The External Environment of Social Ventures Learning Objectives  The impact of the external environment on entrepreneurial activity.  The external environment of social ventures.  The role of institutional environment on social venture creation.  The tools used to analyze the external environment of social entrepreneurship. 1

Understanding the External Environment of Entrepreneurship The Macro-Environment of Entrepreneurship • No man is an island. • No entrepreneur is an island and surely no firm is an island. • Entrepreneurs and the firms create always operate in environments that shape them. • In discussing the impact of the external environment on social venture creation, the macro-level factors that influence the prevalence of social ventures. 2

The Macro-Environment of Entrepreneurship • Social entrepreneurs are one species of the genus entrepreneur. • Social entrepreneurs use both for-profit and nonprofit organizational forms. • Generally, three broad types of environment affect entrepreneurship: political; economic; and sociocultural. 3

The Macro-Environment of Entrepreneurship

• The political environment includes factors such as government policies, the stability of the political system, democracy, and rules of law, and it can facilitate or impede entrepreneurial activity. • The economic environment of a country includes the state of the economy in general (growth or recession), exchange rates, monetary policy, the financial system as well as the level of employment or unemployment and capital availability. • The sociocultural environment includes the value system of the country, demographic factors, culture and traditions, and lifestyle. 4

Institutional Profile and Entrepreneurship

• A country’s institutional environment comprises relatively stable rules, social norms, and cognitions that guide, constrain, and liberate domestic economic activity. • Institutions structure human interactions and are made up of formal constraints (laws, rules, constitutions), informal constraints (norms, behaviors, conventions, self-imposed codes of conduct), and their enforcement characteristics, and form the incentive structure of a society. • In consequence, the political and economic institutions are the underlying determinants of economic performance. 5

Institutional Profile and Entrepreneurship • Scott provided an interesting classification of the institutional environment encompassing three dimensions: normative; cognitive; and regulatory. • Kostova introduced the concept of a threedimensional institutional profile to explain how a country’s government policies (regulatory dimension), widely shared social knowledge (cognitive dimension), and value system (normative dimension) affect domestic business activity. • Normative institutions reflect the degree to which a country’s residents admire entrepreneurs and entrepreneurial activity. 6

Institutional Profile and Entrepreneurship • The cognitive dimension of the institutional environment refers to shared mental models through which people interpret information. It reflects the knowledge and skills possessed by people in a given country as well as the framework they use to categorize and evaluate information. • The regulatory dimension of the institutional environment consists of laws, regulations, and government policies that promote certain behaviors and restrict others. • These factors influence economic growth and set the basic rules of the game. • Supportive regulatory environments are crucial for the development of entrepreneurial activities. 7

The PEST Model and Social Entrepreneurship • A PEST analysis consists of assessing the impact of four key factors political, economic, social, and technological on a company.  Political factors • Tax policy • Labor law • Environmental law • Trade restrictions • Tariffs • Democracy • Political stability • Political risk 8 • Rule of law

The PEST Model and Social Entrepreneurship  Economic factors • Economic growth • Interest rates • Exchange rates • Inflation rates • State of economy • Standard of living • Economic risk • Structure of industry • Market size • Availability of investment capital 9

The PEST Model and Social Entrepreneurship Social factors • Culture • Traditions • Religion(s) • Religious tolerance • Lifestyle • Value system • Norms • Population demographics 10

The PEST Model and Social Entrepreneurship Technological factors • R&D activity • Automation • Rate of technological change • Use of technology • Types of technology

11

Political Environment and Social Entrepreneurship • The political environment includes factors such as tax policy, labor laws, environmental laws, trade restrictions, democracy, political stability, rule of law, and political risk. • Governments influence the propensity of entrepreneurship and innovation. • A supportive government tends to facilitate the emergence of entrepreneurial and innovation ecology. 12

Political Environment and Social Entrepreneurship • Understanding their role in wealth creation and economic prosperity, many governments around the world are taking measures to create businessfriendly environments. • Some do this by encouraging entrepreneurship education in the belief that it is a sure means to stimulate economic activity. • As a consequence, there is an increased tendency for government policies to promote entrepreneurship for its apparent benefits. 13

Economic Environment and Social Entrepreneurship • The attractiveness of social entrepreneurship in a country frequently exists as a result of information about existing material and human resources. • In other words, countries where material resources are available may have more social entrepreneurial activity than those that lack such resources. • The existence of entrepreneurs in a given community also influences the likelihood of engaging in entrepreneurial activity. • People who reside in highly entrepreneurial neighborhoods are more likely to become entrepreneurs themselves and invest more in their own businesses, even though their entrepreneurial profits could be lower and their alternative job opportunities more attractive. 14

Economic Environment and Social Entrepreneurship • Economic stability, capital availability, and reduced personal income taxes are all positively related to new venture creation. • The economic environment has been operationalized as economic freedom to facilitate cross-country comparisons. • A study using data from the GEM on 29 countries found that economic factors, such as the size of the government, the quality of the monetary policy, and overall financial environment, were strong predictors of entrepreneurship. 15

Social Environment and Social Entrepreneurship • The social environment includes factors such as culture, the value system, traditions, religious belief(s), and demographics as well as attitudes toward entrepreneurship. • Research has underlined the important role of culture in influencing entrepreneurial activity. • This research has specifically noted that norms and values influence the relative desirability of entrepreneurship as an occupational choice. • Likewise, attitudes, beliefs, and expectations of a social reference group influence individuals’ entrepreneurial intentions. • It has also been found that the appreciation of entrepreneurship is lower in cultures where uncertainty and unknown outcomes of individuals’ behavior are perceived negatively. 16

Social Environment and Social Entrepreneurship • Tiessen presents a theoretical framework linking national culture—specifically, individualist and collectivist orientations—to entrepreneurship. • Individualistic orientation allows individuals to generate ideas for new ventures, whereas collectivistic orientation facilitates the leveraging of the resources needed to exploit these opportunities. • Several studies have also found a positive relationship between individualism and entrepreneurship and innovation. • Innovation is directly related to entrepreneurship. A society that is innovative is more likely to be entrepreneurial. 17

Social Environment and Social Entrepreneurship • Individualistic societies emphasize personal freedom, which encourages individuals to think and act creatively to discover for themselves what works or does not work, whereas collectivistic societies tend to impede communication upwards through the social hierarchy, overcentralize authority, rely on rules and procedures, and resist the radical social changes that often accompany innovation. • United States is considered as one of the most entrepreneurial countries in the world, and social entrepreneurship flourishes there, too. By contrast, in most African countries the entrepreneurial climate could be considered as weak. 18

Technological Environment and Social Entrepreneurship

• Technological environment influences social venture creation in several ways. • First, technology, especially information technology, facilitates increased awareness of the existence of social problems not only locally but in other parts of the world. • Second, technology can facilitate the creation of social ventures because social entrepreneurs can easily use the internet to advertise their social ventures. • Third, technology facilitates partnerships among social entrepreneurs located in various parts of the world. 19

Technological Environment and Social Entrepreneurship • Advances in information technology have increased awareness of social problems around the world and facilitated interactions between social ventures located in different geographic areas. • Increased public awareness of a social problem acts as an external added incentive, which makes engagement appear more worthy because of an added social component. 20

Tools for Analyzing Social Ventures’ External Environment 1. Environmental Scanning Environmental scanning is a strategic management tool that is used to analyze the external environment of a firm. This five-step process involves: • identifying the environmental scanning needs of the firm; • gathering the information needed by the focal firm; • analyzing the information; • communicating the results to concerned parties; and • making informed decisions. 21

Tools for Analyzing Social Ventures’ External Environment 1. Environmental Scanning • Sources of information for environmental scanning are both external and internal. • External sources of information include printed materials and experts in the field and industry as well as the media. • Internal sources include organization-specific information, such as personal contacts, internal reports and memos, committee meetings, managers, and employees. 22

Tools for Analyzing Social Ventures’ External Environment 2. Competitive Intelligence • Competitive intelligence is a strategic management tool that is used to garner useful information about the competition, the market, and the technology that can be utilized by managers to make strategic decisions. • It can be used by entrepreneurs to learn about their potential competitors and the industry they are about to enter. • Social entrepreneurs can also use competitive intelligence to collect information about social needs to address and the potential competitive landscape of social ventures that address similar needs. 23

Tools for Analyzing Social Ventures’ External Environment 2. Competitive Intelligence • Competitive intelligence is an important tool for information gathering about the business environment. • Competitive intelligence involves collecting information, analyzing and interpreting the information, distributing and storing the information, and responding to the information. 24

Tools for Analyzing Social Ventures’ External Environment 3. Benchmarking • Benchmarking is a systematic, continuous process of measuring and comparing an organization’s business processes against the leaders in an industry to gain insights that will help the organization take action to improve its performance. • It allows organizations not to waste time and resources reinventing the wheel. • Companies often benchmark others on three dimensions—quality, time, andcost. 25

Tools for Analyzing Social Ventures’ External Environment 3. Benchmarking Seven steps in the benchmarking process: • identify problem areas; • identify industries that have similar processes; • identify organizations that are leaders in those areas; • survey leading organizations for measures and practices; • visit the leading organizations to identify best practices; • implement best practices; and • evaluate and make adjustments when necessary. 26

Tools for Analyzing Social Ventures’ External Environment 4. Applying Porter’s Five Forces Model to Social Ventures • The five forces identified by Porter are illustrated in Figure . They comprise: • intensity of rivalry among existing firms; • threats of new entrants; • pressure from substitute products; • bargaining power of buyers; and • bargaining power of suppliers.

27

Tools for Analyzing Social Ventures’ External Environment • Porter’s Five Forces Model

28

Thanks!

29