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The Russian entrepreneur: characteristics and prescriptions for success.

Entrepreneurship in Russia - a literature perspective

While entrepreneurship research has continued to expand and increase in western economies, particularly in the United States, since the first Babson College Entrepreneurial Research Conference in 1980, there has been limited research on entrepreneurship in the former USSR.

The first published research by Kornai[1] sets the stage for the others by comparing the affinity between ownership forms and coordination mechanisms. After focusing on the reforms, the article discusses the evolution of the private sector. While a significant private sector evolved in China, Hungary and Poland such was not the case in the former USSR, according to the author. In the case of the USSR, the author indicates, the state-owned sector continued to dominate the economic scene with mandatory output targets being implemented in the 1990s rather than in the 1950s and 1960s as occurred in Hungary and Yugoslavia. According to the author the country needs to allow for legal private activities and entrepreneurship.

The problems and training needs of entrepreneurs in the country is the focus of another article written by Grachev[2]. Particular attention is paid by the author to lack of literature in the area that is translated into Russian. According to the author there is a tremendous need for entrepreneurial training in accounting, finance, marketing, human resource management, management, entrepreneur-ship, privatization and international business. The author feels that the situation is particularly acute since the number of independent businesses has increased from zero to more than half-a-million in just five years.

A third article written by Grachev and Ageev[3] discusses some general features of entrepreneurship and the conditions needed for the development of an entrepreneurial economy. While the authors feel that the revival of entrepreneurship actually formally began in 1986 with the passage of legislation on enterprise, co-operatives, individual labour, and joint ventures, the real opportunities for entrepreneurs did not emerge until the 1990s. The authors feel that monopolism the control of the majority of resources by a small group - was the single most important factor causing the poor economic conditions prevailing today. The article concludes by indicating that the urgent need is a clear strategy for developing national entrepreneurship in the country.

The development of entrepreneurship in one area of the former USSR - Estonia - is the focus of another article by Lugus et al.[4]. The authors detail characteristics of the Estonian economy in general and particularly the economic activities of the small business sector: state-owned small businesses, producer co-operatives, and self-employment in the period 1987-90. The authors conclude by discussing the importance of developing legislation to ensure transition to a market-oriented economy and to promote and develop entrepreneurs.

In an article analysing the genesis of entrepreneurship in Russia, Ageev[5] explained that entrepreneurship was thought of as an exploitation vehicle and obsolete in the former USSR. According to the author, on the political level entrepreneurial behaviour was eliminated with only transformed and surrogate forms surviving. Ageev feels that today, with the emergence of a new level of economic and administrative freedom and more health co-operation between business people and the State, new entrepreneurial forms should develop. De-monopolization of the economy is a main precondition for this entrepreneurship as it will allow a legal, political, socio-psychological and competitive environment created by the presence of foreign businesses. According to Ageev, in Soviet Russia the culture was anti-innovative and anti-entrepreneurial which cannot be changed without deep structural transformations in the economy politics and ideology. The author hopes that the positive Russian entrepreneurial heritage will help bring about this needed change.

This article[6] agrees with the previous article[5] in supporting the proposition that there must be a law promoting and facilitating entrepreneurship and new venture creation for entrepreneurship to become a reality in the former Soviet Union. The article specifically focused on the law enacted on 11 April 1991. This law regulates the rights and liability of persons legally engaging in entrepreneurial activity, provides state protection and support for the activity, and regulates relations between entrepreneurs and bodies of state administration. The 11 articles in the law are beneficial to both business and entrepreneurship if, as the author points out, the law is implemented and enforced fully[6].

Another article[7] analyses the actual and potential role of entrepreneurs and small businesses in the transition to a market economy in Byelorussia. The author cites several obstacles in creating small enterprises in the light industry sector: imperfection of legislative acts concerning establishing small enterprises; lack of an effective system to provide material and technical assistance to small enterprises; and the economic instability of the country.

Finally, a further article written by Brenner[8] points out that the lack of significant advances in legal and institutional reforms and the expectations of the monetization of the Government's deficits are the real obstacles to entrepreneurship and business ventures in the New Commonwealth. The evidence of the entrepreneurial talent in the USSR is reflected in the large amount of output (about 30 per cent of the total) that was produced by the black market before Gorbachev's reforms. The author feels that the problems can be remedied by giving people clear titles to land, stores and property rather than worrying about privatizing giant, outdated, large companies.

Research methodology

In spite of the fact that entrepreneurship is important and vital to the economic growth and movement of the former USSR towards a market-oriented economy, no research to date has explored the characteristics of the entrepreneur and the ventures created. This research is critical to the further development of the country, particularly. in view of the 1991 crisis resulting from the output of a controlled economy: a decline in gross national product (GNP) of 25 per cent; an inflation rate over 1,200 per cent; unemployment of over ten million; a state budget deficit of 200-300 billion rubbles; and foreign debt over $66 billion. The research though very difficult and in its infancy, will provide the basis for future research and theory development.

In order to understand the Russian entrepreneur and, in effect, to ascertain the nature of any relationships involved, an in-depth research project was undertaken. First, entrepreneurs were selected and given a questionnaire on a confidential basis. Given the history of the country, it is not surprising that entrepreneurs are very suspicious of opinion polls and questionnaires. Names of entrepreneurs in the Moscow region of the new Russia were obtained from various organizations and agencies. Each entrepreneur contacted, completed a detailed questionnaire consisting of a mixture of scaled, dichotomous and open-ended questions. The questions assessed such areas as: demographic and business information; motivations for starting one's own business; general entrepreneurial and business characteristics; management skills; personality characteristics; business problems; and recommendations for the further development of entrepreneurship in the former USSR. Care was taken to ensure that the Russian translation of a questionnaire used in previous research in the United States, Ireland, and Hungary was accurate and reliable. A pre-test of the Russian questionnaire was accomplished by administering it to three entrepreneurs, who along with their companies were the basis for a general article on typical Russian entrepreneurial enterprises[9]. When compared with the general population of entrepreneurs in the new Russia, the sample results profile the population characteristics.

Findings

The results of the study of 32 Russian entrepreneurs will be discussed in terms of general characteristics of the entrepreneurs, motivation for starting ventures, personality characteristics, self-rating of management skills, and business problems which occurred at start-up and currently.

General characteristics of the entrepreneur

The findings provide a unique profile of the Russian entrepreneur. As would be expected, the majority of the entrepreneurs (27-84 per cent) were male with an average age of 34.1 years.

Their fathers typically had an equivalent of a high school degree (10-31 per cent) or college degree (9-29 per cent) and had either blue-collar employment (12-37 per cent) or professional/technical employment (8-25 per cent). The entrepreneurs' mothers were slightly less educated than the fathers, many having the equivalent of a high school degree (15-47 per cent) and fewer having a college degree (7-22 per cent). The majority of the mothers of the entrepreneurs were employed and their occupations varied greatly. Seven (22 per cent) were blue-collar workers, five (16 per cent) managerial and nine (29 per cent) professional/technical. Eleven (34 per cent) of mothers were homemakers. The majority of the entrepreneurs (22-63 per cent) were married; also an equal number (three) were either never married, engaged or divorced. The entrepreneurs were more highly educated than their parents. Twenty-one (66 per cent) had a college degree and the remainder had an equivalent of a high school degree or some college education. The spouses of these entrepreneurs were not as well educated as the entrepreneurs, with 11 (34 per cent) having a college degree equivalent and ten (31 per cent) having graduated from high school. Only six (20 per cent) of the spouses were homemakers and the rest were employed in a blue-collar occupation (2-6 per cent) or a professional/technical occupation (9-29 per cent). These Russian entrepreneurs varied slightly from their US and European counterparts on the educational dimensions. While high with respect to Russian standards, their own education level was generally lower than that of entrepreneurs in the US and the education level of their spouses, fathers and mothers was also generally lower.

General characteristics of the new venture

The present venture for the majority of the entrepreneurs (23-72 per cent) was their first entrepreneurial venture. It was the second venture for the remaining entrepreneurs. The first ventures dominated because the first law on small business and entrepreneurship was not adopted until 1991. The new venture was in a field of which most of the entrepreneurs did not have any previous experience. Eighteen (56 per cent) of the businesses were service and 14 (44 per cent) were manufacturing. The businesses were financed at start-up by personal assets and savings. No businesses had any outside financing. The average age of the businesses was 2.3 years. The businesses varied in size in terms of the number of full_ time and part-time employees. The smallest category of full-time employees (one to four employees) was indicated by three firms. Eight firms indicated they employed between five and nine full-time employees; five firms employed between ten and 19 and five employed between 20-49. One firm employed between 50-99 full-time employees and six firms employed 100 or more employees. Twenty-one of the firms used part-time employees. The new ventures differ significantly from the typical new venture created by entrepreneurs in the United States in several ways. First, significantly more ventures in the United States are funded as start-up with outside capital. Second, more entrepreneurs in the United States have previous entrepreneurial experience before starting their entrepreneurial venture than the 28 per cent of the Russian entrepreneurs who had started a previous venture. Third, more US start-ups are in the service area than occurred in Russia. Each of these reflects the earlier stage of economic development in the Russian Federation.

Departure points and motivations

When queried about their departure points and motivations for starting their present entrepreneurial venture, the responses were similar to the responses of entrepreneurs in other countries. The two departure points mentioned most frequently were job frustration (19-59 per cent) and interest in the area of business (9-28 per cent) (see Table I). When asked to rank their motivations for becoming involved in their entrepreneurial venture, the motivations receiving first-place rankings were: lack of job satisfaction (10-31 per cent), desiring independence (7-22 per cent), economic necessity (5-16 per cent) and opportunity (5-16 per cent) (see Table II). Achievement and money also received three and one first-place rankings respectively. The second priority (that is, being ranked number 2) were more evenly distributed. Opportunity (8-25 per cent) received the most second-place rankings followed by achievement (4-13 per cent), job satisfaction (4-13 per cent), money (3-9 per cent), independence (2-6 per cent) and economic necessity (2-6 per cent). Career/security and status/prestige did not receive any mention until number 3 in ranking when career/security received three (9 per cent) and status/prestige one (3 per cent). Other motivations receiving number 3 rankings were opportunity (6-19 per cent), money (2-6 per cent) and lack of job satisfaction (1-3 per cent).
Table 1 Departure points for the present entrepreneurial venture


Departure point                    Number     %


Job frustration                    19         59
Interested in area of business      9         28
Other                               4         13


Personality characteristics

Significant research has been done on the personality characteristics of entrepreneurs in various countries. Results for the Russian entrepreneurs' samples using similar measuring instruments are indicated in Table III. Russian entrepreneurs are energetic, independent, competitive and self-confident. Other traits that are not quite as strong include social, anxious, flexible, goal-oriented and being a generalist. The two personality traits of the Russian entrepreneurs that were clear were realistic/idealistic and tolerant/perfectionist with the entrepreneurs varying significantly on these two personality traits. The overall traits exhibited by the Russian entrepreneurs were similar to those of entrepreneurs in the US.

Management skills

The entrepreneurs were also asked to rate on a five-point scale from poor to excellent some of their own management skills. Russian entrepreneurs felt they were the worst in finance followed by marketing/sales (see Table IV). They also felt a little stronger about their management skills of dealing with people and idea generation than their skills in business operations and organizing and planning. The management skill levels perceived by Russian entrepreneurs were similar to entrepreneurs in the US in feeling that their management skills in marketing and finance were the weakest. The two groups differed in that entrepreneurs in the US feel they have much stronger skills in business operations and organizing and planning.

[TABULAR DATA FOR TABLE II OMITTED]

Business problems

As would be expected in a once-controlled economy just starting to emerge as a market oriented one, there were numerous business problems confronting the Russian entrepreneurs. The problem at start-up mentioned most frequently was the lack of business training. This problem was followed in order of frequency of occurrence by: lack of experience in hiring outside services; lack of guidance and counselling; lack of experience in financial planning; demands of company affecting personal relations; personal problems; lack of involvement with business colleagues; and weak collateral position.

A somewhat different set of problems is occurring for the Russian entrepreneurs during their current operations even though the most-frequently mentioned was the same as occurred at start-up - lack of business training. Other present problems mentioned in order of frequency of occurrence were: lack of experience in hiring outside services such as accounting; obtaining lines of credit; lack of respect; lack of guidance and counselling; personal problems and lack of experience in financial planning. Two problems were indicated only once: lack of involvement with business colleagues and demands of company affecting personal relationships.
Table III Personality characteristics


                  1   2    3    4    5


Passive           0   0    6   17    7   Energetic
Affiliative       0   2    8   16    4   Independent
Non-competitive   0   1    9   17    3   Competitive
Private           0   6   11    6    6   Social
Realistic         3   9    9    9    0   Idealistic
Unsure            0   2    5   20    3   Self-confident
Tolerant          4   7   11    2    5   Perfectionist
Relaxed           0   5   13    5    6   Anxious
Rigid             1   4    7   10    8   Flexible
Uncertain         1   2    3   13   11   Goal-oriented
Specialist        1   2   11   12    5   Generalist


Conclusions and recommendations

Educators, professionals, business people, entrepreneurs, politicians and the general populace realize the need for the former USSR to undergo a relatively speedy but balanced transition to a market economy. This transition will necessitate several things, including real incentives, business support, and government support for entrepreneurship and new venture creation, and greater liberalization of the economy. A clear, decisive programme for economic reform needs to be [TABULAR DATA FOR TABLE IV OMITTED] developed and implemented without, as is the usual custom in the country, taking one step forward and three-quarters of a step back.

The country's new wave of entrepreneurs is not well versed in Western business techniques and the necessary information; neither are the country's present-day managers who are primarily from state-owned enterprises. The results of the study indicate that few entrepreneurs can actually read a balance sheet, understand the usual sharing of financial results with shareholders or implement the process of obtaining financing and controlling cash flow. The entire area of marketing, the selection and monitoring of promotion and the company's sales and profits is also an enigma to most. Finally, just now there is emerging the value of human resources and how this resource, properly managed with appropriate goals and incentive systems, can be one of the greatest resources in transition to a market orientation.

Yet all is not as bleak as it might appear, as there are bright spots in the economy of the new Russia. Some individuals have overcome the traditional complex of inferiority and lack of creativity and initiative and have created new ventures that are prepared to compete in a market-oriented economy. They exemplify some of the early industrialists, traders, bankers and managers of previous times. With the right business infrastructure, government support and quality training some of the problems and deficiencies enumerated can be overcome resulting in more excellent businesses being developed and managed.

The following recommendations will further develop the Russian entrepreneur and new-venture creation activity and, through this, assist the movement towards a market-oriented economy:

* With the lack of business training being a primary problem at both start-up and current operations, all business schools should have a Western-based curriculum and teach Western business techniques and entrepreneurship. Lecturers at these schools should earn much higher salaries and be expected to deliver quality lectures and material. Enterprises should assist these schools with equipment and technical assistance.

* Similarly, Western business books in all discipline areas, but particularly finance, marketing, accounting, control and incentive management, should be translated into Russian and made available to educators, students and managers at a reasonable price. This will assist in solving the training need mentioned above.

* English as a second language should be made available at all levels of education, as well as to entrepreneurs, managers, engineers and scientists not presently in a formal education system, to assist these individuals in doing business in the West and understanding Western business techniques.

* A new tax structure should be developed to encourage entrepreneurship and new-venture creation and help overcome the negative image often associated with the area.

* Some entrepreneurial support structures should be developed and supported, such as culturized versions of incubators (work-places), innovation centres, enterprise centres, and the venture capital exchange (VCE) - a system for matching a business with financial needs with private investors. This will help facilitate the new venture creation process, given the lack of training and know-how of the entrepreneurs.

* A carefully formulated business legal system, including new laws on entrepreneurship and new venture creation, needs to be enacted.

* An educational television series on entrepreneurship and enterprise in the new Russia should be created using local business people and entrepreneurs in their work environment. These should be aired as a series over a period of time in segments of 30-60 minutes to help develop a positive image for the area.

Given the resources of the country and the nature and creativity of the people, as indicated in the survey results, the implementation of these recommendations should greatly assist the movement towards a market-oriented economy by building and supporting one of the more critical areas in this movement - entrepreneurship and new venture creation.

References

1 Kornai, J., "The affinity between ownership forms and coordination mechanisms: the common experience of reform in socialist countries", Journal of Economic Perspective, Vol. 4 No. 3, Summer 1990, pp. 131-47.

2 Grachev, M.V., "Entrepreneurship in the former USSR", unpublished working paper, Institute for Economic Strategies, Moscow, 1991, pp. 1-16.

3 Grachev, M.V. and Ageev, A.I., "Entrepreneurship in the USSR: challenges and opportunities", report to the International Strategic Management Conference, Toronto, 1991, pp. 1-22.

4 Lugus, O., Venesaar, U. and Vitsuv, E., "Development of entrepreneurship in Estonia", reprint number 35, Estonian Academy of Sciences Institute of Economics, Tallinn, 1991, pp. 1-53.

5 Ageev, A., Predpriniomatelstvo: Problemi Sobstvennosti Kulturi (Entrepreneurship: Problems of Ownership and Culture), Nauka Publishers, Moscow, 1991.

6 Bradley, T., "The law on entrepreneurship in the USSR: how does it compare to the American system", unpublished working paper, The Enterprise Development Center, Tulsa, OK, 1992, pp. 1-10.

7 Milkev, A., "Entrepreneurship in Byelorussia", unpublished working paper presented at the ICSB Conference, Toronto, June 1992, pp. 1-10.

8 Brenner, R., "Entrepreneurship and business ventures in the new commonwealth", Journal of Business Venturing, Vol. 7, 1992, pp. 431-9.

9 Hisrich, R.D. and Grachev, M.V., "The Russian entrepreneur", Journal of Business Venturing, Vol. 8 No. 6, November 1993, pp. 487-97.

Robert D. Hisrich is the Malachi Mixon III Chaired Professor in Entrepreneurial Studies at the Weatherhead School of Management, Case Western Reserve University, Cleveland, OH, USA.

Mikhail V. Grachev is Professor of Management at the University of Tulsa, Oklahoma, USA.
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Author:Hisrich, Robert D.; Grachev, Mikhail V.
Publication:Journal of Managerial Psychology
Date:Feb 1, 1995
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