3.2 What do we mean by ‘entrepreneur’?

The MIAG project focused on migrant businesspeople, specifically those that own small and medium-sized enterprises (SMEs). These migrants are held to be particularly entrepreneurial and have great potential to contribute to growth in the countries that they operate in. Before considering how they might drive more inclusive growth, you need to ask the following questions:

  • What is entrepreneurship?
  • Who is an entrepreneur?

Joseph A. Schumpeter is credited with setting the first definitive explanation of the role and activities that define an entrepreneur, and his work remains highly influential. Video 3.2 introduces his key ideas.

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Transcript: Video 3.2 What is entrepreneurship?

Welcome to the essential ideas of Joseph Schumpeter.

For those aware of Schumpeter, it's likely his work on the nature and importance of entrepreneurship, where he made his greatest contributions to economics. Schumpeter saw the entrepreneur as more than just a business owner: entrepreneurs are the people who experiment with what he called new combinations of resources. With these, they create new products and services, and new methods of production. They discover new markets and resources, and even find new, more efficient ways to organise businesses.

Here's an example. Suppose Sam opens a pizza parlour; Schumpeter would not consider Sam an entrepreneur, simply because he opens a restaurant. What makes Sam an entrepreneur, in Schumpeter's view, is that Sam introduces new types of pizzas, using unique combinations of toppings that no one has contemplated before, like pineapples and bacon with whole wheat crust, and he revolutionises how customers order and receive pizzas, by offering free delivery by drones. This innovation and experimentation lead to new products, new services and new markets, which is what makes Sam an entrepreneur.

Schumpeter also addressed another important aspect of entrepreneurship: the role of profits and losses. If a new idea (in this case, new pizzas and how they're delivered) motivates customers to buy the product at prices at least sufficient to cover the costs, then it's successful. On the other hand, if the new pizza (topped with, say, pickles and rotten eggs) is put up for sale but people don't buy it, the financial losses signal that it doesn't meet customer wants and needs, and the business loses money and eventually closes.

The prospect of profits is what leads entrepreneurs to innovate in the first place. But equally important are financial losses, which also help guide entrepreneurs and resources towards successful endeavours. For Schumpeter, entrepreneurs and their innovative products, services and processes are the key drivers of economic growth and prosperity.

For more information on Joseph Schumpeter, visit essentialschumpeter.org, and to learn about more Essential Scholars, visit essentialscholars.org.

End transcript: Video 3.2 What is entrepreneurship?
Video 3.2 What is entrepreneurship?
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Under the Schumpeterian view, one cannot be called an entrepreneur simply by virtue of being self-employed and setting up a business. The essential part of being an entrepreneur is to introduce something new (innovating) by experimentation, so generating ‘new combinations’ of ideas and resources. There are four main ways through which this can happen (Audretsch and Keilbach, 2004).

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Products and services: The introduction of a product or service that consumers are not yet familiar with. This can also be a different method of production, not yet tested by experience.

Market access: This is about the ability of an individual or business to enter markets to be able to sell their products and services. So for the entrepreneur, this is the ability to identify gaps in existing markets or to create new markets through generating demand for their products and services.

Materials: The ability of the entrepreneur to source new forms of raw materials and resources.

Industry organisation: Introducing a change to the ordering and configuration of an industry. This could be breaking an established monopoly, for example, or creating alternate dynamics in demand and supply of the market (Audretsch et al, 2002).

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Activity 3.3: The four dimensions

Timing: Allow approximately 10 minutes

Think back to Video 3.2 and the example of the pizza company. How many of the four dimensions were they showing, and how?

Also, revisit your response to Activity 3.1. Does anything in your example of entrepreneurship resonate with Schumpeter’s dimensions?

DimensionPizza company examplesYour response to Activity 3.1
Materials
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Products and services
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Market access
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Discussion

DimensionPizza company examples
MaterialsUsing new and alternative toppings (sauces)
Products and servicesUsing these toppings in previously unavailable combinations
Market accessOpening new markets through online ordering
Industry organisationDisrupting the industry by introducing drone delivery

It is important to note that the dimensions of innovation that distinguish entrepreneurship are not mutually exclusive. The entrepreneur may indeed only be introducing one dimension, but could, equally, be bringing a novel combination – or all four, as the pizza company demonstrates. You should note that there may even be overlap with the illustrations from the video: online ordering could also be a new product by introducing a new app, or the drone service opening up previously untapped markets.

Having looked at the fundamental understandings of what constitutes entrepreneurship, it is time to turn to the entrepreneur. Are there particular characteristics or motivators that differentiate the entrepreneur from other members of the labour market? There is such a wealth of literature and research on this topic that it is impossible to go into any meaningful level of detail here; but there is some received wisdom that holds particular traits as key, such as:

  • having access to resources to start new ventures
  • a willingness to take risks and be competitive
  • a host of personal attributes – adaptability, motivation, creativity, resilience.

Instead of plumbing the depths of such a vast literature we will focus on the migrant entrepreneur who is often differentiated for being considered ‘super’ when compared to hosting national entrepreneurs in the migration-development field.

Activity 3.4: Should migrant entrepreneurs be classed as ‘super’?

Timing: Allow approximately 30 minutes

Read this extract  and consider the case that Naudé et al. make for arguing that migrants should not be classed as ‘super’ relative to hosts.

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Discussion

The extract argues that caution is needed, and not to romanticise the migrant entrepreneur as special, or ‘super’, relative to host national entrepreneurs. This has been a common narrative in the migrant entrepreneurial literature.

Any claim that migrants have an advantage over non-immigrants because of particular traits are not so clear-cut. They demonstrate this through a number of studies, such as the OECD one on self-employment that shows non-immigrant self-employment figures are higher in just 25% of the countries sampled (OECD, 2010). A key problem has been a focus on only a few variables, such as propensity to take risk or self-employment levels.

What is chosen to be assessed has implications for the results. Only selecting self-employment may lead to a poor measure of entrepreneurship levels when there are a multitude of characteristic or socioeconomic dimensions of entrepreneurship one could look at. At the same time, migrant entrepreneurs are often treated as a homogenous section of society, with no attempt to differentiate by group or nationality. It is interesting (and not noted by Naudé et al.) that a lot of this work is on migrants in developed nations, so there is a dearth of knowledge on entrepreneurship in the developing world generally, and Africa specifically.

Because MIAG focused on migration flows within and to Africa, one of the key questions that the project asked is whether there was anything particular or different about African entrepreneurs, or entrepreneurs who are migrating to the continent. In Video 3.3, Abiola George (a MIAG team member) and Stella Opoku-Owusu (Deputy Director of the African Foundation for Development (AFFORD)) discuss this issue, which we will also expand on in subsequent sections.

Activity 3.5: Entrepreneurship in Africa

Timing: Allow approximately 25 minutes

Watch Video 3.3 and use the space below to answer the questions that follow.

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Transcript: Video 3.3 Entrepreneurship in Africa.

Abiola George:
So, Stella: there’s, I would say, general consensus around the idea that entrepreneurship is good for economic growth and development, because of the innovations that entrepreneurs bring, or are said to bring, to the table. Now, from the perspective of Africa and entrepreneurship, depending on who you listen to, it can be cast as problematic; or that entrepreneurship in Africa is being driven by multinational companies or foreign investment. But we know that this is not the only story. And I would like to hear from your perspective, working with AFFORD and the people that you have interacted with, is there something different and distinct about diaspora Africans doing entrepreneurship in Africa?
Stella Opoku-Owusu:
Thanks for the question, Abiola. Great question. I always enjoy these discussions, where there’s always this question around the problematic side, if you like, of diaspora – and then also, of course, the positive side or the beneficial side, right? I think generally, we do like to say that everything can be seen in black and white, or everything can be seen in two ways, where you have the positives and you have the negatives. I think the important thing is that we see the diaspora as added value to the continent, and not there to replace entrepreneurs on the ground, but actually to add value to what’s already going on.
So we focus on diaspora entrepreneurship, and we’ve worked with a number of diaspora entrepreneurs over the years. And for us, these diaspora entrepreneurs are people who reside, of course, outside of the continent or outside of their countries of heritage. They continue to engage with the continent or with their home countries; they have businesses on the ground that they are looking to grow, as well.
And then you also have within this mix, you’ve also got diaspora investors as well – themselves, who are looking to support entrepreneurs, who are looking to support businesses on the ground. And you’ve also got diaspora individuals and others who also contribute through skills-sharing: so it could be mentoring, could be coaching and so on, and supporting businesses on the ground. And this kind of makes up or is part of that ecosystem on the ground. And it’s particularly important.
Now, the diaspora themselves – and perhaps I should also add, actually, that the diaspora also make a contribution to the SME sector, as well, in particular, because they work at that sort of level, as well. And of course, as we know, the SME sector in Africa contributes the majority of jobs on the ground. And so this, for us, is particularly crucial in terms of the intervention that the diaspora make.
So diaspora entrepreneurs also provide finance because they invest in their own businesses. They also provide skills. We’ve worked with a number of entrepreneurs within the IT sector, or agriculture, or import/export, and they’re all very concerned and very focused on how they develop their teams on the ground. And a lot of this is around skills transfer, as well. And this is also about developing institutions that are also sustainable on the ground.
And then you’ve also got diaspora making an impact, or making a social impact, as well. This is something that we’ve seen as quite natural, in a sense, for the diaspora, because often, they are looking at where the gaps are, and they are also looking at where the challenges are, in a sense. So it really is about where they see a challenge, there’s an opportunity. And that’s where they make their own intervention.
A lot of the diaspora also come with local assets, as well. And this could be property, could be land – it could be all sorts of assets that also adds to their motivation to either have a business or to grow a business as well. But these are all the contributions – finance, skills, making a social impact, local assets – these are all the contributions that the diaspora bring as entrepreneurs, or even as investors.
In terms of the topic around inclusive growth, the diaspora also have a real stake in doing business in Africa. They have motivations which have to do with family, in some cases, or the fact that they themselves would like to return at some point in the future. They are looking towards their pension, as well. So it really is also an investment for them, in that sense.
Of course, they’ve also got an emotional connection as well with the continent. If they are first-generation, it’s very direct. If they are second-generation, it’s what we call ‘emotional heritage’ as well. But in both cases, they have this motivation and this desire to make a contribution.
And of course, they are also constant, as well, in terms of their contribution. And if we begin to look at the data that exists – if we take remittances that go into the continents – we can see that, over the years, remittances have increased or they’ve stayed stable. And if you compare that to foreign direct investment, which has declined and is set to decline over the next few years even more, if you take overseas development aid, where remittances far exceed overseas development aid, as well – so the diaspora for us are really the largest stakeholder or the largest investor into the continent.
Last year, there were projections of about 20% decline of remittances on the continent by the World Bank. But actually, in the end – in spite of the pandemic – this was more around 2 or 3%, as opposed to 20%. The important thing in relation to diaspora entrepreneurs when it comes to remittances is that it’s also estimated by the World Bank that about 20% of remittances goes to some kind of investment as well.
Now, if you were to take entire remittances – and by that, I mean formal remittances, informal, i.e., the monies that go back with us in our purses and so forth, and social remittances, which is around skills transfer – it’s estimated that this is around US$200 billion. So if you take 20% of that, that’s the contribution that diaspora entrepreneurs are making to the continent every year. Now, this excludes diaspora direct investments, where diaspora entrepreneurs themselves make their own direct interventions into the business area, including skills transfer. Unfortunately, there’s no reliable data that’s out there for this – but we know it, because we’re doing the work in this area, and we have our own small sort of data to prove this. But on a wider scale, that data is not available. But in terms of AFFORD’s own work over the last five, six, seven years, we’ve created about 1000 jobs through the diaspora. We’ve invested about £1.5 million, which includes about £500,000 that have been raised through the diaspora as a match fund.
So this element of diaspora contributing as entrepreneurs is particularly significant. But also, just understanding that actually, in terms of inclusive growth in relation to entrepreneurship and business on the ground, it does include diaspora contributions and diaspora entrepreneurs, diaspora investors, because they already are part of the society – as we were saying earlier, Abiola, they are in both places, right? They are at home, they are abroad, and that’s how they make their contributions.
Abiola George:
Thank you, Stella. That’s actually very fascinating. And some of the detail starting to come out, and I think you make two important points that I want to highlight from what you’ve said: the difference between multinational companies, international companies, coming to do business in Africa versus diaspora businesses – the idea of, the fact that the diaspora, they’re here for the long term. They have an emotional connection. They’re here for impact, whether it’s social impact, financial impact, addressing the real gaps that they can see.
And also, being more inclusive, as it were, sort of looking at areas that unfortunately data doesn’t capture, which I think also is one of the reasons why we’re not seeing the accurate depiction of entrepreneurship in Africa and diaspora impact, because of these things that you have mentioned that are real, but there’s no hard data to prove them. So thank you very much for that.
So the other question that I wanted to pose to you was about female entrepreneurship. Just to ask you, from the work that you’re doing, are you seeing female participation? And how is that looking from your perspective?
Stella Opoku-Owusu:
Thanks, Abiola, In terms of female participation, I always answer this question by saying that, actually, in terms of what we’ve seen, we’ve normally had about 50% of the pool of entrepreneurs that we support have always been female. It’s often around 50%, or just under or just over 50%. So for us, from the diaspora side, at least in the countries that we’ve worked in, there’s a real drive on the female entrepreneurship side. And there doesn’t seem to be a specific challenge there, in terms of how they engage.
If we look, of course, at the wider data when it comes to female entrepreneurship versus other entrepreneurship, there is a sense that females are perhaps more empathetic, in a sense. So I suppose that plays a lot into the area of social impact. So if there’s anything that we’ve seen, perhaps it’s the fact that we’ve often seen organisations that are led by women who are looking at a way to move their charity into a social enterprise space. And the challenge for them there is about balancing out that social impacts that they want to make versus the sustainability element. And that’s where we support them with.
But you will also see this with businesses that are led by men as well where, even though they understand that they are doing business, that balance and understanding where you place the social impact versus where you place the finance is often not evident – it’s often not particularly strong. And this is where we come in to also provide the capacity to the diaspora, as well.
Abiola George:
Thank you very much – very fascinating. And that brings us to the end of our conversation. Thank you for listening.
Stella Opoku-Owusu:
Thank you.
End transcript: Video 3.3 Entrepreneurship in Africa.
Video 3.3 Entrepreneurship in Africa.
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  • What are the main theories and arguments around entrepreneurship in Africa? Identify any gaps and problems with them.
  • What, if anything, is different or unique about the entrepreneurs in Africa and the nature of their entrepreneurship?
  • In what ways are entrepreneurs contributing to more IG? Highlight three or four non-typical benefits that entrepreneurs add.
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Discussion

There is actually little in Abiola and Stella’s conversation around specific theories of entrepreneurship in Africa. This is because, as they highlight, the African migration entrepreneurship and business debates are problematic, largely equating growth and development with multinational companies and foreign investment.

However, what they capture in their discussion is a richness and diversity of how migration to Africa might be different and – through this uniqueness – contributing to IG. They do this by focusing on a particular migratory group: African diaspora. These are first- and second-generation Africans living outside of the continent but operating businesses and investing in their countries of heritage.

While much of the information and observations that they make are not relatable to many of the other foreign nationality groups MIAG looked at (such as Europeans, Chinese, Indians), their conversation around Africa and entrepreneurship is very important.

Think back to the end of Week 1 where MIAG’s principal investigator Giles Mohan said that a definition of IG can and should draw generalisations that might be applicable across migration more broadly, but it is critical to be mindful of the subtleties of context. By concentrating on the peculiarities of African diaspora, Abiola and Stella are doing just that. Stella highlighted a range of the African diaspora’s entrepreneurship; she mentioned the value of remittances, which we have heard elsewhere, but she goes further, citing diaspora as:

  • finance providers
  • interested in team development, supporting local capacity-building and skills and knowledge transfer
  • looking to have social impact through social enterprises and having access to local assets.

In terms of IG, they mentioned that diaspora is largely engaged through SME interventions, which contribute the most in terms of job creation in African economies. However, there is an exceptionality afforded to diaspora on account of heritage, which holds an emotional connection and brings familial ties. This, Stella maintains, brings an engagement with business in Africa that is more constant and more long-term – for many it is tied to their retirement or pension package.

Essentially the diaspora is, as Stella put it, ‘already part of the ecosystem on the ground’, which may bring advantages that foreign migrants are unable to access or tap into to contribute.

3.1 What are the entrepreneurship, migration and growth debates?

3.3 How do we study the SME, entrepreneurship and migration?