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JOURNAL OF RESEARCH IN NATIONAL DEVELOPMENT VOLUME 5 NO 2, DECEMBER, 2007

CULTURE AND RISK-TAKING IN SMALL BUSINESS ENTERPRISE IN NIGERIA

Ibrahim Shaibu and F. A. Dimowo
Department of Business Administration
University of Benin, Benin City

Abstract
            This study utilized data from 50 firms in six sectors of education, transportation, printing, block moulding, electronics, and furniture making firms to access the impact of culture on a key dimension of entrepreneural orientation: risk-taking. Four hypotheses were developed specifying the expected relationships between Hofstede’s four cultural dimensions and level of risk-taking among SMEs. The results of this study show that culture has an important impact on the willingness of SMEs to engage in risk-taking.
Keywords: Culture, Entrepreneurial Orientation, Small Business Enterprise, Risk-taking, Uncertainty Avoidance, Individualism, Masculinity, Power Distance.


Introduction
            Researchers have long identified that people are affected by the culture in which they live. The same is true for small scale enterprise managers. While various explanations have been given to explain these cultural effects, an ever-growing body of literature posits that cultural differences between organizations are one of the primary determinants of a nation’s level of economic and entrepreneurial development (Kotter and Heskett, 1992; Iyayi, 2003).
             This paper contributes to the existing research on this vital topic by examining the relationship between culture and the orientation of small scale enterprises. While Covin and Slevin (1989) posit that three attributes (innovation risk-taking, and proactiveness) could be used to access the overall level of a small business enterprises entrepreneurial orientation (EO), recent research indicates that three dimension of EO may be able to vary independently of one another (Lumpkin and Dess, 1996).
This study will assess whether culture plays a significant role in determining the level of risk-taking displayed by small business managers.
            It is believed that this study will contribute to the entrepreneurship literature. In the following section, the four dimensions of culture and a key component of the entrepreneurial orientation construct-risk-taking, will be examined. Four hypotheses will then be discussed detailing the expected relationship between the various dimensions of culture and risk-taking.

 Organizational Culture
            Culture is one of those terms that defy a single all-purpose definition and there are almost as many meanings of culture as people using the term. A major problem with existing attempts to develop organizational models based upon the impact of cultural variable has been the failure to apply an adequate understanding of the concept of culture (Iyayi; 2002)
            Hofstede (1984) defines cultures as “the collective programming of the mind which distinguishes the members of one category of people from another”. By culture we mean all those historically created designs of living, explicit and implicit, rational and irrational, which exist at any given time as potential guides for the behaviour of men. According to Lederach (1995), “culture is the shared knowledge and scheme created by a set of people for perceiving, interpreting, expressing and responding to the social realities around them”. Schein (1992), a leading theorist on organizational culture, defines organizational culture as “a pattern of shared basic assumptions that a group learns as it solves its problem”. These solutions are successful enough to be considered valid and therefore, should be taught to new members of the organization as the correct way to perceive, think, and feel in relation to those problems.

One of the most commonly employed measures of culture was published by Hofstede (1984), who utilized statistical analysis and theoretical reasoning to isolate four basic cultural dimensions: uncertainty avoidance, individualism, masculinity, and power distance. Uncertainty avoidance measure the ability of a society (organization) to deal with the inherent ambiguities and complexities of life. Uncertainty avoidance is represented by six different items: intolerance for ambiguity; dogmatism; intolerance of the opinions of others; racism/ethnicity; superstitions; and traditionalism
Cultures that are high in uncertainty avoidance rely heavily on written rules and regulations, embrace formal structures as a way of coping with uncertainty, and have very little tolerance for ambiguity or change. Individualism describes the relationship that exists between the individual and the group in a culture. Societies high in individualism value freedom and autonomy, view results as coming from individual (and not group) achievement, and place the interest of the individual over the interests of the group.
            Masculinity describes the degree to which the differences between the sexes have implication for their roles in social activities. It is primarily concerned with the level of aggression and assertiveness present in a culture. Highly masculine culture place emphasis on assertive behavior, material goods and prestige are highly sought after, individuals tend to exhibits a high need for achievement, and organizations are more willing to engage in industrial conflict.
            Power distance is described as a measure of the interpersonal power or influence between the boss and the subordinate as perceived by the least powerful of the two. That is, the degree to which subordinates are afraid of their superiors. In high power distance cultures there is an unequal distribution of powers, strong hierarchies and control mechanisms are present, there is less communication among organizational levels, and an emphasis is placed on subordinates being differential and obedient to those in positions of power.
            Researchers have cited numerous reasons for employing the cultural dimension posited by Hofstede including the capacity of the model  to tie cultural orientation to institutional differences between countries (Iyayi, 2002; Akira, 1996), the reliability and validity of the framework to accurately predict individual behaviors (Mueller and Thomas, 2001). Hofstede’s cultural dimensions have also been employed in entrepreneurship research having been utilized to examine entry mode (Kogut and Singh, 1988), rates of innovation (Mueller and Thomas, 2001) and behavioral differences between entrepreneurs and non-entrepreneurs (Morris, Davis, and Allen, 1994)

Theory and Hypotheses
            The phenomenon which often distinguishes good organizations from bad ones could be summed up as ‘corporate culture’. Organizational researchers have often seen business managers as possessing three main characteristics: innovation, risk-taking, and proactiveness (Covin and Slevin, 1989l Miller, 1983). Risk-taking is demonstrated by the extent to which managers are inclined to take business related risks; innovation is the degree to which managers favour change in order to obtain a competitive advantage; and proactiveness is the degree to which managers compete aggressively with other firms.
             The concept of risk-taking has long been associated with entrepreneurs (managers). Early definitions of entrepreneurship centered on the willingness of managers to engage in calculated business- related risks.

 

Risk-taking and Uncertainty Avoidance

There is a strong theoretical link between uncertainty acceptance and risk-taking. According to Hofstede (1984), a low uncertainty avoidance means a greater willingness to take risks. Since risk-taking generates high levels of outcome uncertainty, managers must be willing to cope with ambiguity in strategic situations. Managers in uncertainty acceptance societies, who are willing to deal with ambiguity and uncertainty, will be more willing to immerse themselves in such situations. This suggests that managers with a high need for achievement, such as those in uncertainty accepting societies, will be more willing to take risks than will managers in uncertainty avoiding societies. Therefore,

Hypothesis One: Organizational risk-taking is negatively associated with the level of uncertainty avoidance in a culture.

Risk- taking and individualism
 Managers in individualistic societies will tend to be more autonomous and independent than will managers in collectivist cultures (Morris, Davis, and Allen, 1994). A consequence of this is that such managers will be more willing to violate group norms and will be more likely to involve themselves in situations that other managers perceive as being extremely risky. This means managers will be more willing to make risky decisions when using solely their judgment than when utilizing a group decision-making process. Managers in individualistic cultures also have a tendency to place a higher value on individual accomplishment than collectivist managers (Hofstede, 1984). This will lead to higher levels of risk- taking in the hopes of a large strategic pay off, which managers will view as deriving form their efforts and leadership. Therefore,

Hypothesis Two: Organizational risk-taking is positively associated with the level of individualism in a culture.

Risk-taking and Masculinity  
Hofstede’s findings indicate that managers in masculine cultures will value decisive and immediate actions, while managers in feminine culture will be more likely to make decisions that have been more carefully thought out. Managers in feminine culture, who spend great amounts of time analyzing situations, will be more likely to talk themselves out of an action that they perceive as containing unnecessarily high levels of risk. Managers in masculine societies have also be shown to place a higher emphasis on showing off (“machismo”) than feminine managers (Hosfede, 1984). Many such managers feel that openly displaying their willingness to take chances and the potential to gain prestige and recognition through bold and daring action is worth the potential risks that are involved. Therefore, 

Hypothesis Three: Organizational risk-taking is positively associated with the level of masculinity in a culture

 Risk-taking and Power Distance
In high power distance societies, there is an emphasis on maintaining your current status in the social order (Hofstede, 1980). On the contrary, individuals in low power distance cultures are more intent on bettering their positions and there is a much higher degree of social mobility. Managers with a low power distance will be more willing to engage in a risky behavior aimed at improving their firm’s current industry standing (Shane, 1995). Managers in low power distance cultures will thus be much more willing to enact risky offensive strategies, while managers in high power distance cultures will be more likely to adopt strategies that solidify their current position in the industry. Organizations in high power distance cultures also tend to maintain tight control mechanisms and implement hierarchical and bureaucratic structures. Individuals in high power distance cultures will have less freedom and autonomy to make bold decisions, since high levels of control tend to encourage conservatism within organizations (Thompson, 1967). Therefore, 



Hypothesis Four: Organizational risk-taking is negatively associated with the level of power distance in a culture.
Organizatios in cultures that maintain positive expectations of future outcomes, that are willing to deal with the stress and anxieties created by uncertainty, and that place a high value on ambition and personal success will tend to exhibit higher levels of risk-taking than firms in cultures that value certainty and conservative behavior. Thus, it was proposed that organizational risk-taking would be negatively associated with the levels of uncertainty and power distance in a society, and positively associated with the levels of individualism and masculinity


 

sf 

 


Methodology
            The population for this study was all the small scale firms in Edo state. A random sample of 50 small firms was selected from the target population. This comprised block-moulding, education, electronics, furniture, printing, and transportation. These industry lines were chosen for this study in view of the fact that they represent popular business lines located in virtually all major towns in Edo state. Consistent with previous research on key decision makers within entrepreneurial organizations, questionnaire were given to either the owner or general managers of each firm.
200 questionnaires were given to each. The data collection process resulted in 163 returned questionnaire from block moulding firms (81.5% response rate)
157 from in education (78.5%), 173 from electronics selling firms ( 86.5%), 173 from furniture making firms (86.5%), 145 from printing firms (72%), and 156 from transportation firms (78 %).
            Culture was measured in this study utilizing the four cultural dimensions developed by Hofstede (1984): uncertainty avoidance, individualism, masculinity, and power distance. The sectoral and cultural dimension of the sample firms is illustrated in table 1 which provides Hostede’s cultural dimension scores for the six firms in the sample.


Table 1 Cultural Dimension Scores of Participating Firms

Sector Type

Uncertainty Avoidance

Individualism

Masculinity

Power Distance

Block moulding

40

40

42

37

Education

38

36

45

36

Electronics

36

41

48

38

Furniture shops

46

41

48

36

Printing

44

42

30

35

transportation

48

36

38

46


 
Hypothesis One:
Ho: Organizational risk-taking is negatively associated with the level of uncertainty avoidance in a culture.
H1: Organizational risk-taking is positively associated with the level of uncertainty avoidance in a culture.


Table 2 Organizational Risk-taking and Uncertainty Avoidance in a Culture Uncertainty Avoidance

Risk-taking

Observes Frequency 0

Expected Frequency

sf

Block moulding

44

42

0.095

Education

40

42

0.095

Electronics

46

42

0.381

Furniture

48

42

0.857

Printing

38

42

0.381

Transportation

36

42

0.857

gsf2

 

 

2.666

sf20.05, 5=11.0705
Decision: Accept hull hypothesis, Ho


Hypothesis Two

Ho: Organizational risk-taking is positively associated with level of individualism in a culture
H1: Organizational risk-taking a negatively associated with the level of individual in a culture.


Table 3 Organizational Risk-taking and Individualism in a Culture
Individualism

Risk-taking

Observes frequency 0

Expected frequency

fg

sf

Block moulding

40

39.3

0.70

0.018

Education

36

39.3

10.89

0.277

Electronics

41

39.3

2.89

0.074

Furniture

41

39.3

2.89

0.074

Printing

42

39.3

0.381

0.185

Transportation

36

39.3

0.857

0.277

sfg2

 

 

2.666

0.905

sf2 0.05,5 = 11.0705
Decision: Accept null hypothesis, Ho


Hypothesis Three
Ho: Organizational risk-taking is positively associated with the level of masculinity in a culture
H1: Organizational risk-taking is positively associated with the level of masculinity in a culture


Table 4 Organizational risk-taking and masculinity in a culture
Masculinity

Risk-taking

Observed Frequency 0

Expected Frequency e

s

gs

Block moulding

42

41.8

0.04

0.001

Education

35

41.8

10.24

0.245

Electronics

48

41.8

38.44

0.920

Furniture

48

41.8

38.44

0.920

Printing

30

41.8

139.24

3.331

Transportation

38

41.8

14.44

0.345

gs2

 

 

 

5.762

fsg2 0.05,5

 

 

 

11.0705

Decision: Accept null hypothesis, Ho


Hypothesis Four
Ho: Organizational risk-taking is negatively associated with the level of power distance in a culture
H1: Organizational risk-taking is positively associated with the level of power distance in a culture


 

Table 5 Organizational risk-taking and Power Distance in a culture.
Power Distance

Risk-taking

Observes frequency(0)

Expected frequency (e

fg

fg

Block moulding

37

38

1

0.026

Education

36

38

4

0.105

Electronics

38

38

0

0.00

Furniture

36

38

4

0.105

Printing

35

38

9

0.237

Transportation

46

38

64

1.684

fg2

 

 

 

2.157

sf2 0.05,5

 

 

 

11.0705

Decision: Accept null hypothesis, Ho


Hypothesis Five
(a) Ho: The mean cultural dimensions is the same for all the   sectors
H1: The mean cultural dimension is not the same for all the sectors
(b) Ho:  The six sectors do not differ significantly with respect to the cultural dimensions
    H1: The six sectors differ significantly with respect to the cultural dimensions


 

Table 6 Two-way Analysis of Variance for the Distribution

Sector

Uncertainty Avoidance

Individualism

Masculinity

Power Distance

Total

Mean

Block moulding

40

40

42

37

159

39.75

Education

38

36

45

36

155

38.75

Electronics

36

41

48

38

163

40.75

Furniture

46

41

48

36

171

42.75

Printing

4

42

30

35

151

37.75

Transportation

48

36

38

46

168

42.00

Total

252

236

251

228

967

 

Mean

42

39.33

41.83

38

 

40.29

(a) F-ratio Between cultural Dimensions = 0.553
      F.95,5,15                                                       =2.90
      Decision: Accept Ho.
(b) F-ratio Between sectors                                 =0.866
     F.95, 3,15                                                       =3.29
     Decision: Accept Ho.


Results
            The primary question addressed in this study was the impact of culture on the level of risk taking within SMEs. One way chi-square was utilized in order to test the four research hypotheses. This statistical procedure allowed us to examine the impact of the independent variables (the four cultural dimensions) on the outcome variable (risk-taking).

Tables 2-4 report chi-square analysis for the four independent and one dependent variables utilized in the six-firm sample.
The four hypotheses examined the relationship between culture and organizational risk-taking. The study results offered empirical support for the four hypotheses concerning uncertainty avoidance, individualism, masculinity, and power distance. Uncertainty avoidance (gs2 =2.666) and power distance (fg2 =2.157) were found to have a significant negative relationship with risk-taking; while individualism    (sf2 = 0.905 and masculinity (gs2 =5.762) were found to have a positive relationship with risk-taking but masculinity more significant. Thus, the four null hypotheses were accepted and empirically supported.
Another hypothesis was formulated to test whether the cultural dimensions were the same for all the sectors and whether the sectors did not differ significantly with respect to the cultural dimensions using the analysis of variance (ANOVA) technique. It was discovered that the mean cultural dimensions was the same for all the sectors and also the sectors did not differ significantly with respect to the cultural dimensions.
            In conclusion, this paper has established a framework for studying the relationship between culture and a key dimension of entrepreneurial behavior. The results suggest that cultural values exert a direct influence on the rates of organizational risk-taking in a particular culture. Several implications emerge for both research and public policy if this is the case. Researchers need to account for the influence of culture on entrepreneural decision making when formulating models for SME behavior and policy makers should enact polices targeted at changing predominant cultural values in order to encourage national levels of entrepreneurship.
            Nevertheless, a major limitation to this study was the collection of data from only one individual in each organization. A potential problem in using a single-source information is that the owner/manager of a firm may not accurately perceive the strategies of the firm.

References

 Covin, J.G and Slevin, D.P (1989). “Strategic Management of Small Firms in Hostile and Benign Environment.” Strategic Managerial Journal 25 (3): 217-259

Hofstede, G. (1980), Culture’s Consequences: International Differences in Work-related Values, Newbury
Park, CA: Sage Publication.

Iyayi, F (2002), “Culture, Organizational Forms and Societal Contexts” Being an Unpublished Paper, in the Department of Business Administration, University of Benin, Edo state, Nigeria.

Kogut, B. and Singh, H. (1988) “The Effect of National Culture on the Choice of Entry Mode, Journal of International Business Studies, 20:411-432.

Kotter, J.P. and Heskett, J.C. (1992), Corporate Culture and Performance, New York: The Free Press.

Lederach, J.P (1995), Preparing for Peace: Conflict Transformation Access Culture, Syracuse, NY: Syracuse University Press.

Lumpkin, G.T. and Dess, G.G. (1996), “Clarifying the Entrepreneurial Orientation Construct and Linking it to Performance,” Academy of Management Journal, 21(11):135-172.

Miller, D. (1983) “The Correlates of Entrepreneurship in Three Types of Firms,” Management Science,
29(7):770-791.

Morris, M.H, Davis, D.L. and Allen, J.W (1994) “Fostering Corporate Entrepreneurship:  Cross–cultural Comparisons of the Importance of Individualism versus Collectivism” Journal of International Business Studies, 2:247-259

Mueller, S.L and Thomas, A.S. (2001) “Culture and Entrepreneurial Potential: A Nine Country Study of Locus of Control and Innovativeness”, Journal of Business Venturing, 16:57-75

Schein, E. (1992), Organizational Culture and Leadership, San Francisco: Jossey-Bass
Shane, S. (1995), “Uncertainty Avoidance and the Preference for Innovation Championing Roles”, Journal
of International Business Studies 20(1):47-68


Appendix 1

Two- way Analysis of Variance(ANOVA) for the Distribution
Culture Dimension

Sector

Uncertainty avoidance

Individualism

Masculinity

Power Distance

Total

Mean

Block moulding

40

40

42

37

159

39.75

Education

38

36

45

36

155

38.75

Electronics

36

41

48

38

163

40.75

Furniture

46

41

48

36

171

42.75

Printing

44

42

30

35

151

37.75

Transportation

48

36

38

46

168

42.00

Total

252

236

251

228

967

 

Mean

42

39.33

41.83

38

 

40.29

               r=6, c=4; rc=24
ANOVA Table

Source of variation

Sum of squares

Degrees of freedom

Mean square

 F-Ratio

Between- row means

SSR

r-1

MRS

MSR/MSE

Between- column mean

SSC

c-1

MSC

MSC/MSE

Error

SSE

(r-1)(c-1)

MSE

 

Total

SST

rc-1

 

 

SSR= sum of Squares for Rows
SSC= Sum of Square for column
SSC= Sum of Square for Errors
SST= Total sum of Squares
r = number of rows
c = number of columns
SST=asdfa
SSRr=adfa

SSC=adfa

 

SSE=SST-SSR-SSC

SST=39,501-38962.04=538.96
SSR=39,035.25-38962.04=73.24
SSC=39,030.83-38962.04=68.79
SSE=538.96-73.24-68.79=396.96

Source of variation

Sum of squares

Degrees of freedom

Mean square

 F-ratio

Between sectors

73.21

5

14.642

0.553

Between culture dimension

68.79

3

22.93

0.866

Error

396.96

15

26.464

 

Total

538.96

23

 

 

F.95,5,15 =2.90; F.95,3,15 =3.29