ENTREPRENEURIAL PERFORMANCE IN RUSSIA

Transcription

1 ETREPREEURIAL PERFORMACE I RUSSIA Tatiana Iakovleva Bode Regional University Bode Graduate School of Business 8049, Handelshøgskolen i Bode, orway tel fax: Tatiana.iakovleva@hibo.no Abstract While entrepreneurship research has a history in the twentieth century focusing on entrepreneurs and their businesses in the Western countries, the aspects of entrepreneurship in the east with collectivist orientation have received limited attention. There is a real lack of understanding about entrepreneurship in Russia. The purpose of this study is to add new theoretical and empirical insights on small firm s entrepreneurial performance in the turbulent Russian economy. Based on the review of ontology of the population ecology, strategic adaptation perspective, resource-based and the behavioural/psychological perspectives an integrative conceptual framework is proposed highlighting issues associated with new small firm performance variation. A conceptual framework exploring new small firm performance is presented linked to four key elements: (1) The external environmental conditions (2) The firm/entrepreneur/team resources (3) Firm capabilities and entrepreneur competences (4) Entrepreneurial orientation and small firm strategies. Sample consists of 281 Russian small enterprises. PCA factor analysis was made in order to clarify factor structure. Hypotheses on impact of external environment, firm resources and strategies, entrepreneur competencies and resources toward the entrepreneurial orientation got supported on high level of significance. The overall regression model of impact of external environment, firm resources and strategies including entrepreneurial orientation, entrepreneur competencies and resources showed also to be significant on high1 level of significance. The contingency model including interaction effect of entrepreneurial orientation and resources towards performance revealed significant change in adjusted R square and showed to be highly significant. The model is to be further tested with the help of Structural equation modelling. Key words: small firm performance, entrepreneurial orientation, entrepreneurship, Russia

2 WHY SHOULD WE STUDY ETREPREEURSHIP I RUSSIA? The importance of small business to the economy is now widely recognised not only by the western industrialised world, but also by many countries, which formally had socialistic forms of government. Former Communist countries as well as less developed countries that are working to fuel their economies are expending considerable effort to foster entrepreneurship (Kasadara, 1992). While entrepreneurship research has a history in the twentieth century focusing on entrepreneurs and their businesses in the Western countries, the aspects of entrepreneurship in the east with collectivist orientation have received limited attention. There is a real lack of understanding about entrepreneurship in Russia, the country that Winston Churchill called a riddle wrapped in a mystery inside an enigma (Ageev et al., 1995). It is important to clarify, whether Western theories are generally applicable in emerging economy environments and whether existing concepts permit development of new concepts or modification of old ones (Hoskisson et al., 2000). The most interesting and exiting about entrepreneurship in Russia is that is has emerged only 15 years ago. In 1989 the law on Entrepreneurial activities was approved. That means that the history of modern (post-soviet) entrepreneurship is rather short. Due to the dramatic changes in all shears of life during the perestroika period reconstruction of the economy and collapse of Soviet Union, lots of people were forced to or decided freewill to try something new in their life - to open a business. Lots of small privately owned businesses appear newly opened or privatised former state firms. Already in 2000 over 891 thousand of small entrepreneurs operated in Russia (Russian SME Resource Centre). Over 25% of the population of Russia are occupied today in SME, which accounts for 12-15% of GDP of the country (Russian State Statistic Committee Report for 2003). The first ten years after perestroika began (end of 80 th -90 th ), is often labelled as years of wild capitalism in popular press. Today the market relations have stabilised relative to the end of 80 th. However, 15 years of market is a rather short period. Founders starting new enterprises were and in many cases steel is forced to create infrastructure by themselves no market relationships existed in planned Soviet economy (Puffer and McCarthy, 2001, Ylinenpåå and Chechurina, 2000). Term entrepreneur in Russian business context often have mixed meaning. From the sociological research on Russian entrepreneurs (Bezgodov,1999; Grichenko et al., 1992; Turen et al., 1993) it follows, that not all of those performing entrepreneurial activities perceive themselves as entrepreneurs. At the same time, those labelled themselves entrepreneurs often combine work for salary and entrepreneurship activities. The term entrepreneur refers more to the fact that individual is somehow engaged in private business as a partner rather than as an employee. In Russian context it does not refer to the degree of novelty in products or services provided on the firm level. This happened because after the collapse of Soviet Union any desire to start business was really entrepreneurial nobody in the country did it before. In people s mind, the perception of entrepreneurs in the society is still mixed positive toward value-creating efforts and negative while some associate entrepreneurs with mafia and oligarchs (Babaeva et al., 1993, Bezgodov,1999; Iakovleva, 2001). To start the business in Russia is, in itself, action, which is new, and different, and innovative and risk-taking desire. Both for theorists and for practitioners it is important to know about superior firm performance in Russia. Are external environmental conditions, firm strategy, firm resources and the resources of entrepreneur contribute to the successful business performance of Russian firms? Guided by insights from Western studies a conceptual framework is presented to explore firm performance The purpose of this study is to add new theoretical and empirical insights on small firm s entrepreneurial performance in the turbulent Russian economy. 1

3 THEORETICAL ASPECTS OF ETREPREEURIAL PERFORMACE Organisationperformance is a yardstick by which founders measure success (Chandler and Hanks, 1994a, p. 78). The performance of small ventures is widely studied (see for example Miller and Friesen, 1982; 1990; Cooper and Gascon, 1992; Chandler and Hanks, 1994a,b; Lumpkin and Dess, 2001; Lussier and Pfeifer, 2000; Wiklund, 1998). However, our present knowledge about this phenomenon is still insufficient. Existing research lack consensus regarding the basic constructs, which affect a small venture performance. This happens because the phenomenon of entrepreneurial performance is studied from different theoretical imperatives such as population ecology, resource-based view, strategic adaptation perspective and behavioral/physiological perspective. Researches from one research imperative tend to ignore important findings of competing schools. Due to this, often the overall explanation power of models explaining performance is low. The short overview of four theoretical streams within entrepreneurship in relation to the phenomena of performance is presented in the table 1 below. Table 1. Causal Logic in Explaining Performance of four Theoretical Perspectives Population Strategic Resource Based ecology Adaptation View Main ontology External environment External environment External environment Behavioural/ Psychological theory External environment Resources and Capabilities Entrepreneur Resources and Competences Strategy/EO Strategy/EO Strategy/EO Performance Performance Performance Performance Unit of analysis Population firms/firm of Firm Firm/entrepreneur Entrepreneur External environment The external environment constitutes the initial conditions facing entrepreneurs in any economy (Aldrich et al., 1999). Environmental characteristics important in population ecology, resource-based theory and strategic adaptation approach, which is evident from table 1. While the role of the environment is treated differently (deterministic in the first case (Aldrich, 1979), bundle of available resources in the second (Barny, 1991) and threats and opportunities in the third (Tsai et al., 1991), it is no doubt that environment is an important factor in relation to firm s performance. Even in physiological/behavioural approach the personality, motivation, attitudes of the entrepreneur are dependent from environment (Gartner, 1985). In order to concentrate on narrowly defined parts of environment, rather than on overall industry parameters, the perceived environments should be chosen (Dess and 2

4 Bread, 1984). Subjective measures in evaluation of task environment allow gaining necessary insight and expertise. Business founders and managers are the experts whose perceptions have usually been used as indicators of the characteristics of the environment (Chandler and Hanks, 1998). Perceived measures also have the strongest associations with the business strategy since it is perceptions that strategist act on (Miller and Friesen, 1984). Hypotheses 1.1: External environment would be significantly related to entrepreneurial orientation of the firm and (1.2) to the firm performance. Resources and capabilities of the firm Resources and capabilities are both important for strategy making as well as directly for the results of performance in resource-based approach. Resource-based theory argues that firm s resources and capabilities are critical for achieving success (Andrews, 1980; Grant, 1991; Lerner and Almor, 2002; Penrose, 1959; Peteraf, 1993). Only rare, hardly-imitational resources are valuable, both tangible and intangible(barney, 1991). On their own, however, few resources are productive. Resources are the source of a firm s capabilities, capabilities are the main source of its competitive advantage A capability is the capacity for a coordinated set of resources to perform some task or activity (Grant, 1991). Hypotheses 2.1: Resources and capabilities would be significantly related to entrepreneurial orientation and (2.2) to the performance of the firm. Entrepreneur competencies The personality of the entrepreneur is often perceived by practitioners as one of the most fascinating topics in the field of entrepreneurship (Delmar, 2000). However, as it is proven now, personality traits cannot explain more than a minor share of entrepreneurial behaviour and differences in business performance (Gartner, 1990). As a result of these difficulties, there was a shift from studying personality of the entrepreneur toward the behavioural aspects of entrepreneurs (Chell et al., 1991; Gartner et al., 1992; Lumpkin and Dess, 1996). Within psychological/behavioral theories cognitive models offer the most sophisticated theoretical frame of reference, which incorporates the complexity of entrepreneurial behaviour, and enables the actual test of the model (Delmar, 2000). Self-assessed competencies are the core of individual s self-efficacy beliefs about their personal capabilities to mobilize the motivation, cognitive resources, and courses of action needed to exercise control over events in their lives (Wood and Bandura, 1989: 364). Founder s unique skills, experience and expertise shaped by dominant logic results in decisions and actions that influence performance of new venture (Reuber and Fisher, 1999). Perceived competencies of founder/team have both direct and indirect impact on performance It was found that entrepreneurs with higher perceived self-efficacy achieve higher performance. (Kolvereied, 1993; Westerberg, 1998). Hypotheses 3.1: Entrepreneur competencies and resources would be significantly related to entrepreneurial orientation and (3.2) to the performance of the firm. Strategy Strategic choice theorists maintain that managers have the freedom to choose between different strategic orientations under the same environmental contingencies, which determines firm performance (Child, 1972; Sandberg and Hofer 1987; Tsai et al., 1991). The heart of the contingency approach is the notion that managers or entrepreneurs consciously select strategies, and that their choices, at least in part, reflect their views of the optimal strategy in a 3

5 given environment (Shane and Kolvereid, 1995). Thus strategy may depend on, but not is completely determined by, environment. The same is true for Porter (1991) approach. In order for firms to achieve high performance, they need to adapt their strategies to their environment. Strategy choice then is a product of (and response to) a sophisticated understanding of industry structure (Spanos and Lioukas, 2001, p. 909). umerous studies have shown that the choice of strategy affects especially small new venture performance (Brush and Chaganri, 1997; Covin et al., 1990; Covin and Slevin, 1989; Miller and Tolouse, 1988; Spanos and Lioukas, 2001). Thus, both the contingency approach and Porter competitive strategy approach view strategy as an important element in explaining firm performance. Hypotheses 4.1: Firm strategy would be significantly related to entrepreneurial orientation and (4.2) to the performance of the firm. Entrepreneurial orientation of the firm Besides the tradition strategies the firm can chose from, the entrepreneurial orientation of the firm is supposed to influence the firm growth and performance (Lumpkin and Dess, 2001, Wiklunf, 1998). EO refers to a firm s strategic orientation_ capturing specific entrepreneurial aspects of decision-making tyles_ methods_ and practices (Lumpkin and Dess, 1996). Entrepreneurial orientation consist of several terms, such as innovativness, risk-taking and proactivness. Schumpeter (1934) was among the first to emphasize the role of innovation in the entrepreneurial process. Innovativeness reflects a firm s tendency to engage in and support new ideas, novelty, experimentation, and creative processes that may result in new products, services, or technological processes (Lumpkin and Dess, 1996). The concept of risk-taking is quality that is frequently used to describe entrepreneurship (Shane, 1994, Lumpkin and Dess, 1996). Cantillon (1734), one of the first authors who used term entrepreneur, argued that uncertainty and riskiness of self-employment is the principal factor that separated entrepreneurs from non-entrepreneurs. Proactivness suggests a forward-looking perspective characteristic of a marketplace leader that has the foresight to act in anticipation of future demand and shape the environment (Lumpkin and Dess, 2001). Hypotheses 5: Entrepreneurial orientation of the firm would be significantly related to the performance of the firm. Hypotheses 6: (6.1)Interaction effect of environment and EO, (6.2)firm resource and EO, (6.3)entrepreneur competencies and EO would be significantly related to the performance of the firm. RESEARCH MODEL In order to find out which of the different constructs which is assumed to influence performance of the firm the most important for Russian entrepreneurs, the holistic approach would be very helpful. One advantage of using configurative approach is that it allows evaluating the relative importance of different constructs. The value in configuration inquiry is its holistic perspective of the organization, assuming that parts of a social entity take their meaning from the whole and cannot be understood in isolation (Meyer, Tsui and Hining, 1993). There are unavoidable trade-offs in research and there is no single best approach (Davidson and Wiklund, 2001). The following research model is introduced on Figure 1. 4

6 Figure 1. A Framework for Small Firm Entrepreneurial Performance. EVIROMET FIRM RESOURCES AD CAPABILITIES Human capital Social capital Organisational Finance H2 H2 H3 ETREPREEUR COMPETECIES Dynamism Munificence Hostility Heterogeneity STRATEGY Quality Breadth H1 ETREPREEUR ORIETATIO H 4,5, 6, H1 PERFORMACE Growth Profitability ETREPREEUR RESOURCES General human capital Specific human capital Opportunity Relationship Financial Economic Leadership H3 SAMPLE As the purpose to dissertation is to test theory, a deductive approach was chosen. Quantitative method of data collection suites bests the purposes of theory testing. The objective of the survey was to collect data from the heads of or owners of privately owned small enterprises (less then 100 employees) which were independent businesses. Because of the difficulties with data collection in Russia, it was decided to use 152 Russian students from the Baltic State Technical University of St. Petersburg to contact the enterprises. Initially a database of 800 small privately owned enterprises, established in 2000 and representative to the industry structure of entire population of small enterprises in St. Petersburg was obtained. However, during the data gathering process it became evident, that it was not possible to obtain information from chosen enterprises. The main reason was that enterprises refused to participate in the research and to fill in questionnaires. Also, the database was not as good as expected one third of enterprises that were on the list could not be found on the addresses provided. It was decided than that students can use their contacts family members or friends to find owners or heads of small enterprises in St. Petersburg and to ask them to fill in questionnaires. The requirements of industry and firm age could not be meat in so far. Entire number of students was increased to 600. Each of them received between one and six questionnaires. From them 152 students participated actively, each of them delivered between 1 and 6 filled inn questionnaires. Totally 466 questionnaires were received. I have filtered questionnaires on several criteria only persons, responsible for the decision making on the enterprise were considered, and only independent businesses (not a subsidiary of other firms) were chosen to the analysis. This was done of two reasons. First, entrepreneur competences and entrepreneur resources can be important only if we are speaking about key decision 5

7 makers on the enterprises. Second, firm should be free to chose and follow its strategy, otherwise it can be leaded by the head office. Also, I have checked the firm size only firm that have less than 100 employees were considered. This is because firm structure was not included into the model as I assumed structure is more informal on small enterprises. In Russia, enterprises are considered as small if the number of employees does not exceed 100 employees. Also, I asked student not to contact sole proprietorships as I knew that lot of them in Russia are just registered and do not work in reality, that make it impossible to use statistics on sole proprietorships in my study. Based on that criterion, I removed about 30 questionnaires of responds reported to be sole proprietorships from the sample. In addition, I removed 5 questionnaires which had too much missing data. This resulted in 281 usable questionnaires. In regard to representatively of sample the only test I can make is to check industry structure of sample and to compare this with population of SME s in St. Petersburg. Approximately 39% of firms from the sample were within service industry (including construction), 32% were within sale and distribution and 26% were production companies. As to the 2002, there were 131,447 thousand of small enterprises in St. Petersburg. The initial structure of the small enterprises in Saint Petersburg in 2002 was as following: services including construction, transport, education 30%, sale and distribution 48%, production - 15% (Leontief Centre Report, 2002). Majority of firms participated in the research have either one (37%) or two (33%) partners. Only 32% have reported that they are family firms. With regard to the legal status of the businesses, 74% were limited liability companies, 20% were closed joint-stock companies, 6% percent were open joint-stock companies. About 79% of firms were new enterprises (12% -changed their status and 8% reopen after bankruptcy), with average firm age of 6 years. However, 50% of firm is between 1 and 5 years old, and 42% of firm is between 6 and 12 years old. That means that approximately 92% of responded firms are not older than 12 years, which is not surprising since entrepreneurship in Russia was officially allowed just 15 years ago. Almost 89% of respondents were between 18 and 50 years old, with approximately 50% of respondents being between 37 and 50 years old. From all respondents, 35 % are women. More than 88% of respondents have higher education, and 59% of respondents have indicated they have technical education, while 45% indicated they have economical education (it was possible to specify the presence of different types of education at the same time). MEASURES The measurement of the variables/ concepts is to a considerable extent based on previously developed measures used in the entrepreneurship literature. Appendix A shows the description and operationalisation of the dependent and independent variables as well as their sources. Dependent variables Performance. Two different types of performance measurement were used in the study. The first is performance in broad categories, as suggested by Chandler and Hanks (1993). Questions were partly reformulated after the pre-test and discussions with three Russian entrepreneurs. Six items constitute factor Performance in broad categories factor with Chronbach s alpha 0.91(for PCA see table2) The second is measuring performance with the help of importance and satisfaction question on certain items. Again, questions were partly taken from Chandler and Hanks (1993) and partly from Westhead (Forthcoming) and transformed after the consultation with Russian entrepreneurs. Based on these 16 questions, two measures were constructed. The first 6

8 measure is Satisfaction with performance index, which was calculated following the instruction of Chandler and Hanks (1993) (please, see the Appendix A). The second measure is Composite performance factor, which were constructed following the recommendation of Kolvereid (XXX). Seven new items were calculated for this purpose. Factor named Composite Performance have Chronbach s alpha 0,91 (please, see the Appendix A for description of how calculations were made and table 3 for PCA). Table 2. PCA for Performance in broad categories. Variables Factor loadings Communality Performance in broad categories B3 et profit 0,89 0,80 B2 Sales growth 0,85 0,72 B6 Gross profit 0,85 0,72 B5 Profit to sales ration (sales-costs)/sales 0,84 0,71 B4 Profitability (sales/expenses) 0,82 0,67 B1 The market share 0,72 0,51 Eigenvalue 4,13 Percent variance explained 68,85 Chronbach s alpha 0,91 ote: Factor loadings 0,3 or smaller are suppressed. KMO =0,865, Bartletts s test of Sphericity App. Chi-Sq 1074,45; df=15, Sig Table3. PCA for Composite Performance Variables Factor loadings Communality Composite Performance et profit satisfaction*importance 0,88 0,77 Gross profit satisfaction*importance 0,84 0,71 Sales growth satisfaction*importance 0,84 0,71 Profitability satisfaction*importance 0,83 0,69 Sales level satisfaction*importance 0,83 0,69 Market share satisfaction*importance 0,74 0,54 Ability to fund business from the profit 0,71 0,50 satisfaction*importance Eigenvalue 4,62 Percent variance explained 65,93 Chronbach s alpha 0,91 ote: Factor loadings 0,3 or smaller are suppressed. KMO =0,885, Bartletts s test of Sphericity App. Chi- Sq1260,38; df=21, Sig Independent variables To see the source of questions employed and what are the final factor structure of all independent variables please see Appendix A. On all independent variables first exploratory factor analysis was run on each group of variables (like environment, firm resources and capabilities, entrepreneur competencies, entrepreneurial orientation, firm strategies). Then some items were removed from factors to increase reliability of factors. Further, I have run PCA simultaneously on all variables which were expected to load on factors identified earlier. This was done to ensure divergent validity. Again, some variables were removed from the factors and also one of the four Entrepreneur Competences factors were removed from the model (for detail see Appendix A). Results of this analysis with factor loadings, communalities and Cronbach s alphas on all variables are presented in the table 4 below. 7

9 Table4. PCA for al independent variables loaded to factors to be used in regression. KMO =0,745 Bartletts s test of Sphericity App. Chi-Sq 4070,425; df=861, Sig. 000 Variables/Varimax Rotated Components Comm Entrepreneurial orientation D8 Tendency to be ahead of other competitors/new products 0,81 0,71 D4 First business to introduce new product/ service, etc 0,78 0,67 D5 We stress new product development 0,77 0,77 D3 Initiate actions which competitors then respond to 0,75 0,64 D1 We strive to be the first to have new products available 0,75 0,66 D9 Emphasis on R&D, technological leadership and innovation 0,67 0,64 D2 Bold, wide-ranging acts are common practice 0,60 0,57 Uncertainty/risk competence G23 Make decisions under uncertainty and risk 0,78 0,71 G17 Persist in the face of adversity 0,73 0,71 G22 Take calculated risks 0,72 0,65 G16 Tolerate unexpected changes in business conditions 0,68 0,70 Breadth strategy E7 Plenty of distinctly different product/service lines 0,86 0,79 E12 Product lines are very different in terms of technologies 0,74 0,64 E4 Diversified conglomerate and operate in unrelated 0,74 0,66 E14 Our product/service lines are very different in terms of the required market strategy 0,73 0,68 Social capital F8 Our networks broader our opportunities 0,76 0,69 F3 Employees network is an important information source 0,76 0,68 F11 Manager s own networks is an important firm resource 0,74 0,63 F4 We use our firm networks to influence the environment 0,72 0,61 Economic competence G14 Control business costs 0,86 0,82 G15 Manage cash flows 0,86 0,79 G5Manage expenses 0,53 0,52 Hostility C10_r Price competition is not a great threat 0,74 0,62 C12_r Competition in product quality or novelty is not a great threat 0,72 0,62 C13_r Dwindling markets for products is not a great threat 0,67 0,511 Opportunity competence G19 Create product/services that fulfil customer unmet needs 0,79 0,75 G18 Design products or services that solve current problems 0,74 0,70 G7 Discover new ways to improve existing products/services 0,65 0,60 Finance resources F2 Bank loans are easily available for us 0,83 0,76 F7 Capital from suppliers or customers is easily available for us 0,82 0,76 F10 Relative to competitors we have advantageous financial resources 0,64 0,57 Dynamism C6_r Demand and consumers tastes are fairly easy to forecast 0,80 0,67 C5_r Actions of competitors are quite easy to predict 0,71 0,60 C7_r The product/service technology is not subject to very much change 0,58 0,50 Quality strategy E15 We emphasize strict quality control 0,84 0,74 E3 We emphasize on superior product quality 0,73 0,66 E16 We emphasize that customer needs always come first 0,47 0,54 Heterogeneity C3 Customer buying habits for different products we offer differ sign. 0,86 0,79 C4 ature of competition for different products we offer differ sign. 0,81 0,77 Organisational capital F5 We have good firm climate 0,75 0,71 F1 Our firm s managerial competencies is high 0,69 0,65 F6 Our employees have superior knowledge and skills 0,63 0,59 Eigenvalue 4,28 2,80 2,74 2,48 2,30 2,21 2,11 2,06 1,81 1,78 1,76 1,73 Percent variance explained 10,18 6,66 6,52 5,90 5,46 5,26 5,02 4,89 4,30 4,25 4,20 4,11 Cumulative percent of variance 10,18 16,84 23,35 29,24 34,71 39,96 44,98 49,87 54,17 58,42 62,62 66,73 Chronbach s alpha 0,87 0,82 0,77 0,75 0,79 0,65 0,78 0,73 0,64 0,64 0,74 0,62

10 AALYSIS Forced entry multiple regression was used to test the hypotheses. In order to meet assumptions to linear regression several transformations were made with following factors to achieve normality: opportunity competence factor, economic competence factor and quality strategy. Entrepreneurial orientation. First, I have checked the model for Entrepreneurial Orientation. I hypothesised, that environment, firm resources and capabilities, entrepreneur resources, entrepreneur competences and strategy will impact entrepreneurial orientation of the firm. I have included strategy as in the theory it is rarely tested relationship and from the correlation matrix (See Appendix B ) it is evident that some correlation exist between entrepreneurial orientation and strategy. Tables 5-7 reports a summary of the results of the regression of each of the constructs (environment, strategy, entrepreneurial competences, firm resources/capabilities, entrepreneur resources and controls) separately on summated entrepreneurial orientation. For all regressions test for detecting multicollinearity was carried out and results have not identified any multicollinearity. Table 5. Result of multiple regression analysis of Environment factors and Strategic factors on EO Environment factors St. Beta, listwise Strategic factors St. Beta, listw. Dynamism 0,039 Quality strategy tr 0,218*** Hostility -0,088 Breadth strategy 0,320*** Heterogeneity 0,193** Cost leadership 0,242*** Munificence 0,249*** F 8,961*** 28,546*** Adjusted R² 0,10 0,24 umber of cases <0.1; *<0.05; **<0.01; ***< Table 6. Result of multiple regression analysis of Entrepreneur Competencies and Firm Resources and Capabilities on EO Entrepreneur Competences St. Beta, listw. Firm St. Beta, listw. Resources/Capabilities Opportunity competence tr. 0,331*** Human capital 0,081 Economic competence tr. -0,077 Social capital tr. 0,044 Uncertainty/risk competence 0,052 Organisational capital tr. 0,043 Financial capital 0,220** F 10,473*** 4,476** Adjusted R² 0,10 0,052 umber of cases <0.1;*<0.05; **<0.01; ***< Table 7. Result of multiple regression analysis of Entrepreneur Resources and Controls on EO Entrepreneur Resources St. Beta, listw. Controls St. Beta, listw. Age squared 0,027 Firm age 0,014 sex 0,073 Industry sales/distrib. -0,08 Highest education level 0,058 Industry service -0,043 Family entrepreneurial background 0,057 Market_local -0,229** Years of management work experience 0,112 Market_regional 0,069 umber of businesses owned -0,098 F 1,208 2,878* Adjusted R² 0,006 0,034 umber of cases <0.1;*<0.05; **<0.01; ***<

11 Both heterogeneity and munificence seems to be positively associated with EO of the firm. All strategies are significantly and positively associated with EO. Only opportunity competence is significantly and positively associated with EO. From the firm resources, only financial capital is associated with EO. one of entrepreneur resources is associated with EO. Local market of operation seems to be negatively associated with EO. Table 8 reports a summary of results of the regression of the above mentioned constructs simultaneously on summated entrepreneurial orientation. The model is statistically significant (p< 0.001). Tests for detecting multicollinearity (tolerance values) were carried out and this analysis showed that the variable with lowest value had a tolerance value of 0,468. Thus, multicollinearity seems not to be a serious problem in distorting the interpretation of this multiple regression model (Hair et al., 1998). As it is evident from the table 8, there are few variables which are significantly associated with EO of the firm. Munificence, characterised by the perceived industry growth, is associated with EO. Heterogeneity is also weakly associated with EO. From firm resources/capabilities only financial capital is weakly associated with EO, which gives weakly significant increase in R² for the model. From entrepreneur competencies it is opportunity identification competence of the respondent that is significantly associated with EO and that gives significant increase in R². All stargies are significantly associated with EO, which gives significant increase in R². This is novel contribution to the theory on Eo as well, because as to the best of the knowledge if the author such relationships were not tested before. one of entrepreneur resources is associated with EO, and from the controls only local market is negatively associated with EO which gives weakly significant increase in R². Table 8. Result of hierarchical multiple regression analysis on Entrepreneurial Orientation St. B, list. St. B, list. St. B, list. St. B, list. St. B, list. St. B, list. Dynamism 0,046 Hostility -0,071 Heterogeneity 0,161* Munificence (one variable (c8)) 0,298*** Human capital 0,088 Social capital transformed 0,041 Organisational capital transformed 0,045 Financial capital 0,163* Opportunity competence tr. 0,318*** Economic competence transformed -0,068 Uncertainty/risk competence 0,005 Quality strategy transformed 0,149* Breadth strategy 0,230** Cost leadership strategy 0,147* Age squared 0,111 Sex 0,079 Highest education level 0,006 Family entrepreneurial background 0,069 Managerial experience 0,007 umber of businesses owned -0,034 Industry sale/distribution -0,015-0,015 Industry service -0,113-0,113 Market_local -0,235** -0,235** Market_regional -0,117-0,117 Firm age 0,03 0,030 F 7,243*** 4,781*** 5,277*** 5,963*** 4,388*** 4,166*** Change in F 2,142 5,627** 6,645*** 0,806 2,503* Adjusted R² 0,116 0,137 0,198 0,268 0,263 0,294 R² 0,135 0,174 0,245 0,322 0,340 0,387 Change in R² 0,039 0,071 0,077 0,019 0,046 umber of cases <0.1;*<0.05; **<0.01; ***<

12 Performance. Direct impact of environment, strategy, entrepreneurial orientation, entrepreneur competences, firm resources and capabilities and entrepreneur resources on performance. I hypothesised, that environment, firm resources and capabilities, entrepreneur resources, entrepreneur competences, entrepreneurial orientation and strategy will impact firm performance. For correlations between variables please see Appendix B. Tables 9-1 report a summary of the results of the regression of each of the constructs (environment, strategy, entrepreneurial competences, firm resources/capabilities, entrepreneur resources, entrepreneur orientation and firm age, industry and market of operation) separately on composite performance index (for index structure see Appendix A). For all regressions test for detecting multicollinearity was carried out and results have not identified any multicollinearity. Table 9. Result of MRA of Environment factors and Strategic factors on Performance Environment factors St. Beta, listwise Strategic factors St. Beta, listw. Dynamism 0,022 Quality strategy tr 0,096 Hostility -0,087 Breadth strategy 0,069 Heterogeneity -0,027 Cost leadership 0,054 Munificence 0,163* F 2,383* 1,625 Adjusted R² 0,021 0,007 umber of cases <0.1;*<0.05; **<0.01; ***< Table 10. Result of multiple regression analysis of Entrepreneur Competencies and Firm Resources and Capabilities on EO Entrepreneur Competences St. Beta, listw. Firm Resources/ Capabilities St. Beta, listw. Entrepreneurial orientation St. Beta, listw. Opportunity comp. tr. 0,225** Human capital 0,136* EO 0,213** Economic competence tr. -0,126 Social capital tr. 0,032 Uncertainty/risk comp. 0,137 Organis. capital tr. 0,145* Financial capital 0,267*** F 6,611*** 9,230*** 12,333** Adjusted R² 0,062 0,117 0,042 umber of cases <0.1;*<0.05; **<0.01; ***< Table 11. Result of multiple regression analysis of Entrepreneur Resources and Controls on EO Entrepreneur Resources St. Beta, listw. Controls St. Beta, listw. Age squared -0,108 Firm age 0,183** sex 0,007 Industry sales/distrib. -0,051 Highest education level 0,112 Industry service -0,022 Family entrepreneurial background 0,047 Market_local -0,132 Years of management work experience -0,057 Market_regional 0,052 umber of businesses owned -0,081 F 1,464 3,419** Adjusted R² 0,013 0,044 umber of cases <0.1;*<0.05; **<0.01; ***< From environmental factors only munificence weakly associated with performance. one of strategies is associated with performance. From entrepreneur competences opportunity competence is significantly associated with performance, while economic competence is weakly negatively associated with performance and uncertainty/risk competence is weakly positively associated with performance. From the firm resources it is financial capital that is significantly associated with performance, and educational level of an employees as well as 11

13 organisational capital is weakly associated with performance. Entrepreneurial orientation is significantly associated with performance. one of entrepreneur resources is associated with performance. From controls it is firm age that is significantly associated with performance. Table 12. Result of hierarchical multiple regression analysis on Performance St. B, list St. B, list St. B, list St. B, list St. B, list St. B, list St. B, list Environment Dynamism 0,093 Hostility -0,025 Heterogeneity -0,060 Munificence 0,134 Firm resources/capabilities Human capital 0,189** Social capital transformed 0,074 Organisational capital tr. 0,194** Financial capital 0,278*** Entrepreneur competences Opportunity competence tr. 0,076 Economic competence tr. -0,098 Uncertainty/risk comp. 0,013 Strategy Quality strategy tr. -0,040 Breadth strategy 0,023 Cost leadership strategy 0,041 Entrepreneurial orientation Entrepreneurial orientation 0,084 Entrepreneur resources age 0,007 sex 0015 Highest education level 0,139 Family entrepr. background 0,037 Managerial experience -0,216* umber of businesses tr. 0,006 Firm age, industry, market Firm age 0,036 Industry sales/distr. -0,086 Industry service -0,051 Market_local -0,088 Market_regional 0,032 F 1,334 5,311*** 3,977*** 3,128*** 2,389*** 2,664*** 2,265** Change in F 9,049*** 0,532 0,214 1,038 1,674 0,694 Adjusted R² 0,007 0,158 0,151 0,139 0,140 0,16 0,152 R² 0,029 0,194 0,202 0,205 0,210 0,256 0,272 Change in R² 0,166 0,007 0,003 0,005 0,046 0,016 umber of cases <0.1*<0.05; **<0.01; ***< The most significant association with performance in hierarchical model revealed firm resources/capabilities, especially financial capital of the firm. It was expected, as if to follow theoretical model, performance should be better explained through interactive effect of different constructs rather than by direct contribution of the theoretical constructs. What is follow from the table above, is that from environmental factors it is munificence that weakly associated with performance. From firm resources, it is human, organisational and financial capital that are associated with performance. From all other variables, only education of entrepreneur is weakly positively associated with performance, while managerial experience is very weakly negatively associated with performance. 12

14 Interaction effect on Performance Table 12. Result of hierarchical MRA on Performance interaction EO*Financial capital St. B, list St. B, list St. B, list St. B, list Dynamism 0,077 Hostility -0,095 Heterogeneity -0,068 Munificence 0,175** Human capital 0,123* Social capital transformed 0,055 Organisational capital tr. 0,140* Financial capital 0,270*** Entrepreneurial orientation 0,125 EO*financial capital 0,767* F 2,903* 5,831*** 5,632*** 5,716*** Change in F 8,388*** 3,521 5,471* Adjusted R² 0,031 0,141 0,151 0,167 R² 0,048 0,17 0,183 0,203 Change in R² 0,123 0,013 0,019 umber of cases 236 <0.1*<0.05; **<0.01; ***< Table 13. Result of hierarchical MRA on Performance interaction EO*Opportunity competence St. B, list St. B, list St. B, list St. B, list Dynamism 0,057 Hostility -0,071 Heterogeneity 0,004 Munificence 0,183** Opportunity competence tr. 0,205* Economic competence tr. -0,083 Uncertainty/risk comp. 0,107 Entrepreneurial orientation 0,111 EO*opportunity comp. -0,613* F 2,599* 3,442** 3,367** 3,523*** Change in F 4,415** 2,676 4,381* Adjusted R² 0,026 0,66 0,073 0,086 R² 0,042 0,093 0,104 0,120 Change in R² 0,051 0,010 0,017 umber of cases 242 Interaction effect of EO *financial capital gives weakly significant positive effect on Performance. Interaction effect of EO*Opportunity competence gives weakly significant negative effect on Performance. The next step in the analysis of data is to use Structural Equation Modelling to check path dependence in the model. 13

15 COCLUSIO In the present paper the author have presented some results of analysis, based on which it is possible to conclude that performance of Russian enterprises can possibly be explain with the help of Western theories. The most significant results were found on Entrepreneurial orientation, the construct that in modern entrepreneurial literature is often associated with superior firm performance and growth (Wiklund, 1998, Wiklund and Shepherd, 2003). Es expected, environment munificence and heterogeneity, strategy, opportunity entrepreneur competence, financial capital, are all positively associated with Entrepreneurial orientation of the firm. Weaker results are found on performance. Munificence, opportunity competence, financial and in low extent human capital, entrepreneurial orientation and firm age are associated with performance. This was expected as it was assumed that those constructs influence performance via entrepreneurial orientation or strategy. With the help of linear regression it was possible just to check the importance of some interaction effect on performance. It was found, that interaction effect of entrepreneurial orientation and financial capital increases explanation power of the model and significantly associated with performance. Interaction effect of entrepreneurial orientation and opportunity competence also found to increase explanation power of the model on low level of significance. Further SEM analysis is necessary to check other interaction effects of different constructs on performance. Appendix A: Variable definitions DEPEDET VARIABLE Performance 2.1 Performance in broad categories. Averaging the scores on the six items created an index of performance in broad categories. Chronbach s alpha = 0.91 Source: Questions were constructed based on Chandler and Hanks (1993), after consultation with three Russian entrepreneurs. (questions 3-6 selv - constructed). Measured with a five point Likert scale: 1 =have decreased significantly, 5 = have increased significantly During the last three years 1. The market share 2. Sales growth 3. et profit 4. Profitability (sales/expences) 5. Profit to sales ration (sales-costs)/sales 6. Gross profit 2.2 Satisfaction with performance index. Source: Questions were constructed based on Chandler and Hanks (1993: 397) and Westhead (Forthcoming) after consultation with three Russian entrepreneurs. Respondents were asked to rate eight performance measures on five-point Likert scale, based on how important those measures are for the performance over the past three years: 1. sales level 2. sales growth 3. market share 4. total number of employees 5. profitability 6. net profit 7. gross profit 8. the ability to fund business from profit The sum of the importance scores was required to be equal to 1. Respondents were than asked to rate on five-point Likert-scale how satisfied they were with their firm s performance on each of the eight measures listed above. The important scores were then multiplied by the satisfaction with performance scores and scaled from 0 to 1 to form a weighted satisfaction with performance index. 2.3 Composite performance index. Averaging the scores on the seven new items created an index of composite performance. Chronbach s alpha = 0.91 Source: I used the same importance and satisfaction questions as above. Satisfaction question s scores were recorder such that (1=-2, 2=-1, 3=0, 4=1, 5=2) and than multiplied by important scores. One item dealing with total number of employees were deleted from index to increase reliability. IDEPEDET VARIABLES 14

16 1. Perceived external environment Four dimensions of the external environment were included in the research model. All scales of environmental perceptions were measured using a five point Likert scale were: 1 = strongly disagree, 5 = strongly agree. Question taken from Miller and Friesen (1982) were reconstructed from two-tailed to one-tailed and to five-point Likert scale. Dynamism. Averaged sum of scores of items 3, 4, 5 constitute dynamism index, Chronbach s alpha 0,64. Source: Miller & Friesen (1982) 1.To keep with market and competitors our firm must rarely change its marketing practices * 2. The rate at which products/services are getting obsolete in the industry is very slow * 3. Actions of competitors are quite easy to predict 4. Demand and consumers tastes are fairly easy to forecast 5. The product/service technology is not subject to very much change and is well established Munificence. Item 5 was chosen to represent munificence, since Chronbach alpha for items 1,2,5 was (0,52). Source: Item 1Brown & Kirchhoff (1997), 2,3,4 Shane and Kolvereid (1995), 5 Zahra (1993). 1. The business s industry may in general be characterized of high growth 2. There is a wide range of new businesses in our industry. 3. Customers are interested in buying a product.** 4. Customers are easily accessible.** 5. Growth opportunities in our industry is abundant. Hostility. Averaged sum of scores of items 1-3 constitute hostility index, Chronbach s alpha 0,65 Source: 1-4 Miller & Friesen (1982), 5 Zahra (1993), 6 selv-constructed. 1. Price competition is not a great threat 2. Competition in product quality or novelty is not a great threat 3. Dwindling markets for products is not a great threat 4. Government interference is not a great threat * 5. Changes in technologies is not a great threat * 6. eed to pay to different officials to get the things done is not a great threat * Heterogeneity. Averaged sum of scores of items 1, 2 constitute heterogeneity index, Chronbach s alpha 0,74 Source: 1-3 Miller & Friesen (1982), 4,5 - Chandler and Hanks (1994). 1. Customer buying habits for different products/services we offer differ significantly 2. The nature of competition for different products/services we offer differ significantly. 3. Market dynamism and uncertainty for different products/services we offer differ significantly.* 4. There is a much diversity between firms in terms of product quality, customer service and marketing approaches* 5. There are a few differences between the products/services provided by various firms * 2. Firm resources and capabilities Three types of the firm resources and capabilities as well as human capital opeartionalised through educational level were included in the research model. All scales of items except educational level were measured using a five point Likert scale were: 1 = strongly disagree, 5 = strongly agree. Human capital. How many employees in your firm have higher education? % Social capital.averaged sum of scores of items 1-4 constitute social capital index, Chronbach s alpha 0,75 Source: 1-4 Borch et al. (1999) 1. Employees network is an important information source 2. We use our firm networks to influence the environment 3. Our networks broader our opportunities 4. Manager s own networks is an important firm resource Organisational capital. Averaged sum of scores of items 1-3 constitute organisational capital index, Chronbach s alpha 0,62 Source: 1-4 Spanos and Lioukas (2001). 1. Our firm s managerial competencies is high 2. We have good firm climate 3. Our employees have superior knowledge and skills 4. We emphasize strategic planning* Finance capital Averaged sum of scores of items 1,2,4 constitute finance capital index, Chron. alpha 0,73 Source: 1-3 Shane and Kolvereid (1995), 4-1. Bank loans are easily available for us 2. Capital from suppliers or customers is easily available for us 3. Capital from other sources (family, friends) is easily available for us* 4. Relative to competitors we have advantageous financial resources 3. Entrepreneur resources. General human capital 1. age (used squared) 2. sex(dummy 1,0) 3. What is your highest education level (choices from 1-scientific degree to 7 uncompleted secondary education), recorded to dummy 1-higher education and higher, 0 no. 4. What kind of education do you have (choices ) not used in regression Specific human capital Have anyone in your family ever started a firm? Dummy 1,0 If yes-who? (choices) not used in regression Years of work experience not used in regression 15

17 Years of managerial experience Business similarity (product, customers, competitors, skills) not used in regression How many businesses owned (transfored) 4. Entrepreneur competences Four types of the entrepreneur competences were included in the research model. Competences are operationalised applying self-efficacy. Items were measured according to Bandura (2001) and Betz and Hackett (1998) recommendations. The respondents were asked to indicate their degree of confidence in performing the tasks successfully. The scale ranged from 0 = no confidence at all 5 = some confidence and 10 = complete confidence. Opportunity. Averaged sum of scores of items 2-4 constitute opportunity index, Chronbach s alpha 0,74 Source: De oble et al. (1999) 1. See new market opportunities for new products/services* 2. Discover new ways to improve existing products/services 3. Design products or services that solve current problems 4. Create product/services that fulfil customer unmet needs Financial Averaged sum of scores of items 1-4 constitute financial index, Chronbach s alpha 0,78. Source: 1- Isaksen (forthcoming), 2-4 De oble et al. (1999) This factor was excluded from the model after the PCA which was run simultaneously on all factors to ensure divergent validity. 1. Obtain sufficient funds if necessary 2. Develop and maintain favourable relationships with potential investors 3. Develop relationships with key people who are connected to capital sources 4. Identify potential sources of funding Economic Averaged sum of scores of items 1-3 constitute economic index, Chronbach s alpha 0,79 Source: Anna et al. (2000) 1. Manage expenses 2. Control business costs 3. Manage cash flows Uncertainty/Risk Averaged sum of scores of items 2-5 constitute uncertainty/risk index, Chronbach s alpha 0,82. Source: 1-3 De oble et al. (1999), 4-5Chen et al. (1998) 1. Work productively under continuous stress, pressure and conflict * 2. Tolerate unexpected changes in business conditions 3. Persist in the face of adversity 4. Take calculated risks 5. Make decisions under uncertainty and risk The following competences were not found to load into the same factors: Expected competence: Relationship Source: 1-2 Chandler and Jansen (1992), 3- self-constructed. 1. Involve people with important resources 2. Venture team with complementary competencies 3. Use my connections to solve any problem Expected competence: Leadership. Source. 1-4 Chandler and Jansen (1992). 1. Organize and motivate people 2. Delegate effectively 3. Organize and coordinating tasks 4. Supervise, influence, lead 5. Entrepreneurial orientation Averaged sum of scores of items 1-5, 8,9 constitute entrepreneurial orientation index, Chronbach s alpha 0,87 Source: 1, 5, 6, Chandler and Hanks (1994), 2, 7 Miller & Friesen (1982), 3, 4, - Covin and Slevin (1986), 8 Lumpkin and Dess (2001), 10 Bantel (1998). 1. We strive to be the first to have new products available 2. Owing to the nature of the environment bold, wide-ranging acts are viewed as useful and common practice 3. In dealing with its competitors we typically initiate actions which competitors then respond to 4. We are very often first business to introduce new product/ service, administrative techniques operating technologies, etc. 5. We stress new product development 6. We engage in novel and innovative marketing techniques* 7. We have a strong proclivity for profitable, but risky projects* 8. We have a strong tendency to be ahead of other competitors in introducing new products or ideas 9. We have very strong emphasis on R&D, technological leadership and innovation 10. Our aim is to become a product leader* 11. We emphasise policy of growth primarily through external financing (borrowing, capital issues, etc.) * 6. Strategy Quality Averaged sum of scores of items 1,3,4 constitute quality index, Chronbach s alpha 0,64 Source:1, - Bantel (1998), 2- Borch et al. (1999), 3,4 Chandler and Hanks (1994). 1. We emphasize on superior product quality 2. We continually improving existing products* 3. We emphasize strict quality control 4. We emphasize that customer needs always come first 16