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Determinants of Entrepreneurship and status of entrepreneurship development in the UK

Contents
Chapter 1 Introduction...................................................................................................... 2
1.1 Background............................................................................................................ 2
1.2 Problem Statement................................................................................................... 2
1.3 Significance of the study............................................................................................ 2
1.4 Rationale for the study.............................................................................................. 3
1.5 Research Aim.......................................................................................................... 3
1.5.1 Research Objectives............................................................................................ 3
1.5.2 Research questions.............................................................................................. 3
1.6 Originality of the study.............................................................................................. 3
1.7 Justification for the research..............................................................................3
Chapter 2 Literature Review............................................................................................... 4
2.1 Introduction............................................................................................................ 4
2.2 Determinants of entrepreneurship (OECDs interpretation)..................................................5
2.2.1 Regulatory framework......................................................................................... 5
2.2.2 Market conditions............................................................................................... 6
2.2.3 Access to finance................................................................................................ 6
2.2.4 Knowledge creation and diffusion...........................................................................6
2.2.5 Entrepreneurial capabilities...................................................................................6
2.2.6 Entrepreneurship culture....................................................................................... 6
2.3 Entrepreneurship by opportunity and entrepreneurship by necessity.......................................7
2.4. Total Entrepreneurial Activity (TEA) and GDP growth......................................................7
2.5 Global competitiveness Report and Index of Economic Freedom..........................................7
Chapter 3 Research Methodology......................................................................................... 8
3.1 Introduction............................................................................................................ 8
Chapter 4 Data Finding and discussion.................................................................................8
4.1 Introduction............................................................................................................ 8
Chapter 5 Conclusion........................................................................................................ 8
6. References.................................................................................................................. 9

Chapter 1 Introduction
A countrys economic development depends upon the entrepreneurial endeavours on the part of
the individuals. Governments encourage entrepreneurship both in the interest of countrys
economic development and to ensure there is no unemployment. However, entrepreneurship is
not easy to come by. There are determinants of entrepreneurship which will form the core of this
study. It will be examined what impact the determinants have had on the development of
entrepreneurship in the UK.
1.1 Background
Entrepreneurship is the core activity of starting businesses according to ones capacity. Thus, an
individual can decide to start a business enterprise of any size in any sector such as trade,
manufacturing or services. Entrepreneurship is usually associated with small firm that an
individual is attempting to establish. The size is small because of an individuals capacity or
readiness to invest on an experimental basis as he assumes all associated risks. Entrepreneurial
candidates are not easily available owing to the risks involved. Because of the potential to incur
loss to start with and other adverse consequences, Schumpeter calls entrepreneurial activity as
creative destruction since enterprises are built upon several destructions for good. Hence, study
of entrepreneurship is a serious a proposition that only a very few selected individuals are born
or made for it regardless of the modern business schools teaching and preparing candidates to
become an entrepreneurs.
1.2 Problem Statement
There must be awareness of entrepreneurship as a vehicle of main economic development and
hence it has become a privileged topic in the theory of economics. Knight, Schumpeter, Kirzner,
Baumol, Marshall and other authors have extensively studied the entrepreneurship phenomenon.
Yet, integration of various theoretical contributions has not taken place. It is felt that
entrepreneurship studied from the determinants points of view will greatly contribute to the
understanding of the subject.
1.3 Significance of the study
Entrepreneurial developments directly contribute to the growth of small firms sector that
ultimately addresses employment opportunities for the individuals. Hence, there is great political

interest in the small firms sector development especially when large firms have failed to achieve
net increase in employment, an experience shared by all the western countries since 1970s.
1.4 Rationale for the study
As said above, the need of the hour is entrepreneurship which can create new organisations and
new jobs. From the macro point of view, a country needs a lot of entrepreneurial activity so that
the creative destruction is an ongoing activity and new jobs are created from time to time. With
this in view, it is worthwhile understanding the determinants of entrepreneurship.
1.5 Research Aim
Aim of this research is therefore the study on determinants of entrepreneurship and the status of
entrepreneurship development in the UK.
1.5.1 Research Objectives
To understand the determinants of entrepreneurship.
To understand the entrepreneurship development in the UK and the Governments role in
it.
To understand the importance and significance of entrepreneurship with reference
psychological traits.
1.5.2 Research questions
Is an entrepreneur born or made?
What are the inadequacies being experienced by the UK in the development of
entrepreneurship to the desired level?
1.6 Originality of the study
This research will be original in that it proposes to study the development of entrepreneurship in
the UK with reference to the determinants of entrepreneurship. The originality is twofold in that
there is no previous country specific study.

1.7 Justification for the research

Entrepreneurship is associated with individuals initiative or rather motivation to start a business
enterprise. Present day large organisations roots can be traced to an individual or group of
individuals who must have started their enterprises in a modest way. This entrepreneurship is an
ongoing process in an economy without which, there will be no growth in GDP, employment
generation and economic developments. Entrepreneurship is always associated with risk taking,

inventions and innovations. There is risk coverage for all ventures but not for entrepreneurship.
Hence, it requires courage and determination for an individual to become an entrepreneur putting
all his resources at risk which the Schumpeter has characterised as creative destruction.
Employment generation in a sustained manner is only in the hands of budding entrepreneurs as
the large organizations have failed to create additional employment. As the number of self-starter
entrepreneurs is inadequate, the policy makers encourage entrepreneurship from the individuals
and educational institutions have also sprung in a large scale for entrepreneurship training.
During the period from 1974 to 1994, institutions offering entrepreneurship training has grown
from 85 to 369. 4 % of American adults attempt to start businesses at a given time. In 1987 alone
over 1,000,000 new businesses were started in the U.S. Between the years 1989 to 1991, 2.6
million jobs have been generated by SMEs with 0-4 employees in the U.S. (Singer, 2014).
Hence, an entrepreneur is no longer born but also made. It is with this background, the
importance of entrepreneurship is being highlighted through this research attempt by examining
the determinants entrepreneurship. However much an individual is potent enough to become an
entrepreneur possessing the so called characteristics of an entrepreneur, unless the determinants
of entrepreneurship are available or exploited, the whole entrepreneurship will become an
exercise in futility. The situation obtaining in the U.S.A. must be replicated in the U.K. too
although the latter is the predecessor. With the change in the concept of entrepreneurship
development not only by natural instincts but also by design, the study proposed becomes all the
more necessary.

Chapter 2 Literature Review

2.1 Introduction
The high levels of unemployment which the large scale firms are unable to solve have the
potential to be solved by the growth of small and new firms as creator of new jobs. This has
resulted in a rising academic interest in entrepreneurship as a source of creation of new
independent firms and ultimately jobs. Some authors use entrepreneurship and new firm
formation as synonyms and the latter term is a better way to understand what the former is all
about. Thus, an entrepreneur is one who founds his firm as posited by Davidsson (2005). Garner
called entrepreneurship is the creation of new organizations. In the earlier researches, study of

entrepreneurship was focused on psychological characteristics of business founders followed by

an endless list of entrepreneurial traits. But these traits alone have not been helpful to explain
what makes people to start new firms (Davidsson, 2005); (Proquest, 2008); (Shepherd, 2014).
There is also another view that rather than psychological traits, it is the personal background
characteristics that are the influencing factors behind ones own founding of a firm (Singer,
2014); (Yusof, Sandhu, & KishoreJain, 2008).Before going into these aspects, it is worth
examining what are known as determinants of entrepreneurship.
2.2 Determinants of entrepreneurship (OECDs interpretation)
Psychological and traits aspects apart, the OECD has listed down the following as the broad
categories of determinants of entrepreneurship in countries in a matter of fact manner. These
broad categories will be further analyzed.
1) Regulatory frame work,
2) Market conditions,
3) Access to finance,
4) Creation and diffusion of knowledge,
5) Entrepreneurial capabilities,
6) Entrepreneurship culture.
2.2.1 Regulatory framework
Burden of government regulation plays an important role in the entrepreneurship motivation.
Similarly, cost of starting an enterprise, minimum capital requirements, the duration involved in
starting an enterprise, number of procedures involved in starting a business enterprise, procedure
and time involved in building a warehouse, property registration, time spent filing and payment
of income tax, VAT and social contributions are the factors that act as determinants. Besides,
bankruptcy regulations that determine cost of closing a business, actual time taken to do so,
bankruptcy recovery rate, potential for fresh start are also involved as determining factors. There
are product and labour market regulations involving the hassles in terminating employments of
workers, recruitment of workers, hiring foreign workers, incentive compensation, rigidity of
working hours play as determinants. In respect of court and legal framework, cost of enforcing
contracts , number of procedures involved in the enforcement, time involved in enforcement are
the determinants. Lastly, social and health security aspects involve the determinants of public
expenditure on unemployment support, public healthcare coverage, and taxation on income,

wealth and bequest are also the determinants of entrepreneurship. Furthermore, intellectual
property rights and property rights law are also to be considered before weighing the options of
starting a business (OECD(1), 2011).
2.2.2 Market conditions
Market conditions can be affected by state interventions with antitrust laws, competition law,
export burdens, import burdens and the degree of public involvements in terms of government
enterprises and investment, licensing restrictions, banks ownership structure, price controls, and
buyer sophistication (OECD(2), 2011).
2.2.3 Access to finance
Country credit rating, domestic credit to private sector, access to loans, interest rate spread, legal
rights index determine the access to debt financing. Apart from debt, venture capital and stock
markets are also determinants (OECD(3), 2011).
2.2.4 Knowledge creation and diffusion
R & D activity that involves business expenditure on R & D (BERD), Government expenditure
on R & D (GERD), Higher Education Expenditure on R & D (HERD) and International
cooperation on patent rights, private and public funding of R & D activity and transfer of noncommercial knowledge, cooperation among firms for innovation, e-Commerce, ICT expenditure
have also been identified as a set of determinants (OECD(4), 2011).
2.2.5 Entrepreneurial capabilities
Capabilities are developed by tertiary education, quality of management schools, and internship
during school regarding starting a business, immigration of labour, self-employment by place of
birth, and stocks of foreign labour are the determinants in regard capabilities (OECD(5), 2011).
2.2.6 Entrepreneurship culture
Intention to become self-employed, entrepreneurial intention, entrepreneurial motivation,
entrepreneurship among managers, entrepreneurs as job generators, that exploit others work,
basis for wealth creation, entrepreneurs that only are concerned about their own income, fear of
failure are some of the features of entrepreneurial culture and serve as another set of
determinants (OECD(6), 2011).
The determinants in a nutshell as above may appear to be a ready-reckoner for the
entrepreneurial development at a given place in a given country or any region. To arrive at these

requires voluminous study of theory and data that can be applied to the country or place selected
for research. While the entrepreneurship capabilities and culture will involve theoretical aspects
and surveys, the other determinants may involve collection of facts and figures from secondary
data and surveys.
2.3 Entrepreneurship by opportunity and entrepreneurship by necessity
Different types of entrepreneurship have different impacts on the economic growth in different
stages of economic development. As what are relevant for a developed economy may not be
applicable for developing economies (Bosma, 2012). Reynolds et al (2003) posit that in the
developed countries factors such as historical rates of growth, education and innovation may
have greater influence whereas in the developing countries informal economy and institutions
may be influencing factors. The entrepreneurship by necessity arises from the motivation of
having own business as the founder is benefited by a bigger utility rather than a place of better
work choice. The entrepreneurship by opportunity arises from an innovative idea (Valdez,
Doktor, Singer, & Dana, 2011), (Brs & Soukiazis, 2015).
2.4. Total Entrepreneurial Activity (TEA) and GDP growth.
Economic development of a country will be better explained by the entrepreneurial activity
therein by understanding the relationship between per capita income and entrepreneurship
(Carree, Stel, Thurik, & Wennekers, 2007), (Wennekers, Stel, Thurik, & Reynolds, 2008) It has
been established by Stel et al (2005) that relationship between the rate of ETA and rate of
economic growth is negative in developing countries while it is highly positive in developed
countries. The negative relationship TEA rate and GDP per capita would show that there is
entrepreneurship by necessity and the positive relationship on the other hand explains the
prevalence of entrepreneurship by opportunity. North (2005) argues that the rate of development
of institutional activity decides the rate of development of entrepreneurial activities. The
institutions are divisible by a set of formal rules and informal rules. The former consist of
political, legal and economic rules besides contractual formalities. The latter consist of private
organisations that own ideas with certain beliefs, attitudes and personal values (North, 2005).
2.5 Global competitiveness Report and Index of Economic Freedom
The informal rules can be seen as various indicators of competitiveness in the Global
Competitiveness Report of the World Economic Forum and in the information on economic
freedom by the Index of Economic Freedom of the Heritage Foundation. As for the formal rules,

more information can be had from the World Bank Publication Doing Business that sets outs
formalities legal and technical, procedures and rules for business creation (Brs & Soukiazis,
2015).

Chapter 3 Research Methodology

3.1 Introduction
It is proposed to use secondary resources as well as primary study for the purpose. Hence this
will be a hybrid study combining qualitative and quantitative research. Qualitative, because it
will involve literature review of secondary sources. Quantitative, because it will involve survey
being made from the randomly and purposely selected respondents on what makes an
entrepreneurship. A separate chapter of not less than 5000 words will be devoted on the research
methodology to justify the research framework selected and to explain various aspects of
research methodology such as sampling of the respondents, reliability of the study, internal and
external validity of the study in the forthcoming full-fledged research.

Chapter 4 Data Finding and discussion

4.1 Introduction
The literature review above is mainly devoted to the determinants of entrepreneurship which will
be dealt with exhaustively and applied to the status quo of the entrepreneurship development in
the UK. For this purpose, a survey will be undertaken with a pre-prepared questionnaire.
Preparation of the questionnaire at this stage is premature as literature review is largely
incomplete.

Chapter 5 Conclusion
The determinants namely Regulatory framework, Market conditions ,Access to finance
,Creation and diffusion of knowledge, Entrepreneurial capabilities, and Entrepreneurship culture
which are however not exhaustive will be the blue print to achieve the aims ad objectives of the
research to be undertaken. The determinants will be exhaustively dealt with in the main study
with reference to the situation obtaining in the UK.

6. References
Brs, G., & Soukiazis, E. 2015. The determinants of entrepreneurship at the country level: a
panel data approach.
Carree, M., Stel, A., Thurik, R., & Wennekers, S. 2007. The relationship between economic
development and business ownership revisited. Entrepreneurship and Regional Development ,
19 (3), 281.
Davidsson, P. 2005. Researching Entrepreneurship. Springer Science & Business Media.
North, D. 2005. Understanding the Process of Economic Change. NJ: Princeton University
Press.
OECD(1). 2011. List of indicators of entrpreneurial determinants ; Regulatory framework.
OECD.
OECD(2). 2011. List of indicators of entrepreneurial determinants : Market Conditions. OECD.
OECD(3). 2011. List of indicators of entrepreneurial determinants: Access to finance . OECD .
OECD(4). 2011. List of indicators of entrepreneurial determinants: Creation and Diffusion of
knowledge . OECD.
OECD(5). 2011. List of indicators of entrepreneurial determinants : Entrepreneurial capabilities
. OECD.
OECD(6). 2011. List of indicators of entrepreneurial determinants : Entrepreneurship culture .
OECD .
Proquest. 2008. Refining the Definition of Entrepreneurship.
Shepherd, D. A. 2014. A Psychological Approach to Entrepreneurship (Vol. 14). Glos, UK:
Edward Elgar Publishing.

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Singer, V. 2014. Entrepreneurial Training for the Unemployed. New York: Routledge.
Stel, A., Thurik, R., & Carree, M. 2005. The effect of entrepreneurial activity on national
economic growth. Small Business Economics , 24 (3), 311-321.
Valdez, M., Doktor, R., Singer, A., & Dana, L. 2011. Impact of tolerance for uncertainty upon
opportunity and necessity entrepreneurship. Human Systems Management , 30 (3), 145-153.
Wennekers, S., Stel, A., Thurik, R., & Reynolds, P. 2008. Nascent entrepreneurship and the level
of economic development. Small Business Economics , 30 (3), 325-325.
Yusof, M., Sandhu, D. M., & KishoreJain, K. 2008. Entrepreneurial Inclination Of University
Students: A Case Study Of Students At Tun Abdul Razak University (Unitar). Unitar E-Journal
Vol.4, No. 1 , 4 (1), 1-14.