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Entrepreneurs' social networks and opportunity identification: Entrepreneurial passion and entrepreneurial alertness as moderators.

In the context of business ventures, opportunity identification refers to the process by which an individual perceives the possibility of creating a new and profitable business, product, or service (Ramos-Rodrxguez, Medina-Garrido, Lorenzo-Gomez, & Ruiz-Navarro, 2010). Opportunity identification is viewed as a crucial source of competitive advantage for ventures; therefore, researchers and practitioners share an interest in understanding its drivers. Much research has been focused on individual-level social networks as key predictors of opportunity identification (see, e.g., Y. Li, Chen, Liu, & Peng, 2014; Ma, Huang, & Shenkar, 2011). However, in the existing literature, results on how social networks are related to opportunity identification have been inconsistent. Ramos-Rodrxguez et al. (2010) found empirical evidence that social networks are fundamental to identifying new business opportunities; Kontinen and Ojala (2011) found that family small-to-medium-sized enterprises use social ties to recognize opportunities; and Singh, Hills, Hybels, and Lumpkin (1999) found that social network characteristics of entrepreneurs are beneficial for opportunity identification. However, in other studies it has been found that social networks has no impact on opportunity identification. For example, Bhagavatula, Elfring, van Tilburg, and van de Bunt (2010) reported that the impacts of network size, network density, and tie strength on opportunity identification are nonsignificant.

Although social networks can provide individuals with access to critical information and resources, some scholars have argued that "having a good network in itself is no guarantee for success" (Bhagavatula et al.,

2010, p. 245). Scholars have pointed out that the effective utilization of social networks is affected by individual psychological characteristics (Baron, 2006). This is based on motivation-opportunity-ability theory, according to which it is suggested that the processing and exploitation of information and resources embedded in social networks depends on an individual's motivation and ability (Reinholt, Pedersen, & Foss, 2011). Thus, as part of understanding the role of social networks in opportunity identification, scholars should take into account the individual's motivation to obtain information and resources, and their cognitive ability to "connect the dots." However, to date, few researchers have explored how individual psychological characteristics moderate the relationship between social networks and opportunity identification.

Scholars have explained entrepreneurial passion as a motivational construct that drives an individual to devote much effort and time to entrepreneurial activities, that is, "consciously accessible intense positive feelings experienced by engagement in entrepreneurial activities associated with roles that are meaningful and salient to the self-identity of the entrepreneur" (Cardon, Wincent, Singh, & Drnovsek, 2009, p. 517). Having entrepreneurial passion can lead an entrepreneur to initiate effort in paying attention to a variety of information and collecting more information related to creativity and innovation than would an entrepreneur without that passion (Baron & Tang, 2011), thus improving the efficiency of getting information from social networks. In addition, scholars have explained entrepreneurial alertness as the cognitive ability to perceive and process information (Gaglio & Katz, 2001; Tang, Kacmar, & Busenitz, 2012), which can help an individual process the information and recognize connections between seemingly unrelated events or trends.

Accordingly, in this study we examined the relationship between entrepreneurs' business ties and political ties (social networks) and their opportunity identification, and also explored the moderating role of entrepreneurial passion and entrepreneurial alertness in this relationship.

Literature Review and Hypotheses

Opportunity Identification

Some scholars have begun to explore the moderators of the relationship between social networks and opportunity identification. Ma et al. (2011) investigated the moderating effect of national culture and found that the strength of social ties is negatively associated with opportunity identification in individualistic cultures, whereas the relationship is positive in collectivistic cultures. Y. Li et al. (2014) introduced organizational learning as a moderator and found that both exploratory and exploitative learning significantly moderate the relationship between social ties and opportunity capture. However, to date, few researchers have explored how individual-level characteristics of individuals, such as motivation and ability, affect the relationship between social networks and opportunity identification.

Social Networks and Opportunity Identification

Entrepreneurs' social networks are defined as their personal relationships with external business partners and with government (Peng & Luo, 2000). Usually social networks can be divided into two types: business ties and political ties. In the current study, we proposed that both business ties and political ties would be positively related to opportunity identification. First, business ties can provide accurate, valuable, and timely information for an entrepreneur (J. J. Li & Zhou, 2010), which can increase the amount of information available upon which to base a decision. For example, close ties with suppliers can help an entrepreneur acquire information about new product features, advances in technology, and new materials. Consequently, an entrepreneur may quickly perceive that there is a potential market created by advanced technology or new materials. Similarly, close ties with customers enable an entrepreneur to be more sensitive to customers' tastes and preference (J. J. Li & Zhou, 2010), allowing the entrepreneur to accurately capture customer demand, which may represent an undeveloped niche market. Thus, we reasoned that business ties can improve opportunity identification by enhancing an entrepreneur's perception of the potential for opportunity.

Second, business ties can help an entrepreneur recognize a fit between undeveloped market needs and specific, necessary resources, and, thus, enhance opportunity identification. For example, ties with customers enable an entrepreneur to know the undeveloped needs of customers, and ties with suppliers may provide an entrepreneur with information about which supplier can provide the specific product/service to satisfy customers' needs (Peng & Luo, 2000).

Third, business ties can provide access to quality and scarce resources, in a timely manner, for creating a new fit. Opportunities may be fleeting. When an entrepreneur perceives an opportunity and recognizes a fit between an undeveloped market and a specific resource, they need the ability to acquire the specific resource as soon as possible. Close ties with business partners can provide the means to access the specific resource and action timely delivery to help the entrepreneur create the fit (H. Li & Zhang, 2007).

Accordingly, we proposed the following hypothesis:

Hypothesis 1a: Entrepreneurs' business ties will be positively related to opportunity identification.

Similarly, especially in China, political ties can help an entrepreneur to more readily identify opportunities by providing valuable information and resources that are scarce. The economy of China is in transition, and the government still plays a critical role in resource allocation and economic development (Sun, Mellahi, & Wright, 2012). The transitional economy is characterized by imperfect competition, where there are still barriers that make it hard for new firms to obtain entry to the market, and weak institutional support, so that political ties can compensate for these institutional voids and help entrepreneurs obtain inside information and nontrade resources that cannot be bought in the market.

Specifically, the economic policies and changes the government in China designs and sets in place affect how the economy develops. Social ties with government officials help entrepreneurs obtain valuable information about policy changes, market trends, and industry reform (Zheng, Singh, & Mitchell, 2015). The inside information from government officials can help make it more likely that entrepreneurs are able to identify opportunities. In addition, ties with government officials enable entrepreneurs to gain access to scarce resources, such as land, bank loans, subsidies, and tax breaks, which can enable an entrepreneur to create a fit by combining the scarce resource and the market need. Furthermore, ties with government officials can help entrepreneurs obtain government approval and support, such as permits of entry or licenses for specific businesses. The approval and support of government officials can help entrepreneurs respond quickly to an opportunity. Taking these aspects together, we proposed the following hypothesis: Hypothesis 1b: Entrepreneurs' political ties will be positively related to opportunity identification.

Moderating Role of Entrepreneurial Passion

Entrepreneurial passion has been regarded as an intrinsic motivation for entrepreneurship (Yitshaki & Kropp, 2016). Although previous researchers have explored how entrepreneurial passion directly affects the entrepreneur's behaviors (see, e.g., Gielnik, Spitzmuller, Schmitt, Klemann, & Frese, 2015), few have investigated how entrepreneurial passion moderates the relationship between the entrepreneur and the entrepreneurial process. We expected that entrepreneurial passion could strengthen the relationship between an entrepreneur's social networks and their opportunity identification.

The specific logic is as follows: First, entrepreneurial passion can drive an entrepreneur to devote much effort to entrepreneurial activities (Foo, Uy, & Baron, 2009). Because information embedded in social networks is static and fragmented, entrepreneurial passion can cause an entrepreneur to spend a lot of time and energy actively searching for information (Cardon et al., 2009). When an entrepreneur has close ties with customers or suppliers, entrepreneurial passion can help them to make full use of the ties in trying their best to divulge the value of the ties (e.g., communicating with customers, and spending much time and money in managing customer/supplier relationships to obtain more timely and first-hand information). Entrepreneurs with close ties with government officials have entrepreneurial passion that motivates them to devote much time and many resources to getting inside information that may be embedded in ties with government officials, such as making frequent private visits to government officials outside of the workplace, and providing expensive gifts for the official. Thus, entrepreneurial passion strengthens the relationship between business and political ties (social networks) and opportunity identification through the effort the entrepreneur devotes to searching for and obtaining information.

Second, entrepreneurial passion can improve an entrepreneur's cognitive flexibility and creativity (Baron & Tang, 2011). Findings reported in the literature show that entrepreneurial passion can activate an entrepreneur's creative problem solving (Cardon et al., 2009). When social networks provide information, entrepreneurial passion can help the entrepreneur process this information creatively, by combining undeveloped resources and new market needs. Thus, entrepreneurial passion can strengthen the relationship between social networks and opportunity identification.

Third, entrepreneurial passion enables entrepreneurs to have greater persuasion with stakeholders (Cardon, 2008). Researchers have found that passion can be transferred to other people (Barsade, 2002), which means entrepreneurial passion can help an entrepreneur transfer their positive emotion for entrepreneurship to stakeholders, such as suppliers, customers, venture capitalists, and government officials, and persuade them to invest resources in new ventures (Mitteness, Sudek, & Cardon, 2012). When social networks provide information for identifying market needs, entrepreneurial passion can help an entrepreneur obtain more resources to exploit the opportunities. Thus, entrepreneurial passion can strengthen the relationship between social networks and opportunity identification. Accordingly, we proposed the following hypotheses:

Hypothesis 2a: The relationship between the entrepreneur's business ties and opportunity identification will be moderated by entrepreneurial passion, such that the relationship will be stronger when the entrepreneur has greater entrepreneurial passion.

Hypothesis 2b: The relationship between the entrepreneur's political ties and opportunity identification will be moderated by entrepreneurial passion, such that the relationship will be stronger when the entrepreneur has greater entrepreneurial passion.

Moderating Role of Entrepreneurial Alertness

The existing literature about entrepreneurial alertness is qualitative and mainly focused on its connotation and psychological basis (Valliere, 2013). There have been very few empirical studies of the role of entrepreneurial alertness in opportunity identification (Tang et al., 2012). Scholars have indicated that when entrepreneurs have social networks that give them access to information, they can identify business opportunities (Y. Li et al., 2014). However, when two individuals are exposed to the same information embedded in the same social networks, one of them may find a business opportunity and the other may not, because, to identify the opportunity, an individual must have the ability to connect seemingly unrelated events or trends (Gielnik, Frese, Graf, & Kampschulte, 2012). Thus, we expected that the effectiveness of social networks would depend on an entrepreneur's entrepreneurial alertness.

The specific logic is as follows: First, entrepreneurial alertness directs the entrepreneur's attention toward novel, unusual, and even contradictory information (Gaglio & Katz, 2001). When social networks provide much information, entrepreneurial alertness can help an entrepreneur effectively select novel and valuable information, which can save their energy for scanning and improving their decision making. Thus, the effectiveness of information processing and decision making can help an entrepreneur capture fleeting opportunities.

Second, entrepreneurial alertness enables entrepreneurs to interpret and organize information in various domains of a cognition framework (Tang et al., 2012). Therefore, when social networks provide much information, entrepreneurial alertness will enable the entrepreneur to process the information creatively, such as identifying new solutions to meet unsatisfied market needs. Thus, entrepreneurial alertness can strengthen the relationship between social networks and opportunity identification. Accordingly, we proposed the following hypotheses:

Hypothesis 3a: The relationship between the entrepreneur's business ties and opportunity identification will be moderated by entrepreneurial alertness, such that the relationship will be stronger when the entrepreneur has greater entrepreneurial alertness.

Hypothesis 3b: The relationship between the entrepreneur's political ties and opportunity identification will be moderated by entrepreneurial alertness, such that the relationship will be stronger when the entrepreneur has greater entrepreneurial alertness.

Method

Participants and Procedure

Ethical approval was not sought for the study, as approval was not required for conducting a survey about firms and their entrepreneurs. The participants were entrepreneurs in new ventures, located in the Yangtze River Delta economic belt. We randomly selected 250 entrepreneurs with the assistance of the local Economic and Information Committee, which is a government department that provides information services and technology support for enterprises. Then our team distributed a survey form to the entrepreneurs, who were told the aim of the study was exploring the survival of new ventures. The entrepreneurs completed the survey in their own time. Of 176 survey forms that were returned, 142 were complete (56.8%). Among the participants, 132 were men and 10 were women. The average age was 42.63 years (SD = 7.51, range = 24-62 years). In terms of educational level, 35.9% had completed a high school education, 45.1% held an associate's degree, 16.2% had a bachelor's degree, and 2.8% had a master's degree. The average age of the ventures was 6.68 years (SD = 3.09) and 84.5% of the new ventures were in the manufacturing industry, with the remaining 15.5% being nonmanufacturing businesses.

Measures

We used a 5-point Likert scale to measure the degree of participants' agreement with items in the scales assessing social networks, entrepreneurial passion, and entrepreneurial alertness. The response options ranged from 1 = totally do not agree to 5 = totally agree.

Social networks. We measured business ties with a three-item scale developed by Peng and Luo (2000). A sample item is "I have built good connections with managers in supplier firms." In our study the Cronbach's alpha was .85. We measured political ties with three items we developed. A sample item is "I have maintained good personal relationships with regional government officials" ([alpha] = .79).

Entrepreneurial passion. To measure entrepreneurial passion, we used six items developed by Cardon, Gregoire, Stevens, and Patel (2013). A sample item is "Scanning the environment for new opportunities really excites me" ([alpha] = .92).

Entrepreneurial alertness. We used two items from the scale developed by Tang et al. (2012) to measure entrepreneurial alertness. A sample item is "I see links between seemingly unrelated pieces of information" ([alpha] = .90).

Opportunity identification. We used two items from Arenius and De Clercq (2005) to measure opportunity identification. A sample item is "In the past 3 years, what is the number of opportunities that you have found?" ([alpha] = .93).

Control variables. At the firm level, we controlled for firm age and type of industry. At the individual level, we controlled for the entrepreneurs' education level.

Results

Before performing regression analysis with SPSS, we calculated the descriptive statistics. The means, standard deviations, and correlations of the study variables are shown in Table 1.

As shown in Table 2, we conducted three hierarchical regression analyses to test the hypotheses. In Model 1, control variables were regressed on opportunity identification. In Model 2, business ties and political ties were added into the regression equation. The result shows both business ties and political ties were significantly related to opportunity identification. Thus, Hypotheses 1a and 1b were both supported. In Model 3, we added entrepreneurial passion and entrepreneurial alertness into the regression equation. The results indicate that entrepreneurial passion was positively related to opportunity identification, and entrepreneurial alertness was not related to opportunity identification. In Model 4, we added the two-way interactions. The results show that entrepreneurial passion negatively moderated the relationship between business ties and opportunity identification, and entrepreneurial passion positively moderated the relationship between political ties and opportunity identification. Therefore, Hypothesis 2a was not supported but Hypothesis 2b was supported. The results also show that entrepreneurial alertness positively moderated the relationship between business ties and opportunity identification, but the moderating effect of entrepreneurial alertness on the relationship between political ties and opportunity identification was nonsignificant. Hypothesis 3a was, therefore, supported but Hypothesis 3b was not.

To further facilitate interpreting the moderating mechanism, we plotted the interaction effects in Figures 1, 2, and 3.

Discussion

In this study we proposed a conceptual model to examine how entrepreneurs' business ties and political ties drive their opportunity identification. We found that both business and political ties enhanced opportunity identification. This finding is consistent with the existing argument about the positive relationship between social networks and entrepreneurial success (Y. Li et al., 2014; Stam, Arzlanian, & Elfring, 2014). Furthermore, we found that entrepreneurial passion amplified the relationship between political ties and opportunity identification. However, contrary to our hypothesis, we found that entrepreneurial passion weakened the link between business ties and opportunity identification, suggesting that business ties exerted a stronger positive effect on opportunity identification when an entrepreneur had less entrepreneurial passion. The reason may be that business ties enhance opportunity identification by providing resources, and entrepreneurial passion could also help an entrepreneur obtain resources by emotion contagion and persuasion (Mitteness et al., 2012). When entrepreneurial passion was added into our regression analysis, the relationship between business ties and opportunity identification was not significant; thus, we concluded that, as a means of obtaining resources, entrepreneurial passion can diminish the positive relationship between business ties and opportunity identification. This logic is similar to the finding reported by Shepherd and DeTienne (2005), who found that prior knowledge weakens the relationship between financial reward and the number of opportunities identified. Their explanation was that both prior knowledge and financial rewards provide motivation for opportunity identification, so prior knowledge diminishes the motivational role of financial rewards in opportunity identification.

Finally, the results we obtained indicate that entrepreneurial alertness can magnify the effect of business ties on opportunity identification, but the moderating effect of entrepreneurial alertness on the link between political ties and opportunity identification was nonsignificant. The reason might be that having close ties with government officials provides an entrepreneur with advance warning of institutional changes, such as industrial policy transformations or new policy implementations (Guo, Xu, & Jacobs, 2014), which then influences the venture's business opportunities (Zheng et al., 2015). Specifically, the privileged information being provided by government officials would usually give the entrepreneur relatively explicit signals for new and profitable business opportunities. Therefore, as a cognitive ability to connect seemingly unrelated events or trends, entrepreneurial alertness had no role to play under such conditions.

This study has several theoretical and practical implications. First, our findings enrich the literature on opportunity identification. Although social networks have been found to be related to opportunity identification in previous research (Bhagavatula et al., 2010; Ramos-Rodrxguez et al., 2010), few researchers have explored how entrepreneurs' business ties and political ties are related to opportunity identification. In addition, results in previous studies about the relationship between social networks and opportunity identification are inconsistent (Bhagavatula et al., 2010; Kontinen & Ojala, 2011). Our study extends the research conducted by Y. Li et al. (2014) in that we found both business and political ties are beneficial for entrepreneurs' opportunity identification in China. Second, we have advanced research about how social networks affect entrepreneurs' opportunity identification by introducing entrepreneurial passion and entrepreneurial alertness as moderators of this relationship, which is a response to the call for entrepreneurs' psychological characteristics to be considered as factors in gaining understanding of entrepreneurship (Hornaday & Bunker, 1970). Third, we have extended the burgeoning work surrounding entrepreneurial passion. The focus in previous research was on exploring the positive side of entrepreneurial passion. However, in some conditions, entrepreneurial passion may not be useful. As shown in our study, entrepreneurial passion weakened the positive relationship between business ties and opportunity identification, a finding that enriches the literature in regard to the negative side of entrepreneurial passion.

This study has several limitations. First, the research design was cross-sectional, so we cannot draw conclusions about causality. Future researchers could employ longitudinal designs to investigate the relationships. Second, this study was conducted in a single country, which might limit the applicability of the results to other cultural contexts. The Chinese economy is affected by governmental policies, so the information and resources available from government officials are important for identifying and employing business opportunities. However, the relationship between political ties and opportunity identification may not be significant in countries that have a mature market economy and a low-power government. Future research may be conducted to explore the model in other countries.

Acknowledgements

This work was funded by the National Natural Science Foundation of China (71672173).

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Cuiping Ma (1), Jin Yang (2), Ling Chen (1), Xialei You (3), Wei Zhang (4), Yuan Chen (4)

(1) Department of Innovation, Entrepreneurship and Strategy, School of Management, Zhejiang University, People's Republic of China

(2) School of Economics and Management, Southwest University of Science and Technology, People's Republic of China

(3) School of Management, Zhejiang University, People's Republic of China

(4) School of Economics, Zhejiang University, People's Republic of China

How to cite: Ma, C., Yang, J., Chen, L., You, X., Zhang, W., & Chen, Y. (2020). Entrepreneurs' social networks and opportunity identification: Entrepreneurial passion and entrepreneurial alertness as moderators. Social Behavior and Personality: An international journal, 48(2), e8659

CORRESPONDENCE Xialei You, School of Management, Zhejiang University, No. 18, Chaowang Road, Xiacheng District, Hangzhou, People's Republic of China. Email: xlcaryhappy@163.com

https://doi.org/10.2224/sbp.8659
Table 1. Means, Standard Deviations, and Correlations for Study
Variables

Variables                      M     SD    1         2         3

1. Business ties               4.18  0.48
2. Political ties              4.01  0.57  .57 (**)
3. Entrepreneurial passion     4.05  0.52  .54 (**)  .37 (**)
4. Entrepreneurial alertness   3.69  0.64  .14       .05       .31 (**)
5. Opportunity identification  5.59  4.12  .35 (**)  .33 (**)  .41 (**)

Variables                      4

1. Business ties
2. Political ties
3. Entrepreneurial passion
4. Entrepreneurial alertness
5. Opportunity identification  .25 (**)

Note. N = 142. Diagonal elements are square roots of average variance
extracted.
(**) p < .01.

Table 2. Results of Hierarchical Regression Analyses

Variables                        Opportunity identification
                        Model 1  Model 2      Model 3      Model 4

Control variables
Entrepreneur education   0.13     0.12         0.04         0.03
Firm age                -0.01    -0.04        -0.03        -0.02
Industry                 0.07     0.07         0.07         0.08
Main effects
Business ties                     0.24 (*)     0.10         0.15
Political ties                    0.19 (*)     0.17 (+)     0.13
Moderator
Entrepreneurial                                0.25 (*)     0.26(**)
passion
Entrepreneurial                                0.13         0.07
alertness
Two way interactions
BTxEP                                                      -0.24 (*)
PTxEP                                                       0.25 (*)
BTxEA                                                       0.32 (*)
PTxEA                                                      -0.16
[R.sup.2]                0.03     0.17         0.24         0.29
Adj. [R.sup.2]           0.01     0.14         0.20         0.22
A[R.sup.2]                        0.14         0.07         0.05
AF                       1.17    11.71 (***)   6.01 (**)    2.19 (*)
F                        1.17     5.50 (***)   5.93 (***)   4.70 (***)

Note. N = 142. BT = business ties, PT = political ties,
EP = entrepreneurial passion, EA = entrepreneurial alertness.
(*) p < .05, (**) p < .01, (***) p < .001.
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Author:Ma, Cuiping; Yang, Jin; Chen, Ling; You, Xialei; Zhang, Wei; Chen, Yuan
Publication:Social Behavior and Personality: An International Journal
Geographic Code:9CHIN
Date:Feb 1, 2020
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