Identifying the role of technological entrepreneurship on economic development

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1 Identifying the role of technological entrepreneurship on economic development Sasan Rostamnezhad 1, Hadi Zarei 2 3, Mohammad Jalali 1-MA student, Faculty of Entrepreneurship, University of Tehran, Iran, [email protected] 2-PhD student in Mangement of Technology(MOT), University of Tehran, Iran, [email protected] 3-MA student, Faculty of Entrepreneurship, University of Tehran, Iran, [email protected] Abstract: Technological entrepreneurship concerns the transformation of potentially viable technological opportunities into successful businesses. Technological entrepreneurship is manifested not only by market entry of new firms, but also by innovative and imitative entries into new markets by established firms. Technological Entrepreneurship is closely associated with knowledge and flexibility, two factors that have gained new significance as a source of competitiveness in an increasingly globalized world economy. This paper presents a short review of the literature on the relevance and role of technological entrepreneurship on economic development in Iran. For the data processing, we used the Structural equation modeling. Our results suggest that technological entrepreneurship has a significant positive effect on economic development. Key-words: Entrepreneurship, Technological entrepreneurship, Economic development, Structural equation modeling entrepreneurial business creation, both of which are conducive to local knowledge spillovers 1 Introduction among firms according to Jacobs (1969: pp. 67- Since the publication of the famous book by 104). Empirically, there is much evidence Schumpeter (1934) which emphasizes the role of showing that entrepreneurship has a positive entrepreneurship as the prime driver of impact on growth in industrial countries and economic development, a large amount of transition countries (Yang et al., 2012: pp literature analyzing the impact of 961). Economic growth continues to be one of entrepreneurship on firm growth and survival the most relevant and exciting sub-areas of has emerged. entrepreneurship is the source of economics. Its relevance stems from the knowledge spillover, technological progress and questions it focuses on. The problem of innovation. which, at the macro level, are economic development remains a major one for sources of economic growth. For example, in humanity at large and for economics as a endogenous growth theory innovation is science. Naturally, economic growth also has the regarded as the most important drive of power to rapidly close such gaps as illustrated economic growth. As noted by Audretsch and by the experiences of countries of Japan, South Keilbach (2004: pp ), entrepreneurship Korea, Singapore, and more recently China. can also affect economic growth through Thus, the consequences of a few percent change competition and industrial diversity provided by in the growth rate of a nation can have huge consequences for the well-being and living 13

2 standards of its citizens in one or two generations(acemoglu, 2012: pp ). In the last 15 years, research in entrepreneurship has taken on much greater importance in such leading management journals as the Academy of Journal Management, Administrative Science Quarterly, and Strategic Management Journal. Serious research in technological entrepreneurship only began to receive greater prominence as scholars in the management of technology and engineering management fields began considering the role of the entrepreneur in the organization. Standard theories of production, based on the standard Leontief production function, are characterized by a Cobb Douglas technology. Technological entrepreneurship research occurs at many levels of analyses. At the individual level, the focus is on scientist/entrepreneurs, venture capitalists, and other individuals that initiate and drive technological innovation. At the organizational level, the research is on the technological teams, structures, processes, and interorganizational linkages that impact value creation. At the systems level, it is about the resources exchanged among different players in the ecology of value creation, which includes the governing factors such as government technology and competition policy, industry standards, and the economics of geographical locations. The research is thus necessarily interdisciplinary and multilevel. Technological entrepreneurship research is foremost about understanding the conditions and drivers that lead to the identification and exploitation of opportunity for value creation. Technology development choices made by innovators. He finds an unintended result that the change led to more resources and attention paid to commercially viable technologies rather than basic science, in which the path to valuable licenses was less clear. Competition policy can reduce the incentives for entrepreneurial activity by reducing the gains from risk arbitrage or innovation. However, technology policy designed to create economies 14 of scale and scope in research and development can give rise to entire ecologies of new industries. Furthermore, the impact of government intervention depends on the stage of development of an industry(phan & Foo, 2004:pp.1 5). Technological entrepreneurship concerns the transformation of potentially viable technological opportunities into successful businesses. Technological entrepreneurship has been characterized as a system (e.g. Abetti, 1992: pp ), a strategy (e.g. Gans and Stern, 2003: pp ), a process (e.g. Shane and Venkataraman, 2003: pp ), a capability (e.g. Hindle and Yencken, 2004: pp ) or an individual attribute (e.g. Dorf et al., 2011) related with the discovery/recognition/creation of technological opportunities and their exploitation. Relying on Casson (1982: pp ), Kirzner (1997: pp ), Shane and Venkataraman (2000: PP ) and Sarasvathy and Venkataraman (2011: pp ), technological opportunities can be defined as the possibilities to create new products, introduce these products into the market and sell them at greater than their cost of production. 2 Literature Review 2.1 Entrepreneurship Entrepreneurship is an inseparable part of the whole: An entrepreneur is one who clearly envisions a result and focuses total energy -- physical,emotional and intellectual - on bringing the envisioned result to reality. It has been argued that entrepreneurship is the source of knowledge spillover, technological progress and innovation. (Cohen & Levinthal, 1989: pp ; Acs & Audretsch, 1990; Audretsch & Feldman, 1996: pp ; Audretsch & Stephan, 1996: pp ; Caves, 1998: pp ). As noted by Audretch and Keilbach (2004: pp ), entrepreneurship can also affect economic development through competition and industrial diversity provided by

3 entrepreneurial business creation, both of which are conducive to local knowledge spillovers among firms according to Jacobs (1969: pp ). Empirically, there is much evidence showing that entrepreneurship has a positive impact on development in industrial countries and transition countries (Acs & Armington, 2004: pp ; Audretsch & Keilbach, 2004: pp ; Berkowitz & Dejong, 2005: pp ; Carree & Thurik 2008: pp ; Foelster, 2000: pp ). Entrepreneurship is a process of exploiting opportunities that exist in the environment or that are created through innovation in an attempt to create value. It often includes the creation and management of new business ventures by an individual or a team (Jan Ulijn, 2004). Entrepreneurship has been recognized as a micro driver of innovation and economic development, Wennekers and Thurik, (1999); Audretsch and Thurik, (2001); Acs, (2006); Audretsch et al., (2006); Grilo and Thurik, (2005) consider that the entrepreneurial activity is at the heart of innovation, productivity development, competitiveness, economic development and job creation. Kirzner s (1973) entrepreneur is a person who places new profit opportunities in the market place. Remaining with economic conceptualisations, Schumpeter (1934) characterised entrepreneurship, as the engine of an economy. For him, it was ongoing entrepreneurial innovations that injected new energy into an economy for development and prosperity. For Schumpeter then, the entrepreneur s role is to reallocate resources by breaking up existing equilibriums through injecting entrepreneurial innovations. This, Schumpeter vividly describes, as the process of creative destruction. Entrepreneurship is a multidimensional concept (Verheul et al., 2002: pp ). At a macro level, entrepreneurship can be conceptualised as the sum of individual decisions made by entrepreneurs about investing in ventures. Consequently, one perspective is to consider entrepreneurs as individuals and then to aggregate their activities (Davidsson, 1995: pp ). McClelland (1961: pp ) argued that the extent of individual psychological traits determined the level of entrepreneurship in a country. In essence McClelland sees the aggregate of entrepreneurial traits as determining entrepreneurial outcomes and, in turn, economic development. Many aspects of entrepreneurship and its implications have been studied taking the lens of neoclassical economics. Works have spun a variety of micro and macroeconomic topics. In recent years, a significant amount of economics research has focused on entrepreneurship as the result of a maximization process in which individuals have to select between alternative employment options (Parker, 2004). Lazear (2004: pp , 2005: pp ) and Wagner (2003: pp ), for example, have suggested that entrepreneurs must be jacks-ofall-trades with the ability to perform many tasks without necessarily excelling at any of them. Also, entrepreneurship has been studied in relation to allocation of talent (Michelacci, 2003: pp ), personal characteristics (Djankov et al., 2006: pp ; Lévesque et al., 2002: pp ), immigration (Fairlie and Meyer, 2003: pp ), networks and social capital (Minniti, 2004: pp , 2005: pp. 1 27), and unemployment rates (Tervo, 2006: pp ), to cite just a few topics. 2.2 Technological entrepreneurship Technological entrepreneurship is an important way to commercialize technological innovations. Technological entrepreneurship is of the character of opportunity entrepreneurship, it can be defined from the point of view of opportunity discovery and exploitation, namely discover and exploit market opportunity of technology. Based on this definition, measures of level of technological entrepreneurship can be conducted through effect (e.g. number of new firms or new business) and characters (e.g. innovation, riskbearing and proactiveness). The commercialization of technology can be done either through the creation of a new business 15

4 entity or by establishment of a new venture within an existing company (Hindle and Yencken, 2004: pp ). Accordingly, from the two aspects of entrepreneurship, and a combination of independent entrepreneurship and corporate entrepreneurship, That is basically what technological entrepreneurship means: the transformation of promising technologies into value. More specifically, technological entrepreneurship (or its synonyms, i.e. entrepreneurship, techno-entrepreneurship, and tecnoentrepreneurship) consists of a set of behaviours and actions that drive the market process (and also a strategy) which is based on identifying high potential, technology-intensive commercial opportunities, gathering/assembling resource andmanaging rapid development and significant risk with the final aim to exploit those opportunities for value creation (Antoncic and Prodan, 2008: pp ). Following these considerations technology entrepreneurship concept is made of an entrepreneurial component, i.e. the enterprise s capabilities to recognize technologies entrepreneurial and business opportunities and a management component, i.e. the enterprise s capabilities to develop compelling value propositions and business models made to exploit those opportunities. Those two set of capabilities makes together what is here referred as technological entrepreneurship capabilities, i.e. the capabilities to identify and exploit technological opportunities to create new or significantly improved products and to successfully commercialize them. These capabilities are here supposed to be rooted in a number of high-performing organizational processes (Bingham et al., 2007: pp ) that bridge technology development and business creation: [...] from the recognition or even the creation of potential business value of new discoveries and technologies, to the matching with existing and/or potential market needs, and finally the transformation of opportunities arising in commercial products, services and new businesses (Petti, 2009: pp. 1 5). Altogether, making what Petti refers as the technology entrepreneurship process. Technological entrepreneurship capabilities and related processes transcend single individuals or enterprises and are inextricably linked and affected by the context in which they are deployed. This context is made of a specific set of local conditions, and a mix of relational and institutional configurations that affect technological development and entrepreneurship. So, there is also an environmental component to consider, i.e. the availability and the qualities of external institutions and resources that set the appropriate conditions for technological opportunities to be discovered and exploited profitably (Figure 1). Asamatter of fact, these opportunities do not emerge on themown, neither are themthe result of (only) particularly talented, creative, and even lucky individuals, pairs of teams. Rather, these opportunities often emerge and are exploited as a result of a collective, systemic and systematic effort,which involves a number of interacting actors that provide the resources, set the appropriate conditions, and contribute to the development and diffusion of technological applications. They are, in the end, the result of a system. A system, the one that requires the interaction among talented individuals, government agencies, education and research institutions, enterprises as well as investors, would significantly facilitate and stimulate the diffusion of discoveries and technologies from where they are produced to where they are needed. To sumup, the concept of technological entrepreneurship here advocated ismade up of three components, namely entrepreneurial, managerial and environmental component, and the essence of the technological entrepreneurship is reflected on a system of interactive actors engaged in a set of activities related to technology development and identification, opportunity recognition, product 16

5 development, business development and creation (Figure 1). Technological entrepreneurship research occurs at many levels of analyses. At the individual level, the focus is on scientist/entrepreneurs, venture capitalists, and other individuals that initiate and drive technological innovation. At the organizational level, the research is on the technological teams, structures, processes, and interorganizational linkages that impact value creation. At the systems level, it is about the resources exchanged among different players in the ecology of value creation, which includes the governing factors such as government technology and competition policy, industry standards, and the economics of geographical locations. The research is thus necessarily interdisciplinary and multilevel. In this issue, we attempt to represent some of this diversity, partly to make a point that we must continue to adopt a bigtent attitude towards such research if we are going to make a significant contribution beyond the standard application papers (Phan & Der Foo, 2004: pp.1 5) There are two main streams of research in the literature about technological entrepreneurship: one is the study of high-technology entrepreneurship (Smilor et al., 1989: pp ; Bahrami and Evans, 1995: pp ; Kenney and Burg, 1999: pp ), the other explores public research commercialization and spin-off of universities (Smilor et al., 1999: pp ; Gregorio and Shane, 2003: pp ; Hindle and Yencken, 2004: pp ). In terms of measures of technological entrepreneurship activity, there exist two strands including demographic method and firm statistics method. For example, while indicators like selfemployment rates and total entrepreneurial activity were employed by some scholars (Audretsch and Evans, 1994; Reynolds, 2000; Lundstrom and Stevenson, 2001a, b: pp , , ), indicators such as Entrant rates, firm ownership rate or organization per capita were employed by others (Audretsch and Thurik, 2001). All of these indicators measured entrepreneurship from the end-result criterion, and only measured independent/individual entrepreneurship (IE) without taking into account corporate entrepreneurship. Gaps in extant research exist. First, studies in the literature focused mainly on high-technology entrepreneurship, which covers only part of the domain of technological entrepreneurship. To know more about technological entrepreneurship and its determinants, it is necessary to extend research to a broader domain with the traditional technology sector included. Second, most studies focused on independent entrepreneurship, few concerned the combination of individual and corporate entrepreneurship. Third, most studies adopted the case study approach, with few using comparative study and statistical method to explore it (Zhang et al., 2008: pp ). 2.3 Economic development Economic development continues to be one of the most relevant and exciting sub-areas of economics. The consequences of a few percent change in the development rate of a nation can have huge consequencesfor the well-being and living standards of its citizens in one or two generations.economic development, and more broadly economic development, is also an exciting area to studyfor several reasons. First, despite the great relevance and importance of the questions at hand,there are still so many unknowns and so many major challenges that 17

6 the area has attracted greatintellectual activity and is likely to continue to do so in the future. Second, economic development,as Kuznets emphasized, is highly multi-faceted. It is not just about developmentof aggregate output, but also about the fundamental transformation of an economy, ranging fromits sectoral structure, to its demographic and geographic makeup, and perhaps more importantly,to its entire social and institutional fabric. Thisleads to a rich array of questions and a variety of new approaches to fundamental questionsof economic development.third, the theory of economic development also enjoys a special place withineconomics because it combines micro and macro in an exciting way. Finally, economic development is also a largely empirical field as moreresearchers have turned to investigating new empirical questions within the area of development anddevelopment. Economists have recently brought much energy, and rich data, to the investigationof the microeconomic relationships underpinning the process of economic development.repreneurships is often viewed as a key input into economic development. Exactly what entrepreneursdo and how entrepreneurial ideas and attitudes develop are poorly understood (Acemoglu, 2012: pp ). It is widely acknowledged that entrepreneurship contributes to the positive development of different economical indicators. Nowadays, it iswell known worldwide that innovation is the engine of development being an important element of developmentachievements. economies have three stages of development: the factor driven stage, the efficiency-driven stage and the innovation-driven stage. Increasing competitiveness in less-advanced countries can be achieved by adopting xistingtechnologies or making incremental improvements in other areas, but in the countries that have reached theinnovation stage of development this is no longer sufficient for increasing productivity Achieving a higher level of economic development entails reaching a higher level of nationalcompetitiveness. Different research papers show that the economic development largely depends on innovation and theinnovation capacity of enterprises. sustain innovative entrepreneurship, the key factor of modern economy development, must be encouraged. The results of the study highlight that gaps in economic development level can be explained by disparities ininnovative entrepreneurship. We consider that innovative entrepreneurship, because it is essential to sustain (Szabo & Herman, 2012: PP ). There exists a unidirectional causality from economic developmentto financial development, conclusions departing distinctively from those in the previous studies. A great number of theoretical and empirical studies have explored the sources ofeconomic development at both national and provincial levels. A large body of empirical studies, mainly usingcross-sectional approaches, has found that the level of financial development is a good predictor of economic development. A number of recent literatures on endogenous development also favor the positive role of financial intermediaries played to economic development. These researchers support the point of views that financial development may raise savings rate, stimulate investment, avoid premature liquidations ofcapital, reduce the cost of external finance, enhance the efficiency of capital allocation andinsure more productive technological choices, all factors that in turn lead to high economic development. Alternatively, various models of joint determination of real and financial sectors. entrepreneurship can also affect economic development through competition and industrial diversity provided by entrepreneurial business creation, both of which are conducive to local knowledge spillovers among firms according to Jacobs (1969: pp ). The rapid development of the private sector has heavily changed the structure of China's economyin many aspects. Entrepreneurship could be endogenous because economic development may motivate 18

7 entrepreneurs to seize economic opportunities(yang et al., 2012: pp ). 3 Conceptual Framework According to the research conducted by Audretsch and Thurik, 2001; Gartner and Shane, 1995(for Technological entrepreneurship section) & Sala-i-martin, 1997 and Bleaney and Nishiyama, 2002(for Economic development section), The conceptual framework for the empirical study is depicted in Figure 2. experts who are familiar with the discussions of technological entrepreneurship and economic development in research centers,are affiliated with the petroleum industry.the main instrument for data collection is questionnaire.cronbach's alpha that was calculated for all structures in the study was higher than 7, Therefore it is an appropriate measure of reliability.to assess the validity of this research, two methods have been used: construct validity and content validity. In order to perform Theoretical Framework; we need following steps : (i) first, through an exploratory factor analysis, a conceptual model of causal relationships was created between the variables of interest, at this stage the statistical software SPSS 16.0 was used; (ii) then, after underlying the latent structure, a confirmatory factor analysis (CFA) was performed, at that time the hypothesized structure was tested statistically using LISREL software. Figure 2. The Conceptual Framework According to this model, the following hypotheses are proposed: Technological entrepreneurship impact on economic development climate Technological entrepreneurship impact on education dimension for economic development Technological entrepreneurship impact on property rights dimension for economic development Technological entrepreneurship impact on saving propensity dimension for economic development 4 Methodology The purpose of this study which was applied and its data were collected, is descriptive correlation. The population of this study, teachers and 19 5 Results Table 1 and Fig 3 show the results of factor analysis. Fitting parameters are used. Chi-square degrees of freedom of the model is 2.32 which is smaller than 3. RMSEA model fit index is 0.066, which is smaller than As it is shown in Table 1, the most notable and high coefficients are standardized factor loadings. Structural equation model based on technological entrepreneirship, directly impact on economic development and it is in the level of Dimensions Model Name Technological Entrepreneirship opportunity discovery O.D opportunity O.E exploitation innovation IN risk-bearing R.B commercialization COM Economic Development climate Cli Standardized factor loadings

8 education EDU 0.65 property rights P.R 0.70 saving propensity S.P 0.89 Tabel 1.Results of confirmatory factor analysis 6 Discussion and Conclusion This study reviews the technological entrepreneurship and tests the impact of this topic on economic development. Based on the above analysis, the following conclusions and discussions are offered. Findings support, probably for the first time, the existence of a sequential relationship between technological entrepreneurship and Economic development. All over this study, the authors contented that for Iranian enterprises,creating a sustainable technology-based competitive advantage at home as well as abroad, will depend on the extent to which they will be able to identify and exploit technological opportunities in order to create new or significantly improved products and successfully commercialize them, referred as technological entrepreneurship capabilities Technological entrepreneurship activity reflects the extent of commercialization and corporate innovation of the region. For this purpose, relying on a broad multi-disciplinary literature review that surveyed many studies among academic studies and reports, a number of internal and external factors that influence or might influence those capabilities have been identified. Those factors have been organized into an integrated research framework. The developed framework has the potential to give more comprehensive explications of the 20 phenomena under scrutiny, but at the same time cannot explain in details all the possible relationships between its components as a number of separate studies on a single component. To overcome these limitations, two different directions are being pursued. This opens a number of opportunities of further research questions and directions emerged during its realization such as: (1) Reviewing the influence of other factors on technological entrepreneurship and economic development. (2) Studying how the internal components interact among them in influencing technological entrepreneurship capabilities. (3) Developing sub-models aimed at studying the relationships and influence of more specific components. References [1] Abetti, P.A. (1992), Planning and building the infrastructure for technological entrepreneurship, International Journal of Technology Management, Vol. 7, pp [2] Acemoglu, D. (2012). Introduction to economic growth. Journal of Economic Theory, 147(2), doi: [3] Acs, Z. J., & Armington, C. (2004). Employment development and entrepreneurial activity in cities. Regional Studies, 38, [4] Antoncic, B. and Prodan, I. (2008), Alliances, corporate technological entrepreneurship and firm performance: testing a model on manufacturing firms, Technovation, No. 28, pp [5] Audretsch, D. B., & Keilbach, M. (2004). Entrepreneurship capital and economic performance. Regional Studies, 38, [6] Audretsch, D. B., & Feldman, M. (1996). R&D spillovers and the geography of innovation and production. American Economic Review, 86(3), [7] Audretsch, D. B., & Stephan, P. (1996). Company-scientist locational links: The case of biotechnology. American Economic Review, 86(3), [8] Audretsch, D. B., Keilbach, M., & Lehmann, E. (2006). Entrepreneurship and economic

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