Entrepreneurship and the dragon's untapped potential

Ongoing research into whether the 'vision' important to entrepreneurs can be taught or nurtured has uncovered China's hidden potential for entrepreneurship.

A version of this article appeared in the FT's Investment Adviser on December 12, 2011.

Keeping the dragon roaring

The methods by which China might maintain its spectacular economic rise are inevitably a source of intense debate, not least amid the financial turmoil that appears to be strengthening the inexorable shift from West to East.

The general consensus is that the Dragon’s current policies, traditionally regarded as the result of a capacity to produce manufactured goods at low cost, cannot endure indefinitely, however extraordinarily they might have served the nation for more than 30 years. The jump from labour-intensive to knowledge-based economy looms, with the abyss of the middle-income trap waiting in the event of an unsuccessful leap.

The role of entrepreneurship in assisting economic growth is earning ever-greater recognition. In the West it has become a pervasive theme. Barack Obama conspicuously referenced “the initiatives of our entrepreneurs” in his American Jobs Act speech earlier this year, while David Cameron has trumpeted the UK coalition government’s support for “risk-takers and go-getters”. So what hope for entrepreneurship in China as the country looks to maintain its resurgence and perhaps secure undisputed economic superpower status?

It is easy to be misled by mere statistics if we concede that entrepreneurship goes hand-in-hand with another compelling economic driver, innovation. The number of domestic invention patents filed with China’s State Intellectual Property Office rose by an average of around a third a year between 1999 and 2006, five times more than the comparable figures for America, sparking suggestions that China is on the verge of – if not in the midst of – a wider technological and scientific take-off.

In-depth analysis by the University of Nottingham, however, puts these numbers in stark perspective. It reveals the Chinese patenting explosion has been driven by a tiny and highly select group of companies with a strong focus on information and communications technology equipment and that Chinese firms as a whole remain rooted in piecemeal innovation – small steps representing scant inventive progress – rather than engaged in the pursuit of genuine “new-to-the-world” technology.

One reason commonly advanced for this is that China’s state-owned enterprises, because of the monopolistic environment they enjoy at home, have found profits too easy to come by and have thus never nurtured the skills required to succeed in the ultra-competitive markets of the West. Having existed in a comfort zone for so long, they lack – among other things – the vision necessary to ascend to the next level.

The word may be overused, of course, but vision is a vital quality in the sphere of entrepreneurship. There is even a technical term for it: opportunity identification capability (OIC). It represents the particular cognitive capacity that, in addition to specific knowledge about a given technology or market, enables people to make novel connections and foresee prospects, benefits and advantages within a business setting.

Developing opportunity identification capability

Nottingham University Business School, which has undergraduate students at campuses in the UK, China and Malaysia, has carried out a number of studies into OIC and whether it can be nurtured and enhanced through teaching and learning. The latest stage of this ongoing research, examining whether cultural backgrounds play a part, could be of real relevance to China and its future development path.

The study challenged undergraduate students from several countries, including the UK and China, to come up with radical new concepts to help address some of the major issues confronting society – for example, climate change. Experienced local entrepreneurs served as their mentors; established entrepreneurs also assessed their efforts; and the students themselves were asked to articulate their thoughts, including whether they believed their OIC had improved.

First and foremost, the results support previous evidence that OIC can be developed. It is not a natural gift bestowed only on a fortunate few. Exposure to a certain environment – a group situation, expert mentors, the scope to “bounce ideas around” – can genuinely alter how individuals perceive reality and act upon it, augmenting their creativity and making them more capable of identifying opportunities.

Essentially, the experience changes one’s “mental frame” regarding entrepreneurship. This might be compared to the act of learning a new language: a good memory alone is sufficient to absorb a few words or sentences, but, because each language has its own logic in terms of grammar and meaning, true mastery demands the ability to communicate in a totally different way. Some students might be able to supply adequate answers to questions concerning entrepreneurship, but without a revised perception they have no capacity for entrepreneurship itself.

This transformation of perception is frequently best illustrated visually. At the start of the process a student’s image of entrepreneurship might be a man sitting at an enormous desk, surrounded by piles of money; by the end – after just 10 weeks for those involved in the study – it is more likely to be a picture of someone who goes out, identifies society’s problems and works with others to solve them.

Moreover, this is the case regardless of cultural background. Irrespective of origin and nationality, the students who took part in the research exhibited more similarities than differences in their responses to the exercise. In other words, there is no reason why someone from a collectivist society, someone whose pre-undergraduate education has been spent entirely in China, should be less likely to cultivate and demonstrate OIC and a concomitant talent for entrepreneurship than, say, someone from the UK. It is this finding, needless to say, that could prove of profound importance for China’s continuing resurgence.

There is a strong consensus, too, regarding how OIC is effectively enabled. Students from all backgrounds valued being mentored by experienced entrepreneurs and working in groups. Some found the “university experience” limiting and tended to base their ideas around university life, but the most successful broke out of these constraints, looked beyond their immediate surroundings and showed a true worldview.

Interestingly, the results suggest some Chinese would-be entrepreneurs have a greater degree of risk-aversion, underestimate their own abilities and might even attach negative connotations to the whole notion of entrepreneurship. But these are observations rather than criticisms: they may indicate the presence of certain lingering restrictions, but they by no means preclude the possibility that those restrictions can be overcome.

OIC – and with it entrepreneurship – is in many ways an innate human capability. It might be temporarily constricted by cultural influences, but it is in no way extinguished. It is there, waiting to be revealed, refined, channelled and unleashed.

We should bear this in mind when considering China’s latent entrepreneurial potential. By any standard, it seems the next engine of growth has a ready-made and powerful cog: it remains only to begin turning it.

Dr Simon Mosey is an Associate Professor of Enterprise and Innovation at Nottingham University Business School. His research focuses on technology-based entrepreneurship and entrepreneurship education; managing the commercial exploitation of science and technology within higher education, and the development of technology-based innovations within networks.