In this post I’ll continue discussing definitions and types of entrepreneurship in developing countries by describing some of the factors that Lingelbach et al. perceived as making entrepreneurs in developing countries “different”. They first noted that researchers had identified several categories of entrepreneurial firms in developing countries including “newly established”, “established but not growing”, “established but growing slowly”, “graduates of a larger size” and, a somewhat recent phenomenon, “new and growth-oriented firms”. Turning their attention to the specifics of building successful growth-oriented firms in developing countries, Lingelbach et al. mentioned the following “distinctive attributes of entrepreneurship in developing countries”:
- Since developing countries lack a “stable of mature markets”, entrepreneurs in those countries have a broader range of opportunities available to them than their counterparts in developed countries. In other words, while entrepreneurs in developed countries generally operate on the fringes of the economy, developing country entrepreneurs can, if they wish, place themselves in the core of their economies pursuing solutions for needs and opportunities that are more widespread.
- The fragmented and immature markets in developing countries reduce the threat of well-established incumbents; however, entrepreneurs must contend with the much higher levels of risk associated with the economic, political and regulatory uncertainties that generally exist in developing countries. Lingelbach et al. suggested that entrepreneurs in developing countries cope with these risks by operating a portfolio of businesses to manage risks through diversification. Capital raised in one business can be used to providing financing for other businesses and Lingelbach et al. suggested that “interlocking businesses provide a source of informal information flow, access to a broader pool of skills and resources and, when well implemented, a brand name that can be leveraged across all businesses”.
- Entrepreneurs in developing countries face significant challenges with obtaining the necessary financial resources and use several strategies to overcome those problems. They typically start downstream businesses to reduce initial capital requirements and gain access to customers and information flow. They also rely on informal funding provided through well-developed family networks rooted in both urban and rural areas—Lingelbach et al. noted that there are “greater pools of private saving in the countryside”.
- Family-owned and –operated businesses remain more common in emerging markets than in developed countries since entrepreneurs in developing countries still lack mentorship and apprenticeship opportunities that can expose them to the skills and experiences needed to launch and expand businesses in challenging environments. Developing country entrepreneurs must have different skills including the ability to “see through the fog of politics and economics in crisis-prone developing countries” and to be perceived as “trustworthy” in a situation where transactions are most often based on trust rather than formal contracting rules.