Alliance Manchester Business School - AMBS
Article By
Johannes Kleinhempel

Johannes Kleinhempel

Presidential Academic Fellow of Comparative and International Business at Alliance Manchester Business School.

Entrepreneurship Drivers

Regional social capital has a significant role to play in helping entrepreneurs.

While many people aspire to be their own boss, very few end up running their own business. Given that entrepreneurship is such an important driver of innovation, employment, wellbeing and growth, this ambition gap has far-reaching consequences.

If we can determine why entrepreneurial activity is more common in some contexts than others, we can apply that knowledge to encourage entrepreneurship and intrapreneurship – entrepreneurship in an existing organisation.

Dynamic process

I recently co-authored a paper with two colleagues from The University of Groningen, Sjoerd Beugelsdijk and Mariko Klasing, which considered entrepreneurship as a dynamic four-step process.

The first stage is never considering entrepreneurship in the first place, the second is the pre-establishment stage, the third is starting out as a young entrepreneur, and the last is being an established entrepreneur.

These stages capture the different underlying ‘situational’ characteristics – such as goals, milestones, needs and constraints – faced by entrepreneurs that change along the entrepreneurial journey. And this approach helps expose bottlenecks in the venture creation process.

Our study advances our understanding of entrepreneurship as a dynamic process where social context exerts a profound influence.

Social context

The entrepreneurial process doesn’t take place in a vacuum, and we argue that regional social capital, created by voluntary groups like sports teams and professional associations, is a particularly important driver of entrepreneurship.

We specifically sought to understand how social capital impacts individuals on their entrepreneurial journey, and the benefits of regional social connectedness. Previous research has already found that regional social capital helps people access information and resources and we argue that the positive impact of regional social capital is at its strongest when aspiring entrepreneurs move to formally launch a venture.

Analysis and findings

To test this hypothesis, we analysed levels of entrepreneurial engagement and regional social capital for more than 22,000 individuals in 110 regions across Europe, with regional social capital measured as average membership in voluntary groups.

We found that regional social capital positively influences the entrepreneurial process, but to different degrees at different stages of the journey. While it does not inspire an initial interest in entrepreneurship or help young ventures survive, it can increase the odds of individuals progressing from stage two to stage three of their entrepreneurial journey. As such, regional social capital mechanisms are most relevant when you are trying to start a business.

Policy implications

Many governments and international organisations support entrepreneurship by making structural adjustments, like providing practical training. But these programmes typically pay less attention to socio-cultural conditions.

So, our findings have potentially important implications for policymakers by highlighting that entrepreneurship is embedded in its socio-cultural context. Voluntary associations don’t just generate social capital, they facilitate entrepreneurship and innovation too. And this can be boosted by fostering such organisations, for example by providing physical meeting spaces that can be shared by multiple associations.

At the same time, policies that negatively influence membership in voluntary associations – like cutting funding – can have an unintendedly large negative impact, more than offsetting any short-term financial savings.

Our study advances our understanding of entrepreneurship as a dynamic process where social context exerts a profound influence. And it challenges old assumptions that contextual factors have a uniform impact at different stages of the entrepreneurial process.

We hope that these fresh insights into the critical importance of regional social capital in the entrepreneurial process will help inform future policymaking and enable a more entrepreneurial environment going forward.

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