AbstractPurposeThepurpose of this paper is to provide a framework for mapping outinnovation models and entrepreneurship in AfricaDesign/methodology/approachThestudy undertakes a review of the existing development economics andentrepreneurship literature to determine the need for the frameworkand how to proceed in developing it.FindingsTheliterature review informs that although enterprise-led growthprovides a greater promise for absolute poverty reduction,policymakers lack guidelines on how to identify those with highestpotentials for job creation and tax revenue generation.
Furthermore,African entrepreneurs can purposefully be classified in terms oftheir motives and degree of innovation. The classification produces a2×2 matrix that maps out the growth capabilities of businesses foundin a given country or community.Researchlimitations/implicationsTheframework provides researchers and policymakers with descriptivecategories that can guide their strategies and decisions.Originality/valueIntroducinginnovation-imitation dimension into the framework extends andimproves previous typologies of small enterprises available in theliterature.Historically,entrepreneurs have always played a central role in the development ofnation states.
Aside from rentier states, which depend extensively onthe availability of mineral resource rents, most economicallyprosperous nations in the world have strong, innovative andcompetitive business enterprises and entrepreneurs as the bedrock oftheir economic development and prosperity. It was arguably because ofthe above historical fact that the World Bank in 1989 declared thatentrepreneurs will play a central role in transforming Africaneconomies. Background/IntroductionEntrepreneursare individuals who identify market needs and launch firms to meetthose needs. Unlike salaried employees, entrepreneurs assumeownership risks.
In this article, as in most literature onentrepreneurship, entrepreneurs include not just the founders ofbusiness firms but also “second-generation operators of familyowned firms, franchisees, and owner managers who have bought out thefounders of existing firms” (Longenecker, Moore, and Petty,2003, p. 9). Although the terms entrepreneur and small businessmanager are not synonymous, most entrepreneurship begin as smallbusinesses. Currently, most African entrepreneurs manage theirsmall-scale enterprise, hence we use the terms entrepreneur and smallbusiness interchangeably in this article. Consistent with thedefinition of a small business by the African Development Bank andthe International Finance Corporation, we define a small business asa firm with less than 50 employees or assets of less than $15million.
Asconsumer preferences across national markets converge, trade barriersfall, and national economies integrate to form a global economicsystem, increasing numbers of small businesses across nationalmarkets are taking advantage of trading opportunities engendered bythe globalization of markets and production. The potential for globalsales is clear, but does it extend to small businesses in Africa?Some observers have noted that African countries are falling behindin this global economic race (Zeng, 2008). This is a serious matterbecause of the key role that entrepreneurs and small businesses playin job creation and economic growth in every country. Despite thefact that small businesses are the engines that drive economic growthin most economies, small scale enterprises in Africa are at a greatdisadvantage in this race for growth and profitability.Theobjective of this article is to examine the challenges andopportunities facing small scale businesses in Africa and makesuggestions that will help in solving some of these problems andenhance the participation of small African firms in the globalmarketplace. The paper also highlights opportunities for growth andprofitability in the global marketplace for these firms.Understanding the challenges and difficulties faced by entrepreneursin Africa will be important if African governments are to come upwith policies which will stop their small businesses from being sweptaway by rapid changes taking place in today’s global economy.
Therest of the paper is divided into three sections. The first sectionexamines some of the major challenges facing small scale enterprisesin Africa. The second section highlights some opportunities availableto African entrepreneurs in today’s global economy. The articleconcludes with recommendations for addressing these challenges andenhancing the competitive ability of small African firms.
The focusin this article is largely on indigenous entrepreneurs and smallbusinesses.Statement ofthe ProblemLong-standingissues have combined to endanger the ability of small firms in Africato survive in today’s global economic system. Some of the keychallenges include: globalization of markets and production, lack offinancial support, poor infrastructure, international expansionissues, and government assistance and support LiteraturereviewFindingsEconomic developmentrequires sustainable and shared increases in per capita incomeaccompanied by changes in the structural composition of an economytowards higher value added goods and more efficient productionmethods.
Entrepreneurs can contribute to economic development byfacilitating the reallocation of resources from less to moreproductive usesby performing ‘cost-discovery’, ‘gap-filling’,and ‘input-completing’ functions in the economy ( and bysupporting structural change. A neglected functionis the potential role of entrepreneurs as innovators in Africa.Joseph Schumpeter pointed out a century ago that entrepreneurs areoften innovators, bringing new goods and technologies to markets,opening up new markets, processes, and ideas, and commercializing newknowledge.
But, it is often mistakenly suggested that innovation byentrepreneurs is less important for growth in low-income Africa thanin more advanced economies.In this perspectiveson three broad questions pertaining to innovation andentrepreneurship in Africa are highlighted. How does innovationimpact on development? How and under what conditions do entrepreneursin Africa innovate? And, what can be done to support innovation byentrepreneurs in Africa? Entrepreneurship isthe ‘discovery and exploitation of opportunities’ (Shane andVentakaraman 2000).2 Baumol (1990) recognized that not allopportunity exploitation will necessarily be in society’s bestinterest, and he defined entrepreneurs very broadly as ‘persons whoare ingenious and creative in finding ways that add to their ownwealth, power, and prestige’ (ibid.: 987).
Thus entrepreneurialtalent can be allocated in ways that retard economic development. Although werecognize that the ‘reward structure’ of a society can lead tosuch a destructive allocation of entrepreneurial talent, we will inthis book be focusing on productive entrepreneurial activity. Thisconsists of the creation, recognition, and utilization of positiveopportunities within existing firms (or through creation of newfirms) in such a way that involves ‘innovation’—or theprovision of ‘new combinations’. The three mainconceptual approaches to entrepreneurship can be distinguished as:The first approach focuses on the entrepreneurial function, thesecond on the performance of enterprises and the third onowner-operated enterprises.
The functional perspective is concernedwith the dynamic actors that make key decisions on investment,production, innovation, location, or research and development. Thisconception of entrepreneurship is broader than that of entrepreneurswho run their own businesses. It also includes managers ofmultinational firms, state enterprises, or non-profit organizationsand a variety of dynamic intrapreneurs within organizations. A broader approachrefers to innovation as the development of new products, newprocesses, new sources of supply, but also to the exploitation of newmarkets and the development of new ways to organize business. One candistinguish between more incremental innovations and more radicalinnovations. An important distinction in the innovation is betweeninnovations that are new to the world, innovations that are new tothe domestic market or innovations that are new to the firm(Fagerberg 2005). Innovations that are new to the world are primarilyfound in the advanced economies. They are based on research anddevelopment at the frontiers of global knowledge.
In Africa farremoved from the international technological frontier, innovationswill tend to be new to the market or new to the firm. Innovations new tothe market in Africa refer to the international diffusion andabsorption of technology. The domestic firm introduces innovationswhich have already been developed elsewhere, but which are new to themarket in their own country. Innovations new to the firm refer toknowledge flows within the domestic economy. The innovation isalready present in the market, but is now adopted by a given firm.This last concept of innovation comes closest to the Rogerian conceptof innovation (Rogers 2003).
What is new to the firm may not be veryinnovative in any objective sense. It may be simply introducing amachine for moulding handles of kitchen knives, rather than doing itby hand or introducing a new oven for hardening ceramics (asdiscussed by Voeten, de Haan, and de Groot). This means that somekinds of innovation that are new to small firms in Africa may coexistwith stagnant economies and increasing technology gaps relative tothe international frontier. The primary interestis in the kinds of innovative behaviour that promote economicdynamism and catch up at country-level. Like entrepreneurship,innovative performance has been measured in a variety of ways, usingpatents, trademarks, R&D inputs, and other secondary indicatorssuch as publications or citations.
Since the 1980s, increasing usehas been made of innovation surveys amongst firms.From a developmentalperspective, it therefore makes analytic sense to distinguishentrepreneurship and innovation as distinct key forces indevelopment. Some entrepreneurs are much more innovative than othersand firms managed and owned by entrepreneurs are not the only sourcesof innovation. The impact ofinnovation on development Innovation is central to modern theories ofgrowth and development (Verspagen 2005). Along with the traditionalfactors such as costs, technological product, and process,innovations have become the key to competitiveness and businesssuccess. Competition in the global economy has increasingly becomeknowledge-based.
Even in supposedly traditional economic sectors suchas textiles, leather, or food processing innovation and technologicaladvance has become the key to growth (c.f. Mytelka 1999). The sameholds for service sectors such as distribution and retailing,financial services, and ICT services. Innovation is also intimatelytied up with changes in the structure of the economy, technologicalupgrading in production, and moving to higher value added activitiesin global value chains.Technological changeis embodied in new generations of machinery and equipment and newgenerations of better educated workers. There are also disembodiedadvances in product and process technology, which result from formaland informal investment in R&D, capabilities, and on-the-joblearning.
Embodied and disembodied technological change raises totalfactor productivity—which has been found to explain more than halfof the variation in economic growth rates between countries. But itnot only raises the quantity of economic output, but also the qualityand nature of what is produced. It results in an ever wider range ofnew goods and services. People living in thefirst decade of the twentieth century did not know modern dental andmedical equipment, penicillin, bypass operations, safe births,control of genetically transmitted diseases, personal computers,compact discs, television sets, automobiles, opportunities for fastand cheap worldwide travel, affordable universities, central heating,air conditioning …
technological change has transformed the qualityof our lives. Both endogenous growth theory and evolutionary growththeory emphasize that the traditional factors of production such aslabour or capital are subject to diminishing returns, whileinvestment in knowledge has increasing returns due to positiveexternalities and knowledge spillovers between economic actors (e.g.Romer 1990).
Endogenous growththeory argues that the most advanced economies with their superiorsystems of innovation profit more from investment in knowledge thanless advanced economies. First, R&D efforts and scientificresearch are still overwhelmingly concentrated in the most advancedeconomies (Szirmai 2008, 2011). Next, the flow of knowledge andtechnology from first movers to followers is very rapid, so thatinnovations quickly diffuse throughout the economy. Endogenous growththeory thus helps us understand the process of divergence in percapita incomes between rich and poor countries in the world economy. However, innovationand technological advance can also result in accelerated catch-up inAfrica. What endogenous growth theory fails to capture is the factthat in an increasingly unequal world economy, several Africa haveexperienced rapid economic catch-up. They were able to absorb andcreatively adapt international technological knowledge to achieveaccelerated growth.
Gerschenkronian and evolutionary growth theoriesargue that latecomer economies may profit from the advantages oftechnological backwardness. They can benefit from global diffusion oftechnology. They can access new technologies without bearing all thecosts and risks of investment in new knowledge. Amsden’s ( 3)argues that privately owned domestic firms in East Asia were betterat adopting and absorbing technologies from advanced economies thanforeign-owned firms.
Stam and van Stel ( 4) highlight how theadoption of foreign technology provides entrepreneurs with apotential to create new markets and contribute to structural changeand self-discovery. Whether Africa are able to profit from theadvantages of technological backwardness clearly depends on theirsocial capabilities and absorptive capacities. Hence, importantly forAfrica, innovation does not only refer to the development of newproducts or processes, but also to the capacity to creatively absorbtechnology.Traditionalmacroeconomic growth theory is a black box which relates inputs andoutputs. The study of entrepreneurship opens this black box andallows us to analyse the characteristics and choices of differenttypes of firms and entrepreneurs that are responsible for capitalaccumulation, hiring of workers, structural change, and thedevelopment or adoption of new technologies (for a modelling approachsee Gries and Naudé 2010 and 2 by Audretsch and Sanders). Theentrepreneurs are the actors that respond to opportunities, threats,uncertainties, constraints, and incentives emanating from theeconomic environment in which they operate. This putsentrepreneurship at the heart of economic growth, development, andcatch-up.
By innovating and commercializing inventions and byadopting innovations developed by others, developing countryentrepreneurs affect the rate of technological change and thestructural transformation of the economy. Entrepreneurs,commercializing technology, often through creation or expansion offirms, apply and spread technology in a way which raises total factorproductivity. The creativity, capabilities, dynamism, andinnovativeness of the entrepreneurs in a country are importantaspects of the absorptive capacity, which is such a distinctivecharacteristic of successful development experiences. Howentrepreneurs perform this function will vary across various stagesof a country’s development.