Wednesday, April 11, 2007

Is their National culture values the reason why entrepreneurs have florish more in United States and Europe?

American[i] and Western European entrepreneurs and their firms were capable of seizing the opportunities to build international businesses across national borders because they were able to combine three factors: institutional support, appropriate national cultural values and multinationals leverage. These factors were key for entrepreneurs and firm not only in the first global economy but also both during the era of deglobalization after 1914 and during the second global economy after 1979.


The beginning of global entrepreneurs and their firms started with the building of well-thought institutions in their nations. There are two important characteristics for a national institution to be successful: (a) fairness and consistency, and (b) promote creation and accumulation of wealth.

Institutions that promote fairness and consistency across its constituents are able to create trust. By creating trust, the nation is able to leverage each citizen to form a larger support system. If the national institution wants to promote the creation and accumulation of wealth, then trust is its key component. To be able to promote the creation and accumulation of wealth, an institution needs to promote people and capital mobility. Trust is the factor that allows for people and capital to move around the country.

On one hand, trust-worthy institutions allow people to leverage each other to create larger support system. One example of this case is banks. Banks are able to operate because the citizens believe on the system would protect their investments. By trusting the institution, citizens are allowing to leverage each other to create more wealth. Banks are able to fuel the economy by investing on entrepreneurial ideas. Entrepreneurs are able to finance their ideas due to the existence of these support systems (i.e. banks, angel investors, venture capitalists, etc.)

On the other hand, trust also allows increasing people and capital mobility. When people know that there is consistent treatment and fair processes in their national institutions, they are more willing to move across the nation. When a nation has this environment, people would travel across the nation to find better opportunities with good chances of finding it. It is a matter not only of thinking that there are better opportunities out there but actually of finding those opportunities. When the national sentiment is full of trust, people can take the decision of looking for new opportunities across the country. Having consistent and fair institutions allows those people to find the opportunities. Success in this case is a combination of willingness to move and finding the opportunity.

Institutions in United States and Western Europe were developed to help their societies find and capture wealth. In United States, the founding fathers established a set of rules that treated everybody as equal. Being a nation of immigrants, United States made its institutions behave fair and equal with all its citizens. In Western Europe, its institutions evolved moving from an unfair system (monarchy) to a fair system (democracy). For example, Hans Wilsdorf (Hans Wilsdorf and Rolex) was able to create Rolex legacy because there was an implicit trust in the system. People trusted him with the idea of export product across Europe. Wilsdorf trusted the system that allowed him to ship his product across Europe. Wilsdorf was able to move to London and established his company because he trusted British institutions. Weetman Pearson (Weetman Pearson and the Mexican Oil Industry) was able to build its reputation before going to Mexico in the U.K. and the U.S. because of the fairness of the system. Infrastructure projects were given to the best constructors not to the ‘son’ of the minister. Then Pearson was able to capitalize on its reputation and take advantage of an unfair system in Mexico. It would have been impossible for Pearson to be such a global entrepreneur if he has been born in Mexico.

On the other hand, in developing nations, there are several examples that prove what happen in the absence of good institutions. The case Multinational Corporations in Apartheid-era South Africa: The Issue of Reparations shows how African institutions only favored the elite, creating inequalities among its citizens. The case Jamnalal Bajaj, Mahatma Gandhi and the Struggle for Indian Independence also shows the differences in treatment between Indians and British. It is clear how citizens of these countries didn’t have a similar trust-worthy environment than United States and Western Europe to create a range of global entrepreneurs. South Africa and India didn’t have supportive institutions that could allow entrepreneurs to leverage on their people for financial or human capital. The case Can Bollywood Go Global? also shows the lack of a supportive institution that can create a financing market to promote the movie industry. Bollywood is financed by the mafia corrupting its growth potential. The reason why India’s Technology sector has been successful in the recent years is because its participants are creating their own systems that they can leverage against (Jerry Rao: Diaspora and Entrepreneurship in the Global Economy), instead of trusting the national institutions.

Latin America also didn’t create institutions that promote wealth across its societies. Portuguese and Spanish colonization corrupted the opportunity for the region to develop fair institutions. Most of the Institutions in Latin America have been run by the elite, starting with the Spanish conquistadores. Nevertheless, there are still few entrepreneurs that have defied unfair national institutions to be able to conquer the international market. Natura (Natura: Global Beauty Made in Brazil) in Brazil has been able to create trust among its users and create a network in Brazil through its direct selling system that has proven successful. The Colombian Coffee Federation (Thousand Hills Coffee Co. of Rwanda: Breaking New Grounds) has also leverage on its growers to build a cooperative that can tackle international crisis and promote its product internationally.


In addition to the fairness of the institutions in the country, the national cultural values play a key role in developing and promoting entrepreneurship. The difference between local and global entrepreneurship is a matter of the right institutions combined with some key cultural values.

Local entrepreneurship is just a matter of culture and individual’s characteristics. When individuals lived in a culture where creation of wealth is the ultimate goal, entrepreneurship spirit increases. All the nations in the world posses this drive, and that’s why all nations have local entrepreneurs (95% of the businesses in the world are family businesses). Nevertheless, having global entrepreneurs requires more than just a drive for wealth. As mentioned in Professor Geoffrey Jones’ course (Entrepreneurship and Global Capitalism at the Harvard Business School), global entrepreneurs possess three main characteristics that are key for their success: (i) Understanding of global trends, (ii) High geographic mobility, and (iii) Acute business model and organizational knowledge. Furthermore, global entrepreneurs that posses this three characteristics leverage its local institutions (i.e. financial institutions) to be able to tap into the global market.

Before this century, United States and Western Europe, in general, are more likely to have these three main characteristics of global entrepreneurship than other countries in the world. Given that United States and Western Europe are the leaders of the global economic market, their entrepreneurs’ knowledge on global trends are better seeded than their competitors. Nowadays, there has been a shift of power to other countries in the world. Asia could take the lead in the future given its growth potential. If China can set the global trends in the future and its institution can promote entrepreneurial characteristics (i.e. trust), then Asia would become another powerful region for global entrepreneurs.

Additionally, people from United States and Western Europe are more accustom to move around. Europeans has always been a very mobile group. In comparison with Latin America or Asia, Europe and the United States are very easy to travel within. Even if geography is not in consideration, the European and American[ii] culture were based on people’s mobility. For example, people that populated United States were mostly immigrants. American[iii] culture was based on finding new opportunities to create wealth, even if that meant leaving the family behind. Some may argue that that is why American[iv] culture does not have such family ties as other countries in the world, but this is hard to determine. On the other hand, it is clear that an ability to sacrifice family ties for pursue of wealth can bring a lot of advantages when thinking about global opportunities. In the case of Weetman Pearson (Weetman Pearson and the Mexican Oil Industry), it is clear that he was able to move around the world and travel so much because he was able to sacrifice family time.

Lastly, Western Europe but specially United States has been able to accumulate business knowledge; business knowledge that is reflected not only in the publications but also in the competitive environment. When there is a competitive culture that is in a race to create and accumulate knowledge, global entrepreneurs flourish around it. Equally important is the transfer of knowledge inside the culture. In this case, Western Europe and United States had an advantage against other countries. Business consultants began in Western Europe and United States. Incidentally knowledge transfers went between Western Europe and United States with the globalization of consultancy (McKinsey and the Globalization of Consultancy), creating a virtuous circle that was difficult to break.

Virtuous Circle

Trust on Management Practices --> Knowledge Accumulation --> Transfer of Knowledge --> Excellent results on average --> Trust on Management Practices

Even though there are some counter examples for such virtuous circle (Toyoda Automatic Looms and Toyota Automobiles), it is clear that the initial advantage was for Western Europe and United States. In the second global economy, some of this virtuous circle has been transfer to Asia and some countries in Latin America (Brazil at the Wheel)


Multinationals play a key role on global entrepreneurship. Multinational are able to maintain the trend previously mentioned (institution + culture à global entrepreneurship). There are two ways in which Multinationals try to maintain the beneficial trend for United States and Western Europe: (a) Exploitation of other nation’s resources, and (b) Capturing knowledge.

Multinationals have not only maintained the trend in favor of United States and Western Europe, but also have impeded new entrants. Developing countries are playing catch up for the past centuries with respect to developed nations. Nevertheless developing nations are taking advantage of these differences. An example would be the exploitation of banana growers in Colombia and Guatemala (United Fruit Company in Guatemala) in the 19s. Nowadays multinationals are behaving more friendly towards their hosting nations because of strict regulation and a change in culture. Nevertheless in the beginning of globalization, multinationals were created to create value for their shareholders despite the outcome of hosting nations.

Additionally, by creating wealth for United States and Western Europe, their multinationals were able to capture the best knowledge available in the market. Multinationals are the source of knowledge. The Research & Development (R&D) of some multinationals is higher than a lot of developing countries. Over the last decade 10 countries accounted for 87% of world R&D, and 90% of business R&D All are developed, except China and Korea. R&D is the least internationalized segment of multinationals value chains[v]. By having similar trust-worthy institutions combined with excellent human capital, multinationals were able to reinvent themselves and create new wealth (Multinationals as Engines of Growth). A clear example of this is that multinationals in United States and Western Europe have been helped by their own country to avoid bankruptcy (i.e. Ford or GM).

Other countries have been trying to participate in this virtuous cycle of creating multinationals that can promote knowledge and wealth that would help create more multinationals (i.e. Brazil at the wheel). Nevertheless, the real shift would be provided when multinationals realize that by transferring technology across the world would improve the overall future of all of us (i.e. Cisco Goes to China: Routing an Emerging Economy)

[i] Referring to people from United States and not people from the Americas.

[ii] Referring to people from United States and not people from the Americas.

[iii] Referring to people from United States and not people from the Americas.

[iv] Referring to people from United States and not people from the Americas.

[v] Entrepreneurship and Global Capitalism Course by Geoffrey Jones