This chapter offers a review of the most relevant literature and empirical studies of the variables to be examined in order to provide a theoretical basis of the study. It provides definitions of the key variables as well the relationships among them. The hypotheses for this research are also presented in this chapter.
Entrepreneurship Definition of Entrepreneurship
The concept of entrepreneurship has existed for several centuries, but according to the existing literature defining it is challenging, since there exist different definitions for this term.
Authors adopt different definitions, depending on the focus and characteristics of the sector of the economy of their research (Kalyani & Kumar, 2011). The term has been widely but still no concrete definition has been established. The word entrepreneurship comes from the French verb entrprendre, meaning to “undertake” a specific project or activity (Dzisi, 2008).
In 1775 Richard Cantillon was the pioneer of the term entrepreneur; he defined it as
“someone who exercises business judgment in the face of uncertainty” (Bull & Willard, 1993, p. 185). According to Drucker (1985), entrepreneurship is exploiting opportunities to create changes, using innovation as a tool to achieve this.
As an area of study it has been defined by different disciplines including psychology and economics (Bennet & Dann, 2000). From a psychological point of view, entrepreneurship is defined as the set of attitudes and values that contribute to entrepreneurial success, rather than it being a rational process, focusing more on personality traits (Bennet &
Dann, 2000).
From an economic point of view, according to Campbell (1992) entrepreneurship occurs when an individual weights if the profits from becoming an entrepreneur are better than the cost risk and profit of working for someone else.
There are two main economic schools of thought of entrepreneurship, Schumpeter and Kirzner. According to Schumpeter (1934) an entrepreneur is someone who introduces something new (products, methods, new industry) to the economy. Basically he’s saying that an entrepreneur is an innovator that translates new ideas or products into the market and creates new opportunities. For him, the entrepreneur is the one who with his actions helps achieve economic development and growth.
On the other hand, Kirzner (1979) in his theory states that entrepreneurship is that opportunity an individual seizes to gain profits. It is the entrepreneurial process that sets the direction of the market (Dzisi, 2008).
For McClelland (1961), on the other hand it means having a need for achievement and using innovation and creativity to accomplish that need. For Kao (1993) entrepreneurship is
“a process of making changes; doing something different, thus creating wealth for the individual and adding value to society” (pp. 69-70).
Shane (2003) states that entrepreneurship can be defined in two ways: new firm formation and self-employment. By creation of a new firm he means forming a new business venture that previously not existed, and by self-employment he refers to working for personal profit and not for someone else. He defines it as an “opportunity in which a person can create a new means-ends framework for recombining resources that the entrepreneur believes will yield a profit” (p. 18). Table 2.1 shows a review of all the different definitions given to entrepreneurship across time.
Table 2.1.
Review of the Different Meanings of the Term Entrepreneurship
Author Year Definition
Richard Cantillon 1952 Someone who exercises business judgment in the face of uncertainty.
Joseph Schumpeter 1934 An innovator that translates new ideas or products into the market and creates new opportunities.
David McClelland 1961 Having a need for achievement and using innovation and creativity to accomplish that need.
Israel Kizner 1979 Opportunity an individual seizes to gain profits.
Peter Drucker 1985 Exploiting opportunities to create changes, using innovation as a tool to achieve this.
Raymond Kao 1993 A process of making changes; doing something different, thus creating wealth for the individual and adding value to society.
Scott Shane 2003 Opportunity in which a person can create a new means-ends framework for recombining
resources that the entrepreneur believes will yield a profit.
Note. This table was compiled by the author for the purpose of this study.
Regardless of the many definitions of entrepreneurship there exist some important factors among the different authors. All of them agree that it is a creative or innovative act
that involves an identification or seizing of an opportunity. Others, like Cantillon acknowledged the uncertainty associated with the entrepreneurial activity. For Schumpeter (1934) what is important is the finding of new combinations into the market, on the other hand Kirzner (1979) and Kao (1993) focuses on seizing an opportunity and taking risks for gaining profit for the individual and for society. McClelland (1961) focuses more on satisfying a need by using innovation and creativity.
For the purpose of this study the definition of entrepreneurship was defined as the process in which an individual uses innovation and creativity to translate new ideas or products to the market by either seizing an opportunity or for needs of achievement, thus creating wealth for the individual.
Characteristics of Entrepreneurs
As the definition for entrepreneurship has been established, it is also important to define who the entrepreneur is and identify the major characteristics they possess. An entrepreneur is someone who has either seized an opportunity or has an internal need and decides to create their own business for generating profit and achieving personal satisfaction.
According to the different definitions of entrepreneurship, several characteristics have been identified as the major aspects of the entrepreneurial personality.
One of the major characteristics is being an innovator; it is a common factor among the different definitions of entrepreneurship. Many authors emphasize on the importance of innovation for entrepreneurial activity (Drucker, 1985; McClelland, 1961; Schumpeter, 1934).
Carland, Hoy, Boulton, & Carland (1984) said that innovation is what distinguishes an entrepreneur from a manager.
Risk taking is another characteristic of an entrepreneur. Cantillon (1952) stated that an entrepreneur is someone who is willing to take risks in order to start their own business. In his definition he uses the term uncertainty, referring to the fact that entrepreneurs don’t know for a fact if their business will be successful or not. Bennett and Dann (2000) believe that the nature of becoming an entrepreneur is highly risk taking and an entrepreneur must have the belief that they can achieve it.
A third common characteristic is bearing a strong need for achievement. As McClelland (1961) said, having a high need for achievement can influence a person for starting a business. But this need for achievement alone cannot induce to entrepreneurial activity, innovation and creativity must be involved.
Being able to recognize and seize opportunities is another important characteristic of entrepreneurs. Many researchers believe that for the creation of new ideas, opportunities must be recognized. For Schumpeter (1934) this means to translate new ideas into products, Drucker (1985) believes in exploiting opportunities to create change, whilst Kizner (1979) and Shane (2003) view this in the sense of gaining personal profit.
Female Entrepreneurs
When the term entrepreneurship was starting to flourish, this referred mainly to male owned businesses. But over the past decade, even though male entrepreneurs are still the majority, the number of female entrepreneurs has increased. Women have always participated in business, but not as the owners of their own ventures. Many years ago, women didn’t have the opportunity of education or social acceptance to enter into business, but nowadays the number of women in business has increased. Research on female entrepreneurs has received less attention than male entrepreneurship and most studies have been done on gender differences (Dzisi, 2008).
A female entrepreneur is someone who seizes an opportunity or has a necessity to create a new venture through innovation and risk taking. They use creativity and practical and innovative approaches through the recognition of an opportunity to develop a new venture (Dzisi, 2008). During the process of starting and operating their business they face problems due to a lack of education or business skills, and support systems (Jalbert, 2000). Some socioeconomic factors that make women start their own businesses are age, work status, education, income, social ties and perceptions (Allen, Langowitz, & Minniti, 2007). Female entrepreneurs tend to act differently than men, so they contribute to society with different innovative solutions and perspectives.
Female entrepreneurship is growing in both developed and developing countries, and in the latter they represent an important source of economic development (Dzisi, 2008).
Jalbert (2000) found that in countries where these female entrepreneurs are successful, the growth of the economy has been steady, contrary to those countries where female entrepreneurship has been restricted.
Characteristics of Female Entrepreneurs
Female entrepreneurs possess the main characteristics of an entrepreneur, innovator, risk taking propensity, having need for achievement and being able to seize opportunities.
But they also possess other characteristics like highly motivated and self-directed, married, with a family, and interpersonal and communication skills, but one of the most common qualities is being able to focus (Jalbert, 2000).
According to Allen et al. (2007) men and female entrepreneurs start up their businesses at a similar age (25-34 years). Other characteristics these female have are that they are more confident and they have less fear of failure than those women who are not involved in entrepreneurial activity.
When describing an entrepreneur, there exist different approaches; one of them is based on the psychological perspective which states that they often show a characteristic profile (Dzisi, 2008). Several studies have been done on female entrepreneurs to develop a profile and see how these characteristics affect their success (Bennett & Dann, 2000). Some factors studied are age at business, education and commencement, type of business and demographics.
Female Entrepreneurs in Latin America
During the past two decades, female participation in Latin America has increased, achieving in 2007 a 53% (Vakis, 2011). Up to 2006, the gender gaps are still big; men have 70% more opportunities to participate in the labor force. But even though there are still more men working, the income gaps have drastically become smaller. El Salvador, Guatemala and Honduras have had the higher performance, whereas Costa Rica did not have such a high increase. In Central America one third of the participation of the total income of the countries is from females.
These women also play an important role in Latin American countries economies. In her article, Vakis (2011) mentions that if there is an increase of female participation in the workforce, there will be a significant increase in the region’s general revenue and a reduction in poverty. Almost 80% of the women in Central America are found in four major sectors:
trade, health and education, domestic services and low quality manufacturing (Vakis, 2011).
In terms of education, the percentage of women who have finished school and colleges has had a significant increase in Latin America, which has helped make the wage gap smaller with respect to men (Vakis, 2011). Self-employment and employment in micro enterprise are the two main sources of jobs for women in most of Central American countries.
According to Bruhn (2009), most of the female entrepreneurs in Latin America are found in micro and small enterprises and in the trade and manufacturing sector. Their firms tend to be younger, have lower profits and are less productive than those owned by men.
Female Entrepreneurs in Honduras
Across time, women have been depicted as a source of reproduction within households, and not as a productive source in the economy. In Honduras, over the past two decades female participation in the workforce has increased, more women are becoming self-employed or starting their own businesses. In Honduras there are almost 50% of self employed women, compared to almost 20% for men. During the past decades, women are getting more education and in Honduras, in 2007, they have achieved levels of achievement of education of 20% higher than men. But despite of this, women are still getting less participation in the workforce than men (Vakis, 2011).
In Honduras, there is no official statistic or census of how many female entrepreneurs are in the country. According to the webpage of the Instituto Nacional de Estadística in Honduras, the female economic participation rate is 34.9% and there is a 46.7% rate of female workforce with employment problems (http://www.ine.gob.hn).
The only statistics available about female entrepreneurs are the ones provided by two institutions that work with this sector, The Chamber of Commerce and Vital Voices. The Chamber of Commerce has a specific program for female entrepreneurs; they have 425 affiliates up to the date. Through this program, they give trainings to the entrepreneurs as well as guiding them through better practices.
The other program, Vital Voices, is an NGO that “identifies trains and empowers emerging women leaders and social entrepreneurs around the globe, enabling them to create a better world for us all” (http://www.vitalvoices.org). This program started in February 2011
and the way they help develop these entrepreneurs is by using mentors, who are different woman leaders who work pro bono for this program.
Micro and Small Enterprises
For many years, micro and small enterprises (MSEs) have been an important source of work for many individuals, and it has grown in number and in importance (Fenwick, Howe, Marshall, & Landau, 2008).There exist a variety of sectors in micro and small enterprises, such as service, industry, handcrafts and food (Dzisi, 2008). However, the number of employees or the value of assets are usually the criteria used to define whether a business is micro or small depending on the country.
Various studies show that most of the entrepreneurs businesses are found in micro and small enterprises and are the main drivers of economic growth. In most developing countries, starting small and medium sized enterprises is now used as a way to achieve sustainable socio-economic development and for reduction of poverty (Jalbert, 2000). Micro and small enterprises (MSEs) drive economic growth in developed and developing countries and this sector is where most entrepreneurs are found (Dzisi, 2008).
In Honduras, the productive structure, as in most of Latin-American countries, is composed of many micro and small enterprises; they are one of the biggest contributions to the economy of the country (http://www.sic.gob.hn, 2008). These have suffered difficulties in their growth and performance mainly due to the economic, social and educational situation of the country. This is why in October 2000 the Comision Nacional de Micro, Pequena y Mediana Empresa (CONAMIPYME) was created in order to give assistance to this sector. Its main objective is to:
“support the development and strengthening of businesses to increase the productivity of these economic units, leading to increased competitiveness of their products or
services, in order to stabilize and create jobs, increase the income levels and quality of life of the people linked to the micro, small and medium enterprises, and taking into account the gender” (http://www.sic.gob.hn, 2012).
Female Entrepreneurs in Micro and Small enterprises in Honduras In Honduras, as in whole Latin America, most of the female entrepreneurs are found in the micro and small enterprise, being trade and manufacturing the major sector (Bruhn, 2009). Here a micro enterprise refers to a company that employs from one to ten permanent employees and has monthly average sales of about $3,125.00 (Kushnir, 2010). Micro enterprises have low profitability, are mostly manual labor and use simple technologies. They usually operate informally and lack accounting and administrative records (http://www.sic.gob.hn, 2008). Whereas, a small enterprise is a company that is composed of eleven to twenty five permanent employees and with monthly average sales of around
$9,375.00 (Kushnir, 2010). They are more profitable and use more technology, have some accounting records and administrative controls (http://www.sic.gob.hn, 2008).
As in most developing countries, women entrepreneurs in MSEs are an important source for their economy due to the creations of new jobs. They play an important role in developing the economy of a country, alleviating poverty and creating employment.
Women Associations in Honduras
The two women organizations that are going to be used in this study are the Chamber of Commerce and Vital Voices. Both of them offer different types of assistance to the female entrepreneurs. The Chamber of Commerce offers the following:
• Legal assistance to start their businesses
• Business meetings
• Assistance on foreign trade issues
• Support in trade agreements and international fairs
• Barcode discount
• Contact with strategic partners on issues of trademarks, licenses or permits on food issues.
• Business conferences
• Mentorship
• Trainings, conferences and forums
• Sectorial nuclei: work teams composed of female entrepreneurs of the same business sector to achieve higher levels of competitiveness and productivity.
• Promotion and management of business fairs and business conferences.
The other women association, Vital Voices offers the following assistance to the female entrepreneurs:
• Mentorship programs
• Trainings
Performance
Performance is using knowledge to do something successfully (Teoh & Chong, 2007).
According to existing literature, it can be measured in different ways. According to Shane (2003), entrepreneurs’ performance can be measured according to different factors: survival, growth, profitability, and experiencing an initial public offer. For Haber and Reichel (2005), there are two ways of measuring performance; one is by using subjective measures such as perceived growth in market share, sales growth and profitability relative to competitors, and the other one by using objective measures including indicators such as sales, revenues, earnings and growth in number of employees.
Assessing performance through objective financial measures can be simpler, but since data is sometimes confidential it may be difficult to obtain it from the respondents, and it will also be difficult to check the accuracy of the data provided (Haber & Reichel, 2005).
Subjective measures are more of the respondents’ feelings or judgments, although these may compromise the validity of the results they appear to be content valid and reliable.
According to Haber and Reichel (2005), assessing performance based only on financial measures is not enough because it does not take into consideration other important aspects of small ventures that are related with management such as number of employees and market share.
Most of the studies on individual factors affecting performance are from developed countries like United States, Canada and the United Kingdom. According to Lerner et al.
(1997), the most common performance measures used in previous studies in developing countries are based on size of the business, profitability, revenues and income. Revenues and income can be measured by using the financial data provided by the respondents.
This research used both objective and subjective measures of performance, focusing on growth in number of employees, profitability of the ventures, revenue growth and the capacity to respond to market demand. Growth in number of employees can be measured simply by asking the number of employees and years in business, this was the approach taken to measure performance. Revenue growth were measured by knowing the revenues on the year of establishment and on the current year. On the other hand, due to the financial data required, profitability was measured using a subjective approach, comparing their profitability with their competitors. The capacity to respond to market demand was also measured subjectively to know the perceptions female entrepreneur have about their business.
Growth in Number of Employees
A performance measure used in this research was growth, which Shane (2003) defines as an increase in the new ventures employment or sales. Since most ventures start small, it is a good performance measure to see the improvement over time. Growth is defined differently by many researchers; for Majumdar (2008) the major parameters are employment, profit,
A performance measure used in this research was growth, which Shane (2003) defines as an increase in the new ventures employment or sales. Since most ventures start small, it is a good performance measure to see the improvement over time. Growth is defined differently by many researchers; for Majumdar (2008) the major parameters are employment, profit,