Owner-manager characteristics

a. The Entrepreneur

Shane and Venkataraman (2000) emphasize that entrepreneurship emerges from two processes: i) the discovery of entrepreneurial opportunities, and ii) the exploitation of such opportunities. Shane (2000) poses the question: why some people discover opportunities and others do not?

He argues that people have different stocks of information and everyone’s way of acquiring information depends on how they live. More precisely, it plays a vital role in transforming incoming information into potential sources of opportunities.

Therefore, one with higher human capital quality should be able to identify an opportunity in a new economic activity and use his capital to exploit this activity successfully. For instance, prior knowledge influences social networks, which in turn influences entrepreneurial alertness and finally lead to the core process of opportunity recognition.

I define an entrepreneur (following Zhao, Seibert and Lumpkin, 2010) as the founder, owner and manager of a small firm. He/she is a capitalist who provides the main resources and capital for the new-venture, and a manager. As a manager, he/she supervises the organization’s activities, builds up the firm’s reputation and a system of cooperation within the organization.

There is no market for “opportunities”, therefore, an entrepreneur must

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previously develop his or her capabilities to obtain resources, discover and exploit opportunities (education, experience...). ( Lussier (1995) ) emphasizes on the general background of the entrepreneur in terms of knowledge that could lead to higher productivity and potential access to knowledge.

b. Human Capital

Many researches indicate that the work history and experience of the entrepreneur are crucial for entrepreneurship success (Bruno and Tyebjee, 1985;

Hisrich and Peters, 2002; Roberts, 1991; Sandberg and Hofer, 1987; Starr and MacMillan, 1990). Human capital is also the result of experiences and practical learning that takes place on the job, as well as non-formal education, such as specific training courses that are a part of traditional formal educational structures. Industry-specific knowledge and experience is also central in measuring performance. This knowledge is mostly tacit and costly to build up if the entrepreneur has no previous experience from the industry where the business is established. This view supports the strategic choice perspective in evaluating firm performance.

The firm founder’s performance is determined not only by his talent, the conditions of the environment but also by his human (experience and education), social and management capabilities. Bates (1990) and Lussier and Pfeifer (2001) have found education to be a significant predictor of business success. Roper (1999) found a positive effect of owner-manager education on both growth and profitability, while the age of the owner-manager had a positive effect on profitability (Maes, Sels and Roodhooft, 2003). Education and prior experience in business have been seen as critical success factors for small firms (Yusuf, 1995); Wijewardena and Cooray, 1996). The most recurring directly observable characteristics of the owner-manager in business

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performance literature are age, education, management, technical ability and management experience (Havaleschka, 1999; Lussier, 1995).

Start-up resources involve the core resources of the entrepreneur (owner-manager) and additional resources provided by third parties –capital-; Becker (1964) argues that broad labor market experience, as well as specific vocationally oriented experience is theoretically expected to increase human capital.

Oh et al. (2004) have studied the possibilities of social capital in the form of networks ties and the way its effects are influenced by human capital in the form of local language ability. This possibility is an important factor to consider in my study since the building of social network for foreign expatriates is mediated by the local language.

This would imply that expatriates that speak several languages or at least the local language will have larger social capital and, as a result, they will be able to identify more opportunities and mobilize more resources. Similarly, an expatriate that has better financial skills or managerial skills, can demonstrate his skills, attract and enter into a relationship with potential shareholders, or people who own bigger and more prestigious establishments from whom the entrepreneur would draw knowledge and/or resources. Researchers acknowledge that entrepreneurial activity is embedded in network relationships that direct resource flows to entrepreneurs who are better connected (Aldrich and Zimmer, 1986; Hoang and Antoncic, 2003).

In the case of Taiwan, psychic distance is the main obstacle to the firm’s adaptation to the local environment. When interacting with people from different

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cultures, it is natural to interpret their actions through the observer’s own culture’s standards, phenomenon which also occurs at the firm’s level due to the central influence of the entrepreneur. However, doing so can cause misunderstandings. When conducting business in foreign environment, misunderstandings could be avoided by recognizing cultural differences, such as communication styles, religious beliefs, power structures and attitudes toward time and work.

c. Social capital

Moreover, significant resources must be in place to produce success (Deeds and Hill, 1996; Teece, 1986). The important role played by social networks in the process of new venture creation was first studied by Birley (1985). Social capital theory refers to the ability of actors to extract resources from their social structures, networks, and memberships (Lin, Ensel and Vaughn, 1981; Portes, 1998). By personal network, I mean the family members, friends, and business contacts with whom an entrepreneur is directly connected and the indirect relations between them (Dubini and Aldrich, 1991). Maurer and Ebers (2006) also argue that social relationships or connections or ties are critical to the development of small firms. Since start-ups are initially often small in size and tend to fail at a very high rate as compared to established companies, building relationships with these entities are often determinants on their likelihood to survive and thrive.

Network connections enable entrepreneurs to identify new business opportunities, obtain resources below the market price, and secure legitimacy from external stakeholders.

As I stated before, the small firm is focused around its entrepreneur: they are

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more involved in daily firm operations, have greater discretion in decision-making, and more frequently perform key roles (Hite and Hesterly, 2001). Therefore, the individual-level social capital embedded in entrepreneurs’ personal networks may thus importantly influence small firm performance.

Social networks are theorized to supplement the effects of education, experience, and financial capital. Social capital is multidimensional and occurs at both the individual and the organizational levels. In this study, I focus on social capital in terms of social exchange to examine the effects of exchange ties on small firm’s performance. Social capital includes the actual and potential resources accessible through an actor’s network of relationships.

The nature of these exchanges may range from the provision of concrete resources, such as a loan provided by a relative to intangible resources such as information (which is crucial in a country like Taiwan where information is limited and detained by few members). Networks (whether personal and relation-based networks or strategic alliances) are also crucial in the acquiring of complementary resources and capabilities.

The strength of the “tie” or connections with individual increases the willingness and ability of an entrepreneur’s network contacts to provide needed resources. Uzzi (1997) shows that frequent and close interactions facilitates trusted resource exchanges and tacit knowledge transfer.

Social capital allows “asset parsimony”, which refers to the effort needed to acquire the minimum quantity of assets at the lowest possible cost. It is also a strategy

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often used in Taiwan to achieve a competitive advantage. Rather than paying the market price for resources such as labor, materials, and advice, social transactions through network ties can play an important role in acquiring resources at lower values.

Social capital can be a useful resource both by enhancing internal organizational trust through the bonding of actors, as well as by bridging external networks in order to provide resources.

The high-tech industry in Taiwan has numerous examples of successful SMEs that are using their networks to avoid high costs and grow. For instance, small and medium Taiwanese computer firms possess a very narrow knowledge base due to their small size and lack of resources. In order to gain the most important resource in this industry, “knowledge”, they are using their networks as external source of knowledge and cooperate with other bigger organizations and firms to create what is called “inter-organizational knowledge creation”.

Social capital and the nature of networks are multidimensional. In Taiwan’s environment, a certain structure of multiple, volatile and short-term links can create

“temporary spider-web” arrangements where limited financial and technology are exchanged for the duration of a particular project. This helps the firm to gather resources and knowledge at a minimum cost and in a flexible way (Ernst, 1998). I thus believe that a strong social capital greatly influence the performance of a foreign firm.