Culture’s Consequences for Entrepreneurship

In his classic book on Culture’s Consequences, Geert Hofstede showed how cultural orientations influence leadership effectiveness. In ‘high power distance’ countries, you are supposed to boss your employees or risk being considered a wimp. But do that in Denmark and your employees will tell you to take a hike.

In entrepreneurship, there are many beliefs about what an ‘entrepreneurial culture’ looks like – but surprisingly few research-based facts. The most widely cited belief concerns individualism: individualist countries are thought to be more entrepreneurial than ‘collectivist’ countries. But, due to lack of data and inappropriate research designs (which we will not go into here), there is little data to back up this belief. So, the question remains: how does national culture impact entrepreneurship?

We explored this question using the largest dataset available for the study of entrepreneurship: the Global Entrepreneurship Monitor dataset. We combined GEM data with the most recent dataset on national cultural practices (called the GLOBE) for a dataset that covered 40 countries, 234 376 individuals and 23 065 entrepreneurs. Here is what we found.

Yes, individualist countries tend to have more entrepreneurs. After controlling for many factors that could have biased our results, we indeed found that individualism tends to encourage entry into entrepreneurship. There were more people trying to start or running new businesses in countries with more individualistic cultural practices. We also found cultural uncertainty avoidance to reduce entrepreneurial entry, whereas cultural performance orientation increased entrepreneurial entry.

Few surprises there, then. But before we dismiss this result as yet another non-finding produced by idle academics, let us pause for a moment. Is more entrepreneurship always better? Are collectivist countries automatically doomed to entrepreneurial failure? To explore these questions, we next focused on entrepreneurs’ growth ambitions. This is where things turned interesting.

Collectivist countries have more ambitious entrepreneurs. We discovered that while individualistic countries may have more entrepreneurs, entrepreneurs in collectivist countries expect to create more jobs. In other words, having more entrepreneurs is not necessarily better.

Why would this be? We think this is for two reasons. First, collectivist countries tend to have more so-called ‘societal risk sharing’. They tend to have better safety nets. They also tend to have more subsidies available to share the risk in R&D, for example. In individualistic countries, in contrast, less risk sharing may mean less risk taking and less growth ambition.

Second, entrepreneurs in collectivist countries may be more likely to see business growth as their societal responsibility. New jobs benefit the society, so in countries where the collective benefit is placed above individual benefit, this might spur entrepreneurs to pursue more ambitious growth.

(By the way, for the academics out there, we did control for selection bias. That is, we checked the hypothesis that if the cultural barrier to starting a new business is higher, only hard-core entrepreneurs would start new firms. Such selection would push growth orientation upwards in collectivist societies without culture actually directly affecting the outcome. We used appropriate statistical techniques to eliminate the possibility of this bias.)

So, what are the implications of this if you want to nurture a culture of entrepreneurship?

First, there is no one ‘best’ entrepreneurial culture. All cultures have their strengths and weaknesses when it comes to unlocking entrepreneurship. The secret is knowing what to do in different cultures.

Second, individualist countries should not be complacent. Yes, they do have more entrepreneurs. But they are challenged to nudge their entrepreneurs to take more risks and pursue growth. Here, a little bit of societal risk sharing might help enhance the entrepreneurial dynamic.

Third, collectivist societies are not bad for entrepreneurship. In highly collectivist countries such as Japan or Sweden, if you get more people to start new businesses, the societal infrastructure and cultural norms will push these to seek growth. The challenge, then, is getting more people to try entrepreneurship. Promoting inspiring role models could therefore prove effective in such societies.

Any culture can nurture entrepreneurship. You just need to know what to do in your culture.

Reference: Autio, E., Pathak, S., & Wennberg, K. 2013. Consequences of cultural practices for entrepreneurial behaviors. Journal of International Business Studies, 44(4): 334-362.