Master Thesis. Ethnic entrepreneurship in the Netherlands: Differences between first and second generation a social networks perspective

Transcription

1 Master Thesis Ethnic entrepreneurship in the Netherlands: Differences between first and second generation a social networks perspective Etienne Aras September 2010 Rotterdam School of Management, Erasmus University Master of Science in Business Administration Master Strategic Management Thesis coach: Woody van Olffen Thesis co-reader: Tao Cheng

2 Preface The writing of this master thesis was a long and interesting journey for me. I had some difficulties to find an interesting topic, but when I was there eventually, it gave me the energy and motivation to complete the study. I have learned a lot from the literature, the people I spoke with and the discussions with the coaches, but most of all I learned to manage a project on my own an be totally and solely responsible for the result of it. For this experience I wish to thank several individuals. First of all I would like to thank my coach Woody van Olffen. With his advices, insights and commentary on written parts, I was able to finish my study. His approach to students, where he makes the student the leading guide in their own thesis writing, turned out to be working well for me. In addition, I would also like to thank my co-reader Tao Cheng with his insights on the results. Secondly, I would like to thank the Turkish network organization HOGIAF, who provided me their help with finding Turkish entrepreneurs willing to fill in the questionnaire. Special thanks to the managing director of HOGIAF, Mr. Ahmet Taskan who gave his permission and his secretary Lisanne Marks who was my correspondent partner. Thirdly, I would like to thank my father, Christian Aras, for his support and his help to find colleagues who were willing to check my thesis writing. So my thanks to Simon Mansell and Colin Smith. Finally, I would like to thank my family and Iris for their support and love during the entire process of composing this thesis. The copyright of the Master thesis rests with the author. The author is responsible for its contents. RSM is only responsible for the educational coaching and cannot be held liable for the content. RSM- Strategic Management - 2 -

3 Table of contents Executive summary -4- Chapter 1. Introduction 1.1 Introduction Problem definition & research questions Research objective -9- Chapter 2 Literature review 2.1 Ethnicity and entrepreneurship Ethnicity and entrepreneurship in the Netherlands Social networks Social networks ethnic entrepreneurs Conceptual model & propositions -14- Chapter 3 Methodology 3.1 Research design Data collection Turkish entrepreneurs Sample Measures General background descriptives Dependent variable Independent variable -23- Chapter 4 Results 4.1 General results Business network results Capital results Labour results Information results -45- Chapter 5 Conclusion and discussion 5.1 Main results Contributions to literature Limitation and future research -53- References -55- Appendices -58- RSM- Strategic Management - 3 -

4 Executive summary This thesis carries the findings of research on ethnic entrepreneurs. Present-day literature focus mostly on 1 st generation ethnic entrepreneurs. Except for more explorative studies by van den Tillaart (2001), EIM (2004) and Rusinovic (2006), the new phenomenon of immigrant entrepreneurship has not been investigated. In order to start a business, entrepreneurs require information, capital, skills and labour to start their business activities. While they hold some of these resources themselves, they often complement their resources by accessing their contacts (Aldrich & Zimmer, 1986; Aldrich et al, 1991). In order to acquire these resources entrepreneurs make use of their social networks. Although social networks have many dimensions, the mix of weak and strong ties is at the core of the debate about network benefits (Uzzi, 1997; Lechner et al. 2006, Jack, 2005; Batjargal 2003). Strong ties are associated with the exchange of fine-grained information and tacit knowledge, trust-based governance and resource cooptation (Elfring & Hulsink, 2003). According to Granovetter (1973), the strength of weak ties is that they enable the individual to reach actively and purposefully outside his or her immediate close social circle and to draw upon information, advice and assistance from a large, diverse pool. It is clear, that both strong and weak ties are useful and contribute to the emergence and growth of firms, although they are beneficial in different ways and at different stages of a company s development (Elfring & Hulsink, 2003). On the ethnic social network side, it is given that ethnic entrepreneurs rely heavily on strong ties. Their own ethnic or social group appears to play an important role in the behaviour of ethnic entrepreneurs. The core of this group is formed by the (extended) family (Ram et al, 2000). By employing family members and others from their own social networks these ethnic entrepreneurs are in many cases able to increase flexibility and reduce cost (Kloosterman & Rath, 2000; EIM 2004). Although it seems that the strong ties of ethnic entrepreneurs bring only success, it also has disadvantages. According to Granovetter (1973) this strong focus on strong ties will lead to the fact that ethnic entrepreneurs will be unable to gain new information, advice and assistance from a large diverse pool. This is also noted by the EIM 2004, which claims that ethnic entrepreneurs are too much focused on strong ties (family, close friends, own ethnic group), which limits their businesses from making a healthy development. Furthermore, they investigated that ethnic entrepreneurs make little use of general and industry-related business networks, which could provide them with up-to-date information, new clients, new business contacts and interesting cooperation possibilities. RSM- Strategic Management - 4 -

5 This research focuses on differences between 1 st and 2 nd generation ethnic entrepreneurs, given the fact that 2 nd generation entrepreneurs are more active in nontraditional business segments, more focussing on native customers, have a better command of the Dutch language, uphold more interpersonal relations with native Dutch persons and are overall more highly educated (EIM 2004; Rusinovic, 2006; Phizacklea and Ram, 1995; van den Tillaart, 2007). Therefore, it seems logical that 2 nd generation entrepreneurs are more reliant on their weak ties than their 1 st generation counterparts. This research can be described as an exploratory survey research, which takes place during the early stages of research into a phenomenon, when the objective is to gain preliminary insight on a topic, and provides the basis for more in-depth survey (Forza, 2002). The unit of analysis refers to the level of data aggregation during subsequent analysis. In this research the unit of analysis are Turkish entrepreneurs from both 1 st and 2 nd generation living in the Netherlands. With the cooperation of Turkish network organization HOGIAF I was able to find ethnic entrepreneurs from both the 1 st as the 2 nd generation willing to fill in a questionnaire. They were questioned about their social networks composition, there access to capital, labour and information. With this information I was able to test if there were significant differences in the compositions of social networks between the 1 st and 2 nd generation. Furthermore, it gave data to test if either strong or weak ties were used in order to have access to resources. With that information I was again able to test if there were significant differences between the 1 st and 2 nd generation. The dataset that was created provides data to test the propositions. The findings of the study were supporting the propositions. As proposed, this study has confirmed that there are significant differences between the 1 st and 2 nd generation. It has made clear that the 2 nd generation entrepreneurs are statistically significant more reliant on weak ties in order to have access to necessary resources (capital, labour and information) than their 1 st generation counterparts and that their social networks consist of significant more weak ties. This study will provide the reader with new insights on 2 nd generation entrepreneurship in the Netherlands on a social network perspective. RSM- Strategic Management - 5 -

6 1. Introduction 1.1 Introduction The growth of new ethnic populations in Europe since 1945 as well as waves of immigrants to the United States after the 1965 reform of immigration laws has made ethnic enterprise a topic of international concern (Aldrich & Waldinger, 1990). Members of some groups have entered business ownership in numbers disproportionate to their group s size, whereas others have shunned entrepreneurial activities (Aldrich & Waldinger, 1990). Also in the Netherlands, a significant proportion of the immigrant population has established itself as self-employed entrepreneurs (Kloosterman & Rath, 2000). The amount of self-employed immigrants has increased in percentage significantly over the past decades. According to Monitor Etnisch Onderschap 2004, financed by the Dutch Ministry of Economic Affairs, the number of self-employed immigrants has been tripled in the period These facts indicate that self-employment among immigrants are of increasing growth and importance. According to Kloosterman & Rath (2000), ethnic entrepreneurship is still strongly orientated towards specific segments of the opportunity structure. About 60 percent of all immigrant entrepreneurs can be found in sectors such as wholesales, retail and restaurants (Kloosterman & Rath, 2000). Barriers to entry for setting-up businesses are relatively low. Nevertheless there has to be made a distinction between 1 st and 2 nd generation immigrants. 2 2nd generation immigrants are more diverse in business segments than 1 st generation immigrants especially for business services and other services (EIM, 2004). According to van den Tillaart (2007) there are also differences within the business segments itself. While the 1 st generation entrepreneurs that are active in business services focus mainly on contract cleaners and employment agencies, the 2 nd generation becomes more active in consultancy firms, software firms, public relations, research bureaus and lawyer agencies. Furthermore, it has been noted that 2 nd generation immigrant entrepreneurs are frequently more highly educated, entering entrepreneurship from different backgrounds to their 1 st generation counterparts and for different reasons (Phizacklea and Ram, 1995). 1 Appendix 1: EIM 2004, minority self-employed entrepreneurs in the Netherlands ( ) 2 Appendix 2: EIM 2004, business sectors first and second generation entrepreneurs, 1999 and 2002 (%) RSM- Strategic Management - 6 -

7 The importance of social networks for the founding and growth of entrepreneurial firms in this is acknowledged by many researchers (Brass et al., 2004; Greve & Salaff, 2003; Hite & Hesterly, 2001). On the ethnic social network side, it is given that ethnic entrepreneurs rely strongly on strong ties. Ram et al. (2000) stated that their own ethnic or social group appears to play an important role in the behaviour of ethnic entrepreneurs. These strong focus on strong ties will lead to the fact that ethnic entrepreneurs will be unable to reach new information, advice and assistance from a large diverse pool and finally limit their company growth. Present-day literature focus mostly on 1 st generation ethnic entrepreneurs. Except for more explorative studies by van den Tillaart (2001), EIM (2004) and Rusinovic (2006), the new phenomenon of immigrant entrepreneurship has not been investigated. This research will focus on differences between 1 st and 2 nd generation ethnic entrepreneurs, given the fact that they are born in the Netherlands, frequently more highly educated, entering entrepreneurship from different backgrounds to their 1 st generation counterparts and for different reasons (Phizacklea and Ram, 1995). Are these 2 nd generation entrepreneurs manage their social networks different then their 1 st generation counterparts? Or are they also relying on their strong ethnic ties in order to have access to crucial resources? RSM- Strategic Management - 7 -

8 1.2 Problem definition & research questions The existing literature on ethnic entrepreneurship has been focused on 1 st generation entrepreneurs (van den Tillaart, 2001). This while 2 nd generation ethnic entrepreneurship is a growing phenomenon 3. The existing literature made clear that ethnic entrepreneurship is strongly orientated towards specific segments (Kloosterman & Rath, 2000) and that most ethnic entrepreneurs rather than breaking new ground are simply replicating and reproducing old forms (Aldrich & Waldinger, 1990). These conclusions were most of the time made about 1 st generation ethnic entrepreneurs. In this time, while the 2 nd generation of non-western immigrants are starting and running businesses, it is interesting to research how they manage their businesses. On the social network side of this research, it is given that ethnic entrepreneurs rely heavily on strong ties. By employing family members and others from their own social networks these ethnic entrepreneurs are in many cases able to increase flexibility and reduce cost (Kloosterman & Rath, 2000; EIM 2004). According to Granovetter (1973) this strong focus on strong ties will lead to the fact that ethnic entrepreneurs will be unable to acquire new information, advice and assistance from a large diverse pool. This is also noted by the Monitor Etnisch Ondernemerschap 2004, which claims that ethnic entrepreneurs are too much focused on strong ties (family, close friends, own ethnic group), which limits their businesses from making a healthy growth. These literary findings suggest that a mix of strong and weak ties are required in order to gain resources, business opportunities, crucial information and finally firms growth. Given the fact that ethnic entrepreneurs rely heavily on their strong ethnic ties, the question arises whether they are able to manage firm growth and have access to necessary resources. And in this research specifically, the 2 nd generation ethnic entrepreneurs, given the fact that they are born in the Netherlands, are frequently more highly educated, entering entrepreneurship from different backgrounds to their 1 st generation counterparts and for different reasons (Phizacklea and Ram, 1995). Present-day literature gives no clear distinction of 1 st and 2 nd generation ethnic entrepreneurs and the influence that can have on their use social networks. These literature gaps lead to the following problem definition; How do the social networks of 2 nd generation entrepreneurs differ from their 1 st generation counterparts in order to have access to crucial resources? 3 Appendix 3: van den Tillaart (2007), development of 1st and 2nd generation ownership of businesses ( ) RSM- Strategic Management - 8 -

9 The research questions formulated below should be answered to solve the problem definition; How is the mix of strong and weak ties in the social network of 2 nd generation entrepreneurs composed? How is the mix of strong and weak ties in the social network of 1 st generation entrepreneurs composed? What are the differences/ similarities between 1 st and 2 nd generation non- Western entrepreneurs with regard to the mix and use of their social networks and access to resources? 1.3 Research objective The objective of this research is to gain a clear understanding of differences in social networks between 1 st and 2 nd generation entrepreneurs. In this case the setting will be the Netherlands. The overall goal is to understand if there are differences in the mix and use of social networks in order to have access to crucial resources (capital, labour and information), and if so in what measure. In the following chapter, the literature review will be treated. Subjects like ethnic entrepreneurship in general, 1 st and 2 nd generation entrepreneurship, social networks and tie strengths will be examined. Furthermore, the propositions will be formulated as well as the conceptual model will be shown. The third chapter, methodology, will show how the propositions are tested, the research design, the data collection and sample and the measurement methods of the variables. The fourth chapter, results, will have its focus on the data that is collected. It gives an overview of the most important findings, mostly based on differences between the 1 st and 2 nd generation entrepreneurs. The fifth chapter, conclusion and discussion, summarizes the purposes of the research, the most important findings and if the results are satisfying, the propositions are analyzed critically, the limitations of the research are discussed, unavailable data are mentioned and the generalization of the study is discussed. The implications for theory as well as practice are discussed. The thesis ends with the reference list and appendices. RSM- Strategic Management - 9 -

10 2. Literature Review 2.1 Ethnicity and entrepreneurship The growth of new ethnic populations in Europe since 1945 as well as waves of immigrants to the United States after the 1965 reform of immigration laws has made ethnic enterprise a topic of international concern (Aldrich & Waldinger, 1990). Members of some groups have entered business ownership in numbers disproportionate to their group s size, whereas others have shunned entrepreneurial activities (Aldrich & Waldinger, 1990). These immigrant entrepreneurs are affecting cities in numerous ways, as, for example, by revitalizing formerly derelict shopping streets, by introducing new products and new marketing strategies, by fostering the emergence of new spatial forms of social cohesion and by opening up trade links between faraway areas that were hitherto unconnected through so-called transnational communities (Kloosterman & Rath, 1999). In general, the ethnic entrepreneurs motivation to start their own businesses can be expressed in terms of push and pull factors (Masurel & Nijkamp, 2004). According to Deakins (1999), the history of disadvantage and discrimination has led to the concentration of ethnic minority firms and entrepreneurs in marginal areas of economic activity. Van Delft (2000) stated that ethnic entrepreneurship has become a popular strategy in developing principles of self-reliance among ethnic groups, because it stimulates and encourages immigrants to take care of themselves, with only limited support from the government. Kloosterman et al (1998) stressed the fact that high levels of unemployment provide the motivation for immigrants to become entrepreneurs. According to Light (1972) initial markets for ethnic entrepreneurs typically arise within the ethnic community itself. This brings certain problems. First, if ethnic businesses remain limited to the ethnic market, their potential for growth is sharply circumscribed (Aldrich et al., 1983). In that case the obstacle to growth is the ethnic market itself, which can support only a restricted number of businesses because it is quantitatively small. Second, because exclusion from job opportunities leads many immigrants to seek out business opportunities, business conditions in the ethnic market tend toward proliferation of small units, intense competition (low-entry barriers) and a high failure rate (Aldrich & Waldinger, 1990). This indicates that most of the ethnic entrepreneurs are, rather than breaking new ground in products, process, or administrative form, simply replicating and reproducing old forms for their ethnic market (Aldrich & Waldingen, 1990). Kloosterman & Rath (2000) contribute to this by claiming that because of low barriers to entry, the markets in which these immigrant entrepreneurs RSM- Strategic Management

11 operate are, generally highly competitive. The main competitors of ethnic entrepreneurs are often co-nationals or co-ethnics, and competition is largely based on price rather than quality. 2.2 Ethnicity and entrepreneurship in the Netherlands Also in the Netherlands, a significant proportion of the immigrant population has established itself as self-employed entrepreneurs (Kloosterman & Rath, 2000). The amount of self-employed immigrants has increased in percentage significantly over the past decades. In 1987, 3,3 percent of the minority labour force was self-employed. Ten years later this percentage is more than doubled to 7,4 percent of the minority labour force (Kloosterman & Rath, 2000). According to Monitor Etnisch Ondernemerschap 2004, financed by the Dutch Ministry of Economic Affairs, the number of self-employed immigrants has been tripled in the period These facts indicate that selfemployment among immigrants are of increasing growth and importance. It was mentioned earlier that most of the ethnic entrepreneurs are simply replicating and reproducing old business forms. This applies to the Netherlands as well. Immigrant entrepreneurship, although becoming more diverse, is still strongly orientated towards specific segments of the opportunity structure. About 60 percent of all immigrant entrepreneurs can be found in sectors such as wholesale, retail and restaurants (Kloosterman & Rath, 2000). Barriers to entry for setting-up businesses are relatively low. Nevertheless there has to be made a distinction between 1 st and 2 nd generation immigrants. 5 In defining these groups, the 1 st generation refers to those persons who were born abroad and of whom at least one parent was born abroad. Persons who were born in Netherlands from at least one parent was born abroad belong to the 2 nd generation (CBS, 2000). From history we know that, as the years go by, the melting pot will often do its work, resulting in the increased merging of immigrant and native groups. It therefore seems a likely assumption that 2 nd generation immigrants show a profile that comes closer to the profile of autochthonous people, in comparison with their 1 st generation counterparts (Masurel & Nijkamp, 2004). 4 Appendix 1: EIM 2004, minority self-employed entrepreneurs in the Netherlands ( ) 5 Appendix 2: EIM 2004, business sectors first and second generation entrepreneurs, 1999 and 2002 (%) RSM- Strategic Management

12 This is also implicated by other researches like the EIM (2004) which claims that 2 nd generation entrepreneurs are more diverse in business segments than 1 st generation entrepreneurs especially for business services and other services. According to van den Tillaart (2007) there are also differences within the business segments itself. While the 1st generation entrepreneurs that are active in business services focus mainly on contract cleaners and employment agencies, the 2 nd generation becomes more active in consultancy firms, software firms, public relations, research bureaus and lawyer agencies. Rusinovic (2006) claims that the 2 nd generation entrepreneurs are much more focussing on native customers and go beyond their ethnic markets in contrast to the 1 st generation entrepreneurs. Furthermore, it has been noted that 2 nd generation immigrant entrepreneurs are frequently more highly educated, entering entrepreneurship from different backgrounds to their 1 st generation counterparts and for different reasons (Phizacklea and Ram, 1995; van den Tillaart, 2007; EIM 2004). 2.3 Social networks Entrepreneurs require information, capital, skills and labour to start their business activities. While they hold some of these resources themselves, they often complement their resources by accessing their contacts (Aldrich & Zimmer, 1986; Aldrich et al, 1991). In order to acquire these resources entrepreneurs make use of their social networks. The importance of social networks for the founding and growth of entrepreneurial firms is acknowledged in a growing body of literature (Brass et al, 2004; Greve & Salaff, 2003; Hite & Hesterly, 2001). According to Brass (2004) social networks, (1) transfer information that gives rise to attitude similarity, imitation, and generation of innovations; (2) mediate transactions among persons; and (3) give differential access to resources and power. Although social networks have many dimensions, the mix of weak and strong ties is at the core of the debate about network benefits (Uzzi, 1997; Lechner et al. 2006, Jack, 2005; Batjargal 2003). Entrepreneurial networking research tends to embrace Granovetter s (1973,1983) account of the role of concrete personal relations that include strong ties to family and close friends as well as weak ties. Strong ties are associated with the exchange of fine-grained information and tacit knowledge, trust-based governance and resource cooptation (Elfring & Hulsink, 2003). According to Granovetter (1973), the strength of weak ties is that they enable the individual to reach actively and purposefully outside his or her immediate close social circle and to draw upon information, advice and assistance from a large, diverse pool. It is clear, that both strong and weak ties are useful and contribute to the emergence and growth of firms, although RSM- Strategic Management

13 they are beneficial in different ways and at different stages of a company s development (Elfring & Hulsink, 2003). 2.4 Social networks ethnic entrepreneurs On the ethnic social network side, it is given that ethnic entrepreneurs rely heavily on strong ties. Their own ethnic or social group appears to play an important role in the behaviour of ethnic entrepreneurs. The core of this group is formed by the (extended) family (Ram et al, 2000). By employing family members and others from their own social networks these ethnic entrepreneurs are in many cases able to increase flexibility and reduce cost (Kloosterman & Rath, 2000; EIM 2004). According to Song (1997) the children have an important role in ethnic businesses, mostly used as labour sources. The most significant characteristics of ethnic entrepreneurship in general are their client orientation and their access to capital and labour (Deakins, 1999). According to the EIM (2004), ethnic entrepreneurs use most of the time their family members or friends to have access to capital. Reasons for that are that banks often do not want to cooperate with them, because there are to many risks involved, and profits are to little (ethnic entrepreneurs ask most of the time for small amounts of capital). Besides these tangible aspects of entrepreneurship, intangible aspects can also be important; for example, Greene (1997) mentions that the ethnic community may be a source of such intangible assets as values, knowledge, or networks upon which entrepreneurs may draw. Van Delft et al (2000) revealed that ethnic-related social networks may provide several advantages: they appear to be multifaceted and flexible, and offer good possibilities for the efficient recruitment of personnel and capital. Lee et al (1997) called this phenomenon the social resources explanation : the success of ethnic minority businesses can in part be explained by the existence of such social resources as rotating credits, a protected market, and a labour source. Although it seems that the strong ties of ethnic entrepreneurs bring only success, it also has disadvantages. According to Granovetter (1973) this strong focus on strong ties will lead to the fact that ethnic entrepreneurs will be unable to gain new information, advice and assistance from a large diverse pool. This is also noted by the EIM 2004, which claims that ethnic entrepreneurs are too much focused on strong ties (family, close friends, own ethnic group), which limits their businesses from making a healthy development. Furthermore, they investigated that ethnic entrepreneurs make little use of general and industry-related business networks, which could provide them with up-todate information, new clients, new business contacts and interesting cooperation possibilities. This was also mentioned earlier in this review by the fact that ethnic RSM- Strategic Management

14 entrepreneurs remain limited to the ethnic market and therefore limit their potential for growth and business opportunities (Aldrich et al, 1983). Due to the fact that 2 nd generation entrepreneurs are more active in non-traditional business segments, more focussing on native customers, have a better command of the Dutch language, uphold more interpersonal relations with native Dutch persons and are overall more highly educated (EIM 2004; Rusinovic, 2006; Phizacklea and Ram, 1995; van den Tillaart, 2007), it seems logical that they are more reliant on their weak ties than their 1 st generation counterparts. This theoretical framework leads to the following conceptual model. 2.5 Conceptual model & propositions To further explain the literature review, problem definition, research questions and objectives of this thesis proposal, a conceptual model will be illustrated below. The independent variables in this conceptual model are 1a) Non-Western 1 st generation entrepreneurs and 1b) Non-Western 2 nd generation entrepreneurs. The dependent variables are 2) Social Network and 3) Access to Resources. Dependent variable Social Network contains a mix of strong and weak ties, which are proposed to be different for 1 st and 2 nd generation entrepreneurs. Furthermore, the differences between the 1 st and 2 nd generation are used to explain how they have access to crucial resources: a) Capital, b) Labour and c) Information. 1a) Non-Western 1 st generation entrepreneurs 1b) Non-Western 2 nd generation entrepreneurs 2) Social Network (Tie mix & strength) 3) Access to Resources a) Capital b) Labour c) Information Conceptual model This research will focus differences on social networks composition and access to resources between the 2 nd generation, non-western entrepreneurs in comparison to their 1 st generation counterparts. In order to test the relations in this conceptual model the following propositions are claimed: RSM- Strategic Management