Differences in Entrepreneurial Opportunities: The Role of Tacitness and Codification in Opportunity Identification*

The role of opportunities in the entrepreneurial process remains relatively underdeveloped. To address this issue, we develop a definition of an entrepreneurial opportunity and draw upon a distinction from the domain of knowledge management to suggest a continuum of entrepreneurial opportunities ranging from codified to tacit. Though both traditional and contemporary research has examined how individual differences relate to the identification of opportunities, we focus instead on the importance of differences in the opportunities themselves. Specifically, we examine how relative differences in the degree of opportunity tacitness relate to the process of opportunity identification. We find that relatively more codified opportunities are more likely to be discovered through systematic search, whereas more tacit opportunities are more likely to be identified due to prior experience. These findings contribute to an increased understanding of the role of the opportunity in entrepreneurship research and have important implications for economic theories of entrepreneurship, entrepreneurial learning, entrepreneurial networks, and entrepreneurial education.     

Calling Baumol: What telephones can tell us about the allocation of entrepreneurial talent in the face of radical institutional changes

In his seminal contribution, Baumol (1990) proposes that the direction of entrepreneurial effort towards its productive (e.g., start-up activity) or unproductive (e.g., rent-seeking) use in a society depends on institutions or the “rules of the game”. We focus on an important micro-foundation of Baumol's theory namely that certain individuals change the direction of entrepreneurial efforts with institutional change. Our research contrasts with previous work on the role of institutions, which mostly focuses on the aggregate macro-level, while not observing individual behavior. We analyze who decides to start a venture in East Germany after the fall of the Berlin Wall and find that many individuals who demonstrated commitment to the anti-entrepreneurial communist regime in the GDR were active in launching new ventures soon after German re-unification. We argue that commitment to communism among post-communist entrepreneurs reflects rent-seeking. Once institutions change radically, entrepreneurial efforts are directed towards start-up activity. We rely on the German Socio-Economic Panel Study (SOEP) that includes information on whether East German respondents had a telephone before German re-unification, which was one of the most sought-after rewards for commitment to the regime. We find that telephone owners had a higher propensity of becoming successful firm founders. Telephone owners were also more likely to have an entrepreneurship-prone personality profile and value orientation. Our results confirm Baumol's theory and suggest that alertness to entrepreneurial arbitrage opportunities is guiding the redirection of entrepreneurial effort in the face of drastic institutional change.Executive summaryThere is a large body of literature on the effect of institutions on entrepreneurship. A good share of this literature is rooted in the seminal contribution by Baumol (1990) who argues that the shape of institutions determines whether people direct entrepreneurial effort to productive, unproductive or destructive entrepreneurial activities. Despite the fact that Baumol‘s main argument is at the individual micro-level, most of the literature focuses only on the macro-level implications of his theory. In contrast to most previous studies, we are not focusing on the aggregate level of entrepreneurship but explore the micro-foundations of Baumol's theory and analyze how (drastic) institutional change affects the entrepreneurial choice at the individual level.In our discussion of Baumol's work, we also introduce Kirzner's concept of individual alertness to arbitrage opportunities which he originally formulated for market economies. We extend Kirzner's insights on the role of alertness to other institutional contexts (e.g., socialism) and forms of arbitrage (e.g., engagement in socialist organizations) other than start-up activity, and highlight the role of institutional change in shaping processes of opportunity formation.It is important to understand how individuals allocate their entrepreneurial effort in times of major historical shocks and institutional changes for several reasons. First, since entrepreneurship is an important driver of economic growth and development, it is crucial to understand how institutional change affects entrepreneurial behavior at the individual level for designing policy measures targeted at increasing the entrepreneurial propensity of people. Second, the share of people with an entrepreneurial talent in a society is an enormous resource to cope with socio-economic change. Third, it is also important to understand the micro-foundations of Baumol's work as vast empirical evidence on the impact of institutions on entrepreneurial activities that is available at the macro-level relies on the validity of the micro-foundations.We find that people who demonstrated commitment to one of the most anti-entrepreneurial institutional regimes in history—communism—were more likely to start a firm after transition to a market economy. Our analysis is based on the case of East Germany that saw a sudden shift from an anti-entrepreneurial communist regime that did not reward start-up activities towards an entrepreneurship-facilitating market economy after the fall of the Berlin Wall. Those people who were actively committed to the regime as evidenced by material rewards obtained in the GDR were more likely to become (successful) self-employed after the fall of the Berlin Wall. We also observe that people with an entrepreneurship-prone personality profile and those who put a strong emphasis on entrepreneurial values were more likely to have obtained material rewards in communism that indicate a strong commitment to the system.We argue that applying and extending Baumol's and also Kirzner's ideas helps understanding this puzzling phenomenon. In essence, regime commitment can be seen as a form of rent-seeking activity, which is a classic example of unproductive entrepreneurial activity discussed by Baumol. Rent-seeking in the context of communism could be expressed, for example, in enthusiastic engagement in public organizations (e.g., party councils, youth organizations, state-owned enterprises) in exchange for specific material rewards. Their pronounced alertness to new arbitrage opportunities may have enabled these same individuals to switch to start-up activity once this option became available to them and if it was more profitable than rent-seeking.We contribute to the literature by supporting the idea that the institutional framework conditions determine the type of entrepreneurial activity to which entrepreneurially talented people devote their efforts. So far, this claim found support mainly in aggregated macro-level data. Another important insight from our analysis is that entrepreneurs are flexible and agile economic agents who are alert to arbitrage opportunities and able to promptly adapt themselves to even radical changes, such as the shock transition from a socialist command economy to a market economy. Alertness to opportunities in a market economy context could hardly be learned in an anti-entrepreneurial context. Hence, an immediate re-allocation of entrepreneurial efforts indicates that alertness to arbitrage opportunities emerging in a market economy does not necessarily require experience in a market economy context.Our assessment also suggests that institutional change is shaping subjective processes of opportunity formation. Hence, the debate on whether opportunities are ‘out there’ or they have to be created should take into consideration how institutions and institutional change set the boundaries for opportunities. In particular, identifying and pursuing new opportunities brought about by institutional change could represent a specific form of “entrepreneurship talent.”     

From grassroots to international markets: A qualitative study of marginalized entrepreneurs in India

Much of the growing literature on international entrepreneurship focuses on how positive circumstances, such as having prior international experience, business networks, or formal institutions lead to international entrepreneurial action and overlooks the role more challenging circumstances might play. In this study, we extend and refine challenge-based entrepreneurship theory to explore what influences international entrepreneurial action undertaken by marginalized entrepreneurs in an emerging economy. Despite widening economic and social disparities in emerging economies, little is known about entrepreneurs who have traditionally been “left behind.” Our findings suggest that these marginalized entrepreneurs have not only a set of liabilities but also advantages, including creative problem solving and perseverance, as well as local knowledge and networks. To spur the first-person international opportunity belief associated with international entrepreneurial action, an intermediary with resources and networks is needed to offset the liabilities. These intermediaries act as gatekeepers, helping some marginalized entrepreneurs but holding back others.     

Learning asymmetries and the discovery of entrepreneurial opportunities

Discovering entrepreneurial opportunities requires that individuals not only possess some form of prior knowledge, but that they also have the cognitive abilities that allow them to value and exploit that knowledge. This article builds upon and extends this line of inquiry by examining the relationship between opportunity identification and learning. Based upon an experimental task and other data collected from 380 technology professionals, the article defines a relationship between how individuals acquire and transform information and experience (i.e., learning) in order to identify opportunities. After analyzing the empirical data, the article develops the concept of learning asymmetries and explains how the manner in which people learn may affect their ability to identify entrepreneurial opportunities.     

THE RANGE OF TRADED OPTION PRICES

Suppose we are given a set of prices of European call options over a finite range of strike prices and exercise times, written on a financial asset with deterministic dividends which is traded in a frictionless market with no interest rate volatility. We ask: when is there an arbitrage opportunity? We give conditions for the prices to be consistent with an arbitrage-free model (in which case the model can be realized on a finite probability space). We also give conditions for there to exist an arbitrage opportunity which can be locked in at time zero. There is also a third boundary case in which prices are recognizably misspecified, but the ability to take advantage of an arbitrage opportunity depends upon knowledge of the null sets of the model.     

Academics’ start-up intentions and knowledge filters: an individual perspective of the knowledge spillover theory of entrepreneurship

Previous studies suggest that entrepreneurial activity tends to be greater in contexts where investment in new knowledge is relatively high (e.g., entrepreneurial universities). However, in this specific knowledge context, only a few academics recognize opportunities and act on them through entrepreneurial activities (e.g., spin-offs). A plausible explanation could be the existence of several filters that limit the total conversion of knowledge into economically useful knowledge. The vehicle to knowledge transfer is entrepreneurship. Therefore, the main actor is the academic entrepreneur, but no empirical study has highlighted the knowledge spillover theory of entrepreneurship at the individual level. The purpose of this paper is to explore the role of academics’ start-up intentions and knowledge filters on the knowledge transfer process within entrepreneurial university. Adopting the knowledge spillover theory of entrepreneurship and the planned behavior theory, a proposed model was tested with a sample of 207 academics enrolled in entrepreneurial universities in Spain using structural equation modeling. Our findings could provide insights for policy-makers to design policies that bring further benefits to society and educational organizations as well as significant contributions to the literature.     

Making it personal: Opportunity individuation and the shaping of opportunity beliefs

We develop a model that focuses on the individuation of opportunity beliefs. We adopt inferences from the ecology literature and integrate those with mental model theory to examine the ‘individuation’ of opportunity as the result of the interplay between industry conditions and person-specific factors. We test our predictions using conjoint analysis of 2880 opportunity decisions. We find that an entrepreneur's related knowledge, motivation to evaluate the opportunity, prior failure, and fear of failure shape perceptions of opportunity attractiveness as one individuates exogenous opportunity information. We articulate our findings as evidence that when combined with opportunity related data, an individual's cognitive resources play an important role as one forms opportunity beliefs about the personal attractiveness of pursing an opportunity.     

Optimal No‐Arbitrage Bounds on S&P 500 Index Options and the Volatility Smile

This article shows that the volatility smile is not necessarily inconsistent with the Black–Scholes analysis. Specifically, when transaction costs are present, the absence of arbitrage opportunities does not dictate that there exists a unique price for an option. Rather, there exists a range of prices within which the option's price may fall and still be consistent with the Black–Scholes arbitrage pricing argument. This article uses a linear program (LP) cast in a binomial framework to determine the smallest possible range of prices for Standard & Poor's 500 Index options that are consistent with no arbitrage in the presence of transaction costs. The LP method employs dynamic trading in the underlying and risk‐free assets as well as fixed positions in other options that trade on the same underlying security. One‐way transaction‐cost levels on the index, inclusive of the bid–ask spread, would have to be below six basis points for deviations from Black–Scholes pricing to present an arbitrage opportunity. Monte Carlo simulations are employed to assess the hedging error induced with a 12‐period binomial model to approximate a continuous‐time geometric Brownian motion. Once the risk caused by the hedging error is accounted for, transaction costs have to be well below three basis points for the arbitrage opportunity to be profitable two times out of five. This analysis indicates that market prices that deviate from those given by a constant‐volatility option model, such as the Black–Scholes model, can be consistent with the absence of arbitrage in the presence of transaction costs. © 2001 John Wiley & Sons, Inc. Jrl Fut Mark 21:1151–1179, 2001     

International Opportunity Recognition among Small and Medium‐Sized Family Firms*

Current research in the field of entrepreneurship emphasizes the importance of opportunity recognition as a key element in the entrepreneurial process. It has been recognized that network ties, activeness and alertness, and prior knowledge are related to how entrepreneurs recognize new opportunities. However, it is unclear how important these factors are when a firm explores opportunities for entry into a foreign market. In this exploratory case study, covering the international opportunity recognition of eight family‐owned small and medium‐sized enterprises (SMEs), we found that the firms in question mainly recognized international opportunities by establishing new formal ties rather than using existing informal or family ties. The findings also indicated that due to the small size and the flexibility of the management team in family SMEs, these firms were able to react quickly to new international opportunities. However, there was no direct relationship between the prior knowledge of the firms and their international opportunity recognition. In addition, we found that trade exhibitions formed the primary context for the international opportunity recognition of the SMEs in this study. These findings motivate a set of five propositions that may lead to further studies on this topic.     

Hong Kong's industrial success: an entrepreneurial perspective

This article examines the role of entrepreneurship in the industrialization of Hong Kong. Kirzner's concept of entrepreneurship is applied to explain the industrial dynamics of the economy. Using the electronics industry as illustration, this article argues that Hong Kong's manufacturing industry has been driven principally by adaptive entrepreneurship, which takes the form of small-scale enterprise, product imitation, subcontracting and spatial arbitrage. Furthermore, those firms adopting imitative strategies were able to survive, though many of them relied on very small profit margins. Radical innovative strategies were seldom adopted and were not feasible in the environment of Hong Kong. Adopting adaptive entrepreneurial strategies, Hong Kong's manufacturers learned from foreign firms and imitated their products. Later, by exporting improved commodities at lower prices, they competed against the original suppliers from economically more advanced countries. This constitutes Hong Kong's industrial success.     

The new generation of millennial entrepreneurs: A review and call for research

Entering the third decade of the new millennium, the millennial generation is stepping into their most productive stage of life. We have witnessed a number of exemplary millennial entrepreneurs, such as Mark Zuckerberg, founder and CEO of Facebook. The world’s economy is evolving fast and presenting distinct entrepreneurial opportunities to millennials across the globe. It is critical that scholars of international entrepreneurship explore the new breed of millennial entrepreneurs and contrast them across generations and countries. Regrettably, the extant literature comes up short in fully addressing the new generation of entrepreneurs. We call for immediate scholarly attention on millennial entrepreneurs as they are in substantive ways unlike all earlier generations. We urge researchers to explore the unique characteristics of millennial entrepreneurs, their influence on entrepreneurial motivation, orientation, opportunity discovery and exploitation process, and the global ambition of their entrepreneurial ventures.     

Scientific Paradigms,Entrepreneurial Opportunities and Cycles in Economic Growth

In this paper I present a model of economic growth that combines insights from endogenous growth theory, the field of entrepreneurship research and the philosophy and economics of science. The model is built on three relatively standard assumptions and a Kuhnian approach to scientific knowledge accumulation. I assume that innovation generates economic growth, that opportunity driven entrepreneurship is an important source of innovation, that entrepreneurial opportunities increasingly arise out of scientific knowledge creation and that science follows Kuhnian paradigm shifting dynamics. The model then generates opportunity driven cycles in entrepreneurial activity that in turn cause waves of innovation and cycles in economic growth. This result is highly relevant and fills a gap in all three literatures as ‚traditional’ endogenous growth models typically generate constant growth rates in the steady state, entrepreneurship research keeps the origin of entrepreneurial opportunity exogenous and the literatures on the philosophy and economics of science ignore the important downstream economic implications of the non-profit driven institutional framework that governs scientific knowledge accumulation. This paper contributes by identifying scientific institutions and entrepreneurial activity as prerequisites for economic growth and it offers a tentative explanation for the rise and fall in the levels of scientific, entrepreneurial and economic activity over the Kondratieff-cycle.      

Prior Knowledge and New Product and Service Introductions by Entrepreneurial Firms: The Mediating Role of Technological Innovation

Most research on new product and service development by entrepreneurial firms takes an individual‐level, prelaunch perspective or firm‐level postlaunch perspective. Our study examines two components of the new product and service introduction process: how entrepreneurs' prior knowledge underpins (1) firm technological innovation prior to the introduction of new products and services (prelaunch) and (2) postlaunch viability of those new products and services. Our findings, based on a series of analyses of data from 158 entrepreneurial firms, show that formal technological innovation fully mediates the relation between prior knowledge and the introduction of viable new products and services.     

创业机会识别影响因素整合模型的构建

创业者及创业机会本身的属性、创业者所处的社会网络以及外界环境等因素,都对创业机会识别有着不同程度的影响。过去大量的相关研究主要侧重于对单一影响因素的分析。在学者们已有研究的基础上,分析影响创业机会识别的各主要因素及其相互关系,构建创业机会识别影响因素的整合模型,可为后续的研究做出铺垫,有助于深入地把握创业机会识别的内在规律。     

An absorptive capacity theory of knowledge spillover entrepreneurship

The knowledge spillover theory of entrepreneurship identifies new knowledge as a source of entrepreneurial opportunities, and suggests that entrepreneurs play an important role in commercializing new knowledge developed in large incumbent firms or research institutions. This paper argues that, knowledge spillover entrepreneurship depends not only on new knowledge but more importantly on entrepreneurial absorptive capacity that allows entrepreneurs to understand new knowledge, recognize its value, and commercialize it by creating a firm. This absorptive capacity theory of knowledge spillover entrepreneurship is tested using data based on U.S. metropolitan areas.     

Growth Aspirations and Cultural Support for Entrepreneurship: A Comparison of Post-Socialist Countries

Based on GEM data this paper explores whether significantly different growth aspirations of early stage entrepreneurs in Slovenia, compared to those in Hungary and Croatia, are also accompanied by significantly different opportunity recognition, cultural support for entrepreneurship and self-efficacy. Our results suggest that a higher degree of alertness to unexploited perceived opportunities, and cultural support for entrepreneurial motivation may be the cause of higher growth aspirations of Slovenian early stage entrepreneurs, while self-efficacy with regard to entrepreneurial skills, knowledge and experience was not found to be crucial.      

Exploring factors motivating entrepreneurial intentions: the case of Italian university students

This study aims to identify the factors motivating the intentions of university students to become entrepreneurs. Leveraging data from a survey of 941 Italian students and adopting Ajzen's theory of planned behaviour, this paper employs the structural equation model to identify factors explaining students’ entrepreneurial intentions. The findings show that attitudes, subjective norms and perceived behavioural control positively shape Italian students’ intentions. Moreover, the findings signal that the skills acquired during the university pathway play a crucial role in encouraging students to consider entrepreneurial choices. The paper extends and complements the academic and policy debate in the field of entrepreneurship offering a comprehensive investigation of the factors affecting entrepreneurial intentions. It also allows us to contend that higher education may have an important role to play in fostering the entrepreneurial intentions of young people. This is especially significant given current global economic conditions and the renewed importance of self‐employment strategies.     

Internationalisation of SMEs from the perspective of social learning theory

Internationalisation is seen as an important issue for the globalised economy. Therefore, it has been widely investigated among multinational enterprises and small- and medium-sized enterprises (SMEs). Even though earlier work acknowledges that internationalisation consists of entrepreneurial actions (e.g. discovery and exploitation of an international business opportunity) and learning from the market, detailed understanding of the process of social learning in internationalisation is still lacking. In this study, we use the cycle of expansive learning as a conceptual framework. It shows that entrepreneurial actions between SMEs construct international business opportunities. More specifically, entrepreneurial actions are about learning that constructs and co-creates knowledge. The cycle of expansive learning assumes that such knowledge is social in nature making the very nature of knowledge the basis of claims to explicate what the process of social learning entails. In the context of international entrepreneurship, there is also a by-product of that type of co-created and object-oriented action: the internationalisation of SMEs. The purpose of this study is to explore the internationalisation of SMEs through the cycle of expansive learning to better understand how such a by-product can be created. In examining a story of collaboration between two entrepreneurs, we found the start of the cycle to be more significant than the later stages. From the perspective of social learning, this suggests that entrepreneurs create meanings rather than exploit international opportunities in the business-sense alone. That said, internationalisation happens as a by-product of social acting.     

Organising new business in a turbulent context: Opportunity discovery and effectuation for IJV development in transition markets

Research on entrepreneurship has suggested entrepreneurial phenomena to take place in a wide variety of contexts that deal with new venture emergence. Opportunity discovery and effectuation are seen as the essence of entrepreneurship. The present study examines entrepreneurial behaviour in the organising of an international joint venture (IJV) in Polish transition markets. The paper aims to answer the following question: How is an international joint venture organised in turbulent context through opportunity-discovery and effectuation behaviours? Based on theoretical analysis and a longitudinal case study, we illustrate the organising of an international joint venture in transition markets through specific behaviours of opportunity discovery and effectuation. We show especially the relationship-based nature of all the behaviours. The study advances international entrepreneurship research by emphasising the intertwinedness of the entrepreneurial behaviours with the drastic developments in the transition markets and the evolution of the IJV partnership.