The template will guide you as you complete the following steps: Outline the introduction paragraph Indicate the topic you will explore in the paper and assert a tentative thesis stat

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World Journal of Social Sciences

Vol. 2. No. 6. September 2012 Issue. Pp. 79 – 100

Barriers to Entrepreneurial Endeavors in a Developing Economy

Rima M. Bizri*, Alia Kojok**, Abdallah Dani, Mohammad Mokahal and Mohammad Bakri

Entrepreneurship has long been perceived as one of the significant factors leading to development. This research examines the barriers that pose as obstacles to the pursuit of entrepreneurial endeavors in Lebanon, a middle-eastern developing nation. This study is based on quantitative research, using a questionnaire of 27 items for data collection. Descriptive data and statistical analyses are presented to identify and assess barriers to entrepreneurship in Lebanon. The findings provide valuable insight into the factors affecting entrepreneurial inclination in developing countries. They suggest that there are important barriers to entrepreneurship in developing countries. In Lebanon, the most significant of those barriers are: the lack of social network, lack of external stability, risk aversion, and lack of a business environment conducive to entrepreneurship. The significance of this research lies in the fact that it fills an important gap in the literature, offering deeper understanding of the barriers to entrepreneurship in developing nations, while focusing on a representative middle-eastern developing country: Lebanon.

1. Introduction Though entrepreneurship has always existed as an economic activity, it is a somewhat novel concept to researchers and academics in developing countries. With entrepreneurs now numbering near 400 million in 54 countries (GEM Global Report, 2011), interest in investigating entrepreneurial inclination is on the rise. Consequently, research on entrepreneurship is quickly gaining ground since there is so much to learn about the antecedents of entrepreneurship, as well as its effects on the individual, community, and nation. Such research becomes more important, even more challenging, when focusing on developing nations, where investigative studies are much fewer and accurate data is, to a large extent, unavailable. Most of the available research on entrepreneurship focuses on advanced economies rather than on developing ones (Krueger, Reilly & Carsrud 2000). Though this poses a challenge to researchers, it also presents an opportunity to investigate a variety of variables related to entrepreneurship for the purpose of reaching a paradigm that is workable in developing nations. ________________________ *Rima M. Bizri, Coordinator and Lecturer of Management, CBA, Hariri Canadian University, Lebanon Email: [email protected] **Alia Kojok, Abdallah Dani, Mohammad Mokahal, Mohammad Bakri (Researchers) www.rhu.edu.lb

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In Lebanon, a representative middle-eastern developing nation, the rate of entrepreneurship is nowhere near other developing countries. In fact, Lebanese investors in entrepreneurial startups do not exceed 2% of the population (GEM 2011). This raises questions as to what might be the reasons behind this abstention. Therefore, the objective of this paper is to identify the factors that inhibit entrepreneurial activities in Lebanon, and pose as barriers to entrepreneurial inclination. Though entrepreneurship in Lebanon is currently attracting more attention, it is mainly centered on conferences, exhibitions, and preliminary statistics and newsletters, rather than academic research of a quantitative or qualitative nature. Thus, this paper is unique in that it offers deep insight into the perceptions of people who are, or might one day become entrepreneurs. It identifies factors that are perceived by the respondents to be barriers to entrepreneurship. These factors are documented and explained in the literature review, while the methods used to gather data and analyze it are explained in the methodology section. Later, the perceptions of the respondents are presented and analyzed in the data analysis and findings section. Conclusions and implications of the study as well as relevant limitations ensue.

2. Literature Review An entrepreneur is defined by Longman’s dictionary as someone who starts a new business or arranges business deals in order to make money, often in a way that involves financial risks. An entrepreneur can also be defined as a person who organizes and manages a business, assuming risk for the sake of potential return (Mariotti & Glackin 2012). This implies that risk, though undesirable, is an essential element of any entrepreneurial venture, where the return can be immense and multi-faceted. 2.1 Antecedents and Consequences of Entrepreneurship: Two Levels At the macro-level, entrepreneurship seems to be stimulated by government practices that facilitate and encourage new business startups. By the same token, most researchers support the claim that entrepreneurial endeavors seem to contribute to job creation, economic growth, and competitiveness (Thurik & Wennekers 2004). It has become widely agreed that entrepreneurship is necessary for economic development, job creation, and improvement of the standard of living of people worldwide (Zelealem Temtime, Chinyoka, & Shunda 2004). Entrepreneurs are not only creating jobs for themselves, but for others as well. The positive and statistically robust link between entrepreneurship and economic growth has now been verified across a wide spectrum of units of observation, spanning the establishment, the enterprise, the industry, the region, and the country (Thurik & Wennekers 2004).Therefore, to effectively address unemployment and revitalize the economy, a developing nation should rediscover the entrepreneur who takes risks, breaks new ground and innovates (Jesselyn Co & Mitchell 2006).

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At the individual level, the antecedents to entrepreneurship may vary. Collins, Hanges, and Locke (2004) show that the need to achieve is an important determinant of entrepreneurial inclination. Other motives for entrepreneurial endeavors include the desire for financial gain, freedom, control, and employment security (Turnbull, Williams, Paddison, & Fahad 2001). All these posit powerful stimulants to entrepreneurial activity. However, the consequences of entrepreneurial activity may also include failure if the business startup did not pull off, thus the risk element in entrepreneurship. It is not surprising, therefore, that nations are striving to enhance the entrepreneurial spirit in the character of their youth. It has been shown that entrepreneurship education should be emphasized at the college level to produce better quality entrepreneurs in the future (Jaafar & Abdul Aziz 2008). Along those lines, it is essential for developing nations to identify barriers to entrepreneurship that may hinder economic progress. This will assist in creating government strategies that would mitigate, if not alleviate, those barriers so as to maximize economic growth and development in those countries. Evidently, there are significant barriers to entrepreneurship in most nations, developed and developing, worldwide. Barriers in developed countries have been investigated relatively thoroughly Robertson, Collins, Madeira & Slater 2003; Michaelis, Smith & Richards 2001; Klapper 2005; Hurel 2002 as quoted in Klapper 2004; Collins, Hanges, & Locke 2004; Henderson & Robertson 1999; Kwong, Thompson & Jones-Evans 2012; Matlay & Carey 2007; Brennan, Wall, & McGowan 2005). However, the research on entrepreneurship in developing countries is rather scanty and scattered (Kwong, Thompson, Jones-Evans, & Brooksbank 2009; Nabi & Linan 2011; Jamali 2009; Ahmad & Xavier 2012; Al-Ariss 2010; Sandhu, Siddique & Riaz. 2011; Lan & Wu 2010; Taormina & Lao 2007). Until recently we have understood little about entrepreneurship in developing countries, particularly the characteristics of new and growth-oriented firms. Scholars and practitioners alike have implicitly assumed that entrepreneurship was largely the same the world over (Lingelbach, de la Vina & Asel 2005). In developing countries, it is difficult to track new ventures to determine whether they succeed or fail, since only few of them are officially registered, or included in government records. Moreover, due to tight budgets in developing nations, little funding is provided for conducting research, leading to inadequate investigation of entrepreneurial activity, let alone barriers to it. According to a recent study, entrepreneurship in developing countries is arguably the least studied significant economic and social phenomenon (Abdullah, Hamali, Deen, Saban, & Abdurahman 2009). There is a lack of research in the field of graduate entrepreneurship in the developing world, and further research in developing countries may help to understand and shed light on the issues evolving around graduate entrepreneurial intentions (Nabi & Linan 2011). 2.2 Barriers to Entrepreneurship Two trends of thought dominate research related to barriers to entrepreneurship, one highlighting psychological variables deterring entrepreneurial endeavors, and the other accentuating variables related to the business environment. Taormina and Lao (2007) show that budding entrepreneurs face psychological issues such as achievement

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striving and optimism. Sandhu, Siddique and Riaz. (2011) suggest that internal psychological variables that affect entrepreneurship include aversion to risk, fear of failure, aversion to stress and hard work, while external factors include lack of social networking and lack of resources, and have an equally significant impact on entrepreneurial inclination. Indeed, macro-level environmental forces should not be underestimated. Factors in the external environment, can potentially influence the start-up decision (Aldrich 2000). Just as favorable external factors can be considered conducive to entrepreneurship, unfavorable external factors can be powerful barriers to it. For example, inadequate financial support, bureaucracy and inconsistency of government policies, lack of entrepreneurial education at tertiary level and inadequacy of entrepreneurial training are some of the important obstacles (Ahmad & Xavier 2012). Similarly, Chowdhury (2007) explains that political instability, corruption, lack of infrastructure facilities, education and training, lack of financial help, all pose as barriers to entrepreneurship in developing nations. 2.3 The Variables Under Study In this study, barriers belonging to both schools of thought will be examined for the purpose of determining their effect on entrepreneurial inclination. The independent variables will be partly psychological: aversion to risk, fear of failure, aversion to stress and hard work, partly environmental, including lack of resources and lack of social networking (Sandhu, Siddique & Riaz 2011); in addition to other environmental variables such as lack of economic stability and lack of political stability, as suggested by Taormina and Lao (2007). The dependent variable in the study will be entrepreneurial inclination in a developing nation. Hence, this paper will use a collective approach that will investigate the combined effect of the above independent variables (psychological, social, political and economic) on entrepreneurial inclination in Lebanon, thus offering a new comprehensive perspective on an area of study that has not been addressed this way before in Lebanon. 2.3.1 Entrepreneurial Inclination The entrepreneurial inclination in a country refers to the tendency of a population to engage in entrepreneurial activity, at any stage of entrepreneurship, whether nascent, startup, or established. There have been numerous studies about entrepreneurial inclinations around the world. There are even periodic surveys that measure this variable across countries. Indeed, there have been numerous studies investigating the qualities of potential entrepreneurs. For example, senior students that are entrepreneurially inclined are found to have higher risk taking propensity, internal locus of control, higher need for achievement and higher innovativeness (Gürol & Atsan 2006). In this study, entrepreneurial inclination will be the dependent variable under study, likely to be influenced by psychological factors, business environment factors, as well as other external stability factors.

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2.3.2 Aversion to Risk On one hand, in a risk-averse society, not only is the entrepreneur risk averse but so is the lender or investor, which makes the business startup more costly, with a lower potential for success. This may pose a serious barrier to the entrepreneur. On the other hand, risk aversion may contribute to entrepreneurial success. Some risk-averse people, long deemed inherently ill-suited to entrepreneurship, might actually be well- suited to this occupation after all (Hsieh, Parker, Van Praag 2011). Nevertheless, evidence points to risk aversion as one of the barriers to entrepreneurship. Hence, the first hypothesis in this study is: H1: Risk aversion has a significant negative impact on entrepreneurial inclination. 2.3.3 Aversion to Stress and Hard Work It can be expected that the process of initiating a business involves stressful work activities, follow up work, meeting timelines, and dealing with exhausting demands of the startup and its ups and downs. All this may inflict aggravation on the entrepreneur and may disrupt his/her life, routine, and work/life balance. Therefore, aversion to stress and hard work is considered a psychological factor that posits as a barrier to entrepreneurial activity. Hence the second hypothesis in this study is: H2: Aversion to stress and hard work has a significant negative impact on entrepreneurial inclination. 2.3.4 Fear of Failure If the entrepreneur fails, this has many psychological implications. It affects one’ self- esteem, confidence, and trust in one’s abilities. It is not surprising that fear of failure is yet another significant barrier to entrepreneurship. About 21% of the Lebanese population (between 18 and 65 years of age) declare that fear of failure prevents them from pursuing entrepreneurial ventures (Global Entrepreneurship Monitor 2009). It is deemed important by the researchers to further investigate the effect of fear of failure on entrepreneurial inclination in Lebanon. Hence, the third hypothesis in this study is: H3: Fear of Failure has a significant negative effect on entrepreneurial inclination. 2.3.5 Lack of Social Networking Social networking is considered to be a common daily activity that relates to all aspects of life, especially in developing nations. For example, in China, networking is used at all levels of social life (Luo 2000). It is especially important in Chinese business because an entrepreneur’s connections are often a critical success factor (Yeung & Tung 1996). Along the same lines, Sandhu, Siddique & Riaz (2011) argue that in a developing country such as Malaysia, social networking is an important factor in influencing entrepreneurial activities. As such, lack of social networking can hinder entrepreneurial intentions, they point out. Hence, the fourth hypothesis in this study is: H4: Lack of social networking has a significant negative impact on entrepreneurial inclination.

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2.3.6 Lack of Resources Entrepreneurs have a universal need: the need for resources, especially adequate funding. In developing nations, it is clearly difficult for entrepreneurs to raise funds for starting their business. Apart from banks, there are very few funding agencies, and venture capitalists and business angels are, with a few exceptions, almost unheard of. In Lebanon, sources of funds for entrepreneurs are little and are limited to commercial banks. To help entrepreneurs obtain funds from local banks, there are organizations like Kafalat which is a Lebanese financial company with a public concern that assists small and medium sized enterprises (SMEs) to access commercial bank funding. Kafalat helps SMEs by providing loan guarantees based on business plans / feasibility studies that show the viability of the proposed business activity (Kafalat 2012). However, informal investments in an entrepreneur’s startup have not exceeded 2% of the population (Global Entrepreneurship Monitor 2009). This accentuates the fact that funds are quite difficult to raise for entrepreneurial ventures, and that lack of resources may pose as a barrier to entrepreneurship. Therefore, the fifth hypothesis in this study is: H5: Lack of resources has a significant negative impact on entrepreneurial inclination. 2.3.7 Lack of Economic Stability Through the course of their development, economic instability remains a common characteristic of developing countries, despite the general upward trend of their growth rates. A developing economy is subject to variations in aggregate demand, investment, exports, and exchange rates, making it difficult for a startup to pull off and survive. The unfavorable state of the economy may negatively affect entrepreneurship (Baena 2012). The negative effects are accentuated if the lending institutions become more conservative, thereby reluctant to extend credit to entrepreneurs. Thus, the sixth hypothesis is: H6: Lack of economic stability has a significant negative impact on entrepreneurial inclination. 2.3.8 Lack of Political Stability Political stability is essential for stimulating entrepreneurship in developing nations (Baena 2012). In a study using structural equation modeling to depict precursors to entrepreneurial intentions, Ali, Tajddini, Rehman, Ali, and Ahmed (2010) found that political instability had negative effects on entrepreneurial intentions. However, there is no conclusive evidence linking entrepreneurship to political stability, making this relationship worthy of further investigation. Therefore, the seventh hypothesis in this study is: H7: Lack of political stability has a negative impact on entrepreneurial inclination. 2.3.9 Demographics It is expected that demographic factors like age, gender, education, employment status, and income may have some effect on entrepreneurial inclination. Many studies were conducted to examine the effect of demographic factors, and the results were not

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conclusive. Hence, to further investigate the effect of demographic variables on entrepreneurial inclination, an eighth hypothesis is suggested: H8: Demographic factors have a significant impact on entrepreneurial inclination.

2.4 Conceptual Framework

The model underlying this study suggests that independent variables related to the psychological school, the business environment, and environmental stability, have a significant effect on entrepreneurial inclination. Figure I presents the conceptual framework underlying this study.

Conceptual Framework for This Study

Figure I. Conceptual Framework for this study

3. Research Methodology A sample of 101 surveys was used to assess entrepreneurial inclination among different members of the population: college students, employees, unemployed individuals, and entrepreneurs. Such a wide variety of respondents provides a better understanding of people’s perceptions about starting a business since anyone of them can be an existing or potential entrepreneur. The questionnaires were distributed by researchers who waited for the respondents to complete the surveys and then collected them in person, thus obtaining a 100% response rate. The survey instrument consisted of a total of 27 items, 7 of which were related to demographics, and 20 were related to individual perceptions, measured on a 5-point Likert scale, ranging from 1 (strongly disagree) to 5 (strongly agree). Each item was presented in both languages: English and Arabic since not all respondents were proficient in English. The sample size of 101 surveys was deemed appropriate since the authors were following the dominant rule which specifies a sample size 4-5 times the number of items in the questionnaire. In this case, 20 perceptual questions warranted a minimum of 80 to 100 usable questionnaires.

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Reliability measures the internal consistency of the scale, and Cronbach’s alpha is used as an indication of reliability. An alpha > 0.7 is recommended (Nunnally 1978), but an alpha > 0.6 is acceptable for exploratory research (Hair, Bush & Ortinaou 1995). For this study, Cronbach’s alpha was 0.61 which is acceptable since this study is exploratory and our data is primary. The data was subjected to several statistical tests. Analysis of variance was run on demographic variables to see if they are in any way correlated with entrepreneurial inclination. Factor Analysis was conducted to identify the small number of factors that may have some influence on entrepreneurship inclination in Lebanon. Later, regression analysis was run on the identified factors to assess their importance in predicting entrepreneurial inclination. The Statistical Package for Social Sciences (SPSS 19.0) was used for data analysis, whose results will be displayed in the next section. All previous studies conducted in Lebanon were merely frequency statistics that did not address correlative relationships between variables. Furthermore, though there were numerous previous studies about entrepreneurship in developing countries, as evidenced by the above literature review, however, they did not employ this chosen research methodology on the above selected combination of variables, hence, the originality and value of this particular study.

4. Data Analysis and Findings 4.1 Profile of the Respondents The age group of the respondents was relatively young, i.e. 56.4% of the respondents were between 20 and 29 years of age, 32.7% were between 30 and 39 years old, while only 8.9% were above 40 years old. The data for gender showed that 60.4% of the respondents were males, while only 39.6% were female. Most of the respondents (67.3%) were single, while only a third (30.7%) were married. Over 66% of all respondents had a college degree, and about one third (33.7%) had only a high school degree. The employment status of the respondents well reflected the population, as over a quarter of the respondents (26.7%) were unemployed. An almost similar percentage (22.8%) was self-employed, while 46.5% were employed in organizations belonging to either the private or the public sector. Most of the respondents (46.5%) earned a monthly income between $500 and $1000, while a slightly smaller percentage (32.7%) earned between $1,000 and $3,000. Almost 12% of respondents earn below $500. Table I clearly presents the demographic characteristics of the respondents. 4.2 Cross-tabulation of Entrepreneurial Inclination with Demographic Variables Respondents were highly inclined to start their own business as the mean for this dimension reached 3.55 on a 5-point Likert scale. Moreover, almost two thirds of the respondents (59%) expressed an inclination to start a business, and answered strongly agree or agree. Only 27% of the res

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