TOWARD AN UNDERSTANDING FOR ...

TOWARD AN UNDERSTANDING FOR ENTREPRENEURSHIP ENVIRONMENT: THE CASE OF PUERTO RICO

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Moraima De Hoyos-Ruperto Submitted in Partial Fulfillment of the Requirements for the Conceptual Paper in the Executive Doctor of Management Program at the Weatherhead School of Management Advisors: Bo Carlsson, PhD Sheri Perelli, EDM José M. Romaguera Casablanca, PhD Richard Boland, PhD

CASE WESTERN RESERVE UNIVERSITY May 2009

TOWARD AN UNDERSTANDING FOR ENTREPRENEURSHIP ENVIRONMENT: THE CASE OF PUERTO RICO

ABSTRACT Studies conducted over the last decade have found that Puerto Rico faces multiple challenges in regards to entrepreneurial development and growth, even when new venture creation is positively perceived among its citizens (Aponte 2002). These challenges include a low rate of early-stage entrepreneurial activity (GEM 2007), a limited market structure (Morales 2006), a structural problem (Aponte 2002), and challenges from its excessive public debt, large bureaucracy, lack of independent trade, and its colonial status (Brooking 2006). This study focuses on Puerto Rico’s entrepreneurial environment and seeks to understand— through interviews with governmental, private, and civil sectors leaders as well as with entrepreneurs—how they understand the factors that influence entrepreneurial activities on the island. How these influential leaders view the island’s entrepreneurial environment is essential as their actions can effectively encourage and sustain the governmental goal to develop entrepreneurship in Puerto Rico. Exploring their understanding of Puerto Rico’s entrepreneurial environment will reveal factors that can serve either as barriers to or opportunities for improving the state of entrepreneurship on the island. Developed from reviews of academic and practical literature on entrepreneurship, this examination will provide a comprehensive analysis of the island’s entrepreneurial environment by considering the GEM model’s framework conditions as well as factors presented by other researchers. Key words: entrepreneurship, entrepreneurial environment, Puerto Rico

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TABLE OF CONTENTS Abstract ..................................................................................................................................... 2 Introduction............................................................................................................................... 4 Research Question and Conceptual Model ............................................................................... 5 Conceptual Framework............................................................................................................. 7 Research Design...................................................................................................................... 28 Appendices Appendix A: Organization Lists ................................................................................ 35 Appendix B: Sample’s Justification........................................................................... 42 Appendix C: Interview Protocol ................................................................................ 45 References............................................................................................................................... 46 List of Figures Figure 1: The Conceptual Model ................................................................................. 6 Figure 2: GEM Conceptual Model............................................................................... 9 Figure 3: TEA GEM Model Concept......................................................................... 28 List of Tables Table 1: GEM Entrepreneurial Framework Conditions (EFCs) ................................ 14 Table B1: List of Samples by Sector ......................................................................... 44    

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INTRODUCTION  

Entrepreneurs create employment, expand markets, increase production and services, and breathe new life into their communities (Kantis, Ishida, & Komori, 2002). Entrepreneurship results in economic growth, innovation, and job creation (Gartner, Shaver, Carter, & Reynolds, 2004). Institutions and governments play key roles in fostering environments that produce a continuous supply of new entrepreneurs and enable them to be successful (Lundström & Stevenson, 2005). In A General Theory of Entrepreneurship, Shane (2003) argues that entrepreneurship first requires entrepreneurial opportunities. However, opportunities are not always perceived—or utilized—in the same way. The 2007 Global Entrepreneurship Monitor (GEM) reported that among high-income countries Puerto Rico, at 3.1%, has one of the lowest rates of early-stage entrepreneurial activity, compared to 9.6% for the United States, 10% for Hong Kong, and nearly 26%, 23%, and 27%, respectively, for the low to medium income countries of Peru, Colombia, and Thailand. Aponte (2002) argues that while new venture creation in Puerto Rico is positively perceived, it is not believed to be feasible. A structural problem, she contends, rather than a lack of entrepreneurial spirit, forestalls business creation. Morales (2006) similarly maintains that Puerto Rico’s current market structure limits the opportunities presented by globalization and impedes sustainable development and entrepreneurship. Likewise, the 2007 GEM adult population perception survey indicates Puerto Rico is average or above average in terms of entrepreneurial potential, capabilities, and intention, but lower in opportunity than other high-income countries. A study published in 2006 by the Brookings Institution in collaboration with The Center for the New Economy of Puerto Rico concluded that Puerto Rico is challenged by 4 

public debt and need for better international trade arrangement. Davis and Rivera-Batíz (2006; 58) assert that “the strikingly underdeveloped state of the private sector supports the view that Puerto Rico suffers from an inhospitable business climate.” Aponte points out, however, that the strong negative findings regarding Puerto Rico’s business climate are based on only two of GEM’s ten entrepreneurial factors − government policies and the permitting process− and insists that each GEM entrepreneurial determinant is an essential part of a country’s business climate and should be taken into account. To better our understanding of Puerto Rico’s entrepreneurial environment we propose qualitative research based on interviews with public, private, and civil sector leaders and local entrepreneurs. The research will shed light on the GEM and other possible factors recognized by leaders and business owners to influence entrepreneurial activity. How leaders construe the entrepreneurial process might influence decisions they make and subsequently affect new business startups, and entrepreneurs’ understandings of environmental barriers to and enablers of business creation may influence if, how, and to what extent they launch new firms. RESEARCH QUESTION AND CONCEPTUAL MODEL  

This proposed research seeks to draw an overall picture of entrepreneurship on the Island as envisioned by decision makers and entrepreneurs and to understand how their vision influences public and private programs as well as policy changes. Thus, we designed an inductive study to explore the following question: How do entrepreneurs and public and private sector leaders understand the factors that influence entrepreneurial activities in Puerto Rico? The conceptual model put forth in this paper (see Figure 1) suggests factors that may 5 

influence how public, civic, and private sector leaders and entrepreneurs inside and outside of Puerto Rico understand the Island’s entrepreneurial conditions. The conceptual model starts by considering as independent variables all of the General National Framework Conditions (GNFCs) and Entrepreneurial Framework Conditions (EFCs) detailed within the Global Entrepreneurship Monitor (GEM) model as well as other potential factors presented by various authors. According to the GEM Conceptual Model, GNFCs impact established firms while EFCs affect the creation and growth of new firms. As a dynamic model, ours recognizes that entrepreneurship grows in a social-cultural, economic and political context that might influence cognition and decision-making mechanisms and, consequently, the level of entrepreneurial activity (LEA)—i.e. the creation of new firms or the support of established firms and, subsequently, the growth of a nation’s economy. These factors are discussed in detail in the next section. FIGURE 1: The Conceptual Model  

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CONCEPTUAL FRAMEWORK  

We begin this section with an explanation of the theories on which the proposed model is based. We start with a brief overview and definition of the theory of entrepreneurship including a brief yet detailed summary of the many theoretical approaches and definitions for entrepreneurship. A short segment is dedicated to the GEM model, which serves as reference for this study. In addition, we discuss the evolution of Institutional Theory, a fundamental complement to the theory of entrepreneurship. The second section includes a very detailed explanation of the variables in the proposed model. First, discussed are the factors that can impact entrepreneurial activities − GNFC’s, EFC’s, and others. Next, the socio-cultural, economic, and political factors that the model recognizes as moderating entrepreneurial activity in a country are reviewed. We conclude with a description of the possible ways to measure entrepreneurial activity. Entrepreneurship Theory Overview Entrepreneurship is considered a key element in a sustainable growth economy (Audretsch & Thurik, 2001; Gartner et al., 2004; Kantis et al., 2002; Lundström & Stevenson, 2005). Many studies sugest that a country’s characteristics influence entrepreneurial success. Entrepreneurship, broadly defined, includes the innovative process within existing firms as well as new venture creation (Audretsch & Thurik, 2001). Birch (1979) concluded that small firms are the major source of employment growth in the U.S. More recent assessments, however, indicate that small firms are not necessarily the dominant source of net job growth. Instead, it is new firms, small and large, that drive it (Acs, Armington, & Robb, 1999). Baumol et al. (2007) claim that regardless of the state of economic development, all countries can benefit by promoting entrepreneurship either by 7 

replication or innovation. For the purpose of this study, entrepreneurship is defined as a dynamic and complex phenomenon (Gartner, et al., 2004; Shapero, 1984) represented by new and existing firms that have replicated or created an innovative idea. The Global Entrepreneurship Monitor (GEM) Model The Global Entrepreneurship Monitor (GEM), a leading international research program intended to enhance understanding of the role of entrepreneurship in national economic growth, created a conceptual model summarizing the major causal mechanisms affecting national economies. The GEM conceptual model, shown in Figure 2, has three primary features: it explains why some national economies are stronger and grow more rapidly than others; it assumes that all economic processes take place in a relatively stable political, social, and historical context; and it considers two distinct yet complementary mechanisms as the primary sources of national economic progress. This final feature is perhaps unique to GEM (Reynolds et al., 2002) because it suggests that entrepreneurial activity responds to a different set of environmental factors. According to the GEM Conceptual Model, the first major mechanism driving economic growth, GNFCs, as illustrated in the top portion of Figure 2, reflects the role of established firms. The second primary mechanism, illustrated in the lower portion of the diagram as EFCs, emphasizes the role of entrepreneurship in the creation and growth of new firms. The GEM model proposes that a set of general and entrepreneurial contextual factors intervene between the emergence and expansion of new firms. While it associates national economic growth and the aggregate level of economic activity in a country with new and established firms, GEM focuses on early-stage entrepreneurial activity. In addition, it maintains that small and new firms generate 8 

innovation, fill market niches, and increase competition, thereby contributing to resource reallocation in economic activity (Bosma, Jones, Autio, & Levie, 2008). FIGURE 2: GEM Conceptual Model 1  

Among the GNFCs, the GEM model includes external trade openness, the role of government, financial markets’ efficiency, technology intensity, physical infrastructure, management skills, labor market structure, and institutional regulations. These factors are considered primarily on a macroeconomic level. The GEM model also recognizes ten different EFCs, which primarily work at a microeconomic level, that may affect the creation and development of new firms. They are: 1) financial support, 2) goverment policies, 3) goverment programs, 4) education and training, 5) research and development (R&D) transfer, 6) commercial and professional infrastructure, 7) international market openness, 8) access to physical infrastructure, 9) cultural and social norms, and 10) intellectual property rights protection. GNFCs and EFCs can positively or negatively influence the overall entrepreneurship                                                              1

Source: Global Entrepreneurship Monitor: 2007 Executive Report

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activities of a nation depending, Rodrik (2007) argues, on public and private institutional arrangements. Institutional arrangements refer to how these two sectors can create either strong or weak institutional links. In the chapter titled “The Environmental Context of Entrepreneurship,” Shane (2003: 145) states, “The institutional environment consists of the economic, political and cultural context in which the entrepreneur finds herself.” On the other hand, Lundström & Stevenson (2005) claim that entrepreneurship occurs in a complex interplay between the entrepreneur, the enterprise, and the environment. This might explain why it differs from one country to another. Singh (2000) adds to the mix individual consumer economic conditions, which include spending and saving patterns and natural disasters as sources of opportunity or necessity that can impact the entrepreneurship environment. Due to the aforementioned explanation, our proposed study recognizes that both GNFCs and EFCs may be relevant to entrepreneurial advancement in Puerto Rico, as well as factors that have, or have not yet, been suggested by other scholars. “Old” and New Institutional Theories Overview Institutional theory takes a holistic approach to the analysis of factors that influence entrepreneurial activity in a country, suggesting that the economic process is part of and interacts with a broad sociocultural network that is constantly evolving and which classifies institutions as either formal or informal (North, 1990). The theory considers laws and regulations as formal institutions and influences, attitudes, and perceptions, among others, as informal institutions. Aponte (2002) claims that in Puerto Rico formal and informal institutions complement one another, and North (1990) maintains that looking at only one will produce an inadequate and misleading notion about the relationship between the 10 

analyzed factor and observed performance. Neo-institutional theory adds to “old” institutional theory the recognition of cultural structure and cognitive processes. The first neo-institutional paper, written by Meyer & Rowan (1977: 340), states that “Institutionalized products, services, techniques, policies and programs function as powerful myths, and many organizations adopt them ceremonially.” Considering this within an entrepreneurship-policy context suggests that anecdotes, narratives, and policy implications are adopted as myth by entrepreneurship experts and policy makers (Klyver & Bager, 2007). DiMaggio & Powell (1983) identified three overall isomorphic mechanisms—coercive, mimetic, and normative—to help explain why organizations or institutions tend to be similar inside organizational fields and why ideas or policy implications are similar across countries even when they do not fit well within an organization or country’s context. Neo-institutional theory made an important contribution to the decision-making field by adding a cognitive influence that could guide the process. This theory helps to explain, from the point of view of rational reasoning and through the concept of decoupling, the frequent gaps between policy formulation, implementation, and action. Decoupling, seen as the difference between talking and acting, should be understood as a rational response to diversified pressures and the single needs of an organization (Scott, 2001), industrial sectors, organizational fields, and international policies (Bager, 1996). Thus, when employing neoinstitutional theory and its cognitive base, the viewpoints of experts and policy makers are formed by what they perceive as legitimized views regardless of the nature of the entrepreneurship environment they are trying to manage (Klyver & Bager, 2007). The study of influential leaders and entrepreneurs’ points of view becomes relevant when one considers 11 

how their intrepretations or perceptions may impact the entrepreneurial environment of a nation. General National Framework Conditions (GNFCs) The GEM model assumes that established business activities are impacted by General National Framework Conditions (GNFCs). Reynolds et al. first introduced this model in 1999, and it has since been employed as the specific conceptual basis of GEM reports. The model assumes that, as GNFCs are appropriately developed, international competitive posture is enhanced. As a firm matures and expands, it creates significant demand for goods and services in its host nation, thus increasing opportunities for Small and Medium Enterprises (SME) and micro-businesses (Reynolds et al., 2002). In addition to the GEM reports many other researchers have identified these conditions as critical factors for entrepreneurship. For example, Stiglitz (2007) claims that trade and bilateral agreements can influence business growth in both positive and/or negative ways, depending on how they are managed. Lundström & Stevenson (2005) and Baumol et al. (2007) recognize the role of an adequate environment in the emergence of entrepreneurship. They claim that stimulating entrepreneurial activities requires a different set of policies to support the maintenance and growth of existing SMEs. Governments and society, they maintain, are responsible for identifying deficiencies and seeking knowledge and better understanding of the situation to establish adequate policies for sustainable entrepreneurial growth. Therefore, they consider the important role of factors such as political regime, public service size, taxation levels, social security regulations, social welfare, and fiscal and monetary policies. Based on a study of thirteen countries, Lundström et al. developed five influential dimensions of entrepreneurial activities: 1) demographic, 12 

macroeconomic, and structural; 2) cultural; 3) human; 4) SME density and entrepreneurial dynamics; and 5) policy. Most of the GNFCs mentioned are classified within these dimensions. Entrepreneurial Framework Conditions (EFCs) The second primary mechanism driving economic growth, according to the GEM Model, is Entrepreneurial Framework Conditions (EFCs), see Table 1 for details. In a seven-year panel study conducted by Levie and Autio (2007) using GEM expert survey data from 2000 to 2006, researchers found that the prevalence and relative prevalence of highexpectation entrepreneurial activity varied significantly and directly with national levels of entrepreneurship education and training. They also discovered that the relative prevalence of high-expectation entrepreneurial activity varied inversely with the extent of government regulations on new firm entries. These findings are consistent with theories of how national context affects entrepreneurial activity. Financial resources are also crucial to new firms (Brush, Edelman, & Manolova, 2008). In a study of Hispanic immigrants, Shinnar & Young (2008) referred to entrepreneurial conditions as a “push” or “pull” for the “ins and outs” incentives of business ownership. Pull factors focus on the positive aspects of self-employment, positioning it as an attractive endeavor. Push factors, on the other hand, show entry into business ownership as a last resort. Job availability, social welfare programs, and role models are three of the elements mentioned in the above study as push factors. It is relevant to mention that these three factors are the most addressed and discussed in Puerto Rico’s daily news as well as in the general public. Lundström & Stevenson (2005) mention most of the EFCs in their five dimensions 13 

for entrepreneurial activity. Some of the key factors they include are: a flexible labor market, educational level of the population, socio-cultural norms that value and support entrepreneurship, exposure to entrepreneurship through education, ease of business entry and exit, positive and supportive climate and infrastructure for entrepreneurship at the regional level, government support, access to capital needed to start and grow new firms, organizational networking, regional dynamics, and public sector procurement. TABLE 1: GEM Entrepreneurial Framework Conditions 2 (EFCS)   EFCs Financial Support Government Policies Government Programs Education and Training R&D Transfer Business Infrastructure Internal Market Openness Physical Infrastructure Cultural, Social Norms Intellectual Property Rights

Description Financial resources: equity, debt, grants, and subsidies Reflected in taxes and regulations Direct programs to assist new and growing firms Business’ educational and training system focus on the creation of SMEs Extent and availability of national R&D leads to commercial opportunities for SMEs Presence of professional services and institutions Commercial arrangements: suppliers, subcontractors, etc. Eases access to physical resources and not price discrimination Extent of encouragement for business activities and dispersion of personal wealth and income Protection and enforceability of the law

As mentioned previously, according to Davis and Rivera-Batiz (2006) the climate for business development in Puerto Rico is unfavorable. Davis et al. point out several barriers to the entrepreneurial environment, including policies and institutional arrangements, transfer payments and minimum wage laws, special-interest tax subsidies, regulatory and artificial entry barriers, and finally the inefficiencies in the permit process. Aponte, however, challenges the strongly negative conclusions of Davis and RiveraBatiz, pointing out that the ten above mentioned entrepreneurial framework conditions (EFCs) are not taken into account in their analysis. Aponte was disappointed with the                                                              2

Based on Global Entrepreneurship Monitor Consortium Research Design Committee

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authors’ assertions that the entrepreneurial support institutions in Puerto Rico and the Puerto Rico tax system were barriers to successful entrepreneurial development when in fact both are recent efforts to encourage native entrepreneurship. Considering that Puerto Rico’s economic model since the 1940s has aimed to attract foreign enterprises, Aponte argues that these two recent efforts should be seen as advances in the promotion of a domestic entrepreneurship environment rather than barriers. A survey done in 2005 by GEM among experts in Puerto Rico shows that the Island’s economic environment is favorable for the creation of new businesses and the development of innovative projects and existing enterprises. However, they note that both government policies and its programs do not take advantage of such an environment. The reason is because the existing governmental mechanisms do not integrate, in a logical and efficient manner, the resources for sustainable entrepreneurial growth. An example of this, are the men and women who worked in Section 936 of US IRC 3 . After having gained so much knowledge and experience in manufacturing, they did not make the most of their expertise, but rather settled and sat back. The same thing occurred with the government. Instead of taking advantage of the situation, they remained stagnant and without a plan of action. Another finding in this study ranked Puerto Rico at the lowest position among scientific and technology parks, and incubators, which are crucial to any country’s development. Nevertheless, it is worth noting that in areas such as commercial and professional infrastructure, financial aid, intellectual property, easy access to the local market, and the general population’s motivation for creating new enterprises, Puerto Rico                                                              3

Section 936 of the United State Internal Revenue Code gave federal tax exemption to the repatriated earnings of US subsidiaries doing business in Puerto Rico. From its inception, section 936 was the island’s major economic sustenance and was responsible for direct and indirect job creation.

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was highly esteemed. These represent hope and set the ground for entrepreneurship. Other Entrepreneurial Factors Even though the GEM Model represents one of the most complete tools available to assess the entrepreneurial environment of a nation, perhaps there are other Puerto Rican factors in addition to the ones GEM prioritizes that may be influential. Most of them are the product of external and internal pressures that create necessity or opportunity. Media attention to entrepreneurship and advocates of the governmental “paternalistic” approach, as well as the natural climate, are examples of other possible factors than can impact the entrepreneurial environment. For the abovementioned example, the proposed model keeps an open door to other factors that might be brought up in this research. In conclusion, there are many external and internal factors that can influence the beliefs, attitudes, and behaviors of both entrepreneurs and policy makers whose decisions impact the entrepreneurial environment. Socio-Cultural, Economic, and Political Context Socio-Cultural Context. Institutional and neo-institutional theories provide a basis for the study of the sociocultural factors that may influence a specific country’s economic activities. These theories perceive the economic process as an open system that interacts with a broad, constantly evolving, sociocultural network (North, 1990; Meyer & Rowan, 1977). On the other hand, the entrepreneurship model is seen as a complex and dynamic process, each phase having different characteristics (Shapero, 1984) when considered within its socioeconomic context (Johanisson, 1998). When Douglass C. North received the 1993 Alfred Nobel Memorial Prize in Economic Sciences, his accompanying article titled “Economic Performance Through Time” (1994), argued that: 16 

“...the learning embodied in individuals, groups, and societies is cumulative through time and passed on intergenerationally by the culture of a society;… even when there is no guarantee that the beliefs and institutions that evolve through time will produce economic growth…” The GEM Model emphasizes entrepreneurship’s role in the creation and growth of new firms within their socio-cultural context (Reynolds, Hay, & Camp, 1999). However, one concern with the GEM Model is that it assumes that all economic processes take place in a relatively stable political, social, and historical context, but, that is not necessarily the case for every country. Empirical evidence shows entrepreneurship to be an endeavor that can only be understood if regional framework conditions, including networks and policies, are taken into account (Kantis, Ishida, & Komori, 2002). Another comparative study conducted by Veciana, Aponte, & Urbano (2005) among university students from Catalonia and Puerto Rico, found that in Catalonia there is a relationship between students’ gender and the variables of desirability, feasibility, and intention to create new firms. In Puerto Rico, the evidence did not show differences in gender. A study of the U.S. economy from 1899 to 1988 showed that individuals’ psychological traits and risk-taking propensity, immigration, and the population’s age distribution, education, and protestant ethics appear to be factors driving entrepreneurial change over time (Shane, 1996). In his book, “A General Theory of Entrepreneurship”, Shane lists factors considered crucial to the productivity of the socio-cultural means and to the role of socio-cultural institutions. He argues that those factors might have an effect on opportunity exploitation through entrepreneurial desirability, role models, and specific cultural beliefs. Recently, many economists have suggested that cultural legacy might be a possible 17 

determining factor of economic outcomes. Guiso, Sapienza, and Zingales (2006) define culture as those customary beliefs and values that ethnic, religious, and social groups transmit, almost unchanged, from generation to generation and argue that these dimensions of culture can impact economic outcomes. They suggest, for example, that trust affects international bilateral trade among countries and the probability of being self-employed, while cultural backgrounds shape attitudes toward risk, which in turn influence the choice to become an entrepreneur. They claim that through the socialization process, culture affects individuals’ values regarding preferences such as labor participation, intergenerational mobility, political preferences, and money-saving decisions, which eventually have some bearing on national policies and economic advancement. Cultural stereotyping, norms, and values determine industrial structure, the expertise that may develop, and the access to financial institutions (Casson, 2003). Casson argues that those factors impact educational policies, entrepreneur supply and demand, occupational decisions, and international competitiveness. This argument fits very well with the findings of two entrepreneurial related studies conducted in Puerto Rico in early 2000. A study conducted by Aponte (2002) showed that there is great dependence on foreign capital on the Island. One reason for this might be Puerto Ricans’ poor saving patterns, which also may cause banks to be willing to lend more to foreigners (Ruiz-Vargas 2000). This in turn slows down native business start-ups, which ultimately leads to a pessimistic view and/or approach toward starting businesses. However, according to Aponte, there is still an entrepreneurial desire among the general population in P.R.; the problem resides in the perception of feasibility. Political context. Sociologists associate entrepreneurship with political change 18 

(Aldrich, 1979). They explain how political revolution leads to the redistribution of resources in society, often to the advantage of start-up firms (Stinchcombe, 1965), and demonstrate how political turmoil enhances firm formation rates (Carrol & Hannan, 1989). Shane (2003) establishes a connection between entrepreneurial environment success and political freedom, the enforceability of property rights laws, and government centralization of power. He argues that these factors influence an individual’s willingness to exploit opportunity because they might impact the perception of risk and returns of entrepreneurial activities. One of the most visible impacts could be on the investment in innovation; good property rights laws may encourage this kind of investment because they facilitate the appropriation of the returns through innovation (Casson, 1995) “Political freedom encourages the development of the internal locus of control” (Shane, 2003: 154).

In the aforementioned book, Shane makes reference to Harper’s

research in which he claims that people who live in environments in which they are subjected to the arbitrary exercise of others’ imposed will, tend to have less internal locus of control and therefore are less responsive to entrepreneurial opportunities. It is relevant to mention that Puerto Rico is not a sovereign nation, even though it is a democracy. Lundström and Stevenson (2005) relate political status to a government’s priorities regarding the economic, structural, and/or social problems that need to be solved, and the degree to which developing entrepreneurship is looked upon as a contributing solution. Their argument might be connected to the government’s strategy in looking for economic and political independence through the creation of new and sustainable businesses. That implies that the political relationship inside and outside of a country might be considered a fundamental factor in the business development process. Political freedom might affect the 19 

capacity to enter into commercial treaties with other countries, which in a globalized world is essential. Economic context. The economic environment influences the engagement of individuals and their willingness to exploit entrepreneurial opportunities (Shane, 2003). Shane relates the individual economic conditions regarding wealth, stability, and available capital with the business start-up process. For example, low business taxation and tax exemption may encourage firm formation, while a high capital gains tax rate may discourage the venture’s capital funds (Bygrave & Timmons, 1985); stable fiscal and monetary policies encourage the business environment through people’s confidence (Harper, 1997). Regarding the availability of capital through savings and/or credit, empirical studies support the claim that these factors may, or may not, encourage entrepreneurial decisions (Ruiz-Vargas, 2000). New entrepreneurs use their major equity asset − their home− and their personal savings and credit capacity to self-finance their business ideas. Otherwise, venture capitalists emerge to provide risk capital; connect entrepreneurs with suppliers, customers, lawyers, and employees; and assist entrepreneurs with the development of their new venture (Gupta & Sapienza, 1992). Thus, in the economic arena, the Puerto Rican entrepreneurial environment faces a great challenge, considering the lack of individual savings accounts that has existed among Puerto Ricans since 1950, the increasing rate of individuals in bankruptcy, and the increasing requirements of lenders because of actual domestic and global economic problems. Nevertheless, it can also be seen as an opportunity to take action, since another determining factor for entrepreneurship is necessity. Those who advocate for the necessity approach claim that it is the window of opportunity. For example: the high unemployment rate and the need 20 

to improve income or create family sustainability may be motivational factors for starting up businesses (Kantis, Ishida, & Komori, 2002). The Case of Puerto Rico Puerto Rico (P.R.), like any other country, has unique characteristics that, as Shane (1996) suggests, need to be considered if one wants to affect the propensity of people to become entrepreneurs. Those distinct national characteristics have been shaped by a long history of colonialism in which the “rules of the game” have been stated and have ultimately formed our actual economic, political, and cultural structures (Dietz, 1986). This section does not pretend to make a detailed analysis of the socio-cultural, economic, and political conditions of the Island, but rather give a general idea about Puerto Rico’s history. I consider these factors to be relevant because they may influence, in both positive and negative aspects, the degree of entrepreneurial activity on the Island. In 1930, the Brookings Institution published a report on Puerto Rico’s economy and society titled “Porto Rico and Its Problems”. This study, prompted by various groups of Puerto Rican citizens, examined the Island’s social and economic landscape, which included education, public debt, public health, agriculture, trade, and public works. The authors identified two distinct problems affecting the Island: one economic, the other political. With regard to the economy, researchers faced the problem of how to raise the income level as well as the standard of living of the Puerto Rican people to something approaching parity with the United States. The political problem was the unresolved relationship between P.R. and the U.S. which has kept the Island’s status in limbo. A recent study published in 2006 titled “The Economy of Puerto Rico: Restoring Growth,” also conducted by the Brookings Institution in collaboration with The Center for the New Economy of Puerto Rico, concluded 21 

that as of 2006 both issues remain at the very core of the Island’s political and economic landscape. Puerto Rico in the political and economic arena. Puerto Rico is an island in the Caribbean with nearly four million inhabitants. In the political arena, Puerto Rico has been a colonial possession of one metropolitan empire after another, initially the Spanish and, since 1898, the United States. This is the reason why Puerto Ricans, even when speaking Spanish, tend to code-switch with English, which explains their fluidity with the language and its being a mandatory subject in all of the local schools. After many years of history, Puerto Ricans are U.S. citizens and employ the U.S. monetary system as well as the U.S. military system and democratic status, among other similarities with the mainland. But the Island is a non-incorporated territory of the U.S., also known as the Commonwealth of Puerto Rico. That means the U.S. has great control over the Island’s political, economic, and social issues; but the local administration is under the Puerto Rican government because it is not a U.S. state. The important issues for the proposed research in regard to the political status of Puerto Rico, are the challenges and opportunities it represents for the development of the Island’s entrepreneurial environment. For example, under the Commonwealth status, Puerto Rico’s government does not have all the power or capacity of a sovereign nation. Thus, the P.R. government does not have the capacity to negotiate openly and directly with other countries to make international treaties. Those international treaties need to be managed by the U.S. Secretary of State, which follows the protocol of any of the 50 states, but without all the benefits of being a state. Although Puerto Rico is located in a strategic position, the transportation costs, regarding exportation and importation, are very high because of the 22 

Cabotage Law. The Cabotage Law limits the entry of ships by forcing them to always and only go thru the U.S. merchant marines and, if any international ship does come in to port, it must go to another international country before returning to the U.S. In addition, Puerto Rico, as a territory of the U.S., does not have the authority to decide immigration policies, which may consequently affect the tourism and agriculture industry. But not everything about the P.R. – U.S. relationship is negative. As a U.S. territory and as U.S. Citizens, Puerto Rico appeals to some kinds of manufacturing, exemplified by the pharmaceutical industry, which is under strong federal regulations. As its citizens are bilingual speakers, the Island has the opportunity to serve as a link between the U.S. and Latin America. The P.R.- U.S. relationship has also helped the Island maintain a stable government, economic, and civic environment. Furthermore, it has helped the Island to attain high levels of education, infrastructure, and technology similar to the mainland. The issue now is how can Puerto Ricans capitalize on these economic and political challenges and/or opportunities in a way that they can enjoy economic advantage in a globalized world? Also, the departure of Section 936 of the U.S. IRC in 2006 brought an obligatory change to the economic model that had maintained Puerto Rico’s economic stability for the last thirty years. Section 936 of the U.S. Internal Revenue Code was created in 1976. It gave federal tax exemption to the repatriated earnings of U.S. subsidiaries doing business in Puerto Rico. These U.S. corporations also received tax exemption from the government of Puerto Rico. From its inception, Section 936 was the Island’s major economic sustenance and was responsible for direct and indirect job creation. Recognizing its possible elimination in the 1990s, Puerto Rico’s administration and researchers faced the problem of how to raise the income level of its citizens as well as the 23 

standard of living on the Island to something approaching parity with the United States (Davis & Rivera-Batiz, 2006). In 1993, when the 936 elimination phase out began, the Puerto Rico Commonwealth Administration proposed the new Economic Development Model as a replacement for Section 936. This alternative model emphasized native start-up businesses and the development of entrepreneurial skills. However, it can be concluded by the government administration that the goal of the 1993 Economic Development Model has not yet been achieved. Puerto Rico in the socio-cultural arena. The political and economic conditions can influence socio-cultural factors such as individual beliefs, attitudes, and organizational priorities. As Stiglitz (2006) remarked, the problem need not be globalization per se, but rather how it is managed. Along the same lines, the entrepreneurship environment in Puerto Rico is seemingly not managed or lead effectively. During the 1990s, entrepreneurship was not a topic of conversation among leaders in Puerto Rico. This attitude was mainly due to the fact that the Island was under the Federal tax exemption in Section 936, as explained before, which represented the sustainable economic model for many years. The turmoil began in 1993 when Congress began phasingout Section 936 (it was eventually eliminated in 2006), and the country became faced with the challenge of creating a new economic model. Furthermore, since the Island was accustomed to an “employee culture,” it had to go through the sudden change of becoming an entrepreneurial country with native investments, efforts, and ideas. This event was very difficult, not because Puerto Ricans lacked the capacity or education, but because it meant a change of mindset. Even the leaders who had to find a solution to the situation were unfamiliar with how to deal with the change. Today, nearly 24 

fifteen years later, leaders and Puerto Ricans in general are still in the learning stages. As Rodrick (2007) writes, there is nothing wrong with making mistakes since they are part of the learning and constructive process; what is necessary is trying to minimize the cost of the mistakes when they occur. Thus, considering the aforementioned political and economic history of Puerto Rico, entrepreneurship is basically a new socio-cultural theme on the Island. Over the last 10 years, government agencies and private and public organizations have adopted the idea of changing the national mindset regarding entrepreneurship. For example, several entrepreneurship competitions created by different organizations such as newspapers, universities, and venture capitalist organizations have been organized. There are also entrepreneurship courses in universities that promote student creativity and innovative business ideas. Thus, the point in question is, how can we manage entrepreneurship in a balanced and safe manner in an era of increasing global competitiveness? Many steps have been developed and many books have been written, but we are forced to conclude that it should be studied on a case by case basis (Cohen, 2007). Cohen mentioned socio-cultural and political context factors t that any leader who wants to promote entrepreneurship on the Island needs to consider. Some examples are the need to: 1) create direct communication channels between the public and private sectors with regards to policies; 2) establish incentives for entrepreneurial individuals; 3) eliminate personal and/or selfish agendas; and lastly, which is, arguably, the hardest, 4) shift the mindsets of leaders as well as individual citizens. The literature underscores the importance of opportunity in entrepreneurial development but because opportunities are not always perceived in the same way, how they 25 

are presented, the people they are presented to and how they take advantage of them, are critical (Shane & Venkataraman, 2000). Romaguera (2006), summarizing the national mindset toward entrepreneurship, referenced the experience of a now successful young entrepreneur: Student X began a small business with a group of friends while studying together at the university. The business started out very well, and during their college years they watched their business grow. His parents were very proud, but when the student finished his bachelor’s degree in engineering and turned down a job offer from NASA, his parents were outraged at their son’s “crazy idea.” In a culture that is based on the education and preparation of excellent employees, entrepreneurial education represents a great change. It turns the tables from the security blanket of being an employee to the shaky territory of becoming an employer, which brings us back to the question posed earlier: how can we make entrepreneurship work in Puerto Rico? There is no miracle cure for this problem. Instead, there is a need for a strategy to promote entrepreneurship on a regular and continuous basis. Even though Puerto Rico is new to this “economic strategy,” it is necessary to adopt policies that will create an adequate environment, build a new culture, educate the people and, consequently, present future leaders. Entrepreneurial Activity Level A study performed by Shane (1996) to explain the changing rates of entrepreneurship in the United States from 1899 to 1988 revealed that the rate of entrepreneurship has varied over time and the variations are not random. Shane suggests that policy makers and leaders may be able to identify the factors that change the propensity of people to become entrepreneurs as well as influence entrepreneurial activity if they control each distinct 26 

entrepreneurial environment variable. Entrepreneurial activity is difficult to measure (Audretsch & Thurik, 2001). Various authors have employed different variables, such as national self-employment and the unemployment rate (Audretsch & Thurik, 2001), Gross Domestic Product (GDP), Growth Competitiveness Index (GCI) and Per Capita Income (GNIC) (Stel, Martin, & Thurik, 2005), the employment rate (Acs & Armington, 2004) and/or number of organizations (Gartner & Shane, 1995), business ownership rates, and new firm start-up rates (Audretsch, 2003) to establish the national entrepreneurial activity rate. However, all of these authors agree on the link between the entrepreneurship environment and economic growth. Faced with these inconsistent measurements, the GEM Model developed a Total Entrepreneurial Activity (TEA) rate that created a harmonious cross-country formula to illustrate the prevalence of early-stage entrepreneurial activity. TEA’s major difference is that it estimates the prevalence of individuals involved in entrepreneurial activity at a single point in time, including those starting new businesses and data collected from owner-managers of established firms up to three and a half years old (Reynolds, et al., 2005). Figure 3 is a diagram of the TEA GEM Model 4 concept (represented by the shaded box).

                                                             4

GEM views entrepreneurship as a process and considers people in entrepreneurial activity in different phases: from the very early phase when the business is in gestation to the established phase and possibly discontinuation of the business.

27 

FIGURE 3: TEA GEM Model Concept 5  

Since Puerto Rico’s government entities do not have any official entrepreneurial activity data and the Puerto Rico GEM TEA is only available for 2007, our proposed study considers a wide variety of sources as Stel, Martin, & Thurik (2005) suggest, but focuses on nascent entrepreneurs and businesses in their first five years of growth. For the purpose of this study, new businesses are those that are one year or less old, while established ones are those that are two to five years old. In order to assess the level of entrepreneurial activity, the first five years of business are essential because, according to the business cycle approach, these first five years are fundamental to a business’s survival. RESEARCH DESIGN  

Methodology As Van Maanen (1979) points out, the choice of research methodology is situated “in the overall form, focus and emphasis of study.” Methodologies are “neither appropriate nor inappropriate until they are applied to a specific research problem” (Downey & Ireland, 1979). We believe the method of qualitative inquiry is well suited to addressing the unexplained failure of entrepreneurial success in Puerto Rico. Moreover, qualitative research                                                              5

Source: Global Entrepreneurship Monitor: 2007 Executive Report

28 

intersects disciplines and subjects, giving us the opportunity to gather an in-depth understanding of the actual entrepreneurial environment in Puerto Rico. We are interested in understanding how entrepreneurship is perceived by key figures in Puerto Rico, both entrepreneurs themselves as well as policy makers and influential leaders who may directly or indirectly affect entrepreneurial efforts. Our intent is to gather “rich” data from these individuals based on their experiences, meanings, and understanding (Babbie, 2007; Maxwell, 2005). Although qualitative and quantitative approaches have been used for this kind of research before, choosing to employ a qualitative approach will provide us with an opportunity to learn from people rather than study them (Spradley,1979). The intent is to obtain descriptive narratives that will extend our understanding of the factors that drive the Island’s entrepreneurial environment and aid in future studies. Even with the lack of scholarly literature regarding the entrepreneurial environment in Puerto Rico we hope to find important patterns that will help us to understand in an empirical way the “reality” of what is actually going on and the interpretation of those daily realities made by the “actors” (Glaser & Strauss, 1967). While there are many qualitative methods available to researchers, we have chosen to follow a grounded theory approach. Grounded theory refers to the interaction between an inductive approach and the data derived from a study (Glaser & Strauss, 1967). Glaser and Strauss proposed grounded theory as a practical method to give the opportunity to evaluate “the actual meanings and concepts used by social actors in real settings” (Gephart, 2004: 457). Two important characteristics of grounded theory are constant comparison, which 29 

means data is simultaneously collected and analyzed, and theoretical sampling, which refers to how the direction for newly collected data is determined through the emergence of new theoretical categories arrived at through data analysis and interpretation (Suddaby, 2006). Suddaby (2006) suggests that the grounded theory is more appropriate when wanting to learn how individuals interpret reality—in our case by examining how leaders and entrepreneurs perceive the entrepreneurial environment and its socio-economic role in Puerto Rico. Sample A minimum of fifteen Puerto Rican leaders—five each from the civil, governmental, and private sectors − and at least fifteen entrepreneurs will take part in the study. The civic, public, and private sector participants have been selected by the following process. We identified key agencies and organizations from several available sources, including the Puerto Rico Official Government Web site, which details the government agencies involved in business start-ups, and the P.R. Industrial and Commercial Directory and its respective Web site. Then, relying on the researcher’s personal experience and that of several business experts, the list was narrowed to twenty-five organizations chosen based on their public intervention in policy matters. From those twenty-five, fifteen initial representatives were identified. Criteria for selection were the type of business and/or industry the organization represents and the geographical area they cover. A careful selection was made to reflect a wide range of knowledge about Puerto Rico’s entrepreneurial efforts (see list and detailed explanation in Appendix B). Since we are seeking to understand the entrepreneurial environment as perceived by those who have the ability to encourage change in Puerto Rico’s entrepreneurial policies, the leaders selected for this study are in top management positions, such as presidents, directors, and executive directors of those organizations with public 30 

policy influence. At least fifteen entrepreneurs will be chosen as well from among those mentioned in interviews by the above described opinion leaders and based on their availability. The list will be comprised of entrepreneurs both currently in business and others who may have terminated entrepreneurial ventures during the last five years. . If we are unable to obtain fifteen entrepreneur interviews by nomination, we will consult Caribbean Business’s 2009 Top 400 Locally Owned Companies. This list, based on more than twenty years of experience, is compiled of the Island’s fastest-growing companies, leading family businesses, women-owned companies, mergers and acquisitions, among others. It will give us a diversified selection of businesses and industries and an opportunity to obtain a variety of entrepreneurial experiences. Data Collection The primary method of data collection will be semi-structured interviews of about one hour duration. The interviews will be conducted between May and August 2009. Respondents will be contacted via phone or e-mail to determine if they are willing to be interviewed. Face-to-face interviews will be scheduled in a private setting, and they will be audio recorded with the permission of the interviewee. The recorded interviews will be stored electronically; both field notes and recordings will be professionally transcribed; and each subject will sign a confidentiality form to document their permission to record the sessions and the researcher’s guarantee of anonymity. An interview protocol will be used to ensure consistency even when the semi-structured methods follow intuitive leads during the interview process (Spradley, 1979). Interview questions will be broad and open-ended to allow respondents to narrate 31 

experiences and understandings rather than be questioned solely on specific details (Maxwell, 2005). Each interviewee will be asked to describe and discuss at least one successful entrepreneurial event and one unsuccessful entrepreneurial event that has occurred in Puerto Rico during the last five years. These questions will encourage substantial responses from interviewees and permit them to emphasize ideas and issues most relevant to the events they describe. From their responses we hope to understand and clarify respondents’ meanings and interpretations (Isabella, 1990) of the specific events as well as entrepreneurship in general. The objective of the questions is to understand the factors that drive, positively and/or negatively, the entrepreneurial environment in Puerto Rico. The questions will be aimed toward individual experiences and will seek to avoid theoretical or hypothetical assessments. We will begin by asking respondents to describe their personal and professional backgrounds. Next we will ask participants to describe an example of a successful entrepreneurial venture in Puerto Rico in the last five years. The purpose of this question is to identify the most relevant factors from the informant’s perspective that explain entrepreneurial success. Thereafter, we will ask the participant to describe an unsuccessful entrepreneurial venture that transpired in the last five years. . Finally, we will give each interviewee an opportunity to discuss what he/she thinks are important factors that affect (negatively as well as positively) entrepreneurship in Puerto Rico. The interview protocol is presented in Appendix C. Data Analysis Data analysis involves a coding process in which we take the raw data and raise it to a conceptual level. It involves the use of techniques recommended by Strauss and Corbin 32 

including open-coding, axial coding, and selective coding that allow, the researcher to make comparisons between data and, in doing so, derive concepts to stand for the data and development properties and dimensions of the concepts (Corbin & Strauss, 2008). This kind of analysis involves a process of generating, developing, and verifying concepts through continually comparing similarities and differences against the next set of data and/or revising previous concepts. The process of analyzing the data collected through interviews will include listening to the recordings multiple times and reading the transcripts repeatedly in an attempt to develop tentative ideas about categories and relationships (Emerson, Fretz, & Shaw, 1995). The coding process will be conducted as soon as the transcribed interviews are available and will be accomplished through the use of manual techniques as well as an electronic software package. Using the inductive process followed by the theoretical sampling approach will help us identify relevant concepts, patterns, or themes. Under the theoretical sampling approach we will be able to gather follow up data based on those relevant concepts and have the opportunity to be more sensitive during subsequent interviews in regards to questions, observations, and listening. We will begin by conducting open-coding, a line by line analysis of every transcript to identify “codable moments,” fragments of text with potential significance. These codes will be categorized and labeled. The second phase of coding, axial coding, provides the opportunity to combine related concepts and categories (Corbin and Strauss, 2008). Once that relating process ends, we will engage in selective coding, a process in which the integration of categories and conceptualization will move us from substantive to formal theory. The theory building process allows us to derive an explanatory framework for an 33 

actual missing piece and, even more importantly, looks at the implications and relevance of this theory in more than one substantive area (Glaser & Strauss, 1967).

34 

APPENDIX A: Organization Lists Puerto Rico Private Organizations List Organization Name 1.

P.R. Chamber of Commerce (PRCC)

2.

Regional Chamber of Commerce

3.

PR Manufacturers Association (PRMA)

4.

South Western Industrial Association (SWIA)

5.

Centro Unido de Detallistas de las Américas (CUD)

Organization Background Vision: Create sustainable socioeconomic conditions that enhance the competitiveness of Puerto Rico by encouraging innovation and entrepreneurship. They argue that they have been an invaluable standard-bearer in the social and economic development of Puerto Rico.

Geographical Location Island-wide More than 2,000 members

Industry and other relevant information It is a private organization that represents all business sectors. The PRCC groups professionals and entrepreneurs who promote the development of all economic sectors in Puerto Rico, based on private initiative and free enterprise. 95 years of service

These are private organizations structured regionally, (South, West, etc.). Their objective is to promote their respective region’s economic growth. A private organization consisting of both foreign and national industries with services such as information technology, electronics, medical devices, hiring personnel, food supplies, construction, education, aerospace, banking and financial

Regional organizations independent of the PRCC

It is a private organization that represents all business sectors.

Island-wide

More than 75 years in Puerto Rico Members of the association consist of manufacturing and servicing companies already established or planning to set up a business on the Island. The association does not allow individual memberships.

A private organization that has both foreign and national industry representation in manufacturing and other services. Organization dedicated to representing the interests of small and medium

Regional manufacturing association

Members of the SWIA consist of already established manufacturing and servicing companies.

Island-wide

Retail industry Founded nearly 100 years ago

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6.

7

The Chamber of Food Marketing, Industry & Distribution (MIDA)

Asociacion de Contratistas Generales de Puerto Rico (AGC)

8

Asociación de Constructores de Hogares de Puerto Rico

9

Puerto Rico Product Association

10

Puerto Rico Bank Association (ABPR)

enterprises (SME) before public and private forums in Puerto Rico as well as internationally. MIDA is a commercial association representing the different businesses that make up the food supply chain and other related products distributed through its channels. These businesses are responsible for the distribution of food and other goods to 90% of Puerto Rican families. Vision: Lead the implementation to integrate the entire construction industry and to promote their progress in order to stay in tune and up-to-date with social, economic, and technological change. 

Mission: Assist its partners with being more competitive by promoting and marketing the Island’s products and services locally and internationally as well as stimulating the creation of new businesses and expanding and reinforcing existing ones, which contributes to the creation of more jobs and, thus, solid economic growth. Will become an agent of change that will help shape a favorable economic environment for Puerto Rico businesses. The ABPR is a nonprofit organization representing Puerto Rico’s commercial

Island-wide

A private organization focused on a specific industry, food. Created in 1980. Today, it has more than 250 partners, which as a whole represents Puerto Rico’s food industry.

Island-wide Private organization focused on the construction industry.

In existence for more than 46 years, it joins over 350 companies that produce 80% of the Island’s construction.

Island-wide

A private organization with a concentration on residential construction

Island-wide .

Private organization centered on Puerto Ricomade products.

Island-wide

Banking industry

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11

Asociación de Compañías de Seguros de Puerto Rico, Inc. (ACODESE)

Organization Name 1

PR Industrial Development Company (PRIDCO)

2

PR Trade and Export Company

3

PR Economic Development Bank (BDE)

4

Puerto Rico Department of Economic Development and Trade (DDEC)

5

Government Development Bank for Puerto Rico (GDB)

banks in governmental, legislative, and executive forums, as well as Puerto Rico’s social and economic community Objective: Monitor the insurance sector’s wellbeing while simultaneously contributing to the Island’s improvement by promoting a healthier, more responsible, and more adept Puerto Rican insurance industry. Works as a liaison between insurance companies and the legislature to analyze insurance legislation and to inform the government of possible effects of such laws.

Island-wide

Puerto Rico Public Organizations List Organization Background Geographical Location Responsible for promoting Island-wide Puerto Rico’s advantages to investors seeking to establish or expand their businesses on the island. Mission: To inform, guide, and Island-wide facilitate trade and promote business that serves local and international small and medium Puerto Rico businesses in a flexible and effective manner. Since 1985, it has offered Island-wide financial alternatives for existing and aspiring entrepreneurs in diverse programs. Objective: Promote growth and Island-wide stability in the private economic sector so that it is self-sufficient, with a vision toward the future, taking into consideration the global economy as well as the constitution of regional clusters. The GDB’s development and Island-wide diversification is directly linked to Puerto Rico’s history and evolution. Today, the GDB and

Cooperative Industry

Industry and other relevant information A government-owned corporation

It is a public corporation under the Puerto Rico Department of Economic Development and Trade. Business Development Division

Serves as a bank, fiscal agent, and financial advisor for the Commonwealth of Puerto

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6

Others:

its subsidiaries and affiliates directly contribute to the financial structuring for infrastructure, housing, municipal, education, and health related projects and help develop industries that create jobs in Puerto Rico. Administración de Reglamentos y Permisos (Arpe) Administración de Servicios de Desarrollo Agropecuario (ASDA) Autoridad de Acueductos y Alcantarillados (AAA) Autoridad de Carreteras y Transportación (ACT)

Rico and its divisions

These are other agencies that intervene in the process to establish a business in Puerto Rico based on the official Web site of the Government of Puerto Rico, but they do not have a direct involvement in entrepreneurial public policies.

Autoridad de Energía Eléctrica (AEE) Compañía de Turismo Cuerpo de Bomberos de Puerto Rico Departamento de Agricultura Departamento de Asuntos del Consumidor (DACO) Departamento del Estado Departamento de Hacienda Departamento de Salud Departamento de Transportación y Obras Públicas (DTOP)

Organization Name 1

Economic Development University Center (EDUC)

Civic Organizations List Organization Background Geographical Location The Center’s mission is to contribute to the economic development process by developing or participating in programs and projects that increase economic activity levels throughout the Island.

Western Region University of Puerto Rico, Mayagüez Campus

Industry and other relevant information The center is sponsored by the University of Puerto Rico and the Economic Development Administration of

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Efforts are coordinated with public and private nonprofit organizations engaged in economic development in order to maximize the use of existing resources.

2

3

4

Small Business and Technology Development Center (SBTDC)

University Entrepreneurship Development Center Regional Entities:

PRTEC

Provides management assistance to current and prospective small business owners. SBTDC offers onestop assistance to individuals and small businesses by providing a wide variety of information and guidance in central and easily accessible branch locations. Was established by different universities around the Island to encourage entrepreneurial spirit among students Recently, regional entities have been created in various parts of the island and have been gaining prominence, particularly in respect to economic development initiatives.

Mission: PRTEC is helping Puerto Rico in its transformation toward a knowledge-based economy. It is leading efforts for several research and technology parks in the Island’s western region and is working in conjunction with the government and various local universities and

the U.S. Department of Commerce. The program serves the Commonwealth from its offices at the Mayagüez campus of the University of Puerto Rico. Island-wide The SBTDC is certified by the Association of Small Business Owners or ASBDC and provides services for all businesses. Island-wide

Their names are (for its Spanish language acronym): INTECO (Eastern Center Technological Initiative) INTENE (North-East Technological Initiative ) INTENOR (North Technological Initiative) DISUR (Integral Development of the South) PRTEC (PR Technological Economic Corridor of the West) Western Region

UPR, UMET, InterAmerican, Turabo University, among others

It is a conglomerate of public and private entities with common economic and social interests, united to facilitate and enable Puerto Rico’s economic development.

39 

INTECO

DISUR

INTENE

INTENOR 5

Center for the New Economy (CNE)

6

Puerto Rico Supplier Development Council, Inc. (PRSDC)

7

Small Business Administration (SBA)

colleges to foster a culture of research and development. Mission: improve the quality of life of the inhabitants of the Central-Eastern region based on the development of science and research and enterprises and innovation. The Alliance for the Integral Development of the South Inc.’s (DISUR) strategic intention is to promote and maximize the competitiveness and sustainable development of the southern region by integrating the efforts and resources of public, private, and academic sectors and area residents to achieve a better quality of life. Objective: • Strengthen and expand the region’s industrial base • Develop new and innovative businesses in the region that will bring new capital investments • Develop a better business environment North Technological Initiative

Central-East Region

It is an incorporated nonprofit organization.

Southern Region

It is an organized nonprofit corporation.

North-East Region

It is a private, nonprofit corporation.

North

It is a private, nonprofit corporation. It is a private, nonprofit corporation.

Is a non-partisan, nonprofit, research and policy development organization dedicated to developing innovative economic development strategies. Objective: Serve as a link between corporate purchasing entities and the minority business community and to develop programs to maximize the amount of goods and services purchased from minority businesses.

Island-wide

Mission: Maintain and strengthen the economy by aiding, counseling, assisting, and protecting the interests of small businesses.

Island-wide

Island-wide

Is affiliated with the National Minority Supplier Development Council (NMSDC) and independently incorporated as a not-for-profit organization (501)(c) (3). Section 170(3)(2) Federal government agency

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8 9

Asociación Ejecutivos de Cooperativas General Labor Union (UGT)

Promotes the well-being of cooperatives before the central government. Objective: Contribute to the advancement and strengthening of union workers in Puerto Rico by fighting for the social, economic, and political development of the Island.

Island-wide

Private organization created in 1972

Island-wide

Even though there are more than 100 labor unions on the Island, this is the largest as it includes private and civil sector workers.

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APPENDIX B: Sample’s Justification  

Our goal is to interview at least fifteen leaders from various organizations who are directly involved with the entrepreneurial environment in Puerto Rico. To achieve this, I composed a list of all the organizations that, according to my knowledge and experience as well as the opinions of other entrepreneurial experts, exist on the Island. These organizations take part in the country’s public entrepreneurial policy. The list, which is presented in Appendix A, is divided into the three sectors under consideration—public or government, civic, and private. For the purpose of this study, civic organizations are defined as nonprofit organizations that serve as a liaison between public and private businesses as a means to provide aid to entrepreneurs throughout the Island. The aforementioned organization list (Appendix A) includes a brief description of each organization’s objective, mission and/or vision, location or the geographical area it covers, and the type of industry it aids or represents. This information is vital to diversifying the sample that is to be selected to provide a range of opinions. The list does not contain names or contact information to protect the interviewees’ privacy. The selected sample listed in this section (Appendix B) contains the following organizations. The PRMA is included in the private organizations sample list because it groups all of the manufacturing companies that have been at the core of Puerto Rico’s economy for many years. Furthermore, the majority of these manufacturing companies are considered Foreign Multinational Companies, while the native ones are considered to be big businesses. The CUD is also on the list because, unlike the PRMA, it is made up of small and medium commercial enterprises (SMEs) and native and small-scaled businesses. The AGC and the 42 

ABPR are included as they represent economically powerful organizations and their role in public policies. In addition, the construction industry, represented by the AGC, is one of the driving forces behind Puerto Rico’s economy, as the banking industry is the principal facilitator of financial services for businesses. The PPPA rounds out the list as it contains a group of businesses whose aim is to promote native enterprises both locally and internationally. Unlike the CUD, it covers all types of businesses. Each of these aforementioned organizations provides service and representation throughout the island. The list that encompasses the governmental organizations’ representatives includes the five agencies that work directly with the government’s entrepreneurial programs. PRIDCO is responsible for recruiting investors to establish or expand businesses in Puerto Rico. The Puerto Rico Trade Company, as its name clearly states, promotes the exportation of products and services and also provides specific programs for the creation of businesses via educational means and other services to SMEs. Since seeking investment capital is an essential part of the entrepreneurial endeavor, the BDE was chosen as the governmental entity that offers financing alternatives for all entrepreneurs. The GDB serves as the government agencies’ bank so that they invest in the creation of programs and infrastructure that will make the Island regarded as a good place to make business. The DDEC joins all of the previously stated agencies and watches over and monitors the public policies referring to Puerto Rico’s economic growth, which are implemented by the governor. The final group is a list of civic organizations that are nonprofit, non-government related private organizations that intervene in the entrepreneurial environment in Puerto Rico in some way or another. The SBTDC is included since it has been providing educational and counseling services for many years to help the SMEs obtain financial funding. The business 43 

centers found at our country’s universities are entities that have become very popular over the past ten years, especially when entrepreneurship became part of business schools. These centers offer different types of educational services for students, such as research and, foremost, create an entrepreneurial culture on the Island. PRTEC was chosen as an example of an organization with a regional focus that promotes industrial clusters. The CNE is a relatively new organization and calls itself a “Think-Tank.” For the past ten years, it has served as an investigative entity in Puerto Rico’s economy and public policy. Lastly, the UGT represents the union movement that can either support or refute economic and entrepreneurial processes in the government. An example of their intervention is today’s project on creating public-private alliances. The UGT was chosen over other union organizations because it includes workers from the public and private sectors. This concludes the list presented below. TABLE B1: List of Samples by Sector Private PR Manufacturers Association (PRMA)

Public Puerto Rico Industrial Development Company (PRIDCO)

Civic Small Business and Technology Development Center (SBTDC)

2

Centro Unido de Detallistas (CUD)

Puerto Rico Trade and Export Company

University Entrepreneurship Development Center

3

Asociación de Contratistas Generales de Puerto Rico (AGC)

Puerto Rico Economic Development Bank (BDE)

PRTEC

4

Puerto Rico Bank Association (ABPR)

Department of Economic Development and Trade of Puerto Rico (DDEC)

Center for the New Economy (CNE)

5

Puerto Rico Product Association (PRPA)

Government Development Bank for Puerto Rico (GDB)

General Labor Union (UGT)

1

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APPENDIX C: Interview Protocol  

1. What is your background? 2. Can you describe your organization? 3. Can you tell me about successful entrepreneurial events that you remember from the last five years? Explain what happened and how it came about. 4. Do you know of any unsuccessful entrepreneurial events that occurred in the last 5 years? Tell me what happened and how they came about. 5. If you were given a magic wand that would allow you to add or change something in regard to the entrepreneurial or business environment in Puerto Rico, what would you wish for?

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