The factors that affect venture creation

The factors that affect venture creation ABSTRACT This research was conducted to examine the factors that positively or negatively affecting venture creation. Previous of researches concentrate on discussing the variable affecting the formation of new business; while this research intends to examine a new set of barrier and motivation variables influenced entrepreneurship. Random sample of entrepreneurs who were formed a small business, another group of respondents who intended to create new business, but they were found barriers to create the business. 73 participants take part in this research to identify the motivation barrier factors in the process of new venture creation. Factor analysis was performed to examine the aspects that motivate or barrier the creation of new business in Egypt. Correlation matrix analysis was performed to examine the motive and barrier causes to determine its importance. Variable should be over 0.50 Factor loading to be included in the factor. The relative importance of the result motives and barriers factors were determined by undertaking a descriptive analysis. Finally, testing if there is or not any difference in terms of the result factors. Significant difference between education level and both (Independence and Lack of Skills), result show that respondent with high education level are independent and have skills more than respondent with low education level. Age group is significantly affecting the independence factor. Moreover affect the complaint cost, implies that older respondent are more independent and have a capital more than younger respondents. Marital status found insignificant on motivate or barrier to create a new venture. Years of Experience found significant in terms of intrinsic rewards, lack of capital and compliant cost. Type of business found significant in terms of Extrinsic Rewards, Lack of Capital and Lack of Skills. Keywords: Entrepreneur, Entrepreneurship, New Venture, Small Business INTRODUCTION Entrepreneur creates value by carrying out new combinations causing discontinuity (Schumpeter 1936). According to (UNCTAD, 2007), business size defined based on the number of employees within the company, 0-9 (micro-businesses), 10-49 (small businesses), 50-249 (medium-sized businesses), 250 or more (large businesses). Numerous of Egyptian governmental authorities hardly work to foster the activities in different industries; The Industrial Modernization Program (IMP) is one of many initiatives of the Government of Egypt (GOE) supported by the European Commission (EC). Objective of this initiative is to help small business to develop global competitiveness in the industrial sector, to be able to benefit from the new opportunities that will follow the introduction of free trade and exposure to international markets. The Industrial Modernization Centre (IMC) is the implementation arm of the Program. Under IMP, Integrated Technical Assistance to Egyptian industrial companies will be delivered using business upgrading, training and export promotion services. This will address both companies determined to meet the competitive needs of the domestic market place, as well as those targeting export markets. Social Fund for Development (SFD), one of the most important mechanisms of society to change for the better as a safety net, reduce unemployment, create job opportunities and financing of small and micro business. Many aspects control the ability of create new ventures. Legal, political, and cultural environment directly impacts entrepreneurial activities and the ability to contribute to the economic development. International organizations, i.e., World economic forum (WEF), OECD and EUROSTATE designed indicators to measure the entrepreneurship and innovation worldwide and publish the indicators result in international publication in different languages and distributed worldwide. Networked readiness index (NRI) and Global competitiveness report (GCR), Global information technology report (GITR), is the most important report that produced by WEF. However, these publications determine the rank of each country. Investors depend on these reports to recognize investment opportunities. Several of barriers halt the creation of new venture; regulatory barriers come in the first important reasons affecting business formation. Regulations described as the policies that venture face during the formation phase, i.e. tax, labor market, fund, governmental regulations. Cultural and social barriers influence the creation of new venture. Lack of information and logistics about the market hold the business and exposed to risk. The promotion of entrepreneurial culture must be fostered in order to improve the motivation of persons for entrepreneurial activities. Economic and financial barriers strongly affect entrepreneurship, the risk of loss and fail is always dominant to stop the business. The tendency of self-employment is an important indicator of the success in creating a market economy. According to Central Agency for Public Mobilization and Statistics (2010 Q2), 14.5 % of the national workforce were self-employment managing employees, 12.1 % of the national workforce were self-employment and doesnt have employees to manage. According to (The Global Information Technology Report 2009-2010), Egypt ranked 41 for Venture capital availability, 63 for Business sophistication. 34 for Number of procedures required to start a business. 21 for Time required to start a new business, over 133 economy economies from the developing and developed world. That imply that governmental policies and procedures taken to foster the creation of new business and encourage SMEs to growth. Egyptian government gives especial interest to small business to enhance their capabilities to growth and face the local and international market. Egyptian government gives a different type of incentives for small business in different industries; information technology, agricultural and manufactures activities in the front of government interest to foster the economic and social development. Government gives donations and rebate for exporting goods outside Egypt reach to 10% of the total export sales amount. Therefore, the company can compete, take more international market share and enlarge business. To foster entrepreneurship, we need to recognize the barriers that affect entrepreneurship to overwhelm the barriers and create new policies, procedures to create a new venture. Many studies concentrate on the opportunities and challenge the entrepreneurs face in starting up new business. However, (Shaver Scott, 1991) have argued that traits approach would be a productive perspective in studying entrepreneurship. (Finnerty Krzystofik, Jul 1985) found insignificant influence among five demographic groups, gender, age, education level, salary and years of experience. Research raised some interesting result guide to some sort of deeply research, why gender position and number of dependents related to male or female affect the formation of new business, result also found that three important factors most influence creation of new business: 1) Market potential, 2) ability to secure finance, 3) return of investment and satisfaction of creation the business. This implies that family commitment enforces ones and becomes under stress to fulfill family needs. Ones will do anything possible to save reasonable life for his/her dependents. (Gendron, Feb 2000) Innovation involves a lot of trial and error. Entrepreneur tries on a small scale, and if he/she success, enlarge the scale of experiment, and if not, tries another. Big companies not built as big, i.e. Hotmail. It was a small entrepreneurial idea then developed and become the very large project. (Bhide, 2000) The characteristics of promising new venture and their founders are carefully defined and contrasted with those of more established firms, and we must examine the issue of the entrepreneurial personality. (JoAnn C Carland, Oct 2000) Although the concept of entrepreneurship still new, there is a big deal of researches in that area and more is being planned as entrepreneurship has finally come into fashion as a popular concept today. Recognize the phenomenon of entrepreneurship is unlikely given that we seem to jump into the middle of the process, business performance and growth, while neglecting its backgrounds. They explain the evidence that venture initiation acts of human choice, and to recognize why a person and not another chooses to create a venture. Over the past two decades, huge corporate reducing has led governments around the world to increasingly acknowledge entrepreneurs as key contributors to new job creation and economic growth. Egypt has joined the Global Entrepreneurship Monitor (GEM) research project in 2008. Place Egypt on the global map of entrepreneurship and benchmarks its entrepreneurial performance against that in 42 developed and developing economies. According to (World Bank, 2011) Egypt has risen to 94th out of 183 economies in the 2011 Doing Business report, issued jointly by the World Bank and International Monetary Fund (IMF), after coming in 99th in the last years report. That implies the significant progress in the process of improvement undertaken by the Egyptian government to fostering the creation of new business. Why new venture is important? The new business role in enhancing community and developing economies was studied widely in prior researches, since new ventures to contribute significantly in economics development. Small Business is a job generator, and it has a great part in solving the unemployment problems. So, the Egyptian government has strongly emphasized on developing and encouraging entrepreneur to start and gives them many incentives. We cannot business startup a business without motivation (Robertson, et al. 2003). The common possible factors that affect entrepreneurial performance are the individual, social and environmental (Kavitha, et al., 2008). According to (Gibb, 1993) social factors may involve individual knowledge, family background, and stage of career, life experiences and growth environment. Small businesses form the largest business sector in every world economy (Culkin Smith, 2000). Research shows that small firms play a vital role in the flourishing economy. Since it shares in the real gross domestic product, employ a huge number of workforce. Moreover, self-employment serves as an opportunity for many of the people to better themselves by taking their fate (and risks) into their own hands and generating new businesses. In countries such as Malaysia, Brazil, Philippines, and India, small businesses can comprise as much as 60% of all companies. Even in Africa, businesses create more employment and generate more output than large businesses. However, In spite of small business dominance and its role both in terms of absolute numbers and its contributions in economic activity), small businesses are known by high failure rates and poor performance levels (Jocumsen, 2004). Previous studies outline some challenges and some opportunities facing entrepreneurs. People vary in their willingness and ability to engage in the entrepreneurial Process because of how they perceive the surrounding environment -challenges and. motivations- and translate their perceptions of risk and opportunity according to their norms and preferences. This variation influences the entrepreneurial decisions. Challenges facing the small ventures like, Taxes and Regulation. Small business owners frequently cite tax and regulatory policies as a concern, global competition (Chad Moutray, October 2008). In another survey which focused on the challenges and growth strategies of small businesses conducted by accounting group. The main findings were reported from 6000 independent small and medium businesses across 19 countries find that the competitive environment, the availability of a skilled workforce, financial problem, bureaucracy, lack of knowledge about markets, and political and social instability were the main challenges face small business. Global competition, lack of human resource/ development skills and access to adequate finance are the main challenges face all business in Africa (Brinders et al., 2003). The challenges differ from country to another but in all countries these challenges affect negatively on the success and survival of the enterprises. Motivations It is often said that a person cannot win a game that they do not play. In the context of entrepreneurship, this statement suggests that success depends on peoples willingness to become entrepreneurs. A business will neither start up nor succeed without motivation (Robertson et al, 2003). Motivation is reported as an individuals positive inner desire to start a business like, owners need to take control and change his/her work status as an employee, being ones own boss, wealth creation, lifestyle change and the desire to use or apply personal experiences and knowledge (Burke, et al., 2002); (Birley Westhead 1994); (Mason Pinch 1991); (Singh DeNoble 2003). The positive inner called pull forces. Furthermore, there are some negative motivations affect this decision. It is called negative drivers or negative motivation such as job frustration, lack of advancement opportunities, avoidance of low-paid occupations, escape from supervision and unemployment and retrenchment (Mo ore Buttner, 1997). These negative inner called push forces. Typically, small business ownership occurs from the combination of both pull and push forces. Combination of pull and push motivations that drive small venture is determined by the expectations of a positive change in personal circumstance, being ones own boss, personal freedom, personal satisfaction, a less rigid, more flexible lifestyle and more job satisfaction. (Al-Zubeidi, 2005) Then educational level combined with age, gender, ethnicity, and industry, to determine the relationships between founders educational background, and business success. (Harada, Nov 2004) examine whether the total factor productivity is affected by the human capital and gender of entrepreneurs, Empirical results also show that age has a significantly negative effect on productivity, and the negative effect increases after 60 years of age. The results specify the importance of starting up while young. Feasibility study, assessment of entrepreneur characteristics for some extent determines the approval of the project and the amount of governmental funds. (Liang, et al., 2007) in their study to examine the triggering factors to create the new venture found that the popular reason to start the new business was saw an opportunity 80.5%. A large proportion of the respondents indicated want to reach my full potential. (Shaw, et al., 2009) discuss the interaction between gender, entrepreneurial capital and firm performance; they examine how gender forms the possession of entrepreneurial capital and discusses the effects of capital variance for business performance. They found that male owners were more than double as likely to hire staff. In total, 33 % of male owners, but only 17 % of female owners hire additional staff, another finding that significant gender differences in two out of seven personal goals, with female business owner rating, personal achievement, challenging yourself and personal vision more highly than their male counterparts. (Krasniqi, 2009) The males, those who live in urban areas in a larger family, have a higher chance to involve in entrepreneurial activities, while a feeble positive effect of age and insignificant effect of marital status are found. (Orser Dyke, 2009) for some extent the importance of success criteria differed by gender, but not all success criteria: male and female managers and entrepreneurs did not differ with respect to the importance related to work-life balance. For female, an increase in the importance related to professional autonomy was associated with decreased chance of being employed in a management role. For male, an increase in importance related to financial issues was reflected in an increase chance of being employed in a management role. (Korunka, et al., 2010) build a model based on literature and case research. Family inactivity is considered to be a barrier factor to prevent the creation of forceful capabilities. They also found that family inactivity depends on characteristics of the family business culture, where entrepreneurial orientation influence family inactivity positively and negatively, respectively. The objective of this research is to identify the aspects triggers of barriers the creation of new venture. Study of these aspects helps government authorities to set policies and procedures to facilitate the growth of small business that leads to more contributions in domestic growth product (GDP). The previous literature forms the body of analysis and tries to answer the questions. 1) Does the demographic variable have a significant influence on motivation to create the new venture? 2) Does the demographic variable have a significant influence on the barrier to create the new venture? This paper will study external motivation/challenges and also the internal traits which affect the entrepreneurs decision to start up or stop venture in the rural area in Egypt. The study will concentrate on Giza, Cairo and Helwan governorates While, it does not discuss the policy solutions. Two hypotheses emerged. They are: H1: Demographic variable has a significant influence on motivation creating the new venture. H1a: Extrinsic Rewards H1b: Independence H1c: Personal Rewards H1d: Intrinsic Rewards H2: Demographic variable has a significant influence to the barrier creating the new venture. H2a: Lack of Capital H2b: Lack of Skills H2c: Compliant Costs MATERIALS AND METHODS The data from entrepreneurs was collected in several areas, including the entrepreneurs business motivations information, problems and barriers they faced. Setting: The research was conducted two questionnaires, one to measure the motivations and the second questionnaire to measure the obstacles and barriers the entrepreneurs found in starting up new ventures. The frequency analysis was used to describe the many types of variables, which were related to the entrepreneurs. Participants: A total number of 73 participants took part in the research article. From the sample, respondent sample stated below in Table 1. The data used for this research was collected from Giza, Cairo and Helwan governorates in the period November and December 2010; methodology of collecting data was a face to face interview. Reliability: Test Reliability test was concerned with the degree to which a measurement was free of error, and we can depend on it to measure. The result revealed a value of 0.73 for motivation factors and 0.81 for barrier factors, which suggest a fair level of internal consistency within the data collected, since the acceptable value is 0.70 or higher (McKinniRE:s et al. 2001). RESULTS AND DISCUSSIONS Table 1 show demographic variables into two groups that create a new venture and those didnt. There were no significant differences between the groups in five areas: marital status, education level, age group and years of experience. Significant difference is found in two areas: gender and type of business by 90% confidence interval. Table 1: Demographic Profile of Start-Up vs. Non-Start-Up New Venture Item Create New Venture Percentage Responding in Each Category à Ã¢â‚¬ ¡2 Sig. Gender Male Female 3.25a 0.07 Yes 26 (76.5%) 8 (23.5%) No 22 (56.4%) 17 (43.6%) Marital Status Single Married W Children Married WO Children 0.34b 0.84 Yes 27(79.4%) 3 (8.82%) No 5 (74.4%) 29(12.82%) Education Level Lower Tertiary Tertiary Master Doctorate 0.89c 0.64 Yes 24(70.6%) 10(29.41%) No 1 (2.6%) 27 (69.2%) 11(28.2%) Age Group 30-40 41-50 51-60 5.03d 0.17 Yes 4 (11.8%) 26 (76.5%) 3 (8.8%) 1 (2.9%) No 6 (15.4%) 23 (59.0%) 10 (25.6%) Years of Experience 5-10 11-15 15-20 > 20 years 2.25e 0.69 Yes 5 (14.7%) 11 (32.4%) 8 (23.5%) 9 (26.5%) 1(2.9%) No 3 (7.7%) 13 (33.3%) 9(23.1%) 10(25.6%) 4(10.3%) Type of Business Product Service Both 5.15f 0.08 Yes 9 (26.5%) 19 (55.9%) 6 (17.6%) No 3 (7.7%) 30 (76.9%) 6 (15.4%) Table 2: Correlation and Importance of Motivation Variables to Create New Venture Motivation Factors Mean Std. Dev. 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 1. To challenge myself 4.12 1.01 -0.02 0.15 0.13 .34** 0.00 0.17 .33** 0.17 0.17 -.10 .24* .27* -0.07 -.080 0.20 .28* 2. To realize my dream 4.23 0.91 0.16 0.19 0.22 .60** 0.13 0.18 .37** .29* 0.09 -.18 -.41** .24* 0.08 -0.09 -.33** 3. To earn more money 4.12 1.13 0.04 .26* .37** 0.22 .37** 0.04 -.18 .40** 0.19 0.00 -.29* 4. To provide a comfortable retirement 3.96 1.21 .31** -0.08 .49** 0.19 -.34** -.29* 5. To keep a large proportion of the proceeds 3.90 1.12 .33** -0.05 0.09 0.19 0.00 0.03 0.09 -0.06 6. To work at a location of my choice 3.78 1.12 .44** 0.18 .25* 0.16 0.09 7. To be my own boss 3.67 1.24 0.09 0.22 .36** 0.10 0.16 0.04 -.14 0.17 0.09 0.09 0.20 .59** .39** 8. To have an interesting 3.60 1.16 .40** .25* 0.12 .40** 0.12 0.13 0.10 0.08 0.15 0.14 0.03 0.15 9. To take advantage of a market opportunity 3.58 1.31 .46** .59** 0.02 0.02 .26* 0.10 0.13 0.09 0.09 10. To make my own hours 3.30 1.42 .40** .41** .46** -.30** 0.03 .43** -0.09 0.10 .36** .39** 11. To invest my personal savings 3.30 1.28 .43** -0.20 0.08 12. The need for a job 3.27 1.40 -0.09 0.13 .34** .37** 13. To increase my status/prestige 3.26 1.43 -0.01 0.10 14. To take advantage of my creative talents 3.25 1.46 0.13 0.16 0.15 .41** .360** 0.13 .56** -.26* -.15 .24* -0.04 0.16 0.14 .32** 15. To receive a salary based on merit 3.03 1.42 -.05 -0.14 .33** -0.01 0.12 0.10 0.04 16. To follow the example of a person I admire 2.73 1.44 .50** 17. To maintain a family tradition 2.30 1.21 **. Correlation is significant at the 0.01 level (2-tailed). *. Correlation is significant at the 0.05 level (2-tailed) The respondents were motivated by a plenty of factors for starting new business. The motivating variables and its correlation with other factors exposed in Table 2. To challenge myself was ranked as the most important variable followed closely by to realize my dream and To earn more money. These findings are consistent with (Choo Wong, 2006). Entrepreneurs were found also motivated by a set of variables that relate to the issue of extrinsic rewards that include, To take advantage of a market opportunity, To receive a salary based on merit, To take advantage of my creative talents, The need for a job, To make my own hours, To keep a large proportion of the proceeds and To provide a comfortable retirement. Another set of variables in terms of independence. To be my own boss is consistent with (Choo Wong, 2006). Second motivation factors are related to independence that included: To be my own boss, To realize my dream and To have interesting. Third motivation factors in terms of personal reward include: To challenge myself, To Work at a location of my choice and To earn more money; this result is consistent with (Mazzaro, et al., 1999) Fourth set of motivation factors include: To invest my personal savings, To increase my status/prestige and To maintain a family tradition. important factor that conceded to create new business. The fourth set includes called intrinsic rewards; include investing my personal savings, to increase my status/prestige and To maintain a family tradition. Table 3: Rotated Component Matrixa for Motivation to Create New Venture Factors Rotated Component Matrix(a) Extrinsic Rewards Independence Personal Rewards Intrinsic Rewards Q8. To take advantage of a market opportunity 0.91 Q10. To receive a salary based on merit 0.88 Q3. To take advantage of my creative talents 0.86 Q13. The need for a job 0.84 Q7. To make my own hours 0.73 Q9. To keep a large proportion of the proceeds 0.66 Q11. To provide a comfortable retirement -.65 Q4. To be my own boss 0.78 Q2. To realize my dream 0.72 Q5. To have an interesting -.60 Q1. To challenge myself 0.74 Q12. To work at a location of my choice 0.74 Q6. To earn more money -.70 Q14. To invest my personal savings 0.78 Q15. To increase my status/prestige 0.66 Q17. To maintain a family tradition 0.58 Eigenvalues 4.82 2.44 2.02 1.82 Percentage of Variance Explained 28.34 14.33 11.90 10.72 Scale Reliability 0.83 0.59 0.58 0.51 Extraction Method: Principal Component Analysis. Rotation Method: Varimax with Kaiser Normalization. a. Rotation converged in 7 iterations. The respondents were faced plenty of barriers for starting new business. The barrier variables and its correlation with other factors exposed in Table 4. The barriers and their descriptive statistics are shown in Table 3. Bad economic indicators in general were ranked as the most constraining start-up barrier to create new business that is consistent with (Choo Wong, 2006) who found these variables, which are general business environment in nature, were perceived as a major barrier among non-starters. Lack of info about biz start-up and High taxes and fee are closely the following the important factors. Three sets of barriers factors are extracted, the first is related directly to a lack of capital that include: Risk greater than initially expected, Lack of marketing skills, Lack of savings or assets, Lack of managerial/financial expertise, Difficulty in obtaining finance, Fear of failure and Finding the right partner, This was consistent with (Robertson et al, 2003) reported that lack of resources, in terms of financing was the major factor to forming a business. The second set is lack of skills that includes: Lack of support from family/friends, No one to turn to help me, the uncertainty of the future, convincing others it is a good idea and Lack of info about biz start-up. The third set of factors is complaint cost. That includes: Compliance with government regulations, finding suitable labor, Lack of suitable premises and High taxes and fee. A factor analysis was conducted to formulate the structure of motivation among studied variables. Factors were extracted from Extraction Method: Principal Component Analysis, Rotation Method: Varimax with Kaiser Normalization. Variable should be over 0.50 Factor loading to be included in the factor. In terms of the motivation factors, the resulting factors were interpreted as Extrinsic Rewards (seven items), Independence (three items), Personal (three items) and Intrinsic Rewards (three items). Only one item, which is To follow the example of a person I admire, failed to load onto any factor. Previous researches resulting three factors (Kurakto et al, 1997; Volery et al, 1997; Yusuf and Schindehutte, 2000; Choo Wong, 2006). Moreover, we have extract personal rewards as the forth factors affect creation of new business. The item loadings of the four resulting factors, collected with their respective eigenvalues and percentage of variance as shown in Table 3. This resulting factor solution accounted for 65.29 % of the variance. The resulting coefficient Cronbachs