THE IMPACT OF HOUSEHOLD INCOME ON BEING A POTENTIAL ENTREPRENEUR by DR.PURNA PRABHAKAR NANDAMURI (corresponding Author) Assistant Professor, IBS, IFHE University, Hyderabad, Andhra Pradesh, India. Mobile: +919440661551, E mails:
[email protected];
[email protected] & Mrs.Ch. GOWTHAMI Assistant Professor, ITM Business School, Hunter Road, WARANGAL -506001; Andhra Pradesh, INDIA. Mobile: +919849789131;
E mail:
[email protected]
ABSTRACT The advancement of an economic system depends on the emergence of new generation entrepreneurs. It is appropriate to spot out the influence of the fundamental socio-demographic factors on entrepreneurial orientation. The purpose of this study is to analyze the association of household income with entrepre3neurial resourcefulness of management students. A sample of 200 final year post-graduate management students, selected randomly from 20 management institutes, were served with a structured questionnaire to be marked on a five-point scale The responses were tested with ANOVA and multiple comparisons were made and the relevant box plots were derived for inter-group comparison with the help of SPSS-19. The findings establish that household income had a profound impact on entrepreneurial resourcefulness.
KEYWORDS Entrepreneurial orientation, Entrepreneurial resourcefulness, Socio-demographic factors, Household income, Entrepreneurship.
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INTRODUCTION Prevailing over the menace of unemployment has been a target for the policy makers as well as the implementers. One of the futuristic options available is creating opportunities of selfemployment or entrepreneurship. One can create opportunities for his/herself and become an earning source by opting entrepreneurship as a career. Alam (2009) noted that entrepreneurship is like an engine for the development of the economy, creation of jobs and social adjustment of the economies of developing nations. The tempo and advancement of an economic system largely depends on the emergence of new generation entrepreneurs. A survey of Mckinsey and NASCOM estimates that 110 to 130 million Indians will be searching for jobs by 2015 (Popli, 2010). Policymakers and academics around the globe agree that the role and pace of entrepreneurship is significant for the development of society. Hence, fostering entrepreneurial awareness and positive attitudes towards entrepreneurship are high on the policy agenda of several economies (OECD, 2010). At the same time what one understands entrepreneurship to be is not always viewed equally and this hinders making fact-based policy (GEM, 2011). The idea is that, for individuals, nascent attitudes and perceptions about entrepreneurship affects those planning to venture into. Hence, it is the obligation on the prevailing education system, apart from the other institutions existing, to charge the graduating youth with entrepreneurial orientation. Researchers have identified various determinants of entrepreneurship. As per the Global Entrepreneurship Monitor - 2002 report, around 12% of adult population was involved in entrepreneurial activities among 37 countries representing 62% of the world population. While less than 3% of adults were involved in entrepreneurial endeavors in Japan, Russia and Belgium, more than 18% were so engaged in India and Thailand. Thus the level of entrepreneurial activity was observed to be the highest in the developing Asian countries. The salience of entrepreneurship in India has been intensifying in recent times. The percentage of entrepreneurial activity in India was 17.9%, as compared to United States-10.5%; UK-5.4%; and Japan-1.8% (GEM, 2002). In a recent survey by the Deloitte group, India ranks 2nd globally as home to the fastest growing technology firms. In a survey conducted by the National Knowledge Commission, of the 95% who valued education as a foundation for entrepreneurship, 53% consider education a key trigger to evoke entrepreneurial orientation (NKC, 2008). Entrepreneurial orientation refers to the processes, practices, and decision-making activities that
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lead to new entry (Lumpkin & Dess, 1996). Entrepreneurship is a process of opportunity identification and the creation of an organization to exploit the opportunity. Entrepreneurial behaviour is defined as the constellation of functions, activities and actions involved in the perception of opportunities and the creation of organizations. An emergent body of research seeks to spot out fundamental factors that motivate individuals towards entrepreneurial activity. Some of these factors relate to specific individual differences in family background, education, age, sex, or personal attributes (Zhao et al, 2005). It is not only the skills but also some other factors like family background, personal characteristics, entrepreneurial support, social recognition, and risk-taking capability that matter in nurturing a successful entrepreneur. Factors affecting entrepreneurship can be grouped under four main headings; demographic factors, social factors, psychological factors and external factors outside of them. The contents of demographic/personal factors are age, marital status, gender, income level and education. Social factors can be considered as culture and society, family and religious values (Stephen, 1998). Previous research shows that entrepreneurs have the ability to act quickly during the emergence of new opportunities, and that there is an important relationship between the capabilities of the entrepreneur and the activities (Hardy, 1999). In terms of individual approach, demographic variables have an important role in being entrepreneurial. In addition, many factors such as age, marital status, socio-economic status, individual background and family income affect being entrepreneurial (Coulter, 2001). However, from the review of the earlier researches, it can be concluded that entrepreneurial characteristics are not universal. There is no precise regulation or a set of traits independent across situations to guide the entrepreneur to success. Psychological characteristics like ability to take risk and desire to be successful stand against common apprehensions associated with entrepreneurial success. Socio- Economic features like caste, parental background, technical and professional education, financial backup, location advantage and easy access to market are also found to have strong correlation with entrepreneurial success (Azhar, 1999). ENTREPRENEURIAL RESOURCEFULNESS Being resourceful is the key to becoming a successful entrepreneur. Resourcefulness is an important heuristic that extends beyond other cognitive constructs such as self-efficacy and awareness. Both research and practice suggest that resourcefulness as a construct has cognitive, affective, and behavioral components that allow it draw from ‘the tool bag’ of other skills.
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Resourcefulness offers the field of entrepreneurship a rich construct that combines not only the creative use of financial resources, but also numerous non-financial resources that lead to firm survival and firm performance (Bradley & Mitchell, 2005). Entrepreneurial resourcefulness refers to the ability to self-regulate and direct one’s behaviour to successfully cope with difficult, stressful and challenging situations (Meichenbaum, 1977). Entrepreneurial resourcefulness comprises of three generic competencies - cognitive, affective and action-oriented (Kanungo & Misra, 1992). Entrepreneurial behaviour is a function of entrepreneurial resourcefulness. Sasi and Sendil (2000) argue that by hypothesizing that entrepreneurial resourcefulness influences entrepreneurial behaviour, the predictive power can be enhanced. Min (1999) includes creativity, visionary, optimistic and innovator in the top ten attributes that entrepreneurs share. Gartner (1990) and Saayman et al. (2008) also support the importance of innovation in entrepreneurship. Drucker (2002) says that all the entrepreneurs he has ever met have ‘a commitment to the systematic practice of innovation’ Levitt (2002) argued that creativity may be ‘more of a millstone than a milestone’ because of the shortage of creative people in business. According to Russell and Faulkner (2004), it is through times of upheaval that entrepreneurs are often resourceful by spotting opportunities in the environment and using their creativity to bring about innovation. Thus, all the findings suggest resourcefulness as a key attribute for an entrepreneur. However, the nature of the relationship between entrepreneurial resourcefulness and other relevant factors in entrepreneurship has not been made explicit or empirically testable to date. As entrepreneurial orientation theories have emerged primarily from research among the developed countries, it is vital to observe the scope to which these apply in the milieu of developing countries such as India where the policy makers are looking upon the under-25 population as the future pool of entrepreneurs and employment originators. The purpose of this study is to verify the extent of the influence of the factor of household income on entrepreneurial resourcefulness of management students and to suggest reforms to the curriculum of entrepreneurial education. HOUSEHOLD INCOME Financial wealth provides another important precursor of entrepreneurial growth aspirations. High-income households are not only able to better provide the necessary financial resources to fuel entrepreneurial firm growth, but high-income households are, because of their social position, more likely to see more entrepreneurial growth opportunities (Dunn & Holtz, 2000). Exogenous influences, like demographics, society, traits, financial support, and culture, affect the
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attitudes and also the intentions indirectly and behaviors to become entrepreneurs (Shapero & Sokol, 1982). Out of the exogenous factors family support is one of the most important as it proves to be backup of the entrepreneur. Family characteristics have implication on emergence of new business, recognition of opportunity, start up decisions and resource mobilizations (Aldrich & Cliff, 2003). Financial resources in the family have direct bearing on entrepreneurial intentions (Raijman, 2001). A series of studies (Evans & Jovanovic, 1989) has identified that a lack of financial resources constrains new and small firms. The theory of liquidity constraints assumes that a major concern of emerging entrepreneurs is obtaining finance, which would imply that the receipt of capital increases an individual’s likelihood of becoming self-employed, both through the direct supply of capital and through the increased likelihood of bankers providing capital. However, research on nascent entrepreneurship has shown mixed evidence and has generally found no effects of household wealth and income (Kim et al., 2003) but a positive effect of individual income (Van Gelderen, 1999). The family support model used to explain the financial or social support of their families (Timmons, 1994). Wang & Wong (2004) found that the parents’ financial and social status were not significantly influence on the self employment. REVIEW OF LITERATURE The entrepreneurial attitudes of business students have been the focus of several recent multi country studies. Akhtar et al (2011) found a significant impact of parents’ income on entrepreneurial acceptability of the university students at University of Karachi, University of Balochistan Quetta and Gomal University D I Khan in Pakisthan. Jorunn et al (2011) studied the relationship between resources, entrepreneurial orientation and performance in farm-based ventures and found that financial capacity, unique competence and entrepreneurial efforts influence performance in the investigated firms. Sujani (2011) found that there was no significant relationship between family income and overall entrepreneurial intention among the students in Srilanka. Hence, the family income factor has not affected on the entrepreneurial intention of academics. Further, this study reveals that field of study, education level, gender and family business experience significantly affected the intention in starting one’s own business while the financial ability of the undergraduates’ family is not related to their business interest. Linda and Helena (2010) explicated the roles that both objective environmental conditions and entrepreneurial perceptions of opportunity and resource availability play in the process of firm creation. Utilizing longitudinal data on nascent entrepreneurs, it was found that the
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entrepreneurs' opportunity perceptions mediate between objective characteristics of the environment and the entrepreneurs' efforts to start a new venture. Contrary to the pre-research expectations, a similar mediating effect for perceived resource availability was not found. The findings of Erkko and Zoltan (2010) suggested a positive relationship between an individual's household income and growth aspirations. Cindy et al (2010) found that demographic factors such as gender, household incomes and student status were positively related to their entrepreneurship intentions of students studying at three universities in China. A recent study (Frazier & Linda, 2008) of family and consumer science students determined that self-efficacy beliefs related to self-employment were positively influenced by exposure to entrepreneurship through family, work, and educational experiences. Erkko and Zoltan (2007) found that household income was shown to be a particularly strong predictor emphasizing the importance of financial assets and social capital for entrepreneurial growth expectations. The significant influence of household income on growth aspirations may be due to several reasons. It may indicate that entrepreneurial growth opportunities may be, to some extent, socially stratified. Household income is an important determinant of one’s social class. High-income households may have better social connections, and they therefore may get to see better growth opportunities. Another possible mechanism may concern resource acquisition. It may be that high-income households are simply better able to act on the opportunities that they see by mobilizing their household wealth for the pursuit of entrepreneurial growth. A high household income may also create an expectation for a certain lifestyle, the pursuit of which could then be reflected on entrepreneurial growth aspirations. Kim et al. (2006) found no significant effects of household income and wealth on entrepreneurial entry. Both studies attributed the findings to the limited resources required for start-ups which are often small in size. Mueller (2006) also found no significant effects of household income on an individual being a nascent entrepreneur. However, Henley’s (2005) findings established significant positive effects of housing equity on self-employment. These were supported by Hundley (2006) who found that family income is significantly associated with the probability of self-employment. Examining the importance of family financial capital on the transition into self-employment of youths, Dunn and Holtz-Eakin (2000) found positive and significant effects at both the individual and family level. Chan (1996) attempted to investigate the correlates of entrepreneurial orientation of vocational and technical students along five categories, namely: (1) students' personal
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characteristics (2) family-related matters (3) school-related matters (4) working experience and (5) environmental factors. The findings of this study showed that entrepreneurial orientation was affected by each of the variables under the following three categories: school-related matters, working experience, and environmental factors. However, it was found that not all the variables under the categories of students' personal characteristics and family-related matters were significantly affecting entrepreneurial orientation. Under the category of students' personal characteristics, statistical results indicated that gender has significant effect on the entrepreneurial orientation of students. On the contrary, ethnicity showed no significant difference in entrepreneurial orientation, with all the ethnic groups showing similar level of entrepreneurial orientation. Other than that, findings on family-related matters revealed that there were no significant differences in entrepreneurial orientation along family income, parents' education, and parents' occupation respectively. Some studies also argued that individuals with little capital also pursue an entrepreneurial career out of necessity (Mueller, 2006). In view of the contradictory empirical evidences, the present study aims to contribute to the existing literature on the association between the household income and entrepreneurial orientation of potential entrepreneurs. OBJECTIVE The principle aim of this research is to identify the association between household income and entrepreneurial resourcefulness. HYPOTHESIS That the family income exerts is a strong influence on entrepreneurial resourcefulness of management graduates. METHODOLOGY The most probable source of future entrepreneurs is the youth of a country. They are the product of the society and reflect the prevalent attitudes (Veciana, Aponte, & Urbano, 2005). Therefore it was decided to study the youth studying in colleges. A sample of 200 final year postgraduate management students were selected randomly from leading management institutes in Warangal region of the state of Andhra Pradesh. The respondents were served with a questionnaire schedule containing 6 statements (Table 1) adopted from the EAO scale of Robinson et al. (1991) (to be marked on a five-point scale, denoting 5 = strongly agree; 4 = agree; 3 = unable to answer; 2 = disagree; and 1 = not at all). The responses are tested with
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ANOVA and multiple comparisons were made through post-hoc test (Tucky HSD) for observing variations with the help of SPSS-19. Table-1: Entrepreneurial resourcefulness with components
Inference
S.1. I have specific goals in my life
Goal orientation
S.2. I always try to be innovative and creative
Innovativeness
S.3. I spend some time every day on new ideas
New ideas
S.4. I try to invent new product/service or improve existing one Invention skill S.5. I try to take-up problems that nobody has looked at yet
Problem solving
S.6. I can take control in unstructured situations
Controlling
RESULTS AND ANALYSIS The monthly household income has been categorized into three ranges for the purpose of the present study as follows: i.
More than `50000 per month
ii.
Between `20000 - `50000 per month - Middle income range, and
iii.
Less than `20000 per month
- High income range
- Low income range
Each component of resourcefulness is tested for variance between the three income groups and the corresponding means are compared for an in-depth understanding (Table-2). After multiple comparisons of the mean values of the three groups through Tukey’s technique, corresponding ‘box plots’ also have been generated to make the analysis more comprehensive. It is a common observation that a data exploration should always begin by looking at a graphical display of the data. Box plots can be used to summarize complex results from multivariate analyses. The Box plot is used to visually identify patterns that may otherwise be hidden in a data set. The box plot gives graphical information of the location, dispersion and the skewness of a data set. Further it draws attention to certain potential outliers and allows a visual appreciation of lack of symmetry. Thus comparative box plots pertaining to the competency of entrepreneurial resourcefulness are used to compare the defined three ranges of monthly household income of the respondents.
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Multiple Comparisons: Post Hoc (Tukey HSD) (I) Monthly (J) Monthly Mean Vs F Sig. household household income Difference income range (I-J) 47.436 .000 High Middle 1.94608* S1 - I have specific goals in my life Low 1.59848* 47.983 .000 High Middle 1.94608* S2- I always try to be Low 0.87121* innovative and creative Low Middle 1.07487* 218.359 .000 High Middle 2.44118* S3- I spend some time every day on new ideas Low Middle 2.21390* 52.735 .000 High Middle 1.94608* S4- I try to invent new Low 0.78030* product/service or improve existing one Low Middle 1.16578* 34.671 .000 High Middle 1.50980* S5- I try to take-up Low 0.60606* problems that nobody Low Middle 0.90374* has looked at yet 39.556 .000 High 1.48529* S6- I can take control in Middle unstructured situations Low 1.14439* * The mean difference is significant at the 0.05 level. Table-2: Resourcefulness Household income.
ANOVA
Discussion: A) Variance: The statistically significant F values (Table-2) obtained through ANOVA for goal orientation (47.436); innovativeness - 47.983; new ideas-218.359; invention skill - 52.735; problem solving - 34.671) and controlling skill -39.556, imply the existence of differences of perception among the respondents from three different household income ranges regarding resourcefulness as an essential competency. B) Multiple Comparisons: Further, the multiple comparison of the means of the three groups through Tukey technique establish that the respondents with a higher household income (> `50000) yield relatively high mean values on all the components of resourcefulness differing significantly at 0.01 level with the other two groups belonging to middle (between `50000 `20000)
and lesser (< `20000) monthly household income ranges respectively (Table-2).
Regarding the component of goal orientation, the respondents from higher monthly household income differ with those of middle range household income by a mean difference of 1.94608 and from those hailing from low family income range with a mean difference of 1.59848. Thus, the respondents hailing from high-income families stand ahead of the other two groups on their preference for goal orientation. Similarly, the same group stays ahead of those
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from middle range family income on the component of innovativeness with a mean difference of 1.94608; 2.44118 for new ideas; 1.94608 for invention skill; and 1.50980 for problem solving. The respondents hailing from low household income range stand in between the groups with high and middle household incomes on all these components. Regarding controlling skill, both the high (> `50000) and low (< `20000) household income groups differ with the middle range income group (`20000 - `50000) with the significant mean differences of 1.48529 and 1.14439 respectively. C) Box Plots: The observations from the corresponding box plots are explained in terms of location, dispersion and skewness of the responses of the three groups. Comparison of Location: The median of higher family income (> `50000) group (4.5000) is greater than those of low ( `50000) is shorter than that of middle income (`20000 - `50000) background (2.00) which in turn is shorter than the range (3.00) for low household income (
