the 84 British respondents who gave information 1 all variables. There were six factors that differed

between NTBF and OTBF founde Juxtaposing these factors with the group means and ^-values discussed

above, it i be hypothesized that the founders of NTBFs, in comparison with those of OTBFs, i more likely to

be low on the following factors:

• Need for structure

• Opportunism

• Entrepreneurial interests

4.19

• Affluence during childhood

• Beaten path orientation

• Complacency about the knowledge of one's business

Findings: Indian NTBFs Vs OTBFs

The Indian NTBFs seem to be much less differentiated from their OTBF counterparts. when compared with

the differences between British NTBFs and OTBFs. In the case of the Indian data, there were three policies,

one motive, and one background variable which were significantly different. The ^-values and the

significance levels of these variables are given in Table 12.2. The fewer number of distinguishing

characteristics may be indicative of the different conditions under which NTBFs have to operate in the two

countries.

TABLE 18. NTBFS «/s OTBFs of India: Variables significantly different lor the two groups

Variable number and description Mean for

Indian OTBFs

(N=48)

Mean for Indian

NTBFs (N=20)

t P

1.

J

2.

-

Policies -

Preference for tried and

tested

products

4.71 3.65 2.18 0.03

6

3.

P

Talent search and

recruiting the

6.00 6.38 5.30 1.92 0-

0624.

P

Quality at any cost 5.80 1.98 0.05

75.

<

Traits

(None of the motives was

significantly different at

(p<0. 10)

.

6.

(

—

7.

M

Demogrphic motive 5.31 A30 2.38 0.02

08.

(

Background variable

9.

8

Parental care ———— 4.68 2.89 0.00

5

4.20

However, one of the distinguishing policy variables is common among the British NTBFs, which is that the

'preference1 for tried and tested products and services is weaker for Indian NTBFs than in the case of Indian

OTBFs. This may be due to the association between new technology and new products. Alternatively, as we

have suggested above, the choice of a new technology may be an outcome of the desire to avoid competition

through product novelty or differentiation.

The two other policies that are different are apparently not in conformity with general expectations. OTBFs

are more keen on recruiting the beat people and maintaining quality at any cost. This may be because, in a

developing country like India, talents in the new technologies may not be available, and the entrepreneur

himself may be one of the best in the field. As for quality, there may not be comparable standards in the

country and therefore there may not be any deliberate attempt to keep oneself above an external benchmark.

Besides, the lower degrees of competition in the new field would imply that the pressures for maintaining

quality may not be as high as in the case of OTBFs.

The motive that emerged as significantly different is the deontic motive (which is a motive for work arising

out of a sense of duty). Unlike in the case of British entrepreneurs, the deontic motive was relatively high

in the Indian sample, which was to be expected because of the stronger emphasis in oriental cultures, on

obligations based on loyalties, relationships, and prior benefits received. The difference discussed

here, however, is not the one between the Indian and the British sample hut the one between Indian NTBFs

and Indian OTBFs. The deontic motive is higher for the OTBFs. This is possibly because the founders of

NTBFs are likely to be driven more by a love for the new technology and the work involved than by a sense

of duty Thus, though duty-consciousness may be a general trait of the Indian entrepreneur, apparently it

tends to diminish when a person founds a business on the basis of new technologies. However, the inverse

may also be true. Does duty-consciousness make the individual act in a particular fashion and restrain

him/her from innovating or adopting new technologies?

The last of the distinguishing variables is a background variable. The founders of NTBFs had received

lesser degrees of parental care during their childhood. It may be noted that similar observations have been

made about entrepreneurs in general (McClelland, 1961). However, no such pattern was observed with

regard to the British entrepreneurs in this study Neither the NTBF founders nor the OTBF founders in the

British sample had experienced parental neglect in childhood. There has been, howevei; an experience of

lower degree of affluence among the British NTBF founders. It appears that innovativeness or adoption of

4.21

new technologies rather than entrepreneurship per se is associated with conditions of deprivation in

childhood.

Findings: British NTBFs Vs Indian NTBFs

This section is based on a comparison between the 32 British NTBFs and the 20 Indian NTBFs. There were

12 policy variables, 14 trait variables, eight motive variables, and eight background variables, which were

significantly different for the two groups. These differences are likely to be due to the fact that the

respondents were Indians and Britons, rather than founders of Indian and British NTBFs. Four factors

emerged from the 12 distinguishing policies. They were named as follows:

• Theory-X orientation

• Managing risks through information processing

• Capability building

• Financial resource orientation

The Indian NTBFs had higher scores on all three except capability building. It looks as though the Indians

are more rigid, cautious, and concerned about finances, but less interested in developing organizational

capabilities. Alternatively, there seems to be a lack of information, opportunities, and resources in the

country.

The 14 distinguishing traits also got grouped into four factors, which were named as follows:

• Need for structure and conformity

• Self-confidence

• Self-employment orientation due to a dislike for authority

• Hard-work orientation

The first two were higher for the Indian NTBFs and the second two were higher for the British NTBFs.

The distinguishing motives also had four factors, which were:

• Status motive

• Self-develoDment motive

4.22

• Super-ordinate motive

• Deontic motive

On all these four motive factors, the founders of the Indian NTBFs scored higher.

Finally, there were three factors for the distinguishing background variables which were named as follows:

« Psychological deprivations and disappointments

• Family affluence and nature of previous work

• Personal interests and choices

Founders of British NTBFs had higher scores only on the first of these, implying that entrepreneurship in

India, even in the case of NTBFs, is largely hereditary. The founders of Indian NTBFs had greater self-

employment traditions in their ancestral families, had experienced greater affluence during childhood, had

shorter stints as employees, and had more opportunities to pursue their interest and choices.

Combined Factors of Differences

The first-stage factors from the four variable groups of policies, traits, motives, and background variables

were factor-analyzed again to derive the combined factors of differences. There were five of them which

were named as follows (see Table 12.3 for details):

• Extrinsic orientation

• Self-worth orientation

• Risk-taking and management

• Work orientation

• Financial resource orientation

The Indian NTBFs seem to operate more on the basis of external referral points. Social recognition and

status, contribution to society, targets and standards, conformity to norms and procedures, etc., are

indicative of this attitude. The second factor indicates a self-sufficiency feeling where importance is judged

in terms of one's own interests and choices and a feeling of self-worth, even to the neglect of developing

organizational capabilities. The third factor relates to the management of risks through information

4.23

processing. The last two are work orientation, where the British NTBFs score higher and financial resource

orientation, where the Indians score higher

TABLE 19: British vs Indian NTBFs: Combined factor analysis of the 15 first-stage factors derived from

distinguishing policy, trait, motive and background variables (N = 143)

Final

Facto

r No.

First stage factors number and description Factor

loadin

g

Name given

to the final

FactorDF-! P-l Theory-X orientation 0.57 Extrinsic

orientationT-l Need for structure and conformity 0.66

T-ll Self-confidence 068

-M-l Status motive 0.76

M-i! Skill and target orientation 0.67

M-l 1

1

Super-ordinate motive 0.65

DF-II P-l 1

1

Capability building -0.70 Self-worth

orientationM-

IV

Deontic motive 0.58

B-ll! Persona! interests and choices 0.56

DF-

III

P-l I Managing risk through information

processing

0.79 Risk-taking

and

management

T-l 1

1

Self -employment orientation due to a

dislike for authority

-0.67

B-l Psychological deprivation and

disappointments

-0.53

DF-

tV

T-IV Aversion to hard work 0.71 Work

orientationDF-V P-IV Financial rather than human resource

orientation

0.58 Financial

resource

orientation

B-ll Family affluence and nature of previous

work experience

-0.70

The power of these five factors to discriminate between Indian and British NTBFs was tested through a

discriminant analysis. Ninety-two per cent of the respondents were correctly classified, the relative

importance of the factors moving from Factor-I to Factor-V in that order. As we have hypothesized earlier,

the differences between the Indians and the British were stronger than those between NTBFs and OTBFs.

The misclassification in the case of British NTBFs and OTBFs was 28 per cent and that in the case of Indian

NTBFs and OTBFs was 33 per cent. Apparently, therefore, the cultural differences are stronger than the

differences caused by the choice of technology

Conclusion

Although the differences between Indian and British NTBFs should be attributed largely to the cultural

differences, and not necessarily to the technology choices, some of these differences, read with the

4.24

differences between NTBFs and OTBFs of both the countries, may give rise to certain issues which have

policy implications for a developing country like India. A few such issues and their policy implications are

briefly mentioned below:

• The relatively low proportion of NTBFs in the Indian sample, their weaker desire to acquire technical

knowledge or recruit the best people for developing organizational capabilities, their greater dependence

on extrinsic factors to

promote their business, etc. suggest that opportunities of technical education are limited in the country. In

fact, the present government policy in India is biased in favor of a heavily subsidized general education,

which may also be a reason for the founders of Indian NTBFs having higher levels of education than their

British counterparts. There has to be a decisive shift in the Indian educational policy in favor of

promoting technical and trade-related education which would help the country, not only to keep abreast

of the technological developments, but also to evolve indigenously appropriate technologies so that a

culture of assimilation and development would replace the culture of continuous borrowing.

• One of the most important stimuli for continuous innovation, especially in the area of developing new

technologies, processes, and products based on them, is to create a moderately high degree of

competition between enterprises. The liberalization process, initiated in India in the early 1990s, is a step

in the right direction. The pace and extent of reforms, however, does not seem to be adequate.

• Founders of British NTBFs were observed to have had longer periods of incubation in existing

organizations. In India, such opportunities were curtailed because of the government's policies of

deliberately restricting large firms, especially foreign ones, who might play a very vital role of transferring

technology to indigenous entrepreneurs and thereby assist the formation of NTBFs (Manimala, 1992c}. The

experience of countries like Malaysia and South Korea has shown the efficacy of this model of technology

transfer (Jha, 1985). It is high time that the Indian government also lifted restrictions on the operations of

large, especially foreign, firms in India.

• Availability of venture capital seems to be a problem in India, as indicated by the NTBF entrepreneur's

greater inclination for choosing partners for capital contribution. There is a need for the creation of, and/or

the promotion of, professionally managed venture capital firms.

• Finally, it should cause some concern that two major characteristics of Indian NTBF entrepreneurs are a

higher degree of theory-X orientation (i.e., a strict adherence to rules and procedures and aversion to

4.25

experimentation) and a greater need for structure and conformity. The latter is likely to have restrictive

influences on the entrepreneur's own creativity and the former on his subordinates. There is, therefore, a

need for changing the general (Manimala, 1992c) and formative (McClelland, 1961) environments which

are instrumental in creating such attitudes in -the individual. The primary target of policy reorientation in

an Indian context, .herefore, should be the education system which should be reoriented with greater

emphasis on unstructured activities, divergent thinking, and a desire for exploration and constant

improvement.

Research and Development Transfer

Periodic improvements in technology is essential for any business to survive and grow, irrespective

of the nature of the business. Improved technologies enable existing firms to compete effectively in local and

global markets. For new firms, new technologies can be an effective means of getting entry into a competitive

market. The paradox, however, is that it is only firms with resources that are able to invest in research to

improve their knowledge base and develop new technologies. New firms have to depend else where for R&D.

Hence the importance of R&D transfer for stimulating new venture start ups. One of the major advantages of

India in this field is the availability of trained scientific manpower at a relatively low cost, which the local

companies or public institutions have failed to make good use of. Multinationals, on the other hand, have

located research centres in India to take advantage of the rich supply of knowledge workers. Indian industry in

general is not actively involved in research though exceptions exist in the pharmaceutical and software

sectors. There are indeed a few education and research institutions in India that conduct research of good

quality. However, not all of them have a feel for the commercial aspects of R&D. Interaction between

the industry and research and development institutions is low. Hence, a lot of research and

(Table 20) Research and Development Transfer

4.26

development work remains commercially unutilized. New and growing firms, unlike large firms, usually do

not have the resources to invest in research. Creation of new technology-based firms (NTBFs) would depend

on the effectiveness of research and development transfer from universities and institutes to the industry. The

responses of the national experts with regard to the state of research and development transfer in the country

are presented in Table 2.5. Experts are of the opinion that technology, science and knowledge

are not effectively transferred to new firms. Acquiring the latest technology is expensive and there is not

enough financial assistance from the government for this purpose. Large firms have an advantage here. There

is a good science and technology base in the nation. But appropriate government policy and support are

required to enable effective transfer of knowledge. Universities and educational institutions could take the

initiative in facilitating the transfer process. and fuel the entrepreneurial process. Some institutes of

technology and management have set up incubators and are taking an active role in new venture creation. The

NS Raghavan Centre for Entrepreneurial Learning at IIMB has initiated one such incubator.

4.27

Commercial, Legal and Professional Infrastructure

The availability of commercial and professional services does not seem to be a major issue in

India (see Table 2.6). Expert responses suggest that there are enough subcontractors and

consultants to support new and growing firms in India. Legal, accounting and banking services

are available for new and growing firms. However, providers of these services need to raise their

quality levels. During the interviews, some experts pointed out that technology and marketing

services were not easily available to

entrepreneurs. This is a cause for concern since many entrepreneurs need support in these areas.

(Table 21) Commercial Legal and Professional Infrastructure(2001)

Market Openness and Ease of Entry

In market driven economies, changes in preferences and shifts in technology create

opportunities. In India, the experts are of the

opinion that markets do change, but not very dramatically (see Table 2.7). Growth in demand for

goods and services arising out of population growth also throws up opportunities. India scored

higher than the GEM 2001 countries on the two issues, of dramatic annual changes in the

consumer as well as business markets. While the issue of market dynamism is one aspect being

4.28

I

investigated under this framework condition, the other aspect is the barriers to entry for new

firms. The perception is that in spite of liberalization,

there still are several impediments, for a new entrant to the country ís economy.

Market Openness and Ease of entry(Table 22)

A collaborative white paper by Rootcause entitled “Advancing Social Entrepreneurship:

Recommendations for Policy Makers and Government Agencies” suggests:

A public-private social innovation fund can leverage taxpayer dollars with private funds to make

resources available for funding social-entrepreneurial solutions. Creating a fund specifically

designated to advance social entrepreneurship would enable government to follow a

performance-based model for investment, not unlike venture capital funds, to both seed and scale

initiatives. Two related models show how such a fund could work structurally and operationally.

Models: Small Business Investment Company (SBIC)

Venture Philanthropy & Social Venture Capital

Small Business Investment Company (SBIC)

4.29

The Small Business Administration (SBA)’s Small Business Investment Company program

provides an example of a fund that mixes public and private funding; it exhibits how a public-

private social innovation fund might work structurally.

Encouraging Public Innovators

Initially, Public Innovators have 5 other ideas for encouraging social entrepreneurship that are

worth checking out. Their website just launched to answer this specific public policy question.

You can also check out their social entrepreneurship and government resources. Finally, America

Forward likewise specializes on the interface between social entrepreneurs and government

(although they appear to have a focus on Americorps style social entrepreneurs, as opposed to

more for profit models)

The Public Innovators has a 30 minute podcast on the role of government role with social

entrepreneurs of a panel at the Aspen Institute. A noted panelist from New Orleans on the Aspen

panel intelligently points out, “Our role…the role of government is to facilitate, link, leverage,

and get out of the way.” He later points out that as a general rule that public private partnerships

ultimately work best than either working alone, if done right.

Update: The public innovators released five suggestions for government who wants to

encourage and improve social business.

Social edge has several resources (including summary case studies on government engagement

in the social venture space) relevant to those who want to encourage social capitalism and better

public-private relationships in this burgeoning arena.

Leading social entrepreneurs John Elkington and Pamela Hardington in “The Power of

Unreasonable People” highlight:

• Among the actions respondents called for are improved tax incentives for social

entrepreneurship, innovative financial instruments to encourage banks and pension funds to get

involved, stronger property rights, simplified regulation, and incentives to encourage public

sector employees to remove barriers to innovation and entrepreneurship.

4.30

• Bilateral and multilateral institutions have key roles to play in increasing transparency,

stimulating entrepreneurial cultures, raising awareness of social entrepreneurship, expanding the

use of public-private partnerships, and supporting necessary expert studies.

Educational institutions are vital for the long-term success of communities, countries, and the

global economy….They…need to cultivate entrepreneurial thinking, promote interdisciplinary

programs, provide internships and other opportunities to expose young people to the world of

entrepreneurship, stimulate the formation of national and global networks, contribute research to

the field, and support young entrepreneurs with awards.

Characteristics of a Winning Environment

Several principles which characterize effective entrepreneurial environments. These are

presented below.

Purpose-driven

In a market economy, it is rare to find business units within a corporation which are not

established for some purpose. But merely existing for the accomplishment of a purpose is not

identical to being driven by that purpose. Purpose-driven units organize, operate, and subsist in

response to the fulfillment of a single goal or set of goals above all others. The degree to which

a unit’s activities adapt to effect these goals is the degree to which the unit is driven by them.

Purposes of units must be aligned, even if indirectly, with the purposes of the larger organization.

While it is uncommon for all units to generate revenue, each should remain focused upon a

purpose which aids in the development of the organization as a whole.

Structurally independent

Agents that operate on behalf of the purpose can be grouped into a logical unit. This unit might

be a department, a team, or a single person. The ability of this unit to operate independently of

4.31

other units within the corporate structure represents its structural independence. Once again

independence is a matter of degree: a unit whose operations can be effected smoothly with little

or no assistance from other corporate units is structurally independent. Note that in order for a

unit to remain internally purpose-driven, it cannot be completely structurally independent of the

corporation. In such cases the unit is commonly spun-off, as the economic benefit of its

operations in a larger world becomes greater than the cost of its assistance internally.

Internally flexible

In order for a unit to respond to its purpose effectively, it must possess some degree of flexibility

in its operations. This flexibility includes not only the ability to reorganize operations

themselves, but also the ability to monitor their success. A higher degree of flexibility is given

to those units that can pinpoint operational failures and attempt a corrective reorganization most

quickly. Those corrections that provide positive result increase the degree to which a unit is

purpose-driven. As a rule, the smaller the team and better the monitoring mechanisms, the better

the flexibility.

As mentioned earlier, these principles are symbiotic with one another. Internal flexibility, for

example, is hastened by structural independence. In an entrepreneurial environment, units will

achieve high levels of all three.

Creating an Entrepreneurial Environment

If we take these principles to represent desirable qualities of business units under a corporate

entrepreneurial structure, the next question becomes how to foster them through management

practice.

Implementing by Part or by Whole

Most organizations are not conglomerates, and so implementing corporate entrepreneurship to

the degree it was used at XPARC or GE makes little sense. But the “peer as client” strategy

4.32

outlined above was an example of how entrepreneurial tactics can be employed to a lesser degree

for benefit. In places where entrepreneurial approaches might prove useful, an entrepreneurial

environment will encourage their establishment.

An effective entrepreneurial environment will allow business units to develop the three

principles outlined above. Several important techniques may be employed to encourage this

development:

1. Team-To-Purpose

Teams driven by small, specific purposes, rather than large complex ones, often find themselves

more clearly driven by purpose. If multiple purposes are at play within a unit, it is difficult for

the unit to effectively measure performance and hence be flexible. Team membership should be

directly tied to purpose, so as to keep the business unit smaller and more flexible.

This is contrasted against a team-to-hierarchy approach, where many stakeholders would be

included in the operation of a team in order to represent their interests. A proper purpose should

be one which satisfies all stakeholders in its fulfillment, and will invariably include input from

all stakeholders. But only if the execution of purpose demands their participation are

stakeholders included in the entrepreneurial unit’s operations.

2. Focus Communication

Communication between and among business units is a positive and necessary activity. But

business units which are structurally independent generally require a fewer number of

communication channels than those who are structurally dependent. An environment of focused

communication will engender the development of structurally independent units.

4.33

This is not to suggest that employees themselves should be constrained in their ability to

communicate freely, but rather that communication between business units should be

consolidated in so far as this is possible.

Communication between one unit and another can be described as any type of correspondence

which is required for the operation of one or both. Approvals, notifications, orders might all be

examples of this communication. Focused communication within a corporation specifies the

structural boundary: if the channel is available the business unit may utilize it, if not the business

unit must find a way to do it internally.

3. Provide Tools for Measurement and Analysis

Internal flexibility depends upon effective measurement and analysis. Strategies like Six Sigma

have recognized this need and place performance measurement at their center. Providing tools

that accurately measure performance is essential in creating an entrepreneurial environment.

Most corporations have several different performance measurement programs in place.

Unfortunately, a large majority of these programs are used only for decision-making at the very

highest management levels. Measurement tools are most effective when used close to the action.

Arming business units with powerful measurement procedures increases their internal flexibility

by making them more immediately adaptable.

IMPORTANCE OF NTBFS

1. The limit to growth-oriented economic development

Excessive reliance on conglomerates for quantitative growth resulted in the financial

crisis of 1997

Many large firms went bankrupt or had to undergo restructuring Increasing

unemployment and rising need for creating new jobs

4.34

2. The emergence of new growth industries

The decline of heavy machinery, chemical, textile industries as well as the emergence of

new industries such as TFT-LCD, cellular phones, semiconductors leading economic

growth.

The need for the development of high-tech industries supplying parts and accessories

The emergence of ICT, e-commerce, biotech, and services as major sources of value-

added.

Increased participation of young entrepreneurs with S&T backgrounds.

3. Policy responses

Reform the corporate system : From Chaebol-oriented industry structure tone based on

market competition

· Reform the corporate governance structure

· Accommodate the global business practice

Let the market select winners and losers

Policy transformation from growth-oriented development to technology-oriented

development

- Foster a business environment conducive to creative & risk- taking

Ventures

Promotion of market competition and deregulation

- Market opening, deregulation of goods and factor market

Structural Weakness of SMEs

Disadvantage of smallness

SMEs’ share in number of firms 99.2% and in employment 75% (1998)

- Total number of SMEs : 276 thousand of which 197 thousand firms

employing less than 5 workers

But only 46% in production and 34% in export (1998)

4.35

2. Weak R&D capability of SMEs

SMEs account for 13.2% of the total business R&D expenditures

SMEs explain 20.4% of the total business research manpower

Top 20 firms explain 72% of the total business R&D expenditures

3. Industry-Science Relationships

Weak linkage between academics and GRLs(Government Research Laboratories)

4.36

Policies for SMEs and NTBFs

1. Policy shifts

Adoption of so-called “Venture-drive” Policy

Selective support for NTBF

Special Act for the Promotion of Venture Business(1997) :

Legal definition for venture business firms which are eligible for

government supports.

Development of new mechanism for financing

Creation of the KOSDAQ(stock exchange for new firms) 1996

Promotion of private venture capitals

Encouraging start-up business by scientists and engineers

Financial support for new start-ups by university professor and research scientists.

Allow leave of absence for venturing

Deregulation : lowering institutional entry barriers

Abolishing market protection measures for SMEs

4.37

Evaluation of policy programs

1. Financial support for start-ups

! NTBFs’ reliance on government financial support program turned out to b

e very low : 4%

4.38

The major financial source : family support and self-financing

! But the reliance on government financial support and venture capitals sho

ws rising trend. (Govt. 2%(1996) 5%(1999), VC 1% (1996) 3% (199

9))

2. Financial & tax incentives

For the operation NTBF the government provides financial and ta

x incentives

- Most popular policy programs are (1997- 99)

· R&D Grant 48.3%

· Credit guarantee : 42.3%

· Corporate tax relief: 37.6%

3. Manpower support

! The major policy programs :

- Military duty exemption for technical manpower

4.39

- Tax deduction for human capital investment

- Granting leave of absence for technology ventures

! The most popular program is the “Military duty exemption.”

- Among university professors and research institute scientists the “Leaveof-

absence” program is very popular

4. Facilities

! The government facilitates new start-up businesses by providing various f

acilities such as TBI and venture parks etc.

- Most popular among them is TBI

5. Other Supports

! Other supports include business counseling, government purchase progra

ms, etc.

- It turned out that new start-ups depend very much on counseling services

and marketing assistance, but less on the government purchase program.

4.40

Policy Issues

! How to develop a financial system that is conducive to active investment

in risky new technology businesses.

! How to maintain the momentum for new technology ventures in the face o

f increasing moral hazard owing to excessive supports

! How to develop an appropriate IPR management systems

! How long will the government interventions remain effective?

Policy should be reoriented so as to create an economic and social ecosystem

where NTBFs can flourish.

Rural areas are considered to be attractive for manufacturers due to ready supply of reliable and

low-cost labour. From 1950 to 1980 manufacturing firms flocked in rural areas and created

millions of job opportunities for people living there. But the new manufacturing technologies and

globalization of markets changed the competitive edge. The only reason that caused

manufacturers turned towards rural areas was the low cost in everything as the cost of labour,

cost of land, government polices, and state and local tax rates all were quite low which caused

greater benefit. Now the manufacturing firms in rural areas face great difficulties to keep up the

pace with today's advanced technological and economical environment.

Lack of Skilled Labour

The problems faced by manufacturing firms based in such areas can be divided into some

potential problem areas including Human resources, access to wholesalers, suppliers and

customers, transportation infrastructure and government policies. Human resource is the greatest

problem faced by rural manufacturing firms. Labour quality is one of the major human resource

problems. Most of the labour in such areas is ignorant and illiterate having no knowledge of

latest technologies. Manufacturing plants are now computerized which require expert labour.

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Although labour in those areas is abundant and willing to work on quite low wages but the

quality of skilled labour still remains the biggest problem.

Less Attraction to Managers and Professionals

The next major problem for manufacturers operating in rural areas is lack of managers and

professionals. Experienced managers and professionals always seek other facilities besides salary

package like big hospitals, good schools, easy access to airports and main highways and other

places like shopping malls etc. A company runs successfully due to good and experienced

managers without them it becomes difficult for the country to become successful.

Other Problems

Almost all wholesalers and suppliers reside in urban areas to be nearer to retailers and other

potential customers. Therefore they all prefer manufacturers who are in urban areas or near urban

areas to avoid transportation costs and other coordination problems. So for manufacturers in rural

areas it becomes a big problem to deal with good wholesalers. Other problems for manufacturers

in rural areas include low quality of life, problems of water, sewerage systems, limited access of

supplies and other things.

Manufacturers who are looking to create a manufacturing setup in rural areas should keep an eye

on all these factors. They should try to eliminate all these problems efficiently. Doing this they

can save a handsome amount and cane become successful in no time.

William King is the director of UK Manufacturers, Wholesale and Manufacturers. He has 18

years of experience in the marketing and trading industries and has been helping retailers,

entrepreneurs and startups with their product sourcing, promotion, marketing and supply chain

requirements.

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RECENT POLICIES

The recent policy initiatives and other reforms undertaken by the Indian Government through the

Ministry of Small Scale Industries:-

KVIC. The Khadi & Village Industries Commission (KVIC) established by an Act of

Parliament is a statutory organization engaged in promoting and developing khadi and

village industries for providing employment opportunities in the rural areas, thereby

strengthening the rural economy.

Coir Sector. The coir industry is a labour-intensive and export-oriented industry. It uses

coir husk, a by-product of coconut. India is the largest coir producer in the world

accounting for more than 80% of the total world production of coir fiber. The coir sector

in India is very diverse and involves households, co-operatives, NGOs, manufacturers

and exporters. The Coir Board, a statutory body established under the Coir Industry Act

1953, looks after the promotion, growth and development of the coir industry, including

export promotion and expansion of the domestic market. The Coir Board implements a

number of schemes which include assistance for participation in exhibitions, training for

skill development and assistance under Mahila Coir Yojana, training, financial assistance

for modernization of existing units, undertaking R&D activities, etc.

The Ministry of Agro and Rural Industries (ARI) implements two nation-wide

employment generation programmes, namely, Rural Employment Generation Programme

(REGP) and Prime Minister’s Rozgar Yojana (PMRY). Both these programmes are

credit-linked capital subsidy schemes which are implemented through commercial banks.

While the REGP is implemented by the KVIC, the PMRY is implemented by the State

Governments through the District Industries Centers (DICs).

o The Prime Minister’s Rozgar Yojana (PMRY) was launched on 2nd October 1993

to assist educated unemployed youth in setting up self-employment ventures.

o The main objectives of REGP are to generate employment in rural areas, develop

entrepreneurial skills and aptitude among rural unemployed youth, achieve the

goal of rural industrialization and facilitate participation of banks in the village

industries sector so as to ensure higher credit flow to these industries.

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o In the National Common Minimum Programme (NCMP), the UPA government

has proposed to revamp the Khadi and Village Industries Commission (KVIC)

and launch new programmes for the modernization of coir, handlooms, power-

looms, garments, rubber, cashew, handicrafts, food processing, sericulture, wool

development, leather, pottery and other cottage industries.

o In pursuance of the NCMP declaration and the announcement of Finance Minister

in his Budget speech of July 2004, a scheme titled the “Scheme of Fund for

Regeneration of Traditional Industries” (SFURTI) has been notified in October

2005 for the integrated development of traditional clusters of khadi, coir and

village industries, including leather and pottery. Under SFURTI, Annual Report

2006-07 it has been proposed to develop around 100 clusters (25 clusters for

khadi, 50 clusters for village industries and 25 clusters for coir industry) over a

period of five years commencing 2005-06.

The above initiatives of the Indian Government have been designed to facilitate the farmer to

think beyond his fields and farms. Although, the policies have been formulated taking into

consideration the rural scene in India, the pertinent question that remains is – if rural India aware

of these policies.

Indian IT firms have a global reputation for delivering quality services at competitive costs

and now provide services to 80 percent of the world’s largest 500 firms. The larger firms like

the Progeon division of Infosys (Henley 2007), are moving into higher value-added activities.

Ojha (2005) has found that Indian firms in their initial stages of the technology life cycle are

content to work in IT for the larger overseas clients, but not kick start and develop their own

product solutions. However, Siddharthan and Nollen (2004) reveal that as these IT firms

grow in confidence, they become risk takers and invest to import technologies, to move into

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value adding radical innovations.

The phenomenal success of the IT industry in India is due to many reasons (Cox, 2007) and

some scholars have attempted to identify the success factors. These identified factors need to

be organised into a suitable framework that we did not come across in our review of

literature. This calls for a detailed study to identify the success factors and incorporate them

into an integrative framework. Consequently, this paper makes an attempt in this direction

and presents a conceptual framework based on an extant review of literature. Outcome of

such a study will not only add to the literature in the field of entrepreneurship in general and

entrepreneurial marketing in particular but also will help the prospective entrepreneurs in the

development of their enterprises.

PROPOSITIONS

Entrepreneurship is positively related to organisational success and has been empirically

illustrated. The Entrepreneurs’ disposition as a proactive personality, leading to innovation

orientation and business success is also established (Kickul & Gundry, 2002). The universal

high performance model used by Deshpande and Farley (1999), examined if Indian

companies’ performance (random sample from listed firms on the Bombay stock exchange)

related positively to an entrepreneurial culture, innovativeness and to market orientation

(MO). A multidimensional approach to culture using Hofstede’s cultural factors (1980) by

Dwyer, Mesak and Hsu (2005), determined a positive relationship between collectivism and

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low uncertainty avoidance to quicker diffusion rates of technological innovations across

cultures. This is further supported by Aggarwal, Eramilli & Dev (2003) who found a positive

association between innovation, market orientation and business performance. Yiu and Lau

(2008) demonstrate the positive effects of network-based resource capital on firm

performance by capturing value from political, social and reputational capital for various

entrepreneurial activities like product innovation and new venturing. On the basis of these

studies and the fact that the Indian IT sector maintained an average growth rate of 48% from

1991 to 2005 (Jain & Aggarwal, 2007) and now contributes NZ $75 billion and 5.5% to the

GDP, we contend that

P 1 Characteristics such as being proactive, risk taking, and innovativeness is

positively associated with the entrepreneurial orientation of Indian IT

entrepreneurs.

P 2 Collectivist culture of Indian IT entrepreneurs is positively associated with the

entrepreneurial orientation.

P 3a Indian IT entrepreneurs’ entrepreneurial orientation is positively associated

with their market orientation.

P 3b Indian IT entrepreneurs’ entrepreneurial orientation is positively associated

with their relationship & network-based resource capital.

Market orientation also has a positive effect on business profitability (Slater & Narver,

2000b) and is a necessary culture to create superior customer value (Slater & Narver, 1994),

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which in turn is a basis for competitive advantage (Woodruf, 1997). Additionally, if firms are

relationship marketing oriented (RMO), it leads to business success (Sin et al., 2005).

The construct of market orientation is shown to have behavioral components of being

customer and competition oriented and the existence of inter-functional coordination within

the firm (Narver & Slater, 1990). Further research confirmed that MO and business

profitability are positively related (Slater & Narver, 2000b).

Therefore, we believe that

P 4 Market orientation of Indian IT entrepreneurs is positively associated with

their ability to create superior customer value that creates competitive

advantage.

P 5 Relationship & network-based resource capital of Indian IT entrepreneurs is

positively associated with their ability to create superior customer value that

creates competitive advantage.

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