Process of business start up
How do different cultural attitudes towards risk and failure affect the process of business start up? Business start up occurs in almost every country in the world, even in cultures that have negative attitudes towards entrepreneurial activity. However what differs is that the level of start up tends to be higher in countries that prize individualism and furthering personal goals such as United States than countries that stress a persons place within a team and are expected to work in order to promote the team such as Japan. Cultural attitudes are often reflected in the response from the establishment; as such we can examine the establishments in different countries in order to gain an impression of the cultural attitude.
The definition of what it is for a firm to fail is highly subjective; some people might consider it to be when a firm is unable to pay its debtors, or when a firm has to cease trading or perhaps when it begins to liquidate some of its assets. British official figures tend to record businesses that exit the industry or deregister for V.A.T. without an explanation as to why this was done. As such we cannot consider all of these to be failures, some may be conscious choices by the owner manager to scale down output or the owner manager may wish to retire or close down the business for other personal reasons.
Official statistics are also hindered by the fact that not all firms are registered for V.A.T. to begin with so they can effectively close down production without being included in the statistics. The concept of risk refers to the uncertainty of potential loss (or gains) the owner manager may face. It is often the case that although society may view a certain investment as a risk the businessperson involved will only invest if they feel they have enough information to nullify the risk or at least make it a calculated risk.
One of the most widely accepted views is that the United States is a country that embraces the entrepreneur and considers their failures as learning experiences. In contrast it is thought that the Europeans and in particular British have less drive to become self employed preferring job security, and that when a European businesses fails it is a reflection on the owner’s incompetence. According to Herbig et al (Herbig et al., 1994, pg 2) “Europeans are less likely to start new businesses at a rate of between one-third and one-sixth of their American counterparts.” But is this due to the cultural attitudes towards risk and failure? Or other factors that are unique to the United States?
There is a wide body of literature detailing the Japanese working practices, and much of it focuses on how the Japanese tend to place themselves within a group and work for the good of the group. Arguably, the highest moral value in Japanese business is ningen kankei (human relationships)1. Hence the entrepreneur/small business owner manager is not highly regarded as they have left the group in order to pursue their own goals, which is unusual in Japanese society. Although the Japanese does have examples of successful entrepreneurs, they are created ‘not because of the system but in spite of it’.2
Examples such as Honda who faced opposition from the government when trying to expand into the automotive industry (Ramo, 1988) show how difficult it can be for firms not only to start up a new business from scratch but also to venture in their present business. Another Japanese business practice that discourages individuals from starting a new business is the seniority based wage system that big companies in Japan use. Due to this, the gap between entrepreneur’s earnings and that of salaried workers steadily increases the older they get. Whilst at the same time, it gives experienced, skilled workers little incentive to make the transition to be entrepreneurs.
Cultural attitudes towards business are often mirrored by the government’s policies towards them. Similarly to the case where Japanese government tried to inhibit Honda’s diversification, other countries governments have attempted to promote entrepreneurship as a means to economic growth.
The United States attitude towards business taxation has reflected their growing endorsement of Start ups firms. In 1978 Silicon Valley and other high tech firm lobbied successfully to have capital gains tax cut from 49% to 28% which lead to investment trebling in two years. The major source of this additional investment was from venture capital companies who in turn put money into the high tech industries. This paved the way for the 1981 decision by congress to cut capital gains tax yet again to 20%. (Herbig et al., 1994).