Abstract small-scale enterprise, hence we use the terms entrepreneur

Abstract

Purpose

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The
purpose of this paper is to provide a framework for mapping out
innovation models and entrepreneurship in Africa

Design/methodology/approach
The
study undertakes a review of the existing development economics and
entrepreneurship literature to determine the need for the framework
and how to proceed in developing it.

Findings
The
literature review informs that although enterprise-led growth
provides a greater promise for absolute poverty reduction,
policymakers lack guidelines on how to identify those with highest
potentials for job creation and tax revenue generation. Furthermore,
African entrepreneurs can purposefully be classified in terms of
their motives and degree of innovation. The classification produces a
2×2 matrix that maps out the growth capabilities of businesses found
in a given country or community.

Research
limitations/implications
The
framework provides researchers and policymakers with descriptive
categories that can guide their strategies and decisions.

Originality/value
Introducing
innovation-imitation dimension into the framework extends and
improves previous typologies of small enterprises available in the
literature.
Historically,
entrepreneurs have always played a central role in the development of
nation states. Aside from rentier states, which depend extensively on
the availability of mineral resource rents, most economically
prosperous nations in the world have strong, innovative and
competitive business enterprises and entrepreneurs as the bedrock of
their economic development and prosperity. It was arguably because of
the above historical fact that the World Bank in 1989 declared that
entrepreneurs will play a central role in transforming African
economies.

Background/Introduction
Entrepreneurs
are individuals who identify market needs and launch firms to meet
those needs. Unlike salaried employees, entrepreneurs assume
ownership risks. In this article, as in most literature on
entrepreneurship, entrepreneurs include not just the founders of
business firms but also “second-generation operators of family
owned firms, franchisees, and owner managers who have bought out the
founders of existing firms” (Longenecker, Moore, and Petty,
2003, p. 9). Although the terms entrepreneur and small business
manager are not synonymous, most entrepreneurship begin as small
businesses. Currently, most African entrepreneurs manage their
small-scale enterprise, hence we use the terms entrepreneur and small
business interchangeably in this article. Consistent with the
definition of a small business by the African Development Bank and
the International Finance Corporation, we define a small business as
a firm with less than 50 employees or assets of less than $15
million.As
consumer preferences across national markets converge, trade barriers
fall, and national economies integrate to form a global economic
system, increasing numbers of small businesses across national
markets are taking advantage of trading opportunities engendered by
the globalization of markets and production. The potential for global
sales is clear, but does it extend to small businesses in Africa?
Some observers have noted that African countries are falling behind
in this global economic race (Zeng, 2008). This is a serious matter
because of the key role that entrepreneurs and small businesses play
in job creation and economic growth in every country. Despite the
fact that small businesses are the engines that drive economic growth
in most economies, small scale enterprises in Africa are at a great
disadvantage in this race for growth and profitability.The
objective of this article is to examine the challenges and
opportunities facing small scale businesses in Africa and make
suggestions that will help in solving some of these problems and
enhance the participation of small African firms in the global
marketplace. The paper also highlights opportunities for growth and
profitability in the global marketplace for these firms.
Understanding the challenges and difficulties faced by entrepreneurs
in Africa will be important if African governments are to come up
with policies which will stop their small businesses from being swept
away by rapid changes taking place in today’s global economy. The
rest of the paper is divided into three sections. The first section
examines some of the major challenges facing small scale enterprises
in Africa. The second section highlights some opportunities available
to African entrepreneurs in today’s global economy. The article
concludes with recommendations for addressing these challenges and
enhancing the competitive ability of small African firms. The focus
in this article is largely on indigenous entrepreneurs and small
businesses.

Statement of
the Problem
Long-standing
issues have combined to endanger the ability of small firms in Africa
to survive in today’s global economic system. Some of the key
challenges include: globalization of markets and production, lack of
financial support, poor infrastructure, international expansion
issues, and government assistance and support

Literature
review

Findings

Economic development
requires sustainable and shared increases in per capita income
accompanied by changes in the structural composition of an economy
towards higher value added goods and more efficient production
methods. Entrepreneurs can contribute to economic development by
facilitating the reallocation of resources from less to more
productive usesby performing ‘cost-discovery’, ‘gap-filling’,
and ‘input-completing’ functions in the economy ( and by
supporting structural change.

A neglected function
is the potential role of entrepreneurs as innovators in Africa.
Joseph Schumpeter pointed out a century ago that entrepreneurs are
often innovators, bringing new goods and technologies to markets,
opening up new markets, processes, and ideas, and commercializing new
knowledge. But, it is often mistakenly suggested that innovation by
entrepreneurs is less important for growth in low-income Africa than
in more advanced economies.

In this perspectives
on three broad questions pertaining to innovation and
entrepreneurship in Africa are highlighted. How does innovation
impact on development? How and under what conditions do entrepreneurs
in Africa innovate? And, what can be done to support innovation by
entrepreneurs in Africa?

Entrepreneurship is
the ‘discovery and exploitation of opportunities’ (Shane and
Ventakaraman 2000).2 Baumol (1990) recognized that not all
opportunity exploitation will necessarily be in society’s best
interest, and he defined entrepreneurs very broadly as ‘persons who
are ingenious and creative in finding ways that add to their own
wealth, power, and prestige’ (ibid.: 987). Thus entrepreneurial
talent can be allocated in ways that retard economic development.

Although we
recognize that the ‘reward structure’ of a society can lead to
such a destructive allocation of entrepreneurial talent, we will in
this book be focusing on productive entrepreneurial activity. This
consists of the creation, recognition, and utilization of positive
opportunities within existing firms (or through creation of new
firms) in such a way that involves ‘innovation’—or the
provision of ‘new combinations’.

The three main
conceptual approaches to entrepreneurship can be distinguished as:
The first approach focuses on the entrepreneurial function, the
second on the performance of enterprises and the third on
owner-operated enterprises. The functional perspective is concerned
with the dynamic actors that make key decisions on investment,
production, innovation, location, or research and development. This
conception of entrepreneurship is broader than that of entrepreneurs
who run their own businesses. It also includes managers of
multinational firms, state enterprises, or non-profit organizations
and a variety of dynamic intrapreneurs within organizations.

A broader approach
refers to innovation as the development of new products, new
processes, new sources of supply, but also to the exploitation of new
markets and the development of new ways to organize business. One can
distinguish between more incremental innovations and more radical
innovations. An important distinction in the innovation is between
innovations that are new to the world, innovations that are new to
the domestic market or innovations that are new to the firm
(Fagerberg 2005). Innovations that are new to the world are primarily
found in the advanced economies. They are based on research and
development at the frontiers of global knowledge. In Africa far
removed from the international technological frontier, innovations
will tend to be new to the market or new to the firm.

Innovations new to
the market in Africa refer to the international diffusion and
absorption of technology. The domestic firm introduces innovations
which have already been developed elsewhere, but which are new to the
market in their own country. Innovations new to the firm refer to
knowledge flows within the domestic economy. The innovation is
already present in the market, but is now adopted by a given firm.
This last concept of innovation comes closest to the Rogerian concept
of innovation (Rogers 2003). What is new to the firm may not be very
innovative in any objective sense. It may be simply introducing a
machine for moulding handles of kitchen knives, rather than doing it
by hand or introducing a new oven for hardening ceramics (as
discussed by Voeten, de Haan, and de Groot). This means that some
kinds of innovation that are new to small firms in Africa may coexist
with stagnant economies and increasing technology gaps relative to
the international frontier.

The primary interest
is in the kinds of innovative behaviour that promote economic
dynamism and catch up at country-level. Like entrepreneurship,
innovative performance has been measured in a variety of ways, using
patents, trademarks, R&D inputs, and other secondary indicators
such as publications or citations. Since the 1980s, increasing use
has been made of innovation surveys amongst firms.

From a developmental
perspective, it therefore makes analytic sense to distinguish
entrepreneurship and innovation as distinct key forces in
development. Some entrepreneurs are much more innovative than others
and firms managed and owned by entrepreneurs are not the only sources
of innovation.

The impact of
innovation on development Innovation is central to modern theories of
growth and development (Verspagen 2005). Along with the traditional
factors such as costs, technological product, and process,
innovations have become the key to competitiveness and business
success. Competition in the global economy has increasingly become
knowledge-based. Even in supposedly traditional economic sectors such
as textiles, leather, or food processing innovation and technological
advance has become the key to growth (c.f. Mytelka 1999). The same
holds for service sectors such as distribution and retailing,
financial services, and ICT services. Innovation is also intimately
tied up with changes in the structure of the economy, technological
upgrading in production, and moving to higher value added activities
in global value chains.

Technological change
is embodied in new generations of machinery and equipment and new
generations of better educated workers. There are also disembodied
advances in product and process technology, which result from formal
and informal investment in R&D, capabilities, and on-the-job
learning. Embodied and disembodied technological change raises total
factor productivity—which has been found to explain more than half
of the variation in economic growth rates between countries. But it
not only raises the quantity of economic output, but also the quality
and nature of what is produced. It results in an ever wider range of
new goods and services.

People living in the
first decade of the twentieth century did not know modern dental and
medical equipment, penicillin, bypass operations, safe births,
control of genetically transmitted diseases, personal computers,
compact discs, television sets, automobiles, opportunities for fast
and cheap worldwide travel, affordable universities, central heating,
air conditioning …technological change has transformed the quality
of our lives. Both endogenous growth theory and evolutionary growth
theory emphasize that the traditional factors of production such as
labour or capital are subject to diminishing returns, while
investment in knowledge has increasing returns due to positive
externalities and knowledge spillovers between economic actors (e.g.
Romer 1990).

Endogenous growth
theory argues that the most advanced economies with their superior
systems of innovation profit more from investment in knowledge than
less advanced economies. First, R&D efforts and scientific
research are still overwhelmingly concentrated in the most advanced
economies (Szirmai 2008, 2011). Next, the flow of knowledge and
technology from first movers to followers is very rapid, so that
innovations quickly diffuse throughout the economy. Endogenous growth
theory thus helps us understand the process of divergence in per
capita incomes between rich and poor countries in the world economy.

However, innovation
and technological advance can also result in accelerated catch-up in
Africa. What endogenous growth theory fails to capture is the fact
that in an increasingly unequal world economy, several Africa have
experienced rapid economic catch-up. They were able to absorb and
creatively adapt international technological knowledge to achieve
accelerated growth. Gerschenkronian and evolutionary growth theories
argue that latecomer economies may profit from the advantages of
technological backwardness. They can benefit from global diffusion of
technology. They can access new technologies without bearing all the
costs and risks of investment in new knowledge.

Amsden’s ( 3)
argues that privately owned domestic firms in East Asia were better
at adopting and absorbing technologies from advanced economies than
foreign-owned firms. Stam and van Stel ( 4) highlight how the
adoption of foreign technology provides entrepreneurs with a
potential to create new markets and contribute to structural change
and self-discovery. Whether Africa are able to profit from the
advantages of technological backwardness clearly depends on their
social capabilities and absorptive capacities. Hence, importantly for
Africa, innovation does not only refer to the development of new
products or processes, but also to the capacity to creatively absorb
technology.

Traditional
macroeconomic growth theory is a black box which relates inputs and
outputs. The study of entrepreneurship opens this black box and
allows us to analyse the characteristics and choices of different
types of firms and entrepreneurs that are responsible for capital
accumulation, hiring of workers, structural change, and the
development or adoption of new technologies (for a modelling approach
see Gries and Naudé 2010 and 2 by Audretsch and Sanders). The
entrepreneurs are the actors that respond to opportunities, threats,
uncertainties, constraints, and incentives emanating from the
economic environment in which they operate.

This puts
entrepreneurship at the heart of economic growth, development, and
catch-up. By innovating and commercializing inventions and by
adopting innovations developed by others, developing country
entrepreneurs affect the rate of technological change and the
structural transformation of the economy. Entrepreneurs,
commercializing technology, often through creation or expansion of
firms, apply and spread technology in a way which raises total factor
productivity. The creativity, capabilities, dynamism, and
innovativeness of the entrepreneurs in a country are important
aspects of the absorptive capacity, which is such a distinctive
characteristic of successful development experiences. How
entrepreneurs perform this function will vary across various stages
of a country’s development.