Cross-border entrepreneurship

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Cross-border entrepreneurship a

David Smallbone & Friederike Welter

b

a

Small Business Research Centre, Kingston University, UK

b

Jönköping International Business School, Jönköping, Sweden

Available online: 30 Apr 2012

To cite this article: David Smallbone & Friederike Welter (2012): Cross-border entrepreneurship, Entrepreneurship & Regional Development: An International Journal, 24:3-4, 95-104 To link to this article: http://dx.doi.org/10.1080/08985626.2012.670907

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Entrepreneurship & Regional Development Vol. 24, Nos. 3–4, April 2012, 95–104

INTRODUCTION Cross-border entrepreneurship David Smallbonea* and Friederike Welterb

Downloaded by [Jonkoping University Library] at 10:31 02 May 2012

a

Small Business Research Centre, Kingston University, UK; bJo¨nko¨ping International Business School, Jo¨nko¨ping, Sweden Cross-border entrepreneurship refers to entrepreneurial activity across international borders, which typically involves some form of cooperation or partnership. It includes a wide range of different types of entrepreneurship, from informal petty. Keywords: SME; entrepreneurship; regional development; border regions

1. Introduction Cross-border entrepreneurship offers potential benefits for regions as well as for individual enterprises. For entrepreneurs, it provides an opportunity to access new markets and sources of supply, as well as capital, labour and technology, although the nature and extent of these opportunities is likely to be affected by the relative level of economic development on either side of the border. For regions, cross-border entrepreneurship may be viewed as a potential asset for regional development in border regions that policy makers can actively promote. It is these issues the introduction to the special issue will explore in some more detail, before introducing the papers within the issue.

2. The nature of cross-border entrepreneurship Cross-border entrepreneurship refers to entrepreneurial activity across international borders, which typically involves some form of cooperation or partnership. It includes a wide range of different types of entrepreneurship, from informal petty (or shuttle) trading activity at one extreme to formalized joint ventures and strategic alliances between enterprises at the other. As the voluntary and ‘not for profits’ sector increasingly embraces the spirit of entrepreneurship, cross-border co-operation can include social enterprise activity. At a global level, the increasing internationalization of economic systems encourages enterprises to develop crossborder operations, either as part of a strategy of new market development, or to reduce costs, or some combination of the two. At the enterprise level, a variety of organizational forms may be observed, including subcontracting, joint ventures and franchise arrangements. In this regard, Weaver (2000) has described a constellation of SME-based alliances, representing a variety of structured agreements that establish exchange arrangements between participating firms. Whilst some may be

*Corresponding author. Email: [email protected] ISSN 0898–5626 print/ISSN 1464–5114 online ß 2012 Taylor & Francis http://dx.doi.org/10.1080/08985626.2012.670907 http://www.tandfonline.com


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associated with long-term co-operation, others may have a limited life, according to the reasons they were established in the first place. Moreover, whilst some links may be between two SMEs, others may involve some form of co-operation arrangement between an SME and a large company. Although Weaver’s framework is helpful in emphasizing the variety of interenterprise arrangements that can exist, implicitly it only includes arrangements between formal enterprises. As a result, a broad definition of cross-border entrepreneurial activity is adopted in this special issue; it includes informal, which means petty trading at the individual and household levels, as well as formal co-operation between enterprises and cross-border co-operation involving social enterprises, as one of the papers in the special issue illustrates. Informal economic activities, such as petty, or shuttle, trading, have been common features of many border regions, particularly those in developing and/or former socialist countries (e.g. Fadahunsi and Rosa 2002; Williams and Windebank 2006; Welter and Smallbone 2009). These activities provide an opportunity for people to increase their income by taking advantage of the differences in prices to make a return in circumstances where there may be few opportunities for earning a wage and no tradition of starting one’s own business. They may also provide an opportunity for a minority of petty traders to build up their knowledge and capital to enable them to engage in more formalized forms of cross-border activities in the future (Wallace and Latcheva 2006; Welter and Smallbone 2009; Williams, Round, and Rodgers 2010). Whilst some may dismiss petty trading as simply as arbitrage, there are cases of individuals and households who demonstrate considerable entrepreneurial potential. For some individuals, families and households, the type of survival strategies they develop based on informal economic activity might not extend beyond being a last resort to unemployment. But in some regions the sheer volume of informal activity and the parallel distribution networks the petty traders are part of, can generate considerable employment. The existence of informal economic activity is also an expression of the embededdness of entrepreneurship in a social context, as well as a manifestation of a hidden enterprise culture, which is a situation that arguably needs to be harnessed and taken full advantage of (Williams and Windebank 2006). Previous analysis has suggested that those involved in petty trading activities may be divided into two broad categories: first, those driven by proprietorship-type motivation (Scase 1997, 2003), where individuals lack the motivation and ability with regard to entrepreneurship and thus lack development potential and remain as petty traders; the second group, by contrast, is driven by more entrepreneurial individuals, whose motivation, drive and resourcefulness makes them nascent entrepreneurs. Indeed, the arbitrary nature of the regulatory regime in many developing and ‘early stage’ transition countries means that the informal status of a business is often a response to the absence of what in a mature market context would be seen as the basic framework conditions for entrepreneurship (Welter and Smallbone 2009). In fact, some informal entrepreneurs in this second group showed considerable inventiveness and alertness to recognize opportunities, thereby demonstrating some of the key qualities associated with entrepreneurship. This refutes a simple categorization of all petty trading activities as ‘proprietorship’, because some of the individuals involved are behaving entrepreneurially, adapting to changing market conditions and demand in selecting the goods they trade.

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3. Characteristics of border regions Specific characteristics of individual border regions are likely to affect both the opportunities for, and constraints on, the development of entrepreneurship within them. For example, the types of entrepreneurial activity that develop are likely to reflect the economic characteristics of the adjacent regions and countries, as well as the wider societal context. The border itself is another important influence, where a key distinction is that between hard and soft borders. A border regime is a system of controls, regulating behaviour at the borders hence, when effectively applied, determines the conditions for crossing the border for various items. The openness of a border describes the degree of freedom of movement of economic factors, such as goods and labour across it (van Houtum 1998, 23–39). Similarly, the distinction between ‘soft’ and ‘hard’ borders draws attention to the ease, or difficulty, of crossing a border, or getting inside a bordered area (Neuwahl 2005). At the same time, the openness of each/any border is a matter of degree and contingent upon the items which cross the border. While some categories may cross a border without friction, others might be unable to cross the same border at all (van Houtum and van Naerssen 2002). Different classes of people, such as workers, tourists, local inhabitants, refugees and criminals, meet different requirements for crossing a border. While tourists and skilled labour are generally welcome and can cross a border easily, refugees and criminals are denied entry to a nation-state such as the US or a wider community like the EU. Also, different classes of goods and services cross borders under different conditions. While financial services, for example, meet virtually no barriers, material goods meet barriers in the form of taxes. In a European context, recent enlargements of the European Union have resulted in a strengthening of the EU’s external borders and determining the conditions for crossing them (van Houtum and Scott 2005; Berg and Ehin 2006). Paradoxically, globalization generally ‘softens’ borders between states, including within the EU, but it can be argued that political and economic integration associated with enlargement tightens external borders (Leontidou, Donnan, and Afouxenidis 2005, 389–91). Increased permeability of national borders paves the way for increased cooperation between firms through the creation and increased use of cross-border networks (Perkmann and Sum 2002). Increased porosity of national borders is associated with decreasing isolation of the nation-state, as an increasing number of sub-national administrative units have direct contacts with similar entities in other states as well as with supranational bodies. Their involvement in policy processes may result in the development of cross-national regions of sub-national origin. There are alternative views about the status of cross-border regions. Within the context of a supranational entity such as the EU or the NAFTA, internal crossborder regions emerge to eventually becoming centres of gravity of economic activity, aimed at securing sustainable levels of well-being, and eventually becoming centres of gravity of economic activity. One view is that such entities gradually acquire more autonomy to develop and implement their own policies and to build their own institutions of governance. As a result, some look at European regions as parts of a supranational system rather than as constituent parts of nation-states. Such a process enables a line to be drawn between the concepts of old regionalism and new regionalisation. The former term refers to regions as integral parts of a nation-state. Significant conditions of the region are determined by regional policies pursued by nation-states within their borders. The functioning of such regions may

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involve international connections but the centre of control remains with the nationstate. In the spheres of economic, political and administrative, social and cultural life, cross-border contacts and processes acquire increasing importance. Currently, the trends within the EU are in the direction of setting up independent institutions of governance for the purposes of achieving developmental goals. This contrasts with the excessive centralization that remains in some of the EU neighbours such as Belarus, which places severe constraints on local decision-making autonomy with respect to cross-border co-operation.


4. Enabling and constraining influences on cross-border co-operation Detailed assessment of the potential for cross-border co-operation needs to consider the motives that entrepreneurs have for engaging in it and the resources they can mobilize to develop and exploit it. Shared understanding of the purpose and form of cooperation between partners would appear to be one of the preconditions of successful cooperation. It has been suggested that collaborating parties need to have a similar view of the benefits that could be achieved through cooperation (Kiprianoff 2005, 76–7), although logically the potential benefits need not be similar as long as both parties benefit in ways that are potentially valuable to them. Research shows how successful cross-border co-operation requires a learning element: experience with looser forms of cooperation can help partners to learn about each other’s culture and improve communication before intensifying their collaborative activities (Welter, Alex, and Kolb forthcoming). A priori one would expect trust and social capital to be an important factor influencing the success and longevity of cross-border cooperation. Trust in the functioning of formal institutions is required for entrepreneurial activities to develop and thrive over time, because it allows entrepreneurs to go beyond a circle of trusted and well-known business partners (Welter and Smallbone 2006), thus influencing the nature of collaborative activities and their development potential. This takes on particular importance in a cross-border context, where institutions across the border are unfamiliar. In situations where individuals feel that they cannot trust the formal institutional framework, or where a rule of law does not exist, they will resort to personal trust. Personal trust allows partnerships to emerge regardless of the deficiencies of the institutional environment, but an overreliance on personal trust also may restrict the development of cross-border partnerships in the longer run. At the individual level, cross-border co-operation involving petty traders, small firms, as well as other actors and agents may also contribute to the further development of social capital within the region. In the case of petty trade and small-scale business activity, the relationships are often based on kinship ties, professional/business linkages and/or on personal acquaintances. Social ties serve primarily to reduce some of the risks associated with trading and business by providing a basis for an underlying personal trust (Wallace, Shmulyar, and Bedzir 1999; Williams and Balazˇ 2002). At an organizational level, membership of a wider (international) network or cluster can contribute to the success of an individual enterprise. Networking can support business innovation, much of which may depend on informal relationships and settings. Networks can also lower transaction costs by helping to create trust and, in some cases, providing opportunities to



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bypass bureaucratic routines (Ionescu 2005, 35–6). At the same time, the role of trust and social capital is both more complex and not always positive in its influence. At a regional level, common problems and resources in constituent parts of a cross-border area can contribute positively to creating and sustaining cooperation across borders. For example, in Europe, Nordic and Baltic cooperation is motivated by the need to tackle problems of nuclear waste management, long distances, harsh climate and environment (Saprykin 2003). In the case of Italy and Slovenia, specific regional assets have played an important role in designing measures for achieving common development goals (Sfiligoj 2000). However, the direction of the causal relationship between common problems, goals and resources, on the one hand, and intensity of actual cooperation, on the other hand, remains unclear. It may well be that goals are defined by sub- or supranational leaders, which attempt to encourage and institutionalize cross-border cooperation. Problems as well as resources are only constructed’ later (Perkmann 2005, 10–11). Cross-border cooperation can also be influenced by cultural, social, political and economic differences across borders. Dissimilarities between economic systems and in the levels of economic development (‘divide of affluence’), dissimilar social systems, a lack of a common language and cultural tradition, poor knowledge of each others’ attitudes and behavioural patterns (prejudices) can all contribute to a lack of trust between potential partners, inhibiting co-operation across borders (Kra¨tke 1998, 250–1). In contrast, an analysis of identity construction by entrepreneurs engaged in cross-border entrepreneurship emphasized the importance of: establishing communication in languages spoken locally; facilitating the crossborder mobility of persons and ideas; a shared understanding of socio-cultural differences inherited from the past; business start-up programmes contributing to an understanding of entrepreneurial cultures across the border (Smallbone 2008). Cultural background also influences institutional co-operation and the business and trade environment. People and institutions from different cultural backgrounds face difficulties at different levels: interpersonal, organizational and societal (Grilo and Thurik 2006; Kirkman, Lowe, and Gibson 2006; Melnikas, Barsˇ auskas, and Kvainauskaite 2006). Ethnic and national identities are another influence on cross-border co-operation, as well as on the propensity to engage in entrepreneurship itself. Yet, the direction of the causal relationship remains unclear. Some research demonstrates a clear case to support the claim that common identity is a predecessor of successful cooperation across national borders (Ha¨kli 2004). At the same time, the opposite, namely ‘top-down’ initiated and supported cooperation leads to a sense of belonging to the same community, might well be the case. In fact, a functional crossborder region does not presume common identity of its inhabitants. In a context where former socialist and non-socialist countries have common border regions, there are particular challenges, because of the fundamental differences in the economic and social systems of the two groups of countries. In terms of governance, as mentioned previously, centrally planned countries were characterized by a high level of centralization of political control. Another key feature was the virtual absence of civil society, so that a participative governance regime could not develop. In addition, in planned economies most forms of entrepreneurship were illegal (Bafoil 1999; Turnock 2005).


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A combination of the centralization that characterized the system, together with the underlying ideology resulted in border areas being typically turned into zones of secrecy and separation. Many roads and railways in border areas were closed in order to minimize cross-border communication. These regions were closed to nonresidents and the areas subjected to de-population, which meant that infrastructure and industry in the border regions was often in a poor condition. This is the legacy in many of the border regions of former socialist bloc countries, which the newly independent states have to change as they seek to integrate themselves into the international system (Kennard 2004). For entrepreneurs, cross-border entrepreneurship represents an opportunity to access new markets and sources of supply, capital, technology, know how and know who. All regions are typically peripheral to the core of economic activity, crossborder entrepreneurship can contribute to economic development on both sides of the border. However, the relationship between entrepreneurship development in a region and cross-border co-operation is likely to be a reciprocal one. On the one hand, cross-border co-operation may act as a stimulus for entrepreneurship development in regions, as a result of the opportunities which it opens up. But on the other hand, the nature and extent of entrepreneurship in a region is likely to affect the demand for cross-border co-operation, because entrepreneurship and growth aspirations of the region’s entrepreneurs will affect the number of individuals and businesses that seek the markets, suppliers, capital and know how that crossborder co-operation in entrepreneurship potentially offers. Either way, there are implications for the environment for entrepreneurship, and thus for entrepreneurship policy. In this context, creating a policy environment to enable and facilitate productive forms of cross-border entrepreneurship may be one of the ways of reducing locational disadvantage associated with peripherality and a necessary part of the regional development strategies for these border regions. At the same time, the successful development of cross-border entrepreneurship often requires effective local agencies and institutions to develop and implement them. However, experience in some of the former socialist countries demonstrates more of a policy vacuum, with the legacy of central planning contributing to weak regional institutions to lobby for and secure resources.

5. Introducing the papers in this special issue The five papers making up this special issue represent heterogeneous contributions, in terms of the type of cross-border entrepreneurial activity they focus on, the methodology used and the locations in which cross-border entrepreneurship is investigated, which are truly global in scope. The first paper in this special issue is co-authored by Michael J. Pisani and Chad Richardson who investigate informal entrepreneurship in the border context of Northern Mexico and South-Texas, US. They draw on 600 ethnographic interviews as well as 526 survey respondents. Their ethnographic vignettes vividly illustrate how the border constrains some and opens up opportunities for others who actively use the border as a lever to gain competitive advantage. Most informal activities happen on a very small scale. This includes petty commerce such as the buying and selling of clothing, skateboards and candies or services such as repair, construction or domestic help. Often, informal cross-border entrepreneurship is accompanied and



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facilitated by fraudulent border documents, together with family networks, bribes and government organizations on both sides of the border that do not formally question the commercial activities of those crossing the border. The authors show that, compared to US citizens, Mexicans without proper documents are nine times more likely to engage in informal cross-border activities, while those informal entrepreneurs who possess at least one business permit for either the US or Mexico were two to three times more likely to engage in cross-border business activities compared to those without any permit. Olivier Walther’s article takes us into West Africa, more specifically to the border region between Niger, Benin and Nigeria. The data come from three surveys, conducted through semi-structured face-to-face interviews: survey one with 73 major traders (2009 turnover exceeding 10 million CFA), survey two with 60 minor traders (2009 turnover less than 10 million CFA) and survey three with 126 agricultural entrepreneurs benefitting from an irrigation promotion project in Niger which helped those entrepreneurs to intensify agricultural production. Based on these data, the author examines the economic and spatial logics of traders and farmers located between Niger, Benin and Nigeria, in order to identify implications for the regional integration in West Africa. From the perspective of economic geography, the two main logics of spatial organization meet at border markets: the space of flows, originating from the cross-border movements of goods and people and the space of places, namely production resulting from the concentration of agricultural products. The paper fills a gap as to date there has been little research which has studied the ways that traders’ networks and producers’ territories interact at cross-border markets to influence regional integration. In terms of implications for policy, investment in border market facilities could promote both trading and productive activities in several countries, thus addressing concerns that border trade counteracts productive entrepreneurship and economic development. One fundamental prerequisite for this, however, is that governments need to pay more attention to functional economic areas instead of just nation-states. In the third paper, Yung-Hsing Guo explores Japanese production networks in the electronics industry in Guangdong in China. Japan has been the largest source country of FDI in China although its large, but relatively closed, production networks have not been much discussed in previous research. Drawing on more than 50 interviews conducted in 2002 and 2008, the author provides a detailed account of Japanese investment in Guangdong from the late 1980s, when it was led by SMEs located in Hong Kong. In the 1990s a semi-non-profit institute for Japanese SMEs (Techno Centre), itself initiated by Japanese small supplier firms in Hong Kong, provided geographical space for agglomerations of Japanese SMEs in Guangdong. This triggered the emergence of cross-border production networks led by these small enterprises as well as new, similar centres. These centres play a key role in enabling SMEs to build production affiliates with low entry costs, and educate SMEs as well as leading firms, which followed small enterprises into the region. The paper adds to current theory by illustrating the potentially pioneering role of small and medium enterprises in the expansion of global, cross-border production networks. In the fourth paper, Matthias Fink and Rainer Harms discuss the role of self-commitment of partners for successful cross-border cooperation. They emphasise that self-commitment is important in contexts of uncertainty such as crossborder cooperation, but its impact is also contingent on the source of uncertainty,


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whether environmental or behavioural uncertainty. This is studied empirically by drawing on survey data involving 181 SMEs with cross-border alliances. These are from Austria, as an example of an environmentally stable environment; the Czech Republic and Slovenia, which reflect more unstable (transition) environments. The data show that cooperation based on self-commitment has a positive relationship with performance when the focal company is from a transition economy, irrespective of whether it is engaged in a national or an international alliance. From this, the authors conclude that the performance effect of cooperation based on selfcommitment is contingent upon the geographic origin of the focal company. The final paper in the special issue, authored by James Scott and Jussi Laine, investigates cross-border networks of civil society organizations. The paper draws on exploratory research into Finnish–Russian civil society cooperation in the areas of social welfare provision and regional and economic development. This study shows that cross-border cooperation of civil society organizations can promote new forms of ‘policy learning’ outside formal institutionalised policy channels by creating a pragmatic rather than a normative environment of transnational communication and exchange. In the short-term, cross-border co-operation between Finland and Russia has done much to alleviate social problems and connect citizens groups across a border that was once hermetically sealed. In this regard, it is suggested that some cross-border cooperation played a role in constructing a social economy in Russia under very difficult conditions of economic, political and social change. In their conclusions, the authors emphasize that it is necessary to understand the social embeddedness of civil society in order to effectively promote social welfare agendas.

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