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Entrepreneurship in China

Written by T. Kilinc

Paper category

Bachelor Thesis

Subject

Business Administration>Entrepreneurship

Year

2018

Abstract

Bachelor Thesis: Economic growth over the past three decades in China has captured the interest of the whole world. Entrepreneurship - Due to China’s economic reforms adapted in 1978 and its opening to the outside world policy, it has shifted from a centrally-planned economy to a market-based economy (The World Bank, 2018). This shift has created space for private-owned companies and thus, for entrepreneurs (Webster, Yue and O’Conell, 2014, p.588). Since then, more than 800 million people have been lifted out of poverty as the GDP has greatly increased and reached double digit levels (Tisdell, 2008, p.10; The World Bank, 2018). The People’s Republic of China (PRC) is already the world’s largest market for many products, and therefore market leader in many sectors from cars to power stations. Many analysts and economists even pretend that China has the potential to become the world’s leading economic power (Ghemawat and Hout, 2016, p.86). China’s rise from a communist country to a world economy is mainly based on Chinese entrepreneurs who introduced innovations and established profitable companies. A high number of research has shown that entrepreneurship is a driving force for economic development (Christensen, Johnson and Rigby, 2002) as well as for job creation. Therefore, an increasing entry rate of new companies are essential for further sustainable economic growth (Djankov et al., 2002). The word ‘entrepreneur’ means ‘to undertake’ and has its origin in French. In the 18th century, it was used for the first time to describe someone who buys and sells goods and services at unknown and changing prices (Gaikwad, 1978). In general, the term entrepreneurship defines a wide set of activities such as creating, establishing, managing and operating a business (Cunningham and Lischeron, 1991). All of these activities depend on a specific combination of circumstances “... which are difficult to create and easy to destroy” (Murthy, 1989, p.9). It is of high interest to identify the ‘specific combination of circumstances’ especially in the case of the People’s Republic of China, as profound institutional transformations as well as policies (Chen et al., 2012, pp.873-889), regulations and strategic initiatives had and still have a big impact on entrepreneurship (Yang and Li, 2008; Tan et al., 2009), and subsequently on the economy. However, entrepreneurship literature has only recently started to focus on factors which affect entrepreneurship in China (Yang and Li, 2008, pp.350-351). This is why research is accumulating at a slow speed. The purpose of this paper is to identify the factors, which influence the decision of people to become an entrepreneur and the success of entrepreneurs in the Chinese business environment. This paper focuses on the impact of personal strengths, which distinguish entrepreneurs from others, and external factors that affect entrepreneurship in a positive or negative way. This paper asserts that entrepreneurship is the outcome of specific interpersonal and external factors, which consort with each other and create adequate and favorable conditions for entrepreneurs to start, manage and operate their company successfully. Therefore, following the introduction, chapter two first highlights the differences between small business owners and entrepreneurs to outline the special feature of entrepreneurs. In order to examine whether Chinese people tend to possess the personality and strengths, which distinguishes entrepreneurs from others, this paper identifies the character traits as well the functions, which are generally associated with successful entrepreneurs. Since there is a lot of debate about the role of profit for people who take a risk in order to start their business, the importance of profit as well as the origin of risk is discussed. To find out whether external factors affect entrepreneurship, the paper also examines the importance of networks and connections as well as the impact of the government. A further sub-chapter explains and justifies the research method used to give an answer to the research question. Following, chapter three evaluates the Chinese entrepreneurial environment to verify or weaken the assumptions formulated in chapter two. In order to understand how entrepreneurship was introduced in a formerly communist country and what impact it had on the economy so far, chapter three first gives a short summary about Chinas economic development. Further, the creativity, sense for innovation as well as risk-assertiveness of Chinese entrepreneurs is assessed, the establishment of companies analyzed, and the profit as a reward for entrepreneurs who successfully operate in an uncertain environment full of risks checked. To strengthen the assumptions regarding the impact of external factors on entrepreneurship, chapter three outlines the importance of networks as well as the impact of government policies and regulations. Finally, chapter four gives a conclusion to the research. Entrepreneurship Richard Cantillon (2010, p.13) introduced his entrepreneurship theory in the early 18th century which makes him to the first person who wrote about entrepreneurship (Cantillon, 2010, p.31). He describes entrepreneurs as risk assertive people (Cantillon, 2010, p.64, p.73) who buy input at an uncertain price and sell the finished product at a fixed price (Cantillon, 2010, p.32, p.74). Almost 100 years later, during the industrial revolution, Jean Baptiste Say (Mohanty, 2005, p.1) added that the possession of managerial skills is an important element of entrepreneurship. He also added that entrepreneurs have the ability to combine and coordinate all the factors of production such as land, labor and capital. A few decades later, entrepreneurs were described as the agents of change, and entrepreneurship as a process of change (Audretsch, 1995). Because innovative entrepreneurs create employment and greatly contribute to the economic development (Rasagam, 2015) which causes change. The Organization for Economic Cooperation and Development (OECD) corresponds with the idea as it also describes entrepreneurs as “...agents of change and growth in a market economy...” (OECD, 1998, p.11). Moreover, Nieman and Pretorius (2004, p.4) introduced their entrepreneurship definition in the 21st century and characterize entrepreneurs as individuals who identify a market opportunity and acquire all the resources needed in order to establish a business with the aim to satisfy customer needs. Another definition introduced in the 21st century highlights the entrepreneur’s ability to initiate, create and expand a business, as well as to build a motivated team and acquire all resources needed for long-time growth in the marketplace (Van Aardt, Van Aardt and Bezuidenhout, 2008). Burger et al. (2005, p.80) as well as Zimmerer and Scarborough (2008, p.5) also define entrepreneurship as the creation of a new business idea which is based on the willingness to take a risk and establish a company in order to generate great profits. Zimmerer and Scarborough (2008, p.44) further added that entrepreneurship is the result of an organized and well-structured process of filling market opportunities with creativity and innovative ideas to satisfy the needs of the customers. Therefore, entrepreneurship is the ability to conceptualize, organize, launch and nurture a business opportunity through innovation in an uncertain environment full of risks and changes (Rwigema and Venter, 2004, p.6). Nieman (2001, p.445-450) strengthens this statement by adding that entrepreneurs bear the risk of their enterprise and are rewarded in form of profits if they manage their business successful. A1: Entrepreneurs are creative and innovative people who have enough drive to take a risk in order to establish a business. Read Less