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THE INSTITUTIONAL ENVIRONMENT AND ITS IMPACT ON ENTREPRENEURSHIP

MG5592

10/12/2018
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Introduction

Entrepreneurship is gaining momentum globally. Today, most people prefer self-

employment while others hold jobs, and do businesses at the same time. This freedom is created

by the growing need for entrepreneurship and financial freedom. Institutional environments

determine if entrepreneurs will succeed or not as they oversee how the formulated laws affect

various industries. For example, the world is embracing blue and green economies, which means

that various institutions are protecting nature, the waterways, and financial stability. Therefore,

an entrepreneur with a proposal that matches institutional needs is likely to succeed.

Entrepreneurial spaces are highly competitive, and growth is based on extensive research,

especially in the 21st century. This study investigates how the institutional environment affects

entrepreneurship. An analysis of different forms of literature provides an insight into the

relationship between the institutional environment and entrepreneurship. The most distinct

argument is that institutions must be aligned with the need for economic growth, but

sustainability should be the core of all processes.

Methods Used in Selecting Journals

First, the study topic was analyzed carefully before developing a set of keywords. They

included entrepreneurship, institutional environments, economic growth, and sustainability.

Other words included stability, national and global interests, clean air, regulations, and

employment. These words link the two parts of the study topic because they align entrepreneurial

needs with economic growth while establishing the need for regulation or promotion of business

sustainability. Secondly, only peer-reviewed articles and journals published between 2015 and

2018 were part of the search. All the ten articles were from credible databases, but the bias was

shown towards Google Scholar, ResearchGate, Emerald Insight, EBSCOhost, and JSTOR. Ten
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articles were selected from the five different sites and each of them correlated entrepreneurship

to the institutional environments. Thirdly, the journals had to relate to business, management,

and environmental studies. As entrepreneurs emerge, not all of them think of clean air or green

businesses. They offer innovative solutions to advance individual needs, and some of them are

likely to forget about the sustainability of the environment. As a result, all the articles had

consistent themes, which sought to advance entrepreneurial prospects while observing the

perceptions of various institutions that equally support economic growth.

A Critical Review

Kujinga (2016, 25) investigated the relationship between social entrepreneurial intentions

and tertiary-level students in South Africa. The resources were found through Google Scholar,

and it focused on 193 participants from Gauteng, South Africa. Of the participants, 128

structured and close-ended questionnaires were successfully filled. Kujinga (2016, 46) used

linear multiple regression for data analysis. According to the study, the regulatory environment

was receptive towards social entrepreneurship. On the other hand, a business could only pass the

institutional environmental test if it was perceived to be desirable and durable. In essence, social

entrepreneurship was perceived as a way of integrating cultural factors to preserve the

environment. The study reveals that the South African government is ready for change, and it

appreciates social entrepreneurship because the principle provides jobs to youths (Kujinga 2016,

14). For a long time, startups were associated with young people even though most of them had

already left college. This study explains how the regulatory institutions are impressed by tertiary

students who show interest in self-employment as they preserve the traditions of the land. Also,

the institutional environment considered the inclusion of political aspects in social

entrepreneurship just to make sure that legal regulations are respected (Kujinga 2016, 18).
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Arguably, institutional environments regulate the activities of startups, and they must be

respected for economies to achieve excellent results.

In advancing Kujinga (2016)’s argument, Urban and Kujinga (2017, 8) explained that

social entrepreneurship is common today because every country wants its ideologies to be

emulated at a global platform. The study also occurred in South Africa, and this time a survey

was conducted. The objectives of the study were to investigate how various institutional profiles

affect the performance of SMEs. Urban and Kujinga (2017, 17) used a cross-sectional survey

design to investigate the way political, social, legal, and cultural institutions approached

entrepreneurship. According to the findings, South Africa strives to grow economically, but

environmental sustainability is at the core of governance. Also, human health is addressed

sensitively, and any business that is associated with contrary beliefs is less likely to succeed. For

this reason, Urban and Kujinga (2017, 23) appreciate the role played by technology in promoting

mass production in various enterprises. However, political and environmental institutions

regularly intervene to ensure that business practices are ideal, sustainable, and they do not harm

innocent South Africans. These sentiments are echoed by Kujinga (2016, 85) who reinforced that

the institutional environment was highly interested in the feasibility of entrepreneurial projects

because the rationale was to establish whether the value that would be drawn from the business

would be high or low.

Chambers and Mumemo (2017, 6) also provide insight into the world of institutional

environments. The article was found on Google Scholar, and it used a quantitative research

methodology to conduct the study. First, institutional environments described as the

establishment of elaborate strategies for which institutions must conform. The empirical research

was based on 30 individual data sources, which incorporated independent, dependent, and
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controlled variables (Chambers and Mumemo 2017, 28). The researchers investigated the quality

of business productivity with a bias to the performance of startups in 119 countries from 2011 to

2012. According to the research, political stability, accountability and voice, and the regulatory

quality influenced the performance of startups. For example, if the process of business entry

regulation is complicated in a particular country, SMEs are discouraged. Chambers and

Mumemo (2017, 31) explained that 9.7% of businesses opted out of transactions, which provided

multiple regulations. On the other hand, social stratifications such as age and the communal

interest in business slightly increased interest in entrepreneurship irrespective of the barriers. For

instance, the age group of the working population, as well as their interests, directly influenced

the perceptions of the communities towards entrepreneurship. Arguably, institutional

environments are of different natures, and while others focus on environmental sustainability,

some are only interested in the restoration of culture. Chamber and Mumemo (2017 used the

Global Entrepreneurship Monitor to determine that every country or community had its

institutions that directly affected entrepreneurial practices.

Sengupta, Sahay, and Croce (2018, 772) offered the most interesting perspective of

institutional environments and entrepreneurship. This study was conceived out of cross-sectional

research in which surveys were used to collect data from emerging economies. BRIICS countries

were selected, and case study analyses coupled with literature studies provided an insight into the

entire concept. Therefore, Brazil, Russia, Indonesia, India, South Africa, and China were studied

in the research. The study filtered 1779 scholarly articles to identify consistencies in the topics

(Sengupta et al. 2018, 778). Also, 123 peer-reviewed articles were assessed, and in total, six

databases were investigated. Keywords included economic value generated from

entrepreneurship, social capital, collective endurance, and social entrepreneurship. Apparently,

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emerging economies are fascinated by economic growth, and they need collective efforts to

reach their objectives. Sometimes this desire overrides the need to take care of the environment.

Social institutions intervened when BRIICS countries started economic stimulus programs. For

this reason, the consequences were expected, and environmental destruction was one of the

rising concerns. Sengupta et al. (2018, 774) explain that country-specific efforts were introduced

to ensure that none of the BRIICS states would experience poverty again. Thus, collective efforts

were introduced to create strict entrepreneurial spaces in which businesses would be accountable

not only for growth, but also the welfare of the society. This explains why CSR has become a

dominant societal feature to date.

Sengupta et al. (2018, 773) were categorical about the roles of SMEs in advancing

economic growth. On the other hand, Rao, Mutyalu, and Ramakrishna (2015, 4799) believed that

nature is unforgiving, and it must be protected irrespective of the overwhelming interest to

expand the economy. This study was entirely based on qualitative methodologies involving

observations. The main idea was to explain how an increase in the numbers of startups increased

the chances of emissions. The study focused only on the Exhaust Gas Recirculation (Rao et al.

2018, 4800). According to the researchers, institutional environments insist that emissions should

not pass the globally-set index. The research affirms that NOX emissions in high temperatures

are not only dangerous to the environment but also harmful to humanity. The study investigated

the situation in China, which explains that several businesses emit NOX in high quantities and

the daily emissions of over 2000 K explain why smog is a huge issue in the country. Rao et al.

(2018, 4800) further explains that entrepreneurs must realize that the need to make money should

not cause a high level of insensitivity to the society. This EBSCOhost article is resourceful as it
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approaches the subject from a technological, and scientific point of view because of institutional

environments and all-around.

After going through Google Scholar and ResearchGate, another article which shared the

same thoughts as Rao et al. (2018, 4779) surfaced. Wade, Swaminathan, and Saxon (2018, 906)

also used observations and case studies to explore the topic. Wade et al. (2018, 906) focused on

the local regulations’ impact on the brewing industry in America. First, resource flow was

investigated, and it turned out that the industry was lucrative. On the other hand, alcohol was the

most abused substance in the United States, and regulations were rife. Contrarily, the businesses

still flourished. Wade et al. (2018, 921) explained that institutional environments have always

shaped the way entrepreneurs and the organizations work. This form of alignment not only

creates consistency, but also changes the behaviors of the business managers. For this reason,

cash flow is still experienced, but the Brewers are taking control by warning consumers about the

excessive consumption of alcohol. Another concern is that brewers are known for dumping waste

on land and in waterways. The Environmental Protection Agency is interested in firms that

violate environmental codes, and huge fines are imposed to ensure that such behaviors are not

repeated. Therefore, the breweries in America are expected to be accountable, environment-

friendly, and they should provide jobs to people without taking advantage of their vulnerabilities

(Wade 2018, 914).

Suddaby, Bruton, and Si (2015, 1) were direct in its investigation, which involved content

analysis. First, the study affirmed that entrepreneurship provides jobs to many people. The

research material was acquired from the JSTOR website, and it was analytical when discussing

imprinting in social entrepreneurship. Suddaby et al. (2015, 3) confirmed that this is the era of

entrepreneurship, and people must be careful about the business ventures, which increase income
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rapidly and create financial freedom. Imprinting refers to a psychological or mental phase in

which people are highly sensitive about issues. For example, several people are interested in

becoming their bosses, and this explains why several startups are coming up. Others are in the oil

sector, some in the technological industries, and several businesses focus on mass production.

Suddaby et al. (2015, 7) believe that imprinting in the era of entrepreneurship should be

controlled because people will rarely focus on businesses that will protect the environment.

Already, multinationals produce a lot of greenhouse gasses, and it would be unfair for SMEs to

opt for the same route. Institutional environments are available to provide entrepreneurs with

controls and guidance. They are regulatory in nature, some finance entrepreneurs while others

focus on the protection of nature. In every country, layers of institutions are available to ensure

that regulation is achieved even as entrepreneurial ventures earn income and sustain the

economy.

Guerrero, Cunningham, and Urbano (2015, 748) approached the subject using Kujinga

(2016, 9)'s angle. Acquired from Google Scholar, Guerrero et al. (2015, 748) explained that

university students should learn about entrepreneurship and institutions extensively, especially

when they are planning to start their businesses in the future. The researchers believe that

students should explore all facets of entrepreneurship instead of focusing on finances only.

Guerrero et al. (2015 749) mentioned that the socio-political setting, economic issues, and

political matters must be considered before starting businesses because the implications not only

affect an individual, but also influence the society. Guerrero et al. (2015, 751) were concerned

that several entrepreneurs today only focus on human capital, and they have nothing to offer

young people who envision the successful lifestyle. As a result, the society is fixated on the

immediate gratifications offers once knowledge and human capital are invested. In the UK
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universities, instructors reinforce the importance of technology in making work easy, affordable,

and clean. Therefore, youths are encouraged to embrace innovative measures to increase

sustainability in the industry. This study was conducted on 147 Universities across the UK, and

only data from 2005 and 2007 was used. Also, only the 74 NUTS-3 regions were studied.

Martinez, Cummings, and Vaaler (2015, 527) explored another exciting aspect of

entrepreneurship. This study was found on ResearchGate, and the paper used surveys to explore

the attitudes of entrepreneurs towards funding. Normative and cognitive aspects were tested, and

the research revealed that regulations mostly applied in areas where funding took place. In

essence, some people lack the financial ability to fund businesses, but they have excellent ideas.

Institutions that fund them often exercise some level of control because the capital comes from

an external party (Martinez et al. 2015, 526). In non-regulatory environments, entrepreneurs are

expected to behave well because they know the implications of business failure. On the other

hand, dual-regulations apply when other parties, fund a particular project or an entrepreneur. The

researchers warn entrepreneurs against following all the principles of the investors, especially

when such ideas are misleading. The problem is that it is difficult to find institutions that offer

financial help without expecting interest accrual. Martinez et al. (2015, 530) establish that

businesses are mandated to follow the right legal and ethical frameworks when under pressure to

impress financiers. Nonetheless, these problems are only common in unstructured societies that

struggle with huge economic burdens.

Bach, De Francesco, Maggetti, and Ruffing (2016, 9) further explored the dying

bureaucracies and transatlantic politics. The article was found on Emerald Insight, and it

explored how the changing political landscapes are providing rooms for businesses to grow.

However, growth must be treated sensitively because some countries take advantage of their
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political positions to advance their growth prospects. For example, the European Union was the

most important region of comparison during the systematic empirical research (Bach et al. 2016,

10). The researchers established that the Eurozone has multiple multinationals that operate in

several other regions including Africa and North America. As a result, the region earns

financially from the investments, but environmental degradation occurs in the target regions. The

EU agencies refute such claims by mentioning that their rivals are using the idea to promote

propaganda. Bach et al. (2016, 16) affirm that power can be instrumental in breaching

institutional environmental regulations even though entrepreneurs must take personal initiatives

to protect the welfare of the relevant stakeholders.

Conclusion

The researchers did an excellent job by providing reliable information on credible sites in

which peer-reviewed articles could be generated. Nonetheless, most of them focused on

industries in Europe, and the Americans while forgetting ASEAN and African economies. Only

Bach et al. (2016, 22) talked about the ASEAN countries, but political relationships still gave

Europe dominance in the discussion. Entrepreneurship is slowly replacing employment, and this

topic must be discussed in-depth. Otherwise, society will never understand the roles of

institutional environments in entrepreneurship. Most of them offer legal, ethical, technical,

social, political, financial, and ecological regulations because entrepreneurs must be reminded

about their responsibilities to society. If not, most of them will only concentrate on financial gain

instead of improving the environment too.

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References

Bach, T., De Francesco, F., Maggetti, M. and Ruffing, E., 2016. Transnational bureaucratic

politics: An institutional rivalry perspective on EU network governance. Public

Administration, 94(1), pp.9-24.

Chambers, D. and Munemo, J., 2017. The Impact of Regulations and Institutional Quality on

Entrepreneurship.

Guerrero, M., Cunningham, J.A. and Urbano, D., 2015. Economic impact of entrepreneurial

universities’ activities: An exploratory study of the United Kingdom. Research

Policy, 44(3), pp.748-764.

Kujinga, K.L., 2016. The influence of institutional environmental factors on social

entrepreneurial intentions among tertiary-level students in South Africa (Doctoral

dissertation).

Martinez, C., Cummings, M.E. and Vaaler, P.M., 2015. Economic informality and the venture

funding impact of migrant remittances to developing countries. Journal of Business

Venturing, 30(4), pp.526-545.

Nakpodia, F., Adegbite, E., Amaeshi, K. and Owolabi, A., 2018. Neither principles nor rules:

Making corporate governance work in Sub-Saharan Africa. Journal of Business

Ethics, 151(2), pp.391-408.

Rao, K.S., Mutyalu, K.B. and Ramakrishna, A., 2015. Effect of exhaust gas recirculation on

performance and emission characteristics of diesel engine fueled with waste cooking oil

methyl ester. ARPN Journal of Engineering and Applied Sciences, 10(11), pp.4799-4804.
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Sengupta, S., Sahay, A. and Croce, F., 2018. Conceptualizing social entrepreneurship in the

context of emerging economies: an integrative review of past research from

BRIICS. International Entrepreneurship and Management Journal, 14(4), pp.771-803.

Suddaby, R., Bruton, G.D., and Si, S.X., 2015. Entrepreneurship through a qualitative lens:

Insights on the construction and/or discovery of entrepreneurial opportunity. Journal of

Business Venturing, 30(1), pp.1-10.

Wade, J.B., Swaminathan, A., and Saxon, M.S., 2018. Normative and resource flow

consequences of local regulations in the American brewing industry, 1845-

1918. Administrative Science Quarterly, pp.905-935.