Entrepreneurial support infrastructure is fast becoming a cornerstone of the graduate education system in the UAE. From local campuses such as Zayed University, to UAE-based branches of world-renowned universities including INSEAD and Cass Business School; most UAE universities offer dedicated entrepreneurial centres for its students, geared at providing the business education, advisory services and know-how that could generate into successful venture creation.
From April this year, Cass Business School will offer an entrepreneurship stream within its Executive MBA Program, while students at Zayed University are given the opportunity to gain first hand entrepreneurial experience from successful ventures at INSEAD Entrepreneurship Day. Masdar Institute of Science and Technology proactively supports continued technical and vocational training for its students through its partnership with MIT, of whom a record-breaking number participated in the 5th MIT Pan Arabic Enterprise Forum. The Higher Colleges of Technology, the largest higher education institution in the UAE in partnership with Knowledge@Wharton have launched the Innovation Tournament 2012, aimed at catalysing the eco-innovations of entrepreneurially-minded students. Last month, over 2,500 young entrepreneurs from schools and universities across the UAE participated in the ‘Young Entrepreneur Competition 2012’, with the top 100 projects granted AED 2 million by Dubai SME. From competitions, through to workshops and physical incubators, entrepreneurship is alive and kicking within UAE universities.
In light of a trend that greatly affects the entrepreneurial aspirations, career-path, resources and potential venture success acquired by UAE students, a recently published research paper has sought to underpin the factors driving first generation entrepreneurship among UAE graduates. The study conducted a survey among 50 graduate entrepreneurs in Dubai, Abu Dhabi, Sharjah, Ajman and Ras Al Khaima. It examines the key success factors, areas of focus and business ideas among graduate entrepreneurs, and investigates how the university and overall business environment influences entrepreneurial intention.
The majority of first generation graduate entrepreneurs who took part in the survey operated an SME in manufacturing and knowledge intensive industries with a turnover less than AED 10 million. The ventures differed in age, with 50% of entrepreneurs having launched their venture before 2005, 35% in 2008 and 15% from 2008 onwards. Whilst 60% of SMEs surveyed employed fewer than 56 employees, the median for all ventures averaged 24 employees, demonstrating a steady growth potential. The age of the entrepreneurs themselves ranged from 21 to 35 years old, with the median age 28. Approximately 26% of the entrepreneurs were females, and all detained a strong education background.
First generation entrepreneurship differs greatly from second generation entrepreneurs, from personality traits through to managerial style and growth aspirations. Based on previous studies that have applied the Entrepreneurial Orientation Scale (EOS), first generation entrepreneurs have been found to be more risk-taking, ve more innovative have a higher need for achievement, detain less need for a locus of control and more prone to be affected by the external environment and perceptions of others. In comparison to second generation entrepreneurs, they do not benefit from the resources, experience and legitimacy derived from belonging to a family-run enterprise, as well as the managerial competencies inherited. On the other hand, second-generation entrepreneurs are more risk-adverse and may encounter significant managerial challenges when encountering firm succession. The differences among first and second generation entrepreneurs become even more pronounced in the UAE, where the business environment is dominated by large family firms who detain a significant amount of market share, resource leverage, experience and networks.
Focusing on the ‘Entrepreneurial triggers’ that motivated first generation entrepreneurship in the UAE, the research sought to examine how entrepreneurial motivation and aspirations, socio-cultural factors, access to early-stage finance, education and incubation and the business environment affected the success of the ventures launched.
The results of the research provide valuable insights into how the education, business and cultural environment in the UAE affect entrepreneurial motivation and venture success, as well as the role entrepreneurial universities have on developing characteristics and skills. Although this is not touched upon within the study, the fact that all participating entrepreneurs operate within knowledge intensive industries demonstrates that factors such as capital intensity, networks, legitimacy and infrastructure played a huge part in their success.
Individual Motivations for Entrepreneurship
Entrepreneurial motivation results from the nexus of perceived lucrative opportunities and enterprising individuals. Motivation relates to the ‘spark’ that causes the individual to enterprise, and can be driven by both supply and demand-side factors. 25% of those surveyed responded that their success within a family business background was a motivation to enterprise, whilst 20% where motivated by their financial soundness and independence. A further 18% were driven by the aspiration to succeed as an entrepreneur and 12% to market their business idea. Only 10% perceived launching their enterprise as a challenge.
The results show clear correlations between experience and entrepreneurial motivation. Prior exposure to success, through either a family business or previous employment significantly impacts on the entrepreneur’s perceived capability to launch a successful venture. This is coupled with financial independence which enhances risk-taking propensity. The desire for success links to the entrepreneurs need for recognition of his/hers achievements, demonstrating the impact of societal perception and the need for success stories within the UAE’s entrepreneurial ecosystem. Only 12% where motivated by commercializing their business idea, which one interpretation could mean that entrepreneurs actively seek out opportunities rather than are user-founders. In addition, the fact that only 10% of entrepreneurs saw launching their enterprise as a challenge shows that the environment is deemed as positive, and that the risk-reward matrix is a strong consideration.
The impact of socio-cultural factors on entrepreneurship has been well documented, impacting both on entrepreneurial characteristics as well as managerial capabilities and skills. It clearly affects the perception of opportunity, both from the perspective of the environment as a whole, to the choice of venture and organizational performance.
In the case of this study, the impact of socio-cultural factors and effect on entrepreneurial disposition and performance has been cast aside to focus on the choice of business venture. Inherently, whilst it could be argued that such a focus is a lost opportunity to assess the inter-linkages between the social system, demographics and culture, it provides an opportunity to analyse how perceived societal needs and trends affects opportunity recognition.
Out of the 50 first generation entrepreneurs, 40% launched a venture built on culture and custom oriented services, such as beauty parlours. Due to the lack of information provided by the researcher, this seems to be at odds with the assertion that the majority of entrepreneurs operate within knowledge-intensive industries unless they manufacture goods and services geared towards this market segment. 30% of entrepreneurs launched ventures in the fields of ICT, including video games and internet-based services. This is in clear alignment with a young demographic and the growing market demand for such products in this sector. The remaining 30% categorized their ventures operating within ethical, customs and family businesses. Once again, as the researcher has not provided a sector breakdown, it is difficult to assess the linkages between chosen sector and socio-cultural dynamics.
Access to Early Stage Finance
Access to early stage finance is one of the core challenges for new ventures, as this not only relies on the health of the financial system as a whole, but investor confidence in the chosen sector. Other drivers that facilitate access to finance are networks; the existence of multiple sources of financing such as business angels or private equity; the solidity of the entrepreneurs business and financial plan; and entry and exit mechanisms.
Whilst the SME support environment in the form of government-led initiatives in the UAE provide financing opportunities for entrepreneurs, the financial system as a whole remains risk adverse to financing start-ups. Banks typically require high collateral and financial track records, and without the implementation of an SME Credit Rating System, focus is put on loan turn-around impacting negatively on credit. Whilst informal financing, such as loans from family and friends, private equity is gaining ground, although the lack of exit mechanisms and investor protection remains challenging.
However, only 5% of the respondents expressed that access to early stage financing had been an issue. In the perspective that the entrepreneurs where graduates from UAE universities, this correlates with universities creating a positive ecosystem and industry ties for entrepreneurs. This leads to the conclusion that the entrepreneurs positively benefited from the universities links with entrepreneurial social and physical infrastructure, financial networks and legitimacy with government-led initiatives.
Education and Incubation
The entrepreneurial university is one of the most important ingredients towards building a knowledge-economy and transitioning towards an innovation ecosystem. Beyond providing a curriculum geared towards entrepreneurship and business skills, today universities are hubs for incubation, R&D, venture spin-outs and technology transfer, aiming to promote indigenous innovation capabilities and bridging the gap between research and commercial diffusion in the market place.
50% of respondents stated that university played an important formative role in bridging the ties between education and entrepreneurial skills. The majority however expressed that basic business skills as part of the curriculum where insufficient to prepare them for launching a new venture, and that specialist know-how was required. The remaining 20% stated that the university environment enabled them to gain knowledge relating to the local laws and procedures, reducing administrative burdens and uncertainty.
Clearly, the university ecosystem in the UAE positively affects opportunity recognition, although based on these results, it is difficult to assess from what support services the entrepreneurs benefited from. However, putting entrepreneurship at the heart of the curriculum and transferring know-how is key, even for those not seeking an entrepreneurial career. Beyond this, universities in the UAE should strive to become hubs of innovation, developing a ‘triple-helix’ model between the university, ecosystem and industry to generate spin-offs and commercialize innovation. In this model, the university can become a ‘niche’ protected space where ideas can grow into innovations.
Business Environment for Entrepreneurship
The business environment or entrepreneurial ecosystem is arguably one of the most important affecting entrepreneurial activities. The business environment is a complex system of dynamics, where the role of policy, actors, culture and society all interact within the same space. Factors affecting the business environment include industry, competition, regulations, laws and other macro and micro-economic drivers. In the World Bank’s “Doing Business”, the UAE is globally ranked 33rd, whilst it ranks 42nd for starting a business. Progressive market liberalization, the increasing role of the private sector and structural changes in employment are all contributing factors to its competitiveness.
A staggering 80% of respondents expressed the role the local environment had on their perception of success or their venture and the self-generating goals and objectives of their business. It is crucial to point out that it is the local, not regional business environment which has an impact. Hence, policy, entrepreneurship initiatives and universities should concentrate on building a solid local environment that facilitates entrepreneurial flows and spillovers. The role of universities will have much more impact if they can act locally and bridge ties with industries and players, forming core industrial capabilities. The remaining 20% expressed that the financial performance of their competitors and opportunities for business development was the second most important driver to success. This shows that entrepreneurs in the UAE are more likely to pursue entrepreneurship if others have succeeded and have reduced uncertainties within the sector. Success stories should be highlighted, as well as information asymmetries among players reduced. With this objective, policy-makers, business leaders and the university all have an important role to play.
The study provides insight into the perception of first generation UAE entrepreneurs have on the various entrepreneurial drivers as critical success factors, and the formative role of the university environment in developing opportunity recognition and entrepreneurial skills. However, whilst the study seeks to address a complex subject without providing sufficient information to draw effective conclusions, it does raise a series of questions which are pertinent to explore. Firstly, what impact does university entrepreneurship have on venture performance, and which types of services and infrastructure or most suitable to growth? Secondly, it would be worthwhile addressing the difference in firm dynamics between first and second-generation entrepreneurs in the UAE and how this impacts on a) entrepreneurial motivation and b) subsequent performance.
Universities in the UAE are incremental to building the innovation ecosystem, building the skills, know-how and combining resources that develop an entrepreneurial culture. Beyond entrepreneurial education, the university is a niche space for experimentation and discovery which forms the essence of Schumpeterian creative destruction. Developing local ties with industry, building indigenous capacities and bridging gaps within the business environment should be a concerted effort which can showcase success stories and enhance national capabilities, and most importantly, nurture the growing entrepreneurial talent in the UAE.
© Tatjana de Kerros 2012
Source: Kargwell, S., & Inguva, S. (2012). Factors Influencing the First Generation Entrepreneurs: An Analytical Study on the Graduates of UAE Universities. International Journal of Business and Social Science, 143-149.