Entrepreneurship Written Coursework 24 hrs 1
COLLEGE OF BUSINESS, ARTS AND SOCIAL
Entrepreneurship Written Coursework 24 hrs 1
COLLEGE OF BUSINESS, ARTS AND SOCIAL
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Title: The Institutional Environment and Its Impact on Entrepreneurship
Entrepreneurship has a vital role in the growth of an economy. The concepts relating to
entrepreneurial have been developed by various authors. According to Richard Cantillon
entrepreneurship can be defined as the process of self-employment whose rate of return is
uncertain (Volery et al., 2015, p.374). The shape and rate of entrepreneurial activities are
highly influenced by the institutional environment. According to economies, state is a major
player to facilitate entrepreneur. State provides healthy environment to entrepreneurs which
leads to strong economy (Mijid, 2014, 229). Likewise, business owners and entrepreneurs
help to encourage economic dynamic which leads to innovative and creative thinking. The
aim of this essay is to assess the impact of institutional environment on the activities of
entrepreneur. Government needs to give assistance to entrepreneurs (Lee et al., 2014, p.193).
Similarly, there are different factors that have effect on entrepreneur. Thus, in this essay
there will be a discussion on the institutional environment and its impact on entrepreneurship
by analyzing relevant journal articles. Moreover, there will be critical analysis of these
articles. Likewise, the methodology that will be used will also be explained.
Data has been collected through different authentic journals. Google scholar has been used
as a database to get the important journals so that one gathers more information about the
given topic. Extensive amount of time was applied in gathering information and in-depth
study was conducted in order to comprehend the topic and to find out information which is
relevant to the study. Some of the journals that were studied Strategic Entrepreneurship
Journal, International Journal of Entrepreneurial Behavior & Research, International
Entrepreneurship and Management Journal, International Small Business Journal,
Entrepreneurship and Management Journal, Journal of Small Business & Entrepreneurship,
The Journal of Entrepreneurship, World Review of Entrepreneurship, Management and
Sustainable Development. Likewise, there were some keywords used such as
entrepreneurship, macro environment, micro environment, and social environment. These
keywords were essential to extract the important information.
In the research by Wright (2017) there is discussion relating to the macro trends that have
an impact on entrepreneurship. The macro trends are embedded with those factors that are
due to the external environment. The objective of this journal is to assess the impact of
external sources on entrepreneurs. Keeping in view the macro trends of the world today
entrepreneurs are rethinking the ways of how business should be conducted and how the
trend has shifted to resemble the business activities in the social and environmental context.
As mentioned, aforesaid, institutional environment is composed of customs, regulations,
norms which shape up the behavior of an organization and individual. The researcher has
highlighted that entrepreneurship is essential for the development and well being of an
economy. For instance, if there are a greater number of entrepreneurs then there will be more
job opportunities and not only this it will help to boost up the economic conditions of any
country. Similarly, Brunswicker et al., (2015, p. 1241) entrepreneurs are able to identify
different business ventures which help to facilitate number of people. Some researchers are
of the view that entrepreneurial activities help to speed up the structural changes within
economy. Likewise, they help to raise the level of innovation. It helps to expand the
productive capacity of an economy. Likewise, there are formal and informal factors that
leave an impact on entrepreneurial activities. For instance, entrepreneurs that require finance
seek guidance from formal institutions. On the other hand, informal factors include culture
and social norms.
Brekke (2015) has also highlighted the importance of entrepreneur and its connection with
regional development in his journal Entrepreneurship and path dependency in regional
development. For instance, when a person starts a business there are people from different
background that are involved. Moreover, the person is required to make structural and
intuitional arrangements. Gallouj (2017) is of the view that formal institution has a profound
impact on the entrepreneurial activities. Martia and Peris provided a study with evidence and
stated that there is relationship between TEA and innovation factors whereas Urbano
declared that internal factors are more important than external factors. Internal factors
include personal networks and knowledge of a person whereas external factors include fear
relating to the failure (Gallouj, 2017, p.726). Wolff (2015) stated that the framework of
formal environmental institution include that programs initiated by government, and the
physical infrastructure. Availability of formal environmental resources ensure that to what
extent business activities shall be conducted by entrepreneur. For instance, if there are more
financial institutions present then more money will be available for entrepreneurs whereas
Kelly and Amoros focus on the idea that university plays a major role in giving
entrepreneurial education (Wolff et al., 2015, p.709). There was a theory developed in the
year 1990 called Institution Economic Theory explained by Bresciani (2015) this theory
suggested that the rules and guidelines are must for entrepreneurs. If they are not given
proper guidance then they are likely to incur mistake (Bresciani et al., 2015, p.200).
Ratten (2016) have pointed out the fact that how the macro and the external environment
have the ability influence the entrepreneurial environment that can be within or with
institutions which includes the role played by government combining both the political or
economic factor and the social structure of the country. The policies of government can be
divided into two categories that are the macro and micro. Hattab (2014) suggests that micro
policies are those policies which focus on the small business, the entrepreneurs and the one
who have potential to venture their business. The policies primarily focus on the helping the
small business or enterprise by providing them loans, Grant’s, advices, training and
awareness (Hattab, 2014, p.18).Hence, Ratten(2016) laid emphasis on the fact that if right
policies are formulated it will allow countries to have stability. For suppose, if the
formulation of the policies are done by keeping in the mind the needs of the individuals and
how these policies can bring changes in the long term then only it shall be able to create a
stable economic condition for the country and hence providing more opportunities to
succeed in the world. There are numerous cases witnessed in the past which had led to failure
of entrepreneurial sector in the country. In addition to this, in this journal Ratten (2016) has
also stated the fact that in UK nearly 73% of business is done by entrepreneurs. Hence, this
type of business has become the need of time and government need to formulate strategies
to support such businesses.
Chang (2015) mentioned in his research stated that there is a proof that strong urge to control
different factors which could damage entrepreneurs. He discussed about different variables
which are essential for the growth of this type of business. These variables of the
environment do not only provide the opportunity to exploit the markets but are also
responsible of help the environmental activities to flourish. There are different sectors in an
economy which are not fostered. Thus, if adequate financing is provided then these sectors
can give returns to government. This return can be used for the development of
infrastructure. Hence, he stated that the role of external factors is undeniable. Batthin (2017)
explains entrepreneurs are always seen to respond to the incentives that are embedded in the
environment and hence it has been seen that at times they try to change the limitations
(Batthin et al., 2017).
Baier-Fuentes (2014) have stated that there are basically four macro policies that can impact
the entrepreneurs which includes the taxation, rule of law, social security and regulations.
In order for the entrepreneurs to operate successfully they need to have the right of properly
which should be clearly defined and hence there should be a proper way through which these
contracts can be formed. The entrepreneurs are known to operate their business through legal
channels and it is vital that these systems should be transparent and be fair so that it can
leave positive impact the business of the entrepreneur’s. It has been come into notice that
many times due to the unclear rules and regulation the entrepreneurs get confuse and attain
loss hence it disheartens them and they avoid the idea of opening their own business.
However, Schmitz (2017) states that some of the entrepreneurs can benefit with the
improvement done in the rule of law but some benefit less as compare to the late firms who
use the legal system for their beneficial to exploit the small business. The legality helps the
individuals as it restores their faith in the law and they are sure that their money and resources
will not go to waste even when they risk in operating their own ventures (Schmitz et al.,
2017, p. 369).
Williams (2014) stated that the entitlement of the social security also have the way through
which it can impact the entrepreneurship and can play important part in making others to
open their own ventures. There some individuals who are not working anywhere or are not
that active economically. Thus, these people can take the risk of either moving out or can
start their own business when they are aware that the social security income is high.
Therefore, Gupta (2014) explains it is not wrong to say that when they are more entitlements
for the social security than people will be less attracted to the entrepreneurship and when
there is Less entitlements given to the citizens that means the income will be high and hence
this will attract the customers towards the entrepreneurship (Gupta et al., 2014, P.367).
Omorede (2015) in his literature provides examples that link the regulation to the
entrepreneurship. Djankov during his study pointed out that how the time and cost of starting
a business varies in different countries. In this he mentioned that in Spain it almost takes 82
days to start a business which is quite fast as compared to countries like USA, Canada and
New Zealand. He further mentioned that although the regulations are important as they
provided security to the customers and the creditors but they have a direct impact on
lowering the chances of starting up a business. In addition to this he further pointed out that
due to increase in the regulation in the product market results in increasing the cost of
operating the business and hence making the entrepreneurship less attractive. Lastly, he
mentioned that due to the high regulations. ales it difficult for the small firm to operate and
hence providing the opportunities to the larger firms to exploit them for favors. Ardagna and
Lusardi also highlighted in their study that these high regulations are resulting in suffocating
the entrepreneurship and stated that all their estimates point to a negative effect of
regulations (Poggesi et al., 2016, p.735).
Ripollés and Blesa (2017) pointed that taxation is different and can be classified into self-
employed, employees and income. The employees have their tax charged by their employers;
the self employed declares his or her own income to tax authorities. Then the self-employed
can pay the income tax in arrears whereas the income of the employees is immediately
charged with tax. In addition to this the self employed can show their expenses against their
income which is not available to the employees. Hence, all these benefits might influence
the individuals to start their own ventures. This discussion is basically keeping in view the
procedure for taxation. He further stated that the control of tax is in the hands of government.
It has been seen in many countries like UK where fuel to the SMEs the economy is gaining
a lot of tourism, the standard of living is increasing and the more job opportunities are being
created. Hence, it is vital that the decision makers should devise those strategies that make
appealing for the individuals to invest in their own ventures. In addition to this, this also help
the country tries in time of recession as they are operating on small scale the impact of
economic conditions is less (Tsai et al., 2016, p.215).
According to Cunningham and Link (2015) who analyzed the role of the institution in
channeling the entrepreneurial behaviour that is how the social structure help to channel the
entrepreneurship in different activities. These activities can both be beneficial and not
beneficial. According to him the supply of the entrepreneurs in the market is constant and
all the institution should do is to provide them with resources. If this institution encourages
the behavior of the entrepreneurs it will bring prosperity in the country. Hankerson provided
evidence that those countries that have better institutions results in high level and rates of
growth in entrepreneurship as compare to those who have poor growth.
Tavassoli (2017) has presented various models that have been implementing all around the
world. Some of these models involve the direct involvement of the government such as the
interventionism in Namibia and through indirect method like developing a trade facility in
Kenya. At times government focuses on investing in the infrastructure where other diverts
their attention on creating more credit facilities. One can learn from the example of China
who followed an open-door policy to promote entrepreneurship in the country. This policy
that the entrepreneurship model should transfer to the new environment until it has met all
the requirements which include the values, trade agreements and infrastructure.
All in all, it can be said that the institutional environment has an impact on the working of
entrepreneurs. There are various components of institutional environment which have been
explained above. Thus, it is vital that if government formulates policies which are in favor
of entrepreneurship then they can have stability and long-term growth. Different authors are
emphasizing on the need of entrepreneurship. This helps to raise the employment level.
Moreover, a country where there is rise is entrepreneurship has more innovation and
creativity. Likewise, some researchers are of the view that both of them need to work
together so that everyone in the economy is benefitted. On the other hand, it is the duty of
entrepreneur to comply by rules and regulations. If they do not comply with the rules and
regulation, they are likely to be penalized. In addition to this, these rules should be formed
by keeping the situation in mind. If excessive rules are placed then it may deter investments.
Hence, both need to work together so that profits are raised. It has been seen that the role of
institution can play a great role in both empowering the entrepreneurship and also limiting
their success in the future. Therefore, it is advisable the government policy makers should
develop the strategies keeping in the mind the needs of entrepreneurship so that they can
startup their own ventures. In addition, the entrepreneurs should play their role by paying
the taxes and bring innovate ideas to boost the country economy and to create stability.
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