Identifying entrepreneurial opportunities by nascent entrepreneurs in Sfax Region

1 Identifying entrepreneurial opportunities by nascent entrepreneurs in Sfax Region Mariem BORCHANI, [email protected] Wassim ALOULOU, [email protected], Younès BOUJELBENE, [email protected] ISAAS, Route de l’Aéroport, km 4, BP. 1013, Sfax 3018, TUNISIA. 2 Abstract The purpose of this paper is to identify variables influencing the identification of entrepreneurial opportunity by nascent entrepreneurs in Sfax region. These variables included the personality of entrepreneur, social network and prior knowledge. Theoretically, we have a conceptual framework privileged in recent entrepreneurship research (Shane & Venkataraman, 2000). Empirically, our research is based on an exploratory study, while adopting a deductive approach type. We used the questionnaire as a tool for data collection. The survey sample consisted of 80 nascent entrepreneurs in Sfax region. Our results showed that two variables among three that significantly predict the identification of entrepreneurial opportunity. These variables are social network and prior knowledge. Keywords: Identification; entrepreneurial opportunity; nascent entrepreneur; personality; personal/social network; prior knowledge; Tunisia. 1. Introduction In recent years, very small businesses have acquired a double legitimacy: first social one linked to factors of self-realization and social integration, second economic one, linked to the fact that very small business and small and medium enterprises (SME) have been the spearhead of innovations, of new services development and job creation. This type of business has many advantages: flexibility, adaptability and responsiveness to customer needs. So American diction for small business seems to find its right to quote: “small is beautiful but also powerful”. Like many other countries, Tunisia included the business creation at the top of main priorities for government action. In this country, the field of entrepreneurship occupies a prominent place during the recent years. This fits into the willingness visionary of the Tunisian government to reduce the problem of unemployment especially among young graduates of higher education on the one hand, and to establish an entrepreneurial culture that incarnated in the development of entrepreneurial action, on the other hand. Therefore, it is important to take interest to entrepreneurship as a research subject and try to deepen the understanding of this complex phenomenon. The field of entrepreneurship research has known a huge development in recent decades. Kuratko (2005) qualified this growth as of “the most eminent economic force that world has known in recent years”. The paradigm of entrepreneurship research has done and continues to do the subject of controversial debate between different schools of thought for this reason that researchers in entrepreneurship perpetually wonder about the theoretical and paradigmatic foundations of their discipline. Since that entrepreneurship is a complex phenomenon, then it cannot be reduced to such a paradigm in order to identify its different facets (Verstraete, 1999; Messeghem, 2006). Certainly, the paradigm of business opportunity is a central paradigm, but other paradigms such as innovation, new value creation and new organization creation are essential to circumvent the field of entrepreneurship (Verstraete and Fayolle, 2005). Different pioneers contribute for this paradigm. In fact, Schumpeter (1974) defines entrepreneurial opportunities as “new combinations that manifested in introducing of new 3 product, new method of production, new market exploitation, conquest of new supply source and finally, new form of industrial organization”. According to him, if an entrepreneur obtains a beneficial evolution of these production factors, thanks to the new combination, he (she) has identified new opportunity. Also, Casson (1982) defines entrepreneurial opportunities as “opportunities to produce new goods, services, raw materials and organizational methods that allow outputs to be sold at prices that are above production costs”. De Bono (1980) considers the opportunity as “a means of action among others, but represents the best solution to follow”. Our work fits into the paradigm of opportunity. Works on opportunity are old. This question has aroused great importance on the part of economists and managers since the opportunity concept is both too general and it exists in different disciplines, but in each one it has different characteristics because the context in which integrates, identifies and develops is different. The paradigm of business opportunity takes its origins in marketing to respond unmet needs in the market (Kirzner, 1973; 1979). Something that has generated a real renewed of interest of this paradigm in entrepreneurship field (Chelly,2006). This paradigm is anchored in the founding work of Venkataraman (1997) and Shane & Venkataraman (2000). From their perspective, the field of entrepreneurship is defined as “ the scholarly examination of how, by whom and with what effects opportunities it create future goods services are discovered, evaluated and exploited” (Venkataraman, 1997). In these conditions, the processes of discovering, evaluating and exploiting opportunities are objects of essential research study. This perspective concerns the emergence of new economic activity, which is not necessarily related to the emergence of new organization. The aim of this research is to study variables influencing the identification of entrepreneurial opportunities by nascent entrepreneurs in Sfax region. The structure of this paper is as follows: First, we present a literature review what includes the identification of opportunity and the variables that may influence it. Second, this allows us to advance the theoretical framework adopted in this research. Third, we explain research methodology, present and discuss main results. Finally, we presented research limitations and some recommendations for the future researches. 2. The identification of entrepreneurial opportunity: literature review 2.1. Differences between idea and opportunity The idea is personal and can occur in different life circumstances. One idea is necessary but not sufficient to start a business. Each idea must solve and respond to a problem, or a failure. The idea does not assure the property of the company if there are not enough people who feel this need, that prove this inadequacy. Most new entrepreneurs start first by determining and defining clearly entrepreneurial occasion and then try to formulate a clear idea after recognizing the existence of occasion. While opportunity is related to an environment in a market. It is somehow an accepted idea. Timmons et al., (1986) make this acceptance of nuance between idea and opportunity. For them, the majority of ideas are the result of entrepreneur’s creative perspicacity is the lot of inventors who seek new ways of doing things. Regarding the opportunity it is the anchor of the idea in the needs market, favorable conditions and competitive advantages. It is the lot of entrepreneurs. 4 The differentiation between idea and opportunity is very clear, seen that idea about product or service is not sufficient to start a business, besides we must see the operating potential for drawing profit. Kirzner (1979) argues that the transition from idea to opportunity is due to the simple recognition of the idea’s commercial value. 2.2. The identification of entrepreneurial opportunity The “opportunity” term has known a multiplicity of definitions. Several researches have been conducted to elucidate the process of identification/construction of entrepreneurial opportunities. The identification of entrepreneurial opportunity is a crucial step for all business creation since we cannot talk about entrepreneurship without talking about opportunity identification, which also requires special attention from the potential entrepreneur. Kirzner (1979) admits that opportunity identification is the central element of entrepreneurship. Also Gartner (1990) and Gibb (1997) have also presented the detection of an opportunity as a starting point without which it becomes impossible to talk about entrepreneurship. Despite that, we note that the identification of entrepreneurial opportunity has begun considered as a research topic only from 1997. This recent enthusiasm has led to interesting debates from a few studies on opportunity definition. Among the most recent and powerful research in entrepreneurship that advanced by (Venkataraman,1997; Shane & Venkataraman, 2000) who defined entrepreneurship as an academic field is gaining importance, as researchers try to understand why some people succeed to discover opportunities while others do not, and how these discovered opportunities are evaluated and exploited. New opportunities may involve introducing new goods and services, exploring new markets, developing new production processes and/or combining raw materials in new ways. More recently, Ardichivli and Al. (2003) are even gone further, for them, not only identifying opportunities is one of the first steps of entrepreneurial process, but also, it is the most important skill. This definition is the starting point of a new integrative entrepreneurship field that we qualify like Eckhardt and Shane (2003) as “opportunitybased”. 2.3. Theories mobilized in favor of entrepreneurial opportunity recognition  The neoclassical equilibrium theory This theory suggests that opportunities are independent of entrepreneur (Shane, 2000) and therefore are available and accessible to everyone. The imbalance in the opportunities exploitation is due to the difference between those who recognize these opportunities. Thus, the neoclassical equilibrium theory brings together a series of individual psychometric studies of entrepreneur’s characteristics (Chiasson & Saunders, 2005). These studies include the hopes of personal gain, the features and tasks related to motivation (Bull & Willard, 1993) the take in charge of equivocal income (Gartner et al., 1992), most personality traits (Shane, 2000) and cognitive properties (Shane & Venkataraman, 2000). 5 The neoclassical equilibrium theory considers that opportunity recognition and its reconstitution are more important than its construction since the exogenous character of both the context (structure) and the opportunity. In fact, the neoclassical equilibrium theories focus on the preexisting contextual opportunities (structural) and which are recognized by a specific entrepreneur. The two major limits of this theory (Chiasson & Saunders, 2005) are considered: First, studies of general personal characteristics (traits) have proven their inability to determine individuals who can regularly identify successful opportunities. So it took considering the context for better comprehension of opportunities identification. Second, the general pattern known of education and experience is based on imitation and replication of a task to learn it. Thus, the fact of studying the entrepreneur personality traits can reduce the opportunity to the simple imitation necessarily involving limitation of the forecast results: several imitators, on a single market.  The coevalutionnary lock-in The opportunity is part of the coevalutionnary lock-in (Burgelman, 2002) is in a broader perspective that the theory of population ecology (Low & MacMillan, 1988). The coevalutionnary lock-in explores the relationship between entrepreneur and structure and its changes over time, focusing primarily on the relative freedom of entrepreneur through the competitive advantage provided and on the adequate strategy adapted that leads to initial success. In addition, success will create resistance to change that will enclose the organization (the lock-in) and hinder adaptation to market changes. All this leads to the organization failure also it reduces their ability to adapt to new competitors. The coevalutionnary lock-in examines the organization’s adaptation to the specific niche markets that providing them relative freedom (resulting from the success and gaining competitive advantage) but this freedom is eclipsed under the effect of organizational inertia face the market conditions changes . The two limits of this approach are considered: First, entrepreneur, here, undergoes the market and the changes determine its success all depends on its adaptation. In practice, the actions of entrepreneur (agents) can influence both the markets and the products demand. Second, entrepreneur can avoid lock-in through the reflexive monitoring that can longterm ensures product adaptation (Chiasson & Saunders, 2005).  The triggers of structural changes This approach was based on the interaction between social and technological changes in highly institutional frameworks (Barely, 1986; Barely and Tolbert, 1997). Technology (Barely, 1986, 1990) and information technology (Orlikowski, 1991) have a role in the opportunity triggering that born structural and organizational changes and/or the institutional properties changes (Chiasson & Saunders, 2005). The triggers of structural changes show that technology has a direct and important impact in the opportunities triggering. 6 Lack of deliberate changes consideration (not imposed by technology or (embedded) in these characteristics). And ignorance of reflexive monitoring. These opportunity approaches provide many views about the opportunity nature, the entrepreneur (the agent) and structure (context: social, technological, economic…) which are certainly, differently but complementary (Chiasson & Saunders, 2005). This is the two main limitations of this approach because it reduces or ignores the role of the entrepreneur (Chiasson & Saunders, 2005). Indeed, the context is in continuous evolution. It is impossible to consider one approach seen the spatio-temporal variability of this context. Since the fact to take into consideration, only one approach has adverse effects on both the entrepreneur and the economy. So, the theory of structure came legitimize this logic observation. Since the opportunity identification is the crucial step of any creation of business, it is therefore essential to identify the variables that may influence it. 3. Variables influencing entrepreneurial opportunity identification 3.1. Personality of entrepreneur Some cognitive studies have focused on personality traits of entrepreneurs and their contribution to the success of entrepreneurial ventures. However, Shaver & Scott (1991) showed in their research that psychometric tests searching for distinctive entrepreneurial traits have been unable to find differences in most personality traits between entrepreneurs and other groups (managers or the general public) .Three personality traits have, however, been shown to be related to successful opportunity recognition. The first personality trait is vigilance or entrepreneurial alertness. More than others, this skill is developed at the highest point in entrepreneur and enables him to find relevant information to opportunities discover. The main theoretical contributions integrating the concept of opportunity focused on the process of opportunities identification and exploitation. Entrepreneurial alertness corresponds to an attitude of receptivity to available opportunities, but not yet updated. This process is primarily based on entrepreneurial alertness. Above all, this process is based on the “entrepreneurial alertness” Kirzner (1973) was the pioneer who uses the term “vigilance” to explain opportunity recognition. Embedded in this line of thought is the notion that higher alertness increases the likelihood of an opportunity being recognized. There are, however, reports of studies that testify to the contrary. Buzentiz (1996) conducted an empirical test of Kaish and Gilad’s (1991) proposition that entrepreneurs are more alert to new opportunities and use information differently from manage. Buzentiz found little empirical support for the Kaish & Gilad’s theoretical framework, but indicated that the measures of entrepreneurial alertness need further development. Also, Ray & Cardozo (1996) argue that any recognition of opportunity by a prospective entrepreneur is preceded by a state of heightened alertness to information. The second personality trait is creativity. Creative abilities are likely to generate a different information organization in order to draw new ideas. Schumpeter (1934) was the 7 first who introduce the notion that successful entrepreneur discover opportunities that others do not see. Moreover, Schumpeter (1935) is the pioneer that integrated the creativity notion in the entrepreneurship study in speaking of “creative destruction”. He thought that opportunities result by definition of the “creative destruction ’’ to the emergence of something new. Hills et al., (1997) have found that 90% of those surveyed by them find creativity very important for opportunity identification. However, solo entrepreneurs found significantly more important than did the networked entrepreneurs. They also viewed themselves as being more creative, and more likely to set aside time specifically to be creative: Hills et al. (1997) conclude that entrepreneurs who are networked to opportunity sources may not need to be creative as those who are not networked. The third trait is that of self-efficacy. Self -efficacy is our sense of competence, that is to say the belief that we can do specific and difficult goals (Bandura, 2001). Some researchers in their work occupy to self-efficacy a prominent place in the study of entrepreneurship. Among the results of this work, we cite: Perception of self-efficacy is an antecedent consequent of perceived opportunity Krueger and Dickson (1994); Individuals with a high sense of self-efficacy see situations as achievable opportunities (Bandura, 2001). H1: Personality of entrepreneur (vigilance, creativity and self-efficacy) has a significant impact on the entrepreneurial opportunity identification. 3.2. Social networks Personal/social networks are an important source of information for potential entrepreneurs. This is justified by Hills et al. (1997) who indicate that entrepreneur’s networks are important to opportunity recognition. In addition, they claim that “entrepreneurs who have an extended networks identify significantly more opportunities” than solo entrepreneurs. The role of network relationship (weak/strong ties) is very important to give the entrepreneur information needed on the problems, which they encounter with a product or service (Chelly, 2006). Indeed, Koller (1988) shows that half of eighty-two entrepreneurs interviewed indicated that their creative ideas were suggested by someone else. This empirical result is confirmed by Hills et al (1997) for which half of entrepreneurs in his sample of 171 persons may be qualified as networked entrepreneurs. Recently, researchers have argued that it is important to have the right “mix” of strong and weak ties, that is contingent on a number of aspects, such are industrial, technological, and environmental conditions surrounding an industry (Rowely et al., 2000; Elfring & Hulsin, 2003). These authors argue that it is important to know the conditions under which different network elements lead to specific benefits. Also, the quality of network contacts can affect other characteristics, such as alertness and creativity. Social networks are composed of weak / strong ties and structural holes. In his article “Strength of weak ties”, Granovetter (1973) argues that weak ties (including casual acquaintances) are “bridges” to information sources not necessarily contained within an individual’s strong tie network (including friends and family). He argues also that casual acquaintance is more likely to provide unique information than are close friends, because most people have more weak ties than strong. 8 The inner circle of entrepreneur (primary relational network) corresponds to its network of strong ties, generally consists of close, family and friends. In Tunisia context, strong ties are very important. This is justified by the specificity of Tunisian culture giving prominence to the family and friends who are publishers of information with high benefit helping entrepreneur to identify opportunity. Structural holes are defined as the disconnection between the partners of a firm or society (Burt, 1992). To identify the benefits contained in a non-redundant network; Burt uses the term of “structural hole” to capture the existence of gaps in people’s social structures. Firms that have many structural holes will enjoy advantages with regard to efficiency and brokerage based on their ability to facilitate the exchange of non-redundant information. A network with many structural holes will have access to more sources of new information, which will increase the likelihood of receiving information that can be put to use. In addition, it is important for the timing of information to be right, in the sense that entrepreneurs have access to new opportunities before others do. Since entrepreneurs cannot possibly be everywhere, their contacts can make sure that they are at the right place at the right time. For Burt (1992), entrepreneur has more interest to have structural holes in its network to receive non-redundant information, which used for identifying opportunity. H2: Entrepreneur’s social network has a significant impact on entrepreneurial opportunity identification. 3.3. Prior knowledge To understand why some people find business opportunities while others do not arrive, it should be interested to information that this different people possess (Venkataraman, 1997). According to Shane (2000), “prior information to identify an opportunity is within three dimensions: markets, products and consumer issues”. Entrepreneurs are more inclined to explore business opportunities in that prior knowledge constitute a genius “knowledge corridor” allowing them to recognize the value of any new information. Shane (2003) indicates that “three major dimensions of prior knowledge are important to the process of entrepreneurial discovery: prior knowledge of markets, prior knowledge of ways to serve markets, and prior knowledge of customer problems markets”. For prior knowledge of market, simultaneous information on markets, consumers, technology etc., may be the cause of a greater number of opportunities. Christensen & Peterson (1990) examined in their studies the sources of new creative ideas. They concluded that deep knowledge of market and technological knowledge are prerequisites to identify creative ideas. However, Park (2005) asserts that “it is necessary to move on the market needs to identify business opportunities”. For prior knowledge of consumer issues, direct contact with customers allows the entrepreneur to negotiate the potential problems faced by them due to the use of a technology or product commercialized by the firm where he worked or a service that was not satisfy. So, knowledge of consumers issues is the origin of entrepreneurial opportunity identification. Shepherd & De Tienne (2001) found that knowledge of problems lived by consumers favored the identification of many opportunities. For prior knowledge of ways to serve the market, with the advent of the internet, this new technology has allowed some entrepreneur to identify entrepreneurial 9 opportunities and create new businesses that offer services to domestic and same international customers. According to Shane (2003), “new information on a given technology could be additional to information on ways to serve the markets, leading to the opportunities identification to solicit previous information on these processes”. H3: Prior knowledge has a significant impact on entrepreneurial opportunity identification. Our conceptual model is summarized as follow: Figure 1: Conceptual model of variables that might influence the identification of entrepreneurial opportunity. H1 H2 H3 4. Research methodology Decisively, the method is influencing the research not only because it determines the processes of research, but also because it implies an attitude of mind towards the research object (Zghal, 1992). 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(1992) “ Méthodologie de la recherche en Sciences Sociales”. eds, C.L.E. 19 Appendices Table 1: Factor structure of dependent variable, the identification of opportunity: " IO " Variable Items " identification of opportunity" Contributing factor Quality of representation I vote the possibility of creating a new company as a potential opportunity. ,830 ,688 If I'm not creating my own business it may be that I rat a great opportunity. ,826 ,683 I see the opportunity to create a new business as a positive thing ,831 ,690 The own value %variance explained Cronbach’s alpha 2,062 68,721% ,7673 Table 2: Factor structure of independent variable "Personality of the entrepreneur" Variable Items "Personality of entrepreneur" Contributing factor Quality of representation Creativity ,785 ,617 Alertness ,748 ,560 Self-efficacy ,814 ,662 The own value %variance explained Cronbach’s alpha 2,350 58,761% ,7653 Table 3: Factor structure of independent variable "social network" Variable Items "social networks" Contributing factor Quality of representation Structural holes ,831 ,691 Weak ties ,843 ,710 Strong ties ,829 ,687 The own value %variance explained Cronbach’s alpha 2,088 69,603% ,7770 20 Table 4: Factor structure of independent variable "prior knowledge" Variable Items "prior knowledge" Contributing factor Quality of representation Market knowledge ,817 ,668 Knowledge of consumer issues 781 ,610 Knowledge of how to supply markets ,679 ,460 The own value %variance explained Cronbach’s alpha 2,396 59,911 ,7712