Evaluating entrepreneurship ecosystem at different phases of entrepreneurship activity

G. Pawitan & C.B. Nawangpalupi

Parahyangan Catholic University, Bandung, Indonesia

N.T. Tuan

University of Social Sciences and Humanities, Vietnam National University, Ho Chi Minh City, Vietnam

ABSTRACT: The entrepreneurship ecosystem plays a key role in achieving global competitiveness.

1 INTRODUCTION

1.1 Important role of entrepreneurship

Fritsch & Schmude (2007) noted that entrepreneur­ship has several important factors in regional dimen­sion. Some factors are related to entrepreneurial attitude, aspiration, performance, and also local environment for entrepreneurship, as quoted below:

Differences in startup rates, in entrepreneurial attitudes, and the success of newly founded busi­nesses between regions indicate a distinct import­ance of space and the local environment for entrepreneurship (Fritsch & Schmude 2007).

Literatures stated the importance of entrepreneur­ship as a key driver in achieving socio-economic development in the social, cultural, and political con­text, including new job creation, innovation, and social value creation (Fritsch & Wyrwich 2017, Mueller et al.

Isenberg (2014) defined entrepreneurship ecosys­tem as a dynamic community within a geographic region, composed of varied and inter-dependent actors, factors, and processes that evolve over time and whose actors and factors coexist and interact to promote new enterprise creation.

The literatures discussed the importance of entre­preneurship, and also the role of the entrepreneurship ecosystem in promoting the enterprises. However, still there is a lack of discussion on entrepreneurship ecosystem priority in each phase of their entrepre­neurship activities. The knowing of priority for each phase will guide policy-maker to design a better intervention program that fits with the entrepreneurs’ needs.

This paper aims to compare the entrepreneurship ecosystem in different phases of entrepreneurship activities. The research question “What is the prior­ity of entrepreneurship ecosystem according to the entrepreneur’s perception at different phases of their activities?”

1.2 Entrepreneurship framework: GEM model

Global Entrepreneurship Monitor (GEM) has devel­oped a conceptual framework that identifies essen­tial elements within the relationship between entrepreneurship and economic growth and how these elements interact with each other (Kelley et al. 2016, Nawangpalupi et al. 2014). The concep­tual framework incorporates three main compo­nents (Levie & Autio 2008), namely capture aspects

Figure 1.

of entrepreneurial ecosystem, entrepreneurial oppor­tunities and capacity, and entrepreneurial activity (see Figure 1).

The entrepreneurship ecosystem in the GEM model is defined by entrepreneurial framework con­ditions (Nawangpalupi et al. 2014). The entrepre­neurship ecosystem measures supporting environmental factors for entrepreneurs in running and developing their ventures.

2 RESEARCH METHOD

2.1 Designofstudyanddata

The GEM defines nine entrepreneurial framework conditions (EFC), namely (A) entrepreneurial finance, (B) government policy, (C) government entrepreneurship programs, (D) education and train­ing, (E) research and development transfer, (F) com­mercial and professional infrastructure, (G) market openness, (H) physical infrastructure, and (I) cultural and social norms. The entrepreneurship activity’s phase in the GEM model is defined by three phases (Figure 2) which initially involves in setting up a business - nascent, then grew a new business up to

3.5 years ventures, and finally blossoming into an established business. The surviving entrepreneurs (more than 3.5 years) are considered to own and manage an established business.

The data was sourced from the GEM - Adult Population Survey, conducted in 2015-2017, cover­ing 23 major provinces in Indonesia, with 11,702

Figure 2. Phases of entrepreneurial activities.

random selected adult of ages 18-64 years. The respondents were collected from 23 provinces in Indonesia covering 80% of the population.

Based on GEM conceptual framework, entrepre­neurial ecosystem is called as entrepreneurial frame­work conditions (EFC). The EFC measures supporting factors for entrepreneurship activity. The entrepreneurs were asked to complete a closed ques­tionnaire consisting of 55 indicators about factors relating to the conditions that make up the country’s entrepreneurial environment (Nawangpalupi et al.

a. Variable: EE = Entrepreneurship Ecosystem, scale 1 = completely unsupported condition to 5 = completely supported condition, dimension: EEa = Entrepreneurial finance (8 indicators), EEb = government policy (7 indicators), EEc = government entrepreneurship programs (6 indica­tors), EEd = education and training (6 indica­tors), EEe = R&D transfer (6 indicators), EEf = commercial and professional infrastructures (6 indicators), EEg = market openness (6 indica­tors), EEh = physical infrastructures (5 indica­tors), EEi = cultural and social norms (5 indicators).

b. Variable: PEA = phase of entrepreneurship activ­ities, scale 1 = nascent, 2 = new business, 3 = established business.

2.2 Method

The research question is answered by using Principal Component Analysis (PCA). PCA is a linear statis­tical approach for analyzing the covariance structure of multidimensional data X_ij, where i= 1,...,m, and j= 1,...,n. In this paper, X₁j is EEa for j= 1,...,8, X₂j is EEb for j= 1,...,7, and so on. Meanwhile, the PEA is a grouping variable.

It is assumed that indicators of entrepreneurship ecosystems were correlated each other, hence it is possible to extract most of the variability present in the (m?n) indicators into k principal components that are retained to capture the majority of variability in X_ij. The first principal component is considered as a basis to arrange priority of the entrepreneurship ecosystem to be developed, since it represents the largest X_ij’s variance explained (Johnson & Wichern 2014). The priority arrangement is defined by using its components loadings.

2.3 Entrepreneurs profile

There are 3375 entrepreneurs who consist of 17% nascent, 33% new business, and 50% established. Based on gender, 48.1% are male entrepreneurs and 51.9% are female.

The types of their business for the early entrepre­neurship activities were classified into 3.5% extract­ive, 11.7% transforming, 6.0% services, and 78.8% consumer-oriented. Meanwhile, the established busi­ness activities were classified into 4.6% extractive, 13.3% transforming, 5.3% services, and 76.8% con­sumer-oriented.

2 RESULTS AND DISCUSSION

2.1 Principal component analysis for each phase

Priority of the entrepreneurship ecosystem for each entrepreneurship phase was determined by applying PCA for each entrepreneurship phase. The results are presented in Tables 1-3.

Table 1 shows the priority arrangement of entrepre­neurship ecosystem for the nascent entrepreneurship activities which are mostly dominated by education and training, government policy, bureaucracy, regula­tion, licensing, government entrepreneurship program, R&D transfer, and entrepreneurial finance. The first and second priorities of entrepreneurship ecosystem indicate a prominent role of education, training, and government in fostering individuals to become entre­preneurs. It is interesting business in terms of funding. R&D transfers are also considered as priority for the nascent entrepreneurs. It’s the reason why majority of youth entrepreneurs are around 25-34 years old.

Table 1. Priorities of nascent’s entrepreneurship ecosys­tem ordered by component loading.

Source: first principal component for nascent.

Table 2. Priorities of entrepreneurship ecosystem for new business ordered by component loading.

Source: first principal component for new business.

Note: D=dimension, L=component loading.

Table 3. Priorities of entrepreneurship ecosystem for established business ordered by component loading.

Source: first principal component for established business. Note: D=Dimension, L= component loading.

For the new business (see Table 2), the first prin­cipal components consist of education and training, R&D transfer, and market openness. It is a typical ecosystem for the new business in encountering the market. They need education and training, technol­ogy transfers, and also market openness.

For the established business (see Table 3), the first principal factors are consistency of government policy, taxes, regulations, and financial support. They are followed by physical infrastructures/com- munication and entrepreneurial finance.

2.2 Discussion

These findings reveal that financial support is essen­tial for starting up a business (for nascent entrepre­neurs) and also to develop the business (for established businesses), while the new entrepreneurs require sustainable access to the market and a good physical infrastructure. All entrepreneurs need firm and definite regulations to support their business.

Innovation or research and development (R&D) transfer is a priority for nascent entrepreneurs, and new businesses. Innovation that represents the sup­port for creating new products and new technologies, including the use of proprietary technology, is important when a business enters the world of real competition. The competitiveness and the strategies to win the competition are more important for those who have been operating the business for more than 3 months (where nascent ones are those just started their businesses and are under three months). This issue is an alarming message for Indonesia. Based on the Global Entrepreneurship Index of 2017, Indo­nesia has a very low absorption of technology, com­menting to a value of 0.03 and this has been mentioned as the weakest area in Indonesian entre­preneurship. Hence, to improve the entrepreneurial climate and to strengthen the entrepreneurship eco­system, it is important to prioritize the enforcement of policies and programs in the R&D transfer.

Based on these results, then the policy-makers may focus on suitable programs related with strengthening a particular entrepreneurship ecosys­tem. Such as, the nascent and new businesses need an innovation program in developing their enter­prises. Meanwhile, the established business needs a supporting ecosystem by reforming policy, tax, and regulations, financial support, and physical infrastructures.

3 CONCLUSIONS

Each entrepreneurship activity has different charac­teristics and conditions, thus revealing that entrepre­neurship ecosystem for each phase gives important information for policy-makers or entrepreneurs themselves.

Comparing entrepreneurship ecosystem among activities of their doing business, indicates a differ­ent priority between nascent, new business, and established business. The principal factors of entre­preneurship ecosystem for nascent entrepreneurs are mostly dominated by education and training, government policies, bureaucracy, regulation, and licensing.

The new business mostly considers market open­ness and R&D transfers, and the established business prioritizes physical infrastructures, consistency of government policy, taxes, regulations, and financial support.

ACKNOWLEDGMENTS

This paper was part of research project supported by a grant from the Indonesian government, the Minis­try of Research, Technology, and Higher Education 2016-2018 (NES).

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