LABOR FLEXIBILITY AND THE PREVALENCE OF HIGH-GROWTH ENTREPRENEURIAL ACTIVITY

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1 Frontiers of Entrepreneurship Research Volume 28 Issue 18 CHAPTER XVIII. INTERNATIONAL ENTREPRENEURSHIP Article LABOR FLEXIBILITY AND THE PREVALENCE OF HIGH-GROWTH ENTREPRENEURIAL ACTIVITY C. Christopher Baughn Boise State University, USA, cbaughn@boisestate.edu Jeff Sugheir Boise State University, USA Kent E. Neupert Boise State University, USA Recommended Citation Baughn, C. Christopher; Sugheir, Jeff; and Neupert, Kent E. (2008) "LABOR FLEXIBILITY AND THE PREVALENCE OF HIGH- GROWTH ENTREPRENEURIAL ACTIVITY," Frontiers of Entrepreneurship Research: Vol. 28: Iss. 18, Article 1. Available at: This Paper is brought to you for free and open access by the Entrepreneurship at Babson at Digital Knowledge at Babson. It has been accepted for inclusion in Frontiers of Entrepreneurship Research by an authorized administrator of Digital Knowledge at Babson. For more information, please contact digitalknowledge@babson.edu.

2 Baughn et al.: LABOR FLEXIBILITY & PREVALENCE OF HIGH-GROWTH ACTIVITY LABOR FLEXIBILITY AND THE PREVALENCE OF HIGH-GROWTH ENTREPRENEURIAL ACTIVITY C. Christopher Baughn, Boise State University, USA Jeff Sugheir, Boise State University, USA Kent E. Neupert, Boise State University, USA ABSTRACT Entrepreneurs are embedded in country-specific institutional arrangements that may facilitate or constrain the growth potential of new ventures. This study addresses country conditions predicting rates of high-growth entrepreneurship start-ups leading to the hiring of 20 or more employees. The study examines the role of labor flexibility, as well as cultural, economic, and policy contexts in 32 countries in predicting high-growth entrepreneurship. Results of the study indicate that labor flexibility is a significant predictor of the prevalence rates of high-growth entrepreneurship. Labor flexibility also predicts high-growth entrepreneurship when controlling for countries levels of early-stage entrepreneurial activity, indicating that it is related to the growth of existing firms, rather than simply the number of people entering into entrepreneurship. INTRODUCTION While entrepreneurship as been argued to contribute to country well-being through enhancing innovation (Audretsch 2002; Michelacci, 2003), productivity, and economic efficiency (Baumol, 1990, 2002), one of the most important contributions of new firms is to job creation (Birch, 1979; Davidsson & Delmar, 2003; Folster, 2000; Storey, 1998). The job creation potential of new firms is an important issue that has captured the attention of both researchers and policy makers (Autio, 2005). Countries differ not only in the extent of overall levels of entrepreneurial activity, but in the growth potential of the ventures created (Autio, 2007). Moreover, it is high-growth potential entrepreneurship that accounts for most new jobs created, rather than total entrepreneurial activity rates (Autio, 2005; Wong, Ho, & Autio, 2005). These findings highlight the importance of understanding national policy and culture conditions related to high-growth entrepreneurship and employment. THE ROLE OF LABOR FLEXIBILITY IN THE GROWTH OF START-UPS Like access to financial resources, the ability to access and efficiently utilize human resources may be a key to entrepreneurial growth. For many start-ups worldwide, family members constitute the first employees of the firm. Firm growth beyond the limitations of family, however, necessitates outside hiring, development of internal specialization, and emergence of discernable management functions. The ability to efficiently and effectively manage human resources may be shaped by national policies and practices regarding labor flexibility. To what extent, for example, is the entrepreneur able to adjust workforce size through the hiring and firing of employees, or by adjusting working hours to meet unexpected changes in demand? Many countries stipulate substantial payouts to employees who are dismissed, and restrict work-hour adjustment (Schuler, Jackson, Jackofsky, & Frontiers of Entrepreneurship Research

3 Frontiers of Entrepreneurship Research, Vol. 28 [2008], Iss. 18, Art. 1 Slocum, 1996; Cornelius & Zhang, 2002). This provides greater economic safeguards for employees, but less strategic flexibility for the employer. High labor flexibility is characterized by relatively greater freedom of capital interests to set the terms of utilization of labor. This may include the ability to set wages and link employee pay to productivity. Low flexibility is characterized by relatively greater bargaining power of labor, which in turn may be due to stronger organizational structures for labor as well as social norms leading to a legal environment that mandates labor protection. Labor market rigidities, especially in Europe, have been seen as impediments to job creation (Cornelius & Zhang, 2002; Siebert, 1999). Prior studies have argued that flexible employment relationships may be particularly critical for new firms, given liabilities of newness and size (Autio, 2005; Baughn & Neupert, 2003). Inasmuch as strategic decisions involve choices among possible resource commitments (Hoskisson, Hitt, Johnson, and Grossman, 2002), labor flexibility is likely to shape the growth of young firms. Resource allocations toward growth objectives include investments in hiring employees, as well as intellectual property and capital investments, all of which are burdened with sizable downside risk of venture failure. The rational reluctance of entrepreneurs to take on new employees may be magnified under conditions of lower labor flexibility through systematic bias toward mitigation of downside risks more heavily than exploitation of upside potential (Kahneman & Tversky, 1979), further limiting employment growth in young firms. Employment Practices and Social Values Extant labor policies and practices in a given country likely reflect societal needs to address both flexibility and security. Some societies emphasize the reduction of uncertainty and provision of security for employees, while others have developed more flexibility as a means of responding to economic requirements (Brewster, Mayne, & Tregaskis, 1997; Lee & Lee, 2003; Zhu & Nyland, 2004). Labor protection may be accompanied by a social welfare system that spreads the burden of unemployment across society. Such workforce policies may be but a part of a society s orientation regarding the emphasis on individual accountability and risk-taking, versus the provision of a social safety net. In countries adopting a so-called corporatist philosophy, such as the United States, personal responsibility and risk-taking are emphasized. Individuals are expected to maintain a bargaining relationship regarding employment, consumption, and asset development. In social democracies, on the other hand, risk is reduced though rules set forth by legislation and collective agreements (Padró, 2004). Societies differ in the importance accorded to social order and predictability. Formal and informal rules may be emphasized in some societies as a means of coping with heightened levels of anxiety associated with uncertainty. Rules, rituals, law, religion and technology may be particularly critical means of providing a sense of predictability in such high uncertainty avoidance cultures (Hofstede, 1980; 2001). Two of the questions used by Hofstede in the measurement of uncertainty avoidance dealt with the importance of adherence to company rules and planned employment stability. Baughn & Neupert (2003) reported that uncertainty avoidance was related to country practices regarding labor flexibility. Posted at Digital Knowledge at Babson 2

4 Baughn et al.: LABOR FLEXIBILITY & PREVALENCE OF HIGH-GROWTH ACTIVITY Researchers have linked several employment and organizational practices to the dimensions of culture assessed by Hofstede. Uncertainty avoidance, power distance (how cultures deal with hierarchy and inequality), individualism/collectivism and masculinity/femininity have been linked to practices regarding the basis of remuneration, selection, organizational design, and strategy issues (Hofstede, 1991; Cullen & Parboteeah, 2005). CULTURE AND ENTREPRENERUSHIP Much research over the years suggests a link between cultural values and entrepreneurial activity, suggesting that entrepreneurship may be more compatible with some cultures than others. One line of research focuses on conditions fostering the abundance of individuals with an entrepreneurial orientation in a given society. Innovation and entrepreneurial orientation in a given society have been related to national differences in such factors as need for achievement (McClelland, 1961), individualism, internal locus of control and low uncertainty avoidance (McGrath, MacMillan, & Scheinberg, 1992; Lee and Peterson, 2000; Mueller & Thomas, 2001; Shane, 1992, 1993). Culture plays a role then, of shaping not only the values of the potential entrepreneur, but also the context within which the entrepreneur operates, including the social groups with whom new founders relate and upon whom they may depend (Shane, Kolvereid & Westhead, 1991). As discussed above, cultural values will also mold the regulatory and normative institutions that may facilitate or constrain the growth of the new start-up. ASSESSING THE ROLE OF LABOR FLEXIBILITY ACROSS COUNTRIES Assessment of the unique contribution of labor flexibility in the prediction of high-growth entrepreneurship requires that other possible explanations for a relationship between these two variables be examined. As noted above, a society s policies regarding labor flexibility, for example, may reflect its values relating to uncertainty avoidance. To the extent that people of low uncertainty avoidance cultures are more likely to enter into entrepreneurship, or more likely to be innovative or take risks in growing their firms, it may be that this cultural variable, rather than labor flexibility per se, is a key causal factor. Similarly, a country s policies regarding labor flexibility may go hand-in-hand with other policies that could drive entrepreneurial activity. For example, countries providing high levels of protection for employees (labor rigidity) might be the same countries that provide a strong social safety net for their citizens. The existence of such a safety net may reduce the overall level of entrepreneurship, particularly necessity-driven entrepreneurship (Reynolds, Camp, Bygrave, Autio & Hay, 2001). Labor flexibility may covary with other national framework conditions supporting entrepreneurship, such as country wealth, access to capital, property rights, or lack of bureaucratic red tape. Lastly, it is important to assess whether the impact of a particular set of practices relates to high-growth entrepreneurship primarily by increasing the number of people entering into entrepreneurship, or through the growth of existing start-ups, independent of levels of such early-stage activity. METHODOLOGY & RESEARCH DESIGN Prevalence rates of high-growth entrepreneurship for the years 2000 through 2006 were obtained from the Global Entrepreneurship Monitor s (GEM) adult population surveys (Autio, 2007). The GEM adult population surveys incorporate representative samples ranging from 1,000 to 42,000 adults (between 18 and 64 years old) in each participating country. Based on these surveys, data were available regarding the prevalence of high-growth entrepreneurs in 32 countries. For the purposes of this study, a high growth entrepreneur has ownership and management of a firm with at least 20 employees. Frontiers of Entrepreneurship Research

5 Frontiers of Entrepreneurship Research, Vol. 28 [2008], Iss. 18, Art. 1 Data regarding levels of early stage entrepreneurial activity were also taken from the GEM research for the 32 countries for which high-growth entrepreneurship data were available. The early-stage measures cover the same ( ) time span as the high-growth observations. Early-stage entrepreneurial activity addresses the proportion of the adult population who, during the past 12 months, have taken tangible action to start a new business, as well as those who actively manage and own all or part of a new firm that is not more than 42 months old (Acs, Arenius, Hay, & Minniti, 2005; Minniti, Bygrave, & Autio 2006; Bosma & Harding, 2007). Country-level data regarding labor flexibility and additional entrepreneurial framework conditions, including access to capital, property protection, and administrative conditions, were drawn from Likert-scale responses to the Executive Opinion Survey, an annual assessment of countries business practices and environments as reported by chief executives and senior management of companies around the world. Data were taken from both the 2005 (Lopez-Claros, Porter, & Schwab, 2005) and 2006 (Lopez-Claros, Porter, Sala-i-Martin, & Schwab, 2006) administrations of the survey. The survey items addressing labor flexibility included issues of flexibility of hiring and firing practices, flexibility of wage determination, cooperation in laboremployer relations, and the ability to tie pay to productivity. Each item was averaged across the two survey years, and combined to form a single scale (Cronbach s alpha =.84). Access to capital was assessed by two items: ease of access to loans and venture capital availability. Again, each of these items was averaged for 2005 and 2006, and combined to form a scale (alpha =.95). Items assessing property rights in each country included both financial and intellectual property rights (alpha =.97). The final measure was a single item that assesses the extent of bureaucratic red tape encountered by senior management in each country. Additional country-level measures were incorporated to provide controls for economic and cultural context, including government spending (as a percentage of GDP) on programs to provide economic security for their citizens (World Labor Report 2000), per capita gross domestic product, median age (CIA World Factbook, 2007), and Hofstede s (2001) measures of cultural values. 1 The quantitative analyses incorporated a systematic sequence of steps to assess the relationships between high-growth entrepreneurship and hypothesized predictors. These included assessment of bivariate relationships, followed by a series of multiple regression analyses controlling for (1) country wealth, median age of the county s citizens, and public social security expenditure, (2) the additional entrepreneurship framework conditions (access to capital, property protection, red tape), and (3) cultural context. Further, the observed relationships between country conditions and the prevalence of high-growth entrepreneurship were assessed to ascertain whether they are primarily a function of the rates of entry into entrepreneurial activity (nascent and new business start-ups) or conditions that facilitate the growth of firms after they have been established. RESULTS Means, standard deviations, and bivariate relationships among the variables in this study are presented in Table 1. As can be seen here, about 8 percent of the population of the countries surveyed between 2000 and 2006 were involved in early stage entrepreneurial activity (either in actively working to launch the firm, or managing their start-up no older than 42 months). Only about.37 percent of the population, however, are established entrepreneurs whose firms employ at least 20 people. Posted at Digital Knowledge at Babson 4

6 Baughn et al.: LABOR FLEXIBILITY & PREVALENCE OF HIGH-GROWTH ACTIVITY Examination of Table 1 shows that the dependent variable, high-growth entrepreneurship, is substantially related to country level of economic development, median age of the population, and low levels of power distance. High-growth entrepreneurship is also related to access to capital, labor flexibility, and country protection of property rights. Levels of early entrepreneurial activity are found to be highest in countries with younger citizens, and countries that spend a lower percentage of GDP on social security programs. Entry into entrepreneurial activity is also associated with lower levels of uncertainty avoidance. It should be noted that many of these predictors are highly correlated with each other. Country level of economic development is significantly related to access to capital, property rights, population age, and Hofstede s measures of power distance (negatively) and individualism. At a country level of analysis, access to capital is highly correlated with property rights. Examination of the unique contribution of labor flexibility in the prediction of high-growth entrepreneurship involved a systematic series of regression equations. Because of the high correlation among predictor variables, as well as the limited sample size (32 countries) available for analyses, this involved pairing labor flexibility with each of the other potential predictors of high growth entrepreneurship. Even if a variable is found to contribute unique variance in the prediction of high-growth entrepreneurship, however, it is helpful to assess whether that relationship is a function of the overall rates of entry into entrepreneurial activity itself, or to the growth of the firm once established. To this end, each regression equation was followed by another model in which the level of early entrepreneurial activity was also included, to determine if the predictor still contributed significant variance in the equation. Table 2 presents a series of regression analyses in which labor flexibility is paired with the economic and demographic predictors in this study. Model 1, for example, indicates that both labor flexibility and GDP per capita are significant predictors of high growth entrepreneurship. Further, as seen in Model 1B, both continue to provide significant prediction when controlling for early entrepreneurial activity. The relationship between labor flexibility and high growth entrepreneurship is not simply a function of economic development, or labor flexibility s relationship to the attractiveness of entrepreneurship in a particular country. Similarly, labor flexibility contributes significant prediction in the models involving median age and public expenditures on social security. The final model on Table 2 involves entry of all of these predictors in a single regression equation. While this stretches the ratio of predictors to the sample size and incorporates several predictors that are themselves substantially correlated, the model can be useful in demonstrating the simultaneous consideration of these variables. Because of the interdependence of the economic, demographic and social security contexts in these countries, no one of these contributes unique variance in this full model, while labor flexibility and the early level of entrepreneurial activity do. For each of the regression models in this study, variable inflation factors (VIF) were calculated to assess the impact of collinearity on the regression estimates. The highest VIF found in models 1 through 3B was 1.59, which is certainly acceptable. The highest VIF value in the full model equation was While a VIF of this magnitude may still be seen as acceptable (see Fox, 1991), it does indicate that the predictors in the equation are strongly related to each other. Frontiers of Entrepreneurship Research

7 Frontiers of Entrepreneurship Research, Vol. 28 [2008], Iss. 18, Art. 1 Table 3 addresses the ability of labor flexibility to predict high-growth entrepreneurship when controlling for country levels of such entrepreneurial framework conditions as access to capital, property rights, and levels of bureaucratic red tape faced by company executives in dealing with government officials. As with Table 2, labor flexibility provides significant contribution in all of these models. For this set of predictors, a full model also was calculated that simultaneously included each variable. In that model, labor flexibility was the only variable to attain statistical significance. The high level of collinearity in that model (including VIFs of 5.15 and 4.90 for access to capital and property rights, respectively), however, indicates substantial problems of estimation. That model is not tabled. The final set of regression analyses incorporates measures of cultural values. In models 7 through 10B, the extent to which labor flexibility contributes to the prediction of high-growth entrepreneurship, when controlling for each of the four major dimensions of Hofstede s measures, is examined. Again, labor flexibility provides significant prediction in each of the regression equations. As with the earlier groupings of regression predictors, a full model incorporating labor flexibility and all four of the cultural measures was calculated. In that model (R 2 =.52, p <.01), the coefficient associated with labor flexibility was significant at the.01 level, and power distance at the.10 level. 2 The VIFs for the variables included in the full model ranged from 1.4 to Ancillary Analysis While the overall measure of labor flexibility was a significant predictor of high-growth entrepreneurship throughout these analyses, this measure is an aggregate of several practices. Correlations between the prevalence of high growth entrepreneurship and the items measuring labor flexibility were significant for three of the four items (hiring and firing practices, r =.48, p <.01; ability to tie pay to productivity, r =.59, p <.01; and cooperation in labor-employer relations, r =.55, p<.01). The item assessing flexibility in wage determination (whether wages were set in each individual company or were set though a centralized bargaining process) was not significantly related to the dependent variable (r =.22, data not tabled). DISCUSSION & IMPLICATIONS Entrepreneurs are embedded in country-specific institutional arrangements that may facilitate or constrain the growth of new ventures. One key contextual factor in the growth of start-ups is labor flexibility. Labor flexibility, access to capital, and property protection, as well as country wealth and population age, were significantly correlated with high-growth entrepreneurship. Regression analyses controlling for wealth and age, and subsequent analyses controlling for other framework conditions, cultural values including uncertainty avoidance, as well as other government policies, indicate that labor flexibility remained a significant predictor of high-growth entrepreneurship. Labor flexibility also predicts high-growth entrepreneurship when controlling for countries levels of early-stage entrepreneurial activity, indicating that it is related to the growth of existing firms, rather than simply the number of people entering into entrepreneurship. These findings advance understanding of the factors and that influence the prevalence of highgrowth business start-ups, with important implications for policy. The findings also are consistent with strategic management literature, inasmuch as strategy involves choices among possible resource commitments (Hoskisson et al., 2002). All entrepreneurs make strategic decisions, Posted at Digital Knowledge at Babson 6

8 Baughn et al.: LABOR FLEXIBILITY & PREVALENCE OF HIGH-GROWTH ACTIVITY whether or not they engage in formal strategic planning. Allocations towards growth objectives include human resource investments, which appear to be influenced by national conditions. Finally, this study s research methodologies address the need for systematic controls to evaluate alternative explanations for findings, providing a useful model for future research employing country-level analyses. CONTACT: C. Christopher Baughn; cbaughn@boisestate.edu; (T): ; Boise State University, Boise, ID NOTES 1. Data regarding Social Security expenditures for two countries were not available through the World Labor Report. Expenditures were estimated based on data provided through the World Bank s World Development Indicators (2005). For two countries (Uganda and UAE), Hofstede s measures of cultural values were based on regional averages provided by Hofstede (2001). For a third, (Iceland), the values for Denmark were used. 2. While the measure of power distance could be seen as a possible predictor of high growth entrepreneurship, it should be noted that power distance is significantly (negatively) related to economic development and the measures associated with such wealth (access to capital, property rights). In ancillary analyses controlling for per capita GDP, the power distance variable did not achieve significance at the.05 level. REFERENCES Acs, Z., Arenius, P., Hay, M., & Minniti, M. (2005). Global Entrepreneurship Monitor 2004 Executive Report. Babson College, Babson Park, MA., and London Business School, London. Audretsch, D. (2002). Knowledge, Globalization, and Regions: An Economist's Perspective. Regions, Globalization, and the Knowledge-Based Economy (20), Oxford Scholarship Online Monographs. Autio, E. (2005). Global Entrepreneurship Report, 2005 Report on High-Expectation Entrepreneurship. London Business School, London. Auito, E. (2007). Global Entrepreneurship Monitor: 2007 Global Report on High-Growth Entrepreneurship. Babson College, Babson Park, MA., and London Business School, London. Baughn, C. C., & Neupert, K. E. (2003). Culture and National Conditions Facilitating Entrepreneurial Start-ups. Journal of International Entrepreneurship, 1, Baumol, W. J. (1990). Entrepreneurship: Productive, Unproductive, and Destructive. Journal of Political Economy, University of Chicago Press, vol. 98 (5), Baumol, W. J. (2002). The Free-Market Innovation Machine: Analyzing the Growth Miracle of Capitalism. Princeton: Princeton University Press. Birch, D. (1979). The Job Creation Process, Final Report to Economic Development Administration. Cambridge, MA: MIT Program on Neighborhood and Regional Change. Bosma, N., & Harding, R. (2007). Global Entrepreneurship Monitor 2006 Executive Report. Babson College, Babson Park, MA., and London Business School, London. Brewster, C., Mayne, L., & Tregaskis, O. (1997). Flexible Working Europe. Journal of World Business, 32 (2), CIA World Factbook (2007). Frontiers of Entrepreneurship Research

9 Frontiers of Entrepreneurship Research, Vol. 28 [2008], Iss. 18, Art. 1 Accessed October 5, Cornelius, P. K. & Zhang, Y. (2002). Labor markets in Europe: Performance, reform, and perception. In M. Porter, J. Scahs, P. Cornelius, J. McArthur, & K.Schwab (Eds.) (p ). The Global Competitiveness Report Geneva, World Economic Forum. Cullen, J., & Parboteeah, K. P. (2005). Multinational Management: A Strategic Approach. Mason, OH. Thompson/South-Western Publishing. Davidsson, P., & Delmar, F. (2003). Hunting for New Employment: The role of High Growth Firms. In D.A. Kirby and A. Watson (eds.) Small Firms and Economic Development in Developed and Transition Economies: A Reader. Hampshire: Ashgate Publishing. Folster, S. (2000). Do Entrepreneurs Create Jobs? Small Business Economics, 14 (2), Fox, J. (1991). Regression Diagnostics. Newberry Park, Ca: Sage Publications. Hofstede, G. (1980). Culture s Consequences. London: Sage Publications. Hofstede, G. (1991). Cultures and Organizations: Software of the Mind. London: McGraw-Hill. Hofstede, G. (2001). Culture s Consequences, (2 nd Edition) Comparing Values, Behaviors, Institutions, and Organizations Across Nations. London: Sage Publications Hoskisson, R. E., Hitt, M. A., Johnson, R. A., & Grossman, W., (2002). Conflicting Voices: The Effects of Institutional Ownership Heterogeneity and Internal Governance on Corporate Innovation Strategies. Academy of Management Journal, 45 (4), Kahneman, D., & Tversky, A. (1979). Prospect Theory: An Analysis of Decision Under Risk. Econometrica, 47, 2, Lee, W. & Lee, B. (2003). Korean industrial relations in the era of globalization. The Journal of Industrial Relations 45 (4), Lee, S. M., & Peterson, S. M. (2000). Culture, Entrepreneurial Orientation and Global Competitiveness, Journal of World Business, 35 (4), Lopez-Claros, A., Porter, M.E., & Schwab, K. (2005). The Global Competitiveness Report World Economic Forum, Geneva, Switzerland. Lopez-Claros, A., Porter, M.E., Sala-i-Martin, X., & Schwab, K. (2006). The Global Competitiveness Report World Economic Forum, Geneva, Switzerland. McClelland, D. C. (1961). The Achieving Society, D. Van Norstrand, Princeton, N.J. McGrath, R., MacMillan, I., & Scheinberg, S. (1992). Elitists, Risk-Takers and Rugged Individualists? An Exploratory Analysis of Cultural Differences Between Entrepreneurs and Non-Entrepreneurs. Journal of Business Venturing, 7, Michelacci, C. (2003). Low Returns in R & D Due to the Lack of Entrepreneurial Skills. The Economic Journal, 113 (484), Minniti, M., Bygrave, W., & Autio, E. (2006). Global Entrepreneurship Monitor 2005 Executive Report. Babson College, Babson Park, MA., and London Business School, London. Mueller, S. L., & Thomas, A. S. (2001). Culture and Entrepreneurial Potential: A Nine Country Study of Locus of Control and Innovativeness. Journal of Business Venturing, 16, Padró, F. (2004). Statistical Handbook on the Social Safety Net. Greenwood Press, Westport, Conn. Porter, M. E., Sachs, J. D., Warner, A. M., Cornelius, P. K., Levinson, M., & Schwab, K. (2000). The Global Competitiveness Report New York: Oxford University Press. Reynolds, P. D., Camp, S. M., Bygrave, W. D., Autio, E., & Hay, M. (2001). Global Entrepreneurship Monitor 2001 Executive Report. Babson College, Babson Park, MA., and London Business School, London. Schuler, R. S., Jackson, S., Jackofsky, E., & Slocum, J. Jr. (1996). Managing Human Resources in Mexico: A Cultural Understanding. Business Horizons, (May-June), Shane, S. A. (1992). Why Do Some Societies Invent More Than Others? Journal of Business Posted at Digital Knowledge at Babson 8

10 Baughn et al.: LABOR FLEXIBILITY & PREVALENCE OF HIGH-GROWTH ACTIVITY Venturing, 7, Shane, S. A. (1993). Cultural Influences on National Differences in Rates of Innovation. Journal of Business Venturing, 8, Shane, S., Kolvereid, L., & Westhead, P. (1991). An Exploratory Examination of the Reasons Leading to New Firm Formation across Country and Gender. Journal of Business Venturing, 6, Siebert, H. (1999). How competitive is Europe s labor? In K. Schwab, M. Porter, J Sachs, A. Warner, & M. Levinson, (Eds) (p ) The Global Competitiveness Report Geneva, World Economic Forum. Storey, J., Do human resources really have a role in strategy? Financial Times Mastering Management. Wong, K.W., Ho, Y.P., and Autio E., (2005). Entrepreneurship, Innovation and Economic Growth. Small Business Economics, 24, World Bank (2005). World Development Indicators. The World Bank, Washington, D.C. World Labor Report (2000). International Labour Organization: Cost of Social Security. mirror.cornell.edu/public/english/protection/socsec/publ/css/table14.htm Accessed Oct. 2, Zhu, C., & Nyland, C. (2004). Marketization and social protection reform: Emerging HRM issues in China. International Journal of Human Resource Management, 15(4/5), Frontiers of Entrepreneurship Research

11 Frontiers of Entrepreneurship Research, Vol. 28 [2008], Iss. 18, Art. 1 Table 1: Relationships Among Variables 1. High Growth Entrep Mean s.d Early Entrep. Activity GDP Per Capita (PPP) 24,760 11,123.52** Public Social Security **.58** 5. Median Age * -.58**.66**.72** 6. Power Distance ** ** -.46** Uncertainty Avoidance * Individualism **.51** ** Masculinity/Femininity ** Access to Capital ** **.48**.40* -.64** -.36*.63** -.40* 11. Labor Flexibility ** * Property Rights ** **.43**.44* -.63** -.38*.62** ** Red Tape ** -.59** -.50**.53** * ** ** * p <.05 ** p <.01 n=32 Posted at Digital Knowledge at Babson 10

12 Baughn et al.: LABOR FLEXIBILITY & PREVALENCE OF HIGH-GROWTH ACTIVITY Table 2: Prediction of High Growth Entrepreneurship: Labor Flexibility, Economic and Demographic Predictors Independent Variables a Model 1 Model 1B Model 2 Model 2B Model 3 Model 3B Full Model Labor Flexibility.43**.38*.49**.42**.60***.60***.43** GDP Per Capita (PPP).42**.50**.24 Median Age.35*.59**.29 Public Social Security.37*.53**.19 Early Entrepreneurial Actv * * F 11.32*** 8.57*** 9.49** 9.15*** 9.82** 8.39*** 6.45 ** R Adj. R a Standardized regression coefficients are tabled for each independent variable + <.10 * p <.05 ** p <.01 *** p <.001 n = 32 Frontiers of Entrepreneurship Research

13 Frontiers of Entrepreneurship Research, Vol. 28 [2008], Iss. 18, Art. 1 Table 3: Prediction of High Growth Entrepreneurship: Labor Flexibility and Other Framework Conditions Independent Variables a Model 4 Model 4B Model 5 Model 5B Model 6 Model 6B Labor Flexibility.42*.38*.43*.38*.52**.50** Access to Capital.33*.38* Property Rights Red Tape Early Entrepreneurial Actv F 8.52** 6.02** 7.53** 5.32** 5.73** 3.81* R Adj. R a Standardized regression coefficients are tabled for each independent variable + <.10 * p <.05 ** p <.01 *** p <.001 n = 32 Posted at Digital Knowledge at Babson 12

14 Baughn et al.: LABOR FLEXIBILITY & PREVALENCE OF HIGH-GROWTH ACTIVITY Table 4: Prediction of High Growth Entrepreneurship: Labor Flexibility and Cultural Predictors Independent Variables a Model 7 Model 7B Model8 Model 8B Model 9 Model 9B Model 10 Model 10B Full Model Labor Flexibility.44**.43**.51**.51**.52**.52**.56**.55**.57** Power Distance -.44** -.44** Uncertainty Avoidance Individualism/Collectivism Masculinity/Femininity Early Entrepreneurial Actv F 12.28*** 7.91** 5.48* 3.55* 7.89** 5.16** 7.54 ** 4.98 ** 4.43 ** R Adj. R a Standardized regression coefficients are tabled for each independent variable + <.10 * p <.05 ** p <.01 *** p <.001 n = 32 Frontiers of Entrepreneurship Research

15 Frontiers of Entrepreneurship Research, Vol. 28 [2008], Iss. 18, Art. 1 Posted at Digital Knowledge at Babson 14